Welcome back. Washington is still working out one of crypto’s biggest questions: does a digital token stop being treated like a stock, and when does that happen? In August the SEC proposed its first major crypto rules, giving projects new ways to raise money and a path out from under securities laws. But public comments just closed. Meanwhile, the big crypto bill in Congress fell one vote short in the Senate last month. And today’s news about Binance, the world’s largest crypto exchange by trading volume, says that a hack cost it billions of dollars. That breach hit the company’s own system, and it is raising another question: who is really controlling crypto? That is what our next guest studies. Joining us now to discuss this and more is Kyle Bligen, Executive Director of the Decentralization Research Center. Kyle, thanks so much for joining us today.
Thank you for having me.
Let’s start with the really big news making headlines overnight, a multibillion dollar hack. This happened inside a company, not a blockchain. What should regulators take from all this?
Look, I don’t want to speak too early because the investigation is still ongoing. But I think this is a global wake up call for the industry broadly that we all have to lock arms, both at centralised institutions and decentralised institutions, to stop nation state actors and threats from hacking systems where customers keep their assets, so that consumers can be protected and retail investors feel comfortable in the crypto markets.
Let’s turn to Washington now, because the SEC’s new crypto proposal would set rules for how projects raise money and when a token no longer counts as a security. In plain terms, what is the SEC trying to do, and what would you change?
As you said, they are trying to establish rules for fundraising, for initial offerings, for projects. We think it is going to be great for capital formation. One of the concerns we have at the Decentralization Research Center is where the investment contract begins and where it ends. The way it is constructed right now, it relies too much on the promises of individual developers. We believe there should be an objective test that the SEC and regulators can implement to understand where a contract starts and when it ends, and not just rely on promises.
Under the proposal, a token would stop being a security once its team says the work is done. But every project claims it is decentralised. Your group says the real test is who has control. What should that test look like?
One hundred percent. Great question. We break it down into four parts about what control looks like. First is token ownership: who owns the token, and what is the percentage of token concentration. Second is the consensus mechanism of the blockchain network. Is it proof of stake, and how does it operate? That is very important for consumers. Third, does the network operate autonomously? Does it operate based on a predetermined set of rules? And lastly, is there a group of individuals, a company, a core developer group that can actually limit interaction between consumers and the network, to censor transactions or block participation?
Let’s talk about what is going on in DC. The crypto bill was blocked in the Senate, and the SEC rules are still a proposal. What does that in-between state mean for builders?
I think it is still unclear. A lot of individuals are heartened by the work the SEC and the CFTC are doing in the status quo, because they recognise that Congress fell short of passing the Clarity Act. But we still have a lot of work to do. I know a lot of firms see that Congress paused, and they know the SEC and the regulators are going to come up with rules, and they are taking a step back. At the Decentralization Research Center we are still going before the regulators to ask for regulations that are going to be beneficial to builders and the overall market. We are not taking our foot off the gas, because we think there is still a partnership to be had between industry and the regulators that can be beneficial for consumers.
Looking into the next few months, wrapping up this year and looking into 2027, what are your thoughts?
I don’t think a lot is going to be determined by the midterms. Politically, we have a conversation around the different priorities between an incoming Democratic Congress or Republican Congress, and what that means for the industry as we relate to new politicians and new priorities. And then, how do we still educate regulators during this trying time? As you said, there is new crypto news being made every single day. Individuals are still proposing new projects. Innovation has not stopped, but I think the regulation can get clearer. The rules are still needed. We still need a durable set of rules in the United States and also globally, so that work won’t stop.
With the midterms coming up in a couple of days, does Congress have to start over on crypto in 2027?
I don’t think it is a start over. The industry has been engaging with Washington for years. If you are a savvy operator in Washington and you have great bipartisan relationships, which you should have, your work doesn’t start over. It just has a new face. If we have different parties in the majority and the minority, we realign our priorities with what would be beneficial for those parties, for the industry, for consumers, and for the politicians and their constituents. So I don’t think the work the industry is engaged in has to restart. It might just look different.
Kyle, thank you so much for joining us today. Definitely a pleasure to have you here on Capital Markets.
Thank you, I appreciate it.
