In theory, crypto represents a paradigm shift that promises to make society fairer, improve governance, and fund common goods. In practice, speculation is crypto’s main PMF.

This disheartening truth can in part be explained by bad regulation.

To grow up, crypto needs regulatory clarity

Indeed, launching a coin with no economic value accrual is legal yet redistributing cashflows to token holders may land you in jail. We need better, not less regulation.

We are witnessing early signs of evolution. The crypto lobby for the 2024 US presidential elections stands as the largest super PAC. Coinbase is spearheading the drive for regulatory clarity in the US. Europe is proactively implementing EU-wide regulation with MICA.

This work is crucial, but much more is required to develop a homogenous regulatory framework.

AMCs - solving the cold start problem

Nan Ransohoff wrote about Advanced Market Commitments (AMCs) in Work in Progress. AMCs are a guarantee of future demand to encourage suppliers to develop products that should exist but don't yet.

AMCs are an effective solution to the cold start problem, incentivising suppliers to build the product by eliminating market risk from the equation. Indeed, companies commit to purchasing the product if it can be built.

AMCs have been instrumental in developing an affordable cure for pneumococcal vaccines and Covid vaccines during Operation Warp Speed. In 2022, Stripe launched Frontier, an AMC with a $1B commitment to accelerate carbon removal.

Web3 AMC, the path to regulatory clarity

By committing to relocate operations in a specific jurisdiction and pay taxes there, the web3 AMC participants will compel governments to propose a regulatory framework that safeguards retail while fostering innovation.

Upon recognizing the demand for regulatory clarity, governments will swiftly introduce new laws to capitalise on the fiscal revenue, job creation and wealth generated by the relocation of these web3 companies. The AMC’s role is to unlock the existing inertia and get a government to be the first mover. Amazon’s HQ 2 beauty contest serves as an examplar of what governments are ready to sacrifice to attract talent, capital and jobs.

Below is a brief outline of my crypto policy proposal. It’s stems from many conversations with friends as well as the work done by the CCI.

Proposed Regulatory Framework

Regulatory designation:
1. Cryptocurrencies will be recognized as a utility or commodity, decidedly not a security.
Taxation
1. Capital gains tax will only be levied on off-ramping, exempting crypto-to-crypto transactions (taking a page from France's playbook).
Consumer protection
1. Establish an Accredited Investor test based on knowledge, ensuring investors understand what they are buying when they purchase tokens outside of the top 10 cryptocurrencies.
  1. on a CEX, the test will be passed at onboarding or anytime thereafter.
  2. on a DEX, wallets will mint a soulbound NFT that attests to their status. They will also be able to port it from a wallet to another using zk attestations.
2. Implementation of travel rules for on and offramping above $10k p.a.
Token issuance, listing and vesting:
1. Insiders and whales holding >1% of token supply are mandated to disclose their purchase or sale. Insiders (team and investor) must have the same vesting schedule as retail and a lockup phase that is 1 year longer than retail’s lockup.
2. Rigorous, transparent and auditable analysis required pre-listing of a token on a CEX. Market participants should have real time access to information such as TVL, main holders, team, revenue etc. (Dune Dashboard on streroids)
3. Same requirements for transparency for a token listed on a DEX as on CEX (Dune Dashboard) with the exception of having to provide an analysis as to why the token was listen
Privacy as a human right and protection of Opensource code:
1. We uphold the right to privacy, provided none of the transacting wallets are contaminated (flagged on an AML list). This could be done by a client side proof of non-membership on a ledger of contaminated addresses.
2. The opensource code is safeguarded, implementing chainanalysis-like AML software on frontends.
DAO laws
1. Possibility to incorporate onchain (company registry)
2. DAO workers are assured limited liability after being KYC’d
Disclosures, KYC and AML
1. Distinct disclosures and KYC/AML procedures for self-custodial wallets and custodians.
2. A guarantee that self-custody is safeguard.
3. Custodians must obtain a license to operate (CEX and other types of custodians)
Stablecoins
1. Fiat-backed stablecoins are a payment technology, they are recognized as cash for legal and accounting purposes
2. Stablecoin issuers that rely on algorithmic balancing or on lending should obtain a license.

The current regulatory scrutiny on crypto is not unwarranted but its misplaced. AMCs can be used to coalesce collective bargaining power to obtain the regulatory concessions needed for crypto to reach its full potential.