From strengthening the supervision of the DeFi market to launching tax policies for the entire encryption industry, the US encryption industry has been strongly attacked by regulators, and a battle to defend the encryption industry has begun.
first level title
01
Why the U.S. Crypto Industry Opposes Tax Provisions
On July 28, a draft infrastructure bill aimed at improving transportation, electricity, and water in the United States included provisions to tax the U.S. crypto industry at the last minute of Senate debate. According to estimates by the United States Congress’s Joint Taxation Committee, the federal government could raise $28 billion over a decade by taxing the crypto industry.
However, due to the bill's strict information reporting system and the broad definition of taxpayers in the legislative language, it has aroused a great sense of crisis in the American industry.
According to the official legislative text of the bill, "any person who is responsible for regularly providing any digital asset transfer service on behalf of others" is defined as a "broker", and the broker needs to rely on the 1099-B tax return stipulated by the US Internal Revenue Service for more than $10,000 in cryptocurrency transactions are reported and taxed. The IRS's 1099-B return shows that the information reporting requirements include personal information such as the taxpayer's name, detailed address, phone number and customer name, as well as detailed descriptions of transactions related to receipts, sales, profits and losses.
The bill's definition of "broker" is quite broad, which makes people in the industry worry that miners, node operators, wallet developers and other institutions are also involved.Previously, centralized exchanges such as Coinbase had filed tax returns as required by the Internal Revenue Service.
"One of the things that impresses me about working in Washington is the importance of the right to petition. Democracy is more than just voting." Jerry Brito, executive director of CoinCenter, an encryption policy advocacy non-profit organization, tweeted on July 30. He was the first One of those who launched a call to action on Twitter.
Since then, major KOLs, including Coinbase CEO Brian Armstrong, Twitter CEO Jack Dorsey, Musk, etc., have tweeted their opinions and suggestions. In addition to the statement issued by the industry association, industry insiders unite with senators who agree with the encryption industry to submit amendments, and at the same time call the senators to put pressure on them. More than 100 industry organizations also jointly signed a public letter to the Senate leaders. The lobbying power that has been slowly accumulating and dispersed in the U.S. encryption industry in recent years seems to be ushering in an explosion.
Specifically, the opposition from insiders in the U.S. encryption industry mainly focuses 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 in the definition of brokers;
Second, the bill may force almost all companies related to cryptocurrencies to strengthen the monitoring of personal information of daily users, implement cumbersome monitoring systems or cause these companies to stop services in the United States;
A longer-term concern is that,first level title
02
Lobbying to "lever" Washington
As a result, in response to the specific wording of this bill, leaders of the U.S. encryption industry and members of the U.S. Congress have launched multiple back-and-forth intensive lobbying to protect the competitiveness of the U.S. encryption industry.
Long before the formal legislative text of the bill was published, the draft may have had even worse wording for the tax provision. In the definition of brokers in the draft, in addition to the description of "providing digital asset transfer services", it has been expanded-clearly "including any decentralized exchange or peer-to-peer market". Lobbying groups such as the Chamber of Digital Commerce sounded the alarm in interviews with the media.
After receiving objections from some in the industry, on August 2, the wording "including decentralized exchanges or peer-to-peer markets" was deleted from the official legislative text. This is the first round of lobbying efforts by the encryption community to make progress.
However, the definition of taxpayers in the official 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 releasing the statement "Cryptocurrency surveillance provisions buried in infrastructure bills are a disaster for digital privacy."
According to Jerry Brito's Twitter timeline, policy advocacy organizations such as CoinCenter have contacted and lobbied members of the Senate who may support the position of the encryption community since July 29.
On August 4th, encryption activists successfully contacted members of the Senate, and three senators, Ron Wyden, Cynthia Lummis, and Pat Toomey, submitted an amendment consistent with the position of the industry. The Wyden-Lummis-Toomey Amendment specifically exempts three groups of people:Validators (i.e., miners, stakers, node operators, etc.), hardware and software wallet sellers, and protocol developers of the distributed ledger network.
On the same day, lobbying organizations such as the Blockchain Association, Coinbase, Coin Center, Ribbit Capital, and Square and other industry leaders issued a follow-up statement, expressing their support for the Wyden-Lummis-Toomey Amendment, calling for public participation, and requiring lawmakers to include in the terms To be clarified.
In fact, the drafters of the bill have publicly stated that the clause does not target non-intermediaries. Republican Senator Rob Portman of Ohio is one of the main drafters of the bill. On July 30, its spokesman Drew Nirenberg said in a press release: “This legislative language does not allow digital assets or The redefinition of cryptocurrencies as "securities" would also not violate the privacy of individual cryptocurrency holders, nor would it force non-brokers such as software developers and cryptocurrency miners to comply with IRS reporting obligations. ’” But the statement was left out of the legislative text, perhaps out of concern that the broad exemption language would become a tax-avoidance loophole for the industry.
People in the industry do not adopt it, they believe that the legislative intent does not have legal effect, and they require an explicit exemption in the legal text.
The Twitter encryption community was quickly "swiped" - KOLs called on people in the encryption circle to call members of Congress and put pressure on them. Digital rights action group FightfortheFuture included automated calls to MPs and rhetoric in a post titled "Red Alert," which went viral for days. Coinbase also created a page for one-click emailing members of Congress. In addition, industry figures called for donations to policy lobbying organizations such as CoinCenter, and some encryption companies responded.
There is not much time left for the U.S. encryption industry before the Senate vote. The intensive lobbying within a week has benefited from the attention and layout of the top U.S. encryption companies in recent years.
According to the Washington Post, there are now nearly 60 registered lobbyists for U.S. cryptocurrency companies, up from just one five years ago. U.S. cryptocurrency companies will also double their lobbying spending this year compared to last year, according to the Center for Responsive Politics, a nonpartisan group that tracks policy lobbying spending.
In terms of the establishment of lobby groups, in April 2021, Coinbase, 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. encryption industry was relatively dispersed before. For example, the conflict of interest between Coinbase and Binance has always existed. According to the New York Times, before 2020, Coinbase had been a member of the Blockchain Association, a local industry association in the United States, but in the summer of 2020, after rival exchange Binance joined the Blockchain Association, Coinbase withdrew from the organization. The spearhead ignited by the bipartisan infrastructure bill this time has gathered the rare unanimous lobbying power of the US encryption industry.
It's just that, besides the wave of intense lobbying, an impasse is brewing. The Daily Record of the U.S. Congress shows that Senator Rob Portman and others submitted an alternative amendment No. 2137 to the infrastructure bill on August 1, which included changes to the taxation provisions of the encryption industry. But this news did not attract attention in the Twitter encryption community until around August 6.
Amendment 2137 was introduced by Senators Warner, Portman and Sinema. Based on the original bill, the amendment exempts distributed ledger network verifiers under the Proof of Work consensus mechanism (PoW), as well as sellers of hardware and software wallets. On August 6, the White House also issued a statement supporting the Sinema-Warner-Portman Amendment, saying that compared with the Wyden-Lummis-Toomey Amendment, the Sinema-Warner-Portman Amendment has achieved an appropriate balance in protecting industry innovation and preventing industry tax avoidance .
This round of modifications by Portman triggered a bigger round of "fryer" in the encryption circle. Industry insiders accusedThe amendment does not exempt protocol developers from the possibility of paying taxes. At the same time, it only exempts PoW miners, ignoring verifiers of other consensus mechanism networks. The essence is that the US Congress is deciding the winners and losers of different types of technologies.
As soon as the news came out, Musk, who had been silent on the matter for many days, also came out and said: "Now is not the time to pick technical winners or losers in cryptocurrency technology. There is no crisis that forces hasty legislation."
August 7-8 is voting day for the Senate. Amendment 2137, proposed by Porman et al., an alternative version of the bipartisan infrastructure bill, passed the Senate 69-28. Nevertheless, Portman and others were fiercely besieged by Wyden, Lummis and other factions.
According to the special decision-making process of the US Senate, the remaining amendments, including the Wyden-Lummis-Toomey amendment supported by the encryption community, need the consent of all 100 senators to pass.
Lobbying in the crypto community is not without progress. On August 8th, Senator Rob Portman issued a statement on his official website, clearly stating that miners, pledgers and other verifiers, node operators, hardware and software wallet sellers, and other non-brokers should be exempted. Will communicate with the other party, Wyden, Lummis and others, and try to find a compromise.
After a 30-hour deadline for debate, the two sides finally reached a compromise. But the compromise version ultimately failed due to opposition from Senator Richard Shelby alone. Sinema-Warner-Portman Alternative Amendment No. 2137 was sent to the House of Representatives for consideration.
first level title
03
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 emphasis on the DeFi field, and have talked about DeFi regulation in public on many occasions.
First, in early June this year, Dan Berkovitz, Commissioner of the Commodity Futures Trading Commission of the United States, suddenly attacked DeFi derivatives in a forum speech, saying that the unlicensed DeFi derivatives market is a bad idea and does not meet the relevant requirements of the Commodity Exchange Act . At the same time, he pointed out that DeFi derivatives projects lack market protection and customer protection, and impose regulatory obligations, restrictions and costs on other market participants, which will form unfair competition.
“We should not allow DeFi to become an unregulated shadow financial market that competes directly with regulated markets. CFTC and other regulators need to pay more attention to this growing area of concern and deal with violations appropriately.”Dan Berkovitz said.
According to the "Financial Times" report, the US SEC and CFTC communicated with representatives of top DeFi projects such as Uniswap and dydx through online meetings at the end of June to explore the review of the DeFi market.
On August 3, Gary Gensler, chairman of the US SEC, attended the Aspen Security Forum and said,Any stock tokens or encrypted tokens that provide exposure to underlying securities are subject to securities laws, and any DeFi project that provides security token services is within the scope of SEC supervision.Although no specific regulatory policy has been issued, the SEC’s statement has made it clear that it will strengthen the supervision of the DeFi industry.
Recently, multi-state regulatory authorities in the United States have issued a ban on the encrypted lending platform BlockFi. Similar fixed-rate savings products also exist in abundance in the DeFi market, and CoinDesk columnist Preston Byrne believes that these bans may be a precursor to similar actions against DeFi.
If the U.S. regulatory authorities further advance the legislative process according to 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, which may cause many developers to suffer. Prosecution, while hindering the further advancement of DeFi innovation.
Under the frequent pressure of frequent supervision, several DeFi project parties have taken countermeasures. For example, in July this year, the decentralized aggregation trading platform ShapeShift announced the closure of the corporate entity and transformed into a decentralized autonomous organization to avoid conflicts with 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, citing the "changing regulatory environment" to avoid potential regulatory risks.
In addition to making business adjustments and adopting defensive strategies, multiple DeFi protocols are also trying to promote the operation of DeFi policy lobby organizations, trying to promote the introduction of more friendly regulatory policies.
One of the representatives is the DeFi Education Fund, which is mainly funded by Uniswap. The organization was formerly known as the DeFi Political Defense Fund. In June, the Uniswap community voted to obtain 1 million UNI funding to engage in legal analysis, policy advocacy, and information transmission. The chief legal officers of many leading DeFi projects such as Uniswap, Aave, and Compound also participate in the specific operations of the organization, thereby promoting policy formulation that can represent the interests and positions of millions of DeFi users.
Summarize
04
Summarize
Overall, the regulatory situation of the U.S. on the encryption industry has become more and more obvious, but in the opinion of most KOLs in the encryption industry,Many U.S. regulators and congressmen are not familiar with the operation mechanism of the encryption market, and rashly formulate policies that are difficult to operate and highly harmful to the industry, which is not conducive to the development of the encryption industry and does not meet the goals of policy formulation.
With the all-round defense battle from all walks of life in the encryption market, the future situation of the US encryption regulatory industry deserves further attention.
