Crypto regulatory scramble continues.

Hi folks 🙋🏻‍♂️,

Crypto regulation has been the talk of the town in the past week. Pretty much other significant news such as minor hacks, company layoffs, and other interesting protocol updates are buried under one massive concern: Is the US going to further handicap the crypto industry?

DCCPA Crypto Regulation

If there’s one crypto update that you need to know about, it’s DCCPA. The Digital Commodities Consumer Protection Act is a bill that will provide the CFTC authority to regulate the trading of “digital commodities”. It is one of the most important crypto legislative pieces in recent months and can have a substantial impact on how the crypto space (at least the US crypto space) will develop in the next few years.

State of play: Crypto has always been an interdisciplinary asset, which explains why various regulatory bodies have been trying to expand their influence over the new asset class. If passed, the DCCPA will give the CFTC authority to regulate crypto assets that are considered “commodities” — thus far, BTC and ETH have been named as such.

The bipartisan bill was co-sponsored by leaders of the Senate Agriculture Committee and was introduced by Sens. Debbie Stabenow (D-MI) and John Boozman (R-AR). The wording clarifies that BTC and ETH will be classified as commodities instead of securities, implying that the CFTC will have exclusive jurisdiction over the assets, instead of the SEC. The bill will also be requiring crypto trading platforms to register with the CFTC and comply with a list of mandates.

TL;DR—the DCCPA poses a serious threat to Decentralized Finance.

The leak: The debates on crypto Twitter started after a draft of the bill was leaked on October 20 by Delphi Labs General Counsel and a prominent figure in the crypto lawyer community, Gabriel Shapiro.

https://twitter.com/lex_node/status/1582814734587265024?embedable=true

Gabriel noted that the leaked version has one important takeaway: a limited exception to the term “digital commodity trading facility”, to exclude persons that solely develop or publish software. A good thing for DeFi.

Around the same time of the leak, FTX’s Sam Bankman-Fried, one of the wealthiest and most influential individuals in crypto has expressed his support for the bill. In fact, his exchange FTX has also released a blog on crypto regulation.

https://twitter.com/SBF_FTX/status/1582539577385836544?embedable=true

Critics piled on: The bill is not perfect, nor is it near anything that’s ideal to bolster crypto innovation. Major players in the crypto space including Vance Spencer from Framework Ventures, Richard Chen from 1confirmation fund, and web3 accelerator Alliance DAO have voiced their opposition to the bill.

Not only that the bill doesn’t really provide any real clarity on whether a newly launched token should be classified as a commodity or a security, but it also contains mandates that will impede decentralized infrastructures such as DEXs and other DeFi platforms.

From the words of CFTC Commissioner Kristin N. Johnson:

The problem with these mandates is that many of them are aimed at what current CFTC Commissioner Kristin N. Johnson aptly referred to in a 2021 law review article as “intermediary risks” – the potential for financial middlemen to mishandle assets and information in their possession. Regulations to address intermediary risks don’t make sense for software designed to achieve disintermediation. — CoinDesk

Under DCCPA, DeFi platforms that facilitate crypto asset trading will be mandated to:

Hold “customer property” in a manner that minimizes the risk of loss
Make public timely information on trading data
Pay platform fees for new registration requirements
Have emergency power to provide authority the ability to liquidate, transfer positions, or suspend trading
Designate a Chief Compliance Officer

The bullet points above show that the regulators still don’t entirely understand what decentralized technology means. If implemented, the rules stated above will destroy DeFi innovation in the US (and potentially abroad too) as it significantly impedes the new protocol’s capability to innovate as they’ll be heavily handicapped by upfront compliance and financial costs to navigate the regulatory framework.

https://twitter.com/alliancedao/status/1582800369846915072?embedable=true

TL;DR—the DCCPA doesn’t provide clarity on whether a token should be considered a digital commodity or security; and introduces inapplicable mandates for DeFi platforms that will stifle innovation.

The big debate: FTX’s founder and CEO SBF have also been playing an active role in DC discussing the DCCPA. Crypto Twitter has criticized the lobbying efforts done by SBF. People hypothesized that FTX is pushing for the bill to pass as it will benefit if DeFi platforms are required to register. The costs and complexities associated with more regulatory requirements and centralization make it feasible for centralized crypto exchanges to capture DeFi frontend market share.

https://twitter.com/lex_node/status/1586170458017124353?embedable=true

https://twitter.com/lex_node/status/1586170468717187073?embedable=true

https://twitter.com/SBF_FTX/status/1586382510824443907?embedable=true

The main takeaway: The bill and SBF is giving too many tradeoffs without any “deal” from the regulatory agencies to leave neutral actors such as validators, builders, and other base layer infrastructure participants completely unregulated.

What comes next: Now we wait. The crypto community, lawmakers, and SBF’s effort in engaging with the broader industry participants have catalyzed important conversations. Crypto Twitter made so much noise that the SBF vs Erik Voorhees debate apparently became the talk of the town in DC. Fingers crossed, the effort to engage with lawmakers, will provide clarity and support crypto innovation in the US.

https://twitter.com/SBF_FTX/status/1586402357847416834?embedable=true

https://twitter.com/ErikVoorhees/status/1586787742406410241?embedable=true

https://twitter.com/RonwHammond/status/1587443194945470465?embedable=true

Indiepreneurs

Pieter Levels, more famously known as @levelsio, is a freaking chad. I first discovered Pieter a few months back on a podcast, which led me down a rabbit hole of indiepreneur. These are basically brilliant individuals that operate online businesses with an extremely lean team, usually less than 5 people, that generate 7 figures in ARR. Pieter recently launched two AI products, AvatarAI and InteriorAI, quickly capitalizing on the recent generative AI boom. Both businesses are reportedly reaching $500k ARR in less than 90 days. Oftentimes, young professionals glorify unicorn startups with billions in funding or working at prestigious firms. In reality, unless you’re gunning to be a billionaire and hit the startup jackpot, you’re better off building a life like Pieter — tinkering with unique ideas that can put money in your pocket and make you reach 8 figures in your 30s. Most crypto people just decided to gamble their luck in the next “blue chip” DeFi protocols anyway, but hey, to each their own I guess.

Until next time,

Marco M.

Disclaimer, NFA, all that legal stuff: All the information presented on this publication and its affiliates is strictly for educational purposes only. It should not be construed or taken as financial, legal, investment, or any other form of advice.

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