With the Virtual pass, you can tune into Consensus 2023 from anywhere in the world to hear industry leaders explore all aspects of crypto, blockchain, Web3 and the metaverse. Learn more and register.
Franklin Says
Investment giant Franklin Templeton’s OnChain U.S. Government Money Market Fund (FOBXX) will now be supported on Ethereum via layer 2 blockchain Polygon, making it the first U.S. registered mutual fund run on blockchain technology, the firm announced on Wednesday. Roger Bayston, the firm’s head of digital assets, said the move “enables the fund to be further compatible with the rest of the digital asset ecosystem.” Meanwhile, on the Consensus Mainstage on Wednesday Franklin Templeton CEO Jenny Johnson affirmed the industry’s need to accept regulation. Further, while crypto itself opens up the possibility for many different types of investments, some parts of crypto are a “distraction,” she said.
Gaining Stability
USDC issuer Circle Internet Financial announced technological breakthrough Wednesday that reworks how major stablecoins can move between blockchains. The system, named the “Cross-Chain Transfer Protocol (CCTP), is not like a tradition “blockchain bridge,” and right now will be put to work transferring the second largest stablecoin, USDC, between Ethereum and Avalanche. CEO Jeremy Allaire said at Consensus 2023 USDC and the entire stablecoin industry has emerged stronger after March’s banking crisis. The company, which had some of USDC reserves at the collapsed Silicon Valley Bank, has upgraded its market infrastructure after its stablecoin lost its dollar peg, Allaire said.
On-Chain Wonders
PepsiCo innovation lead Kate Brady also called for regulatory clarity in the U.S., as the massive consumer brand looks to move deeper into Web3. In particular, Brady said, it’s not quite clear yet what types of crypto-based products or experiences Pepsi can offer, in part due to uncertainty over how “antiquated” laws based on legal interpretations from the 1940s will be applied. Alongside Brady on stage, Amanda Cassatt, CEO of crypto marketing firm Serotonin, also said “regulatory clarity brings growth.” Similarly, Christine Moy, head of digital assets at massive hedge fund Apollo Global Management, said a lot of “productive” value could be created by putting real world assets on-chain.
The Takeaway: Language Games
From left to right: Sidney Powell Salman Banaei, Nathan Cha and Cami Russo. (CoinDesk)
One of the issues that happens whenever an industry grows is it becomes difficult to tell if everyone is speaking the same language. Nowhere is this clearer than in the conversations between builders of decentralized finance (DeFi) and financial regulators. Can linguistic consensus be found at Consensus? It seems unlikely.
For the most part, financial watchdogs in the U.S. (and the international bodies that are essentially offshoots of the U.S. Treasury Department) have said crypto clearly fits into the existing regulatory framework. Crypto’s governing rules have already been written, supposedly.
And so, you have situations like the U.S. Securities and Exchange Commission Chair, Gary Gensler, telling crypto operators to “come in and register” with the agency and FinCEN advocating for stricter KYC/AML requirements across crypto.
Crypto, with exceptions, has largely promoted itself as a square peg that cannot fit in the round hole of the so-called Howey Test (the guidance the SEC uses to determine whether something is a security, which essentially probes whether “the investing public is anticipating profits based on the efforts of others”).
This is one of the sticking points for Chamber of Digital Commerce founder and CEO Perianne Boring, who spoke Wednesday at Consensus’ Mainstage. In crypto the terms “community” and “collaboration” are thrown around a lot – terms that mean one thing to insiders, and another to regulators.
“What does it mean to work collaboratively?” Boring asked. To the SEC, the answer doesn’t matter, when a group of people organize to build a potentially valuable system, it “triggers our laws,” she added. At least on stage, Boring didn’t seem confident this different definition cold be explained away – not by lobbying or commenting on proposed guidance, she said.
Still, not all is lost for crypto in the U.S. In a panel discussion between Uniswap’s legal chief Salman Banaei, dYdX’s marketing lead Nathan Cha, Maple Finance co-founder Sidney Powell and The Defiant founder Cami Russo, the decentralized finance advocates were adamant that regulators will come around to the power and purpose of DeFi.
Regulators and DeFi advocates are on the same page. They both want increased transparency within the finance system (and that doesn’t necessarily mean that non-custodial, permissionless apps will all eventually add KYC procedures). Instead, what regulators try to do with the written word, DeFi can do through code.
You’ve heard the argument before.DeFi provides real-time auditability, an immutable record of transactions and the ability to easily track users. As designed, on-lookers may not immediately know the identity of DeFi users, but given time and resources that information can be determined – precisely the job of financial regulators.
This isn’t just marketing speak, Banaei came prepared with statistics. According to FATF, seizure rates of illicit funds within the traditional financial system are around 0.1% – meaning regulators have recaptured about one-thousandth of the funds known to have been used for criminal activity. The seizure rate for crypto: 27%, according to Banaei.
This isn’t to say crypto is a pigpen of financial crime either. At least according to analytics firm Chainalysis, only a miniscule amount of crypto transactions can be tied to criminal actions. What all this means is that if the government is concerned about terrorist financing or money-laundering, it should likely opt for crypto’s unequaled transparency.
It turns out, crypto and its would-be overseers are speaking the same language.
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