This course explores and critiques potential new ways to organize economic activity, made possible through fairly recent, and in certain respects still tentative, technological advances. It also introduces students to the emergent regulatory system for mitigating the costs these new technologies produce. The primary technologies of interest fall within two categories often referred to as machine learning and distributed ledger technology. The goals of the course are to provide:
A conceptual foundation for analyzing how those technologies possibly alter existing market infrastructure—namely contract, property, and corporation law;
A forum in which to discuss the details of how existing market infrastructure may be changing, particularly with leading practitioners working in the field; and
A vehicle for students to undertake an in-depth analysis of these technologies' applicability to a particular social or economic problem.
The course is structured as a graduate school seminar, in which discussion of required and optional readings is the centerpiece of the experience. At times, we will also have an in-class "lab" to introduce students to an underlying technology. The goal of these labs is not to achieve a certain level of proficiency but rather to get students' "feet wet" and, hopefully, reduce internally-erected psychological barriers to entry. The course is designed for students with no prior technical training. Finally, we may also have guest speakers join us from time to time for discussions on discrete topics.
The course is divided into three sections: (1) Theoretical Foundations; (2) Studying New Market Infrastructure: Evidence from the Global Market for Swaps & Derivatives; and (3) Student Presentations. The first section gives us a language for discussing the role legal institutions play in markets and how changes to those institutions may matter. The second is the heart of the course -- it gives us a specific use case (the swaps & derivatives market) for (a) introducing machine learning and distributed ledger technology, (b) studying the relevant public and private regulatory institutions shaping the deployment of those new technologies to the market In question, and (c) thinking about the feasibility of other potential use cases in other markets. The third section is an opportunity for students to share what they've learned/created over the course of the semester.
There is no standard textbook for this course that neatly packages all of the relevant topics. Instead, we will be curating a collection of readings as we go. The assignments for each class are as follows:
Required readings: N/A
Supplemental readings: N/A
Today's readings require us to think systematically about the problems cooperative economic activity faces. Transaction cost economics ("TCE") provides a conceptual foundation that allows us to think through these problems and, eventually in later classes, their solutions. You have almost certainly been exposed to TCE before—it is infused throughout the contract, tort, property, and corporate law curriculum in U.S. law schools. Remember the Coase Theorem from 1L Property? That's TCE.
Having a common conceptual foundation like TCE is critical because the institutional response to modern economic problems is often not neatly contained within a single legal domain. They way you're taught many legal issues is quite compartmentalized. But lived reality is messy, and we are going to need a common language for talking about whether contract, property, or corporate institutions (and there may well be others) should be combined to respond to problems. TCE gives us a foundation on which to start constructing that language.
Required readings:
Schwartz, The Importance of Stupidity in Scientific Research, 212 J. of Cell Sci. 1771 (2008)
Arrow, Economic Welfare and the Allocation of Resources for Invention (1962)
Supplemental reading:
Today's readings ask us to think systematically about economic innovation. What exactly is innovation, and how should we understand its varieties? What incentives drive entrepreneurs to innovate? What are the costs, and not only the benefits, of innovation? The readings for today are mostly from the literature on corporate strategy and invite us to put ourselves in the shoes of the those driving change in the modern economy -- entrepreneurs at firms, both large and small, and in the public sector.
Required reading:
Case Study: The Marvel Way -- Restoring a Blue Ocean (2016)
Supplemental reading:
The reading for today can be considered a synthesis of the two prior class periods. Hall & Soskice's "Varieties of Capitalism" theory provides a way of thinking about how institutions interact with one another, and about how innovation occurs within a constellation of institutions. As you read the chapter, which is an introduction to a longer book, assess their argument critically. What parts ring true with your experience in the U.S.? What parts ring false? What about your experiences in other jurisdictions?
Required reading:
Supplemental reading:
In these classes, we begin diving into distributed ledger technology. The prior class introduced us to a number of ideas within the context of comparative political economy. Here we extend institutional comparison -- instead of looking at it across jurisdictions, we explore it dynamically, asking how blockchain technology compares to traditional modes of organizing economic behavior. To start our exploration we ask a fundamental question: What Is Trust? From there we ask how our conventional system supports trust, and how a blockchain purports to provide an alternative approach.
Required reading:
Kevin Wehrbach, The Blockchain and the Architecture of Trust (2018), Introduction and Chapters 1-2
Satoshi Nakamoto, Bitcoin: A Peer-to-Peer Electronic Cash System (2009)
Class cancelled due to snow.
In today's class, we explore how DLT is used for cryptocurrency. The goal is to get a sense of how cryptocurrencies are similar to or differ from fiat currency, not only technologically but also with respect to market behavior.
Required reading:
Nick Szabo, Bit Gold (2008)
Lam Pak Nian & David Lee Kuo Chen, Introduction to Bitcoin, in Handbook of Digital Currency (2015)
Facebook, Libra Whitepaper (2019)
Nick Paumgarten, The Prophets of Cryptocurrency Survey the Boom and Bust (New Yorker, 15 October 2018)
In this class, we introduce the possibility of using DLT for uses beyond cryptocurrencies, including "smart contracting" or, perhaps more accurately, "transactional scripts."
Required reading:
Ethereum, What Is Ethereum? and Why Enterprise Ethereum?
Consensys, The Decentralized Future and Use Cases by Industry
IBM, Blockchain Platform
Supplemental materials:
Jeremy Sklaroff, Smart Contracting and the Cost of Inflexibility, 166 U. Pa. L. Rev. 263 (2017)
RubyGarage, How to Build an Ethereum Smart Contract for a Blockchain Marketplace (2018)
For today's class, we're going to take a step back from DLT to learn about the (traditional) market for financial derivatives. We are going to explore financial derivatives as a use case for DLT, but first we need to know what derivatives are and how they're used.
Required materials:
Deloitte, Link n' Learn: Introduction to Derivatives (2017) - a copy of the slides are available here
Steve Kummer & Christian Pauletto, A Short History of Derivatives (2012)
Today's class introduces us to the market infrastructure for derivatives. The discussion focuses upon the role of the International Swaps and Derivatives Association and its Master Agreement, which provides the standardized architecture by which most over-the-counter derivatives are traded. Developments since the 2008-2009 financial crisis are emphasized.
Required materials:
ISDA, The Future of Derivatives Processing and Market Infrastructure (2016)
SunTrust/Cross Country Healthcare, ISDA Master Agreement (2018)
Supplemental materials:
Today's class takes the next step in our study of the derivatives market by introducing us to proposals for using DLT for derivatives trades.
Required materials:
ISDA and Linklaters, Smart Contracts and Distributed Ledger - A Legal Perspective (2017)
ISDA and King & Wood Mallesons, Smart Derivatives Contracts: From Concept to Construction (2018)
Supplemental materials:
For today's class, we will be investigating issues of contract interpretation and enforcement, which will provide further context for understanding the possibilities and limits of smart contracting in the derivatives context.
Required materials:
Cohney & Hoffman, Transactional Scripts in Contract Stacks, Univ. of Penn., ILE Research Paper No. 20-08 (2020)
Supplemental materials:
Today, we return to the swaps & derivatives market to consider the more detailed ISDA documentation that has been developed for the implementation of "smart" derivatives contracts.
Required materials:
ISDA, Legal Guidelines for Smart Derivatives Contracts: Introduction (2019)
ISDA, Legal Guidelines for Smart Derivatives Contracts: The ISDA Master Agreement (2019)
Supplemental materials:
Christopher Clack & Ciaran McGonagle, Smart Derivatives Contracts: The ISDA Master Agreement and the Automation of Payments and Deliveries (2019)
In today's class we begin exploring the legal regulation of cryptocurrencies and other blockchain related applications. We start with federal securities law and the central question of whether crypto is a security.
Required materials:
Supplemental Materials:
Today's class is a continuation of our discussion of the applicability of the securities regulations to cryptocurrencies.
Supplemental Materials:
Today's class introduces anti-money laundering rules and how they apply to cryptocurrencies. One important question to keep in mind is how the regulatory framework here interacts with the securities regulations we considered in prior classes, and with the regulatory regimes we study in following classes.
Required Materials:
FinCEN Letter on ICOs (2018)
Supplemental Materials:
Now we'll consider the applicability of the Commodity Exchange Act and CFTC regulations to cryptocurrencies. Again, an important question to keep in mind is whether these rules conflict or otherwise affect other regulators regimes relating to blockchain technology.
Required Materials:
CFTC Backgrounder on Oversight of and Approach to Virtual Currency Futures Markets (2018)
CFTC CoinFlip Order (2015)
Retail Commodity Transactions Involving Certain Digital Assets (2020)
Supplemental Materials:
For today's class, we will discuss the use of blockchain technology as an organizational tool, focusing upon corporate governance but also thinking more broadly about the organization of polities.
Required Materials:
We will continue the discussion of DAOs today with review of the MetaCartel whitepaper, focusing on the role of DAOs in profit-making endeavors. We will then pivot to understanding current trends in the cryptocurrency markets during the current public health and economic crisis.
Required Materials:
In today's class, we focus on the intersection of artificial intelligence and blockchain applications and, more broadly, the role of artificial intelligence within market infrastructure.
Required Materials:
Martin Petrin, Corporate Management in the Age of Artificial Intelligence (2019)
Harris and Waggoner, Decentralized and Collaborative AI on Blockchain (2019); Related blog post (2019)
Supplemental Materials: