CryptoLaw Newsletter #32
India crypto bill no longer on agenda this session; BoE wants more crypto data; exchanges struggle with travel rule in Japan; banning crypto in Russia "doable"; FSOB on DeFi and stablecoins.
Hello CryptoLawyers,
I had promised you the transcript and highlights from our interview with Dr. Joachim Schwerin on DeFi from a broader policy perspective. Then my computer crashed and I'm still trying to salvage it – together with the transcript and highlights from the interview. It should be ready for you in the New Year, so stay tuned!
2020 saw the stumble & rise of DeFi. In 2021, NFTs were the talk of the day. As we near the end of the year, the metaverse is becoming a hot topic. And I'm seeing more and more serious research and work going into DAOs. Will 2022 be the year of the metaverse? Of DAOs? Both?
The crypto world has been called many things, but it certainly cannot be called dull. The scams, rug-pulls and other fraud may have made much of the headlines in non-specialised media. But for those of us who've gone further down the proverbial rabbit hole, it's clear crypto (including DeFi and DAOs) is much more than that. (No doubt we have to do what we can to fight fraud, whether it occurs in the crypto space or elsewhere, with all the tools we have – from peer pressure to technological tools and legal enforcement where needed.)
If you're old enough to remember The Matrix: it wasn't just an action movie, but also a philosophical one. The crypto world also has its fair share of action, but it raises more fundamental questions too. What do we attribute value to? How do we coordinate our interactions – and our assets, talents and time – to achieve the goals we find important? To what extent can we – and do we want to – change existing structures, concepts and assumptions?
But it's also important to take stock. DeFi has not (yet) achieved financial inclusion of the kind that was promised. (Perhaps that doesn't matter: if it can improve existing financial structures, that's a great achievement.) We're still working out more refined governance mechanisms (quadratic voting is one promising path). DAOs aren't necessarily open to anyone and you may need (sometimes a lot of) money to join one. Yet none of this makes it any less interesting to think about the bigger questions that crypto raises.
And these bigger questions are crucial for lawmakers, regulators and policymakers too. As SEC Commissioner Peirce suggested in our chat: it's important that DeFiers, DAOers and crypto enthusiasts communicate to those decision-makers what this space can look like in 5-10 years. And that may be very different from what it is now.
As we head into 2022, at CryptoLaw we're excited to keep you up to date with the latest legal developments and policy thinking. We can expect more stablecoin regulation and DeFi enforcement actions. And we will probably also see growing research around DAOs and governance. We'll keep you posted on what's going on in crypto legal circles. And we also want to continue offering you in-depth chats to explore the bigger picture questions.
But first: the legal highlights of the week!
Digital assets
UK – The Bank of England is facing "challenges" in finding data on cryptocurrency holdings by institutional investors, according to executive director Sarah Breeden. The BoE is seeking greater international co-operation to get a better picture. (The Times)
Dubai – Crypto exchange Binance signed a deal with the Dubai World Trade Centre Authority. The UAE free zone wants to become a crypto hub. (Reuters)
India – The Reserve Bank of India wants a blanket crypto ban, Bloomberg reported on 18 December. However, the crypto bill no longer appears on the parliamentary agenda for this winter session. (Cointelegraph)
Russia – Banning cryptocurrencies is "doable", according to central bank governor Elvira Nabiullina. At the same time, Bank of Russia plans to allow crypto investment through foreign firms. (Cointelegraph)
US – State and federal regulators should review existing rules on stablecoins and other digital assets, said the Financial Stability Oversight Board. A stablecoin run could amplify an economic shock and the leverage in DeFi can trigger fire sales, the FSOB added. -- Biden's signature tax and spending bill stalls in Congress, including the proposed capital gains tax provisions for crypto investors. (Bloomberg) -- Terraform Labs and its CEO Do Kwon are fighting back against the subpoenas served by the Securities and Exchange at a crypto conference. Terr and Kwon had previously sued the SEC, claiming the subpoenas were improperly served. The SEC, in turn, filed a motion to compel them to cooperate. Terra and Kwon now asked the court for the Southern District of New York to dismiss that SEC motion. (Coindesk)
China – The Chaoyang District People’s Court in Beijing ruled that a crypto mining contract signed in 2019 was invalid, rejecting a US$ 1.6 million claim from the plaintiff. (Decrypt)
Paraguay – The Senate approve a proposal to regulate crypto mining and crypto trading. The bill will move to the other parliamentary chamber, the Chamber of Deputies, for debate in 2022. Crypto miners would need a license for industrial electricity consumption under the new rules. (Coindesk)
Japan – Crypto exchanges are struggling to prepare for a looming update to the so-called travel rule. The industry is calling for gradual implementation, starting with the most popular coins for flagging suspicious transactions. (Coindesk)
Stablecoins
Better stablecoin regulation would mitigate credit risk, according to rating agency Fitch. Greater regulatory certainty can also create market opportunities, Fitch wrote.
US – The Treasury wants stricter stablecoin rules, which it sees as the only way to mitigate risk. (Bloomberg) “If Congress does not enact legislation, the regulators will try to use what authority they have,” treasury official Liang said. (Cointelegraph)
CBDCs
Kazakhstan – The National Bank of Kazakhstan continues its central bank digital currency pilot, using R3's Corda platform to trial the digital tenge. The pilot will continue until July 2022 and a decision on whether to launch a CBDC is expected by the end of 2022. (Coindesk)
DAOs
What parts of the world are decentralized organisations flocking to? Cayman Islands, BVI and Delaware are attractive destinations, according to this Twitter thread.
We're taking a little break – see you in 2022 for more CryptoLaw news!