Taming the Wild West: Achieving Public Policy Goals through Crypto Standards

Abstract

A continued challenge in policymaking related to cryptocurrency is the potential lack of central entity or traditional intermediary that would be the subject of regulatory authority. In the crypto space, activities are often originated by individual developers, decentralized organizations, or even algorithms — a set of instructions left in place by programmers. A key example of this dynamic is stablecoins, where the cryptocurrency is pegged to a reference asset considered to be stable (such as the U.S. dollar). With stablecoins, certain provisions such as reserves, lockups, clawbacks, blacklisting, fees, and wrapping have given rise to considerations about their behavior and user accessibility. Examination of the relevant limited terms of service/use, auditors’ reports, and business models have implications for credit, liquidity, and operations, as well as consumer protection and financial stability.

Because there may not be a central entity or traditional intermediary to regulate for many stablecoins, we propose establishing new “Crypto Standards” that could be applied to the smart contracts of not only stablecoins, but across the burgeoning web3 landscape. Crypto Standards offer many benefits, including progress towards public policy goals of consumer protection and financial stability, as well as tools to promote interoperability, security, and responsible technological innovation.

Keywords: cryptocurrency, stablecoin, blockchain, central bank digital currency, digital asset, standards, financial regulation