The simple judgment of the Ripple case, although a potential major victory for cryptocurrencies, has not improved the regulatory uncertainty.
Authors: Miles Jennings, Brian Quintenz, respectively the general counsel of a16z crypto and the global policy director of a16z crypto
Translation: Luffy, Foresight News
Many people believe that blockchain and cryptocurrencies are a groundbreaking technology that can unleash creativity, while others see it as just another internet trend.
Regardless of how you view it, it is undeniable that emerging cryptocurrencies and entrepreneurs in the Web3 space are facing significant regulatory uncertainty, which hinders the legitimate development of the industry and breeds misconduct.
Recently, a federal district court issued a long-awaited summary judgment in the lawsuit brought by the U.S. Securities and Exchange Commission (SEC) against Ripple Labs and its two founders. The ruling found that Ripple’s direct sales of its cryptocurrency XRP to institutional investors constituted securities issuance, consistent with previous cases where securities laws were applied to initial coin offerings (ICOs). However, the ruling did not expand the scope of securities laws to cover Ripple and its founders’ sales of XRP to individuals through certain cryptocurrency trading platforms, which is a blow to the SEC.
While this is a potential major victory for cryptocurrencies and a response to the continuous “provocation” by the U.S. Securities and Exchange Commission (SEC), the ruling also brings a series of confusing results, further adding to the regulatory uncertainty that has long plagued the cryptocurrency industry.
What decisions should entrepreneurs make? On one hand, the ruling is not the final decision on the matter. This means that entrepreneurs may choose to continue with the current industry practices, where cryptocurrency issuers primarily rely on the decentralized framework provided by the SEC since 2019, which can mitigate some of the risks posed to consumers by cryptocurrency assets. However, even some members of the U.S. Securities and Exchange Commission have tried to distance themselves from this framework, indicating that it is not clear or powerful enough to be effective.
On the other hand, the ruling opens up a completely different path for cryptocurrency issuers by stating that the sale of cryptocurrency assets on trading platforms is not subject to securities regulation. However, this ruling contradicts the recent actions taken by the SEC against several major cryptocurrency exchanges, including Coinbase.
Ultimately, the ruling indicates that the rules are fundamentally unclear. The lack of clear rules is currently undermining the innovation in the United States as it pertains to cryptocurrency enforcement and regulation by the U.S. Securities and Exchange Commission.
This uncertainty has long impeded innovation and has become a breeding ground for misconduct. Responsible practitioners are affected by regulatory enforcement actions, while malicious companies launch products that blatantly violate long-standing rules: often beyond the jurisdiction of U.S. authorities until disasters occur.
Unfortunately, this situation is not only not improving, but it may also get worse, unless Congress takes action quickly.
Applying a case that is already 80 years old to new technology presents significant challenges. The unique advantages and risks of blockchain and cryptocurrency require new regulatory approaches. Legitimate innovators and consumers of new products need clear rules to build practical products that can be safely purchased and used, with use cases that go far beyond financial speculation.
The only way out currently is through thoughtful and carefully revised legislation that protects consumers from fraud while still embracing innovation in blockchain technology. Other countries around the world have already proven this conclusion: the United States is falling behind.
So, how can we both catch up and avoid more confusion and uncertainty? We propose three things for US legislators to do:
First, ensure that both consumers and investors are protected by requiring centralized companies to register and be regulated. Regulatory agencies should investigate the risks arising from custodial relationships, conflicts of interest, and the use of cryptocurrencies in illegal finance. We have already seen many examples of regulatory failures in this regard.
Second, any legislation should provide a compliant path for those who have been building decentralized networks and legitimate enterprises in this uncertain environment.
Finally, laws and regulations should appropriately incentivize decentralization and community ownership (key features of cryptocurrency and blockchain technology), promoting the technology to create real benefits for the public and the next generation of the internet.
Fortunately, there are some hopeful signs: both the House of Representatives and the Senate have made progress on such legislation. Representatives LianGuaitrick McHenry (Republican, North Carolina) and G.T. Thompson (Republican, Pennsylvania), as well as Senators Cynthia Lummis (Republican, Wyoming) and Kristen Gillbrand (Democrat, New York), are attempting to achieve meaningful consumer protection through legislation frameworks that promote responsible innovation. We urge Congress to consider and pass such legislation as soon as possible, before it is too late.
Like what you're reading? Subscribe to our top stories.
We will continue to update Gambling Chain; if you have any questions or suggestions, please contact us!
