SEC Crypto Proposals
A prominent crypto professor and a former SEC lawyer discussed the digital-asset landscape in a recent Federalist Society webinar. President-elect Donald Trump’s victory ensures new blood and new policies with invade the staid commission.
In fact, Chair Gary Gensler, the crypto community’s Lord Voldemort, together with Native Ice Queen Elizabeth Warren have spent the past four years trying to subjugate the emerging industry into the Wall Street prison both prefer.
Once there, they can regulate it into oblivion if they don’t pay their political Dark Lords tribute in the form of campaign contributions, staffers-turned-lobbyists, and overall obeisance.
But something happened on crypto’s path to the pokey. Having defeated Lord Gensler and exiled Queen Warren, the upstarts are starting to explore their new fear-free lives. Attorney Wallace DeWitt and Professor JW Verret discussed what Crypto’s Brave New World may look like now that 2025 won’t be regulatory 1984.
This assumes the SEC will remain the federal agency that oversees crypto. It’s no secret the SEC and CFTC have battled to be the crypto regulator.
Conventional wisdom states the CFTC is more industry friendly, but Verret avers that may not be the case, given one CFTC commissioner’s insistence DeFi would have to include KYC rules. “I don’t know what KYCed DeFi is, but it’s not DeFi. You can’t have a Chief Compliance Officer to a decentralized protocol, that’s not a thing.” Indeed.
This also excludes the Federal Trade Commission, which as attorney Greg Zerzan stated in 2022 written House testimony already protects Americans from “unfair or deceptive acts or practices in or affecting commerce,” which would include Web3 activity. Thus the most hands-off approach would have the FTC prosecute hacks and rug pulls and leave the disclosure to the innovators and public.
Will the SEC oversee Crypto?
Assuming arguendo, the Gensler-less SEC gets the nod, then what? Verret, a veteran academic crypto advocate discussed various proposals that may await the newly composed board with a yet-to-be-named new chair.
Verret’s first fitting suggestion was to learn from the open-source ethos of blockchain development to open the process to the wizards heretofore sidelined under Lord Gensler.
This is apt on two counts. First given crypto’s technical properties: open source, permissionless, censorship resistant, and decentralized, allowing fresh ideas to infuse regulatory thinking suits.
Second, it would break from Lord Gensler’s insistence that entrepreneurs and their legal teams must fit crypto projects into factors created by an ancient Supreme Court case, which the SEC famously bungled further in 2019.
SEC Crypto Proposals
Some specific proposals the webinar discussed:
- “Regulatory Sandbox” echoing Commissioner Hester Peirce’s idea. New projects would get a regulatory grace period for a certain number of years, whereby they would have the ability to sufficiently decentralize and escape SEC jurisdiction.
- “Reg X” the brainchild of lawyers Gabe Shapiro and Sara Brennan. This proposal also includes a Safe Harbor but includes certain disclosures about token ownership, tokenomics, and other basic disclosures.
- Exemptive Reliefs for DeFi and Air Drops, which acknowledge that protocols are code they are not publicly traded companies. Their governance and rules is available at all times for anyone to view. And that giving away tokens for free does not constitute a securities offering.
- Inviting TradFi and CeFi into the space through ETFs and other financial instruments without as Gensler wanted and as Verret explained as his “nightmare” the “TradFi-zation of crypto. In other stripping crypto of its technical properties like decentralized and permissionless.
Verret also suggests regulators dive into cypherpunk philosophy. Read Timothy May, Vitalik Buterin, Satoshi Nakamoto, Gabe Shapiro, Zooko Wilcox, and Nick Szabo.
This may be the only chance to get crypto regulation right, the next four years may decide the future of individual financial sovereignty.
By Jossey PLLC
