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President Biden Issues Long-Awaited Executive Order on Digital Assets
What happened?
President Biden signed an executive order that outlines a “whole of government” approach to crypto. The order directed 24 (!) federal agencies to coordinate their approach to regulating digital assets.
With this order, the President is looking to address the risks associated with digital assets and also harness their benefits. The order focuses on improving consumer protection, enhancing financial stability, combating illicit finance, securing American leadership in the global financial sector, boosting financial inclusion and promoting responsible innovation, according to a fact sheet accompanying the order.
It does not, however, outline any specific policies the administration is taking towards digital assets.
But the order does direct the Department of Treasury to lead an interagency working group to assess and develop policy recommendations to address the implications of the growing digital asset sector and monitor changes in digital asset financial markets that could impact consumers, investors, and businesses. It also directs the Financial Stability Oversight Council, a council staffed by heads of the most important US financial regulators, to identify systemic risks to the financial system stemming from the growth of digital assets.
While the order primarily focuses on mitigating national security and illicit finance risks caused by digital assets, it is clear that the president wants to support American leadership in digital asset innovation. The order encourages the study of how the government can support technological advances in and ensure the responsible development and use of digital assets in the United States. The order also lays out a plan to continue to study and push forward the development of a CBDC, and it expresses the president’s view that the United States should take on a leadership role in pushing forward a multi-country conversation on CBDCs.
Finally, the order tasks the Secretary of the Treasury to work with relevant agencies to determine how digital assets can be used to promote equitable access to safe and affordable financial services.
What does this mean for DeFi?
First, this order has been in the works for months and is not directly related to any of today’s (recently debunked) concerns around Russian sanctions evasion via cryptocurrencies.
The order itself only mentions DeFi twice, first in relation to illicit finance and second in the order’s definition of “digital assets.” But we believe these mentions are enough for now. This executive order is about as good as we could have hoped for and represents an acknowledgement by the administration that crypto has many beneficial use cases and is here to stay.
As Jerry Brito tweeted, “the EO is just further affirmation that when serious officials take a sober look at crypto, the reaction is not to light their hair on fire, but instead to recognize it as an innovation that the U.S. will want to foster and lead while mitigating obvious risks.” Former CFTC Commissioner Brian Quintenz had a more circumspect take, noting that the word “risk” appears 47 times in the order compared to “innovation” appearing only 12 times.
We hope this order will take the wind out of the sails of cryptocurrency critics in Congress and move policy brainstorming to executive agencies for the rest of the year. Importantly, while some of the studies requested by the order call for policy suggestions, the scope of the order suggests comprehensive legislation isn’t on the horizon this year—or at least not before the midterms.
We are already seeing positive responses to the order from legislators not known to be crypto champions. For example, Senator Cory Booker (D-NJ) tweeted, “Cryptocurrency is an exciting innovation with the potential to bring growth to the American economy if properly nurtured and regulated. As the order notes, the U.S. has taken a position as a leader in this rapidly developing field, and we need to make sure we keep it.”
We have reached out to the agencies involved in the executive order’s studies and intend to engage with those considering DeFi in their reports.
As we all have known for a long time, crypto is not going anywhere and will reshape the way that the global economy operates. This order signals that the Biden administration acknowledges its potential and is ready to take steps to facilitate the development of this industry in the United States. We think this executive order is, on balance, a win for DeFi and cryptocurrencies.
Spending Bill Crypto Provisions
What happened?
The $1.5 appropriations bill for 2022 has passed in the House and is on its way to the Senate for approval. The bill includes increased funding for the Financial Crimes Enforcement Network (“FinCEN”) and the Office of Foreign Asset Control (“OFAC”) to support their efforts in combating illicit financing. OFAC, for example, is responsible for administering and enforcing US economic and trade sanctions, while FinCEN is the agency responsible for collecting and analyzing financial information to protect the financial system from illicit financing risks primarily stemming from terrorist financing and money laundering.
As an aside, both of these agencies are critical to enforcing Western sanctions against Russia.
The spending bill specifically includes a reference to digital assets in a passage defining a “Ransom Payment.” The government has been particularly concerned with the role of digital assets in facilitating payments to hackers responsible for ransomware attacks. The spending bill mandates that any ransomware payments made by critical infrastructure providers must be reported to the Cybersecurity and Infrastructure Security Agency within 24 hours of the payment.
The bill also establishes a “Senior Scams Prevention Advisory Group” which is responsible for developing tactics to fight scammers. This group’s mandate includes a focus on fighting digital currency scams, in addition to a range of other types of scams. Finally, the bill calls for the president to produce a report on China's development of a digital Yuan and on the potential risks posed by a Chinese CBDC.
What does this mean for DeFi?
As currently drafted (and the bill should pass the Senate today), this funding bill is neutral/positive for DeFi; it funds agencies that combat illicit actors exploiting digital assets and further supports agencies that have been underfunded in their pursuit of this mission. We are completely behind that goal.
It is also a bit of a relief, frankly, that no members of Congress ended up slipping into this “must-pass” bill any provisions that would be harmful to DeFi or cryptocurrencies, as had in fact occurred in August 2021 with the Bipartisan Infrastructure Framework’s “broker provision.” No such provisions “made it in” this time.
Pro-Crypto Candidate Yoon Suk-Yeol Wins South Korea’s Presidential Election
What happened?
South Korean voters elected the conservative People Power Party candidate Yoon Suk-yeol as president on Wednesday. Yoon served as South Korea’s prosecutor general between 2019 and 2021 under former President Moon Jae-in. In January, the President Yoon Suk-yeol was quoted as saying, “to realize the unlimited potential of the virtual asset market, we must overhaul regulations that are far from reality and unreasonable.” Both Yoon and his opponent Lee Jae-myung of the ruling Liberal Party courted young voters with crypto-friendly policies.
South Korea is an important hub of DeFi development and has more than five million individual crypto accounts across its top three custodial exchanges, representing nearly 10% of the country’s population.
The new president has also called for policies that will make South Korea a market that attracts crypto unicorns. In addition, he has promised to raise the threshold for capital gains taxes on crypto gains from KRW 2.5 million ($2,024) earned in under a year to KRW 52.4 million (US$42,450).
What does this mean for DeFi?
We hope this election will bring a shift to the South Korean government’s approach to crypto and self-custody. While South Korea has high internet penetration and smartphone usage, the government has to-date taken a skeptical approach to crypto: it banned margin trading on crypto currencies and effectively banned any new token sales. In addition, South Korea’s implementation of the FATF Travel Rule threatened citizens’ ability to self-custody their assets. It seems, however, that this election promises positive changes for South Korea’s DeFi ecosystem.
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