The DeFi developer running for US Congress

There is a saying, ‘If you can’t beat them, join them!’, which is apparently what Matt West from Yearn.Finance, and formerly of  MakerDao, is trying to do. The Yearn developer is running for Congress in the USA and has said that he may need the help of the decentralized finance (DeFi) community to win.

West declared his candidacy for Oregon’s newly formed 6th U.S. House district on 12th October. He holds a Ph.D from the University of Texas in chemical engineering with a focus on renewable energy, and works at tech giant Intel. Yearn is his side gig. He taught himself Solidity and won the Yearn hackathon in 2020 and lately has been working with the team from no-loss lottery protocol PoolTogether on Yearn’s stablecoin yield farming strategies.

West is the “first DeFi-literate candidate to run for office, and is certainly the first DeFi developer to launch a campaign,” according to Coindesk.

DeFi and crypto needs inside support

The fact that West is running is good news for DeFi platforms, and has been prompted by “recent actions from legislators – such as an amendment to an infrastructure bill that nearly rendered running an Ethereum node legally impossible – are out of touch and destructive.”  However, West is not just focused on protecting crypto and DeFi, he’s also campaigning to improve his state of Oregon. He told Coindesk, “My state’s constantly on fire, there’s federal overreach, there’s outside protestors like the Proud Boys coming in to start riots – it came to a breaking point.”

Messari founder to run for US Senate

He’s not the only crypto advocate to consider entering politics. Messari founder Ryan Selkis is currently threatening a 2024 run for Senate because of recent regulatory scrutiny. He tweeted in September: “If you’re wondering when I actually decided to run for Senate, it was when these fuckers came to my event, didn’t buy a ticket, and served one of the speakers a subpoena. Enough talk. More war on our out of control regulatory state.” Those who didn’t buy a ticket were from regulatory organizations, in case you’re wondering.

West to tackle crypto regulation and wider political issues

But West’s decision is more based on a broader political landscape. He says his decision to run came after he saw the crackdown on the Black Lives Matter protests. He pointed out that “individuals contributing to the crypto technology sport a variety of ideological stripes. “This isn’t a vanity project for me. I want to make a difference, and if I can’t do it like this I’ll find another way,” he said.

Now that he’s declared, however, he says he needs the community’s support and even postponed announcing his run on Twitter until his campaign and BitPay managed to overcome the legal hurdles presented by crypto donations.

He wants to be the first DeFi developer in Congress, and asks the community to help him achieve that by donating through BitPay.

He told Coindesk, “It was a big deal for me to accept crypto donations from the start of the campaign. There are a few folks who run as crypto-friendly and take donations, but as someone who is coming directly from the crypto community as a developer and contributor it wasn’t just a marketing gimmick,” he said. “I wanted to show to the crypto community that they matter to me.”

Crypto could play a vital role in Afghanistan’s future

Most of us have watched the events of August in Afghanistan with dismay. For those of us with an eye on the country’s precarious financial position, the long lines of people queuing outside banks to withdraw limited amounts of money reminds us of just how difficult life is for Afghanis right now, and there is little reason to for optimism about the future. Charles Hoskinson, the CEO of IOHK and Cardano, believes that cryptocurrencies offer a solution to the Afghan people.

In an interview with CNBC on 1st September, Hoskinson said, “ “cryptocurrencies will play a larger role in Afghanistan […] in the war for and against the Taliban forces,” not least because there is a massive need for financial privacy-preserving technologies.

Frozen assets

Let’s not forget that the bulk of Afghanistan’s reserves –around $9 billion – are actually stored in the Federal Reserve Bank of New York, and access to them has been frozen, a fact the Taliban only recently discovered. The World Bank and IMF have also halted access to significant sums earmarked for the country. Ajmal Ahmady, former acting governor of the Afghan central bank, Da Afghanistan Bank (DAB) reportedly had to explain to Taliban leaders that the country’s assets were not in the country, and that DAB was “reliant on obtaining physical shipments of cash every few weeks,” the Biden administration had cancelled shipments as the Taliban approached Kabul. Meanwhile a Biden administration said, “Any central-bank assets the Afghan government have in the United States will not be made available to the Taliban.”

Taliban funding

So where will the Taliban get money from? To date, the organisation is largely funded by drug money from Afghanistan’s opium poppy crops, but whilst this might have sustained them, it’s not enough money to run a government, which means there will soon be a financial crisis in a country that already depended on foreign aid to support so much of its infrastructure. Furthermore, analysts predict that the economy will collapse, with prices exploding into hyperinflation. 

The rise of crypto adoption

Which brings us back to crypto for the Afghan citizen who wishes to evade the Taliban’s attempts to track personal spending or seize their crypto assets. For example, Western Union has suspended its services in the country until further notice last week — limiting the means available to Afghani citizens seeking to transfer their assets internationally. However, there are already many organizations that have shifted to accept cryptocurrencies in an effort to facilitate funding of basic needs and medical care for the Afghan people arriving as refugees in western countries. This does not answer the needs of those left behind.

Crypto adoption appears to have been rising in Afghanistan over recent years, with the country currently ranking 20th according to Chainalysis’ 2021 Global Crypto Adoption Index. It is notable that other countries with poor financial infrastructures, such as Pakistan, Venezuela, Vietnam and the Philippines also rank high on the index.

Cryptocurrency exchanges  in Afghanistan

There are a number of cryptocurrency exchanges operating in Afghanistan, including Binance. CNBC suggests the current situation is “a perfect test case for the usefulness of bitcoin and other cryptocurrencies.” One young Afghan crypto trader interviewed by CNBC said he has been keeping a very close eye on his crypto portfolio on Binance, as the local currency touches record lows and nationwide bank closures make it next to impossible to withdraw cash. It doesn’t give him access to cash, in a majority cash economy, but it does give him peace of mind that some of his wealth is safeguarded against economic instability at home. It also offers him and other crypto holders access to the global economy from inside Afghanistan, as well as certain protections against spiralling inflation.

Another young trader in Kabul said he sees crypto as the safest place to park his cash. “If a government isn’t formed quickly, we might see a Venezuela-type situation here.” He isn’t alone in his thinking. Google trends data shows that web searches in Afghanistan for “bitcoin” and “crypto” rose sharply in July just before the coup in Kabul. 

It is difficult to be definitive about how crypto could help Afghanistan, and the current number of crypto owners there is well concealed by the use of VPNs, plus nobody there is talking about it loudly, because most digital currency supporters inside Afghanistan often don’t want others to know they exist. There are also multiple barriers to entry for citizens: complex on-ramping processes, low Internet access and unreliable electricity leading to daily outages. Another factor is that 85% of the country is unbanked. So people wishing to deal in crypto have to get creative, usually through international contacts. One trader said, “It’s very easy in Pakistan,” he said. “Most people have relatives in Dubai, who buy crypto for them using their credit cards.”  This situation requires a great deal of trust, because when the person wants to liquidate their crypto stake, relatives will sell it for them and use the hawala system, an honour-based system of credit common in Asia and the Middle East, to transfer the funds across the border to Afghanistan. 

At the moment the situation is so unstable that crypto traders are unable to operate, and are resigned to HODLing until a government is formed. But many of the enthusiasts are determined to teach fellow Afghans about the benefits of owning crypto, with grassroots adoption coming down to one Afghan teaching another about how cryptocurrencies like Bitcoin work. It may be some time before we see much movement in crypto in the country, but it is going to be something to watch out for and see what happens.

The U.S. government mood on crypto is shifting

Senator Elizabeth Warren, who sits on the Senate’s banking and finance committee, is not known for her love of crypto, and indeed is better known for her push for tighter regulations on cryptocurrencies. So, it was something of a surprise when she made a statement on Wednesday of this week, saying that digital currencies, and in particular those issued by central banks, could assist unbanked, low-income Americans. She pointed out that this group has long been denied access to bank accounts in the mainstream banking system.

So, is this a signal that support for cryptocurrencies is picking up in Washington D.C.?

When Warren spoke to CNBC’s Squawk Box, she said, cryptocurrencies and central bank digital currencies “may be an answer” to the “enormous failure by the big banks to reach consumers.”

She also pointed out that digital currencies have “extremely low transaction costs,” and that this could make them an ideal way to include the 15 million Americans without bank accounts in the financial system. Warren also highlighted a fact that is well known to those working with the financially underserved: they have to pay intermediaries to cash their pay cheques or to pay bills. Access to a digital currency could change all that for these people and give them back full control of their money.

When asked about her objections to crypto, Warren replied that her concerns focused on “bad actors” rather than cryptocurrencies per se, saying that in her view a “wholly unregulated market” has allowed “big guys to take advantage . . . of small investors and taxpayers.”

The sentiments Warren expressed this week are significantly different to her thoughts expressed in a letter to Janet Yellen, the Treasury Secretary, in which she urged Yellen to lead “a coordinated and cohesive regulatory strategy” to help mitigate the “growing risks” cryptocurrencies pose to the financial market.

Before we get too excited about what appears to be a change of direction on Warren’s part, it is probably best to reserve judgement until we see the Fed’s highly anticipated report on central bank digital currencies, which is due to be released in early September. Fed Chair Jerome Powell has already insisted the Fed isn’t rushing into the space, but he has suggested that a digital US currency could make all other cryptocurrencies obsolete. He said, “You wouldn’t need stablecoins, you wouldn’t need cryptocurrencies if you had a digital U.S. currency. I think that’s one of the stronger arguments in its favour.” That’s quite a big claim that smacks just a bit of American exceptionalism.

Meanwhile the Bank of America is reconciled to digital currencies, and sent out a note to its clients this week saying:

“Digital currencies—either issued by central banks or privately issued with safe, liquid backing—seem inevitable.” It added that central banks in particular “have the power and the will to prevent a very bad outcome in terms of collateral damage in the financial system.”

In the end, that is their real concern. Make of it what you will.

European Commission causes crypto shock!

Early yesterday, the European Commission regulators declared that they were “banning anonymous cryptocurrency wallets” as part of a money laundering crackdown. The shockwaves rippled through the markets and probably caused some near heart attacks for a few crypto holders.

Thankfully, it soon became clear that the EU had not been quite clear about the substance of its proposed regulation. It is one of four proposals intended to “to strengthen the EU’s anti-money laundering and countering terrorism financing (AML/CFT) rules,” as its press statement says.

The statement also says:

“At the heart of today’s legislative package is the creation of a new EU Authority which will transform AML/CFT supervision in the EU and enhance cooperation among Financial Intelligence Units (FIUs). The new EU-level Anti-Money Laundering Authority (AMLA) will be the central authority coordinating national authorities to ensure the private sector correctly and consistently applies EU rules. AMLA will also support FIUs to improve their analytical capacity around illicit flows and make financial intelligence a key source for law enforcement agencies.

In particular, AMLA will:

  • establish a single integrated system of AML/CFT supervision across the EU, based on common supervisory methods and convergence of high supervisory standards;
  • directly supervise some of the riskiest financial institutions that operate in a large number of Member States or require immediate action to address imminent risks;
  • monitor and coordinate national supervisors responsible for other financial entities, as well as coordinate supervisors of non-financial entities;
  • support cooperation among national Financial Intelligence Units and facilitate coordination and joint analyses between them, to better detect illicit financial flows of a cross-border nature.”

Unfortunately, Mairead McGuinness, the EU Commissioner for Financial Services, tweeted that the measure “will ban anonymous crypto wallets and make sure that crypto-asset transfers are traceable.” But, as David Z Morris writes, “The statement from McGuinness is straight-up FUD.”

The EU is not proposing a ban on anonymous wallets; instead it is proposing tighter rules on money service providers, such as exchanges or custody services. Morris explains, “In short, the ban would impact the crypto equivalent of Swiss bank accounts, not the use of crypto as cash.”

What Morris also pointed out is important: media outlets reported McGuinness’s tweet without checking the veracity. As a consequence crypto prices slumped, although they have recovered since. However, he does say, and this is important: the EU knows it can’t ban anonymous wallets, so why would a Commissioner tweet misinformation? He suggests, “by obfuscating the difference between custodial wallets and self-custody software, they may hope they can mislead some portion of the public into thinking that custodial accounts are the only kind that exist.”

The upshot of all this is “if you’re willing and able to self-custody, which you should be doing anyway, you can still hold and spend crypto anonymously.