Wishful Thinking? Regulating Crypto To Bring Offshore Onshore

Onshore Offshore

Amidst the most recent crypto cataclysm, hopeful narratives have emerged suggesting that the U.S. government and other jurisdictions could have prevented the implosion of offshore firms such as FTX.

The argument offers two similar threads related to regulatory guardrails:

    • Stay in the U.S. instead of leave: Better crypto-specific regulation in the United States would have encouraged companies to stay local and therefore discouraged unregulated development elsewhere to “infect” unsuspecting U.S. consumers.
    • Grow in the U.S. instead of nothing: Clear regulation in the U.S. presumably grows the crypto industry by inspiring entrepreneurship in the United States. Lack of clarity does not promote risk-taking for which U.S. entrepreneurship is known.

FTX’s international unit presumably would not be experiencing bankruptcy today if it was required to adhere to current United States banking laws let alone anything crypto-specific that may bubble up someday. Of course, a CFO might have helped, too.

It’s fair to ask, would FTX’s founders ever founded anything in the U.S.? Were they only interested in exploiting unregulated environments? Maybe so. And so… does that need to be “onshored”? Doesn’t seem like it.

The European Union (EU) is thinking about how to take a crack at regulating offshore entities but is still far from pulling the trigger. The European Securities and Markets Authority (ESMA) will be on the hook in the EU once Markets in Crypto-Assets (MiCA) regulation takes effect in 2024 or thereafter.

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6 Takeaways from Circle’s Converge22


With an estimable blizzard of content in the rear view mirror, here’s a selection of key takeaways from Circle’s Converge22 conference in San Francisco.

Circle is the maker of USDC, among the most widely used stablecoins today, which is nearing a market capitalization of $50 billion according to Coinmarketcap.

Takeaways include:

#1 – dreamforce for crypto

#2 – stablecoin legislation

#3 – the “p” word

#4 – learn by doing

#5 – regulatory advocacy

#6 – expression of the dollar

Read them all…

Takeaway #1 – dreamforce for crypto

The positioning for the conference as stated by Circle executives was “Dreamforce for internet finance” not “Dreamforce for crypto.” But, last week in San Francisco felt like a conference with a largely crypto audience. Still, this comparison – crypto vs internet finance – reveals the core of Circle’s ambition and the potential it sees with crypto innovation.

For their first-ever “ecosystem conference,” Circle programmed a three-day multi-track agenda featuring topics related to key strategic areas  for the company such as stablecoin uses, regulation, privacy/identity, compliance, lending, financial inclusion and more.

Circle CEO Jeremy Allaire stated that over 2,600 attendees made the trip to San Francisco and added, “We always thought of USDC as a protocol that people can build on.” And now the event will exhibit the different dimensions of what people and companies are doing with that protocol, he said.

Takeaway #2 – stablecoin legislation

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The Crypto Regulation Winner? EU Holistic Framework vs. US Activity-Based Approach

Hansen and Cameron

At last week’s Converge22 conference in San Francisco, crypto regulation was top of mind for attendees and there was no shortage of relevant content across three days of programming produced by Circle, keepers of the USDC stablecoin.

In a panel titled “View from Across the Pond: Regulatory Change in the EU and UK,” participants reviewed where things stood in relation to the United States.

The panel’s premise was also a helpful reminder of how Facebook’s Libra/Diem project in 2019 inspired fearful regulators across the globe to urgently consider guardrails for the digital asset ecosystem.

As of June 2022 in the European Union, the passage of Markets in Crypto-Assets or MiCA regulation as well as the Transfer of Funds Regulation (TFR) delivered the first holistic regulatory framework for crypto for a large swath of the global population. (For a U.S. corollary, one might point to the proposed Lummis/Gillibrand “Responsible Financial Innovation Act” – a broad framework. Of course, it’s far from being signed into law.)

Patrick Hansen, who is arguably the top source of European Union regulation trends on crypto Twitter as well as an advisor to Presight Capital, joined the panel discussion along with Dr. Lisa Cameron, UK MP and Chair of the Crypto and Digital Assets.

Circle’s VP of Policy and Regulatory Strategy, UK/EU, Teana Baker-Taylor, steered the conversation.

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Congress Sees Opportunity for Crypto To Close The Wealth Gap

crypto and inclusion

What could the emergence of cryptocurrency and blockchain technology provide to underserved communities?

Increasing access to financial services.

Achieving “The American Dream.”

Closing the wealth gap.

These were the hopeful themes from the Commodity Futures Trading Commission (CFTC) recent roundtable on “Digital Assets and Financial Inclusion.” CFTC Commissioner Kristin Johnson led a wide-ranging discussion that included key Democratic staffers from the offices of Senator Debbie Stabenow (D, MI), Senator Cory Booker (D, NJ) and Rep. David Scott (D, GA), each of whom is involved in current blockchain legislation.

The 1-hour, 10-minute video of the event became publicly available late last week on YouTube along with a statement by Commissioner Johnson.

The roundtable itself was produced the Commission’s Office of Minority and Women Inclusion (OMWI),  a requirement of Dodd-Frank legislation signed into law by President Obama after the 2008 financial crisis which crushed many investors including those in minority communities. Beginning in 2010, OMWI offices were established across federal agencies including the US Treasury, SEC and CFTC in order to promote voices which may now be critical to the evolution of blockchain technology and cryptocurrency in the U.S. economy and government.

protecting the consumer

In most crypto regulatory discussions, consumer protections are a paramount concern and the roundtable was no different.

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More Enforcement Actions To Come For NFTs Says Upstream’s Elenowitz

NFTs and Securities

Mark Elenowitz, an entrepreneur and self-described Wall Street veteran with a resume to back it up, produced one of the few regulatory-related presentations at NFT.NYC last Thursday.

Titled “Innovation And Regulatory Challenges in Digital Securities and NFTs,” not only did Elenowitz provide guidance, but pointed out that certain holders and purveyors of NFTs today may be headed for a meeting with the Internal Revenue Service (IRS) or an enforcement action by the Securities and Exchange Commission (SEC) in the future.

The success of Elenowitz’s own business(es) appears to be partially banking on the fact that compliance is no easy task in the current, wider NFT marketplace. He just launched Upstream, a Seychelles-based MERJ exchange powered by another one of his company’s, a FINRA compliance vendor called Horizon.

Upstream seeks to offer access to “IPOs, NFTs, celebrity ventures” according to its website. For example, given the challenges around securities regulations like those in the United States and certain NFT models, his exchange recently provided the ability to “geo-fence” an offering. This solution speaks to increasing wariness of regulators in the U.S. by market participants as well as the need for an easier and less costly way to be a security token.

(Upstream Exchange blog: “Music and film using NFTs to drive the future of fan engagement”)

Notably, there was no talk about whether NFTs should be under SEC or CFTC jurisdiction. In fact, Elenowitz believes many of today’s NFT projects fall under the securities designation unless they are a collectible only or non-fungible utility.

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What ‘Crypto Winter’? NFT Community Unites at NFT.NYC


1,500 speakers, 15,000 attendees and an agenda 56 pages long (see the PDF) – NFT.NYC was huge this past week and included a badge pick-up line stretching halfway around a Manhattan city block for much of the day on Monday.

There were no government types on stage, but the palpable momentum exhibited on and off-stage spoke to the importance of the NFT space to 20- and 30-somethings across the world – especially the United States – given the anecdotally-observed demographics of the show.

More observations about NFT.NYC:

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SEC and CFTC Commissioners Reach Out To The Industry at DC Blockchain Summit

DC Blockchain Summit

A collegial chat between regulators from the Commodity Futures Trading Commission (CFTC) and Securities and Exchange Commission (SEC) highlighted an impressive day-long agenda attracting 850 attendees to the DC Blockchain Summit from the Chamber of Digital Commerce in Washington, D.C. yesterday.

The Chamber’s Annemarie Tierney didn’t hesitate in her moderation role in the morning session with the blockchain industry’s two most important regulatory bodies and immediately brought to the fore the key differences in jurisdiction between the two agencies – securities vs. commodities – and under which agency do the various tokens and cryptocurrencies land. Commissioner Hester Peirce of the SEC went first and repeated the gyst of her well-known views that do not necessarily sync with the rest of the SEC commissioners and its Chairman:

“A token [that] is sold as part of securities offering does not in my mind necessarily mean that the token continues on in its entire life to have to be treated as a security. That’s one of the areas where I’d like to see us provide more clarity. It has not been our standard practice over the years to identify what are security offerings and what aren’t. It’s pretty broad rules. And we expect that when people are out there raising capital, they comply with our initial offering rules, regardless of what it is. But that’s led to the treatment of certain things – securities offerings that you might not think the underlying object to be sold is [part of the securities offering]. So that’s the distinction – I would like us to deal with it better (…)”

CFTC Commissioner Christy Goldsmith Romero weighed in next saying that she agreed with her counterpart in the SEC on the overall need for greater clarity – particularly around that which is decentralized. Beyond the jurisdictional question, in order to help her create a regulatory framework, Goldsmith Romero appealed to the audience on educating her and the CFTC on how the blockchain community innovates and also protects consumers: Continue reading “SEC and CFTC Commissioners Reach Out To The Industry at DC Blockchain Summit”

In Spite of Terra, No Stablecoin Regulation Before End of Year

Permissionless 2022

Up-to-the-minute regulatory prognostications attracted strong attendance to a Permissionless 2022 panel discussion in Palm Beach, Florida last Wednesday.

Coming only a week after the TerraUSD and LUNA stablecoin debacle, everyone agreed that decentralized finance (DeFi) is receiving a brighter spotlight than ever. And in the wide-ranging discussion titled, “Regulatory Clouds on the Horizon,” industry advocates addressed the clouds which could rain potential regulation as well as who or what should ultimately be in charge of jurisdiction for the wider crypto ecosystem: the SEC, CFTC or a self-regulatory body.

Panelists included:

Quotes are lightly edited for clarity.

Moderator Jordan Nof of Tusk Venture Partners immediately began with the Terra elephant-in-the-room as Chamber of Digital Commerce’s Perianne Boring revealed that her association’s members are wondering how Terra will affect regulatory momentum, but noted the unique properties of Terra’s product saying:

“What’s interesting about Terra in particular is that it’s an algorithmic stablecoin. For those who have been following stablecoin policy closely, the President’s Working Group (PWG) on financial markets put out a set of recommendations for stablecoins last November – and that [group] included the chair of the SEC, the chair of the CFTC, the Fed, and Treasury. Treasury Secretary Yellen led this effort. The group had a number of recommendations for new regulations for stablecoins -essentially, Congress is going to need to implement these recommendations. The scope of that report and the recommendations was limited to stablecoins that are backed one-to-one to the dollar reserves in a bank account.  Algorithmic stablecoins were outside of that scope. So when Secretary Yellen pointed to Terra recently and said, ‘Look, this is why we need to push stablecoin recommendations forward.’ -to me, I didn’t think that was productive because the recommendations didn’t include algorithmic stablecoins. And I think it gives a lot of fuel to the SEC.

For those who remember SEC Chairman Gensler’s remarks, he started using a different vernacular. He started calling them ‘stable value funds’ (instead of stablecoins), essentially trying to put forward the argument that these are securities and they should be under the SEC’s jurisdiction. So, I think that the SEC could pretty easily say, ‘Look, this is why it should be within our jurisdiction.’

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