An interview with Toufic Adlouni, the co-founder and managing director of Renno & Co, about the metaverse and its legal implications.
Yves Faguy speaks with Toufic Adlouni, the co-founder and managing director of Renno & Co, a Montreal-based law firm focussed on emerging technology about the metaverse, its legal implications, and the commercial opportunities for law firms. His firm recently opened the first Canadian metaverse law office.
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Yves Faguy: You’re listing to Modern Law presented by the Canadian Bar Association’s National Magazine. Hi I’m Yves Faguy. In this episode of Modern Law we will be discussing how we govern ourselves in the metaverse. What is the metaverse? Well it depends on who you ask and we’ll get to that in a minute. Suffice to say that for now our analogue world is on a gradual collision course with a more immersive embodied internet. To borrow the description used by Meta CEO Mark Zuckerberg Meta being Facebook’s new company name. Whatever it becomes and however it is imagined by its pioneers the metaverse is probably going to unlock plenty of new business opportunities and it’s going to connect buys and sellers in a new online marketplace.
Of course where there’s a market there are contracts and eventually laws and regulations and codes of conduct and of course not everyone behaves honourably so you can expect a lot of users behaving poorly from acting in bad faith to committing crimes. So what are some of the legal implications that we should be thinking about as we build this immersive virtual world, and what are some of the opportunities for the legal profession. On our show today we have Toufic Adlouni. Adlouni is the cofounder and Managing Director of Renno & Co a Montréal-based law firm focussed on emerging technology law. For the most part he advises start-up companies in the tech sector to raise equity financing and protect their intellectual property. He and Renno’s other cofounder David Oram recently opened the first metaverse law office, at least as far as I know. And he’s going to tell us about that and more. Welcome Toufic.
Toufic Adlouni: Yeah thanks for having me.
Yves Faguy: So listen is it the firs metalaw office that you opened and while you’re answering that you might as well take the opportunity to tell us a little bit about yourself and how you got interested in Web3.
Toufic Adlouni: Sure, so it is from the Canadian law firm perspective at least to my knowledge. I do know of another law firm in the United States that did open a metaverse office as well, but from a Canadian standpoint to my knowledge yeah it – we seem to be the first movers in the space. A bit of my background in how I got into Web3 well I was always interested in monetary policy. I did a minor in economics for my undergrad and I always found it quite an intriguing subject and one that I really did enjoy. And it was especially – you know I started my undergrad in 2008 so it was, you know, right when the financial crisis in 2008 happened so it was definitely the topic du jour and our classes were very dynamic in that sense and we had, you know, great opportunity to talk about quantitative easing and credit default swaps in sub-private mortgages and all the great stuff that we’ve associated with the 2008 crash.
I guess fast forward to 2014 where the Ethereum ICO happened. I kind of began, you know, picking up interest through Ethereum and then through Bitcoin about this new potential monetary revolution and what could that mean for members of our monetary system which we all are. I think this was also kind of galvanized by background. I’m Lebanese of origin and in Lebanon the financial situation and trust of the banks and the Central Bank was always on a precarious standing. In a way having the ability to find a decentralized fashion for folks to exchange value which I thought was extremely encouraging for markets such as my, for my home country. I started practicing law in 2017. Also that’s when I moved to Montréal from Québec City and I started getting involved in the Bitcoin and Ethereum community locally.
I found that a lot of folks needed legal advice and needed lawyers and I didn’t even know that this was a thing, you know. I thought that my two worlds, one of being a lawyer and one of being a, you know, crypto enthusiast where never going to collide and it was just going to be a hobby. And I was able to form, you know, a practice in that area and it’s been history from there I guess.
Yves Faguy: And so now you’ve opened this law firm in the metaverse. I understand you’re interested in all these things from crypto to Web3, immerging technology in general. We’re talking a little bit about Web3 today or the metaverse. Let’s try and start by defining thing a little bit, what is the metaverse, why are we suddenly talking about it again, who’s involved, who do we see it developing, those kinds of questions. Just for the benefit of our readers to understand truly what we’re discussing.
Toufic Adlouni: Yeah so I think maybe to put it very generally the metaverse is an ability for people to interact in a virtual world or virtual environment. This isn’t really anything new, you know, we’ve had games that have essentially done this, games such as Second Life, World of Warcraft, there’s that other game that always escapes me but your kids probably play it, it’s called [Front Ripe 00:05:55] or something of the sort where, you know, you essentially have a form of metaverse that exists. I think the new kind of discussions that are coming up here especially from the Web3 angle is the centralized nature of the metaverse or metaverses so to speak that are being built out by, you know, a variety of different organizations and the ability for interactions on that, in that metaverse or on that platform to be transactable through kind of the power of blockchain technology.
Yves Faguy: So what does that mean concretely, are we talking about operating between different metaverses?
Toufic Adlouni: There may be a day that that happens. The issue is that, you know, blockchains are usually built on certain protocols and those protocols are essentially their own networks and interact within themselves. Now a lot of the most popular metaverses are being built on the Ethereum network but there’s other ones such as Upland which is being built on the EOS network. And there are some really smart people current attempting to create kind of some sort of interoperability there. There is definitely some form of interoperability through the exchange of assets that can be done, you know, across metaverses. But in terms of, you know, you being in Decentraland and being able to walk into Upland or Sandbox, it’s – and those are two other – those are three metaverses that I just named.
Yves Faguy: And you – sorry to interrupt you, you’ve opened your office in Upland if I’m not mistaken?
Toufic Adlouni: Correct so we have one in Upland and we are also – we’ll announce in two weeks our second office in Decentraland.
Yves Faguy: OK. So we’re talking here – so we mention this notion of centralized versus decentralized, a centralized versus a decentralized metaverse, I’m going to stay in the singular here. Why is it important to think about it in those terms?
Toufic Adlouni: Well I think it’s an important distinction because not to get too philosophical and I may say that a couple of times during this conversation but, you know, our reality as it exists currently is essentially decentralized in a sense that there is not one body that really governs, you know, the totality of the interactions within our system, right. Now you may say, you know, governments, you know, get fairly close but government, you know, can’t change the law of physics for instance. So with the metaverse that is centralized which is similar to what Facebook is doing, you know, you essentially have a centralized body that will be similar to any of these Web 2.0 platforms we’ll be able to dictate much of what goes on in those, you know, in those ecosystems.
Decentralized ones will allow for a much more open-ended kind of interact within – amongst its members. They will have certain governance structures which anyone can partake in to make decisions on behalf of the metaverse. But, you know, in theory it’s supposed to be an environment where there isn’t a centralized direction kind of governing the rules of that environment.
Yves Faguy: Right and so where are we headed or do we not know?
Toufic Adlouni: Well I think that’s a good question and it remains to be seen. We obviously have a lot of decentralized metaverses such as, you know, the ones that I had just mentioned which are beginning to gain a lot of traction with, you know major companies. I think I read that Nike was opening up a store in the metaverse etcetera, like coming into the environment and begin interacting with people in those environments. On the flip side you have companies like Facebook and Twitter which are also going to move into these environments, and they are going to do it in a more centralized fashion. It remains to be seen who’s going to win out I would say. I would probably believe that similar to your current social media usages you would probably use multiple social media platforms depending on, you know, its particular use case that it brings.
And again if you have some inclination against Facebook for whatever reason maybe that would, you know, encourage you to use more centralized ones, and if, you know, you have some reservations about decentralized ones you may want to use Facebook’s which, you know, now calls itself Meta. It definitely remains to be seen but I think both of them are kind of going the same fundamental direction in the sense that how are we going to augment our virtual experience from what it currently stands today? And if you let me kind of, you know, develop out that point is that, you know, we’re currently in, you know, a Web 2.0 world, right, so Web 1.0 was essentially opening a website and putting content on that website. Web 2.0 is allowing a community to people to put content on that website.
So, you know, this is your Facebook your Twitter, your Instagram, your Snapchat, what have you, sand we’ve seen kind of the revolution that that has created. It’s allowed for, you know, a variety of different discussions, interactions, marketplaces, you know, not only kind of buying and selling of goods but marketplaces of ideas to kind of, you know, converge upon these platforms. Web 3.0 is – and again I’m going to make a distinction on the terms here, Web 3.0 is inclusive of metaverse but not necessarily, some folks call the metaverse Web 4.0 and Web 3.0 is really decentralized web applications or DAPS. Again I’ll use Web 3.0 for the purposes of this conversation to encompass both, you know, DAPS as well as the metaverse but there are some folks making that distinction currently.
But you know essentially what Web 3.0 is, is that we increase the information points that are being exchanged between parties that are on these platforms creating a more inclusive audio/visual experience. So, you know, if you go onto clubhouse these days, you know, go in and you enter into kind of an audio only conversation with a lot of folks in that room, you know, chatting. If you go onto Facebook there may be an experience where you’re sending, you know, sending stories in a 2D fashion in the sense that you have to kind of look at your screen and see a video occur on your screen to be able to, you know, take in that information.
And Web 3.0 in the metaverse you’re going to be able to in the clubhouse situation, you know, maybe create a coffee shop environment where you can see people’s gestures and maybe even more advanced, a lot more touchpoints, people’s emotions, people’s body language, you know, etcetera, etcetera. That’s kind of the future.
Yves Faguy: So it’s really an enhanced communication tool?
Toufic Adlouni: Absolutely. I think that’s where it fundamentally is going. And it has a communication tool but also an enhanced method to transact. Not only does the blockchain allow you to do this but, you know, you could visual a certain future where, you know, you could put on your Oculus which is a form of kind of VR headset and you enter into a “shopping mall” or something of the sort and you can go around and take a look at shoes, try those shoes and potentially purchase those shoes in that environment, and then those shoes would, you know, be shipped to you in the real world. Or, you know, they could also be given to you as a skin and you can wear, your avatar could wear the shoes and you can look, you know, kind of stylish in the metaverse as well so [laughs].
Yves Faguy: It’s going to be important to look good in the metaverse.
Toufic Adlouni: Yeah [laughs] you know because the close market right now is quite a big selling point in the early days of the metaverse as in today. Folks are, you know, what we call skins and you can kind of put on skins on your avatar and you can kind of, you know, design your avatar with these “purchased virtual reality clothes” which you can also sell afterwards. So it creased kind of that, I don’t want to use the world natural but it’s kind of a more natural kind of buying and selling environment instead of, you know, maybe now you can purchase a piece of clothing and it comes to your office or your home and you try it out,. And maybe if you wat to sell it you’ve got to go to Facebook Marketplace to sell it, or I think Depop is another site where folks sell their clothes. Here it’s kind of completely embodied within the singular platform.
Yves Faguy: OK so that’s kind of interesting, so there’s obviously retail business opportunities whether you’re buying for your avatar or for yourself in the real world, what are some of the other business opportunities that you see out there? And I guess, you know, why did you decide – you went there, opened your metaverse firm, you know, what – presumably you’re going there because that’s where you think the business is going to go to some extent; so what are those opportunities?
Toufic Adlouni: Yeah that’s a great question, so you know currently what we’re seeing in the metaverse as, you know, forms of exchange is obviously like I said skins that are being exchanged in the metaverse. You have art in the form of, you know, NFT art being exchanged. You have as well a lot of property being exchanged, you have a lot of development of property from people buy land parcels and essentially building, you know structures on that property. This may sound weird to some of your listeners but essentially it’s, you know, a graphic designer who has, you know, some architectural skills building out something of the sort for you in which you can then plug into the property itself. And it could augment the underlying NFT asset that encapsulates the property as well as a visual aspect and a use case aspect, so you know, you can have a house where people can walk through and you can check out the art or what have you.
In the future I think the sky is quite the limit in terms of the exchanges. One thing that we may see is a lot of kind of abilities to, you know, literally buy and sell anything. Go to casinos I think is going to be a big one in the metaverse, being able to do different types of exchanges. Really, you know quite literally the sky is the limit. The reason why we went to the metaverse ourselves is because we’re of the opinion that we would like to meet where the client is, right. So you know my current kind of business practice is, you know, roughly I would say 90% digital asset-related. We do – most of our work with these companies, and we feel very comfortable with these companies and assisting them kind of on their process.
So being to meet them where they’re at I think is going to be an extremely key aspect to the way, you know, law firms are going to run their business. Similarly to the way that law firms are currently on, you know, Linked-In or Facebook, having that type of presence there may potentially, you know, allow for certain interactions to occur that otherwise may not have occurred.
Yves Faguy: And so let me just ask you like when you’re meeting your client where they are, concretely or virtually, how does that play out, like are you getting them in some sort of virtual office, what does it look like?
Toufic Adlouni: Yeah so maybe on our next call and especially with our Decentraland office I would love to give you a tour so to speak.
Yves Faguy: OK [laughs] yeah that would be good.
Toufic Adlouni: Yeah, as I think it could be quite interesting. But essentially – you know and I think this is, you know, maybe there’s a variety of [unintelligible 00:19:56] and they have alarm bells ringing here and I’m getting like, “Well, you know, Toufic, you know, how is this possible, how did you even think about, you know – did you think about solicitor client privilege etcetera” and I think these are good points to raise. I think what is essentially happening in the metaverse is nothing in which would compromise that type of exchange. All types of communication would then go out of the metaverse and happen on a Zoom or on a secure kind of messaging platform whether it be email or Telegram.
In the metaverse itself, you know, what we have, you know, is essentially a variety of content in which we discuss, you know, what we do, the services that we offer, information about us, and also links so they can know who we are a little bit more, links to our websites etcetera, links to our email. And then they can kind of reach us if need may be. We may get cheeky as well maybe – I always found it weird when I would visit kind of the classic law firm on the 40th floor in a tower and, you know, they had artwork that was pretty extravagant, so maybe I’ll try to compete with the big law firms and create a very extravagant gallery of NFT art –
Yves Faguy: [Laughs]
Toufic Adlouni: – [laughs] and have that showcased in my metaverse office. Now this is a bit of a cheeky idea [laughs].
Yves Faguy: That’s the perfect way to give your clients a reason to complain, why am I paying for these rates when they’re just dressing the walls with their NFT’
Toufic Adlouni: [Laughs] Yeah exactly, exactly. But yeah on that point that I wanted to just make beforehand which was a big part of our practice as a law firm is that we try, we try to learn by doing, right. And it’s really hard for lawyers especially in the space in my humble opinion to make, you know, to make qualified assessments on how, you know, contractual relationships are going to be governed if they haven’t really, you know, got their feet wet a little bit and understood how it works, right, just at least from my kind of perspective, right. If you’re trying to make risk assessments of draft contracts regarding, you know, staking-as-a-service agreements which most people won’t know what it is but that’s kind of a, you know, a fancy contract that we use in the crypto and blockchain world.
You know how were you able to draft up an agreement of that sort? Even if you conceptually understand what staking is how can effectively draft that contract if you haven’t went and attempted to stake something yourself, right, from a purely testing perspective. I think it’s vital for the lawyers at a firm to have that, again, “real world experience” no pun intended and for them to kind of learn by doing. I think it adds a really important value to our practice.
Yves Faguy: I’m sure it does and I guess – like I suppose that the other value of learning by doing is that by being there you’re probably going to see some of the issues that arise. So let’s talk a little bit about, let’s talk about some of the legal issues to consider, and I’m wondering, you know, what are some of the areas of law that you see being most disrupted? To use a [galvoted 00:23:59] term but like by the growth of the metaverse, or you know is this just an alternate world in a virtual reality environment where the same old real world rules apply, whether they’re contractual, regulatory, criminal, all these kinds of privacy issues; or is interacting in the metaverse going to have an impact on how law evolves?
Toufic Adlouni: I think law is on a collision course with decentralized systems and –
Yves Faguy: Generally?
Toufic Adlouni: Generally yeah and there is no real solution, you know, our legal history as not only from a common law standpoint but also, you know, from other kind of basis of law is based around the notion of centralization accountability and responsibility. You have a CEO and directors who have, you know, fiduciary duties towards the company, and you have, you know, chief compliance officers that have duties, you know, to the regulator. You usually have, you know, a fairly easy way to point the finger to someone who has to take kind of ownership o he venture. It’s a lot more difficult in decentralized systems, right, who owns these systems and how are decisions made and who’s essentially running the show and where does –
Yves Faguy: And I guess who has the fiduciary responsibility.
Toufic Adlouni: – and who has the responsibility. Now the law has kind of come – been on the side of what we expected to do is that even if you go about decentralized systems, I’m summarizing it and reducing it but there was a case in the U.S. from 2018 called EtherDelta which essentially a fellow who, you know, started a DeFi exchange was held liable for the actions of the decentralized exchange. He did not an ability to avail himself of that responsibility, and they kind of pinned the program creator as the responsible person for that decentralized exchange. Now it’s a lot more nuanced than that because again we have to look at, you know, is control still being exerted, what was the time between the creation of the, you know, the decentralized system by a certain person and how long have they been kind of out of the loop of the management of that system.
What happens if, you know, similarly to the case of Bitcoin where, you know, the creator of that system, you know, essentially is unknown and vanishes? That is going to be, you know, a really hard nut to crack for, you know, our legal system. Another fairly large collision course I see is the, you know, dichotomy between anonymity and privacy and as they say in the crypto world doxing or apparently, you know, revealing who you are, you know, virtually. A lot of these systems are built out with kind of privacy in mind and how do we, you know, how do we ensure that folks are interacting in the virtual world that they aren’t taking advantage of that potential anonymity.
And how do we exercise, you know, regulatory authority upon those systems to ensure that they do not have the option to, you know, interact anonymously when the rules and regulations need them to be, you know, in specific – you know with AML and kind of money laundering considerations. So yeah that’s another huge I would say part of that.
Yves Faguy: AML?
Toufic Adlouni: Yeah. Well it is because a huge issue with decentralized systems is that most of them, you know at this time most of them are not a KYC –
Yves Faguy: Just for our listeners AML, anti-money laundering rules basically.
Toufic Adlouni: Correct, correct and KYC is know your client or KYB is know your business. Lawyers should be accustomed to this because we all have a “KYC obligation” and an AML obligation. The rules do apply to us in a certain sense via your perspective bar society’s regulations. And usually it’s not that big of a problem because most transactions happen through banks and banks have the obligation and you know you just have an obligation to kind of take, you know, identification and kind of the ultimate beneficiary owners of a company and, you know, just have that in file so that when the board, if they ever knock on your door you show that you’ve been doing that.
Yves Faguy: How is it different in Web3 or four or?
Toufic Adlouni: Well the principles remain the same, right, the principles remain the same. The difference is, is that it’s not really happening. And that’s, you know, a very big issue because, you know, you can technically by going onto, you know, any of the decentralized exchanges effectively, you know, launder your crypto, and that’s obviously, you know, a great concern for the regulator, for us all. Now it does bring light to the type of situation, obviously – I think we were joking last week that, you know, people have been using artwork to launder money for quite some time and no one’s really talked about it. But –
Yves Faguy: Nothing new about money laundering.
Toufic Adlouni: Yeah nothing new [laughs] about money laundering for sure. And I think, you know, money laundering can happen in a variety of ways, obviously real estate, you know, and it’s been topical in Canada that, you know, real estate has been used, you know, currently to essentially wash money, art, fancy cars and in any situation such as, you know, including this one, you know, it does give rise to those risks. So it’s going to be – and this is obviously a big part of our challenge is kind of educating, you know, our clients on these risks and also assisting them with moving forward and to build out these types of provisions kind of within their, you know, within their business operations.
Yves Faguy: And what else, what other issues are there? I mean I’ve seen people raise concerns about, you know, obviously securities issues –
Toufic Adlouni: Yeah.
Yves Faguy: – competition law is another one believe it or not that pops up.
Toufic Adlouni: So competition law yeah is interesting. It’s just started to kind of pop up but it is definitely something that will come into play. I’m not a competition law expert by any stretch of the imagination but I do think that is an interesting conversation that we’re going to start having.
Yves Faguy: Are we worried about Meta or Facebook or however you want to call it, is that part of the concern?
Toufic Adlouni: That’s part of it, yeah that’s part of it but there has, you know, there’s been a lot of movement, and again I take this with a big asterisk because this is not my field of expertise but there has been a lot of movement in anti-trust in the United States and the moves against Facebook and Google and anti-trust in the United States have been a huge shift. They were based on these papers and I did read these papers, I forget which – she was a professor in Stanford that essentially wrote papers putting an anti-trust case against Facebook and Google. Effectively there would have to be consideration for an anti-trust case to develop and the thing that Google and Facebook can rely on is that they were giving their services for free, right.
So in the sense there was no consideration and there is no anti-trust case because it’s a free – it’s been freely used. However she effectively argued that the consideration in this situation is [unintelligible 00:33:05] and your personal data that is being mined to the benefit of these organizations, you know, is effectively the consideration; and based on that the United States has made moved against both companies. I haven’t been really following the cases themselves.
Yves Faguy: But I guess the idea is that this could be transplanted into the metaverse context.
Toufic Adlouni: Yeah, yeah for sure, for sure, and again it’s still a nascent industry so it remains to be seen. But these things could even –
Yves Faguy: But it raises –
Toufic Adlouni: Yeah?
Yves Faguy: But it raises a good point which is that, you know, a lot of – I think a lot of the concerns from a legal vantage point about the metaverse seem to find their root in how we’ve seen things develop in Web 2.0. This is why I guess privacy seems to be a major issue as does cyber security. We’ve seen – you know it’s interesting I listened to one podcast lately on Lawfare and they were discussing, you know, the whole issue about, you know, content moderation. How content moderation is just going to be a nightmare in this environment because, you know, how do you enforce hate speech rules against someone who’s wearing, against an avatar who’s wearing a T-shirt with something particularly evil written on it.
You know this complicates matters quite a bit, and then I think it brings in all these like privacy issues too, how do you ensure good content moderation and respect privacy rules at the same time? I think you might have been sort of alluding to that earlier.
Toufic Adlouni: Yeah it’s going to be a huge battle. Sorry continue.
Yves Faguy: Well I mean so I guess the question is, you know, what are some of the lessons to be learned from how we managed or mismanaged the building of the governance framework for Web 2.0? You know and I guess I’m really trying to address here, you know, in part how we struggle with containing some of the worst features that we’ve seen emerge from our sort of relationship with big tech.
Toufic Adlouni: Yeah that’s a great question and I think part of the answer really is, which is also part of the problem but it solves it in part is the decentralized nature of these metaverse ecosystems. One of the things that Facebook and kind of government officials have had issues with Facebook is that, you know, essentially the company was incentivized to, you know, prioritize inflammatory content or “fake news” because it essentially created a lot of interaction and a lot of shares, right. So it also allowed for people to effectively live in their bubble so to speak. So in a sense, you know, Facebook’s goal, you know, is obviously to keep people on the platform, right. They sell ads, they need you, you know, they need your attention. They need your eyeballs on their application for everything to work.
So the incentive structures for Facebook to prioritize inflammatory or egregious content that creates a lot of discussion or for trolls to just say, “Whatever” and solicit, you know, huge pushbacks was kind of baked into those platforms. That doesn’t exist in a decentralized platform; so that solves that issue. But the other issue is obviously, you know, the KYC – you know the ability for people to be [DDoSed 00:36:56] and the ability for people to at least be known on these platforms. Obviously one way which is to, you know, speak with the governance structures of the decentralized systems which are decentralized themselves but they do have decision-making processes in place to ensure that their platforms and access to those platforms have the ability to, you know, KYC individuals who want to interact on those platforms.
We can also kind of look at the Reddit model that still keeps you I would say anonymous to a certain extent but you have kind of moderators that are, you know, communities moderators that have to moderate certain [unintelligible 00:37:40]. That is also a potential solution but yeah I don’t really have the answers, I’m kind of just pontificating here [laughs].
Yves Faguy: [Laughs] No that’s quite alright.
Toufic Adlouni: Yeah.
Yves Faguy: Yeah and I guess another issue that’s sort of interesting is that, you know, when we look at the governance of the internet though too is that there’s all these – you know we have to apply all these domestic laws, right, and we’ve had to manage and govern the internet through these domestic laws which are very different and vary widely from one jurisdiction to the next. How does the metaverse deal with that, is that going to – are we just faced again with the same problem or is this –
Toufic Adlouni: It’s another collision course. It’s another one of these kind of slow moving car crashes that I see which is, are nation governments the effective vehicle to regulate individuals? I’m sure some folks are going to not be super happy with that statement but I think it’s important to kind of raise the flag and kind of say well the internet has essentially made, you know, our world much more smaller, right, where our ability to interact with people all over the world is kind of the status quo at the moment and it’s only going to be more so in the future, right. The blockchain is a truly, and the metaverse is a truly global community, right. It’s – you have people operating in the space all over the world, and it’s kind of a beautiful thing if you look at it in a certain way.
And in our practice, you know, though we’re based on Montréal we do so much work just internationally, right, everyone is just everywhere and everyone’s doing, you know, these types of activities from all corners of the globe. I don’t think we’re going to blow up the kind of “Westphalian structure” as it stand currently but I think that we’re going to have to have a lot more government cooperation on this sense. And we do have precedents for this, right, you know, with AML there is the FATF, right, which is essentially, you know, driving a lot of our national rules around AML. And, you know, we’ve had the global community kind of come together to build out frameworks that governs kind of a global problem.
You know we have the multilateral treaty with respect to tax that solves that as well, obviously in light of, you know, the Panama Papers and whatnot. There are precedents for, you know, countries to come together and build these global frameworks. And I think we’ve seen kind of things happen with Europe and GDPR and I think we’re going to see more of it in the future. Again I don’t know if the western world will be able to align together and I don’t know if they’ll be able to get other players onboard that are, you know, very prominent, you know, in the virtual world such as China and India but at least that’s kind of, you know, my best thinking on how to kind of solve these things.
Yves Faguy: Yeah and I wonder, I mean it is true that perhaps over the last – at least, you know, from the mid-2000s on to, you know, only a couple of years ago it seemed as if we were sort of sleepwalking through, you know, some of these problems that were emerging from, you know, the use of online platforms and whatnot. And you know I kind of wonder if, you know, Facebook’s rebranding into Meta – it’s a bit of a speculative question but will it – do you think that something like that could galvanize governments into saying, “OK wait a second, you know, we’ve been to this dance before, let’s start putting our thinking caps on and watching out for this a little more carefully.”
Toufic Adlouni: Yeah. Yeah I think so but I’m going to come in with a couple of hot takes here.
Yves Faguy: OK, OK I love hot takes.
Toufic Adlouni: Yeah so my hot takes is that the legislatures of respective countries and, you know, government apparatus are just not equipped to deal with this because they just don’t know. They just don’t get it to be quite frank, right, you know. If you watched kind of the congressional hearings on DeFi and whatnot you have, you know not to paint broad brush strokes but a certain demographic of people who are congressman and you have them asking questions on things that they completely don’t understand. And you have folks in positions of power, like you know Christine Lagarde, you know, at these ECB, you know, stating kind of troupes about the crypto world, you know, which are in my humble opinion are – you know sound like they haven’t been – you know these are statements that are not coming from a position of knowledge, right.
And it’s a lot to ask from them, they’ve got a lot to do, like this is not something that they’re going to like deep dive into to figure out the intricacies of how it works. So how do you square, you know how do you square that round whole? I don’t know. I think it kind of comes back to the fact that we potentially need to see a newer form of political engagement amongst young people, amongst people in the technology sector, people who understand, you know, these areas and have their voice heard, you know, in parliament or elsewhere. I think they are massively underrepresented and I think that’s doing everyone a disservice because our world is very, is in an extremely fast manner moving to a dematerialized world, right.
And we were kind of talking about this, you know, before where, you know, I was watching Brooklyn Nine-Nine on Netflix and, you know, cops walking the beat and, you know, they see a bad guy, you know, robbing a shop and then go and they grab him and they arrest him, that’s just not how crime works, right. Crime is online, it’s anonymous, it’s hidden, and it’s complicated because it has this technology overlay. And our law enforcement, you know, well-equipped to deal with these types of problems, the problems of the 21st century. I don’t believe at least that they are. So we’re going to need to either see a fundamental shift on, you know, how approach these things and that really comes I think from the top down with leadership taking the reins and emphasizing that this is going to be kind of, you know, a priority for them to get educated on these things so they can effectively make proper policy decisions.
Yves Faguy: If you were to guess where the first regulatory interventions would come in what would it be, you know, because I imagine certain problems are going to be more urgent to deal with, more urgently needed to deal with than others.
Toufic Adlouni: That question I can answer confidently, it’s going to be tax in AML [laughs] because – yeah AML because it’s obviously extremely – it’s a high level priority for governments to deal with, you know, money laundering and anti-terrorist finance. And on the tax side again it’s going to be detrimental for, you know, governmental revenues if everyone moves their assets to a digital framework and, you know, do not claim it, you know, those are substantial loss revenues for government and I think, you know, they’re not going to want that at all.
Yves Faguy: Yeah even government has its priorities.
Toufic Adlouni: [Laughs] It’s true.
Yves Faguy: It is true. What are you, you know, as cofounder of Renno & Co, what are you most going to be paying attention to as this field develops over the coming years?
Toufic Adlouni: Yeah I think my belief and I do think that decentralized finance is very much the next – you know you’ve heard it, we’ve talked about it but the evolution and the power of decentralized finance is going to be absolutely massive. You know I think it’s going to change the entire way in which our financial systems operate. And let me kind of, you know, give a little context for the reader here. So you know currently our financial systems are fun by financial institutions mostly banks, and banks are essentially, you know, centralized entities that have massive overhead, large back offices, outdated legacy systems to conduct their businesses. If you run with the assumption that dematerialization always wins, and what I mean by dematerialization I mean it’s the process of taking an action that has happened in the real world in dematerializing.
A great example is how you consume content, right. Beforehand if you wanted to read the paper there was a larger supply chain, logistics and printing operation that had to happen to get your eyeballs onto a piece of text, right, and that included – maybe you did this when you were a kid, you know, a young guy or a young girl kind of like throwing papers at the door, right, and having, you know, printers and having distribution centres and all of that to get content to you. Today we get content through a click of a button, right, and you have instantly removed the distributors, the printers, and everything else in-between to create a more efficient manner to bring about information to you. I think that efficient manner exists with finance through decentralized finance and [small 00:48:54] contracts because I could go today, I can go today and I can get a loan in seconds again my Bitcoin, right.
I can go on – I can either do it through a centralized platform like Celsius or BlockFi I can go onto a decentralized platform and do it such as, you know, Hodl Hodl or FTX. And in that sense I’ve completely cut out a huge amount of the necessary capital, effort and inefficacies that exist for me to go get a loan at the bank, right. I can do it in a manner of, you know, clicking a button. That is a pure case of when dematerialization wins over current systems. And I think that’s going to be a really empowering part of decentralized finance is allowing for especially folks who maybe for whatever reason have poor credit ratings or are marginalized from the current, you know, financial system as it can – to be able to have access to that capital to do whatever they need to do in life. Obviously it comes with its challenges as we’ve, you know, discussed at length but yeah I think that’s going to kind of the biggest change in my opinion in this space.
Yves Faguy: And it’s kind interesting because, you know I mean, I’m supposing that you can’t, you know, you can’t probably purchase a house using those means. But again if we’re looking at the law –
Toufic Adlouni: Oh you can, you can. You can get a mortgage on DeFI is that you NFT your land deed and then you stake your NFT in a platform that gives mortgages against properties and you have an ability to get decentralized mortgages. It’s happening today. This is happening already today.
Yves Faguy: That’s wild.
Toufic Adlouni: So yeah. And that saves you a lot of trouble in terms of getting mortgages which is, you know, obviously a huge part of, you know, bank operations. And this is all done by smart contracts, so it’s done algorithmically which is one of the most wildest parts about it is that the human capital to be able to produce the same output is reduced, you know, quite substantially through the technology. Yeah it’s – for me I find that very, very fascinating and [unintelligible 00:51:35].
Yves Faguy: So these worlds really are colliding?
Toufic Adlouni: Oh yeah, and we’ve already worked on these types of projects so they’ve been very fun [laughs].
Yves Faguy: Actually so to close out what would you actually then – you know if you had a message to convey to the legal community out there with respect to all of this happening, like what’s your message to them, what would you say to them? Or actually what would you say to a young career starter entering the profession who wants to, you know, who wants to become familiar with this?
Toufic Adlouni: Yeah I think that’s a great question. I think, you know, feel free to reach out to me on LinkedIn or on Twitter and, you know, we would be happy to chat further. You know for law firms that want to, you know, that have kind of clients in the space and want to be able to serve their clients better, you know, I think likewise they can reach out to us and, you know, we would be happy to kind of assist. You know I think for a young, you know, practitioner and upstarter I think staying close to technology is going to be extremely key for your practice. I think questioning everything is going to be equally as important. You know one of the reasons why I started my own practice is that I was – this is back in 2017 so things may have changed.
But I was pretty appalled by the lack of innovation that was happening in kind of my previous law firm. We were still putting time entries on Excel, sending out, you know, invoices as, you know, as Word documents, you know, essentially saved as PDFs, emails. We were printing them out and putting them into according binders. If you go to court, you know, the clerks were still running, writing by hand the judgements of the judge. I was like this is 2017 guys [laughs], right, and what is going on. And the profession is conservative by nature and I respect that. It’s going to be necessary for us to learn how to leverage technology and leverage, you know the tool that we have at our disposal today to be able to, you know, make law more accessible, more affordable, and more humane.
And I think this is a big talking point on our end because, you know, at Renno & Co we’re not only, you know, a firm that works in digital asset law but we also are, you know, practice what we preach again and attempt to use kind of the best of what technology has to offer in the firm, you know, on behalf of our clients. And also try to really embody a good work life balance and I think that technology can really help us get there. You know a final point on that and it’s something that I say quite often is, you know, when the ATM was rolled out, I think it was in the 70s, a lot of the bank clerks were up in arms because they said, “Well they’re going to take our work.” But we have more bank clerks today than we did in the 70s so what happened, right? What happened was is that –
Yves Faguy: Shorter line-ups.
Toufic Adlouni: – well shorter line-ups and that their role evolved, that they were able to do other tasks, right, that they may not have been able to give as much attention to because they now have, you know, this potential ATM assisting them with these tasks. I think lawyers are going to have to look at technology in that way because it’s not about, you know, billing more hours it’s about, you know, producing the same value more efficiently. And I think that if we can get that we can kind of solve what I think is the biggest crisis in the legal profession currently which is the current mental health crisis, right, where we have lawyers that are sad, they’re upset, they’re overworked, they’re leaving their firms in droves and there is a solution there and I think technology is it, amongst other things. It’s not the only thing.
Yves Faguy: Thanks Toufic that was a fascinating discussion, it’s an important point that you just raised at the end there too. But I for one am intrigued about where this is all headed, these are definitely things to think about as we take stock. Thank you so much Toufic Adlouni for joining us today.
Toufic Adlouni: Thank you. I appreciate the time and thanks for having me on.
Yves Faguy: And I hope to – follow this discussion with you in the future.
Toufic Adlouni: Yeah likewise, anytime, I would happy to jump on.
Yves Faguy: OK thanks. We hope you enjoyed this episode of Modern Law one of our CBA podcasts and you can hear this podcast and others on our main CBA channel on Spotify, Apple Podcasts, Google Podcast, and Stitcher. Subscribe to receive notifications for new episodes and to hear some French listen to Droit moderne. If you enjoyed this episode please share it with your friends and colleagues and if you have any comments, feedback, suggestions feel free to reach out to us on Twitter @CBAnatmag and on Facebook. And check out our coverage of legal affairs at nationalmagaine.ca and once again I’d be remiss if I didn’t thank our podcast editor ACD Production. We’ll catch you in the next month.