As a crypto investor and someone who has followed the industry closely, I share Sarah Brennan’s concerns about the potential risks posed by large centralized actors in the crypto space. While regulation is necessary to ensure the safety and stability of the market, it’s important that it doesn’t stifle innovation or discourage decentralization.
Sarah Brennan serves as the legal counsel for Delphi Ventures, a US-based venture capital company specializing in investments in the Web3 sector. With a background spanning over a decade in corporate securities law, she joined the digital assets field in 2017.
As a co-founder of the LeXpunK project, I spearhead the legal advocacy efforts for decentralized communities within our organization.
In an exclusive interview with crypto.news, the cryptocurrency legal expert expressed her views on crypto super PACs, unsuccessful regulations, and the potential risk of replicating the conventional financial system using cryptocurrencies instead.
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Major institutions are a “double-edged sword”
As a crypto investor, I’ve noticed that companies like Ripple and Circle have been actively raising funds exceeding $100 million in the past year to support congressional campaigns. This move comes in response to the stringent regulations imposed by the SEC and the Biden administration, which include the contentious SAB 121 crypto bill that Biden recently endorsed. To counteract these regulatory challenges, they’ve established a crypto super-PAC.
In his interview with crypto.news, Brennan expresses his perspective by saying, “I believe the SAB 121 mirrors the Biden administration’s efforts to disconnect us from the larger financial system. It seems they desire our votes but are unwilling to be answerable to us regarding policies.”
At 7pm on a Friday, one might be described as taking a timid approach. There is no justifiable rationale for the existence of SAB 121 in good faith. If someone repeatedly demonstrates their character to you, it is prudent to trust their actions.
— S. Brennan (@SH_Brennan) May 31, 2024
As a crypto investor, I can’t help but notice Brennan’s preference for younger, digitally savvy individuals in politics. Yet, I share her apprehensions regarding the influence wielded by major industry players through their lobbying efforts. These behind-the-scenes maneuvers often lack transparency and may not always align with the best interests of the public.
“I have concerns about the potential political power of crypto and the possible consequences. Crypto is diverse and its decentralized nature makes it difficult for its various communities to effectively assert political protection.”
As an analyst, I believe it’s essential to explore innovative approaches to crypto regulation that align with the evolving paradigms in this space. Centralized institutions, while influential, can be a double-edged sword. On one hand, they bring expertise and resources. On the other, there’s a risk of replicating traditional financial market structures, which may hinder crypto’s decentralized nature.
As a neutral analysis, I would describe Brennan’s perspective as follows: I perceive the concentration of political power in a given context as being counterintuitive and inconsistent with the prevailing values or spirit of that particular environment.
As a researcher studying the current regulatory landscape, I’ve observed that the system relies heavily on multiple layers of intermediaries, each holding a license and acting as a gatekeeper. These entities often engage in rent-seeking behaviors. It’s a complex web that can be quite addictive to navigate through, don’t you agree?
“Monopolists like we have never seen”: centralized crypto explained
In simpler terms, Brennan describes the potential consequences if control over the crypto market is concentrated among a few dominant players.
“If there are no legal checks or balances in place, large centralized actors could turn our system into a nightmare scenario where they gain monopolistic power unlike any we’ve seen before,” Brennan warns.
“They have the ability to control every level of the blockchain infrastructure – from the foundational L1s and nodes, to wallet apps and custody solutions, miners and validators, as well as governance token supplies. Additionally, they hold monopolies in more conventional businesses such as trading platforms, market making divisions, venture capital firms, and development teams.”
In simpler terms, a future centered around a single authority in cryptocurrency is merely amplifying the issues of the current system without contributing any significant benefits to society.
Brennan further points out that the lack of regulatory centralization in the crypto sector could lead to its demise if large institutions currently controlling the industry gain excessive ownership.
As a researcher delving into the origins of cryptocurrencies, I cannot emphasize enough that newcomers often overlook the fact that Bitcoin emerged during the late 2008-early 2009 financial crisis. It was a groundbreaking response to the “too big to fail” monopolists and the deep-rooted issues plaguing the conventional financial system.
A failed legacy: where SEC regulation hasn’t worked
As a researcher studying the crypto industry, I believe that large institutions within this sector need and deserve regulation. However, the process of implementing such regulations comes with familiar challenges akin to those encountered in the traditional finance realm.
In the realm of cryptocurrencies, it is wise to regulate large centralized entities, particularly those with conflicting interests in various businesses and the potential to cause widespread risks, according to Brennan.
As aanalyst, I would put it this way: “If I’m merely masquerading as a Decentralized Autonomous Organization (DINO), but in reality lack the true decentralization characteristics, then I should be subject to the same legal regulations as any traditional entity.”
One significant issue that has arisen is the ambiguity in regulatory guidelines up until now. Surprisingly, this vagueness might even encourage unscrupulous business behaviors, as argued by Brennan, a notable figure. A substantial contribution to this confusion can be attributed to Gary Gensler, the current Chair of the Securities and Exchange Commission (SEC).
“According to Brennan, Gensler’s impact on the industry can be described as targeting reputable players while discouraging ethical conduct. He further notes that adherence to regulations frequently clashes with commercial interests.”
As a crypto investor, I strongly believe that Gensler’s actions were primarily motivated by political considerations, leading him to fall short in implementing effective policies for the betterment of everyone involved.
“A significant amount of damage resulted from the absence of a clear policy structure, making it challenging for him to adhere.”
Radical advocacy: How crypto lawyers are fighting back
As a crypto investor involved with LeXpunK, I work alongside co-founders to champion cryptolaw advocacy and funding. Our mission is to unite lawyers, industry professionals, developers, and investors within this community. By collaborating, we aim to generate innovative legal frameworks and proposals for potential regulatory consideration.
In the year 2022, Brennan and his team of collaborators developed a proposal for the Securities and Exchange Commission (SEC) outlining a regulatory framework that could facilitate the lawful issuance of crypto tokens by token projects.
As a legal and financial analyst, I can propose a framework that could enable the development of tokens without violating securities laws or jeopardizing end-users, even for those token projects that don’t meet the “safe harbor” criteria mentioned in current SEC regulations.
I’m thrilled to express my gratitude towards Republic Crypto for acknowledging me in their recent testimony before the congressional committee on Fintech. Their support for our Reg X proposal is truly noteworthy and adds significant value to the crypto community. #cryptoinvestor #RegXproposal
— LeXpunK_Army (@LeXpunK_Army) May 10, 2023
As a crypto investor, I closely followed the discussions in the Fintech committee of the congressional house back in 2023 regarding the proposed regulations for our industry. Drafting improved proposals by legal experts with a deep understanding of crypto was an encouraging sign. However, it appears that for now, these proposals have not gained much traction, leaving us to navigate the current regulatory landscape.
As a crypto investor reflecting on the current state of economic policies, I can’t help but notice our reluctance as a society to critically assess where things have gone wrong. We seem stuck in our ways, unable or unwilling to adapt and change course when necessary. Instead, we cling desperately to outdated methods, pouring even more resources into them in hope of a different outcome.
A legal expert proposes that crypto regulation be geared towards proactive antitrust measures to prevent large institutions from developing into potential risks to the system, avoiding the need for bailouts later on.
As an analyst, I would advocate for regulatory actions that hinder the emergence of monopolies, promote decentralization, and focus on targeting criminal activities instead of the technologies they employ. By taking these steps, regulators could effectively mitigate the negative impacts of recent years and foster a secure and prosperous digital assets economy.
The challenge lies in gaining regulators’ attention and consideration for the perspectives of experts who come from different viewpoints initially.
As I pen down these words, Brennan is engaged in developing a fresh advocacy project to further champion the cause of decentralized communities.
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2024-06-20 18:30