Industry Giants Respond to UK’s Consultation on Crypto Policymaking

The UK released a consultation on crypto policy on Feb. 1, calling for increased communication between regulators and industry participants.

In the 82-page document, the UK government said it wanted to become a “competitive location for sustainable finance.” The document covered many topics, including bitcoin mining, NFTs and stablecoins.

Since the release of the consultation, a number of major Web3 and crypto companies have responded, including a16z, Polygon Labs, Circle and Binance. Here’s a summary of their responses.

a16z’s response:

Andreessen Horowitz sent a 15-page letter to His Majesty’s Treasury and stressed the need for a “tailored regulatory framework” to oversee DeFi and not a “one-size-fits-all” approach.

The Web3 investing giant also highlighted the differences between CeFi and DeFi in crypto, with CeFi operating more like a traditional finance outfit. They’re most often private businesses that provide a service to customers. DeFi, on the other hand, operates with the help of computer code and is much more transparent than CeFi operations.

Therefore, a16z told the UK that the regulatory regime in place for traditional CeFi won’t work with DeFi.

“Regulations designed for CeFi should not be applied to DeFi wholesale as they are not well-tailored to the differences between the two types of products and services,” a16z wrote. “We believe that an appropriately tailored regulatory framework for DeFi involves the regulation of the centralised/business-owned applications, or onboarding access points to protocols, not the protocols or software themselves.”

Polygon Labs’ response:

Polygon also penned a 15-page letter to the HM Treasury. The very first thing it addressed was whether all crypto assets should be deemed “specified investments,” which harkens back to the ongoing commodity or security debate in the US.

Polygon wrote that it doesn’t agree with the UK’s assertion to classify all crypto assets as “specified investments.” The blockchain platform added that many of the crypto assets listed in the UK’s call for evidence, including bitcoin, ether, and others, “do not resemble or have the characteristics of a financial market asset.”

Polygon also focused on distinguishing between tangibly backed crypto assets from those that aren’t. It took issue with the consultation referring to bitcoin as an unbacked token, explaining that bitcoin and ether power huge blockchains, which is where their value comes from.

“Ultimately, cryptoassets that have no specific backing but are a part of the underlying technology are fundamentally different from crypto assets that have no backing and should be treated differently,” Polygon wrote.

Circle’s response:

Circle’s reply to the crown differed a bit from the others. Because it’s the issuer of USDC, it’s focus was decidedly on the regulatory framework around stablecoins.

“Circle urged HM Treasury to swiftly disclose its plans for the regulation of fiat-backed payment stablecoins,” the company wrote in a blog post summarizing their response. “Without full knowledge and articulation of the broad regime, it will be difficult for firms like Circle that will likely be regulated as a fiat-backed payment stablecoin issuer with interactions across the broader crypto asset market to fully anticipate their regulatory obligations.”

The stablecoin issuer also asked for a clearer distinction between stablecoin activity and what the UK refers to as “crypto asset activity.”

“The two ecosystems (stablecoin arrangements and crypto assets) can be highly interlinked and are at times enabled by each other,” Circle wrote.

Binance’s response:

The largest crypto exchange by volume, Binance, also weighed in. The centralized exchange differed from Polygon in its opinion regarding the classification of all crypto assets as “specified securities.”

“We support expanding the list of specified investments to include crypto assets,” Binance’s letter said. “The proposed definition of crypto asset is intentionally broad, to capture all forms of existing crypto asset and ensure the definition keeps pace with market developments.”

Binance was also a lot more keen to agree with the UK’s definitions and proposals than the other respondents. For instance, it concurred with the UK’s proposed “activity based” regulation for NFTs, while a16z was reluctant to completely comply.

A16z argued that some NFT activity will fall outside the purview of UK regulators, including auctions of NFT art.

“Some of this activity may fall under certain types of proposed regulated financial activity; while other activity – even if it has an economic component (e.g., sale of art) – will expressly not fall under this type of regulated activity since it has clear non-regulated corollaries in the analog world (e.g.,auctions for art),” a16z explained.

Binance CEO Changpeng Zhao also summed up the response to the HM Treasury on Twitter and ended by proclaiming his company’s support for a Crypto Market Abuse Regime (MAR).

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“The introduction of formal regulatory admission practices, alongside greater market surveillance and regulation in general, will help to reduce bad actors,” CZ wrote on Twitter.

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