At the end of last week, the White House followed up on its March executive order with the “First-Ever Comprehensive Framework for Responsible Development of Digital Assets.”
It was a historic moment for the U.S. crypto community, which is finally beginning to receive some guidance from the Federal Government regarding digital assets. Of course, what’s being clarified is a topic of much scrutiny.
The White House press release reads as follows: “Digital assets present potential opportunities to reinforce U.S. leadership in the global financial system and remain at the technological frontier. But they also pose real risks, as evidenced by recent events in crypto markets. The May crash of a so-called stablecoin and the subsequent wave of insolvencies wiped out over $600 billion of investor and consumer funds.
Over the past six months, agencies across the government have worked together to develop frameworks and policy recommendations that advance the six key priorities… consumer and investor protection; promoting financial stability; countering illicit finance; U.S. leadership in the global financial system and economic competitiveness; financial inclusion; and responsible innovation. The nine reports submitted to the President… articulate a clear framework for responsible digital asset development and pave the way for further action at home and abroad.”
The framework relies on already existing regulatory bodies, such as the Securities and Exchange Commission (SEC) and the Commodity Futures Trading Commission (CFTC), so it seems the new world of digital ownership will be moderated by very familiar regulators.
The SEC recently announced plans to “add an Office of Crypto Assets and an Office of Industrial Applications and Services to the Division of Corporation Finance’s Disclosure Review Program (DRP).”
That’s why recent comments by SEC chairman Gary Gensler regarding Ethereum ETH/USD have made supporters in the Web3 community uneasy. On Sept. 15, Gensler said in a statement that staking-based cryptocurrencies are very likely securities and should be regulated by the SEC. Gensler also said that since the Merge, Ethereum with its new proof-of-stake (POS) mechanism has fallen into this category.
Benzinga spoke with Stefan Rust, CEO of Laguna Labs, about Gensler’s comments and the trajectory of U.S. crypto regulation.
BZ: What is your take on the comments by Gensler and the SEC about the Ethereum Merge?
Rust: “The reaction to last week’s Ethereum merge is a testament to the stultified situation in which we now find ourselves. Rather than welcome what is likely to be one of the greatest technological innovations of our age — an event that will see ‘the world’s computer’ cut its carbon emissions by 99% and become a truly viable solution for the future of the global Web3 economy — they tore it down.”
What do you see as the SEC’s goal in regulating the space?
“The goal today is to regulate it and curtail it — and show who the boss is. It’s a battle of egos.
There is no putting the nation or creating economic opportunities first. It’s a battle between the departments that are really trying to take control over this and not provide any guidance. I think we should have a framework that allows people to work within that framework.
How do we incentivize innovation with tax windows instead of hiring 80,000 IRS agents to go after the middle class and make sure that they filed all their forms and every piece of income that they should have recorded? How do we invest instead in streamlining the capture of income? We could save a significant amount of resources and be a lot more capital efficient in our allocation of funding toward driving innovation.”
What is at stake in the SEC’s attitudes toward Ethereum and crypto overall?
“A movement of resources and the brain drain happening in legacy markets, which is sad. We need the best of breed, and there is so much smart talent out there. How do we attract them to work in positions where they can write the right kind of reports that set the right type of policies that enable innovation and change? Because if we don’t embrace change, our infrastructure will not support and prepare us for the future, which means my kids won’t be able to find new opportunities over here. They’ll have to go to China, Singapore or Dubai. All the investment in their thinking, innovation and engineering talent was developed here. Do we want to export all of that talent?
The blockchain landscape and the cryptocurrency world are still in their infancy. Worldwide, there are about 26 million software engineers, but there are about 18,000 active developers in cryptoland. We haven’t tapped 1% of the software talent to build on blockchain.”
What kind of approach would you see regulators take toward digital assets like crypto?
“Embrace it. I think the power of decentralization, one advantage that many of these decentralized coins and networks provide is transparency.
Study the explorers, understand the different wallets, understand the exchanges, and learn how these yield opportunities work. Enable and drive participation. Enable inclusion amongst everybody in the U.S. and develop these new payment networks, these new blockchains as payment networks to drive efficiency and reduce costs.”
What are the long-term costs of a less-than-friendly crypto regulatory environment?
“The pace of innovation happening in the blockchain and crypto sector will only accelerate. The longer figures like Gary Gensler drag their feet in a combination of fear and ignorance, the more dangerous this is for the economies that they oversee.
Many other parts of the world are embracing blockchain and cryptocurrency, while many Western economies are still refusing. This is not prudent. Those that resist change get left behind, and if Gary Gensler, Christine Lagarde, et al. do not keep up and join in this change, this could have damaging effects on economies for decades to come.”
What advice would you give proponents of crypto and Web3 in this crypto winter?
“Be brave. Bring in a new generation that understands technology.
Ultimately, it’s unfortunate that many of these institutions are run by people that grew up and have been in power for four or five decades. We’re not using our best talent. Our best talent isn’t incentivized to go and work in an environment where it’s so hard to make a change, and it’s just infighting versus thinking about the prosperity of a nation.”