Building an Internet-native jurisdiction
Luis Cuende
0x327b
September 20th, 2022

The Internet has been the fastest growing economy of our times. But it still relies on old-world railways: the financial system and the legal system.

Crypto created an Internet-native financial system, superseding the old-world system.

But we lack an Internet-native legal system. Code is law, but not everything can or should be written in code.

Although smart contract interactions are fairly trustless, making online agreements with people you have never met or even anons can be daunting.

This is as relevant as ever today. We even ran into this issue ourselves while engaging with new contributors. Who can you really trust, when everyone is an anon behind a keyboard? Even though permissionless contributions are the essence of DAOs, relying on newcomers to manage funds or sensitive accesses — without any legal recourse — is obviously a foolish idea.

So, although the new web powered by Magic Internet Money™️ is awesome, it’s still not possible to interact with legal assurances without relying on the old-world system.

But imagine a world where…

  • You can grab an open source legal agreement from the Internet.

  • Tweak it for your needs.

  • Set the penalties each party would face in case of misbehavior.

  • And create a binding agreement with a click.

We are building that world. How? By creating an Internet-native jurisdiction.

The basic scope that prosperous nations focus on — like Switzerland — is in providing a system of law, and the enforcement of such law. That creates an environment of trust, where companies and individuals know what to expect of the government and of each other. More so, they know they won't be screwed over if someone misbehaves.

If you want to transact with someone — for example, to commission work — it's much more likely you will transact with someone who has skin-in-the-game. Someone who, in case of misbehavior, will lose something.

To create such legal assurances, we need a system of law and a court to enforce it.

The idea is that citizens would prefer to interact with fellow citizens, bootstrapping a circular economy which in turn would make both citizens and Nation3 wealthier.

And this would be without even considering added incentives, like a cashback on successful interactions without disputes, which can align incentives even more.

Nation3 Court

Nation3 Court is an arbitration system built on Ethereum and safeguarded by cryptoeconomic incentives.

It works as follows:

  1. Two or more parties can create an agreement defining its terms (text document), who can enter the agreement and how much collateral (assets) they need to deposit. The deposit is the maximum amount of assets that can be taken away from misbehaving parties, and it’s denominated in $NATION.

  2. In case of dispute, they can provide evidence (which can remain fully private) of such dispute off-chain and encrypted to the jurors.

  3. Then jurors make their decision and distribute the collateral among the parties.

  4. There's a time delay between the jury decision and enforcement in which the parties can appeal the decision — with $veNATION holders acting as a last-resort mechanism, in case the majority of jurors go rogue. In the future, more safeguarding mechanisms can be introduced, like a specialized appeals committee.

Jurors themselves enter a meta-agreement with the Nation3 DAO, providing checks-and-balances and skin-in-the-game. They put down a deposit that can be taken away in case of misbehavior as well. Jurors will be arbitration professionals chosen by the Nation3 DAO after a rigorous process. Even in case of dispute, terms and evidence can remain private.

This last point is a key difference with arbitration systems that aim to be protocols, like Aragon Court and Kleros. Those two are neutral protocols which are fully decentralized. They need to elect sets of jurors randomly in order to achieve decentralization, which forces evidence to be fully public. These protocols are valuable and, in my opinion, their short-term killer use case is public content moderation. After all, evidence there is public anyway.

But when it comes to a private court system for a community (not a generalized protocol) having private evidence is paramount. Therefore Nation3 Court is not exactly a dispute resolution protocol, but more akin to a dispute resolution service. Because of being a service, it can be more opinionated (e.g. enforce a constitution as a base layer for a contract) and doesn't need to compromise usability for full decentralization (e.g. allows evidence to remain private).

Dogfooding

Nation3 will be the very first user of its own services. Building on the Nation3 jurisdiction would bring us great advantages:

  • Easier contributor onboarding: For roles with responsibility, the DAO itself could have an agreement with the contributors, which put collateral on the line to undertake such roles.

  • Creating a circular economy: Interacting with fellow citizens offers more guarantees than interacting with random anons, since they build reputation by interacting in agreements within the jurisdiction.

  • Token demand: This is a big incentive to lock up $NATION. As more economic activity happens between members, more agreements get created to safeguard those transactions, and therefore there is a direct correlation between $NATION locked up and the economic activity inside the nation.

One of the reasons that I'm really excited about Nation3 Court is that we need it ourselves. As mentioned above, having this court would enable us to onboard contributors way faster, and to meaningfully engage with those contributors that are long-term oriented.

It would strengthen trust among citizens, facilitating economic interactions and resulting in more bonding and a better morale.

If you are interested in knowing more, subscribe to this publication or join our Discord.

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