Luka Müller berichtet aus der Geschichte des Crypto Valley

Transcript

My name is Luka Müller. I am from Zug. Our family comes from Zug. We have been for many hundreds of years in Zug and I am a lawyer, specialized in compliance since very early and in technology. That means I am always looking for this connection between on the one hand, the legal application, if it's compliant, and on the other side also the technical digital implementation. What does the application of functions and platforms mean in terms of fulfillment of compliance and obligations.

Zug's reputation and constellation for blockchain applications Of course, I am a Zuger at heart. And Zug was partly under fire very early on, because you had a lot of holding companies, commodity trading was also a constant point of discussion. And you actually have very little emphasis on the positive sides of Zug, already since the late 80s and 90s, as well as this friendliness, this support also for new ideas, which made Zug strong. And in 1998 Switzerland introduced the Anti-Money Laundering Law.

I saw that could also be an opportunity for a financial center, for an economic center. And then I tried to create the first self- regulatory organization. That was, and is, still a concept from the Anti-Money Laundering Law. And then together with colleagues, I founded the first self-regulating Anti-Money Laundering organization in Zug, the VQF. It still exists today and is the largest. And that has already shown, Zug was willing to provide support. We did this in Zug.

We did pioneering work there. And this pioneering spirit in this area, that was also the basis, why I with my emotional connection to Zug have already said from the beginning, I would like to do my job primarily in Zug. My two colleagues from MME were from Zurich, but for me it was clear since we founded, I will do it in Zug. There was also the question, how did these blockchain projects come to Zug? I think, on the one hand, it was luck, coincidence.

But coincidences are always based on certain preconstellations, that just exist. Only luck alone is not enough. I believe this constellation, that we have dealt with compliance issues early on in Zug, that we really had specialists who not only understood the compliance side but also the digital applications in particular in the early forms. So that made us a good candiate to answer questions related to blockchain applications and to then tackle blockchain structures.

And that was likely a very favorable constellation. Ethereum is coming to Zug So in 2013 we had the first inquiries and the first projects related to DLT Applications. These are Distributed Ledger Technology Applications. That was completely new back then. And there was a project that we were able to look after, starting in November 2013. And this project team then said, "We have another project that would be very interesting that is even more radical and goes deeper

into the basics and isn't just a application build on a protocol, but its own protocol. And you have to understand, at that time there was also very little literature. The only properly known DLT infrastructure was the Bitcoin protocol. And Europe and Switzerland in 2013-14 were in an absolute deep sleep, no one really dealt with it. But I would also like to put that into perspective later.

The first literature I found was from the U.S. And then I saw that in 2013, I read a publication from a university, they were already very deep into this topic, in particular the Bitcoin Blockchain. That was for me also a part of the literature, that I read. And after I met Vitalik Buterin's team for the first time in Zug, in January or February 2014, if I'm honest, back then, I was really at a loss. I had no clue what they wanted.

I didn't fully understand it either. And I had to read the whole thing two, three, four, five times, until I really understood it, and the approach. And to be able to discuss and find out with the team what the right structure here would be, the right solution, how to have a governance, how to build and launch such a project. There I also realized, as I said before, how radical this technology is.

So the constellation, prior knowledge and experience allowed us to look after this first big project from Zug, and to implement it together with the authorities. And that then led to further projects deciding to settle down in Zug. Ethereum's starting point The starting point was, "we want to launch a digital infrastructure that is running on different decentralized servers, that belong to no one,

but always needs updates, that has a Community and built-in economics of the protocol that incentivize the participants to participate in this whole ecosystem. Dear Luka, can you find us a appropriate structure for it? It must not belong to anyone, but it has to be so stable that it can perform this function for a long period of time, so that this decentralized infrastructure can be maintained, can be supported, trained,

and that no one can claim ownership rights and rights of influence on this protocol, which actually belongs to everyone." That was the starting point. And then we thought about it, "what could be the right structure here? There must be no owner, but it needs a clear purpose. The activity needs to be verifiable, it has to be solid, it also has to be independent of the founders and the main developers, it has to be an independent personality."

That's where we are. By the way, I started working with foundations early on because we have a family foundation ourselves. That's where we dealt with this legal construct of a foundation. I was often misquoted because I said, “It is an old legal construct but for these modern problems still very suitable for use.” The foundation is a legal entity that is independent of the owner.

It is committed to the foundation's purpose and has a slight supervision. At the same time there is also an auditor who checks the annual financial statements. And so it's not just a contractual entity, but also a solid legal personality, that is independently committed to the purpose of using its means for development, for the launch and afterwards for further marketing, or supervision, research work in connection with a public, decentralized protocol.

We then looked and first considered a solution with a GmbH or AG. But then we quickly came to the conclusion, that the foundation was the right solution. The leadership team at that time surrounding Vitalik saw that too, “We want to build such a foundation, such a protocol foundation.” That was version 1.0, it was initially really the simplest form. Afterwards we learned that it became much more complex, even with the governance that we built in. All of it got much better but this 1.0 foundation, it still works perfectly today, it's good and I have to say, for launching and supporting a protocol,

it is still the correct and good legal structure. The Ethereum Token Sale Exactly, that's where things got even more complex. How do we set up a governance structure, in connection to launching and then maintenaning a protocol. We've already covered that, that's the foundation.

Then we asked ourselves, "now there is a fundraiser. There's a fundraiser, launched in 2014. How do we do this and what does it look like? How must we qualify this?" Because the end result of this fundraiser was that the protocol had yet to be fully developed and that after the finished development, and now things get a little complicated, the community that took part in the fundraiser, would have the first genesis block proposed to them.

And allocations were pre-programmed in this genesis block and we said, “We propose that we, according to your contributions, with this first block we mine, will pre-program allocations into it, or to put it simply, deploy it, and then you can get your tokens, your ether tokens from the protocol." But what is this legally speaking? What exactly is happening legally here?

And we had to take a closer look at that. We analyzed it and saw that they're not securities, they are also not value rights. We looked closely at the technical process and then came to the conclusion the Anti-Money Laundering Act has no application, it is also not a licensed activity under the financial market law. And then we said, "it could work like this."

And as it turned out later, it did indeed work. That was innovative, also innovative in terms of the insights that we got, and to what extent the financial market law and the Anti Money Laundering Act apply. And that was the innovative part, these learning points and the experience. These then led to us, we were the only ones who did it, who have ever done it, the only ones, and the first ones, of course, and that also led to us later being overrun with projects that wanted to do it exactly the same way.

Crypto boom 2016-17 This started in 2016. 2014 was the launch of the first Ethereum fundraiser, in 2015 the Genesis Release in the summer, then there were no big activities. You can't even imagine that anymore. Not even even ten years ago, there was nothing, very few protocols, few projects, the coin market cap had almost no liquidity, nothing. And then you saw, they did it, that is interesting, we could now launch new protocols that are interesting. And especially since the Ethereum protocol allows,

compared to the Bitcoin protocol, the use of applications on the protocol. And that led to another boom, and then many projects immediately said, "yes, we also need a legal wrapper, we also need legal stability, how can we do that?" Back then, also today, the same uncertainties with regard to the qualification of securities existed in the USA. Surprisingly nothing has changed, it is still completely uncertain, the U.S. authorities still do not understand, how to handle it correctly.

And that led to, in early 2016 a real boom had started. Yes, the magnitude, the scope, was surprising at first We got 10 to 20 requests per day and needed to filter out what was good and bad, the project teams really did everything in their power, they almost paid us to talk to them.

And that was crazy. I could imagine a law firm, they're happy when one or two mandates comes in, and there were hundreds, that suddenly burst into here. And that was one of the absolutely hardest times of my professional career. It still had certain legal uncertainties, you were in new territory, the first critics were very loud. Bitcoin, like today, was always mentioned in connection with money laundering. You didn't really know what that was, we already knew, but in public, it was always associated with money laundering and crime.

And on the other hand we had such good, innovative teams, that were standing in front of our door. And that wasn't just in relation to public perception, but also in relation to the fulfillment and completion of our work one of the hardest times of my life. The years 2016, 2017 and 2018. Interaction with the city and canton They were noticeable, yes, We had a lot to do with the city and the canton.

It was about the work permits, also the tax ruling, and of course also interacting with the commercial register. Then we said, "How does it all look like in a macroeconomic context?" That was especially necessary with the reference to the work permit, because many were of third country origin, so not European, but the USA, Asia and so on. And the first interaction was with the tax authorities and I have to say that was very, very important.

Because they took the time to really look at it, to understand it, and also give us a first ruling. After the tax authorities, we talked to the department at the canton, the licensing authority, so they could understand it too. And they saw early on, yes, there is a technology opportunity, there is an opportunity to bring technology together with a good legal and administrative infrastructure, and they supported us. And that was very important. I mean, it's of no use to us if we have a good structure, have a good tax ruling but the people cannot work here.

That doesn't work. And there you have it, the innovative strength and flexibility in Zug. And also the climate of trust, people believed us. It's not like, "yeah, we'll do a something,” and they don’t trust you. I think it also was an important factor that we were already known as trustworthy people and they said, “yeah, well, if they’re doing it, then it must work." It was also a good constellation, that we are perhaps a little older and already experienced.

In Zug everyone knows everyone, and that's just how it is. And if you make a mistake, it will be known and when you have always done something well, that is is also known in Zug and that is an advantage, and this helped us. Positioning of Switzerland We have the foundation, the federal legal foundation that we have to create, the attractiveness of Switzerland. And this federal legal basis has to be implemented locally somewhere. And when it comes to this local implementation, Zug has very big advantages that we have already discussed, like the experience in international business, the experiences already made

with several projects. It's this huge experience with these applications and technologies related to the application of the law. We have this governmental flexibility, and I don't mean flexibility in terms of application to the law, because that remains stable. I mean in terms of the flexibility of appointments. Quick meeting appointments are possible. We can speak to a government council immediately when necessary, or with a secretary of a administrative authority.

This flexibility, I believe that human interface, in this technologically ever faster developing time, that this human interface, or the people who ultimately decide, always remain at a high level, knowledge wise, and can also be approached in a timely manner. That's a huge success factor, and I think within Switzerland, Zug is very well positioned.

Has Crypto changed Zug? I'd say not much. Of course, Zug for us Zugers is our nest, because Zug is Zug, and we love Zug, and it always had these expats. I was surprised that sports classes in sports centers are now offered also in English.

Those are details. But the people of Zug remain the people of Zug, the expats have always been there. There may be a bit more now but I would say as far as I perceive it, not much has changed. Maybe a point I've noticed the formal occasions have been a bit americanized. So, there are more show elements to it, they used to be much more calm, these club meetings. They were really more like meetings of the cattle breeding association. They are much more dynamic today with show elements in them.

That may have changed, but otherwise it is this symbiosis between this completely traditional Zug lifestyle with the enrichment of the expats who come to Zug.