Pedro Heitor de Araújo

techlaw, cryptolaw and gambling law at @bicharaemotta / code and law enthusiast / legal engineer

[Pedro Heitor de Araújo @pedroheitor_eth]

@JacobRobinsonJD @LawofCodeFM @valkenburgh @amandatums @brianeklein Great episode! Amanda and Peter are leading authorities in cryptolaw, including for us lawyers in Brazil.

[Your Best Version @YourPrimePath]

Game theory teaches: never enter a game you haven’t studied, never reveal your strategy until the incentives are locked, and never play to be liked, play to make the rules irrelevant by building leverage.

[DeFi Education Fund @fund_defi]

Congratulations on the new podcast!

@HesterPeirce: “The beauty of the technology is that it allows you to disintermediate so that peers can transact with one another directly or through the intermediation of technology. And that's really powerful in our markets because intermediaries have sometimes been the source of problems, right?” 👏

[mert @mert]

crypto being over means people have given up on economic freedom and individual liberty which is absolutely never gonna happen

the path might be volatile, but nothing stops this train

[𝐁𝐢𝐜𝐡𝐚𝐫𝐚 𝐞 𝐌𝐨𝐭𝐭𝐚 𝐀𝐝𝐯𝐨𝐠𝐚𝐝𝐨𝐬 @bicharaemotta]

Udo Seckelmann, Pedro Heitor e Raphael Cvaigman publicam artigo sobre Prediction Markets no Brazil Journal.

No artigo, os autores exploram como os Prediction Markets estão movimentando uma nova indústria multibilionária e impulsionando importantes debates regulatórios, com foco na discussão sobre o enquadramento jurídico desses mercados como derivativos.

Leia o artigo na íntegra:
https://t.co/vbhK1nzPBg

#bicharaemotta #gamblinglaw #PredictionMarkets

[Pedro Heitor de Araújo @pedroheitor_eth]

I agree. Although progressive decentralisation is essential for many projects — not least because no protocol is born fully decentralised — its encouragement must be grounded in objective and verifiable criteria. Otherwise, the concept is easily gamed and risks becoming nothing more than a smokescreen.

I see progressive decentralisation as something that should be structured within a safe-harbour mechanism, designed to incentivise the gradual evolution of protocols over a defined period (for example, 3 years), subject to the achievement of clear and measurable milestones. During this interval, it would make sense to apply a more flexible, disclosure-based regime; however, if the project fails to meet the predefined milestones by the end of the period, it should be required to seek authorisation as a VASP, precisely because it has failed to decentralise.

[_gabrielShapir0 @lex_node]

if you are even slightly bullish on something like canton, you don't know the bare minimum of blockchain 101 'basics'

watch this @aantonop video, it couldn't be explained more clearly

I have never heard a single person who is bullish on these types of fake-decentralized models intelligently refute a single one of the points @aantonop makes here

https://t.co/EdB0GDYiOh

[Pedro Heitor de Araújo @pedroheitor_eth]

Excellent clarification on the BRCA. The independent control criterion, as articulated by FinCEN, is the appropriate standard for distinguishing sufficiently decentralised protocols from on-chain CeFi.

My concern lies in the risk of classifying early-stage DeFi developers as money transmitters, given that there is typically some degree of indirect control or custody over users’ funds (via admin keys or multisigs). Decentralisation is a spectrum, and many projects do not launch as decentralised systems due to technical iteration and PMF considerations.

Absent a safe harbour that recognises and incentivises progressive decentralisation, nascent projects remain exposed to premature classifications and regulatory discretion. I have designed a safe harbour framework along these lines, should you wish to discuss it.

[Pedro Heitor de Araújo @pedroheitor_eth]

@malekanoms True. Moreover, in the context of public blockchains, these intermediaries would no longer control the underlying infrastructure — which, as we know, is one of the main sources of their market power, alongside the competitive advantages created by regulation.

[Pedro Heitor de Araújo @pedroheitor_eth]

Yes. All signs suggest that the technology is finally reaching a level of maturity at which we no longer need to make major trade-offs between decentralisation and adoption.

I see Ethereum in a relatively privileged position in this context. It has achieved a high degree of decentralisation across multiple dimensions and can now redirect more energy towards apps, user experience, communication, and institutional adoption. Of course, important adjustments still need to be made, as Vitalik has pointed out, but the infrastructure side is sufficiently solid and resilient to support high-value economic activity.

[Pedro Heitor de Araújo @pedroheitor_eth]

I believe that freedom and efficiency go hand in hand. They are not opposing forces, as is often suggested. Without efficiency, it would be virtually impossible to overcome the network effects created by habit and the convenience of traditional financial applications. After all, in stable and well-structured economies, why would someone abandon their banking app to use crypto if there are no clear advantages — such as near-instant settlement, lower costs, atomic composability, higher yields, and continuous, 24/7 operation?

Conversely, the freedom provided by the resilience and neutrality of decentralised chains is a decisive factor for institutional adoption, particularly in an increasingly polarised and unstable world. That same freedom is also essential for individuals and businesses that have been censored, excluded, or that simply do not have the luxury of placing full trust in their domestic financial systems...

[Pedro Heitor de Araújo @pedroheitor_eth]

I have not read the specific section of the CLARITY Act that addresses this issue, but, based on the summary provided, it appears that lawmakers drew inspiration from the concept of independent control articulated by FinCEN in its well-known Guidance, subsequently refined by the industry itself — as illustrated, for example, in @RebeccaRettig1 article on AML/CFT in DeFi.

The international literature converges in the same direction (FATF, OECD, Shär, Schuler, among others), which, in my view, is methodologically sound.

I have been advocating a similar approach for the regulation of DeFi in Brazil: where there is independent control over users’ funds — understood as the unilateral ability to move, block, or suspend assets — the parties involved in the protocol should be treated as VASPs. Conversely, in the absence of such control, the protocol should be regarded as sufficiently decentralised for regulatory purposes.

In addition, I propose the adoption of a safe harbour mechanism aimed at fostering the progressive decentralisation of early-stage projects.

Should this dividing line be adopted as set out in the proposed text, the outcome would be highly beneficial, providing a clear and functional criterion to guide Brazilian legislators and regulators, drawing on the precedent established in the United States. Great work.

[Bill Hughes 🦊 @BillHughesDC]

The new Senate Banking draft of market structure just was published and here is where ChatGPT says it draws the regulatory perimeter when it comes to self custody interfaces (This is quick - a deep dive is required):

This is the crux of this bill — and the answer is yes, it really does protect non-custodial web interfaces, but only up to a very sharp line.

Here’s the clean way to understand it.

⸻

The bill creates a three-layer stack

The bill doesn’t say “wallets good, websites bad.”
It says:

There are three legally different things:
1.Protocol layer
Smart contracts, blockchains, bridges, DEX contracts
2.Control layer
Who can stop, change, route, or custody transactions?
3.Interface layer
The website or app users click on

Regulation attaches only if control exists.

⸻

When a web interface is PROTECTED

A web interface is legally treated as mere software if:
•It does not hold user funds
•It does not control private keys
•It does not have authority to approve, block, reorder, or reroute transactions
•It does not have discretion over execution
•It does not act as an agent for the user

In that case, even if the website:
•Shows prices
•Builds transactions
•Suggests routes
•Broadcasts transactions
•Charges UI fees

…it is legally a non-custodial publisher of software, not a broker or exchange.

That covers:
•Uniswap web UI
•1inch
•MetaMask swap UI
•Non-custodial bridges
•Wallet-embedded DEXs

They are statutorily carved out of financial regulation.

⸻

When a web interface becomes REGULATED

The moment the operator has control, it flips.

If the website operator can:
•Hold assets
•Move funds without user signature
•Batch or net trades
•Route orders through proprietary liquidity
•Pause, censor, or reverse transactions
•Decide whether a transaction executes

then the interface becomes a:

Broker / dealer / exchange

even if it still uses blockchains underneath.

That captures:
•Coinbase
•Binance
•Robinhood Crypto
•Custodial bridges
•Hosted wallets
•CeFi yield platforms

⸻

The key test CLARITY uses

The bill’s rule is basically:

Who has the power to make the transaction happen?

If the user’s private key is the only thing that can move funds ��� protected
If the website operator can move or stop funds → regulated

The web UI is irrelevant by itself.
Control is everything.

⸻

Why this is a real safe harbor

CLARITY doesn’t just say “we won’t regulate you.”
It says agencies may not re-classify non-custodial interfaces as intermediaries just because they:
•Are popular
•Earn fees
•Look like an exchange
•Are easy to use

This blocks the SEC/FinCEN theory that:

“If users trade through your website, you’re an exchange.”

Under CLARITY:

“If users trade through their own keys, you’re software.”

⸻

Bottom line

Yes — the bill really does protect non-custodial trading interfaces.

But it mercilessly regulates anything that:
•Touches custody
•Touches execution
•Touches control

That bright-line is what makes the bill powerful.

[Pedro Heitor de Araújo @pedroheitor_eth]

Legend! RIP 🙏🏻

[halfin @halfin]

Running bitcoin

[Pedro Heitor de Araújo @pedroheitor_eth]

Not by chance, in Ethereum’s Yellow Paper, Gavin Wood argues that the system would constitute an implementation of CryptoLaw, insofar as smart contracts, by deterministically automating the performance of contractual obligations, reduce the need for trust between the parties and, consequently, the scope for contractual default, thereby enhancing legal certainty.

This idea, however, does not appear to have been fully realised to date. In practice, smart contracts are predominantly used as the back end of dApps. The question, therefore, is whether, with the expansion of tokenisation, this use case will finally reach its full potential—for example, through structures such as DvP or PvP…

[Pedro Heitor de Araújo @pedroheitor_eth]

Zcash replicates, in digital form, the core properties of cash — fungibility, privacy, transferability, and security — combined with programmed scarcity, in line with Bitcoin. The result is genuinely private internet-native money.

The open question is whether adding privacy-preserving programmability should be the next step. If so, its impact could mirror HTTPS on the web: a trust layer unlocking new use cases and scale.

If HTTPS unlocked e-commerce, what could programmability unlock for Zcash?

Bullish.

[mert @mert]

Literally the most well articulated zcash / private crypto money thesis i have ever seen

fungible, quantum resistant (soon), private — all zcash properties mentioned

highly recommend you take a few seconds, reiterates all of our points well

[Pedro Heitor de Araújo @pedroheitor_eth]

Exactly. I would only add that the high tax burden and the growing complexity of the tax system — whose levies, in general terms, increase year after year to finance an inefficient allocation of resources by the State — significantly deteriorate the business environment, creating a chilling effect on investment, innovation and entrepreneurial activity, with direct adverse consequences on productivity and economic growth.

[Brian Armstrong @brian_armstrong]

We need more rugged individualism, not less.

Build on the frontier. Be independent. Decentralize power. Accelerate civilizational progress. Celebrate economic freedom.

[Pedro Heitor de Araújo @pedroheitor_eth]

Hence the importance of measuring the degree of decentralisation in order to determine the applicability of regulatory regimes. Only sufficiently decentralised systems—that is, those in which no central agent or coalition holds unilateral and discretionary power to access funds or control the use of the protocol—justify the application of a more flexible regulatory regime, in contrast with traditional financial regulation, as sufficient decentralisation reduces the asymmetries and vulnerabilities that have historically underpinned such regulation.

As no project is sufficiently decentralised from inception, the adoption of safe harbour mechanisms is necessary to enable an appropriate regulatory transition. These are the core premises of the book I am writing on the regulation of DeFi in Brazil.

[Essential Mastery @EssentialMastry]

“Study microeconomics, game theory, psychology, persuasion, mathematics, and computers.”

- @naval