SEC Casts Watch — Crypto Regulation Beyond the Wall
Part 1 — SEC Casts Watch — Crypto Regulation Beyond the Wall
Science Fiction and Fantasy are such great blueprints for ethical and societal problems. Imagination is the blueprint for outrageous metaphors showcasing societal caricatures and power dynamics. They are creative sandboxes to explore human nature, ethics and morals without judgment(or as much judgment). Currently we are in a battle of paradigms between a regulatory leviathan and a scrappy bunch of world citizens. For this article to make much sense, the reader probably needs to have watched or read “Game of Thrones.”
In Game of Thrones the “polite” society of the fictional land of Westeros had their rules, their leaders and their violence. This balance was generally a political one that had the King in power as the winner and uniter from the last war. But the Kingdom was not well and the delicate balance was overturned and the series followed the power struggle as the rule of law following entropic decline into chaos and war. From the historic perspective of the Kingdom, their forefathers had constructed a huge ice wall to keep out the invaders from North of the Wall, basically they were the others, the barbarians, the “wildlings.”
The civilized world actually had a protection force of sorts, the “Night Watch” that would be used to wage war on the wildlings and keep them in check and push them back over the wall if there were skirmishes. This was the homeostatic state that the world of Westeros found itself in. From the perspective of the people that lived north or the Wall, they were the “Free Folk”. They had to survive against very harsh conditions, a permanent winter, and obviously a monster or two. But they were free. Or at least appeared to have more liberty than “the living” in the civilized society of Westeros.
Ultimately an existential threat, the “Night King” the leader of an undead army, began to prey on the Free Folk north of the wall. This causes them to push against and attempt to breach their large gated prison. For them it was an existential threat, die fighting against the Night King or take their chances against the Night Watch. From the perspective of the Night Watch and Westeros it was to wage war on the “civilized” world of Westeros. By using fantasy metaphors, maybe we can talk about power, law and freedom.
Can’t have Culture without a Cult
Crypto has been described by some venerable media publications as a “cult”. Therefore, in this essay the cult of crypto is analogized to those vestiges of civilization trying to make its way as wildlings north of the wall. The wall is obviously the regulatory paradigm that has been built through law and increasingly administrative law (bureaucratic law). The references to stay in compliance as a starting guide are the Securities Act of 1933, 1934, Investment Company Act, Dodd Frank, etc, etc etc. When you are done reading and digesting all of those, then chances are George R. R. Martin will have finished the series.
The wall and SEC are considered by many to be “Crystal Clear”, just follow the rules and opt into the “public policy goals and frameworks” as described, but not really defined, by SEC Chairman Gensler. To many, they are not crystal clear and rely heavily on the arbitrary judgment and prosecutorial discretion of the SEC as the regulatory body in charge of the rules promulgation and the law’s enforcement. Just like Charlie in the Factory, you may have found that you missed the fine print.
Willy Wonka & the Chocolate Factory — You Lose! Good Day Sir! Scene (10/10) | Movieclips
SANDBOXES and SNOWSCAPES:
Without regulatory and economic sandboxes it becomes impossible to know what innovations might make sense, and which should fail. What is the cost of the regulation versus the cost of the harm that the regulation solves for? This weighing of the cost and benefits are rarely discussed or measured. In the example above, it becomes clear over the seasons that the “Free Folk” living north of the wall are more of a democratic monarchy, the leader which has more legitimacy amongst his people and less legitimacy through violence. Legitimacy through violence is all that Westeros knows. It literally holds the fabric of society together. Legitimacy is a funny thing, and this post is obviously guided in part by this fascinating Vitalik Buterin post on legitimacy here. How does one defend autonomy, freedom to invest and contract as a private citizen in a peer to peer manner while also defending against fraud, scams and financial violence?
Much like Westeros, our great United States is decentralized with certain state powers being reserved for the individual states. Economic sandboxes to explore regulatory changes in a safe and on a trial basis are gaining steam. It should be noted that this is perhaps coincidentally happening in the wild western states of Arizona and Utah, with reforms on the license and structure of law firms. For more on the Utah and Arizona regulatory sandbox check it out here. Kudos to them for trying something new even if it is wrong.
The value of an economic sandbox premised on neutral ground
Many of the power centers around the world are antsy and make pointed critiques that are often disingenuous and of dubious nature. Seems like every day is met with FUD de jure from some regulatory body somewhere in the world. As an example here is some from the Bank of International Settlements. Much like the Mountain, some of these paragons of international finance are dead, they just don’t know it yet.
What if there were a way to test the economic and legal models in production, to allow for commerce to transact in neutral waters similar to the historic and currently applicable law of the sea or other international consensus. Why would bureaucrats not want to know whether their proclamations and rules are value accretive? Often regulatory ossification is tough to overcome and becomes very resistant to innovation and reform. Stakeholders actually become profit takers from the regulatory friction. Much like the regulatory sandboxes in play in Utah and Arizona, it is not completely farfetched to imagine a regulatory safe zone for distributed ledger technology to test the limits of governance, self regulation and self custody in lieu of the current regulatory paradigm
In Part 2 (coming soon)we will explore if the SEC is losing legitimacy and if lost, how will it get it back.
Special thanks to Nick Rishwain for providing.
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