Digital Assets hearing latest – sufficiently decentralized tokens may still avoid security label

The House Financial Services Hearing on “The Future of Digital Assets” contained a wealth of information about the potential future of the digital asset sector in the United States.

Following the recent SEC lawsuits against Binance and Coinbase, the industry worries about the future of Web3 in the US as lawsuits against crypto exchanges list several top cryptocurrency projects including Cardano, Solana and Polygon. are doing.

A recent release of the Hinman email suggests that such clarifications would have implications for Ethereum, which was previously rated as “well-decentralized.”

“Almost 15 years after the Bitcoin whitepaper, the idea has become a new internet architecture with ownership, digital identity and technology-specific value storage.

Digital assets are no longer a new technology, they are used all over the world. America has always led the way in the invention and, if not invention, implementation of technology, but today we are in danger of falling behind our competitors around the world…”

This was the opening statement of a hearing chaired by Rep. McHenry. He further 160 page bill He highlighted a draft directive on the registration of digital assets as securities by July this year.

In particular, “sufficient decentralization” seems to hold up as a key factor in whether or not to define digital assets as securities.

The hearing also included testimony that spoke to the potential removal of security labels if digital assets were sufficiently decentralized.

hear the testimony

Other testimony likened the SEC lawsuit against Coinbase and Binance to the bankruptcy of FTX, which has yet to receive a formal lawsuit from the SEC. Concerns were also expressed that digital assets could undermine the current financial system through carve-outs.

Scott argued that the current draft of the proposed legislation “could provide less protection to investors than is currently offered.”

Circle CEO Jeremy Allaire has stressed the need for digital asset regulation to keep the U.S. from falling behind China and preventing the dollar from devaluing. Allaire also said cryptocurrency reserves should be safer than banks by limiting the practice of fractional reserves by limiting their rights to Fed services.

Additionally, he called for greater protection in the area of ​​digital custody, suggesting that all stablecoin issuers should be required to use registered “qualified custodians.”

But Benjamin Kaplan, co-CEO of Promethium Capital, a firm that claims to be “building Wall Street 2.0,” says the argument for the need for regulation is more or less flawed. , commented that it “applies the existing regulatory framework to digital assets.” The law is needed because “federal securities laws have been tried for almost 90 years.”

Mr. Kaplan’s company is “a first for investors. [sic] A full-service marketplace ecosystem for SEC-registered digital asset securities. Prometheum Chairman Martin Kaplan has long been a proponent of SEC regulation for digital assets. In 2018 he said,

“New industries like cryptocurrencies only need to comply with established regulatory treaties and not worry about the United States introducing stricter laws to restrict the development of new industries.”

Co-CEO Aaron Kaplan added that “the U.S. crypto industry should actively respond to SEC regulations,” adding that he supports the current framework and does not need to change. I believe.

well decentralized

Coy Garrison, a partner at law firm Steptoe & Johnson, said the current bill works and is necessary to support innovation. Garrison argued that blanket statements that all digital assets are securities miss the complexity of assets. According to Garrison, the lack of clear guidance on what “sufficiently decentralized” means is causing confusion within the industry and stifling innovation.

Garrison said there is no legal precedent to guide how the Howie test used to assess whether an asset is a security should be applied to assets traded on the secondary market.

Digital assets are traded on multiple international decentralized secondary markets, creating clear gaps in regulatory guidelines. In his closing remarks, Garrison called for a “more viable regulatory regime” that would provide guidance on how to sufficiently diversify securities and how to apply that guidance to the secondary market.

Allaire also commented on the absurdity of defining regulations on U.S.-denominated digital assets, especially stablecoins, because other countries “do not regulate the dollar.”

The CEO of the National Futures Association, Thomas Sexton III, has called on the NFA, with CFTC backing, to regulate the spot market for “Bitcoin and Ether.”

Critics of the cryptocurrency industry

Waters “didn’t expect” the demand from the crypto industry to work with the CFTC and SEC. Waters repeatedly referred to FTX and Sam Bankman-Fried’s criminal allegations when discussing the subject of digital assets, asking whether the industry supports the “mixing” of funds similar to FTX’s criminal allegations. asked.

Sherman argued that the crypto industry’s goal for invoking the SBF is to “eliminate the SEC and tighten regulation.” His remarks echoed several members of the cryptocurrency community when the Howie Test was created in 1933 calling for a regulatory regime that took into account the complexity of digital assets compared to the types of securities that could be screened. It was done in response to what was done.

Sherman said Ava Labs was “selling unregistered securities” and asked if Ava Labs CEO Emin Gün Sire sold unregistered security tokens. “We have complied with every regulation we can,” said Syre. After being repeatedly asked to confirm whether Ava Labs had filed a registration statement for the ICO, he added: We believe it was not. “

Sherman closed the hour by stating, “Taylor Swift turned down millions of dollars to be associated with this movie.”

ongoing discussion

The hearings continued to discuss the risks of exposure to China, with Rep. Lütkemeyer and others strongly concerned that US companies are doing business with Chinese companies in any form.

This is a work in progress and further information will be reported separately. The full text of the hearing is GOPFinancial Services YouTube channel.