Hi everyone, this is Charles Hoskinson broadcasting live from warm, sunny Colorado. Today is March 23rd, 2023, and I have a special treat for all of you. This industry is very polarizing because of the uncanny valley effect. You have people who are philosophically and ideologically extremely close to each other but have slight differences of opinion. We seem to be super polarized and attack each other, but in reality, the vast majority of people who work in the cryptocurrency industry and lead cryptocurrency businesses actually feel kind of the same way, especially about some hot-button topics like regulation and the use and utility of the industry.
From time to time, despite our differences, whenever you see something from someone that really reflects the ethos of the industry, you have to call it out and say it’s a good thing. I wanted to read this off to everybody; it’s an open letter that Ryan Silk from Messari created. He wrote it to the U.S. House Financial Services Committee, specifically addressing the recent report drafted by the president’s team that basically claimed cryptocurrencies are useless and should be thrown away. I thought it was a really cool thing.
Dear Congressman McHenry and Congresswoman Waters,
I have spent a decade working as an entrepreneur and investor in the digital assets industry. The U.S.-based companies I have helped build generate tens of millions of dollars in revenue and employ hundreds. I’m writing to you because I am deeply frustrated with the state of U.S. digital asset policy, and I urge you and your colleagues to work towards enacting critical common-sense reforms that protect consumers, promote innovation, and maintain America’s edge.
My current venture, Messari, is a research and data services platform that employs over 100 Americans who live and work across 30 different states. Messari has no debt, no speculative investment activities, and is a responsible steward of $60 million in investment capital. We pay taxes, abide by the law, and operate an honest business. I live in [blank] and would like to ensure that the majority of Messari’s operations remain in the United States. However, entrepreneurs and consumers need Congress to act, as the status quo in the United States creates significant risk to our businesses and our customers. Many of us may be forced to move the majority of our high-paying jobs, which generate large tax receipts, overseas or even exit the U.S. outright due to our country’s vague and adverse regulatory regime.
Messari is an example of a business that policymakers say they would like to see built in America. Our products educate digital asset users on the benefits and risks of these technologies. We prepare detailed research reports for dozens of digital asset projects to better promote transparency and disclosure norms among fast-evolving decentralized communities. We have even served in part as a model for more forward-thinking regulatory solutions like the token Safe Harbor championed by SEC Commissioner Hester Pierce. However, common-sense proposals like the Safe Harbor will remain just that—proposals—without clear direction from Congress. Avoidance is no longer an option. Digital asset technology will not be uninvented; it has become too established and offers too much economic promise. Instead, policies that hinder the development of the industry in the United States will simply push innovation overseas.
Clear-headed digital asset policy is now a matter of long-term economic competitiveness and national security. Good policy will keep digital asset services at home, allowing the U.S. to better monitor those emerging capital markets, export the dollar as the dominant digital reserve currency, and attract the talent and capital most likely to build our next great industries and consumer products. That policy will threaten the long-term viability of a large swath of America’s technology and financial services industries, undermine the dominance of the dollar as a global reserve, and limit our ability to enforce U.S. law in a fluid global marketplace. Failure to act will all but guarantee that we repeat the mistakes of the recent past, where strategic blunders in industries like semiconductor manufacturing now require $50 billion of taxpayer-funded fixes to bring back an industry we invented.
It’s going to cost a lot more than that once you start getting it going. We’ll be offshoring similar innovation today only to spend more time, energy, and capital to reassure the industry later, if it’s even possible after it becomes clear we may be directly threatened by our economic rivals.
Below, I will elaborate on the potential of digital assets, provide some facts about the industry, and highlight solutions we are building. In closing, I propose three core policy solutions. I urge you and your staff to read this letter and to urgently enact fair and forward-thinking digital asset legislation and to exercise your oversight authority over agencies that are front-running the legislative process. I am available as a resource to assist in getting this important work done. Millions of American investors, entrepreneurs, and, most importantly, consumers await solutions.
Signed, Ryan Silk.
Let’s go through this open letter.
Number one: Digital asset technologies will not be uninvented. Digital assets are now a one trillion dollar global market. We started with a single white paper and an open-source software library; it is now an economic powerhouse employing tens of thousands of Americans and serving hundreds of millions of users around the world. However, we are in danger of ceding one of our country’s biggest competitive advantages—technical edge and innovation—to Europe, Asia, and other parts of the world that better appreciate the potential of this technology.
Yes, digital assets are volatile, and the speculative nature of these early-stage markets makes them risky to investors. Government and industry should work together to protect consumers, guard against market manipulation, and stamp out fraud and illicit activity. However, it is inaccurate to claim that market abuses dominate legitimate digital asset use cases; they don’t. The suggestion from some politicians that the industry revolves around “stealing from investors” or “providing money laundering services to terrorists and drug dealers” is not only quantifiably false—by the way, Messari would know because they keep the records—but also defamatory. It sends a clear message to digital asset entrepreneurs in the U.S.: “You are not welcome here.” The reality is much different.
Well-regulated digital asset financial applications will provide new capital market infrastructure to startups and American small businesses in the same way that they already enable services in emerging markets. In fact, compliant, frictionless U.S. dollar remittances are possible for civilians enduring economic crises such as Venezuela or war in Ukraine, demonstrating the potential for digital asset adoption among underserved domestic users.
It’s not just about finance either; uses for digital assets and their underlying blockchains already extend far beyond financial applications. Policymakers should recall the lessons of the early internet and avoid writing off budding experiments too quickly. As early as the mid-1990s, hints of products like a global encyclopedia, mobile GPS, and video streaming services were identifiable potential use cases for the open internet. Yet, Wikipedia, Google Maps, and YouTube were not founded until 2001, 2004, and 2005, respectively, once internet infrastructure was significantly more mature.
There are ventures using digital assets to crowdfund R&D for rare disease drug discovery—a market where incumbent biotechnology and pharmaceutical companies have limited incentive to explore commercialized treatments. In the creator economy, artists, journalists, and niche entertainers are using digital assets to support their livelihoods in ways that were previously impossible. Pro-democracy voices in Hong Kong used digital asset platforms to preserve 4,000 articles from Apple Daily, a publication shuttered over its dissent from the Chinese Communist Party. Countless applications beyond finance have emerged as digital assets have been used to secure wireless services, consumer digital IP rights, online identities, social media messaging, and more.
Where will we be in ten years if digital asset infrastructure is primarily built in the United States? Setting the record straight for all of its potential, the digital asset industry has glaring communication problems. The learning curve surrounding digital assets is steep, and it takes time and energy to grapple with the unique capabilities these technologies unlock, as well as the new risks they present. To compound the challenge, new innovations emerge daily, and market incumbents evolve rapidly, making it challenging even for full-time industry insiders to keep up.
The digital asset market is also diverse and fragmented, and its participants often have conflicting policy goals. Since there is no single unifying voice that can credibly claim to represent the entire ecosystem, disagreements within the industry over public policy frameworks can create further confusion. Most frustrating is the fact that much of last year’s reckless and fraudulent behavior may have been avoided with a stronger, coherent U.S.-led digital assets regulatory framework. In particular, November’s catastrophic FTX bankruptcy and the alleged fraud of founder Sam Bankman-Fried battered the industry’s reputation, but it was regulatory ambiguity and congressional gridlock that created the preconditions for those failures and the investor harm that ensued.
We can’t let crises or misconceptions about the digital asset industry lead to reactive, misguided, and long-term crippling public policy that hurts U.S. competitiveness. Long term, we must set the record straight.
Number one: The bankruptcy and alleged fraud at FTX was egregious and stands in stark contrast to other major U.S. digital asset businesses operating in good faith under existing laws. The two largest digital asset exchanges, Coinbase and Kraken, and its largest stablecoin issuer, Circle, have been regulated for a decade by the Financial Crimes Enforcement Network (FinCEN) as money service businesses and licensed money transmitters in states where those businesses are actively engaged. Coinbase and Kraken’s subsidiaries also hold various broker-dealer licenses and custodial charters. Digital asset infrastructure providers and stablecoin issuer Paxos holds a New York state trust charter and is the first digital asset company to receive preliminary approval for a de novo national trust bank charter. Custodian Anchorage has operated with an OCC banking charter for the past two years.
It is a misstatement of fact to refer to today’s large U.S.-based digital asset infrastructure companies as both unregulated or unregistered. On the other hand, the issue is that FTX was fueled by the lack of pathways to legal clarity for America’s top digital assets infrastructure companies. FTX’s market share gains in the recent years leading up to its failure happened in large part thanks to its active flouting of U.S. laws and norms from an international base. Meanwhile, the hindrance of compliance-focused U.S.-based competitors allowed FTX to operate unimpeded, siphon off customers, and take reckless actions that created significant financial harm to hundreds of thousands of American investors.
At FTX, executing a scheme similar to FTX would be effectively impossible within the U.S. because our digital assets infrastructure companies are already well-regulated. Further legal clarity and fair guidance towards licensing our industry’s market leaders would be a welcome development, as it would safely integrate digital assets into the broader financial system.
It’s a very important point that Ryan is making here. It’s not a regulation problem; we already have too many regulators, too many rules, and too many things. It’s an issue where, despite the fact that there’s a regulatory framework, you can’t actually apply it. As Coinbase, for example, said with the Wells notice, they talked to the Securities and Exchange Commission 30 times over a two-year period. They have broker-dealer licenses; they’re a publicly traded company. They directly asked the SEC when they were filing their IPO, “Is this okay?” in their S-1 filing. No problem at all; let them do it. And now they’re acting as if they’ve never had a conversation before. That’s not good regulation.
Number two: The SEC’s unfolding characterization of large swaths of the digital assets industry as unregistered securities is overreaching. Current SEC leadership routinely oversteps its congressional authority with respect to the digital assets industry. The agency has chosen to pursue a strategy of “regulation by enforcement” rather than following the regular order of rulemaking, and its leaders have asserted that nearly every single digital asset outside Bitcoin is a security subject to registration and regulatory oversight.
I’d add, by the way, there’s no way to actually come in and register. Back to the letter, the prejudicial public stance from SEC leaders, as well as the agency’s indiscriminate use of its enforcement hammer, has created a profound breach of trust with SEC staff from the perspective of digital asset professionals. Among other things, the SEC has targeted digital asset investment firms with proposed custody rules that, as proposed, would make compliance technically impossible—not difficult, but impossible.
Just important to point that out. The SEC has conducted broad industry sweeps that aim to bury operators with punitive and unnecessary legal expenses and even suggested publicly that current market leaders’ business models rely on being non-compliant. Many digital asset innovators now choose to domicile in Europe, Asia, or other regions with clear regulatory frameworks rather than deal with SEC aggression. A lack of congressional guidance has led to a de facto deposition of the SEC over the digital assets markets that is out of step with our global counterparts.
In Europe, for example, the Mika regulations differentiate utility tokens from asset reference tokens and e-money tokens and propose fit-for-purpose regulation that differentiates between asset types. The UK has four different categories of digital assets. Likewise, Singapore’s Payment Services Act differentiates between digital payment tokens and security tokens. At the same time, the SEC’s actions often contradict the agency’s core mandate to protect investors, provide robust market structure, and promote capital formation.
A good illustration of the SEC’s arbitrary and capricious approach to digital assets oversight lies in its treatment of bona fide securities, such as ETF proposals like Grayscale’s Bitcoin Trust (GBTC). The SEC has obstinately blocked the popular product from approval, even after it approved other equivalent products in late 2021. The refusal to allow GBTC to convert to an ETF has decimated 850,000 GBTC investors whose investments are now locked in a vehicle that trades at a $7 billion impairment to its fair value—an amount that exceeds the economic damage caused by FTX’s bankruptcy. The SEC’s failure to allow industry investor redemptions of GBTC also created a mispriced toxic collateral asset that wreaked havoc on dozens of industry-leading businesses, and the agency’s stance towards GBTC has blocked institutional capital formation around the digital assets ecosystem.
The SEC’s inconsistent approach has been flagged by leaders outside of the digital assets industry as well. The agency’s approach of enforcement versus rulemaking has become a matter of congressional inquiry. Other sitting SEC commissioners have gone beyond dissent on specific agency decisions and taken the shocking step of openly criticizing overall agency strategy towards digital asset market participants as paternalistic and lazy.
Three: There is justifiable concern among digital asset industry participants that we are being systematically debanked and scapegoated for recent bank runs. The challenges that appear to have unwound Silicon Valley Bank—poor interest rate risk management and untimely miscommunications with key customers that sparked panic—had little to do with digital asset businesses. That hasn’t stopped critics in the media from scapegoating the industry as SVB’s troubles are conflated with liquidations of two other regional banks, Silvergate and Signature, that were friendly to digital asset-focused firms.
However, there is not yet clear evidence that Silvergate or Signature were actually insolvent, much less systematically risky to the broader financial system. It is true Silvergate faced significant depositor withdrawals following the collapse of FTX; however, it also secured a $4.3 billion Federal Home Loan Bank advance in January to bolster its balance sheet. It appeared that significant and coordinated short-seller and political pressure may have led to a forced early repayment of this critical loan. Despite an unprecedented $12 billion run on deposits over the course of 90 days, Silvergate ran an orderly liquidation of its business and notably did not require a federal backstop or put customer deposits at risk.
On the other hand, Signature Bank appears to have been the victim not of insolvency but of political targeting. Signature Bank board member and former congressional representative Barney Frank—by the way, that’s the same Barney Frank from Dodd-Frank, the very co-author of the eponymous 2010 Dodd-Frank Wall Street Reform and Consumer Protection Act—claimed that Signature’s seizure by the New York State Department of Financial Services was not due to insolvency but rather regulators’ desire to “send a message to get people away from crypto.” Signature was the poster child for that message. That oppression has since been reinforced by the news that Signature’s sale included an explicit carve-out of its digital assets operations.
I hope Congress will investigate the short-seller activities related to these two banks, as well as the allegations that these institutions were targeted inappropriately and extrajudicially by political opponents for supporting politically disfavored but legal digital asset businesses, especially since the FDIC chair previously presided over Operation Choke Point while serving in the same capacity during the Obama Administration. I’d be happy to share information with your staffs regarding Messari’s own banking adventures. We have recently been rejected by several large banks for the sole reason that we serve digital asset customers.
If anything, the failures of Silvergate and Signature highlight the need for fully reserved and regulated digital asset banking services, such as those proposed by startups like Custodia. It’s hard to imagine a safer custodial bank than one whose capital reserves sit entirely in money market accounts and short-term treasury bills. Yet Custodia was deemed “systemically risky” to be granted a charter from the Office of the Comptroller of the Currency and Federal Reserve. Custodia was forced to sue the Fed over the question of whether Congress ever granted the Fed discretion to decide master accounts at all.
That’s a really important point. We have all these banks failing, like Signature and SVB and others like Silvergate, and they’re all fractional reserve, while Custodia is a full reserve bank, which completely solves the risk problem for stablecoins in our industry. Asset-backed stablecoins are deemed systemically risky.
Despite many concerns digital asset industry participants share around the current U.S. regulatory landscape, there’s room for optimism. Dozens of members from both political parties, both chambers of Congress, and two presidential administrations have noted the promise that digital assets offer our economy. These policymakers have repeatedly signaled a willingness to work with this emerging ecosystem to provide better legal and regulatory clarity for those of us investing time, energy, and capital to ensure America is one of the leaders in this global market.
In addition, the vast majority of industry professionals want clear and sensible legal clarity over digital asset regulation. I will advocate below for the proposed passage of three complementary pieces of legislation that would streamline industry compliance, protect consumers, and preserve U.S. economic and national security interests in this emerging economy.
Number one: Stablecoin backing legislation. Fully reserved, dollar-denominated digital assets could help the U.S. extend the lead of the dollar as the dominant global reserve currency without creating the privacy and security risks presented by a central bank digital currency (CBDC). The Chinese Communist Party’s preferred CBDC solution is many years ahead of any similar initiatives in the United States, but we know there’s already $130 billion worth of demand today for dollar-denominated stablecoins. We must avoid squandering a clear lead.
By the way, I went to the Swiss ambassador’s house a few months ago, and we got a presentation from the CBDC lead in China who is building China’s CBDC. They already have 200 million users inside that system,
Nobody knows, and it's getting to a point where basic things that every business should be entitled to, like banking services, tax clarity, and an understanding of what the rules are, are denied. Then you have the White House writing a report that says our industry has accomplished nothing, provides no value, and we're relearning the mistakes of the financial industry. I'm sorry, but it's not relearning the mistakes of the financial industry when we say to the legislative branch, "Please provide a framework for us." It's not relearning the mistakes of the financial industry when people actively try to embrace the good lessons we've learned over the last hundred years and are denied basic things. That's malice.
Meanwhile, back to my prior videos, we still have the problem of inequality. Three billion people are cut out of the system, with six percent average global rates for remittances and microfinance that exceeds 100 percent. We still have all the terrorism and most of the financial crimes. We still have huge barriers to entry, and we're all starting to really get concerned about things like national debt, inflation, interest rates, and the overall stability of the global banking system. We also realize that financial innovation is still incredibly hard, fragmented, and weaponized by the large to prevent the small from competing with them.
So, every leader in this industry, you have to do what Ryan did. Step up. Don’t complain about it; write letters. Put your voice on the line and tell the legislative branch what you think, because we're not going to get anywhere. Right now, what's happening is that the people who are talking to legislators are those Congressional reports, the White House is writing, and bureaucrats who are responsible for the situations we're currently in. It's double speak.
This is an intelligent letter; it's ten pages long by a person who created a business—the kind of business that everybody says we should have in the United States. It's well-cited, well-supported, and it outlines some simple facts, some simple truth bombs. That’s why I read it. This has to be done by Kraken and Coinbase; this has to be done by Consensus. If you work at these companies, tell your bosses, "Guys, we have to go on the line. We have to write open letters. We have to go out there." If you write them, all read them. I don’t care if we’re brutal competitors in the market; my fan base needs to know, and your fan base needs to know too.
We have a small window of time to get this done right as an industry, and if we don’t, by default, it’s going to be shut down, and all this is going to be lost. We’re going to be in a situation where the U.S. gets left behind. I have ranches in Wyoming and strong roots in the United States. I love my country. We don’t always do the right thing. I’m one of the harshest critics of many things, from our foreign policy to our monetary policy. But at the end of the day, there are a lot of good Americans out there—many listening—who care, and they don’t deserve to be let down and told that while they could have access to better money that’s more honest and transparent, it’s being taken from them by people they didn’t elect. The people that they did elect don’t have the inputs necessary to truly understand what’s going on.
Open letters talk about your banking problems and choke point 2.
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