White House's Framework for Responsible Development of Digital Assets
First-ever framework for responsible development of digital assets
Just last week, the White House released its first-ever framework for responsible development of digital assets.
This is after President Biden’s March 9 Executive Order (EO) on Ensuring Responsible Development of Digital Assets which outlined the first whole-of-government approach to addressing the risks and harnessing the potential benefits of digital assets and their underlying technology.
Through this framework, it gives us a brief insight on how the US government views crypto in general.
Let’s take a look.
Introduction
16% of US adults have purchased digital assets since last November, reaching a market capitalization of $3T at its highest. The US recognizes the potential opportunities within digital assets that reinforces their leadership in the global financial system, but is also aware of the risks as evidenced by the crash of the “so-called stablecoin” and “subsequent wave of insolvencies” which wiped out over $600B of funds.
This framework aims to develop recommendations that advance the 6 key priorities from Biden’s March 9 Executive Order on Ensuring Responsible Development of Digital Assets.
We’ll discuss some of the more important priorities:
Protecting Consumers, Investors, and Businesses
Fraud, scams and theft in digital asset markets are rising, with reports of scam losses being 600% higher in 2021 than the year before. One study found that almost a quarter of digital coin offerings had disclosure or transparency problems—like plagiarized documents or false promises of guaranteed returns.
The administration, the SEC and CFTC will “aggressively pursue investigations and enforcement actions against unlawful practices”. Agencies are also urged to collaborate and share data regarding digital assets, ensuring maximal effectiveness. The Financial Literacy Education Commission (FLEC) will also lead public-awareness efforts to help consumers understand the risks involved with digital assets.
Promoting Access to Safe, Affordable Financial Services
The White House acknowledges that TradFi leaves a large number of people behind (7 mil unbanked, 24 mil relying on costly nonbank services)
TradFi infrastructure is also costly and slow (esp. cross-border payments)
With that, the Fed plans to launch FedNow in 2023.
FedNow is an instantaneous, 24/7 interbank clearing system, which will help facilitate faster payments and make financial services more accessible.
Read more about FedNow here.
Fostering Financial Stability
The White House is aware of the disruptiveness of stablecoins if not paired with appropriate regulation, as illustrated by the crash of the so-called stablecoin TerraUSD (UST) and the subsequent waves of insolvencies that erased $600B in wealth.
In the coming October, the Financial Stability Oversight Council (FSOC) will publish a report discussing digital assets’ financial-stability risks etc.
To make stablecoins safer, they will be working with banks to identify and mitigate cyber vulnerabilities by sharing information and promoting a wide range of data sets and analytical tools.
The Treasury will also work with other agencies to identify, track, and analyze emerging strategic risks that relate to digital asset markets.
Fighting Illicit Finance
The emergence of digital assets have facilitated the rise of ransomware cybercriminals; narcotics sales and money laundering for drug trafficking organizations; and the funding of activities of rogue regimes, as was the case in the recent thefts by the Democratic People’s Republic of Korea (DPRK)- affiliated Lazarus Group.
This is in the national interest to mitigate these risks through regulation, oversight, law enforcement and use of other government authorities.
The President will evaluate whether to amend the Bank Secrecy Act (BSA) and laws to apply to digital asset service providers, including NFT platforms (hello Opensea / LooksRare)
The Treasury will also complete an illicit finance risk assessment on decentralized finance by the end of February 2023, and an assessment on NFTs by July 2023.
Penalties for unlicensed money transmitting will be raised as well.
Exploring a U.S Central Bank Digital Currency (CBDC)
A U.S CBDC, a digital form of the US dollar, has the potential to enable a payment system that is more efficient, provides a foundation for further technological innovation, facilitates faster cross-border transactions, and is environmentally sustainable.
Recognizing the possibility of a US. CBDC, the Administration has developed Policy Objectives for a U.S CBDC System, which reflects their priorities for a potential U.S CBDC. But they acknowledged that further research and development is required.
Personal Thoughts & Conclusion
Overall, I think the crypto community should see this as good news, as it is evident that the government is not trying to ban crypto. However, this framework given still does not give us any clear specifics on the most pertinent issues present in crypto.
The framework is not outlined in detail how they will be treating privacy concerns, and there seems to be a lack of rules and protections for the average consumer. This document is essentially just a promise from the government agencies that they will “look more into it”.
It will probably take some time before consumers will feel safe buying cryptocurrencies, but as of now it remains the Wild West. With that, please stay safe.