Avoiding the Courtroom: Legal Innovation and Arbitration in Crypto

Transcript

So next is our fascinating fireside chat on um innovation and arbitration in crypto. Speaking we have Maxim Con, Nino Sevi and Martin Libby of Ganakook, Nata Delifior and CVA and Consultics respectively. Hello everybody. Um yes you can hear me. My name is Maxim Khan. I'm one of the board members of the Crypto Valley Association and today I have the great pleasure to introduce to you Nino and Martin who are our big hope for the today's exciting topic how to stay out of the courtroom. Um I assume all of you would like to stay

out of courtroom and me too and for me it was a big discovery that um in crypto we have a possibility to solve disputes without going to um the courtroom but we need to involve some lawyers in some situations. But um the whole situation started with Martin raising the idea of standardizing this approach and therefore I would give the word to Martin to first introduce himself quickly and then give us a little uh run through of the initiative.

Yeah. Hello. I'm Martin. So I'm a crypto lawyer. I'm also judge. So that's a little bit professional probably who is kind of behind this vision. So my vision would be and and it's a little bit a strange vision. I know this is a lawyer vision for the crypto alley but every very successful ecosystem or industry like for example Geneva the commodities traders or sur as an economic system has its own specialized courts because our industry is very technical there's a lot of technicalities involved special knowhow and we need to have our own courts why do we need that because it is very

important for investors, for companies coming to Switzerland to our best ecosystem for crypto in the world. Having the feeling not just having super players when you go into the system, but also if something happens, a way to efficiently um fairly and hopefully also very quickly solve disputes. Yeah. And the idea would be to create the crypto arbitration court for the crypto valley. And basically we are initiating this. We have founded a working group in the crypto valley association. We only have six members so far. So you're kindly invited to join.

Uh but then we also have our super technical experts uh like Nino who are really arbitrator. I'm a corporate lawyer. I admit it. I'm a banking finance lawyer, digital assets lawyer, but Nino basically is a is an arbitration lawyer. Yeah, Nino. Um, would you quickly introduce yourself and tell us a little bit about what is arbitration and what an arbitration court is? Um, sure. Hi everybody. I'm Nino. I'm a partner with disputes law firm at Dala here in Zurich.

And I do only do the nasty stuff of business. I only do disputes and crisis management. So talking about the profession, I'm the worst here. Um, and since 2019, I've been involved in disputes in the crypto sector. So this has been a bit of my life. Um, quick question here. How many people are lawyers here? Okay, fair amount. The other people, how many of you hate lawyers? Good. That's my crowd. Excellent. Okay. So, I'm a lawyer, but I promise not to be too legal here. The the basic premise here is where you have business, there are disputes. I know nobody likes it. Whenever I'm a crypto conference and

tell people I do dispute resolution in crypto, they always look at me, but we don't have any disputes. Well, the last six years have proven the opposite. And if you just look, there are a couple of disputes in the public domain that I can talk about. There was a major crypto exchange, maybe Binance. They had a complete crash. The systems didn't work for a couple hours. People weren't able to close their accounts, weren't able to make any trades. Big surprise afterwards. You had tons of lawsuits. There was a DeFi project that promised liquidity rewards.

And turns out it was one big scam and afterwards the investors of course wanted all their money back. Another case you had a VC that pulled out of a token deal claiming that there were misrepresentations. All these disputes they need to be resolved in the end. And now when you have a dispute that you cannot you cannot find a solution with the other side, you have two options. One, you go to court. Two, you go to arbitration. If you go to court, bad choice. It's slow. You might have to explain to a 64 year old judge what staking is. And take my word for it. This is not fun and it doesn't work.

Other problem, if it's for example here in Zuk, it will be in German. My experience with crypto projects, not everybody speaks German. Now, what is behind door number two? What's the other option? Arbitration. Arbitration is a private dispute resolution mechanism where parties agree to have the dispute resolved by neutral arbitrators. Now, why is this so much better? Couple of points. Stay with me. I've really thought this through during the last six years. Speed and efficiency. If you go to court takes you at least two years and then the appeal starts.

Arbitration you can be done within six months. Expertise as I told you about the 64 year old judge bad idea. If you go to arbitration you can pick your arbitrators. You can make sure that they don't even need to be lawyers but if you want to have a lawyer take a lawyer who knows what staking is. Language of the proceedings will be English much better. It's very crossber friendly because at the end of arbitration you will have a binding decision that is enforceable in about 170 countries and also very nice it's digital ready. Today most arbitrations can be conducted fully remote.

Everything is filed online. You have the hearing via zoom and it's done. So I mean this hasn't been specifically made for crypto but it works extremely well for crypto cases. So all these features should show you the arbitration is by far the better option than going to court. Nino, you just solved the whole thing. So arbitration, that's it. We are done for with this. Uh yeah, you're well today. I'll send you the bill tomorrow. Of course, lawyers, right? Um where are the limitations? So why haven't all the crypto companies using arbitration so far? What's what's the catch? I mean the thing is you cannot you cannot choose arbitration when there is a dispute. You need to choose arbitration right when

you sign the contract. There needs to be a clause in the contract that says I know we all love each other but but if this deal ever goes sour, we will not go to state courts. We will go to arbitration. So this pretty little clause needs to be in there. And quite frankly the level of drafting is still not ideal in the crypto industry. So I think this is one aspect. The other aspect is that the system is okay but it's not perfect yet for arbitration. I think there's certain tweaks that we need to work on. I think still speed six months if you tell this to to any average business will say oh six months is really fast. Six months in the crypto world still an eternity. So we need to find ways to have ultra

expedited proceedings. Very often you have group claims don't really work well with the usual arbitration rules. The usual arbitration rules don't work for Dows or generally they're not very good in dealing with the pseudonymity that you have in in crypto. Arbitrator selection needs to improve. I mean there are arbitrators out there that are really capable in in crypto in arbitration but we don't have this fixed pool of potential nominees. I think those are there are other aspects you can work on but I think this is what Martin said this is the project to really find this arbitration 2.0 that is ready for the crypto world.

Thank you. Well as said we have a working group in the CVN. Maybe Martin can you give us a little glance into what the working group has been working as a group? Yeah. So the working group has been established very recently and uh our purpose is really to follow through with this vision because we want to ensure that we are staying the number one ecosystem for digital assets in the world. And basically we have partnered up with the Sururic uh attorney association. So the the the practice group on on crypto arbitration and as a next step what we will be doing is basically creating specific arbitration rules because as Nino has

pointed out there's a lot of specificities like uh typically lawyers work with a lot of documents in crypto you don't have documents you have data yeah um and everything is decentralized and uh yeah so everything has to go quick And so there's a lot of specificities which are not really what is currently in an arbitration rule set uh onetoone applicable to to our industry and that's going to be the next challenging steps to really have worldclass arbitration rules and not just something done in a lab but it's backed by by the best association uh in in this country but probably

globally for the industry. But importantly, this is not just an initiative driven by crypto value association. This is backed by the Swiss government. This will also be backed by other industry association and participants. So once we have the first draft of these rules, we will then basically consult with the other associations in Switzerland uh to really ensure that everybody is uh on board with us and um then we will uh create the first bench of um of lawyers and then our work starts um max we have to go to all industry participants, the foundations, the intermediaries, everybody to really ensure that they put

these arbitration clauses into their contracts and then hopefully there is no claim then I think everything is working well but maybe in a few years then thereafter there might be the first uh arbitration court hearings maybe in this room who knows um in in zoo um being held and obviously ideally would be that not just Swiss uh players uh take over these rules, but it would be an international thing. So even players in Hong Kong, in Singapore, in the US, they would choose the Crypto Valley Arbitration Court as their court of choice to settle all their disputes. Yeah. So yeah, that's

kind of uh the road plan and hopefully we can do everything by the end of this year. Thank you. Um Nino, can you give us a run through how an arbitration would be solved in a traditional world and then we try to to to see the parallels on how we foresee the future of the of a cris crypto dispute being solved uh once we are done with our work. Sure we can try. I mean if an arbitration starts usually there's an issue that starts people start hating each other then one party says this is enough they file a request for arbitration to a to an arbitration center then you wait for 30 days and the

other side needs to file an answer then it takes a couple of weeks to find a tribunal either part both parties get to choose one arbitrator and the two arbitrators they agree on a president for the arbitration and then you exchange statements ment of claim, statement of defense, large written documents, then you have an oral hearing and then usually you get a decision ideally everything within six months and the I think the general structure works works pretty well for arbitration and also it's it's very flexible you can have more written statements less written statements you can have a short hearing you can have a long hearing it's really in the hands of the parties and I think where where we need to tweak

is for example How do you serve the request of arbitration on the respondent party? Because certain rules say you need to do it by post. Not ideal. You want to do it by email. What do you do if you don't even have an email? Should you be able to airdrop it into a wallet? These are all options that are on the table and that we need to think about when we draft rules. And that's a great point. Like if I have a dispute with someone on the internet that I only know by an NFT and a wallet address, that's that's kind of difficult to get this person to invite to a courtroom into Switzerland, right? If you if you want to do it in in court in

Switzerland, they don't only want you to give him the name. They want to have a current address that they can send postal mail to. So, and I mean, don't get me started when you have a DA involved. I mean, it just doesn't work at all in the court system and even in the arbitration system, it doesn't work particularly well because I mean, if if if it's an end DAO without a rapper entity, it's just a question, what is it legally? Is it a simple partnership? Is it an association?

Hundreds of questions. Martin, how can we solve those things with our idea? or can we sure I mean look I think that's exactly where we come in and where our we can add real value to the existing system you know it's um being a judge myself I know how the system works and it works well uh in some in some cantons or in some at some courts and not everywhere also not in Switzerland but yeah I mean that's exactly the points we have that we're combining the forces like the the technical arbitration expertise, the the IT expertise, the understanding of the different forms of how crypto is being

sold, how crypto is being decided and so forth. And this is this is a task. It's a challenging task. Yeah. But we will be able uh to to solve it. And we we have the right expertise also here in Sugon and Switzerland anyhow uh to come up uh with these rules. Um the first draft probably not going to or the first final version is probably going to be perfect. Uh so we it's a po uh it's a 0.1 version. Uh but we can always change you know and um as we go along with the experience we will have to adjust um everything I guess you know the rules maybe also the bench of the lawyers and

so forth but um yeah so it's going to be possible I have no doubt but it's also challenging I think for everybody involved but that's why I have partnered up with the with the association of the arbitrary crypto arbitration lawyers In Zurich, I think what will be important is that we get feedback from the community and from the industry because I mean in Zurich we're about six or seven lawyers who've done these kinds of disputes regularly. So we've seen what we've seen but the arbitrations are not public. They're confidential. So there might be massive black hole for us that we that we haven't seen certain issues that we haven't encountered. And this is why I

think that the group is very important that that the group needs to do a an open call for input where people can say we had this but this was the big issue find a solution now because otherwise it it will be a limited work product that we can provide. I think this is a very important point that the crypto association is here to well let the world know that there is a solution for for disputes and uh create first of awareness that you can reach out to us and we can guide you in the right direction but also we need to understand what kind of disputes are out there that we have not yet thought about

and before we starting to write rules and and the guidance. We need to really get the full idea of what have we missed. And yes, please I wanted to keep that for the end. Um,

we we do not Yeah, we we are we are Yeah. Yeah. We are still a crypto uh value association. Um AI will play an important role. I think for sure it will change everything. But um one really important uh aspect here is that we want to help um well the members of the association solve their disputes. And the disputes that the traditional world even with a more adjusted uh set of rules will be applicable to um are still kind of highlevel corporate grade uh situations where we're talking about

hundreds of thousands or even millions that have to be disputed. But the idea for the community is also to be able to solve lower value disputes as well. So Yeah. And um I think there are solutions out there who heavily involve technology but the problem is they always in in they always include a voluntary component and when you have a really contentious situation I can tell you it's very difficult to get two sides to agree on anything and this is the entire point of dispute resolution within the state court system for example it's to decide who gets

access to the physical power that the eight holds because I'm if if Martin owes me money, I'm not allowed to go to his door, punch him and tell him, "Give me the money." Now, what I am am allowed is go to a court in arbitration, tell them you need to decide that he owes me money. Said, "Yes, Nino, Martin owes you money and then I can go with this to the the state author, state enforcement authority, and then they go to Martin, ring on the door and tell him, pay up." And I think this is this is the the this is what dispute resolution comes down to access to this power and this I personally have not found a way that technology can replace the entire process. What technology can do is enhance certain parts. I mean when you

say feed it in feed the entire case case history into an LLM. This is something the lawyers can do the arbitrators can do. This is something that the entire arbitration community is working on. fun next week I'm in the hey giving a talk about ethics and AI and arbitration how we can cope with that so there is work being done but it's not this is not crypto specific this is really arbitration specific and people are very much aware that the system isn't perfect and that it needs to become more efficient maybe my two cents on this and I think you're touching on a very important point but I think this is a step approach because we we first have to have a quality product which works works in the real life with human beings, you

know, and once we have that established, then we can maybe a bring in AI, bring in technology and there is also this high qual high volume cases and the low volume cases and we are actually thinking and you would probably say that at the end there is ideas about for low volume cases that we use some form of an AI tool to do that. Yeah. Um but still even if you look at JTP and all of that when I use this as a in my daily work and I ask stuff you know sometimes it's really good the results but sometimes it's horribly wrong you know just they just make up cases they just make up some kind of literature or something you

know and and I don't know what what it is but sometimes it's really good result sometimes really bad but it shows the credibility and the quality is not yet there. This might come in the future. But if you really want to establish this as a high quality go-to place where people really have trust in it, the first step will be a human solution. And as you have rightly pointed out, law is not just like coding something. There's a lot of subjective aspects to it. And this is a very ideological discussion probably how to what extent a machine or an IT AIdriven

system can really kind of reflect that subjective decision in the individual situation. Um do you feel like empathy for a situation? Do you feel like okay this is a this is a is a wrong situation for for this and that reason. But these are all emotional grounds which we as human being would say okay these are real reasons why in a certain situation something has to judge that way and AI cannot really consider that at least for now. Yeah. Uh but yeah you're I think is a this is a very good point and thank you for bringing this up. That's the plan in the long run. Yeah.

No, not yet, but uh we're looking at it. Um, one of the things and also to to mention the technology. So we are really looking into partnering up with an already existing solution that is blockchain based, smart contract based that is what was created to solve uh disputes fast and efficient and enable solving disputes also for low volume low value uh amounts. However, we need to make sure that if we as the Crypto Valley uh association partner up with something like that that it's it's chain agnostic.

We we need to uh support many different ecosystems and we want that. We want to enable the possibility so that a Ethereum and the Cardano and a Solana Foundation can agree to point in our direction for solving disputes. So it's not only about the institutions playing a role but also the individuals using different blockchains that can agree up front before as Nita said before a dispute happened that they will have a direction where to go to when something happens and then if they come to us we can say well that dispute that definitely belongs into a bigger arbitration courtroom or it can be

solved on chain or don't solve that dispute that will lead nowhere. Um but at least we want to really ensure that there is a point of contact and people understand there is help. Yes, please. So beyond using technology let's say what about technology to facilitate the process but they can have the laws on the enforce that people who don't know each other can still go through this process

knowing that hey contracting party on an issue and know that you have an independent person. Yeah. So essentially you have an automatic enforcement but I mean this economically speaking this comes down to an escro solution. The problem is if I go to Martin store and tell him I think you owe me money, please place the money in escrow or in a smart contract or whatever. What do I do if he says I don't think so? No. And this is this is what I said. I mean with technological

comp solutions right now there's a voluntary element and sometimes it works if you have reasonable people who say yes we have a dispute we need to find a solution let's do that perfectly fine. I've been doing this job now for 12 years. Happens very rarely. Unfortunately, this is really when it comes to a point that lawyers and lawyers talk. This is war. No, nobody will will give the other side an inch and you need to be prepared for those situation because this is what the enforcement system comes down to.

However, what you have described is 98% the solution that we are talking about, but it needs exactly that pre-aggreement in order to use the software. There are cases where that solution was already used and sorry I'm not naming the solution by name yet uh as we have not signed anything but we are uh in a very like advanced discussion. So there have been cases where this blockchain smart contract solution have been used where well only one site describes the whole situation provides all the documents and has as a global audience of well vetted expert in the industry who are then um in a tokenized uh incentive are

motivated to provide their um opinion on how this solution can be solved And if the solution will be solved in in their favor, they get a well certain tokens back. And with that um an individual can for a very low amount of digital uh assets can get a s solid opinion whether their their their position may be right and that can then be escalated or be taken to an arbitration room or to a courtroom or to other means. So this is this may be a foundational starting point where we the cryptonative people can begin with before we go to the

bigger structures. I'm I'm seeing we're running out of time. Do we have time for one more question? Yes. Yeah, I I I like that approach and I think that this is very very good. We've heard of solutions as well where we can use

one uh standard of solving a dispute and if the bigger party loses the bigger party has to accept that um situation if the well the individual loses the individual can raise or go to an next level court. But I think again the key message of today's session is that we are working on finding ways for different disputes and we need your input. We need your ideas and um your input into thinking about all the possible cases. So please join us in our working group. Please submit your cases and if you have a a dispute, reach out to us and we will find you the right

people to solve your dispute. anything to add? Thank you very much.