Crypto and the Battle for the Future of Money, Power & Fiat
If you haven’t lost money, you haven’t been in crypto long enough. Digital Assets and Digital Currency is about more than reimagining money, founders and projects need to get ahead of the incoming regulatory hurdles regardless of jurisdiction.
Having spent the last 15 years building and scaling businesses both outside and within Crypto, I set up KYAX (Know your Assets and Transactions) to address the fundamental lack of Business, Audit & Regulatory reporting capabilities within crypto businesses, in CeFi, DeFi and beyond.
Crypto = Value
Firstly, I would like to say that 100% of our clients are not in jail. Most founders building in Crypto see their products in terms of technology that moves data from point A to point B (using wallets and smart contracts), not as financial products or monetary ‘transactions’. They see the technology, and not the ‘value’ contained in the transfer. They miss the point that it is a ‘transaction’ involving financial value, not just pieces of data.
During Denver’s ETHcc meetup earlier this year we spoke to projects about their plans, and of those projects KYAX spoke to, 90% would go directly to jail under current U.S. Securities laws. There is absolutely a time to think through risks, rewards and regulatory arbitrage, however, their founders did not see, and/or were not aware of, the legal risks they faced as businesses or the need to address jurisdictional and reporting requirements when building their product or business.
There is a fundamental disagreement between and amongst Decentralised Finance, Traditional Finance and Regulators, regardless of jurisdiction, about what the future of money looks like and how this should be managed and governed under current financial and legal structures. European jurisdictions are addressing this challenge with MiCA, with the UK’s FCA acting as a fast follower and Switzerland’s Zug staking its own course. Many Asian regulators have been first movers in creating regulatory sandboxes to explore how Digital Asset regimes can be built that are fit for purpose, these include Singapore, Japan and, most recently, Hong Kong’s VASP regime. The only real outlier is the USA and its regulatory and political infighting where the complex political, federal and state regulatory structures within the USA create friction between regulators, such as Congress, Senate, and the SEC and the CFTC, which each cover different aspects of financial regulation, and where States also have specific requirements and remits. This complexity of, and the recent public implosions of crypto businesses, have compounded the already existing political challenges inherent with an emerging industry, creating the regulatory storm and lawsuits we see playing out.
Money = Power
The dollar has been the world’s reserve currency since 1945 Bretton Woods; it is the USA’s superpower, driving its ongoing economic-military-industrial growth. This is one of the core reasons why, currently, approximately 99% of stablecoin transactions are in US dollars and the industry standard is for value to be denominated in dollars. Dollar supremacy gives the US the ability to devalue its debt and sanction other currencies and countries (e.g. Cuba, Iran, Russia, etc.). It also makes it easy for the US government to sell their debt on the open market, thanks to the dollar’s deep liquidity. However, national supremacy does not last forever, as everyone from the Brits, Romans and Soviets can testify.
Underlying the current regulatory scrutiny by Gary Gensler and the SEC is the ongoing battle for the future of money and the US Dollar as the world’s reserve currency. The advent of Bitcoin was not deemed a threat to traditional finance or incumbents; however, Decentralised Finance and Digital Currencies is a fundamental challenge to the US dollar, the global financial system and its power. To illustrate this point, let’s think about the following questions and what they mean when you replace the word ‘money’ with ‘power’:
- How do we understand (money) power in the future?
- Will governments fight to keep fiat (money) power?
- What financial strategies can we use to address these threats to (money) power?
- Self-sovereignty is a threat to (money) power.
The potential for the emergence of a non-government controlled currency such as ‘Digital Gold’ or Bitcoin that protects value over time is an interesting new tool for challenging the status quo and addressing the issue of governments intentionally debasing currencies through inflation. Inflation is great for governments (your debt is easier to manage); not so great for citizens (your savings are worth less). Together these represent a real threat, over time, to US fiat money (power).
The Future
The future of money does not have to be an either-or-equation. The fastest path to mainstream adoption of Crypto or Digital Assets is, likely, through regulation. The sooner Crypto and Web3 step up to these challenges and address their detractors through regulatory compliance, reporting and data, the sooner we can get regulators comfortable with the transition, and onboard millions of traditional consumers and their financial markets into DeFi and Web3.
OG Crypto folks have been operating outside of the system for a long time, building the skeleton frameworks for the entire industry. At KYAX, we believe technology is money and power for individuals, business and governments, and now is the time to engage with the powers that be, to get them comfortable enough to be adopters and adapters rather than fighters. We would love to help your business or project meet the next wave of governance and Digital Asset reporting challenges head on, beginning with regulatory and financial reporting designed for global crypto businesses to have complete financial visibility across their business and get the right data, in the right formats, in the right hands.
About KYAX
KYAX is a web3 native Business, Audit & Regulatory crypto asset reporting engine that helps data-constrained digital asset companies to close their books with confidence. KYAX’s products are built to SOC and ISO institutional grade standards, aggregating Google Sheets, Custom Back Office, Blockchains, CeFi & DeFi transactional data, providing reliable & timely reporting for the most compliance aware Crypto Native Transactors, including: Asset Managers, Exchanges, Trading Desks, Stablecoins, Prime Brokers, Custodians, Accountants, Regulators & Audit firms.
Matthew de la Fuente
