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Crypto Regulation Ahead

Crypto Regulation Ahead

Dig into the state of crypto regulation and what comes next.

Crypto Regulation Ahead
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Aired Feb 02, 2023
Sarah Evans, Founder and CEO of Sevens PR, interviews Ari Redbord, Head of Legal and Government Affairs at TRM Labs, on the topic of crypto regulation, the role of regulators in this dynamic ecosys...

Sarah Evans: Hi, everyone. I'm Sarah Evans, Founder and CEO of Sevens PR as always, it's important for me to acknowledge I am not an investing expert, but I am a passionate and gracious learner with a focus in the tech industry. Let's jump right in. Today with us is Ari Redbord, Head of Legal and Government Affairs at TRM Labs to discuss crypto regulation and the road ahead in 2023. Thanks so much for joining us today.

Ari Redbord:  Sarah, thank you so much for having me. Exciting to chat with you.

Sarah Evans: I feel the same. I always learn so much. I joke that this is my informal master's degree in all topics. 

Ari Redbord: Awesome. 

Sarah Evans: So crypto regulation discussions have been at the top of agendas for regulators across the United States after the collapse of crypto exchange FTX, leading to investors losses of close to $10 billion. This is a two part question for you. But we'll start with part one. Can you give us some insight on how regulators in the US seek to provide more revenue, literary clarity in a current chaotic industry?

Ari Redbord: It's a great question and really pretty much the most important question today in the US. I will say sort of to start things out that globally, the landscape is a little bit different. We've seen regulators and even policymakers really around the world lean in to sort of digital asset regulation. Even just yesterday in Australia, we saw the Australian government come out with a framework that could potentially ultimately be sort of legal clarity for digital assets in Australia. We saw the same this week from the UK, 

I think the US is a little different, right? We haven't seen a lot of activity yet on Capitol Hill that could provide real legal clarity to businesses on key definitions, you know, what is a security versus what is a commodity when it comes to digital assets. What we have seen is a lot of activity out of the executive branch, right? We've seen an executive order on digital assets, we've seen a number of enforcement actions, there's been a bunch of sanctions actions by the Treasury Department against, you know, bad actors in the cryptocurrency space like Russia based exchanges, and dark net mixing services and other types of things. We've seen a lot of enforcement actions from the SEC. And finally, we've seen a number of different criminal prosecutions that have gotten a lot of headlines from the Department of Justice, quite frankly, including the SPF, and FTX case. 

So we've seen a lot of talk on Capitol Hill, but we definitely have not seen a lot of legislative activity. I'm hopeful that as we kick off 2023, we will see some activity. I still don't think a lot but hopefully at least around stable coins, which I think will be the first place we'll see some regulation, because there's some consensus around the fact that stable coins should be backed one to one in order to protect consumers.

Sarah Evans: Thank you. That's really good insight. Although the FTX fraud was crypto related, much of their success in avoiding regulation came from the sheer fact that they were not based in the US. Should regulators be focusing on fixing international regulatory law instead of maybe blaming the crypto industry for the fraud? 

Ari Redbord: Well, look, I think the nature of cryptocurrency, right? Cross border value transfer at the speed of the Internet means that there's got to be some consistent standards across different regulations. I'm not naive enough to think that we're gonna have some sort of global framework for crypto, but I think we could have some more consistency. And I think we're actually starting to see that build out. Even I mentioned, Australia and the UK this week, a lot of similarities between the two frameworks. And then you look at the EU, which really has led the way with mica, the markets and crypto assets, legislation, that is really the first clear, comprehensive framework for digital assets. So we're starting to see some consistency. But I think the reality is, you're going to have jurisdictional arbitrage, right? Bad actors. And businesses are going to look to jurisdictions where there's not regulation, and try to build there. 

So I think, you know, I talked to a regulator recently, who said to me, Look, we're only as strong as our weakest link here. And that is absolutely true. I will say that the FTX is an example of the US sort of using that extra territorial jurisdiction or the fact that US users were on those platforms to really rein in a non US based crypto business and apply US laws. And I think you'll be able to see that as long as US consumers are engaging with these platforms globally - but there's no question it is harder.

Sarah Evans: Thank you. Crypto leaders like SPF were leading the way and giving a framework to governing bodies to provide a more straightforward path forward to regulation. After the shocking collapse of FTX, how has this affected previous regulatory plans in the space and part two, how has this affected other crypto leaders' influence within the US government? 

Ari Redbord: Yeah, no, it's a great question. There's no question – I live in Washington, there's a lot more skepticism here around crypto than there was about FTX or the collapse of FTX. And I think a lot of this is almost starting from the beginning. I think quite frankly, what I was excited about for 2023 was a real focus on defy you know, how should we regulate or think about policymaking in a truly decentralized world, when we don't have intermediaries?

I think that FTX has set that back. And the conversation has gone back to well, how do we regulate, you know, fraud in, in, in centralized exchanges? Like FTX? And I think the reality is, and I think you got to this a little bit with your question is, you know, the fraud and FTX did not occur on blockchains. This was not an issue of the technology. It was very much an issue of bad actors, the same as Lehman and Enron and other types of cases that have plagued the centralized financial system for really generations. And I think that there are laws in place today to deal with FTX. And I think we've seen a lot of those play out, right? Securities laws, fraud, civil and criminal statutes. And I think we'll continue to see more of that.

I think what I'm excited about is policymakers really talking about, you know, how do we regulate this cryptocurrency ecosystem differently? And I think we've pushed back, that timeline has been pushed back, because there's a lot of skepticism today in Washington.

Sarah Evans: I'm really glad you made the distinction between bad actors and bad technology. I think it's a really important distinction point. Moving on, there is much discussion on who will lead the way in crypto regulation in the US with Congress, the SEC, and the CTFC fighting for the head role. Can we expect a key regulatory figure in the industry? Or do you think new rules and laws will come from multiple governing bodies? And followed by could this dispute lead to a longer roadmap for new regulations in crypto? 

Ari Redbord: You know, I think it's probably the most important question facing the space today, because it's not just who's going to regulate. Businesses need that regulatory clarity in order to engage in the US. And I think we're not going to have that until we have our definitions straight. You know, what crypto assets are securities, which are commodities, you know, which are financial instruments, and sort of, and really sort of set out a framework. And I think the reality is, it's going to be some time before we have that. And what we're going to continue to see are these sort of, you know, people call it regulation by enforcement, it has sort of a negative connotation, but the reality is that regulators are going to act with the authorities that they have, and they don't have legislative authority, they have enforcement authority. So we're going to continue to see the SEC continue to take action and the CFTC continue to take action until there is clarity between sort of what is what is the commodity and what is the security? And

To finish addressing your question, I think, ultimately, we will see different regulators play different roles in this ecosystem, you know, we don't have one financial regulator, as they do as the Monetary Authority of Singapore, for example, right? We've always had the Fed, the Treasury, the SEC, the CFTC, and I think they're all going to play a different hand in this, but we're going to need Congress to act and to the regulator's credit, they've all said that, right? The Fed, the SEC, the CFTC. They said, we need Congress ultimately to act and the White House, you know, can put out all the executive orders they want, but you're gonna need legislation eventually.

Sarah Evans: Yes, great point. Apart from the FTX collapse in 2022 many other platforms and projects experienced chaotic collapses, including stable coin, Terra Luna. In an industry where much regulatory clarity is necessary, what segment of crypto is at the top of regulators agendas? And when do you think we can expect to see the first set of crypto regulations in the US? I know, it's a big question. 

Ari Redbord: Yeah, it's a big question and is a great question. And I think, you know, look, I think the collapse of Terra was really the first really global collapse of one of these sort of important crypto players. And it really caused the world, the EU, UK, Singapore, Dubai, and even the US to talk about how do we regulate the stable coin space in particular? And I think, as I mentioned at the outset, I think the one thing we may see this year from the US Congress is, is legislation on stable coins. And I think it's because A, they play an important part from the stability perspective and the ecosystem. But I also think it's the place that there's the most consensus on, right? 

The industry, and policymakers pretty much agree that after Tara, you're going to need a one to one reserve backing of these stable coins with this sort of fiat or stable asset. And I think we're seeing that consensus. I thought we were going to have legislation come out of the House Financial Services Committee on this last Congress, but I'm hopeful that sort of early this Congress we’ll have something because that is really, really been a focus. So I think stable coins is probably the answer. 

Even if you look at the UK framework that came out yesterday, stable coins was in that sort of high risk category that regulators and policymakers are really focused on. So I think if there was one area, that would be it, but I think that there's probably a number of others that we could see discussion on. But I think, you know, look at post FTX, I still think we're in still this world of discussing the risks and the challenges with crypto, less about sort of what the the possibility of the technology, which is, quite frankly, what I think we should at least be talking about as part of this. 

Sarah Evans: Great. I do want to dig in also on what you do and TRM’s labs, how do they work to create a more compliant and safe place for users in an industry with numerous gray areas? I'm really interested. 

Ari Redbord: Yeah, no, thank you so much for the question.  You know, look, the unique qualities of public blockchains, right? Transparent, traceable, immutable, allow regulators and law enforcement and crypto businesses to trace and track the flow of funds to monitor transactions in ways that were impossible in the fiat system. So what we do is we are a blockchain intelligence company at TRM and we work with law enforcement regulators to do investigations to track and trace the flow of funds using our software. And then we work with financial institutions and cryptocurrency business is really across the spectrum as an anti money laundering solution. You want to make sure that bad actors North Korea's terrorist financiers, cyber criminals are not engaging with your platforms and crypto businesses and financial institutions use our software as an anti money laundering solution. 

Sarah Evans: Well, it's completely fascinating and Ari Redbord, I want to thank you so much for joining us today. He is the Head of Legal and Government Affairs at TRM Labs, where can folks find you and the company online if they'd like to engage after this? 

Ari Redbord: Absolutely. I'm Ari, A-R-I, last name Redboard, R-E-D-B-O-R-D. You can find me on Twitter and LinkedIn and trmlabs.com. And really an honor to talk to you and look forward to doing it again.

Sarah Evans: Wonderful. Thanks all hope you have a safe, happy, healthy weekend. We'll see you back next week. Same time, same space. 

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