A Different Congressional Hearing, December 6-13

The biggest regulatory story of the week was a hearing by the United States House Committee on Financial Services that focused squarely o...

The biggest regulatory story of the week was a hearing by the United States House Committee on Financial Services that focused squarely on crypto. Even the title of the event – “Digital Assets and the Future of Finance: Understanding the Challenges and Benefits of Financial Innovation in the United States” – conveyed a different vibe from the countless previous congressional meetings that had been primarily about investor protection or security risks or threats to financial stability.

Judging by the feedback from many attendees and industry experts, the exchange was received as an overwhelming positive, with lawmakers asking informed questions and otherwise acting as if their goal was to understand this new thing rather than to understand this new thing. ‘act on preconceived ideas. Of course, there were tired questions about Bitcoin’s environmental footprint and the anti-crypto rants of Rep. Brad Sherman, but it all ended up looking a lot like the constructive dialogue between the digital asset industry and lawmakers we’ve been waiting for. for a while. .

Below is the concise version of the latest Law Decoded newsletter. For the full breakdown of political developments over the past week, sign up for the full newsletter below.

Listening to the industry

The hearing, called by the president of the financial services commission, Maxine Waters, center on the role of crypto exchanges, the growth of the stablecoins industry, and general issues related to the global regulation of digital assets. Several large crypto CEOs were summoned to represent the crypto space.

Some of the salient themes discussed upstairs in the House included crypto-fueled decentralization of the digital ecosystem – a politically advantageous angle at a time when many American lawmakers are worried about the seizure of power of the tech giants of the era of Web 2.0 – as well as The reluctance of American regulators to give way to some crypto investment products that could be seen as a symptom of a fragmented approach to regulation. The relationship between the global role of the US dollar and the growing demand for stablecoins has also received a lot of attention.

BIS: Terrified of DeFi?

Just so you don’t get too carried away with what looks like a victory on the floor of Congress, a note on the Bank for International Settlements’ latest report on decentralized finance is in order. The “bank of central banks” dove deep into DeFi’s sprawling space and came up with a handful of scaremongering slogans such as “the illusion of decentralization” to describe it.

BIS analysts are concerned about some structural aspects of the DeFi landscape, such as liquidity mismatches and the lack of buffer such as banks. The report’s authors argue that the protocols governing DeFi activity carry risks of centralization, potentially leading to a concentration of power within these systems in the hands of the few. These claims are sure to raise many eyebrows, especially among those familiar with the DeFi space.

CBDC standby

The BRI’s taste for more controlled financial innovation is reflected in the news of its specialized department, BIS Innovation Hub, actively engaged in digital euro testing-based cross-border settlement, with the central banks of Switzerland and France. The experiment was considered a success, but the parties concerned insisted that it does not justify the final issuance of a European CBDC.

In other centralized digital currency news, a two-year survey by the Reserve Bank of Australia concluded with a report which highlighted the potential of a wholesale central bank digital currency to improve the efficiency of transactions in financial markets.