Gary Gensler, former CFTC chairman and senior consultant for the digital currency project of the MIT Media Lab, will be appointed as the financial supervision consultant of the Biden government, or promote the improvement of US financial supervision in cryptocurrency.
Original Title: “Predicting the Impact of the New US Government on the Development of Encrypted Digital Finance”
Written by: Gu Yanxi, founder of the American Liyan Consulting Company, a researcher and practitioner in the blockchain and encrypted digital asset industry
According to the Wall Street Journal, the newly-elected U.S. President Biden plans to invite Gary Gensler as his adviser to oversee the U.S. financial market. If this is the case, then the encrypted digital financial market in the United States is expected to develop faster.
Gensler has worked at Goldman Sachs for 20 years. During the Obama administration, he was hired as Assistant Secretary of the Treasury. From 2009 to 2014, he served as the chairman of the CFTC. After leaving the private sector and government, he served as a professor at the MIT Business School and a senior consultant for the digital currency project of the MIT Media Lab. One of the courses he taught at the MIT Business School was blockchain and currency. In this course, he teaches the development of Bitcoin and the impact of blockchain on the financial industry. In December 2019, he published an article on the blockchain media website Coindesk, “Even if a thousand projects fail, the blockchain is still a catalyst for change.” It can be seen from the content of the article that he has a very objective attitude towards blockchain and encrypted digital currency, and he also sees that he believes that the current related supervision is insufficient. His basic views in this regard include:
- Money is nothing but a product of society and economy
- Regardless of the feasibility of encrypted digital currency, we are already living in the era of digital currency
- Ledgers that can only be increased and multi-party consensus (that is, blockchain technology) provide an option that can solve verification and network link costs
- Bitcoin and other encrypted digital currencies have evolved into a type of speculative asset
- A new form of crowdfunding based on smart contracts and ICOs has raised nearly $30 billion
- Encrypted digital currency exchanges have not been properly incorporated into the public policy framework so far, but it has provided retail customers with a way to directly trade digital assets
- The encrypted digital currency market is full of scams, frauds, hacks and manipulation
- The potential of blockchain as a catalyst for change is real
Gary Gensler, former CFTC chairman, senior consultant for the digital currency project of the MIT Media Lab
If Gensler serves as a consultant for the next US government’s financial supervision, it is estimated that he will actively promote the development of encrypted digital finance in the United States.
The development of blockchain technology and encrypted digital currency in the US financial market, due to some unclear regulatory policies, has greatly restricted the development of the US financial market in this field. As a kind of technology, the direct application of blockchain technology will not cause compliance problems. Therefore, blockchain technology is being carried out normally in the financial field and other fields. In most areas, the biggest resistance to the application of blockchain technology comes from the market, not from supervision. But in the financial field, the situation encountered by encrypted digital finance is completely different. There has always been a strong motivation in the market to apply various innovative opportunities brought by blockchain technology to the financial field. But the biggest resistance to such applications comes from regulation, not the market.
In the three major financial regulatory fields in the United States, due to the different attitudes of the corresponding regulatory agencies on encrypted digital finance, the development progress of encrypted digital finance in these three fields is also different. Among the three financial regulators, the CFTC, which supervises U.S. commodity derivatives, has long started to take a very positive attitude towards crypto finance. Due to the CFTC’s incentives in this regard, the US market began to establish a compliant encrypted digital currency derivatives exchange in 2017. This helped the U.S. market establish a leading competitive advantage in the trading of encrypted digital currency derivatives. The current development of encrypted finance in this field now depends more on the corresponding development in the banking and securities industry.
Among the three financial fields in the US market, crypto finance still has a lot of room for development in the banking and securities industries. Regulatory policies in these two areas directly determine the speed of the development of encrypted digital finance. This article analyzes the regulatory status quo in these two areas and judges the possible developments during the new US government.
banking
The banking industry is the foundation of the financial market. The central bank issues legal currency to the society through commercial banks. Fiat currency is the most basic financial tool in financial and economic activities. Commercial banks provide credit services in society by obtaining low-cost user deposits. People’s payment activities are also done through the clearing system provided by the bank. Since the banking system plays the most basic role in social activities, the current banking system is not only subject to strict supervision, but also institutional protection.
The emergence of blockchain technology and encrypted finance is bringing changes to the existing banking market. In the US market, such changes are being made from the bottom up and from the top down. In terms of supervision, Brian Brooks, Acting Director of the Office of the Comptroller of the Currency (OCC), is pushing for changes in this aspect of the banking industry. After he took office, OCC has clearly stated in terms of policy that the banking industry can provide services to crypto financial companies. These services include custody of encrypted digital assets and custody of reserves for issuers of digital stablecoins. He is now establishing a new type of banking institution across the country, allowing companies other than banks to provide payment services across the country. Such a payment service may be based on a centralized clearing and settlement system, or it may be a payment service based on distributed accounting technology and using stable coins. The biggest impact of such an institution on the current banking market is that it began to introduce non-bank institutions to provide payment services. This is a fundamental change to the existing banking market. If non-bank institutions use distributed accounting technology to provide payment services, they can provide credit services on the same infrastructure. Then the existing banking institutions no longer have a monopoly position in providing payments and credit. This will fundamentally change the existing banking market. In fact, before Brian Brooks took office, the OCC was already advancing the establishment of a new type of financial institution that does not absorb storage but can lend. If these two policies can be passed, then non-bank institutions can begin to provide payment and credit services. This will bring fundamental changes to the banking market.
At present, the U.S. government is likely to replace the old with the new. Officials at all levels of government departments may also make adjustments. Whether Brian Brooks can continue to hold the leadership position of the OCC and promote changes in this area, there is a very big uncertainty. Given Gensler’s views on blockchain and encrypted digital currency, he is very likely to apply blockchain and encrypted digital finance to existing financial markets. Therefore, he will promote progress in this area at the regulatory level. He may therefore support Brian Brooks’ current efforts in the banking industry. Therefore, it is very likely that the advancement of encrypted digital finance in the U.S. banking market will continue.
Securities industry
According to US regulatory rules, the supervision of securities and exchanges belongs to the SEC. However, after the emergence of encrypted digital currencies, encrypted digital assets and exchanges in the market, the SEC did not take active measures to encourage this development. The SEC has always insisted on performing its duties within the scope of existing securities laws. It constantly reiterates the definition of securities, insisting that if a token is recognized as a security token, it needs to operate within the scope of existing securities laws. The SEC is also constantly cracking down on violations in this regard. However, the development of the encrypted digital financial market in the United States requires the SEC to be more clear about its regulatory views and to take measures to regulate and encourage development in this field. For example, should the nature of encrypted digital currencies that already exist in the market be clear? Among the various encrypted digital currencies that currently exist in the market, the SEC only believes that Bitcoin and Ethereum are not security tokens, and has not made a clear statement about other encrypted digital currencies. However, it continues to prosecute encrypted digital currencies that it believes to be illegal. Well-known cases in this regard include Telegram, EOS and Kik. Another example is whether the existing encrypted digital currency trading platforms like Coinbase should belong to exchanges? Should it be clearly included in the scope of supervision? Coinbase’s business is global and American. But the license it holds in the United States is a money transmission license issued by each state. Obviously, its business nature and scale do not match the nature of its current license.
The most important application of encrypted digital finance in the securities industry is the generalization of assets and rights and the corresponding circulation. According to current securities regulations, tokens can only be applied to alternative assets. Due to the very high restrictions in this area, the development of the tokenization of rights has been slow. In view of the various aspects of value that can be brought about by tokenization, the improvement of regulatory policies will greatly accelerate the development of this aspect.
The SEC’s regulatory approach in the field of encrypted finance is to deal with individual cases. It does not propose a clear guidance that not only satisfies the existing securities laws and regulations, but also can incorporate innovations in this area in the market into the regulatory framework. Therefore, various attempts in this area in the market are carried out at the risk of violations. Its clearest position in this regard is to divide the tokens into security tokens and tool tokens. Such a clear position effectively cracked down on the illegal use of tokens in the market. But in terms of position and regulatory measures, the SEC can still do more to regulate and encourage the development of this aspect in the market.
From the article published by Gary Gensler on Coindesk, it can be seen that he has seen the current situation of the encrypted digital financial market and the problem of disconnection from supervision. For example, he mentioned the issue of token-based financing and exchanges in the Coindesk article. Now that he has been appointed as the financial supervision consultant of the Biden administration, he will certainly promote the improvement of US financial supervision in this regard. Before he served as the chairman of the CFTC, his work style was considered to be vigorous and vigorous. If he is really advancing the progress of US financial regulation in this field this time, then the encrypted digital finance in the US will surely achieve accelerated development in the next few years.
