Cryptocurrency Regulation | Yuliya Guseva

Digital Asset regulation is a controversial subject, but most experts argue that a framework is necessary to protect investors and outline clear guidelines for innovation.

Rutger's Law Professor, Yulia Guseva, guides us through US crypto-regulation, and sheds light on global environments to navigate various legislative positions toward cryptocurrency.  Leading her through this juicy, in-depth conversation, whether you have a predilection for the law or not, is Ripple's Head of Public Policy and Vice Chair of Blockchain for Europe, Susan Friedman.

This session gives us an understanding of what the current challenges are with the United States catching up to other countries' crypto policy.

AND Thank you Feedspot for the Top Blockchain Podcast nod.

Transcript

Lauren Weymouth (00:00):

This is Lauren Weymouth, your host of All About Blockchain. Now, we've talked a lot on this show about how different industries are using blockchain to solve challenges, but we haven't touched on policy and regulation, which is crucial to innovation. Today, we're excited to welcome Rutgers Law School professor, Yuliya Guseva. Yuliya has made great efforts to both convene domestic legal experts and emphasize the importance of clear guidelines which are needed for this space to continue developing. Leading her in this conversation is my friend and colleague, Susan Freedman, Head of Public Policy at Ripple and Vice Chair of Blockchain for Europe. I've gotta highlight what she did before Ripple because it's important to this conversation.

Susan served as a senior advisor at the US Department of Treasury, where she developed and executed on strategic priorities related to international service regulation, investment security and trade. Throughout this episode, Susan and Yuliya will do a deep dive into Yuliya's recent Crypto Enforcement Around the World Report and her other crypto policy and regulation research. With the incredible growth that has been seen in the crypto markets, it is clear that there is a need for regulation. Welcome, Susan and Yuliya. Thank you both for joining us today. Susan, turning it over to you.

Susan Friedman (01:16):

Thanks so much Lauren, for the introduction. Yuliya, you've been teaching and leading research at Rutgers Law school for over eight years. When did you first become interested in blockchain and crypto? And what were your initial thoughts about this space?

Yuliya Guseva (01:31):

Well, Susan, what triggered my interest was not only the novelty of the technology per se, or the rising popularity of Bitcoin and alt coins, but also the surprisingly in the hearing regulatory response to it.

I think that our regulatory system for finance is very fragmented. It's actually more fragmented than, regulations in other major jurisdictions. many U.S. agencies are so-called sector specific regulators. What it means is that if an activity falls within a certain set of functions, a new regulators steps in.

Consequently, new services based in blockchain, including DeFi protocols or stable coin arrangements, they may be regulated through several legacy frameworks all at the same time. And every regulator would have its own philosophy, its own enforcement priorities, et cetera. So these interactions are particularly interesting in blockchain because it enables so much innovation.

Susan Friedman (02:32):

With an SJD in international business law from Central European University and an LLM from Columbia University, how have you felt your background in law has informed your interest in this space? And maybe you could give listeners a little bit of background in, in what you were focused on before crypto burst onto the scene in order to better understand the linkage?

Yuliya Guseva (02:52):

During my LLM at Columbia, I focused primarily on corporate law, financial law and securities regulation. And after that, I went back to Central European University, which is now in Austria, in Vienna specifically.

And there I completed my SJD. an SJD is a PhD in law. I joined the Columbia program in law and economics of capital markets as a postdoctoral fellow where I continued my post-doctoral studies working mainly on the law and economics of transactions, including international transactions.

I also specialized on, how the U.S. agencies such as the Securities and Exchange Commission or the SEC regulates the rest of the world by a certain extraterritorial jurisdiction over certain types of conduct or entities. So after Columbia, I joined the faculty of Fordham Law as a visiting assistant professor.

And as you mentioned about eight years ago, I came to Rutgers joined the faculty of Rutgers Law School. I have been, an international scholar and an academic for many years.

Susan Friedman (03:58):

No, that's great. Now I know that much of your research as of late has focused on regulation and enforcement. You've talked a little bit about the SEC, and the CFTC and they're focus on jurisdiction and extraterritoriality. Why are these topics of such importance with respect to crypto?

Yuliya Guseva (04:17):

Well, Susan, this is, a great question because it basically brings us back to my previous comment about the fragmentation within the U.S. regulatory regime.we have several regulators in crypto. the most active ones to date have been FinCEN, the SEC and the CFTC.

And several bills in fact, including one introduced by representative Beyer called on these three key agencies to provide a coherent, coordinated response, to crypto market participants and bears blockchain based digital assets. since some of our listeners are not lawyers, let me give them a broad overview of what FinCEN and the SEC and the CFTC are.

So FinCEN stands for the Financial Crimes Enforcement Network. It's a bureau of the department of the treasury. And it's objectives are to safeguard the financial system from illicit use of funds, to combat money laundering, terrorism financing, and ultimately to promote national security, that's for FinCEN.

The Securities and Exchange Commission, the SEC focuses on protecting investors. And quite often this mission, is perceived or rather portrayed as the main mission of the Security and Exchange Commission. However, it has two all other objectives, which are facilitating capital formation and maintaining clearly, orderly and efficient markets.

And some believe that these two other objectives are related to promoting innovation, including blockchain related innovation. Finally, there is the CFTC, Commodity Futures Trading Commission, whose goals are promoting integrity, resilience, and the actually say vibrancy of the U.S. derivatives markets through sound regulation and I quote, they actually mentioned sound regulation.

FinCEN was first on the scene and issued its virtual currency guidance in 2013. They followed with another guidance in 2019. In addition, FinCEN engaged in the number of enforcement actions when crypto firms failed to register as money services businesses. But overall FinCEN's approach to crypto has been very clear.

there was that guidance, the bank secrecy act that many FinTech firms had to comply with and enforcement of for non-compliance. 

So the CFTC is the second agency which is a major regulator in crypto. It's authority extends over, derivative markets. Also, it has a very broad anti-fraud and anti-market manipulation authority. As early as March, 2014 the SEC acknowledged that it was considering, the regulation of Bitcoin as a commodity.

They confirmed that position in 2015, 2016 and, several federal courts also, agreed with the CFTC. Consequently, many observers, courts and the CFTC view certain cryptocurrencies including Bitcoin and some alt coins as commodities. However, I would like to emphasize that the CFTC's jurisdiction over virtual assets, crypto assets is not unlimited.

the CFTC focuses on derivatives only. And, they step in whenever there is fraud or manipulation involving, commodities including virtual currencies. So what does it mean? The CFTC generally does not oversee spot market exchanges and spot market transactions.

I think this is really important to understand. Now the CFTC issued very comprehensive primers on virtual assets in 2017 and 2020. In addition, they launched a number of major enforcement actions with, uh, the two major actions, uh, brought against Tether and Bitfinex in the October last year.

the CFTC, once again, pursues this principle based, very overarching, very, philosophically different approach to crypto. It's philosophically different from what the SEC, the third regulator has done. So it's not a major regulator, and it has garnered more attention in the media.

the SEC has jurisdiction over securities and securities markets. So the threshold question is what is a security. Conventional financial instruments such as bonds and shares of stock, well, it's clear that those are securities. However, there are also unusual contracts which are covered by the term investment contract.

Susan, as you and I and many lawyers know the Supreme Court defined the term investment contract as, a contract transaction of scheme whereby a person invests his money.

They do not vary, it's gender neutral so they said, money in a common enterprise and is led to expect profits solely from the efforts of another. So what do we have? We have a Supreme Court decision which dates back to 1946, and which provides a very broad and functional approach to what a security, of, the investment contract vintage could look like.

Enforcement follows, against insurers, which, do not register their securities whenever they offer them to the public properly or against let's say exchanges, which trade securities. They also must register with the SEC as securities exchanges or find an exemption.

And the most typical exemption to date has been a regulation ATS, specifically alternative trading systems. why is that important? The,SEC enforcement program has become, a way for the SEC to transmit policy signals to the crypto market by using this very broad and functional approach to what a security is.

But that's not the end of the story. And I think the recent complaint filed two weeks ago against Coinbase illustrates, this problem. According to the plaintiff, Coinbase has not registered as an exchange and allegedly sold securities under the Howey Test.

Consequently, plaintiffs seek to recover damages, consideration paid for the tokens and other form, of relief. The complaint also alleges that many crypto assets such as, Tethers, XRP Uniswap, Uni and other assets which we consider cryptocurrencies in, many instances are securities based on the Howey Test.

in fact, what we have here is a typical full on action on the heels of SEC enforcement efforts in crypto plus various statements by SEC staff concerning crypto. it is fair to say that the SEC regulates crypto primarily via enforcement, yet enforcement is a very blunt instrument.

And unfortunately enforcement does not provide markets with extente information on how to comply with regulations, which,leads us to a very important point. Some kind of extensive regulatory reform is needed to make sure that the rules are understood by crypto entrepreneurs and actually beneficial for, crypto investors.

Currently, we have those penumbral counters of what crypto, regulation may look like. And it helps neither the crypto firms, to comply with the law, nor crypto investors. So we have to conclude, we have three regulators. many of them regulate,  by enforcement, but this mode of regulation is particularly characteristic of the SEC.

Susan Friedman (11:47):

Incredibly helpful. Thank you for that explanation. I think, understanding the state of play is important to understanding what is happening in the regulatory space from an enforcement perspective and also as we try and understand what's happening in Congress. And on that, I'd be curious to get your take.

There have been calls for the agencies to regulate, to issue rules for public notice and comment, that hasn't happened. In that absence, Congress has put forth several proposals to try and regulate the space and to get at this question of what's a security, and what's a commodity with respect to crypto assets.

What are your thoughts on the path forward, how to resolve the fragmentation? What happens from here in terms of setting a path forward?

Yuliya Guseva (12:31):

Oh, Susan, I think it's million dollar question, maybe one billion, at least. I think we are, uh, at a point where multiple stakeholders understand that the current regime is untenable [inaudible 00:14:15]. I think it is too fragmented and too focused on enforcement, particularly on the, SEC side.

I also think it is paramount to reduce the risks of innovations from the consumer perspective, but at the same time, reduce systemic risk consequences. And finally it is equally important to create an environment favorable to healthy and social and economically beneficial innovation.

Currently, we don't have that, even though there have been multiple hearings in Congress, [Sandro Lamas, for example, is working on certain bills on financial innovation and digital assets. And the point there would be to integrate those new assets into the existing financial system.

in addition to, the senators proposals, proposals from, the house, Congressman, senator Lummis for example introduced several bills and one would exempt developers from registration as money transmitters. That would be related to FinCEN, and its jurisdiction.

Another bill, stated that securities offerings involving digital assets, but not digital assets per se. So there would be an investment contract that I mentioned plus a token which is related to that, but it's not the security. to mention a few other examples, Congressman Davidson introduced the Token Taxonomy Act as the name suggests, that the title suggests.

Obviously, it was about defining what a digital token is. And I already mentioned that representative Beyer, bill, the digital asset market infrastructure and investor protection act, which suggested to break down the universe of crypto into digital assets within the oversight of the CFTC and the digital assets within, uh, the bailiwick of the SEC, meaning digital asset securities.

And finally, another bill was introduced by representative McHendry, who actually introduced several those on the topic. I think one of the most promising ones was the clarity for a digital tokens act, which focused specifically on the regulatory framework for new technology and innovation and attempted to provide a safe harbor for various startups developing digital asset project.

As both of us know, neither of those bills has been successful so far, even though as I mentioned before, senator Lummis is still working on her proposal. We'll see how, things will develop in the future. I actually believe that 2022 will be the year of conquers and potential congressional reform. In terms of the regulations per se, would we get a formal rule from, what's say the SEC where it's urgently needed, at least, I believe that this is urgently needed based on my research. I'm not that certain, uh, to the extent that the SEC believes that regulation by virtue of primarily enforcement works and produces the results that the SEC would like to achieve. There is no reason for the commission to engage in formal rule making, which is always costly. it, involves, potential,repercussions in terms of negative publicity, et cetera.since it is costly for the commission to do so, and the commission believes that, it has been successful in regulating digital assets and digital asset securities, why engage in formal rule making?

That's my point. Consequently, I have long argued that an external nudge is needed, to the commission. This nudge can come from the president, the White House in general, Congress, or perhaps the crypto community in general.

Susan Friedman (16:16):

I think to your point, it will be interesting to see how this shakes out in 2022 could well be the year of Congress in terms of having hearings, having debate on some of the proposals that have been on the table. Moving outside of the U.S., are there any jurisdictions that you think have gotten the framework right or are moving in a way that you think is positive that the U.S. might want to look to as we consider how to regulate crypto assets domestically?

Yuliya Guseva (16:43):

Oh, that's an interesting question. regulation in other jurisdictions is also very fluid and countries are migrating from one mode of regulation to another. let's take Singapore, for example, one of the major financial markets. What they did was originally they started with some kind of process payer policy where they had, almost, this free market approach to crypto. Later on, they introduced a new payment services license specifically for crypto.

And the market hailed it as an important achievement as a rule which is tailored to crypto firms and FinTech firms. However, Singapore has not been very generous in granting those payment licenses. So, things are changing and approaches with regulators are changing from one year to another. That's a good example, I think. Another example is the European Union. the European Union is currently working on a general FinTech strategy or digital asset strategy, they started this work back in 2020. And in particular a part of that package, is MiCA or, the regulation which was focused specifically on markets in crypto assets.

it is now being negotiated,within the European parliament. And, we will have MiCA, on the books pretty soon I think. the EU in the sense is kind of ahead of the curve at least of the United States, in developing a comprehensive, framework for regulating crypto. other jurisdictions are also interested in terms of, they're changing, but not too changing bearing approaches. A good example is the UK. The UK, classifies crypto assets, or breaks them down into three subcategories.

And interestingly enough, a lot of crypto assets are considered unregulated, in the UK, which is not the part of the European Union any longer. So, the UK has been consistent in  informing consumers that some crypto assets are unregulated, that consumers should be vigilant and there are significant risks associated with investing in crypto.

And at the same time, the UK has enabled this experimental approach in crypto innovation. So I think, those three jurisdictions are very interesting. And the United States may also join their ranks, given the executive order, which was signed by president Biden two weeks ago.

Susan Friedman (19:12):

We are going to come back to the executive order shortly. We are going to move away from regulation briefly just to talk a little bit about your academic work. you recently published crypto enforcement around the world with Rutgers Law School professor Douglas Eakeley. I'd love to hear a little bit more about this article and the results of the international enforcement survey that you conducted and performed a detailed analysis of.

Yuliya Guseva (19:37):

Technically I've already published several works, including two articles, which followed on the heels of the publication that you've mentioned. And, all of them lead to one simple conclusion. We need a regulatory or statutory reform in crypto. It is just a must at this point.

So I call those papers, a tetralogy  because there are four studies at the moment. And in one article, SEC digital assets and game theory, I looked at the inconsistencies in the SEC's enforcement strategy. To be more formal, more academic dynamic inconsistencies in a game strategy of one of the players may undermine productive cooperation between the players.

Put differently, entrepreneurs and market participants need to trust the regulator, the SEC. Particularly when the regulator invites market participants to come and talk to them and the SEC has done so on multiple occasions. However, penalties and various approaches to enforcement theory, they're not consistent and predictable, which may undermine this, let's call it a cooperated equilibrium, or the propensity to cooperate,with the SEC.

So enforcement may become an unsuitable tool for regulation and markets sometimes do not understand how to work with the regulator. And I think this is what we have, between the SEC and the crypto market at this point. And when this happens, entrepreneurs could seek perfunctory compliance in order to simply shield themselves, from possible enforcement, or they can avoid U.S. markets altogether.

And this is clearly detrimental to U.S. capital markets and to U.S. investors in the long run. And this is actually what I've demonstrated in the second article, which is called the Leviathon of securities law in crypto, or when the means undermine the ends.

So remember that when some of the ends, the goals of the commission would be protecting investors, but in fact, as they suggested in this article, while trying to protect American investors, the SEC has created a status quo which is detrimental to crypto investors. What do I mean by that?

in this empirical study, I have demonstrated that crypto issuers do attempt to comply with securities law, but they do that in the least costly manner, which basically comports with their cost benefit analysis. How do they do that? They resort to exemptions from registration, which is much cheaper for them.

Unfortunately, under the current framework of exemptions, investors do not receive material issued disclosure that they typically need, especially in cases involving innovations. So there is that lack of comparable material issued disclosure. And it is detrimental to some investors, perhaps the sophisticated crypto investors who have access to alternative data feeds.

they know that code is open source and they are third party audits, et cetera. They don't really rely on issuer disclosure as such, but the unsophisticated may always lose to both, some let's say fraudulent issuers or the sophisticated investors. If you think about this bifurcation, the sophisticated versus the unsophisticated, the unsophisticated are the ones who do not understand the code.

They don't even read it. But in the current environment of exemptions, the unsophisticated also do not get comparable and material issuer disclosure, which creates a problem and defeats the purpose of the SEC specifically protecting investors in the first place. Now, the two other articles, including the one that you've mentioned have an international connotation.

So in the first article, my co-authors and I have established that the SEC is the most active enforcer in crypto among major jurisdictions. And we looked at 23 jurisdictions, but found some semblance of enforcement actions in only 13 of those. next we also looked at the CFTC.

The CFTC, as I mention before is also a very active agency in crypto, and it has an enforcement division. So it does enforce commodity regulation and the commodity exchange act specifically. But compared with the SEC, it's not as active in its enforcement efforts which brings me to the second empirical paper that my co-authors and I are working on right now.

So what are we looking at? We are looking at the global crypto market, reaction to enforcement by both the SEC and the CFTC, and the reaction is uniformly negative. It is more negative when the SEC enforces registration provisions of securities law, and somewhat less adverse, in cases involving fraudsters in the crypto market.

It looks like the crypto market does not appreciate SEC involvement and specifically enforcement of those registration provisions that I mentioned, previously. Also, the CFTC, recall that it also has an enforcement division and enforcement authority, but their enforcement produces a less negative reaction suggesting that markets view commodity regulation and the CFTC per se, let's say less costly and perhaps more suitable for crypto.  There are at least four studies that my co-authors and I have been working on right now, and they all suggest an important need for regulatory or statutory reform.

Susan Friedman (25:23):

Yuliya, when you say, just to go back for a second, that market participants don't appreciate SEC, activity in the space, how are you quantifying that? What does that mean just for listeners?

Yuliya Guseva (25:35):

we are using event study methodology. Specifically we are looking at about 2000 major cryptocurrencies, with market cap above $10 million and, significant volume using data from CoinGecko, to collect those, cryptocurrencies and their prices.

We are looking at the market price reaction to the news of enforcement and that reaction is always negative. We have also done some cross sectional studies within the same article and we are looking at the differences involving fraud versus actions, not involving any, allegations of fraud, specifically violations of registration provisions of the securities act and of the securities exchange act.

And the market clearly distinguish between the two. They react more negatively when the SEC enforces pre-crypto registration provisions of the securities app and the exchange app. However, the market also appreciates or seem to react less negatively when the SEC and the CFTC actually as well, enforce anti fraud and anti-market manipulation provisions of securities and commodity law, which is, I think very important. It indicates that crypto asset markets, want legitimacy,  they appreciate market integrity, and probably they understand that they can be market failures, which, necessitates some kind of regulatory intervention. My takeaway from this study is that what the markets really do not like is pre crypto registration related provisions of securities law. Have I answered your question?

Susan Friedman (27:19):

Absolutely. that distinction that you were making about the difference between, how the markets reacting and what they're reacting to specifically is important because when you see industry in front of Congress, in the media, I think it's pretty clear and uniform that industry is not objecting to oversight and regulation, that consumer protection is equally important from their perspective.

The difference is having clarity and understanding what the rules of the road are and where something might trip them up from an enforcement perspective. Much of the debate that's happening right now in Congress and in industry the clarification you're noting is entirely consistent with that.

Yuliya Guseva (28:02):

Susan, I completely agree with you. there is a need for clarity. The markets want to comply but they need to have clear extent of  rule of how to comply, and which regulations to comply with.

The second conclusion I think which is relatively clear, from our current study is that commodity regulation in many respects is more suitable, or at least the markets view commodity regulation as more suitable for crypto compared with securities law.

I think another important point is, and this brings us back to that philosophical distinction between the CFTC and the SEC. The SEC has long been perceived as very rules based and, mainly on the side of investor protection.

While the CFTC has been, always deemed a more principles based agency with, let's say a more lenient, approach to innovation, lenient in a good sense in an economical, positive sense, with fewer enforcement actions, distinctions between the agencies.

I think the underlying (silence) motive is that the goodness of it, of commodity regulation currently is better compared with the goodness of securities law in crypto.

Susan Friedman (29:18):

It'll be interesting to see how that debate unfolds. We are seeing CFTC chair, Behnam call for more authority over the spot markets and whether or not, that authority is granted by Congress. And the CFTC does get, some clear guidelines I think is an interesting storyline to be played out over the rest of the year. 

Yuliya Guseva (29:37):

it'll be very interesting to see how it plays out. Just as a caveat, the study that I've just described focuses on tokens with significant market capitalization.

So they have been already issued, and our study includes both tokens and coins. we're not looking at technological distinctions, we're looking at more or less established assets. If an entity is raising capital by selling investment contracts, it is possible that the entity is engaging in distribution of securities. however, this is not what we are looking at. We are looking at existing tokens and coins outside of the context of a capital raising.

Susan Friedman (30:15):

An important distinction I think to make and just looking forward to taking a closer look at all of those articles which sound fascinating. Continuing on the issue of the work that you are doing and that Rutgers is doing, we wanted to hear a little bit more about the collaboratory 

Yuliya Guseva (30:31):

We are trying to collect as much information and as many views as possible on crypto. That's the collaboratory proper.Specifically it's a monthly meeting of various stakeholders in the industry from academia former regulators attorneys various corporations, from private law firms, et cetera, getting together and discussing  important subject areas.

Susan Friedman (30:54):

It all sounds very exciting. bringing different stakeholders together is perhaps a good segue to go back to some of our earlier discussion about regulation. And in particular, the executive order issued by the Biden administration recently, would love to get your take on what is the import of that order?

And what did you think was positive? What did you think was negative? If anything, what do you see as next steps from here coming from that?

Yuliya Guseva (31:20):

I'm an optimist. To me, any positive change is better than no change whatsoever. And, that's why I really applaud president Biden for issuing the executive order. I believe that this is essentially a call to action.

Various agencies, including the treasury, the department of labor, the EPA and others, as well as independent regulators that I have already mentioned, the SEC and the CFTC are called upon to act and provide reports on crypto.

What is particularly important about the executive order is that it asks for inter-agency meetings and coordination, which are key to providing an adherent response to our multifaceted crypto asset markets. Recall also what I mentioned, before, my main concern is that our financial regulatory system is really fragmented. Most countries do not have such a level of fragmentation. So it's important to have inter-agency coordination and collaboration. it's a call to action.  asking for various reports on crypto within a pretty generous timeline of between six and nine months. And my concern here is that the United States may be behind the curve. The EU will have its comprehensive framework much faster than, let's say the actual timeline for the agency reports suggested by the executive order.

Also jurisdictions such as Singapore and the UK are ahead of the United States in terms of providing purposeful and clear regulatory guidelines. So except for those concerns the executive order is a positive  step forward, I think.

Susan Friedman (33:02):

You know, could not agree more with that I think in the sense of this is the first time that the White House has acknowledged crypto in a positive way, noting, the executive order is really a call to arms about how to make this regulation move forward in a way that advances financial inclusion that promotes innovation but also gets at consumer protection  and thought that was unique.

But I completely agree with your point that it's interesting that a lot of the reports that are called for under the order, the first time that they'll be issued we’ll be waiting for six to eight months.

My expectation and hope is that Congress will be also continuing to have hearings and continue some of the important work that it's been doing at the same time and that the EO will inform those efforts in parallel. To me, it's an open question about whether or not the U.S. loses ground to its international counterparts during this time.

Yuliya Guseva (33:58):

I couldn't agree more, international competition is a very important aspect here.

Susan Friedman (34:03):

In the regulatory space, there have been a lot of breakthroughs recently in areas such as DeFi's and stable coins. You mentioned the president's working group on stable coins, the report that was issued. What has caught your eye in this space from a policy perspective? And do you think that some of the fragmentation issues that have characterized regulation of crypto assets are going to impact how DeFi and stable coins are viewed?

Yuliya Guseva (34:30):

Well, everything involving DeFi is really interesting. Our financial system, focuses primarily on intermediaries. We do not know how to regulate the unregulated, including DeFi or P2P transactions,in general. They do not involve intermediaries per se. Let's say reporting KYC, record keeping, are all done by intermediaries.

Consequently, FinCEN may view that as a serious problem. So can FATF, the financial assets Task Force, which is an international standard center working in close collaboration with FinCEN. So they do not know how to deal with individuals or how to deal with DeFi and once again, how to regulate the unregulated. In terms of stable coins, well, the question is who and how will regulate certain types of stable coins. The President's Working Group did not particularly focus on let's say algorithmic stable coins. So what to do about those. Another point is whether we should regulate stable coins within let's say bank regulation, or perhaps securities law.

the reason why there are so many issues about that is that stable coin arrangements may look a little bit like bank deposits and a little bit like money market funds. Bank deposits are bank services, and obviously regulated through bank law. Money market funds are regulated by securities regulators. There are a lot of issues that should be addressed. Once again, we need more clarity in this area and incidentally, I'm co-authoring a casebook for law schools on crypto asset regulation. We have a whole separate chapter on recent developments. We will have to update and re update this chapter quite regularly because there are a lot of developments in this area particularly in their segmented areas of law, commodities separately from, separate from securities, separate from bank, regulation. All of that sort of comes together in the context of crypto and crypto based services.

Susan Friedman (36:36):

I think that has to be one of the most interesting and frustrating parts about  this space, just that it is changing daily, that there is nothing is settled about it, which makes it very exciting, but from a legal perspective, absolutely presents some challenges.

Yuliya Guseva (36:54):

It certainly does. Well, it also presents the challenges to academics. On the one hand I can publish a lot of articles, but on the other hand if my colleagues, decide to write a case book for law students, and it takes usually more than a year to finish a case book, and since my co-author Carol Goforth and I have just gone for that process, it's really hard to keep updating a casebook and teach our students about the challenges of the evolving crypto space basically

Susan Friedman (37:24):

Absolutely. We have covered a lot of ground so far. Is there anything that we haven't yet talked about that you would like to share 

Yuliya Guseva (37:33):

Well,  I think another, interesting topic  that we haven't yet covered is CBDCs. CBDCs are obviously issued by states and are a digital representation of fiat currencies. Consequently, there is no need for a separate private intermediary issuing a stable coin the CBDC's is a phenomena already exists, but not in the United States at the moment.  The fed did issue a discussion paper about two months ago. So it is still collecting information. But in some jurisdictions CBDCs already exist. And some of those countries are major economies such as China. Others are much smaller, such East Caribbean for example. With smaller economies, it may be actually simpler and easier a little bit. For example, East's Caribbean, CBDC crashed for technical reasons a couple of months ago. But, if that were to happen with a digital U.S. dollar, the world would be in trouble because U.S. dollar is the reserve currency,for, the world, at least the majority of foreign central banks, reserves, are in U.S. dollar.

Consequently, the fed is taking its time to, develop, CBDC to collect information because it is really important to get it right in the case of the United States specifically.

Susan Friedman (38:54):

It's a great point. And I think one of the most interesting that we've been watching is seeing how some of the larger economies and smaller economies approach this issue, and what's motivating them to act if to the extent that they are acting and how that will shake out in the future.

I think COVID has really emphasized the significance of having digital means for governments to reach, their constituents in terms of delivering aid and being able to, directly deposit funds. But whether or not that solution ultimately shakes out in the form of a central bank digital currency or a stable coin, a privately issued solution, I think is one of the more interesting questions of the day.

And then how do you design it to ensure privacy and interoperability and all of the things that we take for granted with currency today?

Yuliya Guseva (39:46):

Absolutely. Some CBDCs could be account based, others token based or anything in between, and both, types of design, will have serious implications for privacy concerns. But I completely agree with you, Susan, that cryptocurrencies, stable coins and CBDCs possibly will have a positive effect on the financial system.

We have a lot of unbanked and under-banked individuals in the United States. And  in foreign countries as well. Consequently, crypto may provide an additional avenue for  those individuals to access financial services and get the much needed loans,the support that they need, et cetera. So, crypto is a good business opportunity, but at the same time, it has serious implications and consequences for, let's say, social justice for equality and the other-

Susan Friedman (40:37):

Which could be a whole other conversation, which we may need to, to bring you back on.

Yuliya Guseva (40:40):

... Absolutely.

Susan Friedman (40:41):

Yuliya, where can listeners go to learn more about some of the topics that you've discussed today? What do you like in terms of resources?

Yuliya Guseva (40:49):

in terms of resources (laughs), now it sounds like a shameless plug. You may want to look at our casebook (laughs).

Susan Friedman (40:58):

Not at all. Plug away (laughs).

Yuliya Guseva (40:59):

Let me start with overview (laughs) of the technology itself. what is blockchain, what is proof of state, proof of work, et cetera. And they believe that lawyers need to understand these basics and, so do law students. So there is that mutual need to understand how the technology operates. At the same time, we cover all major regulators, including, FinCEN, the CFTC and the SEC, which I have covered today. we also talk about various international standards centers. We cover states because states have become, real laboratories, for crypto reforms. In addition, we discuss, the reforms in the European Union, which seems to be ahead of the United States in terms of the clarity of its regulatory framework. So we cover, a lot of round in the casebook itself. Outside of the formal, casebook context, listeners may want to just follow CoinDesk and other related publications and read some academic articles which are quite often posted on SSRN free of charge. I think these are pretty good sources.

Susan Friedman (42:08):

That's great. Thank you so much for taking the time today, Yuliya. We really appreciated the conversation and the perspectives that you are bringing to the table, and we're looking forward to reading your future work, and seeing how regulation continues to evolve both in the U.S. and internationally.

Yuliya Guseva (42:25):

Thank you very much, Susan, for having me. 

Lauren Weymouth (42:28):

We've really heard the need for regulatory clarity and clear guidelines, especially as the market for crypto assets evolves and the use of blockchain technology transforms capital and financial markets. Academic and industry thought leaders like Yuliya and Susan are at the forefront of a potential breakthrough for crypto in areas of regulation and policy. Thank you so much for being a part of today's conversation. Listeners, we appreciate your time and continuous feedback to my LinkedIn and UBRI at Ripple.com. Catch ya next episode. 

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