Author: Prof. Zhang Wei

https://mp.weixin.qq.com/s/LPar1n-Q9ywvT_GYw_GMzQ

In the fall of 2021, together with my colleague computer scientist Prof. Zhu Feida, I will launch a new course at the SMU Yong Pung How School – “Blockchain and Governance”. In August 2022, when LLM’s “Law and Technology” major officially starts, this course will also become one of the required courses for this new major.

Prof. Zhu Feida and I are both colleagues and friends, and “blockchain and governance” is also the result of our repeated discussions for a long time before. Prof. Zhu Feida said that this course is the first in the world. I dare not say whether it is the first. However, it is true that the two of us have integrated multiple disciplines from our own perspectives. So, what does this blockchain course in law school look like?

1.

I likened this class to a three-layer cream cake. The bottom layer is the technical cornerstone of blockchain and the foundation that supports all courses. Here, Prof. Zhu Feida strives to show law students how blockchain works in a way that is most acceptable to students with non-technical backgrounds, without relying on How to build trust in human factors, how to generate cryptocurrencies, how to run smart contracts, and how to interact with the technological ecosystem formed around the blockchain. In short, the underlying question to answer is: How is the world of blockchain possible? Due to my limited understanding of technical issues, I will not expand on this layer.
The second layer of the three-layer cake is the socio-economic observation of the blockchain. This observation is of course based on the basic technical facts. The essence of this layer is the comparison of the blockchain with our previous socio-economic situation. One of the primary constraints facing the economic development of human society is technology. Therefore, in order to understand the possible impact of blockchain as a new technology on society and economy, we must reflect on the constraints that existing technologies bring to us, and the regional To what extent does the blockchain break or alleviate these constraints. In other words, the second layer of content is answering: How can blockchain change our world?
Finally, the top layer of the three-layer cake is the legal regulation of the blockchain. The reason why the law regulates new technologies is due to the social and economic impact of this technology. Therefore, this third layer must be established on the basis of A proper assessment of this impact – that is, the second layer of content – is above. Qualitatively speaking, the third layer tries to answer: how to make the blockchain to avoid evil for good? Similarly, when talking about legal regulation, we must constantly compare the “new” impact of blockchain with the “old” effect of the original technology, and then discover which laws regulating the original technology can still be applied to Blockchain, and what new problems need new rules to solve.

Layered Theory

The top two layers of this three-layer cake are my tasks in this course, and I have a running idea on how to accomplish this task, which is “reviewing the old and learning the new”. From the perspective of a legal person, the development of human society has always been a continuous evolution, rather than a sudden mutation. In other words, all new things in this world have their past lives for reference, and the blockchain is no exception. Therefore, we have repeatedly mentioned comparing our existing world with the new world brought by blockchain. And this approach of reviewing the old and learning the new also gives us the opportunity to stand on the shoulders of giants, so that a research on a technology that was born only a few years ago has suddenly gained the accumulation of human wisdom for a hundred years.
On the second and third layers of the cake, I mainly discussed five main topics: the economic basis of blockchain trust, blockchain governance mechanism, token supervision, legal and economic analysis of smart contracts, and blockchain Impact on corporate governance.
In the lecture on the economic basis of blockchain trust, I first sorted out the three sources of trust: informal, semi-formal and formal, and introduced the competition of various types of trust supply and the factors that restrict competition. Then, by interpreting Satoshi Nakamoto’s famous Bitcoin white paper, he uses it as an example to explain how the blockchain can become a semi-formal source of trust with the help of game theory. Based on the previous technical introduction of Feida on the two consensus mechanisms of Proof of Work (PoW) and Proof of Stake (PoS), compare the advantages and disadvantages of the two at the socio-economic level. This comparison provides a new perspective on blockchain efficiency issues, and students can also see from it that there may be fundamental economic flaws in the way PoS works.
Another important part of this lecture is to let students understand the advantages and disadvantages of centralization and decentralization. In fact, as a decentralized technical means, blockchain can be placed on the extension line of research on centralized and decentralized organizational social production over the past few hundred years. From the macro level, this is the continuation of the debate between neoclassicalism and Keynesianism; from the micro level, it is the continuation of the market and bureaucratic division proposed by Coase. To this end, I borrowed the classic research from Coase, Williamson, Jensen, Maclean, and Hansman, etc., to explore to what extent blockchain technology can promote decentralization, and this way To what extent is the decentralization worth pursuing? Linking the blockchain to classic economic theory in this way is Back to the Future.

Second Topic: Blockchain Governance

Regarding the second topic—blockchain governance, I still start from the existing governance theories, and lead the students to review the basic research of Arrow and Hirschman on organizational governance issues, and extract the fundamental goal of governance from it. And the main dilemma of traditional organizational governance. In this context, we return to the blockchain and analyze the technical and ethical goals of blockchain governance, as well as the main tasks of governance. Immediately following, through a series of case studies, students have the opportunity to understand the real state of blockchain governance and reflect on one of the key questions – just how decentralized the blockchain is. This question is critical because it will determine the fundamental approach to blockchain governance.
The course on token regulation begins with an introduction to the properties of several basic classes of instruments in the established financial world—securities, commodities, and currencies. On this basis, I propose a three-level model for analyzing financial instrument supervision. This model was first proposed in a mini-online course jointly held with Fudan Law School. Later, after some processing, it was compiled and published in my personal ** on the WeChat public account “Comparative Corporate Governance”. After being absorbed into this new course, I extended the application of this model to analyze the regulatory approach that Bitcoin (and Ethereum), utility coins, security coins, governance coins, and stablecoins should take. The class concludes with a comparison of US and Singapore ICO regulatory rules and an analysis of possible deficiencies in Singapore’s rules.

4. Smart Contracts and De-Fi

The fourth topic I discussed with my students in class was about smart contracts, decentralized finance (De-Fi) projects and non-fungible tokens (NFTs) using smart contracts as a vehicle. Perhaps the most striking feature of smart contracts is automatic execution, so this part of the course focuses on the advantages and disadvantages of automatic execution. Students will once again be inspired by the results of decades of economic research to understand the phenomenon of “holdup” arising from contract enforcement problems in the existing environment, and the creation of lawyers to overcome enforcement difficulties. A “low tech” solution. As a result, students will be able to appreciate how the breakthrough in the automatic execution of smart contracts will bring benefits to social and economic activities. On the other hand, around smart contracts, we will also analyze why automatic execution is not always favored, and why people deliberately prevent automatic execution in business activities.
For decentralized finance and non-fungible tokens, the discussion is still conducted by comparing the existing world and the blockchain world. In the decentralized finance section, on the one hand, it examines the actual financial functions of De-Fi projects—lending, brokerage, market making, investment advisory, or exchanges, and on the other hand, it reviews how these financial activities are affected in the existing world. Regulatory constraints, and the rationale behind them, further thinking about whether similar regulatory rules should be applied to De-Fi projects. In the non-fungible token part, students will have the opportunity to understand the classic economic theory of property rights, and on this basis, re-examine the meaning of NFT and its current chaos.
The last major topic on the second and third tiers is about the possible impact of blockchain technology on corporate governance. To this end, I have sorted out the current dilemma facing two important corporate governance issues—shareholder voting and managerial opportunism. Students can see various abnormal phenomena in the above two aspects in practice, and the reasons for these abnormalities. With this as a basis, consider further how blockchain technology can help overcome these anomalies. In addition, this part of the course will reflect on the extent to which these anomalies in corporate governance are worth overcoming.

From the above introduction, it is not difficult to find that this blockchain and governance course crosses the barriers of many disciplines, and combines the wisdom of many disciplines such as computer science, economics, finance and law. In fact, graduate students from the School of Economics and the School of Computing and Information Systems are among the first-time students taking this course. We hope to use the perspectives of multiple disciplines to provide a well-founded analysis platform for objectively evaluating the potential of blockchain technology, and at the same time, to guide this technology to benefit mankind and provide a well-founded regulatory idea.

Teaching and learning each other, this sentence is especially applicable to our rather exploratory course. During the class questions and discussions of the students, our two teachers not only learned about the structure and emphasis of the course and other areas that can be adjusted, but also found meaningful topics for us to carry out further related research in the future. Prof. Zhu Feida has devoted himself to big data research for many years, but recently he has been focusing more on blockchain. To borrow his words, for our world, big data may change the “use”, and the blockchain will touch the “body”. We look forward to more students enrolling in our “Law and Technology” LLM program, taking this new course, and exploring the essence of blockchain technology with us.