Initial Policy Offerings

A Reader’s Guide

How should crypto be regulated? And by whom? These are the big questions the industry is grappling with in the wake of the infrastructure bill being signed with the haphazardly expanded definition of a broker dealer for tax reporting provisions. So now the industry is *atwitter* with ideas about where to go from here.

Three large companies have all come out with policy suggestions: FTX, Coinbase and and A16z. While these proposals differ in approach, they all seek to address a few central policy questions. I’ll break down the proposals based on key subject areas:

Consumer Protection

A16: Suggests a framework for DAO’s to provide disclosures.

Coinbase: Sets a goal to “​​Enhance transparency through appropriate disclosure requirements. Protect against fraud and market manipulation”

FTX: Similarly suggests framework for “disclosure and transparency standards”

All three of these make ample mention of consumer protections that seem to begin and end at disclosures. Regulators might want something with a little more teeth. FTX provides a more robust outline for combating fraud, suggesting the use of on-chain analytics tools. This is a smart and concrete suggestion of how to improve existing regulation that relies on SARS reports filed AFTER suspicious activity.

Exactly how Decentralized?

A16: Seeks to create a definition and entity status for DAO’s, which would ostensibly require a different kind of regulation than more custodial services.

Coinbase: ​Platforms and services that do not custody or otherwise control the assets of a customer — including miners, stakers and developers — would need to be treated differently

FTX- Doesn’t mention decentralization.

These are really varied approaches. I’m not criticizing FTX here, they are focusing on consumer protections and combating fraud which are good things to highlight. However the core regulatory issues is- can we differentiate between decentralized and centralized products and does that create a fundamentally conflict with existing law. A16z’s approach is novel, a new designation without a new agency.

The Devil You Know vs The Devil you Don’t

A16- Suggests the Government Office of Accountability “assess the current state of regulatory jurisdiction over cryptocurrency, digital assets, and decentralized technology, and to compare the costs and benefits of harmonizing jurisdiction among agencies against vesting supervision and oversight with a federally chartered self-regulatory organization or one or more nonprofit corporations.”

Coinbase- Argues that this technology needs a new regulatory agency and that all digital assets should be under a single regulatory authority. Also suggests coordination with a Self Regulatory Organization.

FTX- Doesn’t step into that morass.

Coinbase has the most aggressive position here. I personally am not convinced of the need for a new regulatory agency. We haven’t tried it the old fashioned way yet, where existing agencies offer clarity about what would bring a digital asset into their jurisdiction and what would exclude it. Creating a new agency is a slow and expensive process. And then that agency would need to justify its existence by aggressively cracking down. It’s a bit like creating a hammer and then inevitably complaining that it sees everything as a nail.

How to achieve regulatory change in the US for crypto:

  1. Stop tweeting aggressively at the people who regulate you. Negative points if you are a billionaire complaining about taxes.
  2. Spend some time developing relationships with policymakers and working collaboratively with communities you want to support. Lotta talk of unbanked communities- any stats on how they are being served by this tech? (Seriously please share)
  3. Consider looking at who is already doing the work you want to accelerate and consider working with them/learning from and supporting existing efforts rather than whipping out your proposal and demanding attention. Examples: CoinCenter, Blockchain Association. At the state level: Blockchain Advocacy Coalition of course, Cascadia Blockchain Council, Texas Blockchain Council etc.

A16: https://int.nyt.com/data/documenttools/2021-09-27-andreessen-horowitz-senate-banking-proposals/ec055eb0ce534033/full.pdf#page=9

Coinbase: https://blog.coinbase.com/digital-asset-policy-proposal-safeguarding-americas-financial-leadership-ce569c27d86c

FTX: https://blog.ftx.com/policy/policy-goals-market-regulation/