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19 November 2021

Dear friends-

Lately I've felt like there's stuff I want to say to the community that's not a good fit for Twitter, so I'm once again going to try my hand at putting out a newsletter. I'm going to aim for weekly, but won't commit to that. It may be more occasional. And I expect it to be more discursive and stream of consciousness than I've done in the past. Take it all for what it's worth. If you're on this list from a prior iteration of my newsletter, I won't hold it against you if you bail.

Infrastructure Week

This week the President signed into law the bipartisan infrastructure bill and with it the terrible crypto tax reporting provision it contains. The good news is that this week also saw a flurry of congressional activity aimed at undoing that mess.

First, a group of ten Democratic lawmakers sent a letter to Speaker Pelosi making it clear that the crypto tax provisions in the infrastructure bill are a mistake that need to be fixed. This is important because it makes clear (especially to House leadership) that fixing this is an issue that matters to Democrats as well as Republicans. The effort was led by Rep. Darren Soto (and I believe Rep. Ro Khanna, though I haven't seen him tweet about it).

Second, three bills were introduced to amend the reporting provisions that are now law:

Coin Center supports any and all efforts to fix the reporting provisions. That said, here's some context to keep in mind about these efforts.

You would think the Cruz bill would be preferable to the others since it just repeals the entire tax provision. All things being equal that would be the case, but all things aren't equal. Any bill (even if it's attached to some other package) would have to pass a Congress that is pretty evenly divided, and that means it'll need bipartisan support. Sen. Cruz is the only sponsor of his bill, and it would be difficult to find a Democratic senator willing to co-sponsor it. Bottom line: There's enough support in Congress to fix the crypto reporting provision but not to repeal it. That's a political reality.

The Wyden-Lummis effort reflects that reality. It's bipartisan but targets a single problem with the crypto reporting provision (the "broker" definition). It's so narrow because that's where there is bipartisan agreement, and again bipartisan agreement matters a lot. In this case this bill has a shot of being attached to the next phase of the President's agenda in the "Build Back Better" legislation that should soon be before the Senate. We're lucky Sen. Wyden is co-sponsoring since he's the chairman of the tax committee with jurisdiction.

The House, by its nature, is going to have more room to find common ground, and that reality is reflected in the comprehensive bipartisan bill from McHenry and Ryan. Again, it would fix every single issue we have with the new law. What's remarkable (and took a lot of work from everyone involved) is that this bill has ten co-sponsors evenly divided between Rs and Ds. And among those you have the Ranking Members of both the Financial Markets and Ways and Means Committees. What that means is that this is not a messaging bill; it has legs.

This reminds me of a line I read a couple days ago in a Bloomberg article about Rep. Beyer's bill to regulate the crypto market:

The Virginia Democrat introduced a bill in July that observers say is the most comprehensive attempt yet to lay out a regulatory regime for cryptocurrencies. ... Still, the bill has not attracted co-sponsors or a companion measure in the Senate, a sign of the difficulties in getting Congress to act on any crypto legislation. Beyer said he is talking to several House Financial Services Committee members about joining his effort.

Actually, getting buy-in from a large bipartisan group of lawmakers on a crypto bill is not impossible when you have a sensible approach.

Speaking of Byer, Peter testified before this week before the Join Economic Committee, which he chairs. You can watch that on YouTube. It’s worth watching to see a replay of the live chat during the hearing, which is hilarious. Makes one understand why every other committee disables chat when they livestream. 😂

ConstitutionDAO

If there’s one thing I like about our community it’s that it constantly makes real the maxim that if you will it, it is no dream. Something as insane-sounding as crowdfunding $45 million to buy a copy of the Constitution can go from concept to done in under a week.

That said, when you move fast, you can break things, so it gives me pause that the code for the DAO platform they’re using has apparently not been audited. 😬 But one thing I don’t think they’ll have to worry about is whether the issuance of the DAO’s $PEOPLE tokens is a securities offering. I’d love to hear a countering opinion, but in my view, while it may have all kinds of other legal challenges, being a security is not one of them.

I went back and looked at the SEC’s 2017 investigative report on The DAO, and that benighted first DAO couldn’t have been more different. It was explicitly for-profit and it was marketed as an investment fund. The point of The DAO tokens was not just to make investment decisions, but to share in anticipated earnings. It was marketed by its creators as an investment vehicle and they made certain promises, like ensuring there would be secondary markets for the tokens.

In the case of ConstitutionDAO I think one would have a hard time arguing there’s an expectation of profit. From what I’ve seen, folks contributing funds seem pretty clear that what they’re making is a donation, not an investment. The tokens they’re getting for their contributions entitle them to vote on governance, but again as far as I can tell it’s clear to everyone those votes are advisory in nature. It’s like a convoluted Kickstarter.

Now, some will point to $PEOPLE/ETH secondary markets that have (of course) already sprung up. Presumably some folks got into ConstitutionDAO with the intention of flipping their tokens for profit. But there’s little difference between that and funding a Kickstarter in order to get and sell the “backer reward” tote bag or whatever. That said, the fact that there are tokens and secondary markets will matter for the future of the project.

What will they do with the funds now that they’ve lost the auction? The plan for this eventuality, as far as I understand it, was always to return the money (minus gas fees) to contributors. But there’s going to be a temptation, now that they’re a going concern, to find some other thing to buy or do. I heard that kind of talk on Spaces last night. That’s perfectly fine, but they should keep in mind that changing the nature of the project can change the legal analysis. I’m thinking here of DAOs that raise funds to buy NFTs and other collectors items in order to increase the value of their tokens. I find that kind of thing pretty awesome, but I wouldn’t be surprised if the SEC comes knocking.


Let me know what you think of this little missive and if I should keep writing it. If you enjoyed it, consider forwarding it to a friend so they can subscribe. (I’m not making these available on the web; only email.) And Happy Thanksgiving. I’m grateful to be a part of such a crazy community.

Cheers,

JB