DeFi Education Fund’s Post

Last week was a watershed moment for digital assets. The United States seems to have finally awoken, and developments at both the Congressional and the Regulatory levels indicate that not only is the asset class here to stay, but that further and more rapid adoption is on the horizon. Off to #singapore now for a slew of meetings over the next week. If you’re in town and want to chat #crypto or #blockchainventure, please reach out. #congress #apac #asia #gaming #venture #nft #hongkong #regulation #forward #alternatives #sovereignfunds #pensionfunds #fundoffunds #familyoffice

Voting season... today's tipsheet https://lnkd.in/eaD6i7HR SEC Chair Gary Gensler appeared on CNBC's Squawk Box yesterday and admonished host Andrew Ross Sorkin for asking too many crypto questions. The timing of Gensler's interview was impeccable, of course. Highlights from yesterday's SEC enforcement hearing included the Majority Republicans hardly bringing up digital assets unlike Democrats who consistently parried with their witness John Reed Stark, a former SEC enforcement official, about digital assets. Rep. Sean Casten (D, IL) announced at the hearing that he is introducing a new crypto mixer bill - called the Blockchain Integrity Act - along with co-sponsors including Reps. Brad Sherman (D, CA), Bill Foster (D, IL) and Emanuel Cleaver (D, MO). The House Floor vote for H.J.R. 109 - rescinding SAB 121 - is today. New York Department of Financial Services Superintendent Adrienne Harris said regulators can't "abdicate" their responsibility to regulate digital assets. More House Floor votes may be imminent including the stablecoin and digital asset market structure (FIT 21) bills. FDIC Chair Martin Gruenberg is being asked to resign by both sides of the aisle. An industry poll in "swing states" says that the "crypto issue" is important to 1 in 5 voters.

Is this the correct title to this article or should it be Anthony Scaramucci "Takes a Flamethrower to the SEC" or maybe "David Meets Goliath"? Never someone to mince words, Mr. Scaramucci let loose with a number of observations that should make us evaluate how well the SEC is fulfilling its mission to "Protect Investors, Maintain Fair, Orderly, and Efficient Markets plus Facilitate Capital Formation", at least with regard to millions of Americans (some estimate as much as 90MM) who own crypto. Here are a few quotes from the article; "But good faith left the building when Gary Gensler walked in", the "American Government is badly damaged", the "SEC's position was arbitrary and capricious" and in the "SEC vs. Debt Box fiasco, the SEC misled the court". Well, I think you get the idea that Mr. Scaramucci and Mr. Gensler are not good buddies. Viewpoints tend to be biased these days, so you have to be able to look at many to form your own opinion but from my personal observation, innovation is moving overseas, with its friend talent, and that Europe has able to craft and implement legislation that seems to allow both innovation and protection while the US has produced nothing. Although some investors have lost money, crypto continues to proliferate and I don't know how you can put that genie back in the bottle or do we even want to. However, I do know this, the current regulating by litigation is a rabbit hole that produces delays, unnecessary costs and unexpected outcomes while collaboration most often produces better results. I was so gratified to see the recent bipartisan collaboration in the Senate and House on these types of technology issues which outcome of course, was nullified by a veto, just like Lucy and Charlie Brown not kicking the football. I would ask the reader to evaluate the effectiveness of the current regulatory approach of the SEC (which BTW can't seem to agree with another regulator, the CFTC on the definition of a security) and its shadow army of anti-crypto DC buds in terms of meeting its mission and whether it's time to get another leader in the saddle. I'm guessing that many of the 90 million vote and this may be an issue that sways a few into the pro-crypto elected representative column...

For our last class of the semester, our Duke University School of Law class had a fantastic opportunity to hear from two of the top Congressional staffers on crypto legislation - Allison Behuniak of the House Financial Services Committee and Paul Balzano of the House Committee on Agriculture. Their members Chairmen McHenry and Thompson introduced a comprehensive crypto bill last summer called.the FIT bill. As a former staffer who worked with the Senate Banking Committee on Dodd-Frank, I can attest that jointly drafted bills by different Congressional committees are extemely rare. But I think it was a great example of cross-committee coordination required to tackle the question of SEC vs. CFTC jurisdiction over digital assets. Allison and Paul walked the students through the intricate steps for drafting legislation. First, you need to (1) identify the problem you are trying to solve, then (2) identify and assess a wide range of potential solutions, (3) identify key stakeholders and (4) build a coalition. Another point they made was that there are many trade associations in agriculture but they are able to align and speak with a unified voice. This is an important lesson that we as the crypto industry can learn too. Gregory Xethalis #cryptoregulation #digitalassetsregulation

For our last class of the semester, our Duke University School of Law class had a fantastic opportunity to hear from two of the top Congressional staffers on crypto legislation - Allison Behuniak of the House Financial Services Committee and Paul Balzano of the House Committee on Agriculture. Their members Chairmen McHenry and Thompson introduced a comprehensive crypto bill last summer called.the FIT bill. As a former staffer who worked with the Senate Banking Committee on Dodd-Frank, I can attest that jointly drafted bills by different Congressional committees are extemely rare. But I think it was a great example of cross-committee coordination required to tackle the question of SEC vs. CFTC jurisdiction over digital assets. Allison and Paul walked the students through the intricate steps for drafting legislation. First, you need to (1) identify the problem you are trying to solve, then (2) identify and assess a wide range of potential solutions, (3) identify key stakeholders and (4) build a coalition. Another point they made was that there are many trade associations in agriculture but they are able to align and speak with a unified voice. This is an important lesson that we as the crypto industry can learn too. Gregory Xethalis #cryptoregulation #digitalassetsregulation

"In politics, nothing happens by accident" — Franklin D. Roosevelt Following FTX's fall, US Senator Elizabeth Warren declared that she was "building an anti-crypto army", illustrating a broad split in attitudes towards the asset class held along party lines on Capitol Hill. Oh, what a difference a year makes, as more and more politicians appear to be joining the new "pro-crypto army" in Congress. The first real sign of this sea change came when Democrats—including House majority leader Chuck Schumer—helped repeal the SEC's SAB121 guidelines, which purposefully complicated banking custody of digital assets by forcing them to be held on the banks’ balance sheet against prohibitively high capital charges, effectively making banks’ involvement impractical. Several Democrats supporting the repeal said they did so because the SEC hadn't consulted Congress on its plans; indicating that the agency's repeated regulatory overreach may be wearing thin. Senator Cory Booker stated, "I wanted to send a message... I’m frustrated because we haven’t had a chance to debate any of the real [crypto] bills". A real digital asset bill—championed by US Representatives and industry advocates Patrick McHenry and French Hill—soon followed; with even greater bipartisan support as the House passed FIT21, the Financial Innovation and Technology for the 21st Century Act, by 271 ayes to 139 nays. 71 Democrats including ex-speaker Nancy Pelosi supported the bill. Blockchain Association head Kristin Smith called “House passage of FIT21... a watershed moment and badge of Congressional validation for the crypto industry in the United States”. FIT21 seeks to bring long-awaited clarity to America's regulatory approach, passing more regulatory oversight to the CFTC for tokens with "sufficient decentralisation". FIT21 must still pass a Senate vote, and some suggest vague classifications could leave the SEC open to more overreach, but the scale of support across the aisles was certainly significant. Bipartisan support came despite public opposition from both the White House and SEC chair Gary Gensler. Amidst all this, there was also the matter of the Trump campaign confirming acceptance of crypto donations for its election drive, as well as voicing broad support of the industry. Democrat Wiley Nickel was pragmatic on the significance of the industry in the political debate, saying Democrats must adapt or be left behind; "The advice I’m giving to Democrats is this: We cannot hand this issue to Republicans". FDR said that nothing in politics happens by accident; support from politicians correlates with the legitimising effects that Bitcoin ETF approvals had for the industry, making it more difficult to dismiss digital assets out of hand. Instead, the political forces bring a new era of constructive dialogue focused on innovation drive, while ensuring investors who engage with digital assets can do so safely. #digitalassets #evolution

Here’s my view on the last two weeks re: crypto policy in DC (and around the country), starting with a surprising joint effort from a handful of state Attorneys General. On Feb. 29, BA and the DeFi Education Fund filed an amicus brief in support of Kraken’s motion to dismiss the complaint in SEC v. Payward Inc. This is par for the course in our efforts to push back on the SEC’s anti-crypto campaign…but it was incredible to see a group of eight attorneys general support this view as well. In Texas, a big win came late last week as the Energy Department dropped its "emergency" survey of crypto-miners' power use. Not only will the power survey not move forward, the Energy Information Administration was ordered by a Texas federal judge to destroy any info regarding power consumption received to date. ICYMI, back on Jan 31, BA’s Dan Spuller testified before the Indiana State Senate in favor of SB180, a bill that deals with the testing and adoption of CBDCs. The committee unanimously approved the bill.  Let’s return to D.C., here’s Ron Hammond’s helpful-as-always roundup of Congress and Crypto news. A few notable items to know + keep an eye on: the fate of SAB 121, and Fed Chair Jerome Powell & CFTC Chair Rostin Behnam’s upcoming appearances before respective Senate and House committees this week. Re: SAB 121 (an SEC accounting bulletin that implies restrictions on companies that want to hold their customer's crypto assets), on 2/29 Rep. Barr (R-KY), and other members of the House Financial Services Committee, recently made interesting comments. Barr stated SAB 121 “would leave consumers at risk by discouraging regulated banks from serving digital asset customers,” and voiced his opposition to the proposed legislation. Here is our view. For your calendar, in hearings we’ll be watching this week for anything related to digital assets: Chair Powell will appear before the House Financial Services Committee on Wednesday, Mar. 6, and the Senate Banking on Thursday, Mar. 7. CFTC Chair Rostin Behnam will appear before the full House Committee on Agriculture on Mar 6. Some notable quotables from some of crypto’s staunchest Congressional champions, here’s Rep. Emmer on why we should not pursue CBDCs in the U.S. And kudos to Rep. McHenry, who re-introduced the "Financial Services Innovation Act" I want to again shout out two of our amazing BA colleagues, Sarah Milby and Marisa Coppel, on their well-deserved promotions to Head of Policy and Head of Legal, respectively.  Much of the work you’ve read about in the preceding tweets is down to their diligence, brilliance, and commitment to the issues driving the industry forward. We are lucky to have them!  Spring’s on the way and crypto, as always, is here for good. Thanks for reading!

Well, thank you very much to US Southern District Court Judge Rakoff for confirming the obvious in the “Are Crypto Token Securities?” debate. We’ve been arguing for years that most crypto tokens are securities that must be registered or sold under an exemption from registration. But you don’t need to take our word for it. Here is some logic and sanity from his denial of Terraform’s motion to dismiss the SEC’s case. 1) To the argument that tokens sold on exchanges through secondary market transactions are not securities: “the Court declines to draw a distinction between these coins based on their manner of sale, such that coins sold directly to institutional investors are considered securities and those sold through secondary market transactions to retail investors are not… the Court rejects the approach recently adopted by another judge of this District in a similar case, SEC v. Ripple Labs Inc.” “Simply put, secondary-market purchasers had every bit as good a reason to believe that the defendants would take their capital contributions and use it to generate profits on their behalf.” 2) To the argument that crypto assets are not securities: “Following Howey, an “investment contract” under federal securities law is any “contract, transaction, or scheme whereby a person 1) invests his money 2) in a common enterprise and 3) is led to expect profits solely from the efforts of the promotor or a third party.” “there need not be…a formal common-law contract between transacting parties for an ‘investment contract’ to exist” “courts… must analyze the “substance” -- and not merely the “form” -- of the parties' economic arrangement and decide if, under the “totality of the circumstances,” that transaction or scheme meets the three requirements” “the Court declines to erect an artificial barrier between the tokens and the investment protocols with which they are closely related for the purposes of its analysis.” “A common enterprise… is established if each investor's fortunes are “ti[ed] ... to the fortunes of the other investors by the pooling of assets,” and there is a “pro-rata distribution of profits” “If an objective investor would have perceived the defendants' statements and actions as promising the possibility of such returns, the SEC has satisfied Howey's requirement.” 3) To the argument that the SEC has not provided fair notice to the industry:   “These relatively high-profile lawsuits… would have apprised a reasonable person working in the crypto-currency industry” “the SEC issued written guidance in... 2019 that admonished those “engaging in the offer, sale, or distribution of a digital asset” to consider “whether the digital asset is a security” that would trigger the application of “federal securities laws.” “…the SEC previously expressed its views that crypto-assets could be considered “investment contracts” under Howey” #investmentbanking #technology #corporatecurrency #privateequity #venturecapital #castleplacement #cpgoapp

The U.S. House of Representatives has passed the Financial Innovation and Technology for the 21st Century Act (FIT21) with a 279-136 vote, showcasing strong bipartisan support. This marks the crypto industry’s most significant legislative achievement to date. The vote saw 71 Democrats and 208 Republicans in favor, marking a rare instance of cross-party collaboration on digital asset regulation. FIT21 is the first major crypto bill to clear one chamber of Congress, setting the stage for regulatory clarity in the U.S. crypto markets. The bill proposes a regime to regulate U.S. crypto markets, enhancing consumer protections and defining clear roles for the SEC and CFTC. While the bill’s future in the Senate is uncertain, its passage in the House represents a significant step toward establishing comprehensive crypto regulations in the U.S. The Act provides much-needed regulatory clarity, fostering a more predictable environment for crypto entrepreneurs and investors. By delineating responsibilities between the SEC and CFTC, the bill aims to balance regulation and innovation, ensuring consumer protection without stifling growth. Enhanced reporting requirements and clear definitions of securities versus commodities will help protect investors and bring transparency to the market. FIT21 is also a step toward closing the gap in global competitiveness, positioning the U.S. as a leader in the digital assets space. Rep. Josh Gottheimer (D-N.J.) praised the bill as "well-reasoned, thoughtful, bipartisan legislation" that is "fit to become law if we work together." However, the bill’s passage in the Senate remains uncertain, and there is opposition from President Biden and SEC Chair Gary Gensler, who have expressed concerns over its impact on existing securities regulations. This historic vote is a pivotal moment for the crypto industry, heralding a future of more structured and balanced regulation. The journey is far from over, but the progress made is undeniable.

Well said comments by SEC's Pierce, on who the SEC (aka Stymie, Extinguish and Crush agency) purports to represent. The SEC has become the leader and poster child for non cooperation and its ability to stymie innovation. Instead of being a catalyst for legislators to create guidelines in an industry that US citizens are interested in pursuing and also protecting them, the playbook is litigation and fines. The EU has found a way to create crypto legislation and even China, within its Hong Kong outlet have found a way forward but not the US. Whether we want to admit it or not, the dominance of the US in many financial areas is faltering (reserve currency of the world, becoming a $32 Trillion + debtor nation, etc.) and this is another area where we will give away any possible global leadership to other countries. It's simple, as the US stifles innovation and uses enforcement by litigation, innovation will simply go to other venues. I pity the next industry that the SEC and it minions turns its focus on and what the impact will be on the US investor...