Please describe your proposed solution.

THE SOLUTION

KYC Compliance for DeFi operates at the confluence of technology and the law. These two factors are intertwined: Solving the technology aspect without the legal solution means developers are at risk for prosecution, while solving the legal issue that fails to address technology needs is a solution in search of a problem. This grant proposal links a legislative package to protect DeFi with a KYC Compliance Framework that enables practical solutions via a technology framework that can evolve with the technology.

The project has two equally important components. Part one is the proposed legislation for a DeFi KYC Compliance bill in the State of California for 2024. Part two is an Ecosystem Governance Framework (EGF). This project is the first industry-led legislation to enshrine the EGF into law in California. This unique approach connects technical and legal projects for DeFi that at minimum, provides a model for legislation in the United States and worldwide and at maximum, will enable the community to pass the first grassroots blockchain legislation in California.

• California Legislative Package - we will develop support and legislative language for creating a state-level sandbox (California).
• Ecosystem Governance - we will take a Minimum Viable Ecosystem approach to build a basic Ecosystem Governance Framework (EGF).
• Generic Legislation Website - in addition to actively working within the California legislative process and building out a candidate EGF, a more general “do it yourself” package will be created for others to use in a general format. BAC will host it on a public website.

Integrated Governance & Technology

DeFi needs an Ecosystem Governance Framework (EGF) for the technology to flourish. The EGF is analogous to the rules of a credit card network that allows technologists to build interoperable tools at scale. For our purposes, the EGF does this. It allows us to attract and align the partners needed for the DeFi ecosystem to succeed in California (and elsewhere). There are real-world examples of how this approach is already successful in limited spaces. Notably, the EGF benefits private industry, government, and users. By creating a shared technical language, the EGF enables enterprises and governments to communicate quickly and directly about specific use cases for experimentation and testing. Consumers benefit because testing occurs in controlled spaces, where regulators can oversee while ensuring that marketplace competition will keep prices down in the long term.

Legislative package

Cryptocurrency regulations are coming, indeed are, here in some instances. The goal is to ensure that rules promote consumer protection, innovation, and financial inclusion. At this time, the most crucial step is educating government officials on the benefits of a DeFi framework. Part of this education is building their awareness of different risk profile types. These risk profiles, for example, vary between custodian and non-custodian wallets.

Legislators have many tools to use to protect consumers and innovation. These tools include public comment processes, safe harbors, sandboxes, or sunset provisions. These levers must be explored as effective means to advance smart DeFi regulations. This grant proposal proposes specific legislative language that elected officials can adopt.

Community Building

Successful legislation and adoption require coalition building. This proposal has two strategies to achieve that goal. First, a single website provides a repository of the information, making it easier for anyone to find the materials and use Cardano as the model in their jurisdiction. The website also provides a platform for organizing a grassroots community that can push for this model anywhere in the world. The second strategic approach is that these resources enable the Cardano community to be the first to collaborate outside the Web3 community. The legislative approach requires working with stakeholders in the government, private industry, and the nonprofit space.

How does your proposed solution address the challenge and what benefits will this bring to the Cardano ecosystem?

The ambiguity and aggressive "regulation via enforcement" approach creates very high barriers to adoption. We believe that providing regulatory clarity in California will create conditions for the rapid adoption of DeFi into small businesses and personal use.

We also believe that sharing our approach with the public regulatory package will allow other states to adopt similar legislation, reducing the barriers to adoption.

How do you intend to measure the success of your project?

Given that we are planning to deliver a bill to the floor of the California legislature, we know that success will be tough. The change we’re looking for is hard. We know we can deliver

1. Full fleshed-out legislation that could, in theory, be adopted as is.
2. Author.
3. Committee hearing opportunity.
4. Passing committee hearing(s)
5. Vote on the floor
6. Passed on the floor.
7. Fully functional website
8. A website that allows people to sign up and join a grassroots organization (by State so they can be connected to coordinate together).
9. Published EGF that the community can iterate on to develop a model technical framework (connected to the website).

Please describe your plans to share the outputs and results of your project?

Both BAC and Continuum Loop prefer to operate “in the open” and come from long histories in the open source, open community movements. Our efforts will be completely open, barring one effort that requires initial privacy before releasing openly.

Our two main thrusts are open-by-default:

• Legislative Package - the legislative efforts in California are conducted openly and announced publicly as part of the normal legislative process.
• NOTE: The public website that will be released will remain private until release as it has sensitivities with various stakeholders, and until legislation is passed (or paused), the PR group will need to manage this. The final output is a public-facing site.
• EGF - our efforts will be conducted openly (GitHub, Miro boards, Google Docs) and with frequent updates to the community.

What is your capability to deliver your project with high levels of trust and accountability?

BAC is the first and only advocacy organization focused on promoting innovative policymaking to support the blockchain industry in California. This work includes advocacy, education, and convening. We work with lobbyists and coalition partners across California, with members across the United States.

BAC has had legislative success sponsoring multiple bills that have passed the California legislature. Two of the most relevant examples include AB 2004 (Allow Covid-19 Credential stop to be issued via blockchain /verifiable credentials) and AB786 (Credential via Blockchain for Vital Records).

BAC is required to file forms with the State of California listing all monies used for political lobbying. These forms are filed with the state by BAC’s lobbyists with BAC’s attestation.

Both BAC and Continuum Loop specialize in meeting the aggressive targets of this project.

BAC is a California-based advocacy group that helps guide legislative efforts and industry cooperation to advance blockchain technology. It’s skill and experience in navigating the creation and passing of legislation.

Continuum Loop works with ecosystem leaders to develop robust ecosystem governance frameworks. Its Trust Continuum™ methodology has been applied in life-critical and mission-critical ecosystems for over a decade. We have developed ecosystems in multiple related areas including TradFi, RealFi, and DeFi. We led the technical and governance efforts for the very first SSI Trust Registry (MemberPass).

What are the main goals for the project and how will you validate if your approach is feasible?

We have two primary objectives:

• Enact Legislation - Establish a leadership position for California by proposing, and ideally passing, legislation that enables the use of DeFi in the state. Additionally, we are producing a model legislative package that can be adopted broadly in the US, and beyond.
• Launch MVE - Launching our minimum viable ecosystem (MVE) with a focused ecosystem governance framework (EGF) is crucial to getting the full value proposition of DeFi running in California and beyond.

Please provide a detailed breakdown of your project’s milestones and each of the main tasks or activities to reach the milestone plus the expected timeline for the delivery.

The legislative process will be very helpful for the Cardano community to monitor the project's progress. Legislative activity is conducted with very high levels of transparency so that we can point at specific results in a public forum.

Milestone 1 - Spot Bill on Docket: (February 2024) - at this early point in the project, we will have allocated a spot bill position on the legislative docket in the California Legislature.

• Spot Bill allocation and Author (legislator) identified.
• EGF Workshop #1 was conducted (virtually).
• Ecosystem and Arena Scans started.
• Note: A Spot Bill amends a code section innocuously to be nonsubstantive. The bill has been introduced to ensure that a germane vehicle will be available later.

Milestone 2 - Substantive Bill Language Completed: (March 2024) - at this early point in the project, we will have allocated a spot bill position on the legislative docket in the California Legislature.

• Provisional language is completed, and substantive bill language in place.
• EGF Workshop #3 conducted (in person - California).
• An early Draft of EGF is available (GitHub).

Milestone 3 - Community Draft Release: (May 2024) - at this point, the public materials that aren’t on the legislative docket will be shared in draft format broadly, so the Cardano community can see us working in the open:

• Draft Minimum Viable Ecosystem Governance Framework available (GitHub)
• Draft public website presented (video - live and recorded), PDF of key PR materials, and explainer.

Milestone 4 - Public Launch: (October 2024) - there are two main thrusts to the project finalization:

• Legislation - at this point, we will know if we have a signed bill or if further work is needed in the next legislative session. The goal is to pass the bill, but we don’t control it but can influence the legislature well. We will also have our website with a legislative package aimed at the other states in the US and beyond.
• EGF - we will have our EGF ready for use in California but also ready to be used in other jurisdictions that adopt a similar approach to what we have put forward on the legislative agenda.

Please describe the deliverables, outputs and intended outcomes of each milestone.

Milestone 1 - Spot Bill on Docket: (February 2024)

• Deliverables - Milestone Report, Ecosystem Scan, Arena Scans
• Outputs - PDFs and video (live and recorded) presentation, GitHub repository shared
• Outcomes - Several:
• We will have started a movement in the California legislature that is the beginning of the legislative process.
• Our minimum viable ecosystem will start as we work with our initial partners to understand how they fit into the ecosystem our legislation is enabling.

Milestone 2 - Substantive Bill Language Completed: (March 2024)

• Deliverables - Provisional Language for the bill; Draft of EGF; and Milestone report
• Outputs - PDF; Legislative agenda; Github; Google Docs; presentation (live and recorded)
• Outcomes - Several:
• We will have a provisional bill on the legislative agenda that is ready to be put forward, debated, and revised according to the legislative process;
• Our EGF will be in its early stages.

Milestone 3 - Community Draft Release: (May 2024)

• Deliverables - Draft EGF available for public commentary and participation; Draft public legislative site demonstrated; Milestone report video (live and recorded)
• Outputs - Github (markdown); Google Docs; website (password-protected)
• Outcomes - Several:
• Our EGF will be well-formed and be under collaborative editing with our initial ecosystem partners. This process helps to both attract and align new ecosystem partners.
• We can show the public legislative package site that previews the final release. When released (next milestone), the site will be aimed at US legislatures to allow them a quick start in creating their legislation based on our work.

Milestone 4 - Public Launch: (October 2024)

• Deliverables - Legislation; and EGF
• Outputs - Legislation; Github site; and Public Legislative Package website
• Outcomes - Several:
• Legislation - Seeing a bill passed into California law or sent for further revision in later legislature sends a significant signal.
• EGF - Having an ecosystem governance framework that aligns and attracts partners to the California system is incredibly powerful.
• Public Legislation Web Site - we will be able to share our success and learnings so other US states can adopt similar approaches. This provides the required scale for DeFi to thrive across the US. While the package will be aimed at US states, the concepts in the legislative package may apply to non-US jurisdictions.

Please provide a detailed budget breakdown of the proposed work and resources.

Budget Breakdown

• Lobbyists. 25%
• Marketing and PR (content, politically oriented website developers). 12.5%
• Advocacy, legislation development, coordination, and project management. 25%
• Development of Ecosystem Governance Framework (community consultation, analysis, and MVE development): 37.5%

Who is in the project team and what are their roles?

Our team is active in Atala PRISM Pioneers (and Astros) and has been advising SSI-based startups for over 7 years.

TEAM MEMBERS:

• Charles Belle serves as the Executive Director of Blockchain Advocacy Coalition. Charles is an influential leader with a deep background in running and supporting policy and technology organizations. He has served as Chief Operating Officer of a layer-1 blockchain startup and a compliance attorney to many growing protocols. Charles formerly founded and led the Startup Policy Lab and San Francisco-based Center for Innovation, focused on developing research and tools to leverage tech solutions in the public sector. Charles served on Governor Newsom's Tech Policy team, is a non-residential Fellow with the Stanford University Center for Internet and Society, and sits on the Board of BioTech Partners and the Voting Rights Brigade.
• Darrell O’Donnell is the CEO of Continuum Loop Inc. Darrell is a well-known leader in the decentralized identity space. He has led the operationalization of numerous technology in his role at multiple startups. This experience includes the first operational deployment of decentralized identity (MemberPass - in the US Credit Union/banking space), and life-critical systems in search and rescue around the globe. Darrell co-founded the Trust Over IP Foundation, which is dedicated to a dual-stack that links governance and technology.
• Christine Martin is a consultant at Continuum Loop. She actively engages in multiple public working groups, lending her insights and knowledge to Trust Over IP and other leadership organizations. Committed to making a meaningful impact, she volunteers with various grass-roots community organizations, including Ask Women Anything Ottawa and her local branch of the Ladies Auxiliary. Within her local area, Christine is deeply involved in supporting and advocating for 2SLGBTQIA+ issues and rights, striving to create a more inclusive and equitable society.

Team History:

• Cardano and Atala PRISM communities - our team has led and advised many different teams in the Cardano and Atala PRISM communities. We are active in Discord, Twitter, Atala Astros Slack, YouTube, Catalyst Town Hall and many other community channels.

The team leading this project has all participated in the Atala PRISM Pioneers Programme as its leaders and/or pioneers on both the business and technology streams, have submitted PR’s on PRISM SDK repositories, and engaged on Telegram, Discord, Twitter, and Cardano Forums. They have relationships with Project Catalyst Fund and Atala PRISM operational and technical team members, challenge teams, have founded and/or are involved in various communities, and collectively have assisted, advised, or participated in 50+ Cardano projects.

How does the cost of the project represent value for money for the Cardano ecosystem?

Lobbying and influencing legislation is regrettably expensive, particularly in the US. We are fortunate to have external funding sharing the high costs for this project. As far as value, we believe that the Cardano community will benefit far beyond the project price with the following:

• Legislation on the floor of the US's largest state (by population).
• Exemplar legislation package for use in other states - inside and outside the US.
• A functioning Ecosystem Governance Framework that allows various players to add value to the crypto community.