Geofencing Proposal

Morpheus Swap proposes to implement an IP-based geofence on the public web user interface that will block United States IP addresses. Many other DeFi protocols, including other Decentralized Exchanges, have taken the same action. We believe this proposal makes sense in order to manage risks due to regulatory uncertainty in the United States. It is unknown when or whether US regulations will be implemented, potentially impacting development timelines. Controlling this regulatory risk will enable Morpheus Swap to develop new DeFi projects on a faster timeline, independent of country-specific regulations.

What is the technical impact of this proposal?

The public web interface must check the IP address of any users requesting access to the website. The IP address will be compared to a geo-IP database that maps IP addresses onto country codes. When the IP address is found to originate from the United States, the user request will be denied. The User Interface will provide a friendly message with an explanation in case the user is denied access. Otherwise, for access from the rest of the world, the user interface will appear to be unchanged.

Why is this proposal happening now?

A lawsuit filed in April has named Uniswap, currently the most popular DeFi DEX by volume, as defendant in a class-action lawsuit in the United States. The following articles are a few resources about this lawsuit:

• https://finance.yahoo.com/news/uniswap-faces-class-action-lawsuit-125256995.html
• https://blockworks.co/crypto-exchange-uniswap-hit-with-class-action-lawsuit-alleging-wrongdoing/

These current events have been discussed on Twitter and elsewhere. The following interview with an attorney, hosted by DeFi Dad, discusses some of these topics:

• https://twitter.com/daverodman007/status/1522279739016171520

Why is this necessary?

Legal actions taken by the United States against blockchain projects have taken years to be resolved (e.g. LBRY, XRP). These US lawsuits are without immediate precedent, insofar as current regulations and laws are outdated and generally ill-suited to blockchain development. The outcomes of the Uniswap, LBRY, and XRP lawsuits are not currently known - and we could be waiting years for legal precedent to be established. In other words, we do not have the ability to know what US regulations will look like in the future.

It is potentially risky to make protocol design choices without knowing how the protocol might be regulated in the United States, in the future. Consequently, it is potentially risky to operate in the United States, until regulations are settled. We therefore propose to operate outside the United States, which will be accomplished through geo-fencing.

Will this reduce site activity and protocol volume?

It is likely that the geo-fence will reduce web traffic due to the restriction of US-based IP addresses. However, the smart contract protocol will continue to function as before, which will permit aggregators to route through the DEX. Because substantial DEX volume has originated from aggregators, protocol volume should be minimally impacted.

Which other DeFi protocols have implemented a geo-fence?

We are aware of several projects that already use a geo-fence of some sort:

• 1inch
• dydx
• scream
• ...and others...

What does a YES vote mean?

If you vote yes, Morpheus Swap will restrict access from the United States with an IP-based geo-fence.

What does a NO vote mean?

If you vote no, the website will remain in its current form without geo-fencing. A subsequent proposal would be required to determine how US regulations will be handled.