a16z’s brief comment on Ripple’s lawsuit Regulatory uncertainty still exists, and cryptocurrencies need to move from chaos to order.
a16z's comment on Ripple's lawsuit Cryptocurrencies must transition from chaos to order amidst ongoing regulatory uncertainty.
Original: “It’s time to move crypto from chaos to order” by Miles Jennings and Brian Quintenz, General Counsel and Global Head of Policy at a16z crypto, respectively.
Translation: Luffy, Foresight News
Many people believe that blockchain and cryptocurrency are groundbreaking technologies that can unleash creativity, while others see them as just another internet fad.
Regardless of how you view it, there is no denying that emerging cryptocurrencies and entrepreneurs in the Web3 space face significant regulatory uncertainty, which hinders the industry’s legitimate development 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 determined 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 application of securities laws to Ripple and its founders’ sales of XRP to individuals through certain cryptocurrency trading platforms, which was a blow to the SEC.
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While this is a potential significant victory for the cryptocurrency industry and a counterattack against the ongoing “provocation” by the SEC, the ruling also brings a series of confusing outcomes, adding to the longstanding regulatory uncertainty that has plagued the crypto industry.
What decisions should entrepreneurs make? On the 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, whereby cryptocurrency issuers primarily rely on the decentralized framework provided by the SEC since 2019, which can mitigate some of the risks posed by cryptocurrency to consumers. However, even some members of the SEC have attempted to distance themselves from this framework, proving that it is not clear or robust enough to be effective.
On the other hand, the ruling opens up a completely different path for cryptocurrency issuers, as it stipulates that the sale of cryptocurrency on trading platforms is not subject to securities regulation. However, this ruling contradicts recent actions taken by the SEC against several major cryptocurrency exchanges, including Coinbase.
In the end, the ruling indicates that the rules are fundamentally unclear. Without clear rules, the SEC’s current enforcement and regulatory stance on cryptocurrency is undermining innovation in the United States.
This uncertainty has long hindered the pace of innovation and has become a breeding ground for misconduct. Responsible practitioners are influenced by regulatory enforcement actions, while malicious companies launch products that openly violate long-standing rules: often beyond the jurisdiction of U.S. authorities, until disaster strikes.
Unfortunately, this situation not only did not improve, but may also get worse. Unless Congress takes action quickly.
Applying cases that have been in existence for 80 years to new technologies faces significant challenges. The unique advantages and risks of blockchain and cryptocurrencies 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, and use cases that go far beyond financial speculation.
The only way out at the moment 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 avoid falling behind and avoid more confusion and uncertainty? We suggest that U.S. legislators do three things:
First, ensure that 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 crypto assets in illicit finance. We have seen many examples of such regulatory failures.
Second, any legislation should provide a compliant path for those who have been consistently building decentralized networks and legitimate enterprises in this uncertain environment.
Finally, laws and regulations should appropriately incentivize decentralization and community ownership (key features of cryptocurrencies and blockchain technology) to promote the technology’s true benefits for the public and the next generation of the internet.
Fortunately, there are some hopeful signs: progress has been made in both the House of Representatives and the Senate 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 trying 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 to avoid being too late.