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Calls from All the Strangest Places

22 April 2022

In what can’t be entirely a coincidence, on Monday, April 18 — income tax filing day — DeFi developer Andre Cronje posted on his blog that what the crypto space really needs now is more regulation.

Yes, the creator of the early DeFi protocol Yearn.Finance, Cronje wrote on his blog saying:

I often feel that a lot of what is being built in crypto is being built by people that read a Wikipedia article on bonds, or seigniorage, or debt instruments and then thought to themselves, “they can do this better”.

It’s something that happens often in coding, you find a fresh piece of code written by another organization or developer, you quickly start finding faults… So you spend the next few days, weeks, even months re-engineering the code, then you hit your first wall…then your second, then your third … and eventually you have that “oh, right, that’s why” moment as you finally understand why it was what it was.

Monetary policy is the same, understanding monetary supply, issuance, debt, bonds, seigniorage, debentures, commodities, securities, derivatives can’t be viewed in isolation. They exist for a reason. But crypto is the new generation, the generation of “we can do it better.”

He says that his position comes from a place of “loving crypto ethos” but “hating crypto culture” — the former he lauds as “self-sovereign rights, self-custody, self-empowerment” while the latter he describes as being about “wealth, entitlement and ego.”

He says he now sees the need for regulation, not “as a mechanism to prevent, but as a mechanism to protect.” He even uses the simile of how you keep a child from sticking his fingers in an electrical socket, because they don’t understand the danger.

Leaving aside the infantilization of his peers who are creating and building the industry around him even as he deliberately exits the space, the question isn’t whether regulation can be good or bad. For one thing, a hammer can be used for good (building) or bad (destruction). The question is — in whose hands is the hammer?

The whole point of cryptocurrency is it is supposed to be decentralized and out of the control of any regulatory body. But Cronje says he sees a “new blockchain economy, not one driven by greed, but instead driven by trust, not trustlessness.”

Is that really the problem?

The really strange thing is this comes just one week after U.S. Treasury Sec. Janet Yellen gave her first address about crypto and crypto regulation. While Yellen, naturally, said there must be tougher regulation, she seemed more bullish on crypto than Cronje.

“Consumers should be protected from fraud regardless of whether assets are stored on a balance sheet or distributed ledger…. Money-laundering and other illicit activity should be deemed illegal, and it doesn’t matter whether you’re using checks, wires or cryptocurrency,” she said.

Well, fine and good, but those are not problems inherent to crypto. This is trying to hold the crypto-community responsible for the crimes or transgressions of financial fraudsters by creating a techno moral panic. If federal authorities did a better job going after criminals, they wouldn’t have to lean on crypto and block chain to get them to do their work for them.

Yellen gave us some clue as to how U.S. federal regulators will be approaching regulation. One specific she dwelled on was noting how they want to hitch the U.S. dollar — which has hit major stumbling blocks on the world market since February and the financial clash with both Russia and China.

Yellen said regulations on crypto going forward should support the U.S. dollar in its historic role as the world’s reserve currency.

“The development of our currency to its current form has been a dynamic process that took place over centuries. Today, monetary sovereignty and uniform currency have brought clear benefits for economic growth and stability. Our approach to digital assets must be guided by the appreciation of those benefits,” Yellen said in her speech.

This is a pretty apparent admission the dollar going forward will need the support of crypto for its strength. Those in our space could see an advantage and leverage here, or a weakness in the federal government’s arsenal.

Yellen also said she wants to push for innovations that ensure competitiveness and growth while also pursuing regulations that put foremost “national security interests,” three words that should cause anyone in the industry to pay close attention. Government can smuggle a lot in under cover of that kind of rubric.

More ominously, Yellen — the former head of the Federal Reserve, it should be underscored — said the United States, per the direction of President Biden’s executive order, is developing a U.S. digital dollar.

While it sounds like it’s just the feds jumping on the digital bandwagon a decade late, it’s a lot more ominous in intent, if not in practice.

“I think that may be the case and I think that’s one of the arguments that are offered in favor of digital currency,” current Federal Reserve Chairman Jerome Powell said in a congressional hearing in July 2021 before the House Financial Services Committee. “That, in particular, you wouldn’t need stablecoins, you wouldn’t need cryptocurrencies if you had a digital U.S. currency — I think that’s one of the stronger arguments in its favor.”

We tend to think otherwise — that centralization and the loss of privacy is so anathema to the crypto community that no one will seriously embrace it outside of slow-adapters and the tech challenged.

Either way, it says a lot about the mindset of those who want to impose regulation, and it raises questions why someone exiting our space would be so on board with the idea.

Moreover, while regulation may or may not be effective to accomplishing the government’s goals regarding cryptocurrency, it bears watching what the motive behind those regulatory pushes is in the first place. Rest assured if they don’t get the outcome they desire from one kind or round of regulation, they will certainly keep at it.