Twali Wrapped - Influencing Policy at Home
Twali Wrapped is a community-driven initiative tracking the most important developments of the past week for policy, regulation, compliance, and legalities, related to web3.
In addition, we speak with experts toiling with how best to implement regulation and policy changes, while prioritizing simplicity in communication to ensure our reader’s complete understanding of the implication of such developments.
We’re always looking for more experts in compliance, HR, legal, tokenomics, governance, accounting, tax, etc) If you know someone who would be interested, please send them the application form, and receive a referral fee in return!
TL:DR;
Ted Cruz to the Rescue???….
CBDCs as a Proxy for a Broader Policy Discussion
The Importance of National Before Global
The Docket
Welcome to the Docket - A Bulletin Board of the most important legislation either proposed, or passed, in the past week.
Federal Reserve x CBDC
(United States) On March 30, Senator Ted Cruz (R-TX) introduced a bill that prohibits the Federal Reserve from “issuing a central bank digital currency (CBDC) directly to individuals.” The bill aims to achieve three policy goals outlined by Sen. Cruz: 1) protect financial privacy, 2) maintain the dollar’s dominance, and 3) cultivate innovation.
ECASH Act
(United States) This week, Congressman Stephen Lynch (D-MA) introduced the Electronic Currency and Secure Hardware Act (ECASH Act). At first glance, one might assume this act is similar to proposals of a CBDC which we have seen in recent months. On the contrary, this proposed “digital dollar” does not run on a central or distributed ledger of transactions, nor is it issued by the Federal Reserve Board—instead, the digital dollar would be “printed” by the the U.S. Treasury Department.
Anti-Money-Laundering Package
(European Union) On Thursday, the EU’s Committee on Economic and Monetary Affairs (ECON) and the Committee on Civil Liberties (LIBE) voted on and passed draft legislation on tracing anonymous crypto-asset transfers — the Transfer of Funds Regulation (TFR). TFR establishes that all transfers of crypto-assets would need to disclose where the transfer is coming from and going to, with an intended goal of tracing and blocking “suspicious transactions.” The regulation does raise privacy concerns and questions among EU’s crypto-supporters.
The Federal Intentions of FedNow & CBDCs
Twali’s been buzzing about the FedNow digital payment service, particularly in light of recent policy discussions concerning a U.S. central bank digital currency (CBDC).
CBDCs are not exactly decentralized finance (DeFi), but the broader policy debate about digital assets inevitability strays into related territory. Many in the traditional finance space have been vocal about their preference for the U.S. government to focus on FedNow and other U.S. dollar-specific technology systems, as opposed to DeFi platforms.
What is Fednow?
Fednow is real-time payment solution advocated as an alternative to ACH. Rather than operating on the current bank-centric payment rails, Twali Venture Expert samer_saab#7794 explains that the Fednow payment system would rather proliferate through banks.
Read more about it here.
Why is it important?
Its Role: Fednow being an instant payment solution could eliminate depending on real time payment solutions that are privately setup (zelle, venmo, etc) and b2b ones.
samer_saab#7794 - (For Fednow,) there’s this expectation that everyone is going to have a wallet at the federal reserve but that’s never going to happen. No one wants to centralize banking that much and a bank lobby will never allow it. Instead the payment system will proliferate through banks and will be an alternative to existing to bank-centric payment rails and possibly the payment apps.
Its Framing: Twali Policy Expert Max Moncaster (mlitz#7732) speaks to the way this alternative system is being framed, as a reason:
mlitz#7732 - the US gov should not prioritize development of DeFi systems because the Federal Reserve is already working on digital solutions that will better serve American interests. It’s less about alternatives in the consumer market, more about alternative public policy actions the US gov can take. And in that convo maintaining US primacy in global capital flows is a key objective.
The Role of CBDCs in the broader policy conversation.
mlitz#7732 - I feel the debate over CBDCs is a proxy for how many policymakers are viewing DeFi more generally. Esp. considering comments from Hillary Clinton, Elizabeth Warren, and others about how Bitcoin and other cryptocurrencies will undermine the US dollar. Congress and US admin seem a long way from in-depth policy discussions on DeFi broadly. CBDCs are almost like the first frontier.
Max left us with the question, if there’s one thing you wished policymakers knew about DeFi, what would it be?
Further, it just so happens, Max’s question echoed that posed in an article on Twali’s reading list this past week…
What does web3 look like if policymakers cannot experience it? Matt Mulder, Director of U.S. Policy for Stripe, asks as he writes about the catch22 of policymakers being kept from experiencing web3 due to a fear of even the appearance of impropriety.
Influencers in the Wild: Global Crypto Regulation Edition
In our highly globalized world, it is impossible for financial policymakers to operate in a vacuum. Whether the Asian Financial Crisis of 1997, the U.S. housing bubble in 2008, or the ongoing impacts of COVID-19, economic meltdowns extend far beyond nation-state borders. It should therefore come as no surprise that U.S. policymakers carefully analyze the actions of other countries on all things finance. Cryptocurrency is no exception.
In the last two editions of Twali Wrapped, we covered the U.S. government’s nascent moves toward broader policy development on cryptocurrency and decentralized finance. Today, we turn our attention outside of U.S. borders to briefly assess some of the key international influences on U.S. policy development.
Let’s begin with U.S. geopolitical cousins, Canada and the United Kingdom (there’s a King George III joke in there somewhere). Canada made waves last year by approving a Bitcoin exchange-traded fund that investors can buy on the Toronto Stock Exchange. However, a broader approach to cryptocurrency regulation is still under development. A newly-formed industry group called the Canadian Web3 Council just announced plans for enhanced engagement with Canadian regulators.
Meanwhile, across the Atlantic, media outlets have been reporting that the United Kingdom is set to rollout a regulatory framework for cryptocurrency in the coming weeks. Of course, many of the same outlets also had high expectations for U.S. President Joe Biden’s executive order on crypto, which provided little policy substance.
The European Union (E.U.) is also making notable moves. When not looking wistfully across the English Channel at their former member-state, E.U. lawmakers have been advancing a framework known as the Markets in Crypto Assets (MiCA) regulations. Coindesk has a helpful overview on the package, which thus far has avoided unnecessary restrictions on Bitcoin and proof-of-work protocols.
Of course, no analysis of global policy developments would be complete without mention of Russia and China. The tragic events unfolding in Ukraine helped catapult discussion of cryptocurrency into mainstream political discourse. The alleged role of Bitcoin in sanctions evasion was largely debunked (see thread), but Russia’s relationship with the cryptocurrency sector will continue to command policy attention. The U.S. national security apparatus will also remain highly involved in all things Russia, given the cybersecurity threats emanating from Russian actors.
In China, a broader government crackdown on the technology sector is not sparing cryptocurrency firms. The Chinese government already banned crypto transactions and mining, but the government now seems to be enlisting corporate help to prevent “speculation” on non-fungible tokens. U.S. policymakers are also taking note of China’s efforts to create a central bank digital currency. Experiments with a digital yuan are underway, but outside observers have raised concerns about privacy and financial surveillance. Republican Senators led by Ted Cruz (R-TX) introduced legislation this week to prevent the U.S. Federal Reserve from taking similar actions, while highlighting developments in China as a key motivation.
As the crypto and decentralized finance sector continues to develop, individual nation-state perspectives will creep into multilateral settings. Japan’s central bank is already calling for a common set of crypto regulations globally, but it is hard to see how countries could advance an international agenda without domestic policy foundations. One thing is for certain: The U.S. will be watching the international arena closely as the inevitable crypto policy march continues.
Twali Wrapped
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