Regulation
Now I know that the cryptocurrency industry is here to stay
As a longtime cryptocurrency skeptic, it may seem strange that I am helping to organize a conference on digital assets at Duke University on January 20-21. After all, I once wrote a Wall Street Journal editorial calling for a ban on cryptocurrencies. While I continue to believe that unsecured cryptocurrencies, such as bitcoin, provide no economic utility and impose social costs that far outweigh the benefits, I also recognize that the digital asset industry in general will not disappear.
Lee Reiners is the political director of the Duke Center for Financial Economics and professor at Duke Law. At Duke he teaches cryptocurrency law and policy and is a frequent media commentator on cryptocurrency regulation. To learn more about digital resources at Duke and to register, see Here.
How do I know? Well, for starters, I’ve been teaching and writing about cryptocurrency and digital assets at Duke for over six years. During this time the industry has continually evolved and defied all predictions, including my own. This story suggests that those who argue that the ongoing cryptocurrency winter signals the death knell of cryptocurrencies will be similarly proven wrong.
I also spoke with countless Duke students from across campus, including students at our groundbreaking Master of Engineering in Financial Technology program, who are passionate about digital assets and blockchain technology and want to make a career out of it. These students are not motivated by a desire to make quick money or buy a Lambo; rather, they find the topic intellectually engaging and see an opportunity to get on the ground floor of an industry that is still nascent and has great potential.
Finally, I know that digital assets are here to stay because prominent figures and companies in the traditional financial system say so.
Writing in the Wall Street Journal last month, David Solomon, CEO of Goldman Sachs, said he sees “blockchain as a promising technology” that is already changing the way companies raise money and the way investors trade stocks. As evidence, he cites Goldman’s use of blockchain in client-to-client trading platforms and its underwriting of a two-year, €100 million digital bond for the European Investment Bank with two other banks, all based on a private blockchain.
Also last month, BlackRock CEO Larry Fink said that “the next generation of markets, the next generation of securities, will be the tokenization of securities.” We have already seen several high-profile examples of tokenization. Last summer, JPMorgan’s Onyx Digital Assets blockchain-based network tokenized shares transferred in a BlackRock money market fund; in September, the private equity giant KKR tokenized shares of a feeder fund for the leading healthcare fund KKR.
These developments may be far from “purely peer-to-peer version of electronic cash” imagined by Satoshi Nakamoto, but they are nothing. Technology and industries evolve as consumers begin to use the product and express their preferences, and as policymakers adjust the regulatory framework to account for new risks. Despite the strong belief among many that cryptocurrencies represent a new monetary system free from central banks and pre-existing financial institutions, cryptocurrencies were destined to evolve, with the underlying technology adopted by the very institutions they were intended to render obsolete.
As we stand in the ashes of the FTX implosion, now is the perfect time to take stock of the ongoing evolution of cryptocurrencies and look over the horizon at potential use cases for digital assets that will provide real long-term economic utility . This is why my colleagues and I host Digital Resources at Duke this month.
Digital Assets at Duke is not your typical cryptocurrency conference. There will be no sports cars parked out front, no nightclub afterparties and no vendor lounges with free swag. Instead, we will leverage Duke’s strength in interdisciplinary research and industry collaboration to convene key players in the digital assets industry, regulatory experts, and select researchers for two days of rigorous debate and discussion.
Perhaps no issue is more critical to the future path of digital assets than regulation, and we will hear from representatives of the two federal agencies at the forefront of this debate. Securities and Exchange Commission Commissioner Hester Peirce has consistently criticized what she sees as the agency’s “regulation through enforcement” approach to digital assets and has proposed an innovative safe harbor proposal this would provide developers of decentralized networks a three-year grace period from the registration provisions of the federal securities laws. Commodity Futures Trading Commission Commissioner Kristin Johnson was a distinguished scholar of securities and derivatives law before joining the CFTC in 2022. While she was there, Johnson repeatedly asked “a comprehensive regulatory or government regime to ensure effective customer protection in digital asset markets.”
Stablecoins are a digital asset use case that could potentially reduce current friction in our payments system and facilitate new transaction models such as programmable money and micropayments. Our conference will feature speakers from two major stablecoin issuers that use different business and regulatory models. Circle, issuer of the USDC stablecoin, has a license to transmit money in most US states, and the company’s leadership has expressed its desire to become a commercial bank. I also circle recently announced a partnership with BlackRock to move 80% of USDC reserves into a government-only money market mutual fund created by BlackRock, a proposal that has attracted attention Ire of the banking groups. The USDF Consortium is taking a different approach to its yet-to-be-issued USDF stablecoin, limiting consortium membership to FDIC-insured banks and partnering with Figure to issue tokenized deposits on the Provenance blockchain.
The collapse of FTX and other centralized crypto firms over the past year has led to renewed calls from cryptocurrency advocates for a return to cryptocurrencies’ decentralized roots and an embrace of decentralized finance (DeFi). As noted in a recent Federal Reserve Bank of New York blog post, “It appears that DeFi protocols have continued to operate as intended in 2022 and no protocols have been shut down.” Our conference will analyze DeFi performance over the past year and DeFi’s future growth potential in panels on decentralized exchanges and DeFi applications beyond exchanges.
Digital Assets at Duke also features panels on tokenization, central bank digital currency, security, and institutional adoption. In summary, the conference will bring together people and companies focused on developing, delivering and regulating the next generation digital asset environment.