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11 April 2023
Interview | Gide Africa | Web3
First, it is necessary to know that Web3 is not qualified in law, this makes it important to specify what this term covers. Web3 – an "enhanced" version of Web2 – is based on "distributed, shared" technologies. These new computer protocols allow, among other things, the issue of crypto assets, i.e., new types of instruments that make it possible to transfer value, to pay, to exchange goods, services, or property. From a legislative and regulatory point of view, the supervision of Web3 requires clarification of a certain number of concepts and legal definitions. In French law, these instruments can be qualified in various ways depending on their characteristics and the rights they confer. One possible qualification is that of "digital assets" when it comes to "virtual currencies" or "tokens".
The priority that has been given from a legal point of view to these new protocols and new digital instruments is based on the risk-based approach that regulators have taken around the world. For example, in France, and then at the European level, regulatory frameworks have been created that are imposed on the issue and use of certain crypto assets. Web3 represents an entire section of the digital market economy that is being created, exploring new territories of the digital economy. On an international scale, the current trend is of course towards the supervision of these instruments, but also of the service providers who are developing specialised services, qualified under French law as "PSAN", service providers for digital assets. In addition, the issues of qualification of NFTs and "stable coins" are interesting to observe. NFTs can indeed be qualified in very different ways: in some cases, they are considered as digital assets under the law and fall under the applicable regulations. In other cases, they are just non-fungible assets and do not fall under the regulatory framework dedicated to digital assets. The issue is almost the same for constant value tokens, known as "stable coins", whose legal qualification (electronic money, digital asset, financial instrument...) differs according to their profile.
The legal qualification of the instruments used in Web3, as well as the services linked to it, represents a major challenge in order to bring legal security to the business models that are developing there.
A shock of legislative and regulatory clarification is therefore necessary, so that the transactions that take place in Web 3 can be carried out under optimal and secure conditions.
The stakes for Africa are quite high, as the shift to Web3 changes the balance of transactions between the end customer, the service provider and the issuer of digital instruments. On the continent, three regulatory postures are emerging, depending on the geographical area: some North African states, given the tightening of their monetary policy, are prohibiting the use of crypto assets to avoid capital flight and money laundering (Morocco and Algeria), while other countries, mostly English-speaking, are in favour (South Africa, Ghana, Kenya, Nigeria and the Central African Republic). Other French-speaking African countries may have to clarify matters soon. This is the case, for example, of Côte d'Ivoire. Another example: the Commission de Surveillance du Marché Financier de l'Afrique Centrale (COSUMAF) has introduced the notion of digital assets in a regulation published in June 2022, a first for francophone Africa.
If the regulatory approach is not harmonised between states, two approaches can be distinguished: a regulatory sandbox and/or the implementation of an innovation hub. The first can be defined as a "lighter" regulatory environment with the possibility of granting exemptions ("waivers"). This concept aims to create a favourable environment for Web3, while heavily sanctioning abuses. It has been adopted above all in jurisdictions with an Anglo-Saxon approach to regulation, in Asia and to some extent on the African continent. It is from this sandbox approach that the degree of collaboration of Web3 operators with regulatory authorities stems. If the sandbox approach is favoured, then this collaboration comes naturally: the regulators set up support mechanisms – and in some cases, even regulatory exemptions – for Web3 operators. In the absence of a sandbox, cooperation between operators and regulators can also be developed, provided that the risks are explicitly exposed upstream. In both cases, it is necessary for legislators and regulators to understand how the technology and associated risks are evolving. Teams dedicated to innovation have thus been created within the competent authorities (prudential and market) at both national and regional levels (for example, the strengthening of expertise within the European Securities and Markets Authority or the European Central Bank).
Cooperation between regulators around the world is also necessary, given the need to harmonise rules dedicated to Web3 that apply to digital market spaces that are in essence global.
This can be done by sharing best practices between regulators and by defining use cases that expose specific value chains to which the legal responsibilities of operators, new trusted third parties and issuers can be attached. In this respect, the positions and recommendations of the competent authorities are expected.
To answer the questions of regulators, some international platforms specialised in digital finance have already begun to position themselves by organising regular roadshows in Africa to present their business models. It is also a matter of Web3 operators explaining to regulators and legislators the risk factors that may exist. Cooperation agreements can therefore be signed between different authorities to exchange technical information and thus harmonise knowledge and risk management.
First, the legal qualification of the Web3 technology or instruments will help specify the regulatory area in which companies will operate. This identification work must be done at a very early stage of the projects, since these regulatory constraints can constitute barriers to their development or, on the contrary, represent opportunities. It is in this sense that a regulatory value chain can be created to ensure that the entire transaction and organisation scheme for Web3 services can be legally qualified. Next, the question of territoriality must be asked, in order to eventually conduct regulatory benchmarks, whether by country or by geographical area. Then, it is crucial to identify the key elements linked to the purchase of digital land. Indeed, many brands invest in the metaverse to gain visibility and must examine the conditions, the purchase contract of this "land" which is an NFT, or the service contract if they use a service provider. Finally, the issues of intellectual property rights, the regulatory status of platforms and their conditions of use are equally important. Not to mention that, from the end-customer's point of view, issues of consumer safety, personal data, advertising, and the use of influencers in the marketing of Web3 services must be analysed to know what rules apply.
