What Can We Really Expect to Happen in US Digital Asset Policy and Enforcement?

Transcript

Alrighty, fantastic. Thank you so much for being here. Um, the early bird does get the worm and you beat all the cues whilst getting in. I think we still have quite a few hundred people that are lining up. So, you are here. Uh, congratulations to you all. It is a pleasure uh to be here. Uh, it's been quite a few years now. Can anyone guess how many years the Crypto Valley Conference has been going on for? 11. Oh, that'd be great. Seven. Yes. 15. Wow, that would that would be wonderful. Um, yes, it's been seven seven years uh now in the making. Uh, it makes us all feel a little bit uh old,

but I'm really happy to say that uh we have lasted this long. Uh sometimes, you know, a length of time can be a predictor for many things. Most startups don't survive seven years. So I'm quite happy that the crypto valley conference and uh the crypto valley has with endured a lot of ups and downs. Um there have been a lot of places around the world like Switzerland that have been upholding a lot of let's say what blockchain technology has been providing some of the apps and the likes. Uh there are other places around the world where it's been a bit more difficult but we're starting to see some light and actually a beaming of light maybe due to some uh spray tan or other things that have been coming out but uh the US has been a topic on a lot of minds. So is one of

the reasons why today uh we wanted to start uh with this topic. But before um I do I just wanted to uh give a special thank you to MME who has been a supporter of the crypto valley conference and of course the crypto valley for many many years and is going to be hosting the next uh couple of sessions and uh yeah Andreas and Ronald are going to be starting with uh a little bit of this US topic and I think a topic that's on all of your minds what is really happening uh within the US. So yeah Andreas Ronald I'll let you come up. Let's give them a round of applause. Thank you.

Good morning. Thanks for getting up so early for us. I do believe it's going to be uh worth it. Uh we have a hot topic today. um special color on what is really happening in the US and uh maybe to start with uh I recall I mean you've just briefly talked about that before the panel back in 200 I think it was 17 consensus New York one of the biggest conferences at that time in the crypto space there was I was sitting on a panel was a discussion well our token securities is easy security yes and no was a a big debate uh was entirely clear uh to most people involved and uh you know the same

discussion happened still in 2024 and and not not much happened in between in terms of legal certainty and now um we have a new administration in place the US has a new administration place a lot of hope in the crypto industry is placed towards changes happening in many factors changes in regulatory certainty new regulations uh being put in place, new enforcement practices being put in place and um I think that's the focus of today's panel. discussion. We really want to see what is happening in the US uh in terms of what needs to be happening from an industry perspective and what is actually happening what what has

happened since um uh February this year and that not only in terms of the the most obvious topics uh like stable coins as like one of the big topics currently but also uh from an industry perspective for projects issuing token um deploying Dei technology. Um so we want to look at the whole picture of the industry and see um where is the US moving and what does that mean to the industry. So so from my side I'm happy um to introduce you to the um participants in this panel. So um we have real capacities here. So on the one hand we

have Lily from Solana. I mean it's one of the biggest layer ones and she's the president there of the management and um very active currently all over the world in particular as you see also they do things in the US and then we also have Alan Con from SteepTe who is a partner there and practice group leaguer um fintech cryptocurrency and he's in the space since 2015 and he's coming from DC so he flew in for this event and he's basically at the start where things are happening now and so let's directly jump in into the topic. So Lily first coming to you I mean we have seen that Solana started

now more engaging in the US you had this accelerate conference in in May a developers conference and before basically we haven't seen a lot of engagement publicly in the US so what has changed from your perspective I think it's pretty simple the last administration was ideologically outwardly programmatically intentionally hostile to crypto it's just that simple And it comes from an ideological place that therefore cannot be negotiated with uh and certain individuals Elizabeth Warren and uh specifically because she is upstream of Gary Gendler. So Gary Gendler if you remember uh in 2018 2019 he uh was so eager into as to even go be

a uh adviser to Binance. Unfortunately, he did not secure that very lucrative advisorship and may have considered that to be a point of retaliation in subsequent years. And uh and the reason for this is because Elizabeth Warren as an individual, she just believes that uh that the government should regulate and control and protect consumers and she thinks that this is the government's job. So this is not just about crypto but anything which uh which puts the power of uh into individuals, companies etc. is something she doesn't like. Uh this is not a rational position. This is a world view uh that was then executed

on for uh in in intensely for four years and it was an agenda item to kill crypto and so that changed. Okay. So disagree, right? Yeah. No, no, no. I mean, the shame of it all is, right, I I couldn't name the chair of FINNma uh or any regulator, well, a couple of regulatory agencies in the world. Um, but I think Lily's right that the that the personalities came to dominate um questions of law in the United States over the last four years. and and Elizabeth Warren's perspectives on consumer protection go back before 2020 and they go back before crypto. Um but the blockchain and cryptocurrency

industry got swept up into that. What we're seeing now is a new is an administration coming in and saying um we don't want to do that. We want to take a different approach. And I think you're seeing more members of Congress also saying I don't I don't want to line up behind that. there's there are other ways to address this, you know, emerging technology. And even more fundamentally, this technology is here and there's no amount of government regulation that's going to make it go away. So, how do we more effectively put a set of regulatory guard rails around it? Um so that we can know where the outliers are on the left uh you know on the outside and we can give you know the vast majority of

companies that want to operate within a regulatory environment um some boundaries and guardrails to work inside. And that's what we're seeing in development now. The withdrawal of some of the worst pieces uh of regulation. We're seeing a change a dramatic change in the posture uh uh of the enforcement agencies whether that's the civil enforcement agencies or the department of justice and we're seeing new legislation uh and guidance and ide and uh and ideally rulemakings coming forward that are going to take a very different stance towards the industry and towards the technology um and really let it grow and develop as opposed to trying to uh

try to kind of uh eliminate it through regulation and enforcement. Maybe obviously a lot has happened in the last um four four months it is I believe uh the key three items that have developments that have happened in the US that strengthen the position of the crypto industry for you what what was that? So from my perspective I think the first indication we saw a set what I would say a set of um three which I would bundle together the uh the congressional invalidation of SAP

121 um or uh the I'm sorry the withdrawal of SAB21 the congressional invalidation of the IRS D5 rules and the DOJ JMO on enforcement. Those three together basically kind of stopped and pulled back the regulatory posture of the of the Biden administration. Um second was kind of a renewed effort on stable coin legislation which ideally will be a shorter term uh issue. We'll see that that ideally pass both houses of Congress get signed shortly. And then the third is a real effort to address the market structure issue, which is really that issue from 2017 about is

what's a security, what's not, if it's not a security, what is it? Um, ideally that's on a uh on a shorter path too, that's probably going to take a little bit longer. But I think those those three things, if I can bundle up the those first three because they came with the withdrawal of the cases against the exchanges um and clarification about what charging uh what what enforcement would go forward, but I think those three blocks I would say are the are the key things. I don't know if Lily if you would agree or add or Yeah, I I I think that there's the the the two concrete pieces of legislation right now uh in Congress, stable coins and then market structure. There's a lot of ins and outs

of those. Uh and then at the uh agency level then they're uh one of the things that we're working very closely on is we submitted something called project open uh which applies for exemptive relief from the SEC in order to enable equities on chain. So essentially the functions of a blockchain which is to maintain a ledger core function of the blockchain uh could fulfill some of the functions you would typically assign to a clearing agent or a transfer agent. So that I think is uh that's on agency level and I think there will there will also be some discussions with agencies on this ongoing sort of what does the SEC do, what does the CFTC do also when it comes to per trading. Uh and we expect that Brian Quinten's is

probably going to be confirmed very shortly. Uh so I would expect the CFTC will uh also become uh proactive and uh and more constructively engaged with the industry. Uh so those those are some of the very near-term things that we see. Uh of course elephant in the room is um the uh the extreme activity from the executive branch on private projects in crypto. Uh and that does create some uh that uh that creates some overall animosity to crypto from the Democrats who um still continue to be uh have senior individuals like Elizabeth Warren that just they just hate she just hates crypto. There's nothing else to say.

because and we all know that you know uh so that has um become a complicating dimension uh and we'll see um Lily maybe so you user one basically as you mentioned I mean there are further developments but the main argument that you're saying you you increase your engagement now because it's a mind shift but if you're looking at for example the genius act it's more on stable coin I mean it's it's interesting for the projects on Solana but it's not directly for the benefit of you as as a layer one rolling out as layer one. Um and the second thing is is the the clarity act which could affect you because it clearly separates between what is subject to SEC what is not subject to SEC which is more CFTC but from your

perspective I mean what would you expect or wish that you have clarity also in the long run I mean I understand there is a mind shift but the shift also go into another direction as long as there is nothing put into law. Well, I think that uh clarity on uh there's so many things uh and then the next question is what practically can you get done in the next uh 18 months really uh because the US works on four-year cycles but really also two-year cycles uh and there's slim majorities in uh the House and the Senate right now which need to be protected andor extended in order uh I think for crypto to continue to have any sort of proactive legislation in

Congress. uh agencies then I think you do have a four-year cycle there. Um so I think that uh first of all the reason why one of the reasons why we became active is because the voices in Washington uh that the crypto voices in Washington are uh are a VC firm, an exchange and then a holding company. And none of those are front and center really focused on the core of crypto which is a decentralized protocol. uh and uh and more specifically I think the point of blockchain has always been infrastructure financial for financial markets and so you really need a voice in Washington which is still the most influential regulator however dysfunctional it might be it's still the

most influential one in the most influential market that has the greatest depth in capital and talent by far right uh and so you have to kind of be present and uh and add a perspective as to uh actual bonafide decentralization of financial infrastructure and why that's important and also why that's important for America to have a role in that you know uh with the internet America uh was front and center in building this thing right and with so much of our modern digital communication infrastructure why is it that my phone number is a plus one um because many of these things were led uh from America even though they are ultimately open source and available to all uh and I think there's a good reason also just purely for American interests

why uh that is something that uh we should advocate for America having a leadership rather than a followership role in. Now I would like to spend some time on on looking on you know industry participants building up out of America in the future. So um let's say in Switzerland we all know we have a lot of the layer one foundations we have a lot of projects building DAPs on top of them issuing token uh which they do on quite global level of course complying with the regulations on on local level now under Mika the US has always been a challenging market to target from Switzerland. Um where do you see this change in in actually mindset and

regulations in the US has now passed the way also for non US companies entering the US market on a on a target as a target market. Well look I think from a regulatory perspective the US has always considered that anyone who tries to service the US market or service US persons is subject to US regulatory enforcement jurisdiction. So from I think a US perspective um there was a view less about a company is you know from this country or from from that country and more are they trying to service US customers or are they not.

What I think that the mind the shift here is you know setting a set of reg a regulatory environment in which you can service US customers and service us uh the US market with certainty around what your regulatory obligations are and so I think it's meant to be number one an invitation to to service the US market but you definitely hear from the administration there's also an emphasis of come to the US, come and pro, you know, create presence, be here, do things. Um, and so I think that, uh, is something that we'll be looking to see how it plays out. Number one, for uh,

for companies, for example, here that want to service the US market. Um, you'll see, you'll be able to understand what the regulatory environment is. is you'll make choices about whether you want to also have presence in the United States, do things in the United States yourself with partners and others. Um and then second is um the question of yeah the I think the opportunities for to build on that the opportunities for companies here to do things with companies in the United States for the first time without having to worry about you know a very uncertain regulatory environment uh is there there's still questions about harmonization um that that are there u but I think

that the the posture is shifting to come service the US market here are a rule set be part of this market. So what what I'm would be interested in I mean we also have seen that the SEC stopped a lot of actions that have been initiated. So for example, also against unis swap and and many others. And does that mean now basically it's already time to to start in the US or or engage in the US with with a DEX project or or a layer two or a DAP or or is it still basically I mean we are in a good way but let's see the next 18 months. I mean as Liy mentioned this is a critical time period. So so what's your stance there?

uh I think the US has the deepest talent market and uh especially in tech and uh in terms of quantity and also just quality if you look at uh the depth of technical talent in the US with everything that's been created out of Silicon Valley and proliferated throughout the country uh even in the depths of the last administration New York had already become uh the head of like the epicenter of the DeFi ecosystem uh in terms of developers and projects having uh a presence of some sort there and now that there's a lot of Wall Street institutions coming into crypto as well digital assets is what they call

it and uh and what you what you also see now is there are some trading firms that uh used to be explicitly offshore now setting up shop in New York. So once again, I think New York is uh going to be the capital formation capital of the world or at least one of them also when it comes to crypto. And um so I think I I think that the SEC cases were done deliberately without merit in most cases. And um yes there were they did also prosecute a number of scams but then some of the lighthouse projects in the space they went after just to uh because they wanted to kill crypto and um and in spite of that you still had

this uh New York in spite of that and the New York DFS and all these things still became the epicenter of DeFi. Uh and so now that that's been relaxed again um I think uh pretty good place to be. Yeah. And I think that that one of the reasons why you saw the exchanges become the target was I think if you watch the evolution of of Gary Gendler's you know direct time service at the at the SEC he started trying to blanket the the landscape with enforcement actions uh and that just bogged down the agency.

So he saw the exchanges as the places where you could have the most impact um with you the fewest number of high impact high impact efforts. Um what the new administration what you can take from the withdrawal of the exchange cases what you can take from the administration's perspective is the SEC wasn't alleging that that Coinbase or Kraken or others were doing anything fraudulent. They weren't doing anything uh criminal. They had violated registration requirements. um in terms of you know these are securities you are trading them the new administration has said we're not prosecuting those cases and so the risk of that is uh is a lot lower however I think that that I think the way to think about it is the time is

is coming um we're getting much more clarity but we're not there we're not 100% there and there I think is one key thing that needs to be synchronized up which is the New York bit license regime has an exemption for software providers and it's and it's it creates a uh a space for uh you know for companies to operate safely under their uh under their rule set and it creates I think and Lily correct me you know something of a mindset to think about D5 to create a mental model for D5 about how it fits in the in the larger scheme of uh of the ecosystem.

I'm not sure that that there's that yet at the federal level. And I think you see that um in exemptions for um uh for in the non centralized stable coins uh in the Genius Act. You see that with still wrestling with questions around DeFi from uh Fininsen the federal uh anti-moneyaundering regulator and others. So I think that that's one kind of flag I would raise is that I think we're not quite there at the federal level about a mental model that the agencies in the Congress can can kind of get their minds around particularly with respect to to DeFi and the the the value uh conceptually and and um

comprehensively of decentralized activities. M when when I listen to both of you, I I kind of my key takeaway is and I hope this accurate um well the US now is in a development stage to create higher legal certainty around token issuance um secondary market activities whatever that may be but we're not there yet. If you now look at markets that have already been working on that process for many many years and have a quite a high degree of legal certainty taking Singapore, taking Switzerland now taking the EU with Mika which you know um there's still even if you create those legislations and create a lot of

legal certainty around topics always new topics arise which come into a gray zone and uh one of them which many jurisdictions struggle is defi. So the key question is always well when is some something sufficiently decentralized so it does not fall under the regulations but is perceived as a mere technology and that's an ongoing discussion now looking at the US lacking legal certainty on the ground level is that also already part of the discussion so I think it is and I think you see it for example in the clarity act in the market structure uh legislation where there is some definition given around you know the path to decentralization to

what to what's you know mature blockchain uh system but I think there's the devil's in the details on that and and and there's likely to be uh a lot more consideration and debate about exactly what that means and the pathway there and the legislation is really just the starting point but again the other part that that's always a challenge in the United States is we don't have a single integrated financial regulator. Um, and so we have to get a halfozen financial regulators of of one variation or another on the same page uh about a particular approach before we can have integrated harmonized regulatory posture even just within the United States let

alone with other countries. Um Lily um we have seen that the SEC also has issued a guidance or a statement regarding um staking. So they made it clear that whether it's direct staking or delegated staking, it's not a financial contract. So which of course is very beneficial for also Solana and which makes a lot of sense. Um is that something that you think will also be manifested in any kind of act. So for example, the clarity act where it clearly says that this is not the SEC, this is something else or I think that would be something very important because it's like a fundamental decision.

Yeah, that's great. Um what I think would be good to have in the US as well is first they're going to get the ETFs uh uh ETFs there's going to be more ETFs and what would be great to see after that is staking ETPS ETFs that's what uh people have here in Europe and um and of course passing through some of that staking yield is very uh very desired by uh by buyers and holders. So hopefully that's something that uh will be permitted as well uh in future staking ETFs. Okay. And maybe one I see our time is almost up goes fast but one one last we talked a lot about regulatory developments uh or developments related to application of regulations um in the

financial market sector. But another big topic for a lot of companies is tax. So is there uh the same kind of development versus clarity on tax treatments for the crypto industry? Is that also part of the agenda of the new administration? I mean I think it has to be there has to be synchronization between the tax regime which currently sees cryptocurrency as property um uh and the way that that we think about the use of uh of cryptocurrency and and digital assets. if if you depending on your your preferred term. What was interesting was that the IRS I think did make you know something of an effort to understand the

industry and to make distinctions u between uh different types of infrastructure and activities in the um uh in the rulem that they did that was that was um negated by Congress. um it it was I think at the end of the day it wasn't what industry wanted or and and necessarily f functional but it represented I think a good faith effort to try to do it and so I do think that that's going to be a necessary piece um and I do hope that and I would anticipate under this administration um that the IRS will make will uh will make an effort to synchronize their f their approach to taxation of cryptocurrency

consistent with the other actions that we're seeing. Wonderful. I think unfortunately we already have to round up the conversation. Um maybe one last question to both of you. If you look ahead four years time, so not only 18 months but really four years uh um after the first term of of the new administration or this term, where do you see the US will stand in terms of crypto? That's going to depend on the next uh the election four years from now, the election two years from now or 18 months from now and then the one four years from now and uh and whether there are uh there there's strong very strong voices

the last one that were just con crypto and this is pro uh even if it's just neutral then that might actually be okay. they do certain things that are sufficiently thoughtful, sufficiently a little bit supportive rather than heavily sort of trying to prosecute the industry that would be okay. Uh and uh many of the other things in this administration's agenda are more important to that, right? Uh there is a problem in the US uh with regards to the integrity of uh of voting rules and those things and then the integrity of the census. uh and those are bigger priorities for the United States frankly than crypto policy as much as I'm involved in this specific space but the

the larger issues are actually upstream of how these decisions are going to get made. Yeah. Yeah. And I think just fundamentally taking advantage of the opportunity that the current environment provides uh to build um and to build to and to work with the members I think in both parties honestly who want to be supportive of the industry for whatever reason that is. um and building on that to get through these pieces of legislation, build sensible regulations, show the value of projects that will be a virtuous circle, I think. Okay. Okay.

Wonderful. Thank you so much. Do we still have time for questions? Yes. One, two questions if there are any from the audience. No questions. Good. Too early. Well, we're gonna stick around throughout the day. So, if anything arises you want to discuss, um Alan is here, Lily is going to be here, and Ronnie and myself as well. So, thanks a lot for being here.

[Applause] All right. Fantastic.