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Brian Armstrong, CEO of Coinbase, presents the reasons why crypto needs regulation

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Brian Armstrong, CEO of Coinbase, the cryptocurrency exchange preferred by many, was interviewed by Bloomberg[1]. I’ve selected a number of key comments he made, as this feeds well into my arguments about DeFi (Decentralised Finance) versus CeFi (Centralised Finance). All commentary below is direct from Brian:

One in five households have used crypto, about 50 million Americans. This is becoming a major constituent, lobbying group and everything that’s going to shape future elections. These average people, they may not have the exact solution for what the legislation should say around regulation of crypto, but they do know that they want elected representatives who are going to ensure that this industry comes within the regulatory perimeter, offers consumer protection, but also allows this innovation to flourish so that we can update the financial system.

80% of Americans now believe that the financial system doesn’t work for them. It’s either too slow, it has too high a fees, nobody has equal access, or not everyone has equal access to it. And it’s not surprising that’s the case. I mean the technology behind the financial system is sometimes forty years old. It’s written in COBOL on these mainframe computers and the laws for it are sometimes a hundred years old. They were created before the internet even existed. So it’s time to update the financial system. I think the average voter in America is now realizing that crypto is one of the great technologies that can help them update that, and they want their elected representatives to bring that legislation and clarity to the US.

Compared to 2020, many more people that I meet with in Washington are actually pretty knowledgeable about crypto now. It’s no longer a niche thing. Some of the conversations I had five years ago, they were very basic, but most people that I speak with now actually have a reasonable understanding of crypto.

I think there’s two camps. One camp is saying, “Hey, in the wake of FTX, I’m afraid of being associated with crypto and I’m just going to wait and see what happens because it’s too dicey to even go near it.” The other half are saying: “This is an opportunity. I want to be one of the people who helps bring this within the regulatory perimeter, and we can see how important that is now with the collapse of FTX.” And so they’re actually drafting legislation, they’re trying to gather bipartisan support to get some clarity going. I’m personally much more in favor of that latter group.

It’s pretty clear everybody, generally, should be regulated. It applies some of the best practices and standards so we don’t have fraud and corruption and things like flash trading or AML issues, but the decentralized pieces of crypto, that’s different. I mean we need to have decentralized protocols so that we can have a more global and fair and free financial system. And that piece, I don’t think those are going to be regulated because there is no central authority for Bitcoin or Ethereum, for instance.



I would say the regulation and the consumer protection probably should happen with the centralized actors, the custodian, the exchange

The firms that are being built around custody or trading of things like that, they’re going to have to have some of these best practices from the traditional financial services world. So, let’s have audited financial. Let’s make sure customer funds are segregated from corporate funds. Let’s make sure that there’s AML, KYC programs and avoiding flash trading and appropriate disclosures are important as well. So those are all just kind of good general best practices. But again, it’s focused on the centralized players as opposed to the decentralized pieces.

Centralized players like Coinbase should be regulated, but we are embracing decentralization at Coinbase. We have a number of different products and legal entities and different ones working in various areas. So we did launch this really exciting thing, a layer-2 solution called Base. And our goal with that is to help provide more scalability and better usability for layer-2 solutions. So we want to get transactions in Ethereum down to a penny or less, and help that scale to hopefully a billion or more people someday.

Base has some centralized components today, but it’s going to be more and more decentralized over time as it grows. We have a responsibility in terms of transaction monitoring, things like that, that we have to look at in the early days. But as it decentralizes, I think that, again, the centralized actors are the ones that are probably going to have the most responsibility there to avoid money laundering issues and having transaction monitoring programs, things like that.

The best thing for us and for the whole industry would be, here’s a clear rule book. Everybody has to follow it. And if the rules change, give us a new rule book, we’ll follow that one. We’ve actually been requesting that and we filed a petition with the SEC on this, people can read it on their website, and we sort of enumerated, look, these are the ways that the current securities laws don’t really address some of these underlying questions in crypto. If there is no common enterprise or centralized entity behind this thing, who publishes the disclosures? So there’s questions like that.

Now, what we’ve done in the absence of that clarity, which again would be the best case scenario, is that we have created our own internal process to review assets. And we developed something, I think it has 72 points in the legal analysis, and then one area it looks at is securities law … if the SEC comes out and say, “We think this asset is a security,” that’s great, now we have clarity. And assuming if it meets the legal definition, it’s not going too far, we would be happy to update our process and our system based on that new information.

Now ultimately, if they publish something and they say, “Well, we think all these assets are securities,” well, that’s not really our understanding of the law and of the third parties and external council we’ve worked with. And so there is a line here where they would have to say, “Okay, well let’s let a court decide that,” because we have to follow rule of law and so does the SEC, right? And so if they put out their opinion about something, that doesn’t necessarily mean it’s true, the court ultimately has to be the decider on that.

An expectation of profit alone does not make something a security. It has to meet every prong of the Howey Test[2] is my understanding. So an example might be a Picasso painting, hoping it goes up in value, or buy gold or something like that. Those aren’t securities.

I’m spending a lot more time in DC. I’m trying to figure this out too. Perhaps I was a little naive coming in. I kind of assumed that when you’re running a business, that the regulators just give you the rules and then you just follow them. That would’ve been how I assumed it would work, but it seems to be more complicated than that. Maybe there’s various political motivations, there’s different factions within the government who have different goals.

People who’ve gotten legislation passed, they’ve told me it’s kind of like a small miracle whenever it happens. You have to get the House and the Senate and the President all aligned, and there has to be a real impetus for it to happen. I kind of believe this thing with FTX is maybe that impetus, maybe this is our moment to finally get some clarity in the next year.

In the wake of FTX where, reasonably so, bank regulators are asking tough questions and they’re basically coming in and saying, “What are the liquidity risks if you’re going to take crypto deposits? Is it okay to be making loans against those deposits or are they too risky?” And I think those are totally fair questions to ask.

We want to just be treated on a level playing field. Don’t unfairly penalize crypto versus traditional financial services, but you shouldn’t allow us to have a lighter weight system or anything like that either. So, it’s a balance.

[When FTX collapsed] we started to think about, okay, well this is actually quite validating of our strategy over the last ten years of being built in US, trying to embrace compliance, not trying to cut any corners. How can we make sure that people understand that Coinbase, it’s not like FTX? And I basically thought about it as it’s going to be a black eye for the industry but, ultimately, Coinbase stands to be a huge net beneficiary of this because it’s going to bring an increased focus on compliance and trust, which is what we’ve been doing for the last ten years.

The first use case of crypto was really a new form of money or this new asset class that got created. And a lot of the activity early on was speculative, although just I don’t want to undersell that first point because, by having a new form of money that is global and decentralized and guaranteed to be scarce, that is no small thing.

I mean we sort of take it for granted in the US that our currency is relatively stable, even though it inflates more recently, most people in the world, that is a luxury they do not have and it would be an incredible benefit to humanity if the only thing crypto ever did was a form of sound money for the world, that anybody could have as long as they have a smartphone. That is a game changer. So let’s not undersell that.

But beyond crypto being just a new form of money, it also became a new type of financial services, DeFi, and we saw different ways for people to do borrowing and lending and commerce payments and staking and various things like this. So that was all very good.

Now the third realm is … about decentralized social and everything. We call it Web 3.0. It’s not only a new type of money, a new type of financial services, but a new application platform. Even things that have nothing to do with financial services. And I’m pretty excited about, for instance, decentralized identity with ENS (Ethereum Name Service, a form of digital identity). That’s a foundational component. So, people’s identity doesn’t have to be owned by a big tech company. Once you have decentralized identities, you can connect them in a social graph. You can make decentralized social networks. You can have public profile pages with badges and accreditation and your badge [gives you] accessing buildings, proof of attendance, concert tickets, all these kind of things. New business models for the music industry and YouTube, Spotify. You can imagine all these things being built in a new way-

The average person doesn’t really know what a private key is. They don’t want to install a Chrome extension to understand something. It needs to be just simpler for the average person.

Look at the internet as an example. The foundational pieces of the internet go back to the 1960s. We think of the internet as happening from the year 2000, but it took a lot of foundational work to happen before that … I would love it to happen faster. I mean let’s be honest, the regulatory environment has not helped either. It’s like, there’s a fear in the United States that if you start a company in this space, you’re just going to have a bunch of legal bills and subpoenas in your inbox or whatever. So, that’s not helping either, but we can’t blame it entirely on that. The technology needs to be more scalable, more usable, and it’s all happening. It’s just taking a while.


These are edited quotes from the podcast Odd Lots, a regular discussion hosted by Bloomberg's Joe Weisenthal and Tracy Alloway, and well worth a listen!


FYI, Coin Telegraph also picked up on this interview and quoted @ChrisBlec, a “fierce advocate for immutable, unstoppable decentralized tech, who commented: “Isn’t it ironic that ‘DeFi’ is heading toward being controlled by the entities that it was originally supposed to be battling?”


[1] You can watch the interview here

[2] The Howey Test refers to the U.S. Supreme Court case for determining whether a transaction qualifies as an “investment contract.” If a transaction is found to be an investment contract, it's considered a security.

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Chris M Skinner

Chris Skinner is best known as an independent commentator on the financial markets through his blog,, as author of the bestselling book Digital Bank, and Chair of the European networking forum the Financial Services Club. He has been voted one of the most influential people in banking by The Financial Brand (as well as one of the best blogs), a FinTech Titan (Next Bank), one of the Fintech Leaders you need to follow (City AM, Deluxe and Jax Finance), as well as one of the Top 40 most influential people in financial technology by the Wall Street Journal's Financial News. To learn more click here...

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