This article is part of our On the Radar 2022 series.
The threat of regulation in crypto is an old storyline. For years, central bank governors, lawmakers, and the occasional law enforcement type would pound the table and urge his fellow officials to rein in the scourge of Bitcoin and its ilk before all hell broke loose. Yet nothing much actually happened — outside of China, that is — because regulators couldn’t agree on what cryptocurrencies were let alone how to police them.
That changed in 2021.
When Gary Gensler, the chair of the U.S. Securities and Exchange Commission, said in September that assets considered cryptocurrencies were subject to the Securities Act of 1933 and the Securities Exchange Act of 1934 he was finally laying down a marker. Virtually all crypto products would have to be registered with the government as securities or investment contracts if they were offered to investors, full stop. That meant they would be subject to the same disclosure and offering rules as other assets like stocks.
At the same time, U.S. Treasury Secretary Janet Yellen made clear that stablecoins should be regulated to ensure they’re growth doesn’t disrupt the financial or payments systems. There were other voices: Sen. Elizabeth Warren (D-Mass.), who carries a lot of influence on financial matters, called DeFi “one of shadiest parts of the crypto world” in calling for broad clampdown.
In fairness, Gensler and Yellen emphasized that they recognize the benefits of decentralized finance and have no wish to suffocate innovation, even if they could. Yellen even reassured the crypto community that platforms would receive relief from new tax reporting requirements.
Yet critics like Ryan Selkis, the CEO of Messari, aren’t buying that line. And crypto finally mobilized its political lobby in Washington and in the grass roots of DeFi to prepare for the battle to come. If there’s one thing everyone agrees on it’s that — a political conflict over crypto is inevitable in 2022.
But what will it look like? What issues will be involved? Impossible to say at this juncture. It won’t be a surprise if proposals to require crypto platforms to disclose more information about their clients, their liquidity levels, their leverage practices, their anti-money laundering checks, and their offerings are attached to legislation or included in new rulemaking in 2022.
The battle lines are drawn. The only question is how can the DeFi community affect the debate and challenge proposals deemed onerous.