Europe Calling? MICA and Potential translantic migration

Transcript

[Music] It's bright. Uh, good afternoon. Hope you're all doing well. Uh, I'm Ashley Eversol and I'm general counsel of ZeroX. So, thanks so much for being here to with me today and thanks to ECC and the organizers for getting us all together here in Paris. Uh I'll be honest that there are a lot of topics here that go beyond my technical grasp.

Uh but something I do know is law and regulation. So that's what I'm talking about today. I've been working on these issues since I joined the US SEC in in 2015 and became part of the working groups there that were looking at crypto regulatory issues. I continued that work when I left the SEC for a law firm in 2019 and about a year ago I joined ZeroX to head its legal team and I'm a lawyer so I have a disclaimer uh or two actually which is that uh none of what I'm saying is is legal advice and uh these are my own views not those of my company or certainly of the SEC uh which

at which I no longer work. So, let's get started. Let's start with the United States. Uh, I love my home country. I love my former employer, the SEC. Um, they made some really important moves in this space. I think that to fulfill their true mission, they need to think a little bit more flexibly. uh especially when looking at things like disclosure requirements, things like custody requirements, um things like KYC and how those might look differently uh in different technologies and there should be

regulations and controls that account for those and in the United States there just are not at present. So looking at the market regulatory agencies like the SEC uh and the CFTC, you've really got a pretty stark contrast between them. The SEC's jurisdiction is fairly narrow in that it's only over securities, but they've asserted it pretty broadly um in this space and a lot of things have gotten pulled into the definition of what is a security.

The Ripple order uh earlier this month has walked that back a little bit. The court essentially told the SEC that it does not necessarily agree with that expansive approach. That's so recent it's tough to tell precisely what the uh the ramification or reverberations will be throughout other courts throughout other cases in uh the court that issued the ripple ruling, the federal district court in New York. uh but it was certainly uh a very welcome uh development.

What comes next in that regard is is still TBD obviously. Then there's the CFTC which is the commodity reg regulator but it's really the commodity derivatives regulator. So Bitcoin has been classified as a commodity. There's no regulator of the spot market in Bitcoin. Bitcoin derivatives are regulated by the CFTC. Uh so it's a little bit of a strange situation and leaves a lot of people to sort of say, well, does it really matter in that case? If you've got two regulators, there are these boundary lines and they're not always clear. Does it matter where you end up uh relative to those boundary lines? And

my answer is yes, it matters a lot. Um the two regulators have shown very different approaches uh and very different I guess perspectives and enthusiasm uh for for this technology. Um you've got the SEC where there's been a pretty well-known hostility of the of the current uh chair of the SEC towards crypto. um as long as he remains at the leadership, I don't really expect progress there from regulatory perspective, they have essentially put a stop to further guidance, further actual regulation uh of this space like

prescriptive things of this is what you need to do. um beyond saying you need to fit into the traditional rules that exist for broker dealers, for exchanges, for custody and that sort of thing. CFTC, the commodities derivative, the commodity derivatives regulator, excuse me, has been a little more flexible, um, a little more accommodating of the fact that there may be differences and they will account for those in advance as opposed to only doing what the SEC has done, which is accounting for them after the fact by filing enforcement actions.

But like I said, the CFTC's jurisdiction is much narrower. So both agencies badly want to be anointed the spot regulator of the crypto space um of the Bitcoin market uh in particular um and Ethereum and other things like them. Uh but neither can necessarily claim that based on what their current jurisdiction is. Uh at least not in any definitive way. So, Congress um could act, could pass legislation that says it's the SEC or it's the CFTC. Uh but that takes time and that takes a lot of effort um to get

something through Congress. Hasn't happened yet. Perhaps it will. Um that would be a gamecher if it did. across the ocean where we are now and the picture is dramatically different. There's a variable welcome wagon rolled out for crypto entities and those who fund them. Mika's uh that's the markets and crypto asset regulation that's currently being implemented across the EU and its member states. Um and nothing like that exists in the United States.

It it's sort of strange to say there's no crypto asset regulation law written in the United States. There's some guidance from the SEC, some guidance from the CFTC, but if you look in statutes, um, you know, that's the United States Code there, you'd be hardressed to find much that is cryptospecific. Um the EU parliament has you know done something dramatically different and has new written law out that's that's pretty prescriptive. Um so in the US entities say you know even those that really want to be compliant would grab a regulation or grab a registration in a second uh if

it existed rather than trying to become a broker dealer and just not fitting into that uh regulatory sphere narrowly because things I mentioned you know there are custody requirements and they look at the rags and they say well I can't comply with that like what are they talking about you know cash accounts and stuff like I you know my clients don't put cash with me I don't have the ability to take cash that kind of thing like just a lot of disconnects that in the first instance lead a lot of crypto entities to look elsewhere for uh you know the path they need to follow uh Europe's now created a path uh there is a regulatory registration

for uh crypto crypto assets at service providers and that becomes a very viable fa path that is well defined is built out as to how you achieve compliance is built out as to how you form an entity and the steps you have to go through and you know that may well prove quite attractive to entities in this space uh going forward like I said it's in the process of being rolled out now as many in this room. No. Um but as you'll see in a minute already the money is showing us uh or moves of money um in terms of funding entities is showing us that

people are taking notice. Uh I I guess the last note especially um important to entities like Zerox is that in the DeFi space, Mika has in its first iteration said DeFi is a bit of a different animal from centralized entities which we know how to approach. Those have been regulated for quite some time in various forms. If you're a centralized entity in the financial space, whether you're dealing in crypto or something else, you should expect that there are regulations, and here they are. We've written them now for how you achieve compliance and what you need to register as. In the DeFi

space, they didn't throw up their hands, but they sort of admitted their limitations and said, "We don't quite know exactly what regulation of DeFi needs to look like yet. Um, we need to study it a bit." So there's a study period uh currently ongoing for two years and at the end of that they will assess and say all right you know we believe we've reached some conclusions um and this is what regulation should look like but you know again for now uh that's still to be determined.

I'd be remiss if I didn't mention that there is also pending uh a new anti-moneyaundering law that will apply to uh crypto uh entities in the EU space. Thank you. uh in the EU space. Um that is still a consultation paper. What the final law will look like is, you know, still to be determined. But, you know, I I'm also not an EU lawyer. So, plenty of folks uh in your relative relevant jurisdictions uh with whom you

can speak once things are more certain in that regard. Like I said, the um ramifications of the relative moves in the United States and in Europe uh have started to become a little bit more clear. United States, you have a regulator, a principal regulator, the SEC, who's focused on filing lawsuits, whereas in Europe now, you have a regulator who uh has been focused on writing laws and implementing new laws. Um, so you don't have anything like opinion polls obviously, but you can look at the

behavior of people and entities in response to the laws. And like I said, still early, still tough to tell exactly what's driving things at this point, but it seems clear that there's been a reaction against the lack of a clear approach in the United States um and the SEC's approach, which again has been lawsuits and uh hostile pronouncements publicly. This visual shows where VC investment in the space is going geographically. Uh economists are familiar with the term voting with your feet where people capital entities move from to

jurisdictions that have more palatable regulatory environments, legal environments. Um VCs have been voting with their funding. You can see here as you move down in time, you're going from the top of the slide to the bottom. The top is Q122. The bottom is Q1 of 23. You see the funding volume in the US has fallen to less than half of where it was uh over the course of a year. Europe is the gray color. Europe has taken all of the loss of the US as well as the relative loss of some of the other geographies on

here. So again, whether it's MA, the expectation of MA, the promise of clarity, tough to tell, but it's difficult to argue there has not been some recognizable effect. And then you see in this slide that the jobs follow the money. We see the relative movement of web3 jobs over the last year and currently Europe has the dominant share of those jobs followed by Asia.

Overall employment numbers definitely down since the end of 22, but there's nonetheless been a market shift uh in where these jobs are located. And the decrease in jobs has been less severe in other local versus the decrease in North America. So there's been a relative market share loss in the United States um that is more severe than other places. Asia's now replaced it in second place for these jobs uh after Europe which is which is in the lead.

Having looked at the data I think the message is clear that the numbers underscore the importance of location uh for both funding and growing crypto businesses. Founders should have thoughtful responses justifying a choice of location and stats show that people are choosing based on likely legal factors and that's a defensible choice. Uh clear regulation matters.

People have to know the rules that apply to them uh if they want to play by them and the US is not making that easy. Uh so thank you so much for listening. I've got probably time for one question, maybe two if anyone has them. One in the front. What do you think a So, I thought your Oh, thank you. I thought your comparison between the US and Europe with data was really cool and interesting, but what do you see as a path forward for the US given your experience with the SEC and participation in the industry?

What does that look like if in an ideal world not maybe practical? I think an approach like what Europe has taken in terms of an iterative consultation process would make a lot of sense. Um the CFTC has started something similar recently with an industry consultation group effectively uh of people who it has said you know we're here to say we don't 100% know what's right for this space. we don't 100% grasp all of the technology and its implications. So, we're going to bring in the people from your industry and talk to them about it. I think that's

really constructive. Uh I would leave it to uh the regulators and to decide at that point, you know, where can we go going forward? I think you need some written law rather than trying to parse uh the holdings of of enforcement actions and the outcomes of court judgments. Thanks so much. Where can we go going forward? I think you need some written law.

rather than trying to parse uh the holdings.