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Regulatory uncertainty has always been a cloud hanging over the crypto world, especially now, as the U.S. regulators pay closer attention and occasionally send warnings to the fast-developing industry.
This week, executives at major crypto companies including Coinbase
COIN,
FTX, BlockFi, Circle, Gemini and Solana expressed their opinions on regulations at different panels of the SALT conference run by alternative asset manager SkyBridge in New York.
They shared some common views. Most of the crypto executives long for more regulatory clarity and hope the U.S. could provide a more crypto-friendly environment to boost innovation.
However, some of their thoughts diverge, such as on whether yield-generating products in crypto should be counted as securities.
The question is important as Nasdaq-listed crypto exchange Coinbase said that the Securities and Exchange Commission intended to sue the company if it launches its lending initiative, which allows customers holding Circle’s USDC stablecoin to earn interest by lending it to Coinbase.
Crypto lending platform BlockFi has also been accused by regulators at five states of violating securities laws because of its BlockFi Interest Account, which allows users to earn yields by depositing cryptocurrencies.
Other discussions include how much authority the U.S. Securities and Exchange Commission has over virtual currencies and how dollar-pegged stablecoins should be regulated. Earlier this week, SEC Chairman Gary Gensler said stablecoins “may well be securities” during a Senate Banking Committee hearing.
U.S. regulation: a ‘fragmented’ landscape
Zac Prince, CEO of BlockFi, said that the Coinbase news point to the necessity of more “clarity at the national level.”
“We’re not going to decide what box crypto lending belongs to based on what New Jersey does or what Texas does, or what any one other state does,” Prince said. “It’s going to come down to federal regulators like the SEC, or the OCC, creating a path for this type of activity to happen.”
John D’Agostino, director of institutional sales at Coinbase, said that the regulators are watching “very, very closely” at crypto exchanges because of their critical importance. “When they (exchanges) innovate they’re going to have massive repercussions for the entire economy,” D’Agostino said.
Some crypto leaders pointed out that the U.S. regulation regime is “very fragmented.”
“Obviously it’s been a long road and a longer road with some regulators than others,” said Sydney Schaub, chief legal officer at crypto exchange and stablecoin issuer Gemini.
“The CFTC has been much faster to weigh in and offer guidance and thoughts…I think there’s been some criticism of the SEC, not only recently by Coinbase but going back prior to that, that they were a little bit slow,” according to Schaub.
Are crypto lending products securities?
Gemini’s Schaub said crypto lending products are not securities. The company offers interest-bearing accounts to consumers through its product Gemini Earn.
But for Jeremy Allaire, co-founder and CEO of crypto company Circle, such products are securities. “Our view is that if you’re going to offer a product where people are essentially making an investment, and getting essentially like a fixed income type product, that is a security.”
Circle offers a yield product in crypto for institutions but not individuals, according to Allaire.
Innovation vs. regulation
For FTX, one of the world’s largest crypto exchanges, the regulatory framework is a major factor when it is considering locations.
“I think the factors are basically a combination of who’s taking the lead on crypto regulation, who is taking the lead on licensing,” said Sam Bankman-Fried, founder and CEO of FTX.
“Right now, many regulators are looking hard at crypto. And I think some of them are taking the lead on building out regulatory frameworks,” Bankman-Fried said, referring to Bahamas and Singapore as examples.
FTX’s U.S. branch recently acquired LedgerX, a CFTC-regulated crypto futures and options exchange in the U.S.
Anatoly Yakovenko, founder and CEO of blockchain company Solana, said that if the cost for compliance becomes too high in a country, it will impede innovations.
“The risks aren’t that these products are not going to get built. They’re going to get built, because they’re awesome,” Yakovenko said. “It’s that they’re going to get built elsewhere…that’s really sad for me to see. I just want all this stuff to happen here (in the United States.”
