Tag: policy

Chamber to IRS: Tax Payers Need Guidance on Crypto Tax Rules

by Chamber

Chamber to IRS: Tax Payers Need Guidance on Crypto Tax Rules

May 17, 2021

Over the past five years, the Internal Revenue Service (IRS) has significantly increased enforcement actions against taxpayers who transact in digital assets. But, while ratcheting up its enforcement, the IRS has not provided meaningful guidance on how to comply with tax rules since 2014.

“This disparity creates risk for taxpayers seeking to comply with the laws, wastes IRS audit resources, dampens commercial activity and economic recovery, and stifles U.S. innovation,” according to Amy Davine Kim, Chief Policy Officer at the Chamber of Digital Commerce.

This week, the Chamber published a policy position that identifies key areas where the agency must issue more guidance for taxpayers this year –– lending, information reporting, foreign bank account reporting, characterization of digital assets, and proof of stake protocols. It also sent a letter to the IRS on the application of the Foreign Account Tax Compliance Act (FATCA) to digital assets.

Background: 

Since 2016, when the IRS issued a “John Doe” summons to Coinbase seeking information on customers who engaged in transactions at or above $20,000, the digital assets community has seen growing enforcement-related activity as the IRS began focusing on identifying taxpayers who may have tripped up by lack of clarity.

In 2020, the agency added a question relating to cryptocurrency on its Form 1040 for individual taxpayers. “At any time during 2019,” the IRS asked, “did you receive, sell, send, exchange, or otherwise acquire any financial interest in any virtual currency?” And for the 2020 tax season, the agency moved the question right to the top of the form, displayed prominently just below the request for personal information. The IRS also sent over 10,000 taxpayers “soft letters” suggesting they may not have complied with tax reporting requirements and threatening an audit if the taxpayers did not respond to the agency’s inquiry. These letters were criticized as violating the Taxpayers Bill of Rights by the IRS’ own Taxpayer Advocate.

Recently, at a hearing before the Senate Committee on Finance, IRS Commissioner Chuck Rettig identified the need for clarity on information reporting for cryptocurrency transactions. Information reporting requires companies to report to the IRS wage and non-wage income that relate to a trade or business. Information reporting guidance would result in increased tax compliance and decreased enforcement actions. The Chamber brought this to the IRS’ attention in a letter last year describing the need for guidance regarding information reporting – a key tool to assist taxpayers in providing accurate income information –  but the agency has yet to release such guidance. In addition to the Taxpayer Advocate, the IRS has been criticized repeatedly for not providing guidance by the Treasury Inspector for General Tax Administration and the Government Accountability Office.

Highlights of the Tax Policy Framework: 

The Chamber’s policy framework identifies key areas in which the IRS must provide clarity and guidance for digital asset transactions in 2021. The goal of these recommendations is to ensure that digital asset tax policies are adopted to assist compliance and encourage innovation, economic activity, entrepreneurship, investment, and collaboration in the areas of:

      • Digital asset lending;
      • Information reporting;
      • Foreign bank account reporting;
      • Characterization of digital assets; and
      • Proof of stake protocols.

In addition to its policy framework, the Chamber separately wrote a letter to the IRS on the potential application of the Foreign Account Tax Compliance Act to digital assets. The law requires foreign financial institutions to report foreign accounts held by U.S. persons. Currently, the law does not apply to digital assets. Nevertheless, anticipating that the IRS is considering the application of FATCA to digital assets held offshore, we provide guidance to ensure better outcomes for the industry before they are published.

Our letter raises key factors the IRS must take into account, such as:

        • The need for public notice and comment if the IRS decides to apply FATCA to digital assets.
        • What is a “foreign” account in the digital asset industry?
        • Are digital assets financial assets? 
        • What types of accounts (custodial, non-custodial) should be subject to FATCA reporting? 

The policy framework and letter regarding FATCA’s application will enable better compliance with tax obligations by taxpayers and avoid unnecessary punitive measures by the IRS. 

Proof of Reserves – Establishing Best Practices to Build Trust in the Digital Assets Industry

by Chamber

Proof of Reserves – Establishing Best Practices  to Build Trust in the Digital Assets Industry

Download the Chamber’s Proof of Reserves Report

Background: As the digital assets industry has developed, both consumers and institutional investors have relied on large custodians, exchanges, and other intermediaries to custody their assets.  These intermediaries are entrusted with maintaining adequate digital asset reserves to meet customer liabilities (those digital assets the exchange or custodian holds for its customers).

The Problem: The growth of the industry has resulted in uneven and inconsistent methods for proving the existence of reserves to meet customer liabilities. Investors and customers need assurance that their funds are properly managed. Digital assets by their very nature offer built-in transparency but, until now, the innate cryptographic auditability of these assets has been woefully underutilized, despite the low technical barriers to doing so.

Bottom Line: At the end of the day, this is a very simple concept, that custodians need to be able to prove that they are indeed holding the assets that their clients have entrusted to their care. This is called Proof of Reserves (PoR).

PoR involves comparing on-chain assets held in reserve to off-chain liabilities. In other words, it empowers consumers to audit digital asset reserves held by a custodian on demand. But, despite a flurry of interest in 2015 in the wake of the failure of Mt. Gox, Proof of Reserves has failed to gain widespread adoption. Why would such a valuable practice be so infrequently and inconsistently applied, despite its benefits in promoting and maintaining industry trust and growth?

Our Proposed Solution: Here at the Chamber of Digital Commerce, we’ve been working to frame a consistent, industry-wide standard for Proof of Reserves to increase the confidence level of consumers, policymakers, and regulators that exchanges and custodians are managing their assets appropriately. We have created a comprehensive Best Practices resource to serve the industry with practical guidance on the core concepts of Proof of Reserves and implementation. The Best Practices, documented in this robust Practitioner’s Guide, brings together a diverse group of key industry stakeholders and subject matter experts, including digital asset custodians, exchanges, and legal and auditing professionals. This marks the first time the industry has an actionable rubric for adopting this important standard.

The Impact: Proof of Reserves is a profoundly self-regulatory measure. Using this framework, firms holding digital assets on behalf of third parties can use this trust-generating procedure. Ultimately, if the industry takes advantage of the transparency afforded by digital assets, consumers will be better protected, intermediaries will benefit from transparent practices, and regulators will appreciate these proactive measures. Put simply, it’s a win-win situation all around, for consumers, industry, and government.

Conclusion: As the industry continues to mature, it logically follows that building Proof of Reserves into custodians’ core practices will result in greater market share as well as customer, institutional, and governmental trust. If these Best Practices are adopted, for the first time, digital asset firms will benefit from the actionable intelligence specifically tailored to their needs. This effort is an important first step to bringing Proof of Reserves the attention it deserves, creating further industry engagement around trust models, and advancing our shared stewardship of the digital and decentralized future.

We are grateful to the authors and contributors who worked tirelessly to develop these comprehensive best practices with respect to creating Proof of Platform Reserves, including Members of the Leadership Committee: Noah Buxton, Armanino LLP; Nic Carter, Castle Island Ventures and Coin Metrics; Patrick South, TRM Labs; and Salvatore Ternullo, KPMG.

For More Information: 

Please contact: policy@digitalchamber.org.

House Passes Bill to Create SEC – CFTC Working Group to Foster Digital Asset Innovation in the United States

by Chamber

House Passes Bill to Create SEC – CFTC Working Group to Foster Digital Asset Innovation in the United States

April 21, 2021
By Amy Davine Kim, Chief Policy Officer, Chamber of Digital Commerce

Yesterday, the U.S. House of Representatives passed H.R. 1602: “Eliminate Barriers to Innovation Act of 2021,” an important milestone for the digital assets industry in the United States. The historic bipartisan legislation would create a working group on digital assets between the U.S. Securities and Exchange Commission (SEC) and the U.S. Commodity Futures Trading Commission (CFTC), the two leading agencies that oversee digital asset markets in the United States, as well as key stakeholders, including industry groups, to eliminate barriers and promote innovation through competition. 

Specifically, the digital asset working group is tasked with analyzing the U.S. legal framework for digital asset markets to identify areas where further clarity is needed and comparing it to other jurisdictions to determine U.S. competitiveness in these emerging markets. The group must also make policy recommendations to resolve the issues it identifies, including through development of standards and best practices. 

The bill will now proceed to the U.S. Senate, where it is likely to be introduced in the Committee on Banking, Housing, and Urban Affairs. This legislation is an important step forward to obtain much needed clarity in the digital asset markets.  Over the years, many legislators have tried to increase clarity – and we have supported these efforts.  The bill enables a balanced review of the issues impacting digital assets and digital asset securities by all stakeholders – the SEC, CFTC, industry, consumer groups, and others – to ensure that appropriate guardrails are created to enable efficient growth in the marketplace.  

The bipartisan nature of the legislation reflects the growing recognition in the U.S. Congress of both the rapid growth of the digital asset industry and the need to build and maintain a clear and uniform regulatory framework across agencies to position our industries for success in the coming decades. This is an urgent issue.  The SEC’s recent enforcement actions against blockchain companies for distributing digital tokens as unlicensed securities offerings plainly illustrates the serious and market-moving consequences of ongoing regulatory confusion and opacity. In other words, the industry needs more guidance specific to the unique characteristics of digital assets and their markets. The legislation gives the  working group a year to come together and identify how to resolve regulatory issues surrounding digital assets, and to provide recommendations to relevant Congressional committees. 

H.R. 1602  was introduced in the House on March 7, 2021 and referred to the Committee on Financial Services and Committee on Agriculture. For more information, see our blog post.

The Growing Regulatory Spotlight on Digital Assets’ Role in Funds Transfers and Payments

by Chamber

The Growing Regulatory Spotlight on Digital Assets’ Role in Funds Transfers and Payments


An obscure but powerful task force, simply known as the FATF, holds the key.

April 21, 2021
By Amy Davine Kim

Over the past two decades, the advent of the global digital banking and financial services system has revolutionized electronic funds transfers and payments and adoption of digital asset technologies. Blockchain and distributed ledger technologies will transform the way in which we buy and sell goods and services, and even the goods and services that we buy.  With this opportunity has come an increased global governmental scrutiny of implementing policies to address anti-money laundering and counter-financing of terrorism (AML/CFT) risks, and ongoing concerns about how best to put in place such policies while addressing privacy concerns.

Two years ago, the Financial Action Task Force (FATF), a powerful intergovernmental organization founded in 1989, amended its anti-money laundering Recommendations to include virtual assets and so-called Virtual Asset Service Providers (VASPs). The FATF is viewed as a crucial standards-setter for anti-money laundering and anti-terrorist financing policies; failure to adopt and enforce its Guidance is noted in the FATF’s audits, which can lead to countries being “grey-listed” and causing financial institutions to no longer do business within those countries.

The Guidance prompts countries to establish regulatory frameworks globally to address AML/CFT concerns involving virtual assets, typically including the development of compliance programs that require customer due diligence and implementation of the so-called “Travel Rule” provisions.  Now, two years later, the FATF has again proposed “updates” to its Guidance in an attempt to develop greater clarity around the requirements.

The Guidance was open to comment for 30 days by financial regulatory bodies around the world, as well as industry players, such as the Chamber of Digital Commerce. The FATF intends to release a final form of the Guidance this June.

The Chamber has long supported such standard-setting bodies and processes as undertaken by the FATF, including through its work to develop data messaging standards for the Travel Rule.  Nevertheless, this recently updated Guidance takes an overly broad, cookie-cutter approach that, for a quickly evolving industry like digital assets and blockchain technology, creates both uncertainty and unintended consequences for legitimate players in the marketplace, as well as the regulators and policy makers overseeing them.  Over the past month, since the FATF Guidance was opened up for comment, the Chamber spent countless hours evaluating the Guidance and discussing it with our Members and submitted our comments on Tuesday. We would like to highlight several points of concern that we recommend the governing body address during this consultative process.

First, the FATF’s effort to define what a Virtual Asset Service Provider is and isn’t is overly broad and seeks to capture all virtual assets as well as multiple businesses in the ecosystem – even those not typically subject to AML obligations as financial institutions.  This sweeping perspective brings all virtual assets within the purview of anti-money laundering obligations, even those not used as a “currency” or method of payment.  Not all virtual assets create the same risks nor require the same regulation at the same points, yet that nuance is absent from the Guidance.

The FATF Guidance generally treats virtual assets and peer-to-peer transactions as higher risk for illicit activities, stating in no uncertain terms that Virtual Assets or “VAs” are becoming increasingly mainstream for criminal activity more broadly” without additional evidence or support for this statement, dismissing the distinctions between different types of virtual assets, and ignoring evidence to the contrary. Further, the Guidance does not address whether current and developing controls sufficiently mitigate the risk. With higher risk typically comes the imposition of additional compliance requirements, and such regulatory hurdles often disincentivize some financial institutions from participating or innovating within the digital currency marketplace. 

Second, the Guidance expands the concept of VASP to include those that merely “facilitate” the activity of exchange, administration, and safekeeping.  For example, this includes those that develop software and engage in business development.  To be clear, we support the application of anti-money laundering compliance obligations on those financial institutions that directly provide money transfer and safekeeping services.  Yet, there are many businesses and individuals engaged in supporting these services that do not directly provide them nor are appropriate to conduct things like customer due diligence or KYC, nor should they be sharing personally identifiable information (PII) with counterparts pursuant to the Travel Rule.

Finally, updates to the Guidance concerning submission of PII between financial institutions engaged in cross-border wire transfers, colloquially known as the “Travel Rule,” expand the scope of this requirement to include not only domestic wire transfers but also transfers involving a self-hosted wallet – a unique expansion of the rule beyond what is required in the traditional fiat currency space.  While intended to address anti-money laundering challenges and help law enforcement agencies better track criminals – the expanded scope changes the goal posts at a time when industry and governments are working diligently to quickly develop a secure, global information exchange system.  The transfer of PII is a very sensitive issue, one that must be handled carefully and appropriately.  In our view, we should complete the work already underway to ensure it effectively and efficiently achieves law enforcement goals before making adjustments and additions to the requirements midstream.   

Just as important as preventing anti-money laundering violations and enabling law enforcement to better track such illegal activities, is not only understanding the scope of such threats, but also confirming the progress that all countries engaged in the digital currency marketplace have made in adopting the “Travel Rule” guidelines already adopted in 2019.  It’s important for the FATF to encourage global adoption of the current “Travel Rule” with the understanding that some States may come online with their regulations at different times than others.  This uneven progress, often called the “Sunrise Issue”, greatly impacts when a financial institution must share sensitive PII. 

The Chamber of Digital Commerce will continue its active and constructive engagement, working with all players to develop a strong understanding of this rapidly evolving space. The Financial Action Task Force’s efforts – as well as those of the many jurisdictions and regulatory bodies that are implementing them – have contributed to increased adoption and certainty in the digital asset and blockchain ecosystem. Data shows that the coordinated efforts of our industry, regulators, and law enforcement have reduced the risk of AML abuse, maintained security, and protected privacy. Data would also help track areas of increasing or decreasing risk, so that further efforts are focused on those areas of high risk in the global money laundering landscape.

While there is more to be done, the Chamber believes it is important in this highly innovative and evolving industry for the Financial Action Task Force to work collaboratively in setting Guidance that not only focuses clearly on those institutions that engage directly in the provision of financial services to customers but leverages risk-based data and the potential benefits of the underlying technologies. Our goal is to prevent illicit activity from utilizing the virtual asset system while not hindering the advancement of cutting-edge blockchain and digital assets technology that will be the cornerstones of the new age of financial services.

Chamber Submits Comments to SEC on Proposed Safe Harbor for Broker-Dealer Custody of Digital Asset Securities Highlighting Concerns on Bifurcated Treatment of Broker-Dealers Based Purely on Technology

by Chamber

Chamber Submits Comments to SEC on Proposed Safe Harbor for Broker-Dealer Custody of Digital Asset Securities Highlighting Concerns on Bifurcated Treatment of Broker-Dealers Based Purely on Technology

April 9, 2021

On Monday, April 5, we filed a letter in response to the Securities and Exchange Commission (the “Commission”) Statement and Request for Comment regarding “Custody of Digital Asset Securities by Special Purpose Broker-Dealers” (the “Statement”), which was originally issued by the Commission on December 23, 2020.  While the safe harbor indicates an important willingness to enable this industry to grow, its narrow focus on a single technology, limiting broker-dealer custody to digital asset securities only, without sufficient basis, creates an unworkable framework that creates enhanced, yet inaccurate, perceptions of risk.

The Statement sets forth a five-year temporary safe harbor for broker-dealers seeking to custody “digital asset securities.”  The temporary safe harbor becomes automatically effective April 27, 2021. In the Statement, the Commission establishes, and solicits input on, a bifurcated regulatory structure for broker-dealers seeking the ability to custody securities based on whether the broker-dealer operates in the traditional securities space or in the digital asset securities space.

The Statement requires a broker-dealer seeking to custody digital asset securities to limit its business to digital asset securities only in order to isolate certain perceived risk.  The Commission also establishes, and solicits input on, a range of unique policies and procedures that a special purpose broker-dealer would be required to adopt.

The Chamber supports the Commission’s issuance of the Statement as a positive and constructive step toward grappling with the complex requirements of federal securities laws, and the Customer Protection Rule in particular, as they apply to digital asset securities and transactions in those securities.

We also, however, note our concern that the Commission is imposing a bifurcated and relatively onerous regulatory framework on broker-dealers without providing a compelling basis for doing so.  Specifically:

    • It is unrealistic for a broker-dealer to operate successfully if its business is limited to operating in the digital asset securities space should they seek to self-custody even one digital asset security – We note that the temporary safe harbor would create a significant hardship for existing or future broker-dealers operating under this model;
    • Digital asset securities do not impose greater investor risk than traditional securities – Digital asset securities intentionally created in connection with the issuance of debt or equity by a traditional issuer may differ significantly from non-security digital assets and “inadvertent” digital asset securities when it comes to risk of theft or loss of keys. In addition, we discuss why blockchain is actually a far superior option for complying with recordkeeping and reporting obligations under the securities laws and have characteristics that make them particularly well suited to serving as the source of truth;
    • Broker-dealers cannot operate successfully with self-custodied digital asset securities without also custodying non-security digital assets – We strongly support allowing broker-dealers to self-custody these non-security digital assets to promote more efficient settlement processes around the secondary trading of digital asset securities;
    • The temporary safe harbor is not technology neutral – The Commission is imposing a bifurcated regulatory structure on broker-dealers, and potentially significantly limiting their business model, based solely on an issuer’s choice of technology representing its securities and regardless of whether the broker-dealer can meet the current regulatory requirements related to the custody of traditional book-entry securities;
    • The scope of the temporary safe harbor should be clarified – The Commission should clarify that the provisions of the temporary safe harbor apply only to broker-dealers seeking to self-custody digital assets securities for customers in order to provide certainty that other broker-dealers operating in the digital asset security space may continue to operate under existing regulations;
    • The definition of “digital asset security” is extremely broad and should be narrowed – The Commission should clarify that securities that have non-controlling blockchain components do not fall within the definition of “digital asset securities and should consider how applicable state law provides for “possession or control” to occur;
    • Broker-Dealers need clarity that they can use third-party custody providers – The Commission should clarify that broker-dealers can satisfy the Customer Protection Rule by maintaining digital asset securities at a good control location, such as a bank, transfer agent or other regulated entity, and that the Commission provide additional clarity on what is deemed a “good control location” for digital asset securities; and
    • The Commission should seek customary industry input prior to implementation of the temporary safe harbor – The Commission is implementing the temporary safe harbor without soliciting prior public comment or providing a cost/benefit analysis around the enumerated requirements which is reflected in many of the problematic aspects of the Statement.

While we welcome the Statement as a move in the right direction to provide the digital asset industry with a much-needed framework for broker-dealers seeking to custody digital asset securities, we encourage the Commission to address the concerns enumerated in our letter prior to implementation of the temporary safe harbor to ensure it achieves its intended purpose to enable this industry to grow in a safe manner.

We are grateful for the tireless effort and countless hours expended by our Members in addressing the issues raised by the Statement.

Chamber Addresses Extraordinary Financial Privacy Concerns, Proposes Solutions in Response to Treasury

by Chamber

Chamber Addresses Extraordinary Financial Privacy Concerns, Proposes Solutions in Response to Treasury

Chamber submits comments to FinCEN on Proposed Rule on Digital Assets

March 31, 2021

On Monday, we filed our response to FinCEN’s Notice of Proposed Rulemaking (NPRM) “Requirements for Certain Transactions Involving Convertible Virtual Currency or Digital Assets.”  This supplemental letter is in response to a series of NPRM’s on self-hosted wallets, including those published on December 23, 2020; January 15, 2021; and January 28, 2021.

As we highlighted in an earlier blog on this proposal, it is critical to highlight the unprecedented scope of information FinCEN would collect regarding nearly every convertible virtual currency (CVC) transaction.

The proposed verification requirements would create a new standard for this technology that rises above existing know-your-customer (KYC) obligations. Providing this level of detailed information about non-customers (the counterparties to transactions) to the government for lawful transactions would erode financial privacy for lawful transactions of all amounts – even those not conducted through banks or MSBs and its repercussions cannot be understated.

Building on our initial comments, filed January 4, our supplemental letter enhances our original points and addresses the additional information that FinCEN provided through its somewhat extraordinary series of NPRMs over a short period.  Here, we honed in on some of the specific proposals, including:

  1. A recordkeeping requirement for banks and MSBs for transactions of $3,000 and above, which included verification of customers and counterparties to the transaction; and
  2. A reporting requirement for transactions of $10,000 and above to include customer and counterparty information on a new “Value Transaction Report,” which requires personally identifiable information and publicly available information on a blockchain. The proposal also included a new “Foreign Jurisdictions List” of countries with which U.S. entities are prohibited from engaging in virtual currency transactions.

By combining information contained in CVC transaction reports, including personally identifiable information and a blockchain address of the customer and all counterparties, the government will be able to track every transaction those wallet owners make, past, present, or future, at any transaction level and at any time.  

To spell this out more clearly, this means that a counterparty to a transaction, who never had an account relationship with the bank or MSB, will have its entire wallet history and future transactions exposed to both that financial institution and the government.  This is an extraordinary expansion of the amount of information provided to third parties about non-customers.

While there are good reasons to report certain transactions to the government, such as when suspicious or illegal activity is detected, enabling such granular tracking of individuals’ lawful, everyday financial activities is beyond common principles of government oversight.

The Chamber believes that the very significant compliance and privacy questions raised by this proposed rule, as well as potential for much broader implications for people and businesses, demand significantly more evaluation and time for comment from multiple stakeholders.

As a result, we made the following Recommendations:

Recordkeeping Requirement.

    • We are supportive of a recordkeeping requirement for transactions above $3,000 that is limited to bank and money services businesses (MSB) customers only and does not include collecting counterparty information.
    • Compliance with this requirement should become effective at least 180 days after the final rule’s issuance due to the process for implementing the required changes.

Reporting Requirement.

    • The recently enacted Anti-Money Laundering Act of 2020 requires FinCEN to review as part of a year-long study requirements for currency transaction reports (CTRs) and suspicious activity reports (SARs). The proposed Value Transaction Reports for transactions at or exceeding $10,000 should be delayed until after FinCEN completes its study to reduce unnecessarily burdensome requirements.

Implications for Self-Hosted Wallets.

      • Self-hosted wallets play a critical role across the blockchain and digital asset industry. Thus, FinCEN should exempt from the final rule decentralized finance (DeFi), consider the privacy implications for including LTDA within the rule’s scope, and contemplate how the rule will harm financial inclusion efforts through de-risking caused by the disincentivization and stigmatization of self-hosted wallet use.

Towards a Risk-Based Approach.

      • FinCEN should promote a risk-based approach generally, and specifically with respect to anonymity-enhanced cryptocurrencies.

We are grateful for the tireless effort and countless hours expended by our Members in addressing these extraordinary proposals, as well as our counsel at Steptoe – Jason Weinstein, Alan Cohn, Shannen Coffin, and Evan Abrams.

Read the Chamber’s comment letter to FinCEN here.

Chamber of Digital Commerce and Texas Blockchain Council Publish Texas Edition of State Legislator’s Toolkit

by Chamber

Chamber of Digital Commerce and Texas Blockchain Council Publish Texas Edition of State Legislator’s Toolkit

March 16, 2021

The Chamber of Digital Commerce and the Texas Blockchain Council published the State Legislator’s Toolkit: Texas Edition as a resource for Texas state legislators. As the blockchain industry in Texas continues to grow, policymakers will find this toolkit useful to gain a deeper understanding of the technology and ways it can bring unprecedented economic growth to the State. This edition of the State Legislator’s Toolkit includes insights on how blockchain development will positively impact Texas’ economy, legislative proposals, and an overview of state legislative developments.

“The size and dynamism of Texas’ economy makes it an ideal place to host innovative companies working on blockchain technology and the digital economy. Texas has unparalleled expertise at establishing an environment where business thrives,” said Lee Bratcher, Founder and President, Texas Blockchain Council. “The original State Legislator’s Toolkit is a great educational resource, and we enjoyed working with the Chamber of Digital Commerce to build out the Texas Edition,” Bratcher added.

The Dallas, Austin/San Antonio, Houston triangle, referred to as “the Texas Triangle,” is home to 53 of the 54 Texas-based Fortune 500 companies, and this is where blockchain innovators are heading. “The exodus from the Bay Area to central Texas in the past few months confirms that our engineering talent and capital are growing,” Bratcher noted.

Blockchain technology, in the hands of capable entrepreneurs and engineers, has incredible potential and requires a well-conceived regulatory framework. It must deter clear violations of law while encouraging innovation, and must be flexible and transparent so that those working to bring products to market can innovate freely.

“The Chamber of Digital Commerce was proud to partner with the Texas Blockchain Council to develop the Texas Edition, and we look forward to seeing how Texas lawmakers use it to support blockchain development and innovation in their State,” said Divij Pandya, Associate Director of Policy at the Chamber of Digital Commerce.

Congressmen Task SEC and CFTC to “Eliminate Barriers” to Digital Asset Innovation through Joint Working Group of Stakeholders, Promoting Competitive Environment in the United States

by Chamber

Congressmen Task SEC and CFTC to “Eliminate Barriers” to Digital Asset Innovation through Joint Working Group of Stakeholders, Promoting Competitive Environment in the United States

By Amy Davine Kim, Chief Policy Officer, Chamber of Digital Commerce
March 8, 2021

As other countries continue to lead in the rapidly growing digital asset industry, now is the time for the United States to build and maintain clear and uniform regulatory framework across agencies to position this industry for success in the coming decades. Bipartisan legislation introduced yesterday by Ranking Member Patrick McHenry (R-NC) of the House Committee on Financial Services and co-sponsored by Congressman Stephen Lynch (D-MA), Chair of the House Financial Services Committee FinTech Task Force, Congressman Glenn Thompson (R-PA), Ranking Member of the House Committee on Agriculture, Congressman Ted Budd (R-NC), and Congressman Warren Davidson (R-OH) would promote that goal by formalizing a joint working group on digital assets between the U.S. Securities and Exchange Commission (SEC) and U.S. Commodity Futures Trading Commission (CFTC), the two leading agencies that oversee digital asset markets in the United States, as well as key industry groups.

The United States can no longer do nothing. For more than a decade, despite good intentions, the industry has operated in an opaque, fragmented, and confusing regulatory environment with respect to standards for custody, private key management, cyber security, business continuity, and registration and reporting requirements, to name a few.  In recent years, the SEC has viewed most digital assets exchanged or sold as a security while the CFTC has considered most to be a commodity – two different financial assets.  We need a solution that will take input from the experts across all stakeholders, in both industry and government, to forge meaningful recommendations of standards for adoption and regulation.

The SEC’s recent enforcement actions against blockchain companies for distributing digital tokens as unlicensed securities offerings plainly illustrates the serious and market-moving consequences of ongoing regulatory confusion and opacity. In other words, the industry needs more guidance specific to the unique characteristics of digital assets and their markets.

We are proud to support the Eliminate Barriers to Innovation Act of 2021 that requires the SEC and CFTC to form a “Working Group on Digital Assets” to convene key stakeholders, including industry representatives, for one year to work together to resolve regulatory issues surrounding digital assets, and to provide recommendations to relevant Congressional committees. This type of legislative concept – establishing a group of experts to consider the problems presented to them and make recommendations – is well-understood in Congress and has the ability to gain traction among Members from both sides of the aisle.

The working group would include equal representation from both organizations as well as at least one representative from a financial technology company, a financial services institution, an investor protection group, a small business or entrepreneur, an institution or organization supporting investment in historically-underserved businesses, and someone engaged in related academic research or advocacy.

Specifically, the legislation calls for the working group to deliver a report to SEC and CFTC leaders and relevant Congressional committees that contains recommendations to:

      • Improve the efficiency, transparency, availability and efficacy of primary and secondary markets in digital assets;
      • Support market integrity and improve customer protection; and
      • Establish protocols concerning custody, private key management, cybersecurity and business continuity relating to digital asset intermediaries.

Importantly, the legislation also requires the working group to deliver comprehensive analysis of developments in other countries relating to digital assets and how those trends impact the United States and our competitive position in this evolving industry.

Ranking Member McHenry and Congressman Lynch’s leadership have been instrumental in driving this urgent and ongoing dialogue forward.

Simply put, clear and uniform guidance from the SEC and CFTC is sorely needed if we are to remain competitive globally in the digital asset marketplace and remain innovation leaders. This legislation will help move the needle toward a framework for greater clarity and transparency with respect to how digital assets interplay between securities and commodities laws. We also believe this legislation will make the United States a much more attractive country to launch or grow any digital asset business.

Open Letter to the Biden-Harris Administration

by Chamber

Open Letter to the Biden-Harris Administration

March 2, 2021

We need to act NOW – The U.S. stands to lose its competitive edge in global financial leadership if we don’t have a national plan for blockchain technology & crypto.

We are urging the Biden-Harris Administration to secure the country’s financial leadership and make blockchain technology a national priority through:

    • Establishing a national action plan for blockchain;
    • Increasing regulatory clarity for digital tokens;
    • Promoting tax policy for virtual currency that supports informed compliance; and
    • Using blockchain technology to enhance anti-money laundering and sanctions compliance, and encourage responsible industry growth.

Evaluating Market Structure for the Marketplaces of the Future

by Chamber

 

Evaluating Market Structure for the Marketplaces of the Future

February 15, 2021

The world is moving towards an era of multi-asset digital marketplaces, which will require a rethink of market structure and regulation.

Traditional marketplaces had different venues for different assets or items. We saw this both for financial assets, with stocks trading on stock exchanges and commodity futures trading on different, specialized exchanges, as well as when we walked around shopping in our local town or city with clothing stores, electronics stores, leather goods stores and individual stores for everything else.

This paradigm changed a bit over time in the physical world with the advent of supermarkets that consolidated all types of foods plus other household goods in a single space. Then came shopping malls that brought together all kinds of specialty stores. The culmination was “superstores” that sold nearly everything. While this evolution took time to happen in the physical world, online retailers like Amazon, eBay and Etsy realized that they could stock and sell most anything on one website. These websites become the superstores and shopping malls of online shopping. The shopping experience was perhaps not quite as pleasant as wandering around being able to touch everything and take it home with you, but it made up for this limitation with convenience and a seemingly endless number of choices for everything.

Meanwhile, when it comes to financial assets there is still a much more traditional arrangement. Stock exchanges and commodity exchanges still exist. They are linked together by the intermediaries who facilitate trading but you cannot go to one venue to trade a stock for a commodity future.

The financial world is on the brink of the next evolution in trading venues. In the fully-realized digital age, the linkages that the internet creates along with digital asset representations on blockchain mean that a single marketplace can trade the tokenized form of anything and everything. There is no physical need for distinct trading venues, and the exchange of one asset for another can take place directly (a literal swapping of items). We are already seeing the early stages of this evolution with so-called DeFi trading platforms like the decentralized exchanges (“DEx”). There is no distinct asset type that trades on a DEx; any token can be exchanged for any other token, regardless of their features and functions. Market structure is changing right before our eyes!

Policymakers and regulators need to understand this shift and work to re-envision market structure regulation. This will be difficult because everyone is used to regulating solely by asset type rather than in markets where assets intermingle. The best way to start thinking about the design of such regulations is from first principles. Some core concepts include: (1) protecting sellers and purchasers from fraud and false information, (2) requiring appropriate disclosures from all participants, (3) fostering market integrity through transparency about how the trading venue functions, (4) market data standards, and (5) requirements on intermediaries.

These innovations in marketplaces will change the way we think about buying, selling and trading assets. By establishing principles early, policymakers will lay the foundations for innovations and advancements that improve commerce, simplify access and provide greater economic and financial opportunities for the broadest community possible: the whole world.

 

About the Author

Lee A. Schneider is the General Counsel of Block.one, with responsibility for its various policy initiatives. He is a long-time financial services and technology lawyer with extensive experience in blockchain. Lee co-hosts the Appetite for Disruption podcast with Troy Paredes and is the contributing editor for the Chambers and Partners Fintech Practice Guide.

About Block.one

Block.one is a global software company specializing in high performance blockchain software. In 2018, it published EOSIO, a free, open-source protocol designed to bring speed, scalability, and ease of use to the secure and transparent fundamentals of distributed databases. Block.one’s venture capital arm, EOS VC, invests in companies, projects, and developers around the world leveraging EOSIO technology.

For more information, visit block.one and eos.io.