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Corporate Social Responsibility in Energy Investment and International Investment

BY: Trisha Gautam

The concept of Corporate Social Responsibility (“CSR”) is growing increasingly popular, especially in the international investment sphere where questions of equitability, sustainability, and human rights are at the forefront. Growing concerns surrounding climate change and its imminent consequences have led to increased calls for faster investment treaty reforms. These reforms seek to codify CSR principles into investment treaties, creating an international legal framework that helps to address social policy concerns. There are various philosophical approaches to CSR, ranging from idealistic to cynical, that argue for the best approach to reform. 

One approach to CSR, for example, calls on large businesses to “fill a leadership void” left by political powers, who are unable to enact real and vital change. This approach was touted by Harvard Business School Dean Wallace Donham, who went so far as to accord the responsibility for saving civilization to socially-conscious business practices.

The United Nations Conference on Trade and Development (“UNCTAD”) recently presented a new toolbox for investment treaty reforms that would effectively and actively “support the shift from fossil fuels to renewable energy resources.”

In order to understand the effectiveness of investment treaty reform upon CSR and global business, it is first necessary to discuss CSR and the function of investment treaties. Corporate Social Responsibility encompasses a range of different theories that offer guidelines for corporations to advance both corporate and societal objectives. These theories’ aims are to encourage companies to engage in things like “environmental preservation efforts, ethical labor practices, philanthropy, and promoting volunteering,” among a large number of other societal objectives or movements.

Investment treaties are agreements governing a State’s treatment of investments initiated by individuals or entities from another jurisdiction. They can be negotiated, written, and signed on a bilateral, multilateral, or sectoral basis. The primary function of an investment treaty is to outline the mechanism for settling investor-state disputes. Investment treaties can also contain provisions that further certain CSR goals.

In their toolbox, the UNCTAD reserved a separate set of recommendations specifically for the implementation of CSR into international treaties. One recommendation is the implementation of binding obligations within treaties “relating to human rights, labour, environmental and anti-corruption standards.” While this recommendation may seem very broad at first, many human rights and labor standards are already given a legal framework through international instruments such as the International Covenant on Economic, Social and Cultural Rights (United Nations Treaty) and the Abolition of Forced Labour Convention (International Labor Organization Convention). These legal frameworks hold States, not institutional investors, under binding obligations, but the overarching intentions outlined in the treaties could very well be applied to international investment treaties.

Another recommendation outlined in the toolbox calls for mandatory standards for investors who want to enjoy the benefits of international investment agreements. These standards include conducting environmental impact assessments and the maintenance of environmental management systems. Institutional investors, before entering the international market, should have the resources and business savvy to conform to these obligations.

As global concerns over climate change intensify, the push for incorporating Corporate Social Responsibility into investment treaties is gaining momentum, aiming to establish a legal framework that addresses critical social policy issues. It is for States to implement these binding obligations into international investment treaties, for institutional investors to commit themselves to undertaking these obligations, and for individual investors to hire institutions that focus on investing with CSR in mind.

Sources:

• Colin P. Marks & Paul S. Miller, Plato, THE PRINCE, and Corporate Virtue: Philosophical Approaches to Corporate Social Responsibility, 45 U.S.F. L. Rev. 1 (2010).
• Akhilesh Ganti et al., Social Responsibility in Business: Meaning, Types, Examples and Criticism, Investopedia (Mar. 6, 2024), https://www.investopedia.com/terms/s/socialresponsibility.asp.
• Geoffrey Jones, A Higher Degree of Responsibility: On the history and potential of values-driven enterprises, Harv. Mag. (Apr. 2023), https://www.harvardmagazine.com/2023/02/features-business-social-responsibility.
• Energy transition calls for faster investment treaty reforms, UNCTAD (Aug. 30, 2023), https://unctad.org/news/energy-transition-calls-faster-investment-treaty-reforms.
• Conventions and Recommendations, Int’l Lab. Org., https://www.ilo.org/global/standards/introduction-to-international-labour-standards/conventions-and-recommendations/lang--en/index.htm.
• Titles of Multilateral Treaties in the Six Official Languages of the United Nations, United Nations Treaty Collection, https://treaties.un.org/Pages/Content.aspx?path=DB/titles/page1_en.xml/ 

Is the 30-Year Fixed Rate Mortgage Causing Issues with the U.S. Housing Market?

BY Graham Steele-Perkins

If you have been paying any attention to the news over the past few years, you have likely heard that it is a difficult time to buy a home. Following a period of frenzied activity during the pandemic, the housing market has since sunk into a “deep freeze”. Skyrocketing prices, limited inventory, high mortgage rates, and stiff competition have all contributed to the nightmare that is the current U.S. housing market. However, one overlooked factor that may be contributing to this problem is the uniquely-American financial instrument known as the “30-year fixed rate mortgage” (“30-year FRM”). 

The 30-year FRM evolved out of the Federal Government’s efforts to combat the Great Depression. It provides homeowners the ability to finance the purchase of a home with a low (20%) down payment, by paying the remaining balance in installments over a period of 30 years. Critically, the interest rate on this loan remains the same for the lifetime of the mortgage. The 30-year FRM has been traditionally thought to be an extremely homeowner-friendly policy, because the homeowner is protected from rises in interest rates, and has the ability to refinance or prepay the loan with no penalty. 

The flip side of this is that 30-year FRMs expose banks and other lenders to higher amounts of risk. Banks must be extremely cautious when making lending decisions because they will be unable to raise the interest rate. 

Some commentators have posited that the 30-year FRM has created a “lock in” phenomenon in the current housing market. Potential sellers are unwilling to put their homes on the market, because they will be unable to obtain an interest rate comparable to their current one. This has depressed the housing inventory available, leading to an increase in prices and a reduction in transactions. Current mortgage interest rates are in the 7% range. So even if a seller wanted to downsize to a smaller and less expensive home, they could potentially end up with a similar monthly payment because they would be paying more in interest every month.

Mortgage instruments in the rest of the world look different than in the U.S. Much of the rest of the world utilizes adjustable rate mortgages (ARMs). These mortgages typically have an initial term where the interest rate is fixed, after which the rate shifts to the prevailing market rate. Denmark, however, has a system that is similar to the U.S., but with a twist. 

Most mortgages in Denmark, like in the U.S. are long-term fixed-rate. Unlike the U.S., however, the Danish mortgage system operates under the “Balance of Principal” concept. What this means, essentially, is that mortgages are financed through the issuance of “covered bonds” through specialized mortgage banks. The covered bonds match the maturity and cash flows of the underlying pool of mortgages funded by the bond. Cash flows pass directly from the borrowers to the bond investors, who bear the risks and are highly secured. In this system, Danish homeowners can not only refinance, but can “buy back” their mortgages at a discount if interest rates rise. Essentially, if interest rates rise, the homeowner can repurchase a portion of the covered bond corresponding to their mortgage, and receive a new loan for a smaller principal than the original (but at a higher rate). Because of this system, Danish homeowners have no incentive to hold onto their mortgage in a high-interest rate environment, and thus the problem of “lock in” is avoided.

Key Sources

Gregory Schmidt, Home Buyers Are Eager but Sellers Are Scarce, Creating ‘Real Gridlock’, N.Y. Times (Apr. 29, 2023), https://www.nytimes.com/2023/04/29/business/spring-housing-market.html

Daniel Alpert, Opinion, The Fed Has Put Our Housing Market in Jeopardy, N.Y. Times (Nov. 14, 2023), https://www.nytimes.com/2023/11/14/opinion/federal-reserve-housing-market.html

Todd Zywicki, The Behavioral Law and Economics of Fixed-Rate Mortgages (and Other Just-So Stories), 21 S. Ct. Econ. Rev. 157, 160 (2013)

David Min, How Government Guarantees Promote Housing Finance Stability, 50 Harv. J. on Legis. 437, 480-81 (2013)

Michael Lea, International Comparison of Mortgage Product Offerings, Rsch. Inst. for Hous. America 1, 18  (2010)

Jesper Berg, Morten Baekmand Nielsen, & James Vickery, Peas in a Pod? Comparing the U.S. and Danish Mortgage Finance Systems, Fed. Reserve Bank of N.Y. Econ. Pol’y Rev. 24, No. 3, Dec. 2018, at 68

Aziz Sunderji, Why Denmark’s Housing Market Works Better than Ours, LinkedIn (Sept. 30, 2023)

Monetary Policy: The Role of Reserve and Bank Capital Requirements

BY: Anthony Ramazani

On September 20, 2023, the Securities and Exchange Commission adopted amendments to the Investment Company Act, more commonly known as the “Names Rule.” The most essential feature of the rule is its 80% requirement. Prior to the 2023 amendments, this required any fund with a name suggesting investments of a particular type, or investments in certain industry, geographic area, country, or tax-exempt status, to invest a minimum of 80% of its assets in investments of the kind suggested. The recent amendments have broadened the rule to cover names conveying “particular characteristics” like “growth” and “value,” as well as names that suggest a thematic focus like “artificial intelligence” or “health innovation,” and ESG-based investment strategies.

The Names Rule is grounded in the idea that fund names should be accurate, specifically to prevent funds from taking advantage of unsophisticated investors. However, many critics believe that the recent amendments will have little effect on whether investors are hoodwinked. Some have even speculated that the amended rule will harm the group it intends to serve by producing a wave of compliance costs that will ultimately fall on investors. 

One potential consequence of the new rule is that funds might adopt generic names to avoid suggesting any particular focus, which might happen over the course of several years after the rule’s implementation. Contrary to the rule’s purpose, this would create a situation where investors are unable to gather any information from fund names. There is also significant disagreement about whether “misleading” fund names actually pose a danger to investors. Indeed, some research suggests that changes in fund names usually reflect substantive changes in how their assets are deployed, and when they do not, only non-cosmetic changes have been found to attract increased asset flows. In other words, investors are sharp enough to detect and avoid funds with misleading names.

In terms of compliance costs, fund managers will need to fork over large sums to determine which funds are captured by the new rule. For funds within its scope, costs will be extended far into the future as funds are required to review whether they are in compliance with the 80% threshold on at least a quarterly basis. Other commenters estimate that the new rule might require a daily review of assets in some form. These costs are exacerbated by the fact that it may be challenging to establish automated compliance monitoring solutions for terms in fund names where subjective criteria are part of the decision-making process. In response, funds will have to either limit portfolio managers or engage in costly manual review. In an economic analysis, the SEC itself estimated a total aggregated cost of between $500 million and $5 billion for fund investors. 

While the Names Rule amendments were adopted to further the underlying purpose of protecting investors, the actual effect of the amendments is uncertain. There is good reason to believe that investors will be harmed rather than protected. 

Key Sources:

Gary Gensler, Statement on Updates to the Names Rule, Securities and Exchange Commission (Sept. 20, 2023).

Adriana Z. Robertson, Names Rule Comment (Apr. 20, 2023).

Inv. Co. Names, Release No. 11238 (Sept. 20, 2023) (citing ICI Comment Letter; T. Rowe Comment Letter; SIFMA AMG Comment Letter; Invesco Comment Letter).

Inv. Co. Names, Release No. 11238 (Sept. 20, 2023) (citing Dechert Comment Letter; Invesco Comment Letter; TIAA-Nuveen Comment Letter; J.P. Morgan Asset Management Comment Letter; T. Rowe Comment Letter; Wellington Comment Letter; ICI Comment Letter; Invesco Comment Letter; Freeman Capital Management Comment Letter). 

ICI Names Rule Comment, (Aug. 16, 2022) (citing Release at footnote 6 of Table 1).

The Future of Currency: Understanding China’s Central Bank Digital Currency

BY: Justin Pan

As the modern economy goes into the digital age, Central Bank Digital Currency (CBDC) appears to be an innovative instrument for modern financial institutions. It merges the concept of blockchain technology with the legal status of fiat currency, aiming to create a transparent and efficient transactional medium. CBDC provides a variety of benefits including greater legal protection, lower transactional cost, and promoting financial inclusion. Among the nations pioneering this transformation, China’s development and implementation of its own CBDC is arguably the most advanced and comprehensive. This blog post briefly explains China’s CBDC initiative, exploring its objectives and operational mechanism. My forthcoming article will further analyze the implications for private sectors, including privately run enterprises and individuals, resulting from this reformative financial initiative. 

What is CBDC? 

At its core, CBDC is a digital form of fiat currency, managed and issued by the national central bank. What distinguishes CBDC from cryptocurrencies is that it directly represents a liability of the national central bank. CBDC marks a significant improvement in the digital finance landscape, addressing gaps left by platforms like PayPal and Alipay. First, CBDC has the potential to enhance financial inclusion by offering access through digital wallets, bypassing the need for traditional bank accounts. Secondly, by cutting out intermediaries, CBDC lowers transaction costs, offering a more economical alternative for users and small businesses burdened by the fees of the existing financial system. Lastly, CBDC brings the promise of enhanced security, backed by central banks’ regulatory standards, offering a more secure and trusted digital payment environment. 

Development of China’s CBDC 

China’s journey toward digitizing its currency began in 2014, with the People’s Bank of China (PBOC) actively researching the feasibility and potential impacts of a digital yuan. This initiative gained momentum with the official launch of development trials in 2017, culminating in the implementation of pilot programs across various cities and scenarios, including the 2022 Beijing Winter Olympics. The CBDC’s design emphasizes a double-layer operational system, facilitating distribution through commercial banks and ensuring compatibility with existing financial infrastructures. As of June 2021, the Chinese CBDC has been applied in over 1.32 million scenarios, covering utility payments, catering services, transportation, shopping, and government services, with a transaction volume totaling 70.75 million and a transaction value approximating RMB 34.5 billion. 

Forthcoming Article 

My forthcoming article argues that China’s CBDC is a state-backed financial reform initiative, designed primarily to enhance the public good through improved financial capability. It accomplishes this by fostering a balance between private interests—including both individual and private sector concerns—and national interests. This balance is especially pertinent in the digital era, characterized by the predominance of small-scale online transactions. Such an initiative marks a substantial shift towards financial inclusiveness, a step that becomes especially important amidst the rapid digitalization of economic activities. 

Sources 

1. People's Bank of China, Zhongguo shuzi renminbi de yanfa jinzhan baipishu (中国数字人民币的研发进展 白皮书) [Progress of Research & Development of E-CNY in China] (2021). 
2. Jiaying Jiang & Karman Lucero, Background and Implications of China’s E-CNY, 33 U.Fla. J. L. & Pub. Pol’y 237 (2023). 
3. Jake Laband, NOTE: Existential Threat or Digital Yawn: Evaluating China's Central Bank Digital Currency, 63 Harv. Int'l L.J. 515 (2022).

Impacts of Increasing Women’s Property Ownership

BY: Neelam Karamchandani

States in India recently enacted gender-based discounts to encourage female property ownership. These include stamp duty discounts, which provide a discount when property is transferred or registered to a woman, in addition to reductions on property taxes for female-owned properties. 

These two discount structures have social and economic benefits. Besides increased financial independence and female empowerment, the discount structure leading to increased female land ownership has had an impact on the economy and gross domestic product in those Indian States. There is an anticipated improvement in revenue by lowering the stamp duty to encourage landowners to register their properties. When governments have given these discounts in Karnataka, there has been close to a twenty-five percent increase in the amount of documents registered, increasing revenue from the stamp duty and registration charges by almost twenty-five percent. 

Ensuring women’s property rights also improves health and education in the household, as well as increases in investments in homes and businesses. These improvements at a household level, aggregate to generational improvements that better economies in developing countries long-term. By removing these barriers, women can access or inherit more property, providing them with the freedom to migrate to different places for business or educational opportunities. 

The increase in income from property ownership also allows women to spend more in different markets such as education and healthcare for their children, as well as providing proper essential needs such as food, shelter, and clothing for their families. Prioritizing spending on these goods is a more productive use of that money compared to other possible ways the money could be used if it were not for these property incentives. There is research that this increase in spending also comes from the social benefits of property ownership. Owning lands could add weight to a woman’s clout, authority, and ability to make decisions for the household. 

In addition to governments taking these steps toward gender equality, there needs to be more outreach efforts towards the female residents in these countries to become aware about the reforms that could benefit them. While the amount of property ownership by women remains low in certain developing countries, there is evidence that it is proportionally improving and increasing throughout the decade. 

Sources

Rajul Awasthi et al., Gender-Based Discounts on Taxes Related to Property: Role in Encouraging Female Ownership (World Bank Group, Policy Research Working Paper No. 10287, 2023). 

Carol S. Rabenhorst, Gender and Property Rights: A Critical Issue in Urban Economic Development, Urban Inst., July 2011. 

Barriers to Women’s Land and Property Access and Ownership in Nepal (Dipina S. Rawal et al. eds., International Organization for Migration, 2016).

Rent Control in 2024

BY: Francis Figueroa

 Today, over 200 local governments have a rent control policy in place. A proponent of rent control would replace “over” with “only.” The policy garners much attention and debate. Before discussing the most recent news regarding rent control, one should understand what rent control legislation typically looks like.  

Rent control is most often accompanied by two significant features – both of which are at the center of the debate between advocates and opponents. The two features include:  

• The local government restricts rent at a particular price for given properties. What and how the rental amount is capped is determined using a combination of factors, including the initial rental price, property characteristics, and local regulations. 

• Next, the government requires the owner of the property to extend lease[s] with a tenant at a restricted price.

     The United States does not have a federal rent control policy; only roughly 200 local governments have such a policy. Thus, state and local governments set rent control policies if not preempted by state law. Massachusetts state law disallows cities or towns from setting forth a rent control policy. Other states, such as New York, allow towns or cities within the state to implement a rent control system if certain conditions are met.      

Recent Litigation   

     Recent judicial decisions—most notably a case brought forth in the Second Circuit — have shed light on the ongoing issues regarding state rent control policies.    

     Plaintiff-Appellants, “individuals who own apartment buildings in New York City subject to the relevant Rent Stabilization Law (RSL),” petitioned for writs of certiorari from the Supreme Court.. The petition was only sought after the Second Circuit held for various defendants of the State of New York.  The plaintiffs alleged that the Rent Stabilization Law was unconstitutional, both facially and as applied, and thus constituted a physical and regulatory taking. The Second Circuit dismissed the complaint per Rule 12(b)(6); reasoning that the property owners voluntarily invite third parties to rent their space to which different property rules and regulations apply. Plaintiffs, who may have expected this outcome, took the opportunity to ask the Supreme Court to hear their constitutional claims.  

On February 20, 2024, the Supreme Court denied certiorari and Justice Thomas commented that the petitioner’s complaints were mostly “generalized allegations about their circumstances and injuries.” Justice Thomas added that it was unclear how the RSL bars landlords from evicting residing tenants. Justice Thomas did acknowledge, however, how pressing of an issue the claims are and that a future case should grant certiorari to address the relevant question.

Key Sources 

Rent Control: Policy Issue, National Apartment Association, (Apr. 6, 2024), https://www.naahq.org/rent-control-policy#:~:text=As%20of%202022%2C%20over%20200,rent%20control%20policy%20in%20place

Patrick Freeze, Understanding Rent Control: How It Affects Rent Increases, Bay Property Management Group, (Apr. 5, 2024), https://www.baymgmtgroup.com/blog/understanding-rent-control/#:~:text=Some%20rent%20control%20systems%20set,property%20characteristics%2C%20and%20local%20regulations.

Christian Britschgi, The Best Hope to Rein in Rent Control is Lurking on the Supreme Court’s Docket, (Apr. 5, 2024), https://reason.com/2023/11/06/the-best-hope-to-rein-in-rent-control-is-lurking-on-the-supreme-courts-docket/

74 Pinehurst LLC. v. New York, 59 F.4th 557, 563 (2nCir. 2021).

74 Pinehurst LLC. v. New York, 59 F. 4th 557 (2d. Cir. 2023), cert denied, 2024 WL 674658

Lights, Camera, Labor Action: The WGA and SAG strikes

BY: Sebastian Bergman

The Writers Guild of America (“WGA”)  and the Screen Actors Guild (“SAG”) received unprecedented coverage compared to most other unions when on strike. They may not be essential workers, but they certainly are high profile, commanding the attention of the average American regularly. 

In the latest episode of a long labor battle that started in 1933, the WGA and SAG went on strike for 148 and 118 days respectively over multiple issues like streaming residuals, mini-rooms, and more. Behind the glitz and glamour of Hollywood, the strikes were over issues that many on the outside looking in can relate to. In large part, the unions fought for the things that unions always fought for, better job security and higher pay. 

The WGA, for example, won a 12.5% increase in the Minimum Basic Agreement. The unions also fought back against the “gigification” of their employment. While the gig economy has been a blessing for some, its pervasive influence has eroded job security and forced many to work multiple jobs to make ends meet. 

That wasn’t all that was on the bargaining table as the unions faced the latest innovation and newest threat to the labor market: artificial intelligence. Robotic automation, long thought confined to the factory floor, has stormed onto the art scene in a very disruptive way. Services like MidJourney and ChatGPT are controversial for many reasons ranging from training to use, the WGA fought to explicitly exclude AI chatbots from the writers’ room, and SAG sought to prevent digital recreations of actors’ likenesses from replacing the flesh and blood they recreate. The WGA was largely successful in their negotiations on the issue, the principal concession being that studios cannot train chatbots on the writers’ work, and chatbots cannot write or rewrite literary material. 

While writers successfully reduced ChatGPT to a tool to assist human writing, the SGA negotiations resulted in a more mixed bag. They did prevent the worst excesses, namely studios creating and using digital recreations without the actor’s consent, but they ultimately had to allow these digital replicas to exist. The agreement requires the actor’s consent to create a replica and minimum compensation for their use, but studios have won the right to remove the actors from the equation if they are willing to jump through some hoops. It is unclear how studios will take advantage of this, just as it is unclear what lessons other unions across America, ranging from nationwide to university-specific, will learn from one of the highest-profile American union strikes in recent years. 

Key Sources:

https://www.sagaftra.org/files/sa_documents/TV-Theatrical_23_Summary_Agreement_Final.pdf

WGA Contract 2023 (June 15, 2023) https://www.wgacontract2023.org/member-voices/why-we-strike

Why We Strike: SAG- Aftra Strike, SAG (2023), https://www.sagaftrastrike.org/why-we-strike

Catherine Collison & Heidi Cho, Post-Pandemic Realities: The Retirement Outlook of the Multigeneration Workforce, Transamerica Center for Retierment Studies

John Horn, TV and Movie Writers Strike Over ‘Gig Economy’ Conditions. What’s At Stake In The WGA Walkout, LAist (May 4, 2023)

Andre Dua et all, Freelance, Side Hustles, and Gigs: Many more Americans have become Independent Workers, McKinsey & Company (August 23, 2022) https://www.mckinsey.com/featured-insights/sustainable-inclusive-growth/future-of-america/freelance-side-hustles-and-gigs-many-more-americans-have-become-independent-workers#/

Summary of the 2023 WGA MBA, WGA Contract 2023 (2023)  https://www.wgacontract2023.org/the-campaign/summary-of-the-2023-wga-mba

Taming the DeFi Beast with a Regulatory Leash

BY: Serraya Quinn

As the FTX saga continues to unfold, with the crypto-exchange founder Sam Bankman-Fried being sentenced to 25 years in prison, the devastating impact of unchecked centralization in the crypto space has been laid bare. Billions in customer funds allegedly mishandled, misappropriated, or lost entirely — a searing reminder that the promise of decentralized finance (DeFi) remains largely unfulfilled.

 DeFi was born out of the 2008 financial crisis, aiming to redistribute power away from central authorities and provide a transparent, trustless alternative to traditional finance. Built on blockchain technology, DeFi eliminates intermediaries, allowing users to directly access financial services through self-executing smart contracts. However, the revolutionary nature of DeFi also exposes it to unique risks that existing regulatory frameworks struggle to address. 

Hacking incidents like the DAO hack in 2016, where $50 million worth of Ethereum was stolen due to a code vulnerability, and the prevalence of "rug pulls" — exit scams where developers abandon projects and disappear with investor funds — have highlighted the urgent need for effective oversight. Regulators initially grappled with understanding and classifying DeFi assets and transactions within traditional finance concepts, often relying on analogies with securities. However, the decentralized and global nature of DeFi poses challenges in assigning legal responsibility and enforcing rules on pseudonymous market participants scattered worldwide. 

To address these challenges, a novel regulatory approach is proposed: the establishment of a Decentralized Autonomous Organization (DAO) comprising stakeholders from agencies like the SEC, CFTC, and FinCEN, as well as legal experts, economists, and industry leaders. This "gDAO" would function as an on-chain regulatory arm, embedding compliance mechanisms directly into the blockchain network's smart contracts. Imagine a preliminary smart contract that screens DeFi projects before they can execute transactions, automatically placing new protocols in a probationary phase, enforcing anti-money laundering and risk thresholds, and providing consumer notices about beta usage. Graduated projects would undergo stringent audits and trade volume limitations, ensuring consumer protection while fostering innovation. The gDAO's governance would be endogenous to the blockchain ecosystem, keeping regulation "in the family" and mitigating resistance from the DeFi community towards government interference. Simultaneously, it would demonstrate a commitment to promoting innovation rather than stifling it. If core DeFi developers refuse to comply with the gDAO's oversight, an alternative solution proposes assigning them fiduciary status. As the architects of the smart contracts that consumers entrust their assets to, core developers wield significant control and influence. Imposing fiduciary duties on them would ensure they act in the best interests of users, potentially deterring reckless behavior or exploitative practices.

The gDAO's approach represents a pragmatic fusion of existing regulations and bespoke solutions tailored to the unique challenges of DeFi. By leveraging the transparency and automation of blockchain technology, it enables effective consumer protection while preserving the ethos of decentralization that fuels this groundbreaking financial paradigm. As DeFi continues its rapid expansion, innovative regulatory frameworks like the gDAO are crucial to ensuring its long-term sustainability and safeguarding the interests of all stakeholders. The future of finance is decentralized, and it's time for regulation to catch up.

Key Sources:

David Yaffe-Bellany and J. Edward Moreno, Founder of FTX Given 25 Years in Crypto Scam, NY Times (Mar. 28, 2024) (last visited Apr. 1, 2024), https://www.nytimes.com/2024/03/28/technology/sam-bankman-fried-sentenced.html. 

Kevin Werbach, Cryptocurrency Symposium: Digital Asset Regulation: Peering Into the Past, Peering Into the Future, 64 Wm. & Mary L. Rev. 1251.

Klint Finley, A $50 Million Hack Just Showed That the DAO Was All Too Human, WIRED, (Jun. 18, 2016, 4:30 AM), https://www.wired.com/2016/06/50-million-hack-just-showed-dao-human/.

Carla L. Reyes, Article: (Un)Corporate Crypto-Governance, 88 Fordham L. Rev. 1875, 1886-87 (2020).

Angela Walch, Call Blockchain Developers What They Are: Fiduciaries, AMERICAN BANKER (Aug. 09, 2016, 12:00 PM), https://perma.cc/J5P3-ZS5U.