White House’s first crypto framework and missed opportunities — Law Decoded, Sept. 12–19

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By the end of last week, the fed­er­al agen­cies pre­sent­ed the results of their six-month-long work on the prin­ci­pal direc­tions for dig­i­tal assets reg­u­la­tion in the Unit­ed States. The result­ing first-ever cryp­to frame­work, pub­lished on the White House web­site, may not con­tain many sur­pris­es or exact details, but, as a part of Pres­i­dent Joe Biden’s exec­u­tive order, it will undoubt­ed­ly affect the pol­i­cy­mak­ing deci­sions to come. 

Per­haps the most impor­tant sec­tion of the frame­work is ded­i­cat­ed to cen­tral bank dig­i­tal cur­ren­cies (CBD­Cs). It revealed that the admin­is­tra­tion has already devel­oped pol­i­cy objec­tives for a U.S. CBDC sys­tem, but fur­ther research on the pos­si­ble tech­no­log­i­cal foun­da­tion of that sys­tem is need­ed. Still, the intent seems pret­ty seri­ous as the Trea­sury will lead an inter­a­gency work­ing group with the par­tic­i­pa­tion of the Fed­er­al Reserve, the Nation­al Eco­nom­ic Coun­cil, the Nation­al Secu­ri­ty Coun­cil and the Office of Sci­ence and Tech­nol­o­gy Policy. 

The indus­try didn’t take the doc­u­ment well, as the pol­i­cy­mak­ers’ focus on secu­ri­ty and enforce­ment is all too vis­i­ble. Kristin Smith, exec­u­tive direc­tor of the U.S.-based Blockchain Asso­ci­a­tion, called it “a missed oppor­tu­ni­ty to cement U.S. cryp­to lead­er­ship,” high­light­ing its heavy empha­sis on risks, not oppor­tu­ni­ties, and the lack of sub­stan­tive rec­om­men­da­tions on the pro­mo­tion of the cryp­to indus­try. Speak­ing to Coin­tele­graph, Sheila War­ren of the Cryp­to Coun­cil for Inno­va­tion said the pol­i­cy rec­om­men­da­tions seemed to be based on an “out­dat­ed and unbal­anced under­stand­ing” of cryp­to, which could leave the details to be deter­mined by oth­er law­mak­ers or the next administration. 

The Merge and its regulatory repercussions

Ethereum’s upgrade to proof-of-stake (PoS) may have placed the cryp­tocur­ren­cy back in the crosshairs of the Secu­ri­ties and Exchange Com­mis­sion. SEC chair­man Gary Gensler report­ed­ly said that cryp­tocur­ren­cies and inter­me­di­aries that allow hold­ers to “stake” their cryp­to may define it as a secu­ri­ty under the Howey test. Gensler went on to say that inter­me­di­aries offer­ing stak­ing ser­vices to their cus­tomers “looks very sim­i­lar — with some changes of label­ing — to lend­ing.” The SEC has pre­vi­ous­ly said they didn’t see Ether (ETH) as a secu­ri­ty, with both the Com­mod­i­ty Futures Trad­ing Com­mis­sion (CFTC) and the SEC agree­ing that it act­ed more like a com­mod­i­ty.

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18 potential design forms for the American CBDC 

The Office of Sci­ence and Tech­nol­o­gy Pol­i­cy sub­mit­ted a report ana­lyz­ing the design choic­es for 18 cen­tral bank dig­i­tal cur­ren­cy sys­tems for pos­si­ble imple­men­ta­tion in the U.S. The tech­ni­cal analy­sis of the 18 CBDC design choic­es was made across six broad cat­e­gories: par­tic­i­pants, gov­er­nance, secu­ri­ty, trans­ac­tions, data and adjust­ments. Help­ing pol­i­cy­mak­ers decide on the ide­al US CBDC sys­tem, the OSTP report high­light­ed the impli­ca­tions of includ­ing third par­ties in the two design choic­es under the “par­tic­i­pants” cat­e­go­ry — trans­port lay­er and inter­op­er­abil­i­ty. For gov­er­nance, the report weighed var­i­ous fac­tors relat­ed to per­mis­sions, access tier­ing, iden­ti­ty pri­va­cy and remediation.

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Thailand prepares to ban crypto lending 

The Secu­ri­ties and Exchange Com­mis­sion (SEC) of Thai­land is prepar­ing to take rad­i­cal mea­sures in the after­math of cryp­to lend­ing plat­forms’ crash­es expe­ri­enced in Sum­mer 2022. The Thai SEC plans to pro­hib­it cryp­to plat­forms from pro­vid­ing or sup­port­ing dig­i­tal asset depos­i­to­ry ser­vices. The planned ban includes sev­er­al prin­ci­pal points. It will pro­hib­it oper­a­tors from tak­ing a deposit of dig­i­tal assets with a promise to pay returns to depos­i­tors — even if the returns come not from the grow­ing val­ue of the assets but from the pro­mo­tion bud­get. The adver­tis­ing of lend­ing and deposi­tary ser­vices would also be banned.

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