Crypto regulation is likely to change very rapidly. I expect that SAB 121 will be overturned, perhaps even today. Overturning SAB 121 wouldn’t even be controversial because, as I wrote earlier, Democrats and Republicans in the House and Senate both voted to overturn SAB 121 which was saved only by Biden’s veto.
Essentially, SAB 121 made it prohibitive for banks to offer custody services for crypto because that service would then impact all kinds of risk and asset regulations on the bank. Aside from singling out crypto, the SEC is not a regulator of banks so this seemed like a regulatory overreach.
I also hope that the tax rules on staking are simplified. Staking rewards paid in tokens should not be taxed until sold. Just as apples aren’t taxed when they grow on the tree but only when sold.
There are also a number of interesting cases working the way through the courts. Lewellen v. Garland seeks to clarify that crypto projects that don’t custody funds are not money transmitters (they can’t be since they never control funds and have no way of knowing the customer information that money transmitters must provide to the government). The case is particularly interesting to me because Lewellen, the plaintiff, is suing to set up a crypto based assurance contract based, in part, on my work (see also here with Cason and Zubrickas):
Pharos fills an important gap in the existing cryptocurrency financial system. Lewellen has seen that there are “public goods” that many people would be happy to contribute to financially, but only if supporters can be assured that the full amount to fund the public good will be raised. In other words, they will contribute if they can be assured that the public good will be deployed. Partial fundraising for these projects would not be acceptable. Examples include building infrastructure such as a bridge or hospital, building a war monument, funding an event like a festival or conference, funding a medical trial or scientific study, filing an advocacy lawsuit, or funding a movie production or other cultural good. Nobody wants to pay for these endeavours without knowing that others will pay enough to complete the project.
To address this dilemma, Pharos would deploy the concept of “assurance contracts.” An assurance contract is a system in which contributors commit money that is released to the planned recipient only if the fundraising goal is met by a certain date. Otherwise the money is returned to the would-be contributors. By promising a refund if the required amount is not raised, assurance contracts encourage more public goods to be funded through voluntary contributions. See Tabarrok, The Private Provision of Public Goods via Dominant Assurance Contracts, 96 Pub. Choice 345, 345-48 (1998).
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