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CFTC chairman admits regulation must keep up with innovation

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Speaking at the digital LA Blockchain Summit, Commodity Futures Trading Commission chairman, Heath Tarbert, said U.S. regulation lags behind crypto and blockchain.

“I would be the first to agree with you that innovation is unlikely to come from the government,” Tarbert told interviewer Anthony Pompliano on Oct. 7 as part of an event segment on the role of digital securities in the derivatives market. Tarbert explained that the private sector often leads innovation, with regulators’ carrying the job of overseeing such advances. He added:

“I see my role as a regulator as not so much innovating ourselves, but we want to be innovative for a regulator, but not necessarily innovate for the community, but we’ve gotta keep up.”

Since the birth of the crypto and blockchain industry roughly 11 years ago, U.S. regulation in general has failed in keeping pace with the quickly developing sector, often using a heavy handed approach. Initial coin offerings serve as one example, bursting onto the scene throughout 2017. In response, regulating bodies came in heavy against this new method of fundraising. As a result, token sales are now all but extinct.

Ripple’s XRP, which has been one of the top crypto assets since 2013 according to rankings from a CoinMarketCap historical snapshot, serves as another example. XRP saw a lawsuit earlier in 2020 claiming the asset as a security — a ruling that should have been clarified years ago. 

Many regulatory growing pains seen in the crypto space relate to the Securities and Exchange Commission, or SEC, although regulation as a whole has some catching up to do.

Tarbert assumed his role as CFTC chairman in July 2019, joining the scene amid significant technological advancement following closure on the 2008 market downturn. “It was a good opportunity for us to revisit our mission,” Tarbert explained. The commission crafted an updated mission statement. The CFTC desires “to promote the integrity, resilience, and vibrancy of U.S. derivatives markets through sound regulation,” Tarbert said, quoting the mission statement. 

“Of those, vibrancy is the one that gets at the innovation, gets at the innovation point that we don’t want our markets to be stale, we want them to be continuing to develop and be innovative.”

The current landscape, however, appears contrary to this stated desire for innovation. U.S. traders still have a difficult time as many crypto exchanges ban U.S. participants, fearing the country’s stiff regulatory scene. Crypto derivatives exchange BitMEX is one of the most recent examples of these related consequences.



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Regulation

New York authorizes first Yen stablecoin operator in the US

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New York has given the first authorization to a stablecoin backed by the Japanese Yen to operate in the U.S.

Per a Dec. 29 announcement, the New York Department of Financial Services has granted Japanese firm GMO-Z.com a charter to handle U.S.D. and Yen-backed stablecoins in New York. 

Given New York’s status as a global center, the NYDFS is the most prominent state financial regulator in the U.S. It is also one of the most aggressive. A pass to operate in New York often opens up the rest of the country. 

GMO’s charter is as a limited liability trust company rather than a full bank, the principle difference being in authorization to handle deposits. While a stablecoin operator typically needs the ability to hold reserves of the pegged asset, GMO’s charter limits its rights to hold other kinds of deposits not central to its ability “to issue, administer, and redeem” its stablecoins. 

The right to issue such non-depository charters has been a bone of contention between state regulators like the NYDFS and national banking regulators in the U.S. 

GMO president and CEO Ken Nakamura said: “We’re breaking ground with our move to issue the first regulated JPY-pegged stablecoin, which many see as a safe haven asset.” 

The NYDFS recently made changes to its famous BitLicense, including a conditional format that buddies up newly licensed firms with existing licensees. The first conditional BitLicense went to PayPal, facilitating the launch of its new crypto services earlier this fall with the help of longstanding licensee Paxos.