The biggest regulatory story of the week was a hearing by the United States House Committee on Financial Services, which focused entirely on crypto. Even the title of the event – “Digital Assets and the Future of Finance: Understanding the Challenges and Benefits of Financial Innovation in the United States” – conveyed a different vibe from the countless previous congressional meetings that had been primarily about investor protection or security risks or threats to financial stability.

Judging by the feedback from many attendees and industry experts, the exchange was received as an overwhelming positive, with lawmakers asking informed questions and otherwise acting as if their goal was to understand this new thing rather than to understand this new thing. ‘act on preconceived ideas. Of course, there were tired questions about Bitcoin’s environmental footprint and the anti-crypto rants of Rep. Brad Sherman, but it all ended up looking a lot like a constructive dialogue between the digital asset industry and lawmakers we’ve been waiting for. for a while. .

Below is the concise version of the latest Law Decoded newsletter. For the full breakdown of political developments over the past week, sign up for the full newsletter below.

Listening to the industry

The hearing, convened by Financial Services Committee Chair Maxine Waters, focused on the role of crypto exchanges, the growth of the stablecoins industry, and general issues related to the global regulation of digital assets. Several crypto CEOs have been summoned to represent the crypto space.

Some of the salient themes discussed in the House included the decentralization of the crypto-fueled digital ecosystem – a politically advantageous angle at a time when many U.S. lawmakers worried about the takeover of the tech giants of the era. Web 2.0 – as well as US regulators. reluctance to give way to certain crypto investment products that could be seen as a symptom of a fragmented approach to regulation. The relationship between the global role of the US dollar and the growing demand for stablecoins has also received a lot of attention.

BIS: Terrified of DeFi?

In order not to get too carried away by what looks like a victory in Congress, a note on the latest Bank for International Settlements report on decentralized finance is in order. The “bank of central banks” dove deep into DeFi’s sprawling space and came up with a handful of scaremongering slogans such as “the illusion of decentralization” to describe it.

BIS analysts are concerned about some structural aspects of the DeFi landscape, such as liquidity mismatches and the lack of buffer such as banks. The report’s authors argue that the protocols governing DeFi activity carry risks of centralization, potentially leading to a concentration of power within these systems in the hands of the few. These claims are sure to raise many eyebrows, especially among those familiar with the DeFi space closely.

CBDC standby

The BIS taste for more controlled financial innovation is reflected in the news of its specialized department, BIS Innovation Hub, actively engaged in the trials of digital cross-border settlement based on the euro, alongside the central banks of Switzerland and France. . The experiment was considered a success, but the parties concerned insisted that it does not justify the final issuance of a European CBDC.

In other centralized news on digital currency, a two-year survey by the Reserve Bank of Australia ended with a report that highlighted the potential of a wholesale central bank digital currency to improve the efficiency of financial market transactions.