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“Let Crypto Build,” says Congressman Tom Emmer

By Christos Makridis

The recent “crypto winter” following the collapse of Terra/Luna and withdrawals from other stablecoins has reignited attacks on the Web3 community based on insider trading and financial instability. The virtual attacks have prompted federal regulators, including Federal Reserve Vice Chair Lael Brainard, to do so support financially the development of digital central bank currencies. But these shortcomings of crypto should also be paired with the shortcomings of fiat currencies as it is recognized that there is a lot of illegal money laundering and insider trading going on with cryptocurrencies dollars too.

Despite the recent attacks on crypto, the community is growing. Gary Vaynerchuk brought together a diverse and energetic group of people, including celebrities like Eva Longoria and Snoop Dogg, at the inaugural VeeCon 2022, held May 19-22 in Minneapolis, Minnesota.

Also in attendance was Congressman Tom Emmer (R-MN), who discussed crypto’s challenges and pitfalls that may lie ahead due to the specter of federal regulation and intervention. Politicians are often reactive – responding to a problem, or at least a perception of a problem, with artificial solutions.

Referring to the recent degradation of Terra/Luna, “I am concerned that we are rushing to solve a problem that too many people in Congress don’t understand,” Congressman Emmer said. In particular, policymakers have debated how to define a high-quality liquid asset, but the risk is over-regulating it, stifling competition and creating new forms of fragility. “I worry that our government would define this solely in terms of US dollars,” Emmer said.

According to Emmer, the solution is no longer regulation, but a taxonomy by Congress that sets definitions and creates a framework for building web3. There is no debate that there is a role for federal politics – markets need a framework or “rules of the game” to function properly. But “it has to be a light regulatory environment,” Emmer said. “We cannot try to put crypto in a framework that is almost 100 years old. Many regulators are attempting to do just that, by classifying securities based on the three characteristics of the “Howey test“established in 1933 as a result of Supreme Court case.”

According to the Howey test, a security has three characteristics: (1) there is an investment of money, (2) there is a common enterprise, and (3) there is a reasonable expectation of gains from the efforts of others. Under a strict interpretation, homes would be viewed as security for consumers: besides the obvious investment of money, they are generally a joint venture (i.e., a family pooling resources), and the value of the home is increasing in part due to national or local economic and demographic trends .

Consider the emergence of non-fungible tokens (NFTs). Many NFTs are increasing in value in part because of the robust community that is forming around them. But if such a strict — and outdated — interpretation of securities were applied, millions of lives would be changed overnight: homeownership could plummet and the burgeoning creator economy, which has recently been growing rapidly through the sale of NFTs, would be daunted from ever will start creative projects.

Worse, creators would flee the United States and build elsewhere. “They will relocate activities abroad because they have to,” said Emmer. “We [Congress] have to be the proponents and define what fits the definition of currency, commodity, security… If we do that, we can give regulators specific cowboys,” Emmer said. Without a framework, federal regulators risk taking an ad hoc approach to regulating crypto and Web3, disrupting the lives of builders and society in the process.

Ultimately, the debate over the future of Web3 regulation is a matter of choice and personal responsibility. “I have more confidence in making my own mistakes, in failing, figuring it out, and getting back to the top of the hill than my government is going to say, ‘You have to be careful that someone doesn’t take advantage of you. We’ll never give you that opportunity ‘to fail or to succeed,'” Congressman Emmer said.

Senators Cynthia Lummis (R-WY) and Kirsten Gillibrand (D-NY) introduced a bill that outlined new comprehensive regulation for cryptocurrencies, including a tax exemption for transactions under $200 and a clearer definition of crypto-securities crypto goods. The bill aims to “bring clarity to both industry and regulators, while maintaining flexibility to accommodate ongoing digital asset market developments.”

While the proposed legislation is an important step toward greater regulatory clarity, it may also open the door for those looking for ways to expand control of the Web3 landscape.

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