Web3, unpacking regulations, and optimism for crypto’s future
“Everything is bigger in Texas” proved to be true during Consensus 2022. The crypto conference took place June 9–12 in Austin, Texas, this year, attracting 17,000 people from across the globe, despite the 100-degree plus weather. According to the event sponsors, Consensus 2018, which was held at the Hilton Hotel in New York, had previously drawn in almost 9,000 attendees.
Caitlin Long, CEO of Custodia — the Wyoming-based digital asset bank — told Cointelegraph that the event this year speaks volumes. “New York has sent a lot of this industry fleeing to places like Austin, Wyoming and Miami. It will be interesting to see if New York makes a comeback.”
Aside from its new location, current market conditions were another defining factor of the event. However, attendees remained optimistic about the crypto ecosystem as a whole. In general, new projects and the rise of Web3 were the main discussion points rather than cryptocurrency prices. Ray Youssef, founder and CEO of Paxful — a peer-to-peer cryptocurrency marketplace — told Cointelegraph that crypto winters allow for building phases to start, which he fully supports. “We are now seeing projects build platforms that are real and empowering.”
Building the crypto ecosystem in a bear market
To Youssef’s point, Web3 and new tools to advance crypto ecosystems were hot topics of discussion. For example, Meltem Demirors, chief strategy officer of CoinShares — a digital asset investment firm — told Cointelegraph that despite the bear market, she has seen an increase in people interested in different facets of the crypto industry:
“There are different niches and pockets of crypto I’m now seeing, some of which I haven’t even heard of. For example, the STEPN group is here, which is a whole move-to-earn movement. The music NFT and fashion NFT scene is also big here. These are newer communities I’ve read about and have engaged with, but seeing them congregate and host their own events has been really fun.”
Demirors gave a keynote at the event on cults and how the crypto community is currently creating shared identity, belief systems and lifestyle rituals around emerging projects. “Cults usually have a negative connotation, but there is a massive crisis of meaning in our world today. People no longer focus on their occupation, religion or nationality. Crypto is filling this interesting role, bringing together people through memes, capitalism and community values,” she explained. As such, Demirors noted that she believes “crypto cults” are attracting many people because it provides a sense of purpose, along with capital. “There is an interesting convergence happening,” she said.
While the crypto space continues to attract more participants, Staci Warden, CEO of the Algorand Foundation, told Cointelegraph that Alogrand views this crypto winter as an opportunity for building. “We think that there will be some shakeout in the industry and we are ready to innovate,” she remarked.
Specifically, Warden explained that one area the Algorand community is focused on is what Web3 means for financial inclusion. “With Web2, everything went back to huge platforms, but with Web3, creators and contributors receive incentives and benefits for their participation.” With the rise of Web3 on the horizon, Warden shared that Algorand is “laser focused on real world use cases of financial inclusion and the monetization of creators for the work they do.”Web3 is also impacting a number of mainstream industries such as fashion and the creator economy. Shedding light on this, Justin Banon, co-founder of the Boson Protocol — a decentralized network for commerce — told Cointelegraph that last year, the crypto sector witnessed the nonfungible token (NFT) craze, which has prompted the fashion industry’s participation.
“Physical fashion isn’t going away, but digital is arriving. It’s become obvious that the two will combine and become facets of the same thing,” he said. Banon also mentioned that a majority of the world’s population will undoubtedly spend more time in the digital world, which is why he believes there will be a need for digital fashion. “This will allow us to identify and differentiate ourselves,” he said.
Regarding the creator economy, Solo Ceesay, co-founder of Calaxy — an open social marketplace for creators — told Cointelegraph that Calaxy recently raised $26 million in strategic funding to expand its operations and development efforts.
While the emergence and growth of Web3-focused projects are notable, it’s also important to point out that current market conditions have been challenging for other key players. Peter Wall, CEO of Argo Blockchain — a cryptocurrency mining company — told Cointelegraph that many Bitcoin miners raised equity in 2021, but this has become difficult for some, given the bear market.
“There are only two ways for miners to raise capital now, which is either through debt or by selling Bitcoin,” he said. Although this may be, Wall elaborated that only miners with a reputable track record will receive loans. “They need to be able to execute with clear plans, while not being over committed to machine purchases and bills they can’t pay.”
Crypto’s regulatory landscape in the United States
Regulations were also heavily discussed at the conference. This shouldn’t come as a surprise, as a number of key regulatory events took place leading up to the event. For example, the bipartisan crypto bill, also known as the “Responsible Financial Innovation Act,” was introduced in the United States Senate on June 7, 2022. According to a statement, the bipartisan bill sponsored by senators Cynthia Lummis of Wyoming and Kirsten Gillibrand of New York, “addresses CFTC and SEC jurisdiction, stablecoin regulation, banking, tax treatment of digital assets, and interagency coordination.”
Senator Pat Toomey, the ranking member of the Senate Banking Committee, told Cointelegraph that he thinks the bipartisan bill is “terrific,” further noting that the bill contains modest differences in how stablecoins are treated compared with his stablecoin approach, which was drafted in April this year. Toomey added that while he has not released a bill yet, there are “bridgeable differences” between his draft and the legislation from Lummis and Gillibrand:
“Kirsten Gillibrand said on our panel that we can bridge those differences on some of the things I said, but it’s also very constructive to have a Democrat and Republican senator introducing a pretty comprehensive bill that sensibly creates a regulatory framework that is meant to allow this space to thrive. From that point of view, I think it’s very constructive.”
Echoing Toomey, Long mentioned that the bipartisan bill is an important advancement for the crypto sector, stating, “This is the bill to watch in Washington. There are now 50 different crypto bills that have been introduced in Congress and there is only one that is bipartisan sponsored by the powerful senator from New York State, along with the powerful senator on senate banking from Wyoming, which is the state leading digital assets. That is quite a combination.”
Long added that stablecoin regulations and central bank digital currencies (CBDCs) will be major topics of discussion this year. For instance, although President Biden released an executive order in March 2022 calling for the research and development of a potential U.S. central bank digital currency, Long remarked that she does not believe the U.S. will issue a CBDC. “The Federal Reserve will put out the FedNow Service by the end of this year, which is only six months away. However, no rules have been revealed yet, so we don’t know what this will look like.”
Moreover, Long predicts that stablecoins will be a main focus for regulators, pointing out that Wyoming’s special purpose depository regime falls into this category, alongside The New York State Department of Financial Services (DFS) regulatory guidance for U.S. dollar-backed stablecoins issued by DFS-regulated entities. Yet, Long explained that “it will be a couple of years before we realistically see what happens in terms of a law that actually passes” regarding stablecoins. She further remarked that regulators have had the opportunity to create regulations around stablecoins but have yet to act. She said:
“Regulators have sat on legitimate applications of parties that have sought permission, while the scams have proliferated in this industry. It’s tough, but I firmly believe the regulators could have acted sooner. A lot of people wouldn’t have been hurt if they had done so.”
To Long’s point, Toomey said that he thinks there is now pressure and momentum to pass stablecoin legislation. “U.S Secretary of the Treasury Janet Yellen said in front of the banking committee that we should do it this year and I think that is realistic,” said Toomey. He added that the pressure has become greater due to the recent collapse of the Terra ecosystem.
“I think it influences legislation in the sense that it has drawn attention to the crypto space, and it’s a wake up call to the federal government. My own view is that algorithmic stablecoins should be treated separately from fiat/asset backed stablecoins,” he said, adding, “But let’s be clear: Terra was very large, and when something that large can collapse, the natural inclination of a regulator is to look out across the field to see what other similar instruments and products are there, and the dangers that may arise.”
Given the current state of cryptocurrency markets, it’s notable that many ecosystem participants remained optimistic about the future. In particular, Austin’s cryptocurrency community appears to be thriving, as it has become a hot spot for crypto mining companies and a number of Web3 projects.
Patrick Stanley, core contributor to City Coins — the cryptocurrency project that has been implemented in New York State and Miami — told Cointelegraph that AustinCoin (ATX) can be activated at any time, noting that there is a group currently working on a proposal for getting new CityCoins up and running.
“We want to be more deliberate about launching AustinCoin. We already have people on the ground in Austin, we have the capital, and there is clear commitment. We just want to ensure all of this before activating AustinCoin.” Stanley added that Austin Mayor Steve Adler is a “cryptocurrency progressive,” noting that he understands that CityCoins leaves less of a footprint than having big tech companies move to Austin. “CityCoins is like getting the tax revenue of a large company without the footprint and real estate going up. This has been very compelling to Mayor Adler,” he shared.
Demirors also pointed out that she is excited about the advancement of crypto infrastructures, such as new data centers, semiconductors and the overall “plumbing” that makes cryptocurrency and any technology function properly. “We need to make sure the U.S. is a friendly jurisdiction for people to develop not only software, but also hardware to deploy at scale,” she said.
While Demirors recognizes that most legislation currently isn’t being drafted around this aspect, she is hopeful that Texas and other states continue to take a welcoming approach to initiatives such as mining. Demirors also noted that the right to consumer and financial privacy isn’t being considered in crypto regulations, remarking that most of these bills want more financial surveillance. “I think as an industry, it’s important for us to push back on that, particularly in a world where CBDCs are being explored.”
Finally, it’s important to point out that the crypto industry is continuing to bring on key players to help with advancements. For example, Grayscale Investments recently hired Donald B. Verrilli, a former U.S. Solicitor General, to join the firm to help push for a spot Bitcoin exchange-traded fund (ETF). Verrilli mentioned during a press conference at Consensus last week that he is trying to take public policy and move it in a constructive direction.
As such, Verrilli aims to convince the U.S. Securities and Exchange Commission (SEC) to convert Grayscale’s Bitcoin Trust (GBTC) into a spot-based ETF. In order to accomplish this, Verrilli explained that it’s “arbitrary and capricious” to treat cases that are alike in a different manner, in which he referenced the SEC’s approval of a Bitcoin futures ETF, but not a Bitcoin-spot ETF. “It seems like this is a common sense point. I am new to this, but looking at it so far, it’s very hard to see what argument there could be for treating these things differently.”