The cryptocurrency market cap crossed the US$3 trillion mark this week, an increase of close to 300% since the start of 2021. The rapid rise of cryptocurrencies including stablecoins and decentralized finance (DeFi) has attracted interest from not just retail and institutional investors but also growing scrutiny from governments and regulators around the world who are now grappling with allowing innovations to flourish while managing risks.
In the United States, the President’s Working Group on Financial Markets this month released its report on stablecoins, which recommended that Congress enact legislation and agencies such as the Securities and Exchange Commission (SEC) and Commodity Futures Trading Commission (CFTC) take action to address the risks inherent in payment stablecoins.
“Our biggest fear is that the SEC is going to determine stablecoins are securities and if that happens, then stablecoins cannot be used as a payment instrument, [and] one of the biggest and most promising benefits of stablecoins is the fact that it can bring billions of people potentially around the world into a more inclusive financial system, but not if they can’t be used from a payments perspective,” said Perianne Boring, founder and president of the Chamber of Digital Commerce, a trade association representing the blockchain industry. “That’s just one example of the many issues that we at the chamber are working on in terms of advocating for the acceptance and use of this technology.”
Boring was speaking at a panel on “Advocacy & Activism vs. Business & Entrepreneurship” together with Sam Bankman-Fried, founder and CEO of cryptocurrency exchange FTX, and Sheila Warren, head of data, blockchain and digital assets at the World Economic Forum, at the Bitcoin & Beyond Virtual Summit 2021 today hosted by Forkast.News and cryptocurrency exchange AAX.
“Crypto advocacy is an industry in and of itself,” Boring said. “While the chamber is the first trade association and the largest today representing crypto companies, there are many other organizations, nonprofit groups, trade associations, think tanks and even companies like FTX have their own public policy division. There is a whole swarm of people in D.C. working on these issues every day.”
Warren believes the crypto industry has tremendous potential to create new systems and models as a way to solve some of the problems associated with legacy infrastructure and systems such as improving financial access and inclusion as well as making cross-border payments less onerous and cheaper. But a lot will depend on how deliberate the builders and ecosystem are about creating a structure or environment to focus on achieving those goals. “It’s not going to happen by default or automatically,” Warren said.
For cryptocurrency exchange FTX founder and CEO Bankman-Fried, building products that people want is what matters the most. ‘[It’s] not just what does the consumer who is asking for a product want, but how do we build it in a way which is going to make institutional counterparties comfortable, in a way which regulators are going to feel comfortable with, in a way which protects our users as well,” Bankman-Fried said. “There is a lot of work to be done there.”
Bankman-Fried believes that compromises between viewpoints by the different stakeholders will need to be had for the industry to move forward. On stablecoins, instead of regulators and stablecoin issuers with divergent viewpoints refusing to engage, compromises could be reached such as a regime for daily attestations of the assets backing a stablecoin, e.g. dollars in a bank account, T-bills, or Grade A corporate debt, to assuage consumers and regulators concerns around transparency, consumer protection and financial crime.
The Chamber of Digital Commerce’s Boring says the biggest challenge is still education. While the knowledge gap was narrowing, particularly in Congress, many people involved in crypto policymaking lack an understanding of the technology. “If you don’t have an understanding of a technical level of Bitcoin, of blockchains, you’re not going to be able to make informed policy,” Boring said.
The regulatory framework should also allow all stakeholders — not just the institutional players — including non-banks and start-ups to engage with the technology. “Part of what we’re fighting for is to make sure that all those who want to use this technology have a framework to do so,” Boring said. “We’re not blocking out certain parts of the industry from doing so just because of their size or their lack of lobbying dollars.”
Bitcoin has solidified itself in terms of its use case as a store of value, Boring said. But for the other cryptocurrencies with proof-of-stake networks, it is too early to tell who the winners are going to be.
“We should have a legal framework that allows businesses to build and innovate in a responsible way,” Boring said. “Ultimately the markets should dictate who the winners and the losers are going to be. And I think things like governance are going to be a huge part of users determining what systems they ultimately want to use and adopt.”