Kristin Smith, executive director at Blockchain Association, and Jake Chervinsky, head of Policy at Blockchain Association, discuss the current state of crypto regulation. Show topics:
- why 2021 was a watershed year for crypto regulation and lobbying
- why Jake decided to move from Compound Labs to Blockchain Association
- what Kristin and Jake think about the current state of regulation in the crypto industry
- how crypto education will play a significant role in Blockchain Association efforts going forward
- how crypto will affect midterm elections
- why Kristin thinks crypto will not be a partisan issue long term
- what sort of budget Blockchain Association functions on
- what Kristin and Jake think about the President’s Working Group report on stablecoins
- why Jake does not think the US should issue a CBDC
- what Blockchain Association’s take is on SEC commissioner Hester Peirce’s “safe harbor” proposal
- why Kristin and Jake believes the idea of a “crypto czar” is not feasible
- how regulators are treating DeFi going into 2022
- how crypto tax guidelines could be improved for centralized exchanges
- how Blockchain Association thinks tax code 6050I should be applied
- what issues could arise from DAOs in 2022+
- what listeners can do to address the different regulatory topics discussed in this podcast
Thank you to our sponsor!
Crypto.com: https://crypto.onelink.me/J9Lg/unconfirmedcardearnfeb2021
Show Links
Guests
The Blockchain Association
Regulatory Topics Discussed:
- Tax Code 6050i
- Infrastructure Bill
- President’s Working Group stablecoin report
- FATF Guidance
Articles Jake Mentioned
General Regulatory Information
- Messari Crypto Theses
- pages 52-90 is an excellent summary of EVERYTHING going on in crypto regulation
- Page 29 talks about Kristin directly
- Page 56 talks about blockchain association directly
- CoinDesk → How the crypto regulatory scene has evolved
- Decrypt on Gensler’s 2021
- Blockchain Association policy positions
Laura Shin:
Hi, all. As you know, my book, The Cryptopians, comes out February 22. I wanted to share a blurb that Jeff John Roberts, the executive editor of Decrypt and author of Kings of Crypto, wrote about it. Jeff said, the most authoritative account yet of Ethereum. Laura Shin is deeply sourced in the crypto world and this is reflected on every page. The Cryptopians also casts new light on Vitalik Buterin, showing the human side of Ethereum’s founding genius as never before.
If that intrigues you, then preorder The Cryptopians, Idealism, Greed, Lies, and the Making of the First Big Cryptocurrency Craze today at bit.ly/cryptopians. And again, the book comes out February 22, and you can preorder it at bit.ly/cryptopians.
Hi, everyone. Welcome to Unchained, your no-hype resource for all things crypto. I’m your host, Laura Shin, a journalist with over two decades of experience. I started covering crypto six years ago, and as the senior editor at Forbes, was the first mainstream media reporter to cover cryptocurrency full time. This is the January 11, 2022 episode of Unchained.
Buy, earn, and spend crypto on the Crypto.com app. New users can enjoy zero credit card fees on crypto purchases in the first 30 days. Download the Crypto.com app and get 25 dollars with the code LAURA. Link in the description.
Today’s topic is crypto policy, regulatory, and political priorities in 2022. Here to discuss are Kristin Smith, executive director at the Blockchain Association, and Jake Chervinsky, head of policy at the Blockchain Association. Welcome, Kristin and Jake.
Kristin Smith:
It’s great to be here.
Jake Chervinsky:
Thanks for having us, Laura.
Laura Shin:
We are starting 2022 after a pretty momentous year for crypto advocacy in Washington. For people who may not be aware that 2021 was such a big year for crypto regulation and lobbying, Kristin, can you give us a recap of what happened that made it such a watershed year?
Kristin Smith:
Yeah. Well, I think at the beginning of the year, I was wondering if we were going to make it, and at the end of the year, I know we’re all going to make it. So, I’m feeling pretty good about that.
But if you look back to where we were last year at this time, we had an outgoing administration that was pretty hostile, not across the board, but at least within the White House and the Treasury Department, pretty hostile toward the crypto ecosystem, and we were actually at this time working with Paul Clement at Kirkland & Ellis, preparing to sue the Treasury Secretary over a midnight rulemaking that would have been very harmful to the ecosystem dealing with unhosted wallets. And you know, if you kind of look across the year, I think that what happened in January with this midnight rulemaking started to wake people up to the fact that, oh, gee, we really need to be paying more attention to what’s happening in Washington.
And it wasn’t until August when, once again, there was a last minute provision that was starting to move through the Senate, that we really saw the political power of the crypto community for the first time. We had a tremendous outpouring that was really something that’s very unique to crypto, because crypto can communicate quickly, we are used to processing information very quickly, we can get out messages, and the community activated and got over 40,000 phone calls into the Senate over the course of five days.
And it was…around Washington, like, this was noticed, and I had colleagues from other industries calling, like, how did you do that? How did that happen? And I was like, this is a very powerful community. They’re very, very in tune to what’s going on and they’re not afraid to speak their minds, and so it is because of that event in August that so many companies across the space have started to think about Washington, invest in building teams on the ground to work on policy issues in Washington, and I think now, in 2022, we are finally starting to see the infrastructure in place to be an effective advocate and educator in Washington for the first time.
So, I’m super excited looking forward. I think we’ve absolutely turned a corner in that there’s still a lot of work to do, but that we are going to have the resources in place to be effective.
Laura Shin:
And Jake, you’ve been on the show before, but that was in your previous role as general counsel for Compound Labs, which is behind the DeFi lending protocol Compound. What made you decide in late 2021 to join the Blockchain Association?
Jake Chervinsky:
Yeah. Well, it’s kind of funny, so I worked very closely with Kristin and the Blockchain Association for both of those events, you know, pushing back against Secretary Mnuchin’s midnight rulemaking, and then trying to work with the Senate to change the tax provisions that were snuck into the infrastructure bill, and after both of those events, I think I came to the point where I realized the way that I can have the most impact for the industry is not as general counsel for one crypto project, but rather, it was to spend all of my time working closely with Kristin and the amazing folks at the Blockchain Association as head of policy. And you know, I probably spent about half of my time when I was in house working on policy anyway, and I really just decided that I wanted to wake up every day and just think about how can we move the ball forward to advocate for good policy here in the US.
And also, you know, I went really deep down the DeFi rabbit hole over the last few years, and I really loved that experience. I had a wonderful time at Compound, but I also, as folks who have heard me on your podcast before, you know, I also am a true believer in the future of the entire industry, and I felt like it was a good time and a great opportunity for me to step back and start wrapping my arms around all of the amazing, you know, different unique corners of the industry.
So, really, you know, what did the trick for me in the end, after Kristin and I were, you know, all day, every day for a few weeks in August on phone calls, you know, late into the night, working on the infrastructure bill, what really did it for me was, you know, a conversation after, you know, everyone had sort of calmed down from that experience, and Kristin said, you know, if you come to the Blockchain Association, you can run and build out the legal and policy function however you see fit, and you know, let me know what you need, and we’ll go out and get it, and to me, that was just an offer I couldn’t refuse. So, I’m really excited to be in this new role as head of policy at BA.
Kristin Smith:
I am also excited that he’s in this role.
Laura Shin:
Yeah, Kristin. I mean, you’ve definitely been, not exactly a one-woman show, but you know, clearly, you’ve really put in your time, so I think it’s great that you’ve been able to expand your team.
So, at the moment, you know, I mean, we’re coming off this really, you know, watershed year, as I said earlier, and I was wondering how you felt the state of crypto policy and regulation is in the United States at this moment.
Kristin Smith:
You know, I think we’re in an okay but not great spot. You know, there has been guidance, you know, over the years. We do have some areas of policy that are somewhat settled, right? I mean, I think if you look, at least for the moment, at kind of the Bank Secrecy Act, like, there seems to be, at least for now, a steady agreement as to how that applies to the crypto space.
You know, if we look at tax policy, I think there’s more work to go, but there are some basic things that are in place now.
Now, the, you know, implementation of the broker definition and 6050i, there are a lot of questions around that that we’re working through.
I think securities laws are still quite a bit unsettled. I think people have sort of moved forward and you know, the ones that are here in our building or are confident where the policy stands.
But you know, I think agencies have tried their best, for the most part, not exclusively, or not entirely, but have done their best to try to figure out how crypto fits in, but you know, these laws were not written with crypto in mind, and I think that having a fresh look at the framework, and figuring out how to make some changes and modifications to make it, instead of like a square peg in a round hole, a square peg in a square hole. You know, I think that is sort of where I see us going over the next few years.
You know, of course, we’re probably going to have a few more defensive things going forward that we need to look at, but Jake may feel a little bit differently than I do, but I think it could be worse, but…and it could definitely also be better.
Jake Chervinsky:
Yeah, and from my perspective, I mean, I agree with that. I think I am approaching 2022 with a lot of optimism. I think one of the things that we gained from last year is a lot more attention and desire among regulators and policymakers to genuinely understand what’s going on in this space. I think before last year, there was an assumption among most policymakers that crypto was just a flash in the pan, that, you know, maybe Bitcoin would survive, but that there wasn’t really much interesting going on around that.
And I think that all of the work that we ended up having to do, you know, even in a crisis mode last year, showed policymakers that there is something very real here, right, that there is a reason why billions of dollars of investment is flowing into the space, there’s a reason why large traditional financial institutions are excited about finding ways to incorporate crypto into their business models.
And so I think that we still have a huge education project that we need to carry out in DC. Right, the more that people understand what is going on in this space, the more reasonable their approach is, and I think to the extent that we’ve seen some really unreasonable attempts to, you know, force through regulations or other rules or legislation that doesn’t really make any sense for the crypto industry, it’s come from a perspective of ignorance or just lack of information about what’s really going on in this space.
So, I’m actually very optimistic that with this opportunity to educate people in DC about what’s really going on, we’ll have a much better opportunity to advocate for and be proactive in advancing good policy for the industry.
And I think the last point I would make is crypto is sort of a sexy topic now in DC, right? Everyone wants to have a piece of what’s going on in the industry, right? They want to be around what’s going on here, I think part of that is driven by celebrities taking an interest in the space, and so I think, you know, although often we talk about how there’s going to be a regulatory crackdown, or the sort of loudest and most hostile voices in the room tend to soak up a lot of the attention, actually, I think that the perspective in DC is looking pretty positive this year.
Laura Shin:
And for those loud and hostile voices, you know, earlier when you were saying that you felt that most people with a negative stance simply don’t understand the issues or are ignorant, have you, you know, and we don’t have to name names because I understand you have a lot of relationships that you’re, you know, trying to either work on or preserve, but you know, I was curious, like, do you find that they are people who have either not received that kind of education from you, or are they people who, no matter how much you “educate” them, they would just want to remain, you know, in that negative stance, or kind of. what do you think is…yeah.
Kristin Smith:
Yeah. Well, I think a lot of the…you know, with the exception, I will name names, of like the Brad Shermans of the world, right, who have just decided that they hate this thing, I think a lot of what we’ve had, you know, even within the House Financial Services Committee, were a bunch of members who didn’t want to take the time, didn’t have the interest, just didn’t really care about the space, and so when asked about it, the only thing they knew were the negative headlines, and so they kind of revert to, like, oh, I saw this was used in, you know, some criminal activity, and that’s what I want to talk about.
But they’ve had to rethink that, right, and it was because of the outpouring of the community’s support during the infrastructure debate. You know, those that just, you know, didn’t want to get into it realized, oh, great, gee, I have to figure this out. This is something people care about, and I can’t just delegate this to Gary Gensler or something. Right? Like, they realized that they have to learn about it because their constituents back home care about it, and so that sort of awakening and realization that this is something a broader set of people care about has been a critical piece.
And so, I do think, over time, as people realize all of the different types of things you can do with a crypto network, and even just what a crypto network is, it’s, you know, such a fundamentally different way of organizing economic activity, you know, they do start to get excited about it. I don’t think we’ve had a situation where somebody has actually sort of, a policymaker has gone down the rabbit hole and come out the other end saying, this is really bad stuff, right? Once they truly, actually understand it, you know, they can have a much more educated conversation and you know, realize that this is going to be something that’s here and part of our economy going forward.
Jake Chervinsky:
Well, I was just going to say, I won’t name names, but there is a specific conversation that I’m thinking of that I wish I could name names and tell you more details about. But what I can say is, a specific conversation with a particular policymaker who everyone would recognize as someone who has been very hostile, who once this person learned about, and honestly, you know, we should talk about this a little more, but the Web3 narrative, like, this is someone who only really understood to some degree the concept of Bitcoin, which is a very challenging concept for policymakers, right, once this person learned sort of more about the Web3 narrative, the idea that this isn’t just about highly volatile or speculative alternatives to the US Dollar, or something of that nature, but rather that this industry is trying to build a new and more fair version of the Internet, there was a lot of progress there in the thinking for this person.
So, you know, Kristin is nodding right now because I’m sure she’s thinking of the same conversation that I am.
Kristin Smith:
Yeah.
Jake Chervinsky:
But I really do think that these narratives are breaking through, and we see both folks who didn’t take an interest before starting to take an interest, and folks who were purely negative or hostile before starting to come around.
Laura Shin:
And so, obviously, this year we’re looking at a midterm election year, and given everything that happened last year and how the lawmakers did see what a galvanized community the crypto community is, I wonder what kind of force you thought crypto would be in the midterm elections.
Kristin Smith:
I think it’s been fascinating. I think there are multiple candidates across the country who have decided to make crypto policy part of their campaign platform. I mean, it’s absolutely amazing. We’ve seen this in Ohio, we’ve seen this in California, we’re seeing it in Oregon. This is a really, really amazing thing to see, and it’s because they see that this is a community that’s vocal on Twitter, right, where they’re trying to create a name for themselves.
And I do think there’s a political giving component to this. I mean, one of my top priorities for this year is to get the crypto industry more organized around supporting champions of crypto, and this includes long-time champions who have been with us from the beginning, but it also includes, you know, supporting candidates and building relationships with candidates and sitting members of Congress that, you know, are interested in learning about this space and want to get more involved.
You know, a lot of people don’t like money in politics, but the reality is it’s a really valuable tool for building relationships, and I think it’s one where so many people have done so well in this space that, you know, we need to give a little bit back and kind of invest in this process because, you know, that is something that as…I remember being a congressional staffer on the Hill, and I had ideas about legislation I wanted my boss to do, and I would take it to the chief of staff, and you know, one of the questions they always asked, again, you’re not supposed to ask this but it’s asked, is, well, can we raise money off of this?
And so, it’s a really important piece of the puzzle, and I think it’s one that the crypto community is uniquely poised to have an advantage in. We just need to get people more organized, more willing to open up their checkbooks and support, you know, their local congressman, and also those candidates that are making this a priority in their campaigns.
Jake Chervinsky:
The other point I would add to that beyond fundraising, and all that is absolutely true and fundraising is very important, but the other point is, in an election year, candidates are really looking at their constituencies to try to figure out what do people care about, right? What should my policy positions be? And I think that even in 2020, during the last election cycle in DC, there wasn’t really a lot of reason for candidates for office to think about crypto. It just really wasn’t on the radar at that time. Now, it is, and I think what this means is candidates are realizing that there are millions and millions of Americans, right, the people they want to vote for them, who care very deeply about this, and one of the many ways that they see this is actually on Twitter.
I mean, this is something that has really shocked me as I learn, you know, more and more about how DC works, but you know, members of Congress and candidates watch Twitter very closely, right? Often, they pay more attention to what’s happening on Twitter than the phone calls that are coming into their offices, or you know, the emails or the letters or things like that, and when these candidates tweet something positive about crypto, they get more engagement on those tweets than basically anything else that they ever put out there, and that really moves the needle.
So, I think aside from, you know, just the question of, can candidates raise dollars for their campaigns on this issue, they’re realizing this is something that really matters, that they need to have a position on, and that they can’t just act like Brad Sherman and get away with it with their constituencies.
Laura Shin:
Actually, I have to say, I find that hilarious.
Kristin Smith:
Well, you know, they’re politicians, right? Like, they’re like, what are people saying about me? They’re obsessed with it, and they’re looking at Twitter all day long.
Laura Shin:
Okay. Good to know. Good to know that that’s what my representatives are up to.
So, one other thing I wanted to ask about was, obviously, we saw with the fight over the infrastructure bill, that crypto provisions…and for listeners who maybe, you know, are newer, basically it proposed some tax reporting and other kind of requirements around crypto that didn’t make sense in terms of the way terms were defined and things like that. Like, it would be basically not possible for certain actors to comply with these regulations. And so, we saw at that time that the amendments to improve this would be introduced by both democrats and republicans, but the general perception, I would say, is that the more vocal critics tend to be democrats, while the more vocal supporters of crypto tend to be republicans.
And so, I wondered if you thought that, you know, all these things that we’ve been talking about in terms of how interest in crypto from their constituents and the money to be had in this community, and frankly, the popularity of pro-crypto stances, if all that, you thought, might influence, you know, what we’re seeing in terms of this somewhat partisan-ish split.
Kristin Smith:
I think if there’s a partisan gap, that is closing. Yeah. I think republicans, and you know, personally, kind of the libertarian origins of Bitcoin, republicans, kind of historically, have tend to be more excited about this space than democrats, but there are very compelling messages to both sides of the aisle.
And I have to be honest, I was pretty worried about it in kind of the April/May/June timeline, especially kind of when Elizabeth Warren went on her Bitcoin mining energy rant at a, it was like a CBDC hearing or something, it had, like, nothing to do with Bitcoin, but yeah, I began to be very worried about it. In fact, I almost thought to myself, gee, do we need just drop trying to educate democrats and go all in on republicans? Or you know, I was thinking through all sorts of scenarios in my head.
But infrastructure brought that back, right? I mean, having Ron Wyden come in and be, you know, he’s such a long-time leader on Internet policy generally, having him come in, I think, was a game changer, and you know, even in kind of the aftermath of infrastructure, there was a letter with, I believe it was 10 or 12 democrats in the House, to Nancy Pelosi saying, we need to do something about this.
I think that this and what Jake was alluding to earlier on the Web3 narrative, I think that’s compelling to both sides of the aisle, so I think we’ve definitely turned a corner on that. It’s, you know, still maybe slightly more republican support than democratic, but that’s shifting very quickly.
Jake Chervinsky:
I totally agree with that, and I think, you know, this is another point where up until now, I think most members of Congress just haven’t paid a lot of attention. So, yeah, there have been more loud voices in support on the republican side and maybe against on the democratic side, but it’s still just a tiny, tiny fraction of Congress overall, and the vast majority, hundreds and hundreds of representatives and senators, just haven’t really thought about this issue yet.
So, I think as we move forward, we’re starting to develop much stronger arguments, for progressives especially, around the potential benefits of financial inclusion, and like I said, building a more fair version of the Internet that isn’t controlled by big tech companies, which is a major concern for a lot of democrats and progressives. So, I think that crypto is bipartisan or nonpartisan. I think it will increasingly be and stay that way.
Laura Shin:
So, the infrastructure bill, as we discussed, you know, showed how easily the community can be galvanized, but that was, you know, a reaction to a negative event or you know, event on the horizon. Brady Dale of CoinDesk sent a great question over Twitter, and he asked, what’s the ground game? How do you plan to mobilize this support?
Kristin Smith:
Yeah. Well, I think there is a couple elements. So, going back, before addressing Brady’s question, yeah, crypto has really only been reactive, right? We’re very good at reacting, by the way. When something negative happens, like, we’ve got that playbook down. That’s great.
But being proactive is a much more difficult thing, and you know, it takes people working in coordination, it takes professionals in Washington that are, you know, not going to the same congressman over and over, but spreading out and you know, educating more congressmen. It takes people coalescing around the same ideas, and there are definitely a lot of ideas floating out around there, but there isn’t a consensus yet within the industry about what exactly would we want legislatively, right? I mean, there’s been some great ideas, the Token Taxonomy Act, the Digital Commodity Exchange Act, you know, every single bill that Tom Emmer has introduced. You know, lots of great ideas out there, but there hasn’t been anything in kind of a comprehensive way.
And I think that, you know, 2022, from the policymaker side, is going to be like, all right, let’s get everyone educated, let’s talk about this over and over and over until it’s starting to make sense, but from the industry side, we really need to figure out what we want, and that’s one of the reasons I’m so excited Jake is here, is because he’s taking a fresh look at everything out there, and it’s going to be a process, I think, to get everyone coalescing around the same ideas, but it is a process that is doable, and it’s going to take some time and some coordination, but Jake probably has deeper thoughts on specifically what those policies could look like.
Jake Chervinsky:
Yeah. I mean, that really is sort of how I envision my job, right, is stopping being so reactive and defensive, which is really all we’ve been able to do so far, and coming up with proactive ideas of what goals do we actually want achieve, and then how do we rally support around them, right?
It’s really hard to rally support for just sort of a general pro-crypto sentiment. What we need are specific initiatives, whether that’s legislation or efforts at rulemaking or something like that, where we can actually rally people around that idea and then push for something that we can actually achieve, right, something that would be a concrete goal that we can get done.
I think the challenge, especially in this year, in an election year, is we probably only have maybe five or six months of the year, Kristin probably knows more about this than I do, but maybe five or six months where members of Congress are really paying attention to legislation, and then everyone is going to be overtaken by the election. So, it’s really hard to get legislation to move in an election year. It’s also extremely hard to get legislation to move in this Congress at any point in time, right? Our Congress is generally pretty gridlocked, it’s hard for them to get anything done, let alone get something done on an issue as controversial and novel as crypto.
So, I actually think, honestly, one of the things that we will be most successful in rallying support around this year is around the elections, right, is around which candidates do we support, where do we do fundraising, where do we, you know, raise awareness around candidates who, if we could add them to Congress, that going forward in 2023 and beyond, we will be able to achieve some of these goals that we have, and so I think you’ll hear us talking a lot more about the election as time goes on.
And not just us, right? I mean, one of the most amazing things about the crypto community is there are so many amazing leaders in the community who take it upon themselves to get active in this way. So, you know, Ryan Selkis at Messari is one phenomenal example of this, and Messari is a new member of the Blockchain Association, but he’s been very vocal about this concept of being a single-issue voter, right, voting on the basis of whether a candidate supports or is against development in the crypto industry, above any other issue that might motivate a voter. So, I think that that’s really what we’re going to see a lot this year.
Laura Shin:
And what is the Blockchain Association’s budget, and given the wealth in the industry, do you feel that your organization and others like it, such as Coin Center or HODLpac or the Chamber of Digital Commerce or others, do you feel that groups like yours receive an adequate level of support?
Kristin Smith:
No. Send more money. I need more money. Yeah. I’m super transparent on our budget. You know, if you look back to 2019 and 2020, you know, the operating budget, all in, for all of the people doing work, which again, wasn’t many, was about two million dollars. Like, that’s embarrassing, right? The Valve Manufacturers Association of America spends more money lobbying in DC than that. You know, this past year, the Blockchain Association, I think we were closer to about 5 1/2 or 6 million in total expenditures, and you know, I think we’re looking at about 10 million dollars for 2022, at least at the moment. Hopefully that’ll grow.
But if you look at, you know, mature trade associations and other industries, they’re very easily, you know, 20, 30, 40 million dollar a year budgets, and most of that money goes to people, right? You have to have people like Jake who are thinking about policy. You have to have lobbyists. We just hired a new head of government relations, Dave Grimaldi. You know, we need to be able to pay people to be present and communicating. You know, we also need lawyers, those don’t…it’s not cheap to try to sue the Treasury Secretary. You know, that costs a lot of money. You know, we have marketing consultants that are trying to figure out how can we better, you know, explain these ideas to people.
So, it’s really a very people-intensive industry, and I think that, you know, we, you know the Blockchain Association, at minimum, needs to double the number of people working on it. We’re at 11 right now, we have two more starting at the end of the month, so we’ll be at 13 full time, but yeah, we need to double or triple our budget, and we’ve had some companies that have absolutely step up. Kraken, the digital currency group, Filecoin Foundation gave us, you know, a bunch of money to help turbocharge this, and we’ve also been doing a matching drive with our member, and a vast majority of them have come back and said, here’s more money for next year, you know, go build it.
But yeah, you know, this is a nonprofit effort here, and our only, you know, source of revenue is from the companies that are members of the association. But yeah, everybody’s been very generous, but you know, we need to continue to grow that, and you know, I think that this has been a very successful industry, and we need to, you know, start putting more money in, and it’s been great to see that a lot, so many companies are starting to meet that challenge.
Jake Chervinsky:
Let me just take this opportunity to say how amazing Kristin is and what a phenomenal job she has done on a shoestring budget for the last two or two and a half years. It is, to me, unbelievable how effective she has been and the amazingness of this organization she has built without having even close to proper funding. I will tell you, we have ten times more ideas of initiatives that we could carry out than we have funds to actually pursue those initiatives. There’s almost no limit to how much we could do if we were to increase our resources.
And so I think, you know, I’ll leave this to Kristin because she is the expert on this, but you know, everyone in crypto has done extremely well over the last 12 to 18 months. That’s wonderful. It’s great that everyone has gotten really rich. I think that it would also be great for them to pay it forward and protect, you know, the industry by investing in this policy infrastructure which has been built out in a pretty amazing way in the last 12 months or so, as we’ve been discussing, but there’s so much more that we can do, and it just requires us having the resources so that we can do it.
Laura Shin:
All right, so in a moment, we are going to dive into all kinds of juicy topics, you know, in the crypto regulatory space, but first, a quick word from the sponsors who make this show possible.
Join over ten million people using Crypto.com. The easiest place to buy, earn and spend over 150 cryptocurrencies. New users enjoy zero credit card fees on crypto purchases in their first 30 days. With Crypto.com Earn, you can get industry-leading interest rates of up to 8.5 percent on over 40 coins, including Bitcoin, and earn up to 14 percent on stablecoins. With the Crypto.com Visa card, you can spend your crypto anywhere, enjoy up to 8 percent cash back instantly, plus 100 percent rebates for your Netflix, Spotify, and Amazon Prime subscriptions, and zero annual fees. Download the Crypto.com app and get 25 dollars with the code LAURA. Link in the description.
Back to my conversation with Kristin and Jake. So, in the fall, the President’s Working Group on Financial Markets, as well as the Federal Deposit Insurance Corporation and the Office of the Controller of the Currency, released report on stablecoins, recommending that stablecoin issuers be insured depository institutions, that custodial wallet providers be subject to federal oversight, and that stablecoin issuers be limited in their affiliation with commercial entities. What is the Blockchain Association’s take on these recommendations?
Jake Chervinsky:
I think the general idea that regulation for stablecoin issuers is appropriate is a fine idea. I think we all understand that where there are risks that are created by stablecoin arrangements, that are in some ways similar to the risks created in traditional finance, it’s reasonable for us to have a nuanced conversation about what those risks are and what kind of federal oversight might be appropriate in order to make sure that people who are using these products aren’t exposed to risks that they’re not aware of, right? It’s so important to make sure that folks know what they’re getting into when they decide to use or purchase a financial asset, including a stablecoin.
I think we completely disagree that stablecoin issuers are like insured depository institutions, or that the same regulatory requirements that are imposed on those institutions would be appropriate for a company that is, for example, holding US Dollars already in an insured depository institution and then issuing a token that trades on a blockchain representing a claim on those dollars. The risks posed there are just orders of magnitude less than if you are an actual bank that is, you know, carrying out all the types of lending operations, for example, as the large banks in this country do.
I think what was really notable about the PWG report was the recommendation, or really the urgency around saying that Congress has to take action in order for stablecoins to be regulated in some way. You know, it’s very rare for the government to admit, especially for the federal agencies to admit, that they don’t have regulatory authority or jurisdiction to regulate any type of financial activity whatsoever, but the report basically goes as far up or as close to that line as they possibly could without actually saying, hey, we do not have jurisdiction to regulate these assets.
So, I think that this conversation appropriately should be in Congress, and I know that there are a lot of members of Congress now who are thinking very deeply about this. Senator Pat Toomey is one of them. He’s issued some principles around stablecoin regulation that I think are really, really, you know, sharp and smart and on point. So, I think we’re going to see some proposals coming out of Congress, and that really is where the action should be, just as the report recommends.
Laura Shin:
And China has issued a central bank digital currency, or CBDC, and other countries are considering issuing one. In the US, we already have a lot of private US Dollar-based stablecoins. Is your sense that the US will eventually go down the road of issuing a CBDC? Or in general, like, what is it that the Blockchain Association would advocate for when it comes to dollar-based stablecoins?
Jake Chervinsky:
So, I wrote an article in CoinDesk about this recently. I would encourage listeners to take a look at this. I do not think that the United States should pursue a CBDC.
I think, you know, we could talk about if there is the potential for a CBDC that would not box out the private sector from also creating their own types of stablecoins, and maybe there is some room for us to talk about a CBDC that would either compete with the private sector, if the government wants to compete with the private sector, I suppose they’re welcome to do that. I would be curious, you know, how effective the government is going to be competing in the private markets, but you know, certainly they’re allowed to do that if they want to. I think another really interesting idea would be a CBDC that is open source that the private sector could build their own solutions on top of.
I think the concern, though, is that the government will, instead of supporting private sector development of these technologies, instead say, the private sector is not allowed to innovate here, the government is going to have a monopoly on developing this type of technology, and that is exactly the opposite of how the United States of America has traditionally and going forward in the future can compete with our foreign adversaries, right?
The Chinese model is for the government to have absolute and total control over everything going on in, you know, in development of technology. The way that we outcompete China is empowering our private sector to do what they do best, to figure out what the market wants, and then to build those products and services better than anybody else can. So, my concern with any development of the CBDC is that it will either chill innovation in the industry or will stop the industry from doing, again, what America does best.
I think in terms of whether there will be development of the CBDC, there’s a lot of interest in this, and the Boston Fed has been working very hard on a proposal, which I think has not been published in its entirety yet, so we’ll have to see what they come out with. So, you know, I think, practically speaking, there will be a lot of discussion going forward about whether there will be a CBDC. How quickly we will actually see development of one, I think, is another question. Government tends to move slow under the best of circumstances, and I think it would take a very long time for them to put out a CBDC, but we’ll just have to wait and see what the Fed’s proposal looks like.
Laura Shin:
Let’s talk about the Securities and Exchange Commission. A number of tokens started out centralized and then are working toward becoming more decentralized over time. SEC Commissioner Hester Peirce has proposed three-year safe harbor for such tokens, which would grant those teams a grace period in which to decentralize. What’s the Blockchain Association’s opinion of this proposal, and also your sense of whether or not this would ever be adopted, or in general what might be a solution if not this one?
Kristin Smith:
I think it’s a really good proposal. It’s very well thought out. Probably some ways it could be improved, like anything, but really appreciate Commissioner Peirce’s leadership on this front. I don’t think it’s something that Gary Gensler is going to pick up and adopt, but I do think there are a lot of people in Congress that like the idea, there’s been legislation that has been introduced, and I think it’s really good to get these ideas out there so we can discuss them and debate them, but yeah, it’s not something that’s going to be enacted anytime soon.
Jake Chervinsky:
Yeah. I would just add I think that the safe harbor, the underlying principles of it are outstanding, which is when it comes to the driving force underlying the policy goals of the securities laws, it is closing information asymmetry between the issuers and the holders of assets, and the purpose of the safe harbor is to say we need to craft disclosure requirements for issuers of assets that actually make sense for cryptocurrencies and for other digital assets in a way that the rules for issuers of equity securities, right, companies that are going public, just don’t really address in the way that we would want.
I think it’s an example, though, of how quickly the industry is moving, and how hard it is to come up with rules that, you know, survive even a couple of years of development and advancement in the space. The safe harbor is really focused on ICOs, right, development teams that are creating, usually, layer 1, you know, native tokens, and then selling them to investors, and that’s really not what we’ve seen in the market over the last couple of years.
So, I think the goals of the safe harbor are exactly right. I think the safe harbor itself is, unfortunately, probably not going to move forward, but hopefully we can come up with something similar that achieves the same objectives. I think that’s the right way for us to adapt the securities laws to what’s going on in the crypto industry.
Laura Shin:
And so, when you say that, what would that look like? Because, and just to lay things out for listeners, at least my read is that Chair Gary Gensler of the SEC believes that a number of crypto assets are securities, and so the issuers do need to be registering with SEC and providing registration statements and disclosures, and then it seems like maybe, and again, tell me if I’m wrong, that he also seems to think that the exchanges would also have to register. So, I’m presuming that’s not the Blockchain Association’s stance. I could be wrong, but yeah, what do you think would be a reasonable middle ground, and what do you think of Gensler’s stance?
Jake Chervinsky:
That is certainly not our position. I do think that you’ve accurately diagnosed what Chair Gensler at least has been saying about the space.
I think, as I was mentioning before, as with so many policymakers, there’s a lot of education that needs to be done. When I listen to Chair Gensler talk about DeFi, for example, it strikes me that I’m not sure that he has a full and deep understanding of the difference between, for example, a centralized financial institution that is taking custody of the assets of customers and then lending them out, for example, or a centralized exchange that is operating a central limit order book, as compared to a decentralized exchange protocol that uses an automated market maker. Look, these are these are difficult and nuanced issues, but I think there’s a lot more education that needs to be done.
I think when you consider the realities of these very new and very unique types of protocols, what you see is a very different circumstance from a traditional issuer who is an essential actor in an investment scheme who should be making disclosures to the public so that the public can understand the likelihood that that central issuer will make good on their promises to increase the value of those assets. That’s just fundamentally not what we see with the vast majority of digital assets out there.
Now, to the extent that there are digital assets that are like traditional securities and they are masquerading as something decentralized, when Chair Gensler says some of these assets are decentralized in name only, I think that’s a fair take, and those assets probably should be treated like securities, and I think it’s incumbent on the industry to understand where that line is, and then figure out how to make sure that these assets function like commodities, not like securities, and it’s just going to take us quite a bit of effort to explain that to the Commission, and then come up with, like I said before, a disclosure regime that for those assets makes sense so that we can close those information asymmetries, facilitate capital formation, ensure market integrity, and achieve the Commission’s goals in this new context.
Laura Shin:
So, a16z, the Andreessen Horowitz crypto, released a report outlining how it thinks crypto should be regulated with the suggestion that there be a single crypto tsar. They wrote, forcing all digital assets into a regulatory framework designed to cover investments in centralized enterprises, such as corporations, does not work. What do you think of this suggestion, to have an overarching regulator?
Kristin Smith:
Politically not feasible or practical.
Jake Chervinsky:
For sure, that’s true. I think even if it were politically feasible, it’s just too early, right? I mean, this goes to the point I was making earlier. A proposal from even a year and a half ago about securities regulation based on what the market looked like a year and a half ago just doesn’t make sense anymore, and I think for us to say today we know how this market should be regulated, we know that we need a brand-new regulator just doesn’t make a whole lot of sense.
Also, to me, I think that as we play this out over the course of years and decades, basically what we are building here is just a technological upgrade on the infrastructure that we’ve already had in the financial system, and we’ve never created new regulators based on the presence of new technology before. We’ve assigned to the appropriate regulators with competent jurisdiction the role of regulating the same types of conduct that uses that new technology. Personally, I don’t see why we would approach that differently now.
But to the point, maybe in 12 months I’ll have a totally different view based on what the market looks like then.
Kristin Smith:
But I do think it’s good to throw these ideas out and discuss them and debate them. I want to clarify that, but yeah, we’re not going to create anything new.
Laura Shin:
Yeah. My sense of why they were proposing that was simply because of the sheer number of regulators that the crypto entrepreneurs have to deal with, which, yeah, we don’t need to get into that, but it’s something like in the dozens, which is bananas.
Kristin Smith:
It’s a lot. It’s a lot.
Laura Shin:
So, DeFi has come up repeatedly, and it definitely seems like regulators and lawmakers are very concerned about decentralized finance, and in particular, I think they’re concerned about the current lack of anti-money laundering and know your customer processes on these protocols. What do you think is the best way to manage privacy on one side, with preventing DeFi for being used for illicit purposes on the other side?
Jake Chervinsky:
So, I actually don’t think that there’s as much concern as a lot of people make it sound like. You know, we just got new data from Chainalysis recently which said that only 0.15 percent of crypto transactions involve illicit finance. That percentage continues to decrease year after year after year, and you know, we also heard Secretary Yellen, you know, give an answer recently about her views. You know, she’s the Treasury Secretary, this is her job to make this decision, and what she said basically was she stands by FinCEN’s guidance from May of 2019, that that, you know, adequately addresses anti-money laundering concerns in the crypto industry, and it’s consistent with guidance from the FATF from 2021, so I actually don’t think that this is a huge concern among regulators.
I think that there are also many different new projects in the industry that are trying to give more insight into, you know, financial integrity and the risk of abuse of the crypto system by bad actors. I think that it’s going to take a very long time for us to figure out how do we handle anti-money laundering in a disintermediated financial system, but I think that everyone is up to that challenge, and no one is particularly concerned at this moment about how to handle that.
Laura Shin:
Well, one question is, during the fight over the crypto provision in the infrastructure bill, I did see some commentary that people felt that the real target of the provision was DeFi. What was that the case, or what was your take on that?
Jake Chervinsky:
I do think that ultimately, and you know, tax reporting is a separate issue from anti-money laundering.
Laura Shin:
Oh.
Jake Chervinsky:
But I think for tax purposes, yes, I do think that the IRS wants to understand who is realizing capital gains in the DeFi ecosystem, and you know, those requirements, the tax reporting requirements, look a lot like the anti-money laundering requirements in the sense that they also require a central intermediary to identify the users of protocols and collect personal identifying information from them, Social Security number, home address, birthday, things of that nature, and yes, I do think that one of the goals of the addition to the infrastructure bill was to capture DeFi.
I think we’re going to get some guidance from the IRS on this at some point, hopefully soon, certainly this year, maybe in Q1 of 2022. I’m, again, optimistic, maybe I’m too optimistic, but I’m optimistic that at this point the Treasury Department will understand that the vast majority of digital asset transactions are on centralized exchanges that look just like traditional brokers, and DeFi is such a complicated concept at this point that that we don’t need to jump out ahead of the anti-money laundering concerns and solutions to try to capture DeFi under a new tax reporting regime.
So, I think this is an issue that, again, is going to play out over time, but I don’t think that, and maybe this is just wishful thinking, but I don’t think that there’s imminent regulatory pressure to fundamentally alter DeFi market structure in a way that will change tax reporting.
Laura Shin:
Okay. I guess the reason I’m a little bit confused is because I do feel like a number of the DeFi protocols and developers have been very concerned about operating here in the US. So, what is their concern about?
Jake Chervinsky:
I think the main concern, the one I hear the most, is the one we were discussing before, which is about the SEC and the potential for Chair Gensler to decide that he doesn’t believe in DeFi, right, he thinks that everything that claims to be decentralized is decentralized in name only, and so there’s a lot more concern around SEC enforcement than there is around anti-money laundering compliance or tax reporting. I think it’s more of a securities concern than anything else.
Laura Shin:
Okay, so this actually leads me to this other line that really stuck out at me in the a16z regulatory report, which was, ironically, the innovators that seem most interested in ensuring compliance and pursuing constructive dialogue with regulators often find their willingness to engage makes them vulnerable to regulatory action, while others, operating in a less transparent fashion, escape scrutiny. Do you agree with that opinion, and can you talk a little bit about how you think both crypto entrepreneurs and regulators should manage that?
Kristin Smith:
Yeah. I mean, I guess the problem is when you go and engage with regulatory agencies, they know you exist, right? Though, I mean, and Jake may have other ideas, I think that, on the other hand, if you look at a lot of the enforcement actions the SEC has taken, a lot of them, not all of them, but a lot of them are sort of, you know, these more obscure, kind of smaller, you know, projects that nobody has ever heard of, right?
And so, you know, I don’t think that by not engaging it means you’re off the hook. I mean, I think they’re sort of looking everywhere, but I do think that, yeah, unfortunately, by being active and attempting to be a good actor, it’s sort of like no good deed goes unpunished sometimes, but it’s unfortunate, because we need to have the good actors that want to comply, you know, we need a way for them to get feedback, but also a way for them to educate regulators and also educate policymakers.
And so, yeah, it’s an unfortunate situation, and yeah, I, you know, for better or for worse, you know, make sure people are fully aware of the risks before they go in and speak with regulators. It’s not exclusive. It just sort of depends on the regulator, but think with the SEC, that’s unfortunately probably true.
Jake Chervinsky:
That’s exactly right from my perspective, and you know, I’ve heard a lot of stories of folks who have gone into the SEC to try to have constructive discussions about a protocol they want to build or an asset they want to issue, and the SEC for years has said, come in and talk to us, and we’ll figure it out, and they’ve been met with blank stares, and then sometimes after having that meeting, they’ve then been contacted by the Division of Enforcement with a subpoena, and you know, that has really chilling effect on projects who, you know, have, I think, over the course of time, come to the conclusion, and this really seems to be the industry’s view at this point, that there’s nothing to be gained from going in to have that conversation there. There is only punishment on offer, and really all you’re doing is providing free discovery to the Division of Enforcement that otherwise they might have to work a little bit harder for.
So, I do think that that is extremely unfortunate, because we should have a productive and constructive relationship and discussion about these issues. I just think, you know, on the government side, there hasn’t really been a constructive view taken so far.
Laura Shin:
Now, let’s talk about taxes. In an ideal world, how does the Blockchain Association think crypto tax reporting should be handled?
Kristin Smith:
I think centralized exchanges are very willing to do tax information reporting. I mean, I think it’s something that, you know, come tax season, their customers want guidance and advice on how to do this, and it would be, you know, sort of a helpful and welcome part of the process. But the key is, it has to be limited to those entities that are truly acting as brokers, and not stakers or miners or software developers or others that don’t have a customer relationship.
Jake Chervinsky:
That’s exactly right, and I think, you know, there’s a win-win that we can eke out here, which is the centralized exchanges and custodians know that they should be doing tax reporting, and they want to do tax reporting for the reason Kristin just said, their customers want it. It makes their customers’ lives easier. You know, one of the challenges of being a DeFi user is it’s really, really hard to figure out how much you owe in taxes, and most people I know, everyone I know who’s using DeFi, wants to pay their taxes and they want to pay the right amount. They just literally can’t figure that out.
So, I think there are a couple of solutions that we can figure out as time goes on. There are some really fantastic third-party software providers who can help people, you know, plug in Ethereum addresses into their software, and then the software will, you know, spit out some useful information about what taxes are owed. So, I think we’ll get there on DeFi.
But I think in the near term, we can solve 90 percent of the challenge of getting the right taxes paid just by giving clear rulemaking to the centralized exchanges and custodians about how can they produce these reports, right? The typical form that a broker produces is a 1099. We need a version of that for digital assets, and I think once we have some good guidance about what that should look like, we can solve a lot of this problem, you know, pretty soon.
Laura Shin:
So, another one of the issues in the infrastructure bill was that 6050i provision that Kristin mentioned earlier, and that would require people who received digital assets worth more than 10,000 dollars to report the personal information, such as Social Security number and address, of the person who sent them that asset to the IRS within 15 days. So, this is actually an existing provision that applies to cash, or I’m not sure what the other assets are, but how do you plan to recommend that lawmakers or regulators apply this regulation to crypto, if at all?
Jake Chervinsky:
I think the best way to apply that rule is to make it as close to the requirement for cash as possible. That is to say, it makes some sense for it to apply when there are transactions of cryptocurrencies being used as a medium of exchange to pay for an asset that is off chain that the IRS or that the Treasury Department would otherwise not be able to identify or track.
I will say that, you know, I’ve had some interesting conversations with our good friends at Coin Center, you know, Jerry Brito about this subject. I think he and I are both of the mind that that requirement is likely unconstitutional, and we’ll see sort of where that goes. I think that if there was an application of the 6050i requirement beyond something that looked very similar to its application in the traditional cache context, that might be an opportunity where we will find ourselves in court over that implementation.
Honestly, I am again optimistic that the Treasury Department understands this and knows that, you know, two pseudonymous users of a decentralized exchange protocol who are swapping non-monetary assets are not similar to someone who walks into a car dealer and wants to buy a used car with a briefcase full of cash, and that they will not apply those same cash transaction reporting requirements the same way, but it remains to be seen. We’ll just have to see what they do.
Laura Shin:
So, going back to something that Kristin mentioned earlier, we’ve seen this whole past year of 2021 that non-crypto people really take issue with the environmental impact of what many of them seem to think is all crypto assets in general, but is really mainly proof of work mining, and I wondered, when you deal with different congresspeople or regulators, what do you find is their general attitude around this issue, and how does the Blockchain Association typically try to address that?
Kristin Smith:
Well, this is an issue that has really, you know, emerged in 2021 as an issue, and you know, there is a hearing coming up that is going to go in detail on this. You know, I think, listen, if you don’t understand what the value of Bitcoin is, then you’re not going to understand why devoting energy to Bitcoin is valuable, so we have kind of that, like, base-level education that we need to do.
I think, you know, the members of Congress that are particularly active on climate issues are in different committees, and we’ve traditionally engaged with and we’re now starting to work with members of the House Energy and Commerce Committee, for example, to talk about Bitcoin, and I think this is something that we’re going to continue to do, but there is a really good story to be told around renewables and actually making it, you know, an incentive to deploy more renewables by, you know, pairing them with Bitcoin mining.
And so, I think we have a good story to tell, but until we’ve told the story, people are going to jump to, you know, kind of like I was saying in the beginning, they’re going to jump to the easiest thing that they think they understand, when there’s so much of the picture that’s missing, so I think it’s going to be a big priority for the Blockchain Association in 2022 to engage, start engaging on this front.
Jake Chervinsky:
I definitely agree that the story we need to tell about renewables is a really important one. There’s also a foreign policy story that we need to tell that I think has been under emphasized at this point. I think that it was an unbelievably massive mistake on the part of China to ban miners from that jurisdiction. The US has overwhelmingly benefited from that mistake. We need to make sure that we don’t make the same mistake, and we take advantage of the fact that one of our largest foreign adversaries just didn’t understand, you know, what they had in their own borders, and make sure that we attract as much mining activity to the US as we can.
Laura Shin:
So, on a related note, NFTs, this is where we see a lot of the backlash about the environmental issues, they are also is somewhat new phenomenon, and I wondered, you know, so I actually don’t know, kind of, what are the major regulatory issues around NFTs, but I wondered if there were any that you are focusing on and how you think those should be addressed.
Kristin Smith:
I mean, I would say right now, NFTs have actually been pretty positive, I think, for us. I think there’s maybe negative elements that are percolating out there, but for the most part, NFTs have driven a lot of interest, particularly at the congressional staff level, but also at the, you know, congressman level. You know people are like, this is something they can visualize, right? They can see these NFTs and it’s helping them to understand what digital scarcity is and what the blockchain is, so it’s very valuable in the education context.
But yeah, like anything else, there’s certainly securities laws issues, there’s tax policy issues, you know, there’s anti-money laundering issues, and I also think there’s going to be, like, intellectual property issues that we really haven’t had much opportunity to go to go deep into, but Jakes can add to that, probably.
Jake Chervinsky:
Kristin nailed it. I think, you know, yes, there has been some controversy and some critique of NFTs. I think overwhelmingly, the narrative around NFTs has been positive. I think it’s one of those things that gets away from Bitcoin, which again, a very challenging concept, separating money from state, not necessarily something a lot of policymakers want to get behind, has sort of changed that narrative to artists and content creators who are finding ways to make money, right, to make a living on their art for the first time in a way they never could before, and that’s a really important story for us to tell.
I think in terms of the unanswered questions, probably tax reporting is the biggest question. You know, the exchange platforms where folks are buying and selling NFTs are not currently required to do tax reporting. In many ways, I think that it would be inappropriate for them to have to do tax reporting because they are not like traditional brokers, but nonetheless, there is this question of how do buyers and sellers of NFTs figure out what their tax liability is, and so I think that’s the main issue that we need to figure out going forward.
Laura Shin:
So, another new phenomenon, well, not that new, but really mainly took off last year was DAOs, and DAOs are really such a new thing in history that many regulations were established when something like a DAO was not possible, and as was pointed out in the a16z regulatory report, DAOs cannot enter into legal contracts, they cannot benefit from limited liability, they also cannot pay taxes. So, how does the Blockchain Association think that these issues should be handled, and are there any other regulatory issues you think that need to be addressed related to DAOs?
Jake Chervinsky:
So, I’m really excited about DAOs. I think, you know, every once in a while, maybe on the order of decades or centuries, we, and when I say we, I mean us as humans, come up with new ways to organize ourselves and coordinate in large groups and across long distances, and DAOs are just a new way for all of us to get together in a digital era and you know, come together around a particular goal that we want to achieve.
I think that requires us to figure out how we want to treat DAOs, but this isn’t the first time, even in recent memory, that there’s been a new type of business form. You know, one of the most popular types of business forms now in the United States is an LLC. LLCs are comparably very, very new. There were no LLCs, you know, 100 years ago, so I think we just need to come up with what are the unique benefits of DAOs, what are the unique challenges, what kinds of statutory boundaries should we put around these entities? I think we will get to the point where DAOs can be treated just like any ordinary legal entity.
I think one of the main concerns that we have now is that members of DAOs should enjoy limited liability just like members of LLCs and corporations do, and that’s a challenge that we need to overcome.
I think we will see a lot more activity on DAOs in the states rather than at the federal level. You know, we already saw one effort by Wyoming to create a statutory framework for the registration of a DAO. I think that framework fell short in a couple of important ways. Actually, one of my friends and a new Blockchain Association member, Gabe Shapiro at Delphi, wrote a really good article sort of flagging some of the problems with the Wyoming statute, but I think we’re going to see a lot more states come along and say we want to be the Delaware of DAOs. we want to attract DAOs to register here and do business here, and we’re going to see a lot more evolution of the concept of what a registered DAO looks like, so I’m excited to see which states decide to come forward with those types of proposals this year and moving on.
Laura Shin:
So, crypto lawyer Grant Gulovsen asked over Twitter what the Blockchain Association’s position is regarding what he called all the bad actors in this space, in particular, Tether and Celsius. Then he asked if there are any realistic chances of self-regulation to clean up the space, and whether or not the Blockchain Association is trying to advance that, and yeah, I was curious about these self-regulatory organizations, because they’ve been talked about a lot and are used in traditional finance.
Kristin Smith:
Yeah. I mean, I think, and Jake may have some things to add to this, there are a lot of actors in this space in terms of companies that are sort of pushing the edge. I think that, you know, some are pushing the edge more than others, but there’s nothing wrong with going to the edge, and so if companies are out there and trying to figure out where the edge is, I think that’s fine, but yeah, some people are, some individual companies are doing more than others.
But you know, I think in terms of self-regulatory organizations, to be a proper self-regulatory organization, you have to have a very clear regulator to coordinate with that self-regulatory organization, and that needs to be approved by an act of Congress. So, I think that is potentially part of the solution down the road, but not something that, you know, we should be focused on now, because there are a lot of pieces that would need to be put in place, but Jake may have different or more developed thoughts on that.
Jake Chervinsky:
I agree completely about the idea of the self-regulatory organization. I’m not saying it’s a bad idea, I just think it’s a very premature idea for the same reason as we were saying earlier about creating a new regulator. I just don’t think we have a good sense yet of who the members of that self-regulatory organization would be, what the goals would be, how they should move forward, so I think it’s certainly a worthwhile concept for us to talk about, but not something that we should be prioritizing now.
You know, I don’t want to cast dispersions about any particular company or actor in this space, but it is important for us to acknowledge that there are bad actors using this technology, just like there are bad actors using every type of technology, and I think that it’s really important for us to figure out, how do we promote the good actors, right, and the beneficial, positive use cases, while also making sure that the people who are showing up just to, you know, pull scams or do rug pulls, how we can identify those people and make sure that they are investigated and prosecuted and punished where necessary?
It does not help us at all as an industry to pretend like 100 percent of what happens using digital assets is 100 percent aboveboard, because that’s not true. There was a really great thread I would recommend people look at written by a candidate for Senate, Morgan Harper in Ohio, who is extremely positive in general on the industry, but was noting that there are people out there who are having money stolen from them by frauds and scams.
And I will tell you, as someone that, you know, is very active on Twitter, Laura, I’m sure you have the same experience, whenever I tweet, I would say at least five to ten of the comments are people who are promoting scams, and every week there’s at least one impostor who has stolen my profile picture and is pretending to be me, and is DMing people pretending like I am running a trading group or something like that, which is a totally ridiculous concept, but we know that this activity wouldn’t be happening if these fraudsters weren’t making money off of it, and what that means is there are people being victimized out there. We need to take that seriously and we need to figure out how to address it.
Laura Shin:
Yes. At the moment, for the last several days, I’ve been trying to remove this Telegram group that is claiming to be Unchained Podcast, and is clearly scamming people out of their crypto, and it’s very upsetting because Telegram has not responded to any of the reports or any of my tweets or anything, so totally get you.
But anyway, okay, so I’m sure there are probably some listeners who have been listening to this podcast, and they’re probably maybe pumped up about different regulatory issues that need to be addressed here in crypto. So, what would you recommend people who want to get involved and want to support sensible crypto regulation in the US do?
Kristin Smith:
Well, I would say first, be informed. You know, follow Jake on Twitter, follow the Blockchain Association, follow our friends at Coin Center. You know, we want to be…you need to know what’s happening, first of all. You know, number two, if you’re working with a company and have control over resources, you should join the Blockchain Association. If you’re an individual, you know, support Coin Center, support Fight for the Future, support HODLpac. There’s a lot of organizations out there that are, you know, kind of geared towards support from individuals.
And then, I would say, you know, get to know your local congressmen. Go attend a fundraiser, get to know them, build a relationship, and you know, if you’re a very big company, open up a Washington office and hire lobbyists and a policy team and smart lawyers to think through this stuff, and have them coordinate with us, right? You know, we need to have, you know, a lot of smart people working on this, but also doing the less glamorous work of going around and doing all of the educating that needs to be doing. It’s a lot of the same conversation over and over and over and over, but when we have people that are armed with the right arguments and the right talking points, you know, we can get through that period of education that I think really, really needs to happen at a large scale in 2022.
Jake Chervinsky:
I second all of that. You know, I think, for me, a priority is growing our membership. I think the more industry members who we can represent when we go talk to policymakers, the more effective we are as the voice for the industry. You know, Kristin mentioned there’s a hearing that’s coming up on Bitcoin mining and proof of work. Because of that, I’ve had the pleasure of speaking with leaders from many different mining companies in the US. That’s been a phenomenal experience. I hope that many of them will join the association so that we can work more closely with them. I feel the same way in every sector of the industry, across the board, you know, the more members we have, the more effective we can be.
I think for, you know, the average person out there who just is interested in getting involved in their own way, everything Kristin said is right. The only thing that I would add, you know, circling back to our conversation about the importance of Twitter, is show some engagements to your members of Congress, right? Just as an example, Representative Gonzalez wrote a phenomenal op-ed that was published recently about Web3, and you know, showing him some love for having taken a stand on that and for being so forward thinking really matters. So, it feels a little bit silly, but honestly, you know, clicking like and retweet on these members of Congress’ tweets, that really makes a difference. So, that’s the easy thing to do.
Laura Shin:
All right. Well, I know that our listeners love to do that kind of thing, so good suggestion. All right. Where can people learn more about each of you and the work of the Blockchain Association?
Kristin Smith:
Well, you can check out our website, theblockchainassociation.org, which is about to undergo a massive revamp, so you can get the before and after picture, and you can follow the Blockchain Association on Twitter at @blockchainassn, or you can follow me at @kmsmithdc.
Jake Chervinsky:
And you can follow me on Twitter @jchervinsky, and yeah, that’s the best place to stay up to date.
Laura Shin:
Perfect. Thank you both so much for coming on Unchained.
Kristin Smith:
Thanks, Laura.
Jake Chervinsky:
Thank you.
Laura Shin:
Thanks so much for joining us today. To learn more about Kristin, Jake, and the Blockchain Association, check out the show notes for this episode.
Unchained is produced by me, Laura Shin, with help from Anthony Yoon, Daniel Ness, Mark Murdock, Shashank, and CLK Transcription. Thanks for listening.
