Thread by @amiasmg

The StableCoin Problem: Out today with @pymnts and @karenmpd to talk about clarifying our approach to crypto and financial regulation. pymnts.com/cryptocurrency…

TLDR: we are experiencing mass civil disobedience on financial regulation, which is very unusual, but not innovative.

Every generation has taken old ideas and dressed them up in new language. Lowering cost by circumventing regulation is an age-old strategy.

Some crypto players don't want to comply -- that's fine for them.

Enforcement resources are stretched thin and so, many, especially smaller ones, may never face penalties. But that's a strange way to build anything of scale or importance.

There’s an old truism that “financial services is a highly regulated industry.” This truism is also true.

Though the language and the history of financial regulation is complex, there are only five fundamental promises you can make with money.

1)Holding money with a promise to keep it safe– these transactions are almost always regulated as a bank deposit or a trust account

2)Taking money with a promise to use for some profit making exercise – this is defined in U.S. law as selling a security

3)Taking the money and promising to pay it back with interest – this is called borrowing, which at truly 1-1 scale can be unregulated but at large scale ends up being another form of security

4)Taking the money and promising to make a larger payment if something bad happens – this is regulated as insurance.
5)Finally, there are derivatives: which sometimes can involve only the exchange of promises, and are after Dodd-Frank fully regulated as well.

That’s it.

In fact, looking at the framework of financial services as a series of regulated promises, we could rapidly bring clarity to the regulatory perimeter and the defi ecosystem.

For the many in the crypto ecosystem who want to play by the rules and just seek clarity, we can simplify the world with the application of only two principles.

Priniciple #1: I have an affirmative obligation to follow the law.

Principle #2: One of these frameworks, which is already described in the law, must apply.

While industry has traditionally decried “regulation” by enforcement, when companies and project choose not to apply these principles, they are choosing the uncertainty of an enforcement based regime.

Unfortunately, the recent stablecoin report is less helpful than it could have been, embracing the uncertainty of new legislation instead of the clarity of existing law.

First, given other priorities and heading into an election year, the chances of Congress passing a new legislative regime into law are near zero. Second, even if legislation were to succeed, what would it say? The report is not clear.

But it appears that U.S. regulators making the exact same errors as the DeFi boosters – namely prioritizing technology over substance and overcomplicating a muddled conversation.

We can salute the clever programming and the consumer excitement for decentralization as a concept, without dropping our commitment to financial regulation.

Moreover, excitement about web3/ crypto/defi should not dim our hope for future innovations of “web4” or “web5”.

We don’t know what future tech waves will bring. And if there is legislative movement, we should be trying to remove references to technological standards, rather than enshrining new regulatory regimes around the technology of current moment. @fintechjunkie @QEDInvestors