The President issued an Executive Order on Ensuring Responsible Development of Digital Assets on March 9, 2022. The value of the cryptocurrency and digital assets sector exceeds $3 trillion and has the potential to grow much larger with proper regulation. No country has taken a lead role to develop regulation that will foster innovation while simultaneously protecting consumers, investors and businesses from criminal activity related to digital assets. This Executive Order is a bold move by the United States to assess and analyze the digital asset sector. If responsible legislation based on the EO can be drafted and passed, the US stands to authorize a strong, effective regulatory approach that also fosters innovation.
This broad government effort involves all the financial regulating agencies, while also bringing in the views of other economic and international agencies. The most important set of deliverables are a series of reports, assessments, frameworks, and draft legislation. This article provides an overview of those twenty reports grouped by due dates, with brief synopses of the considerations agencies must take into account and the analytical approach called for in the Order.
This comprehensive effort focuses on developing an all-government approach to collect data, analyze, consult with civil society and prepare reports focusing on five major concerns:
- Assessing a possible United States central bank digital currency
- Protecting consumers, investors, and businesses
- Promoting financial stability, mitigating systemic risk, and strengthening market integrity
- Limiting illicit finance and associated national security risks
- Fostering international cooperation and United States competitiveness
This major interagency effort will succeed, at least in part, if the views of active participants in all sectors of the digital asset community have a voice. The interests of a Decentralized Autonomous Organization (DAO) are not necessarily the same as those of a decentralized exchange (DEX) or an NFT minting operation. Broad engagement between government, companies in the digital assets sector and civil society may be accomplished through the normal notice and comment approach to rulemaking. Alternatively, a more inclusive and flexible process that allows participants in the digital assets sector and other interested parties, including those opposed to the current digital assets markets, to assist the government to both understand the sector and to advise on what regulatory approaches will leverage the strength of the technology while protecting the users.
The digital asset sector is so innovative and apparently different from the current centralized regulatory model, that it could pose problems for government officials who are not on the forefront of innovation to make sound recommendations that allow decentralized mechanisms and distributed ledger technologies to flourish. It is predictable that the various agencies will make proposals specific to their regulatory mission(s). Without a coherent mission or goal for the effort, it will be difficult to propose strong and effective law to guide the regulation of digital assets. Ideally, this whole government effort will lead to responsible, effective, and coherent regulatory solutions for the digital asset sector and the American people. Bringing a solid level of certainty to the digital assets sector will promote efforts to normalize it into a useful, accepted, safe environment for financial and other activity.
The following tables provide a comprehensive list of all the deliverables required by the Executive Order. At the end of the process, if solutions can be negotiated among the agencies and the sector being regulated, then real legislation can be crafted and passed in the reasonably near future. If so, the U.S. will be positioned to lead the global development of this promising technology sector.