A Who’s Who in The Fight for Better Blockchain Regulation in the US

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Who is challenging US regulators and primarily the SEC for friendlier blockchain regulation?

Although Kik has displayed the most public (and formal) face of dissent as it takes the SEC head-on, and challenging the applicability of its 73-year old regulatory framework on blockchain technology, several influential companies, associations and people have also been voicing their dissatisfaction with the state of current US regulation.

Here’s an alphabetized who’s who list, what they are saying or asking for, and the type of changes they are requesting.

Key Asks or Viewpoints:

  • Policy should be made in an open rulemaking process or open legislative process, where ideas can be vetted, debated, improved upon, and anyone who is impacted can share their views.
  • Congress needs to keep an open mind pertaining to understanding the impact of cryptocurrencies.
  • The potential Kik case has major consequences for the open blockchain ecosystem.
  • The SEC staff guidance poses more questions than it answers.

Key Asks or Viewpoints:

  • Include blockchain technology in the Administration initiatives.

Key Asks or Viewpoints:

  • Clarify the criteria used to determine when offers and sales of digital tokens should properly be considered “investment contracts” and therefore offerings of securities.
  • Clarification on whether, if a token originally sold in an investment contract can, nonetheless, be a non-security
  • Describe the tools available to the SEC to offer more concrete guidance to innovators on these topics

The Caucus includes the following Congressmen as members: David Schweikert, Bill Foster, Tom Emmer, Darren Soto, John Delaney, Stephen Lynch, Denny Heck, Mark Meadows, Jeff Duncan, Jerry McNerney, John Larson, Greg Gianforte, Warren Davidson, Ted Budd, John Curtis, Denny Heck, and Eric Swalwell.

Led by Rep. Emmer, the Caucus introduced 3 Bills to kick-off this initiative:

  • Prioritize accelerating the development of blockchain technology to support transparency, security, and authentication in a way that recognizes its benefits and allows consumer protection while supporting future innovation;
  • Create an environment that enables the American private sector to lead on blockchain innovation and further the growth and success of blockchain networks and digital currencies;
  • Have its Federal agencies work onward a coordinated framework to support digital currencies and blockchain technology;
  • Avoid undue restrictions on blockchain networks and the trustworthy decentralized computing services they facilitate;
  • Support and enforce a predictable, light touch, consistent, and simple legal environment for services facilitated by blockchain networks; and
  • Recognize the potential benefits and broad use of digital currencies and blockchain technology to enhance public services, and enable more business growth, capital formation, and capital investment.

Key Asks or Viewpoints:

  • Policy and regulations should be clear and established prior to enforcement.
  • Prevent regulatory patchwork.
  • Establish an Office that coordinates US blockchain strategy going forward.

Key Asks and Viewpoints:

  • US regulators are taking an extremely broad view of what crypto assets might be deemed securities. We don’t think that they should be considered securities.
  • U.S. regulators are creating an uncertain environment for crypto assets.
  • Stop applying laws written in the 20th century to technologies created in the 21st.
  • Many token projects do not have some key elements of the Howey, but their absence doesn’t seem to weigh into the SEC’s considerations.
  • Frustrated by the consequences of the current guidance.

Key Asks or Viewpoints:

Securities regulators should avoid chilling promising innovations that are ill-fitted to the Howey test, and presenting less risk to users, such as highly decentralized cryptocurrencies, side chains, or initial distributions made via open competitive mining or proof-of-burn where there is no investment of money, i.e. no risk capital is provided to an issuer or promoter.

Key Asks and Opinions:

  • Computer code is constitutionally protected speech (and that should include smart contracts).
  • those engaged in developing protocols, verifying transactions through mining, and writing code are not held liable for operating, or assisting with operating, a securities exchange.
  • The current SEC language could chill blockchain innovation, even beyond decentralized exchanges.

Key Asks or Viewpoints:

  • “Do no harm” is the right overarching approach for distributed ledger Technology.
  • We would support policy efforts to revisit these (existing) frameworks and ensure they are effective and efficient for the digital era.
  • We cannot put the technology genie back in the bottle. Virtual currencies mark a paradigm shift in how we think about payments, traditional financial
  • processes, and engaging in economic activity. Ignoring these developments will not make them go away, nor is it a responsible regulatory response.

Key Asks or Viewpoints:

  • Drop the Howey Test
  • Don’t regulate cryptocurrency
  • Let entrepreneurs innovate via token models

Key Asks and Viewpoints:

  • Need to differentiate between crypto assets that are securities under existing Canadian law and crypto assets that operate solely as a form of payment.
  • Exchanges operate as custodiansThe exchange explains that “the assets are legally owned by the customer and not the Exchange operator.
  • The application of a securities law framework, accordingly, is both unnecessary and inappropriate

Key Asks or Viewpoints:

  • The SEC has jurisdiction over crypto-assets deemed securities, but many crypto-assets — including the most widely traded ones such as Bitcoin — are not securities.
  • Favor congressional action to create a comprehensive regulatory framework
  • The crypto industry should not wait around for regulators to act. It should
  • Formulate self-regulatory standards now — for trading, custody and other functions.

Key Asks and Opinions:

  • Approve cryptocurrency ETF’s
  • Tokens sold for use in a functioning network, rather than as investment contracts, should fall outside the definition of securities
  • Enforcement actions are not my preferred method for setting expectations for people trying to figure out how to raise money. For this reason, it is important for the Commission, in conjunction with Congress and its fellow regulators, to offer something more concrete and carefully considered.
  • Token offerings do not always map perfectly onto traditional securities offerings.
  • The SEC’s old framework may not apply squarely to the new world of crypto-assets
  • The SEC shouldn’t be stifling innovation.
  • Urges the SEC to consider whether new regulatory framework might work better for cryptocurrency.
  • Would rather see innovators and entrepreneurs spend their time and attention on making better products, providing better services, and revolutionizing the way we interact with one another.

Key Asks and Opinions:

  • SEC is leaving crypto companies in an awkward place due to uncertainties that keep looming.
  • SEC needs to provide more clarity, not more enforcement.

Key Asks and Viewpoints:

To amend the Securities Act of 1933 and the Securities Exchange Act of 1934 to exclude digital tokens from the definition of a security, to direct the Securities and Exchange Commission to enact certain regulatory changes regarding digital units secured through public key cryptography, to adjust taxation of virtual currencies held in individual retirement accounts, to create a tax exemption for exchanges of one virtual currency for another, to create a de minimis exemption from taxation for gains realized from the sale or exchange of virtual currency for other than cash, and for other purposes.

Key Asks or Viewpoints

  • Crypto networks are different than companies and crypto tokens are different than securities.
  • The SEC cannot seem to understand that not all of these assets are securities, that most are commodities, currencies, or utilities like frequent flyer miles, and they cannot understand that crypto tokens are unlike any assets that have come before them and that crypto tokens need new regulatory structures.
  • The SEC cannot understand that their unwillingness to come up with new rules paired with their “regulate by enforcement” strategy is hurting the crypto sector, pushing it offshore, and is causing most of the new projects to raise capital outside of the US and/or put together legal structures that look like Frankenstein monsters.

Wyoming is already the “Delaware of digital asset law,” a reference to Delaware’s lead in corporate law.

Here are the top highlights regarding Wyoming’s newest blockchain laws:

  • Recognizes direct property rights for individual owners of digital assets of all types (virtual currencies, digital securities and utility tokens) and applies the super-negotiability rules of commercial law to virtual currencies — which foster their liquidity — by applying the very same rules that apply to money. Wyoming’s commercial law reflects the true nature of digital assets (directly owned, peer-to-peer assets), and I strongly encourage other states to adopt Wyoming’s same commercial law protections;
  • Creates a fintech sandbox to provide regulatory relief to financial innovators from existing laws for up to 3 years. It’s broadly reciprocal with fintech sandboxes both in the US and globally;
  • Authorizes a new type of state-chartered depository institution to provide basic banking services to blockchain and other businesses. The bank is required to have 100% reserves, cannot lend, is for business depositors only, and FDIC insurance is optional. Such banks could be operating as soon as March 31, 2020;
  • Authorizes the first true “qualified custodian” for digital assets which is a bank.

Sadly, these voices are often met with continued confusing and often contradictory signals from the SEC or its Commissioners, as if the regulatory agency is oblivious to the market needs, and mostly disengaged or disinterested in thinking outside their box.

Of course other regulatory regimes around the world have adopted friendlier regulation, but there is no other single region where this matters the most.

Via their actions (and inactions), the SEC is ensuring that most new US blockchain entrepreneurs are staying as far away from the US as they possibly can.

These viewpoints and initiative underscore the gravity of the situation.

To think that the SEC is single-handedly suffocating the full emancipation of the blockchain industry in the US would not be an exaggerated statement.

While many of these initiatives amount to a lot of activity, the reality is that the SEC will move fast (and in the right direction) only following an Act of Congress. In the meantime, the SEC is embracing a status quo position, despite meagre attempts to provide so-called guidance that barely moves the needle.

Sadly, there is no current government champion that is setting the tone and moving the ball forward. Back in the Internet days, Vice President Al Gore was that Internet champion who saw the need to hire an electronic commerce Czar, a rare move that is yet to be duplicated today for the blockchain.

In collecting this body of influencers, my goal was to show the magnitude of the dissent, and to figure out if the industry can band together more uniformly to compensate against the SEC’s divide and conquer strategy.

Regulators don’t define innovations, entrepreneurs do. Regulators are supposed to let innovation thrive and not become a hindrance to it.

The entire blockchain market wants to innovate, but they are continuously bogged down by the daunting question “what will the SEC think?”. Truth is the SEC has instilled Fear, Uncertainty and Doubt in the eyes of the market and entrepreneurs in the US. This has forced real innovators to grow their businesses elsewhere in Asia or Europe, and they are doing it unburdened from the heavy hand of the SEC.

Given that the US eventually gets it right, will it be possible to recover lost ground? That is a quintessential question.

The pressure is mounting. And the clock is ticking.

(Republished from StartupManagement)

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