​Chain Law Research: Staking Economy Legal Risk Analysis and Countermeasures (Part 1)

(Sichuan Public Security Net Cleaning Action, blockchain enterprises are the key targets of governance)

At present, there are many introductions, analyzes and reports on staking, but there are few articles on legal analysis of staking. How staking is legally qualified is directly related to the application of the law, and then how blockchain companies carry out compliance work.

For blockchain communities that adopt the POS (proof of stake) consensus mechanism, the more virtual currency they hold, the greater the probability of becoming a verification node and obtaining corresponding benefits. In consideration of maximizing benefits, the Staking economy came into being.

The operating model of the staking economy is: "Node service providers (including wallets, trading platforms, professional service providers, etc.) accept the entrustment of token holders, and serve as blockchain project verification nodes to obtain rewards through block generation or proxy voting. Rewards include transaction fees, block reward dividends, and entrusted management fees. At the same time, token holders can obtain certain staking interest through behaviors such as pledge and entrusted lockup.”

Pang Lipeng, a team of chain lawyers, believes that from a legal point of view, the above-mentioned operation process can be understood as: the original holder transfers the virtual currency it holds to the node service provider, and the node service provider manages it on its behalf. At the same time, the node service provider charges a certain the handling fee. The node service provider is obliged to transfer the proceeds to the original currency holder. After the fixed period (lock-up) expires, the original currency holder has the right to request the node service provider to return the previously transferred virtual currency.

The essence of staking is that "currency rights are rights." Under normal circumstances, everyone thinks or expresses it as a process of mortgaging or pledging a certain number of tokens to participate in pos token ecological activities to obtain benefits. There is nothing wrong with mortgage or pledge itself as a term in the circle, but these two terms have exact meanings and regulations in law.

From a legal perspective, what exactly is staking?

First of all, staking is not a legal mortgage or pledge.

Ordinary people often call the behavior of the original holder to transfer the virtual currency they hold to the node service provider as mortgage or pledge, but legal mortgage or pledge refers to a kind of guarantee behavior, which refers to the guarantee of the main creditor's rights When the obligee agrees with the mortgagor or pledgee that when the debtor fails to perform its obligations, the obligee has the right to convert the mortgaged or pledged property into value according to law, or to receive priority repayment from the proceeds from the auction or sale of the property.

Therefore, Liu Lang, a team of chain lawyers, believes that since there is no so-called main creditor's right in staking, there is no way to talk about mortgage or pledge. If it is not considered as a mortgage or pledge, then the laws and regulations related to mortgage and pledge will naturally not apply. If there is a dispute between the staking operator and the investor due to staking, there will be great uncertainty in the application of the law and the result of the judgment sex.

Secondly, if the node service provider only holds the virtual currency transferred by the client without any punishment, staking is similar to the "equity holding" in practice. Regardless of the particularity of the virtual currency, the trustee is obliged to Transfer proceeds and return virtual currency as agreed.

What can be added here is that there are many similarities between people's rights to virtual currency (only refers to the virtual currency running in the blockchain community) and equity, for example, from the legal nature, both include the right to obtain income. "Property power" and "personal power" to participate in corporate or community governance;

From the perspective of economic nature, the number of shares or virtual currency held by right holders is relatively fixed, but the value of these shares or virtual currency is constantly changing with the market. Of course, there are also obvious differences between equity and people’s rights to virtual currency. Equity is the legal right enjoyed by shareholders to the company based on their capital contribution, but people’s rights to virtual currency do not come from legal regulations, but from " consensus".

Thirdly, if the node service provider operates or disposes of the virtual currency transferred by the client, it is possible to establish a "legal relationship of lending or entrusted financial management" between the client and the node service provider.

For the loan relationship, "principal protection" is the proper meaning, but there is a statutory limit on the interest rate. According to the relevant judicial interpretation, in the legal relationship of loan, the annual interest rate higher than 36% is not protected. Of course, this judicial interpretation is aimed at the legal relationship of monetary and capital lending, and whether it is applicable to virtual currencies needs further research and discussion.

If the bottom guarantee in staking is not considered, it is different from the bottom guarantee in conventional legal currency entrusted financial management.

For the legal relationship of entrusted financial management, the "guarantee clause" may be deemed invalid. Some courts hold that: "(the contract) stipulates that the client will not bear the risk of principal loss, which has the nature of a minimum guarantee clause and should be an invalid agreement. The minimum guarantee clause is the core clause of the entrusted financial management contract, and the invalid guarantee clause will invalidate the contract as a whole. (See, Tang Yingying and Huang Yanyan, Investment and financial management are risky, the judge said the case to help, published in the third page of "People's Court Daily" on September 09, 2018)".

It should be pointed out that, according to the provisions of the "Contract Law", after a contract is invalidated or revoked, the property acquired due to the contract shall be returned; if it cannot be returned or it is not necessary to return, it shall be compensated at a discounted price. The party at fault shall compensate the other party for the losses suffered by it. If both parties are at fault, they shall bear corresponding responsibilities.

Some courts hold that, in private entrusted financial management contracts, although the minimum guarantee clause is an incentive and restriction mechanism set by both parties for the entrusted behavior in a legal form of autonomy of will, it is based on the basic principles of civil and commercial law, legal prohibitive regulations and market conditions. According to the basic law, the people's court should determine that such guarantee clauses are invalid, and the losses caused should be reasonably distributed according to the principle of fairness and the degree of fault [Case No.: (2014) Dai Shang Chu Zi No. 815, (2015) Tai Shang Zhong Zi No. 382 Number】.

Finally, from a legal perspective, the current staking economy can be described as rife with risks.

We often say that in the blockchain industry, the biggest risk comes from policy risk. As a new thing derived from a new thing like the blockchain, the Staking economy naturally faces more uncertainties.

From the investor's point of view, after the virtual currency is transferred, a creditor-debt relationship is established between the client and the node service provider, and the rights and obligations between the two parties mainly depend on the contract. But unfortunately, after experiencing several staking services, we found that the relevant node service providers did not provide clear or complete contract texts to the client. In this case, once a dispute occurs, not only will it be difficult to protect the rights and interests of the client, but the operator will also face the situation that the dispute cannot be resolved according to the agreement.

Therefore, Guo Yatao, a team of chain lawyers, believes that whether it is the necessary legal risk prevention and control for staking operators, or the clear rights and obligations for investors, an effective legal text is necessary.

In addition, since the virtual currency is completely controlled by the node service provider, in the absence of supervision, the node service provider may use a high rate of return as a bait to form a Ponzi scheme by borrowing the old for the new (for example, many wallet products that run away ). Therefore, for investors, it is still necessary to choose a platform with relatively strong credibility.

From the operator's point of view, the behaviors related to virtual currency investment have obvious financial attributes, and relevant financial market regulations may apply to such behaviors, and disrupting the order of the financial market may constitute a crime. Therefore, staking Compliance risks in the economy are always present.

The uncertainty of the blockchain industry policy, coupled with the recent surge in personal information protection at the national level for App acquisition of personal information, has made it urgent for companies that develop related ecological services around digital currency wallets to carry out a series of compliance measures. Work.