1 May, 2023
Who’s a VLOP and who’s a VLOSER?
Alibaba, Amazon, LinkedIn, YouTube, TikTok, Twitter and Wikipedia are among the entities that have been designated “Very Large Online Platforms” (VLOPs) by the European Commission. Google search and Bing have been designated Very Large Online Search Engines (VLOSErs). All will now have to adhere to tighter rules under the bloc’s Digital Services Act (DSA). A complete list of the VLOPicedes and VLOSErs can be found here, along with a summary of their obligations. This will be a major regulatory intervention in the way platforms operate. It will be costly to implement and will subject the VLOPs and VLOSErs to ongoing supervision and random acts of complaints and litigation from private parties about content and data, some of which will be justified, many of which will not be. The law makes it illegal for the platform operators to serve ads based on their users’ personal profiles, but compels the surrender of all this data to “vetted researchers.”
New .NET Registry Agreement: Censorship? Monopoly?
ICANN is revising and renewing Verisign’s Registry Agreement (RA) to run the .NET top level domain. NET contains less than 10% of all domain name registrations (14 million), but as one of the bigger registries and due to its ownership by Verisign, which also runs .COM, it is worth paying attention to what is in that contract.
Reflecting ICANN’s role as a hybrid institution (private nonprofit and industry regulator), the new NET contract is up for public comment until May 25. There is not a lot of controversy surrounding this process, but the controversies that there are revive old questions about the relationship between ICANN’s status as global governing authority for the domain name system’s root zone registry, national governments, and broader forms of Internet governance.
The new contract contains language that gives Verisign “…the right to deny, cancel, redirect or transfer any registration or transaction, or place any domain name(s) on registry lock, hold or similar status, as it deems necessary, in its unlimited and sole discretion… pursuant to any legal order or subpoena of any government, administrative or governmental authority, or court of competent jurisdiction…” This new provision has raised legitimate concerns that the RA fosters censorship by allowing “any government in the world” to cancel any domain name they like.
In an unusual pre-emptive move, ICANN responded to these concerns on April 26, a month before its public comment period closes (May 25). It says,
“Registries, like other businesses, must comply with the local laws and processes in the jurisdictions in which they offer services. Section 2.7(b)(ii)(5) clarifies that registries have an explicit contractual right to respond to a lawful government legal process. It does not guarantee any government can seize or delete any domain name in the TLD.”
ICANN’s response, which seems designed to foreclose rather than encourage further public comment on this issue, is mostly correct, but not entirely. It is true that the threat of censorship and forcible domain takedowns comes from governments, not registries or ICANN, and nothing in an RA is going to prevent states from asserting legal authority over domain name registrants subject to their jurisdiction. It is unclear, however, why the contract does not clearly define and narrow down the registry operator’s response. In particular, ICANN-licensed registries should not be empowered to make takedown decisions “as it deems necessary in its unlimited and sole discretion.” Even if you think they should be, ICANN should not be shutting off discussion of that issue.
The new contract also reflects a doubling of .NET’s wholesale price, from $5.11 to almost $10. In the past, these kinds of rate increases have led to extensive protests from some registrants, mostly domainers who register large portfolios of domains and make money in the secondary market. Previous ICANN decisions, however, have made it clear that ICANN does not want to be a price regulator or an antitrust authority. If the pricing of TLD registries is monopolistic, it says, governmental antitrust authorities can act. This claim, too, is justifiable and mostly correct. But it is also true that ICANN’s contractually-imposed split between registries and registrars was executed to promote competition at the retail level, and its new TLD program was intended to promote competition at the wholesale (registry) level. So ICANN can and does act as a competition policy authority in certain ways. Indeed, the absence of any need to regulate prices in Registry Agreements, is a product of ICANN’s own “competition policy,” not something they left to national antitrust authorities.
US’s Stablecoin Bill and EU’s MiCA
The US House Financial Service Committee recently published a draft Stablecoin Bill to set up a Federal Stablecoin regime. This proposal, sponsored by Republican Patrick McHenry (R-NC) and Democrat Maxine Waters (D-CA) would establish a federal payment stablecoin regulator composed of the Fed Board, an appropriate Federal banking agency, and the National Credit Union Administration. To become a stablecoin issuer, applicants would have to demonstrate appropriate reserve holdings. The focus is only on payment stablecoins, i.e., stablecoins backed by a “one-to-one” portfolio of cash, short-term Treasury bills, and other highly liquid assets.
Similar to the previous version of the bill, the current draft includes a two year moratorium on “endogenously collateralized stablecoins.” This includes non-payment stablecoins backed by algorithmic value or by other digital assets. This seems to be coming from the collapse of UST (Terra) which relied on a secondary token, LUNA, for its dollar value. It also suggests that stablecoins will not be treated as securities, thus clarifying the scope of regulation.
The bill could increase institutional adoption of stablecoins, since it allows for traditional banks to issue payment stablecoins, but the need for state intervention is worth questioning. It looks like an attempt to regulate a very small segment of digital asset and currency space without a clear justification for this narrow focus. Moreover, the regulation would be intervening in an existing market occupied by Tether (USDT) and USDC, yet the hearing made no reference of the expected market implication on these two incumbents. The scope of the Federal Payment Stablecoin Regulator also remains unanswered so far. Bipartisan support is weak, too, as some Democrats are questioning the need for stablecoins entirely.
The EU has taken a very different approach with its Markets in Crypto Assets or MiCA regulation. While they do give special attention to stablecoins for reserve requirements, the overall theme is to let the market operate fairly freely to foster “innovation and fair competition.” MiCA does have a strict licensing clause for crypto wallets and exchanges, which will be complemented with Transfer of Funds regulations for customer identification. The enforcement of this would be tricky and would lead to lost anonymity unless designed otherwise.