Ben Strack

The president of Web3 investment firm CoinFund is the latest to urge lawmakers to pass crypto laws that encourage sector growth, noting that potential legislation around stablecoins&nbsp; — which he said could come first — presents a big opportunity.&nbsp;



In a white paper published Thursday, Chris Perkins, a member of the CFTC Global Markets Advisory Committee, also highlighted a years-old proposal from SEC Commissioner Hester Peirce designed to spur crypto entrepreneurs to more freely build decentralized networks.



Legislation must be the bedrock for digital financial policy, Perkins added in the white paper.&nbsp; He told Blockworks in an email that in his support for nuanced regulations for the sector, the goal is not to be combative.&nbsp;



“At a time when regulation seems unclear at best to industry practitioners, we hope to lend our expertise to help drive clarity and the principles-based outcomes that are imperative to catalyze responsible innovation,” Perkins explained.&nbsp;



The industry-wide call for better rules has become more frequent, as regulators with eyes on the space have not shied away from enforcement.&nbsp;



The CoinFund president was appointed to the CFTC Global Markets Advisory Committee in January. The <a href="https://www.cftc.gov/About/AdvisoryCommittees/GMAC'">group</a> was created in 1998 to advise the commission on matters impacting the global competitiveness of US markets and firms.



<h2>Support for SEC commissioner’s proposal</h2>



Perkins is also calling for lawmakers to prioritize sandboxes and safe harbor programs, echoing a similar <a href="https://www.sec.gov/news/public-statement/peirce-statement-token-safe-harbor-proposal-2.0">proposal</a> from Peirce.



Peirce’s so-called “token safe harbor proposal” looks to give network developers a three-year grace period during which they could participate in or develop a decentralized network — all while exempted from the registration provisions of federal securities laws.



“Experimentation, exploration and, at times, failure are important components of innovation,” Perkins told Blockworks. “Entrepreneurs should be encouraged to innovate thoughtfully without fear of regulatory reprisal. Sandboxes allow this to happen.”



Peirce first suggested the proposal in February 2020 before publishing an updated version on internet hosting service GitHub in April 2021.&nbsp;



The update was made just days before Gary Gensler was sworn in as chair of the SEC — “the perfect time for the commission to consider afresh how our rules can be modified to accommodate this new technology in a responsible manner,” she said in a statement at the time.



The status of the proposal is unclear. A spokesperson for the commissioner did not immediately return a request for comment.&nbsp;



<h2>What legislation could come first?</h2>



While regulators have ramped up what many industry participants call “<a href="https://blockworks.co/news/crypto-regulation-policy-law">regulation by enforcement</a>” in recent months, lawmakers of both parties have said <a href="https://blockworks.co/news/crypto-legislation-wont-be-sexy">crypto laws remain a near-term focus</a>.&nbsp;



Legislation should be based on core principles such as client asset protections, disclosures, cost-efficiency and privacy, Perkins asserts in the white paper — adding it should be clear and predictable and rather straightforward to comply with.&nbsp;&nbsp;



While centralized intermediaries should be regulated, decentralized technologies should not, he added.



As for what crypto legislation could come first, Perkins told Blockworks regulation around stablecoins might not be far off. A <a href="https://docs.house.gov/meetings/BA/BA21/20230419/115753/BILLS-118pih-Toproviderequirementsforpaymentstablecoinissuersresearchonadigitaldollarandforotherpurposes.pdf">draft bill</a> was released last week, though lawmakers are still working through disagreements.&nbsp;



A day after the House Financial Services Committee met for an <a href="https://blockworks.co/news/gensler-house-financial-services-committee">oversight hearing with Gensler</a>, the new House Subcommittee on Digital Assets convened Wednesday.



Subcommittee Chair Rep. French Hill, R-Ark., called the ongoing <a href="https://blockworks.co/news/house-grapples-with-stablecoins">“turf war” between the CFTC and SEC</a> unhelpful and unsustainable.



Perkins said it should not matter which regulator has jurisdiction as long as “the same principles are advanced with processes that are nuanced and evolve with technology.” He called the Wednesday meeting “a positive step forward.”



“At a time when adversaries are working to displace the dollar, stablecoins can further solidify the US dollar as the global reserve currency, while delivering utility, reducing costs, mitigating risk and driving demand for government debt,” he said. “I remain hopeful that our policymakers will recognize this opportunity.”



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‘Safe Harbor’ Proposal Resurfaces in CoinFund President’s Call for Crypto Laws

Casey Wagner

The SEC’s current agenda may be too packed to pass important regulatory guidelines, in crypto or other areas of securities policy, Commissioner Hester Peirce said Monday.&nbsp;



“Gensler has a tremendous amount of energy, and I think that&#8217;s reflected in a very busy regulatory agenda for the commission,” <a href="https://blockworks.co/tag/hester-peirce" target="_blank" rel="noreferrer noopener">Peirce</a> said during a discussion with Florida International University law students.



“I do have grave concerns about the number of things we&#8217;re trying to do at the same time,” she said.&nbsp;



In terms of recent enforcement actions from the SEC, <a href="https://blockworks.co/news/sec-under-gensler-crypto-power-grab-effective-protection">which many industry advocates argue has slowed progress</a> by targeting companies that are unable to go to court and set a precedent, Peirce said the agency may be putting the cart before the horse.&nbsp;



“There is a more efficient way to do this,” she added. “If we think that there&#8217;s a problem in the industry, we need to deal with it through regulation, and then enforcement should follow the regulation.”&nbsp;



Before issuing an enforcement action or agreeing to a settlement, regulators might be better off opening the discussion up to public forums to create policy, Peirce said.



“Repeatedly, I have dissented from settlements in this space because I think what we&#8217;re trying to do is we&#8217;re trying to set the law through these settlements,” the <a href="https://blockworks.co/tag/sec" target="_blank" rel="noreferrer noopener">SEC</a> commissioner added. “Why not — for each of these major topics, where we see there to be some sort of securities angle — why not spell that out in some sort of preliminary written documents?” 



In terms of what is next for crypto policy, Peirce said the industry and regulators need to start thinking critically about digital asset use cases. Trading is only one aspect of crypto, she said.&nbsp;



“But trading can&#8217;t be the only thing that crypto is about, and I think critics rightly have pointed to that,” Peirce said. “So ‘listen to your critics’ is another lesson that I think is important for the industry.”&nbsp;



It’s difficult to put crypto into the current regulatory framework we have for traditional financial markets, Peirce said, but agencies should be encouraged to move faster in order to protect investors and promote innovation.&nbsp;



“Some people in the regulatory world are perfectly fine with having innovation in crypto move away from the United States because they don&#8217;t think that there&#8217;s anything positive that&#8217;s going to come out of it,” Peirce said. “I tend to be of a different mindset.”



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SEC’s Peirce: Gensler Is Trying To Do Too Much Too Fast

In the latest broadside against her own agency, SEC Commissioner Hester Peirce says the securities regulator’s proposed custody rules harm investors by limiting access to crypto.&nbsp;



One of Peirce’s counterparts, Commissioner Caroline Crenshaw, said she supports the initiative — adding that alternative custody options would be “fraudulent, deceptive or manipulative.”



“That was true at inception and it remains true today. This premise is foundational to the relationship between adviser and client,” Crenshaw <a href="https://www.sec.gov/news/statement/crenshaw-statement-custody-021523">wrote</a> in response to her agency’s proposal on Wednesday.&nbsp;



Under the proposal, the SEC would have authority to oversee all assets under adviser supervision, not just funds and securities.&nbsp;



The proposed rule is said to protect investors and their assets by ensuring advisers only use custodians that would not suffer from insolvency and insufficient reserves.&nbsp;



Peirce originally intended to support the language, but the proposed “approach and timeline” present large enough issues that she cannot stand behind the proposal, she wrote in a <a href="https://www.sec.gov/news/statement/peirce-statement-custody-021523">statement</a> on Wednesday.&nbsp;



The Safeguarding Advisory Client Assets Proposal, <a href="https://www.sec.gov/news/press-release/2023-30">released</a> by the SEC Wednesday, suggests advisers enter into a written agreement with custodians — something the agency acknowledges would be a “substantial departure” from current rules.&nbsp;



Peirce argues the requirement would be time consuming, difficult and costly for advisers and clients.&nbsp;



Qualified custodians — or entities approved to hold client assets — would also have to complete new internal control reports. The SEC said qualified custodians currently completing and submitting may not be sufficient under the current rule.&nbsp;



“How difficult will it be for qualified custodians to obtain these reports,” Peirce wrote. “The proposal would expand the reach of the custody requirements to crypto assets while likely shrinking the ranks of qualified crypto custodians.”



The proposal also touches on the issue of token classification, an ongoing debate with and among policy makers.



<h2>Digital assets as securities — the argument continues</h2>



“A digital asset may or may not meet the definition of a “security” under the Federal securities laws,” the proposal said.



Peirce took issue with this characterization, noting that “I disagree with the main premise that most crypto assets are securities and the sub-premise that crypto assets sold in a securities offering are necessarily themselves securities. Such sweeping statements in a rule proposal seem designed for immediate effect, a function proposing releases should not play. These statements encourage investment advisers to back away immediately from advising their clients with respect to crypto.” Peirce also took up the SEC’s current ‘regulation-by-enforcement’ theme, and her <a href="https://blockworks.co/news/sec-commissioner-speaks-out-kraken">stated opposition</a>: “More generally, the sweeping “just about every crypto asset is a security” statements also seem to be part of a broader strategy of wishing complete jurisdiction over crypto into existence,” she said.



A public comment period is set to be open for 60 days.



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‘Wishing Jurisdiction Over Crypto Into Existence’: SEC Commissioner Opposes Agency Again

Sebastian Sinclair

SEC Commissioner Hester Peirce lashed out at her own agency on Thursday over its decision to <a href="https://blockworks.co/news/kraken-settles-sec-crypto-staking-program">slap Kraken with two charges</a> — forcing the crypto exchange to shutter its staking operations.&nbsp;



Kraken settled on both SEC counts and forked over $30 million as part of the deal. Peirce said in a <a href="https://www.sec.gov/news/statement/peirce-statement-kraken-020923?s=31" target="_blank" rel="noreferrer noopener">statement</a> she disagreed with the outcome and was therefore dissenting.



“A paternalistic and lazy regulator settles on a solution like the one in this settlement,” she said. The US securities regulator, led by Chair <a href="https://blockworks.co/tag/gary-gensler">Gary Gensler</a>, faces “a more fundamental question” around whether Kraken registering its staking offerings as securities “would have been possible” to begin with.



“We have known about crypto staking programs for a long time” Peirce said, adding that she should have personally called for rolling out staking guidance “long before now,” even though “it may not have made a difference.”&nbsp;



Instead, the regulator decided to “just shut it down,” she said.&nbsp;&nbsp;



Peirce — who has been nicknamed the “crypto mom” — has long advocated for sensible US regulation for both digital assets and their underlying technology. The commissioner is no newcomer to vocalizing her concerns around the SEC’s crypto approach, which she has said is often overly cautious and has the potential to stifle the sector’s innovation.



Kraken’s settlement with the SEC means the exchange has now ended its on-chain staking services for US-based customers. With the exception of staked ether, staked assets currently deployed will be automatically pulled out of the program and will no longer provide rewards.



It’s still too early to determine whether the US settlement against a centralized exchange such as Kraken would translate over to decentralized finance protocols.



It’s not the first time Peirce has expressed opinions that diverge from her agency’s official stance. Last year, the commissioner <a href="https://www.sec.gov/news/statement/peirce-blockfi-20220214?utm_medium=email&amp;utm_source=govdelivery" target="_blank" rel="noreferrer noopener">chided</a> the SEC over its decision to <a href="https://blockworks.co/news/crypto-lender-blockfi-to-pay-100m-in-fines-to-us-regulators">charge crypto lender BlockFi</a> over its high-interest yield products for US customers.



Peirce questioned the SEC’s approach to crypto lending and asked whether it was the best way to protect customers.



“I do not think so, so I respectfully dissent.”



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SEC Commissioner Blasts ‘Paternalistic and Lazy’ SEC

<div id="highlights-block_61840d1a79663" class="highlights">
 <ul>
 <li>SEC Commissioner Hester Peirce said that there are many different governing bodies competing to lead digital asset regulation</li>
 <li>Peirce thinks that more products, including a spot ETF, would benefit investors </li>
 </ul>
 
</div>



It would be in the best interest of investors for a spot bitcoin exchange-traded fund to be approved, but it will take regulators some time to get on the same page, US Securities and Exchange Commission (SEC) Commissioner Hester Peirce said Thursday.&nbsp;



“I think by withholding from investors exposure to spot products, we&#8217;re actually not helping them, we&#8217;re actually putting them in a worse position,” she said during the virtual Bloomberg Financial Innovation Summit. “Of course, we do these product approvals on a case by case&nbsp;basis, but I do think that it&#8217;s not the best for investors not to give them access to this product.”&nbsp;



Regulation around digital assets has been slow, Peirce said, in part because there are several governing bodies competing for jurisdiction. Congress has a lot on its plate, and cryptocurrency regulation likely is not at the top of its priorities, she said. The SEC can do some on its own but The Commodity Futures Trading Commission (CFTC), which regulates derivatives markets in the US, also has some jurisdiction claims. 



Regardless of which group leads the charge on establishing boundaries around digital assets, Peirce said SEC Chairman Gary Gensler is going to continue to advocate for strict guidelines.&nbsp;



“Gensler is a data person,” she said. “He&#8217;s thought a lot about data, and so I think that that can be compelling to him. But he also is a big believer, and he&#8217;s been very clear that he thinks that having a federal financial regulator of the crypto markets is something he&#8217;d like to see.”&nbsp;



Peirce is less certain that an entirely new regulatory body is the correct answer.&nbsp;



“We have such a fragmented regulatory system for financial products and services generally that I don&#8217;t know that adding another regulator would be my top preference,” she said.&nbsp;



Peirce, who the cryptocurrency community has affectionately dubbed ‘crypto mom,’ has long advocated for greater clarity around digital asset policies. A lack of concrete rules has prevented innovation in the space, she said.&nbsp;



In August, Peirce <a href="https://www.sec.gov/news/public-statement/pierce-statement-poloniex-080921">publicly criticized</a> the $10 million fine her agency imposed on crypto exchange Poloniex, claiming that the SEC too often takes an “enforcement-first” approach without appropriate due diligence. Regulators need to take the time to establish reasonable guidelines rather than imposing oftentimes arbitrary punishments, she said.&nbsp;



Peirce is one of five Commissioners. She was appointed by former President Trump in 2018 after failing to receive Senate approval when former President Obama first nominated her in 2016.