April 22, 2021: WY's Idea 📜⚖️

Regulatory Roundup: Wyoming DAO, USDC blacklist, SEC staff, Turkey

Cryptocurrencies will inevitably flippen nations one day, but that day is not today. Bitcoin’s market cap around $1 trillion puts in on par with Grenada’s nominal GDP, which ranks 179 out of 193 nations tracked by IMF. Seeing as we’re living under the rule of law for the time being, let’s review some of the regulatory updates around the ecosystem.

Wyoming Recognizes DAOs

Wyoming took an interesting step in providing a legal framework for Decentralized Autonomous Organizations to be regulated like LLCs.

For a full breakdown, check out Vladan Lausevic’s deep dive into the intricacies.

As the first such legislation of its kind, it’s sure to have some rough edges that will hopefully improve over time. For instance, it requires an algorithmically managed DAO must be upgradeable, a poison pill that would all but exclude any well-architected DAO.

Nonetheless, we see it as a bullish first step toward establishing a basic infrastructure which other states can potentially adapt and evolve. This comes amidst a time when a handful of forward-thinking regions are competing to become the most cryptocurrency friendly. For instance, Miami Mayor Francis Suarez and Miami-Dade County are looking at allowing tax payments in Bitcoin.

Jackson, Tennessee Mayor Scott Conger is considering adding Bitcoin to the balance shee

And New York is rendering itself uninhabitable, so residents will be compelled to move to more cryptocurrency friendly jurisdictions.

USDC Blacklist

USDC blacklisted several addresses through a backdoor built into its protocol.

The action was taken by an externally owned account, and there’s been no announcement about the reason or cause for this action.

This power hadn’t been utilized for about a year.

Fans of decentralization should be aware that most stablecoins have such capability built directly into their protocol.

Given that at present this power is used very infrequently, we can only speculate that something very serious must have necessitated this move. We do note that the timing coincides with a Wednesday morning executive order issuing sanctions in response to cyberattacks, and specifically calling out some cryptocurrency addresses, although none of the addresses in the official statement appear to match up with the addresses added to the blacklist.

Speaking practically, it would be almost impossible for USDC and stablecoins to exist and gain adoption within America’s regulatory framework without such a capability. Nonetheless, the existence of such a kill switch arguably poses the largest existential threat to the entire DeFi ecosystem. Curve has discussed this threat as far back as almost a year ago.

So far Curve’s prediction has aged well. The more funds that get locked into DeFi, the greater the protective moat. Blacklisting 3pool for instance would essentially generating a cascading effect that would cripple all of DeFi. Governments may be reluctant to risk systemic economic failure with such an action. Then again, in 2020 governments demonstrated absolutely zero qualms about destroying entire industries and savaging millions of people’s lives, so it remains within the realm of plausible outcomes. If you judge this to be a significant risk factor, you may consider pools like $sAAVE with less exposure to centralization risk.

SEC Staffs Up

The SEC is staffing up, and the appointments at very least suggest that the entity will be run by people who seriously understand cryptocurrencies. Incoming chairman Gary Gensler taught a great class at MIT on cryptocurrency.

Meanwhile SEC Commissioner Hester Peirce released a token safe harbor proposal (on Github!) which has generally been well received for providing regulatory clarity.

The overtly hostile actions against innovation by the SEC in the past make it an organization forever at risk of causing serious harm to cryptocurrency. That said, the difference in tone is notable and quite welcome. While we have to see what actions the organization ultimately takes, count us as optimistic that regulators who deeply understand the space can better reorient the country toward embracing and leading the cryptocurrency revolution.

Talking Turkey

On the other end of the spectrum, we’re sad to read about the crackdown on cryptocurrency in Turkey. Amidst the chaos, the founder of Thodex has fled the country, possibly making off with $2B in funds in the process

As we saw with Nigeria’s quick reversal, national bans of this sort always backfire. It’s as odd as punishing a child by taking away their library card… you’re ultimately just kneecapping long-term prospects.


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