Change Won’t Happen With Chairman Clayton Around: Kristin Smith

This post is part of CoinDesk’s 2019 Year in Review, a collection of 100 op-eds, interviews and takes on the state of blockchain and the world. Kristin Smith is director of external affairs for the Blockchain Association.

The Blockchain Association was founded just over a year ago as crypto’s permanent advocate in Washington D.C. By bringing together disparate projects, investors, exchanges and regulatory bodies, the Association is working to build a comprehensive framework for understanding these emerging financial technologies.

For Kristin Smith, the group’s director of external affairs, public policy cannot wait for legislators or courts to decide on the issues. Blockchain represents the next competitive front for U.S. business and needs an independent organization to agitate for legislative clarity. What follows is a lightly edited conversation with Smith about the biggest regulatory shifts of 2019, and what they might mean for the future of crypto. 

Kristin, what were the big moments for you this year? 

The Token Taxonomy Act, which was reintroduced  by a bipartisan group to Congress in April. It finally addressed the various concerns in the industry have such as how individual state laws will interact with the bill. It showed that Congress might play a role in fixing the regulatory issues.

Libra had a super interesting impact. All of the sudden members of Congress realized  “Holy cow! This crypto stuff is a real thing. There are real companies that are trying to enter this space.” So that skyrocketed the level of attention in Washington’s political circles. Because of Libra, Congress has really shifted their concern and is engaged in figuring out how they can take the lead. We need a Congress that wants to make sure that the U.S. continues to be strong, and that the dollar continues to be strong. How do we not necessarily resist, with the exception of FEMA, visit Congress like, But how do we embrace the technology in a way that still meets public policy goals. We’ve come a tremendous way in the past year, but we have a long way to go.

Is Congress starting to understand blockchain and crypto better? 

Initially, there was interest amongst a couple of forward-thinking lawmakers looking to carve out a niche for themselves by focusing on something nobody else was. We were able to get the attention of a few junior members in the house. But now we’ve got the attention of the more senior members in both the House and Senate, who are thinking about how to make sure that appropriate regulation is in place. We used to have to beg to get attention, and now, members are coming to us. They’re asking, what can we do to help these problems?

Were you surprised by Congress’s reaction to Libra?

I wasn’t surprised, actually. Facebook is out of favor with lawmakers on Capitol Hill for multiple reasons relating to the election and privacy issues. That hadn’t previously understood that Facebook makes money by selling users’ information. I think it really came as a surprise to Congress that Facebook has not been popular from the beginning. 

Lawmakers are beginning to realize they can’t do much to stop it, if Facebook wants to do it.

I was surprised by the reaction from Rep. Maxine Waters [the chair of the House Financial Services Committee]. She immediately, without asking any questions, called for a halt the project. There’s still some concern among members, but we’re also starting to see some who want to let the project grow and let innovation happen. Lawmakers are beginning to realize they can’t do much to stop it, if Facebook wants to do it. But, yeah, it was pretty rough rollout. I don’t know if Facebook should have done a little bit more advanced work before making the announcement. 

To some extent, Kik’s ongoing legal fight with the SEC is less about whether Kin is deemed a security, but rather how Ted Livingston [CEO of Kik] and the company address combative regulators. Does the Blockchain Association have a view on how Kik is challenging securities law? 

Kik is not a member of the Association, but we’re watching the case very closely. We think it has potential to impact the way that other projects and exchanges interpret securities laws. In any case, it’s a very important case. Kik started this Defend Crypto fund, and put about $5 million into it. About a month or so later, they decided to take that $5 million investment back and give the remaining sum to the Blockchain Association to manage other projects that are unrelated to Kik. We’re grateful for that responsibility.

It’s really difficult and confusing to know how and when these securities laws apply. There isn’t any clarity. Also, these laws are incredibly expensive [to comply with]. Small projects that might have a good idea are not able to retain lawyers to help them. We can change the policy to provide clarity. But that process takes time. You either get something to Congress, you have a regulator schedule a rule, or, as we’ve seen with the investment contract analysis defense, figure things out through the judicial process. Have the courts interpret policies that way. 

There were a few notable settlements this year, including the conclusion of the SEC’s investigation into EOS’s initial token sale. It seems like the penalty for not disclosing information to investors or registering with regulators is being worked out in real time. Do you think EOS’s settlement provided clarity for the rest of the industry?

The interesting thing about that settlement is the SEC didn’t go after block.one’s token as it exists today. They were looking at the token used initially to raise funds. And they’re doing the same thing in Kik’s case. The case is about the token distribution, not about whether or not Kin today is a security. Similar to how ether is not a security today, though it may have been at the time of its initial sale. So we have a situation where we know that you can get to a place where these tokens are not securities, but it’s still not clear how to get there without having this period of time where something is a security. These cases could play out in multiple ways. But it’s not helpful for the SEC to look back and be like, “Well, that offering, you know, wasn’t registered, that was wrong,” because there’s still no clear pathway on how to get from security to commodity without having to go through that process. 

I think block.one was smart. The settlement they were offered was relatively small compared to how much money they raised. But it doesn’t lend itself to a pathway forward for projects that are looking to launch. It almost created a problem by pointing out that there is no way to get there. 

What projects are you funding with Kik’s Defend Crypto money?

At this point, we haven’t publicly used the funds for any sort of specific cases. We we have the money set aside for when things come up. As of now, there hasn’t been a situation where somebody is in the cross hairs with the SEC and needs support.

Will the SEC pursue more actions in 2020?

There are always ongoing investigations. I don’t think that will go away. We may start to see some decisions, especially with Telegram and Kik later next year, that could potentially clarify things in a way that will either be good or bad. 

I think we’re gonna start to see legislative movement. As long as Chairman Clayton at the SEC is still around, I don’t think we’ll see a whole lot of progress at the SEC. But I do think we’re going to see legislation or bills introduced. We’re working on bills on the Senate side that we’re hoping to get introduced. We’ll see more legislative action as a way to ultimately solve the problem or put pressure on the agencies to take matters into their own hands. It will be a turning point for Congress when we see more consumers starting to use crypto on a regular basis. I feel like we’re on the cusp of getting some of these things out there, so that it’s not just people Hodling bitcoin in their coinbase accounts, but actually using it to interact with services online. When we start to see more everyday users, that will be a tipping point for Congress, because up until now, it’s been a niche interest. Libra is a pathway for them to do this. It could be a real use case for millions of people to move money around the world.