A battle to defend the crypto industry in the U.S. is starting

In recent weeks, the red alert in the U.S. encryption industry has suddenly sounded.

From strengthening the supervision of the DeFi market to introducing tax policies for the entire encryption industry, the U.S. encryption industry has been strongly attacked by the regulatory authorities, and a battle to defend the encryption industry has begun.

Why does the U.S. encryption industry oppose the taxation clause?

On July 28, a draft bill aimed at improving U.S. transportation, power, and water infrastructure was added to the U.S. crypto industry at the last minute of its debate in the Senate. According to estimates by the Joint Taxation Committee of the United States Congress, the federal government can raise 28 billion U.S. dollars within ten years by taxing the crypto industry.

However, due to the strict information reporting system and broad definition of taxpayers in the legislative language of the bill, it has triggered a great sense of crisis among the American industry.

According to the official legislative text of the bill, “anyone who is responsible for providing any digital asset transfer service on behalf of others on a regular basis” is defined as a “broker”. Information reports for USD 10,000 cryptocurrency transactions and tax payment. The IRS 1099-B return shows that the information reporting requirements include personal information such as the taxpayer’s name, detailed residential address, telephone number, and customer’s name, as well as detailed descriptions of transactions related to collection, sales, profit and loss.

The bill’s broad definition of “broker” has made people in the industry worry that miners, node operators, wallet developers and other institutions are also involved. Prior to this, centralized exchanges such as Coinbase had already filed tax declarations in accordance with the requirements of the IRS.

“One of the things that impressed me when working in Washington is the importance of petition rights. Democracy is more than just voting.” Jerry Brito, executive director of CoinCenter, an advocacy for cryptographic policy, tweeted on July 30. He was the first One of the people who initiated action on Twitter.

Since then, major KOLs including Coinbase CEO Brian Armstrong, Twitter CEO Jack Dorsey, Musk, etc. have posted tweets and made suggestions. In addition to the statement issued by the industry associations, industry insiders have united with the senators who share the same position with the crypto industry to submit amendments. At the same time, they called the senators to put pressure on them. More than 100 industry organizations also signed open letters to the leaders of the Senate. The US encryption industry’s slow accumulation and decentralized lobbying force seems to usher in an explosion in recent years.

Specifically, the objections of insiders in the U.S. encryption industry mainly focus on the following points:

First, parties such as miners, node operators, and developers do not have the ability to collect “customer” information and should be explicitly excluded from the definition of brokers;

Second, the bill may force companies that are almost related to cryptocurrency to strengthen the personal information monitoring of daily users, implement cumbersome monitoring systems, or cause these companies to stop services in the United States;

The longer-term concern is that strict information reporting requirements will increase the legal complexity of crypto companies’ project development or verification transactions in the United States, which will result in the transfer of industry innovation institutions overseas.

Lobbying to ” pry” Washington

As a result, in response to the specific wording of this bill, U.S. encryption industry leaders and U.S. congressmen have launched a number of intensive lobbying back and forth to protect the competitiveness of the U.S. encryption industry.

Long before the formal legislative text of the bill was issued, the draft’s wording of the taxation clause may be even worse. In the draft definition of brokers, in addition to the description of “providing digital asset transfer services”, there is also an extension-clearly “including any decentralized exchange or peer-to-peer market.” Lobby groups such as the Digital Chamber of Commerce issued a warning when interviewed by the media.

After receiving opposition from some industry insiders, on August 2, the wording “including decentralized exchanges or peer-to-peer markets” was deleted from the official legislative text. This was the first round of lobbying efforts in the crypto community to make progress.

However, the definition of taxpayers in the formal legislative text is broad and vague, and the US encryption industry still has a strong sense of crisis.

On August 2, the Electronic Frontier Foundation, a digital innovation protection advocacy organization, took the lead in issuing the statement “The cryptocurrency monitoring clause buried in the Infrastructure Act is a disaster for digital privacy.”

According to the Jerry Brito Twitter timeline, policy advocacy organizations such as CoinCenter will contact and lobby members of the Senate who may support the position of the crypto community since July 29.

On August 4, cryptographers successfully connected members of the Senate, Ron Wyden, Cynthia Lummis, and Pat Toomey submitted an amendment consistent with the industry’s position. The Wyden-Lummis-Toomey amendment explicitly exempts three groups of people: verifiers of distributed ledger networks (that is, miners, pledgers, node operators, etc.), hardware and software wallet sellers, and protocol developers.

On the same day, the Blockchain Association, Coinbase, Coin Center, Ribbit Capital, Square and other lobbying organizations and industry leaders issued a statement to follow up, expressing support for the Wyden-Lummis-Toomey amendment, and at the same time calling on the public to participate and requiring legislators to include To be clarified.

In fact, the drafting party of the bill publicly stated that the clause does not target non-intermediaries. Ohio Republican Senator Rob Portman was one of the main drafters of the bill. On July 30, its spokesperson Drew Nirenberg stated in a press release: The redefinition of cryptocurrency as “securities” will not infringe on the privacy of individual cryptocurrency holders, nor will it force non-brokers such as software developers and cryptocurrency miners to comply with IRS reporting obligations. “However, perhaps out of concern that the extensive exemption language will become a tax avoidance loophole in the industry, the above statement has not been included in the legislative text.

People in the industry did not accept it. They believed that the legislative intent had no legal effect and required a clear exemption in the legal text.

The Twitter encryption community was quickly “screened”-KOLs called on people in the encryption circle to call members of Congress to put pressure on them. FightfortheFuture, a digital rights activist group, attached a channel and explanation to automatically call members in a post titled “Red Alert,” and the webpage was spread for several days. Coinbase also created a one-click page to send e-mails to members of Congress. In addition, industry professionals called for donations to policy lobbying organizations such as CoinCenter, and some crypto companies responded.

There is not much time left for the U.S. encryption industry before the Senate vote, and the intensive lobbying within a week has benefited from the attention and layout of U.S. leading crypto companies in lobbying in recent years.

According to the Washington Post, there are currently nearly 60 registered lobbyists in U.S. cryptocurrency companies, compared to only one five years ago. Data from the Center for Responsive Politics, a non-partisan organization that tracks policy lobbying spending, shows that U.S. cryptocurrency companies’ lobbying spending will double this year compared to last year.

In terms of lobbying group establishment, in April 2021, Coinbase and asset management company Fidelity, payment company Square and investment company Paradigm jointly established a new encryption policy lobbying organization “Encryption Innovation Committee.” According to the New York Times, Coinbase has spent more than $700,000 on government lobbying since 2015.

The lobbying power of the U.S. crypto industry was relatively scattered before, such as the conflict of interest between Coinbase and Binance. According to the New York Times, Coinbase has been a member of the Blockchain Association of the U.S. industry association until 2020, but in the summer of 2020, after the rival exchange Binance was incorporated into the Blockchain Association, Coinbase withdrew from the organization. The spearhead ignited by the bipartisan infrastructure bill has gathered a rare and unanimous lobbying force in the U.S. encryption industry.

However, beyond the intensive wave of lobbying, a deadlock is brewing. The daily records of the US Congress show that Senator Rob Portman and others submitted an Alternative Amendment to the Infrastructure Act No. 2137 on August 1, which revised the crypto industry’s taxation provisions. However, this news did not arouse attention in the Twitter encryption community until around August 6.

Amendment No. 2137 was proposed by three senators Warner, Portman and Sinema. On the basis of the original bill, the amendment exempted the verifiers of the distributed ledger network under the proof-of-work consensus mechanism (PoW), as well as the sellers of hardware and software wallets. On August 6, the White House also issued a statement in support of the Sinema-Warner-Portman amendment, stating that compared with the Wyden-Lummis-Toomey amendment, the Sinema-Warner-Portman amendment strikes an appropriate balance between protecting industry innovation and preventing industry tax avoidance. .

This round of Portman’s modification triggered a bigger round of “fryers” in the encryption circle. Industry insiders accused that the amendment did not exempt protocol developers from paying taxes. At the same time, it only exempted PoW miners, ignoring verifiers of other consensus mechanism networks. The essence is that the US Congress is deciding whether to win or lose different types of technologies.

As soon as the news came out, Musk, who had been silent on the matter for many days, also said: “This is not the time to choose technical winners or losers in cryptocurrency technology. There is no crisis to force hasty legislation.”

August 7-8 is voting day in the Senate. As an alternative version of the bipartisan infrastructure bill, Amendment No. 2137 proposed by Porman et al. was passed 69-28 in the Senate. Nevertheless, Portman and others were fiercely besieged by another faction such as Wyden and Lummis.

According to the special decision-making process of the U.S. Senate, other amendments, including the Wyden-Lummis-Toomey amendment supported by the encryption community, require all 100 senators to agree before they can be passed.

The lobbying of the encryption community is not without progress. On August 8, Senator Rob Portman issued a statement on his official website, clearly stating that verifiers such as miners, pledgers, node operators, hardware and software wallet sellers, and other non-brokers should be expressly exempted and stated at the same time Will communicate with the other party Wyden, Lummis, etc., and try to find a compromise.

After a 30-hour deadline debate, the two parties finally reached a compromise. However, due to the opposition of Senator Richard Shelby, the compromised version failed to pass. Sinema-Warner-Portman’s Alternative Amendment No. 2137 was submitted to the House of Representatives for consideration.

However, at present, some people in the US encryption industry are not discouraged, saying that a new amendment can be made from scratch in the House of Representatives to address all concerns.

DeFi regulation is also strengthening

In addition to the taxation policy for the entire cryptocurrency industry, the U.S. regulatory authorities have recently significantly increased their attention in the DeFi field, and have talked about DeFi supervision in public on many occasions.

First, in early June of this year, the Commissioner of the US Commodity Futures Trading Commission Dan Berkovitz suddenly attacked DeFi derivatives in a speech at a forum, saying that the unlicensed DeFi derivatives market was a bad idea and did not meet the relevant requirements of the Commodity Exchange Act. . At the same time, he pointed out that DeFi derivatives projects lack market security and customer protection, and imposing regulatory obligations, restrictions and costs on other market participants will create unfair competition.

” We should not allow DeFi to become an unregulated shadow financial market that directly competes with regulated markets. The CFTC and other regulators need to pay more attention to this growing area of ​​concern and deal with irregularities appropriately,” said Dan Berkovitz.

According to the “Financial Times” report, the US SEC and CFTC communicated with Uniswap, dydx and other top DeFi project representatives through online meetings at the end of June to explore the review of the DeFi market.

On August 3, when the US SEC Chairman Gary Gensler attended the Aspen Security Forum, he stated that any stock tokens or crypto tokens that provide basic security exposure are subject to the securities laws. Any DeFi project that provides security token services All are within the scope of SEC supervision. Although no specific regulatory policies have been issued, the SEC’s statement has made it clear that it will strengthen the supervision of the DeFi industry in the future.

Recently, multi-state regulatory agencies in the United States issued a ban on the crypto lending platform BlockFi. The reason is that the regulatory agencies treat interest-bearing cryptocurrency savings products as investment contracts and are therefore regulated by the Securities Act. Although BlockFi is a centralized lending platform, due to Similar fixed-rate savings products also exist in the DeFi market. CoinDesk columnist Preston Byrne believes that these bans may be a precursor to similar actions against DeFi.

If the U.S. regulatory agency further advances the legislative process in accordance with these ideas, many DEX projects and derivatives projects have certain risks and need to be registered in accordance with the requirements of the U.S. Commodity Exchange Act. This may cause many developers to suffer Prosecution also hinders the further advancement of DeFi innovation.

Under the frequent pressure of supervision, many DeFi project parties have already taken countermeasures. For example, in July this year, the decentralized aggregation trading platform ShapeShift announced the closure of corporate entities and transforming into a decentralized autonomous organization to avoid supervision. Friction between institutions.

Also in mid-July, Uniswap Labs removed 129 synthetic stocks and derivative tokens from the front end of the Uniswap trading page on the grounds of “changing regulatory environment” to avoid potential regulatory risks.

In addition to business adjustments and defensive strategies, multiple DeFi agreements are also trying to promote the operation of DeFi policy lobbying organizations, trying to promote the introduction of more friendly regulatory policies.

One of the representatives is the DeFi Education Fund that Uniswap is mainly responsible for funding. The organization was formerly known as the DeFi Political Defense Fund. In June, it obtained 1 million UNI funding through the Uniswap community vote to engage in legal analysis, policy advocacy, and information transmission. The chief legal officer of several leading DeFi projects such as Uniswap, Aave, and Compound also participates in the specific operations of the organization, thereby promoting policy formulation that can represent the interests and positions of millions of DeFi users.

Recently, YFI founder Andre Cronje and others also initiated a proposal to fund 1 million US dollars for the DeFi legal advocacy organization LeXpunK_DAO, and hinted that Curve and SushiSwap will also participate in it to promote a series of constructive activities in the DeFi industry, such as launching a landmark position. Documents, provide DeFi developers with legal defense against regulatory litigation, and propose “safe harbor” legislation to legitimize key aspects of DeFi.

Summarize

Overall, the U.S. regulatory situation on the crypto industry has become more apparent, but in the eyes of most KOLs in the crypto industry, many U.S. regulatory agencies and lawmakers have rushed to formulate operational difficulties when they are not familiar with the operation mechanism of the crypto market. Policies that are large and harmful to the industry are not conducive to the development of the encryption industry and do not meet the goals of policy formulation.

With the all-round start of the defense war from all walks of life in the crypto market, the future trend of the U.S. crypto regulatory industry deserves further attention.

 

Posted by:CoinYuppie,Reprinted with attribution to:https://coinyuppie.com/a-battle-to-defend-the-crypto-industry-in-the-u-s-is-starting/
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