A group of digital asset, blockchain, and investment firms have joined together to create the Crypto Freedom Alliance of Texas to promote “the development of coherent and predictable regulations for digital assets in Texas.” Founding Members include a16z crypto, Bain Capital Crypto, Blockchain Capital, Coinbase (NASDAQ: COIN), Ledger, and Paradigm.
The Crypto Freedom Alliance of Texas recently launched to advocate for “clear and consistent regulation” of digital assets in the state of Texas. The non-profit organization hopes to foster innovation and economic growth in the state via the digital asset industry.
“As a resident of Texas, I know this state has a lot to gain from getting crypto policy right. In the face of federal inaction, Texas should move forward and lead by example with sensible crypto policies that protect consumers and investors, and foster innovation,” said Kinjal Shah, Crypto Freedom Alliance of Texas Chair and General Partner at Blockchain Capital.
The group aims to produce educational initiatives targeting government officials, corporations, non-profits, and other organizations to highlight the value of Web3 and digital assets, specifically to Texas but also more broadly.
The policy priorities of the alliance are noted as follows:
- Promote clear and consistent regulation of digital assets in Texas.
- Promote cooperation on digital asset regulation and policy between stakeholders, consumers, and regulators.
- Educate government officials, business leaders, corporations, and non-profits about the benefits Web3 brings to Texas.
- Support those launching blockchain ventures through mentorship and educational programs.
Texas has made itself into a digital asset mining hub in recent years, with backing from the Republican-dominated legislature—the party known for its ‘innovation friendly’ and anti-interventionist approach to the digital asset space.
As part of its advocacy work in the state, the Crypto Freedom Alliance of Texas will also push for digital asset-friendly tax laws, bank charter laws, and bank regulations, according to A16z crypto’s global head of policy, Brian Quintenz.
Quintenz, in an interview with Cointelegraph, pointed to Wyoming’s bank charter laws as “a positive example” of what can be accomplished by a digital asset-friendly legislature.
Wyoming is the first state to grant banks the ability to house digital currencies alongside fiat currencies, under one roof. This is the kind of policy the new Texas alliance hopes to see replicated in the lone star state.
But before deciding whether to cheer the birth of a new regulatory clarity-seeking digital asset NGO, considering who exactly they are can help give context to what they purport to stand for.
Who are the freedom-loving ‘crypto’ allies?
One of the core values of the Crypto Freedom Alliance of Texas is ‘Transparency,’ the group’s website reads:
“We believe that it is important for consumers to have access to accurate information about digital assets. We are committed to transparency in our dealings with consumers and policymakers.”
So, in the spirit of transparency, let’s take a look at what interests some members of this new advocacy group might want to declare to consumers and policymakers when it comes to digital asset regulation.
a16z crypto
A16z crypto is the digital asset arm of venture capital firm Andreessen Horowitz, which was founded in the U.S. in 2009 by Marc Andreessen and Ben Horowitz.
The firm recently promoted former head of the U.S. Securities and Exchange Commission’s (SEC) Corporation Finance division, William (Bill) Hinman, from “special advisor” to “advisory partner.”
Hinman is the former SEC official who famously declared BTC and ETH as non-securities during a speech on June 14, 2018—the speech that Ripple Labs requested a draft of in December 2020, shortly after it was sued by the SEC, to support its argument that XRP is not a security.
It later became SEC policy that BTC and ETH are the only digital assets that are ‘commodities’ rather than ‘securities.’
However, it was later revealed that Hinman violated SEC rules by continuing to meet with his former employer, the international law firm Simpson Thacher & Bartlett. The law firm happens to be a member of the Enterprise Ethereum Alliance, an advocacy organization that aims to “accelerate” the use of ‘business Ethereum.’ Hinman also received $9 million in profit sharing from Simpson Thacher despite being the head of the SEC’s Corporation Finance.
Putting the official caution that Hinman received for breaking SEC rules to one side, this relationship with his former employer might be all above board, but it doesn’t look great to have an SEC official, who was partially responsible for the regulator declaring ETH ‘not a security,’ to be meeting with and profiting from an organization that advocates for ETH.
Needless to say, thanks to its newly appointed advocacy partner, a16z crypto is not without question marks when it comes to digital asset advocacy.
Coinbase
Digital asset exchange Coinbase is a hotbed of regulatory woes, dating back to before the digital asset giant even went public. In 2021, the company settled a case with the Commodity Futures Trading Commission (CFTC) for “reporting false, misleading, or inaccurate transaction information,” which undermined the integrity of digital asset pricing on the platform.
More recently, on May 1, two civil suits were filed against the exchange: one accused Coinbase of keeping customers’ biometric data used to set up accounts without notifying them in writing that it would be doing so; the other accused Coinbase CEO Brian Armstrong and several executives of insider trading.
But most concerningly, for the exchange and its vested interests in regulatory reform, Coinbase was charged by the SEC in June over its listing of digital asset securities. The long-expected charges accused Coinbase of operating as an unregistered securities exchange, broker, and clearing agency in violation of the Exchange Act and the Securities Act.
It’s no surprise then to see the embattled exchange’s name attached to a digital asset advocacy group seeking “clear and consistent” regulation of digital assets and the promotion of “cooperation on digital asset regulation and policy.”
Paradigm
Not to be left out, the “research-driven technology investment firm” Paradigm has some business associations that it would probably prefer if people forgot.
The now notorious former CEO of bankrupt digital asset exchange FTX, Sam Bankman-Fried, currently standing trial on multiple criminal charges of fraud, invested $20 million in Paradigm.
In late 2021, Bankman-Fried invested in a fund managed by Paradigm, the $2.5 billion “Paradigm One” fund, which then in turn invested in FTX and FTX U.S. exchanges, according to disclosures during the company’s bankruptcy court proceedings.
Any association with Bankman-Fried’s shifty and, depending on the outcome of his DOJ case, criminal business dealings is a blot on anyone’s copybook, not least an investment firm seeking to advocate for new digital asset regulation.
Worldcoin
Finally, a16z Crypto, Bain Capital Crypto, and Blockchain Capital are all also investors in Sam Altman’s Worldcoin.
Altman, the co-founder and CEO of OpenAI, founded Worldcoin to be “the world’s largest privacy-preserving human identity and financial network.” It is an iris biometric digital asset project that operates on the Ethereum blockchain.
In July 2023, the company launched devices called ‘Orbs’ in dozens of locations around the world. These would scan irises to create an encrypted, anonymized proof-of-personhood in the form of a unique hash of an iris, which is then verifiable using the Worldcoin blockchain via the World ID app. In theory, this allows a person to confirm they are a real human without revealing that person’s identity—a zero-knowledge proof system.
However, since its launch, Worldcoin has been the subject of investigations in multiple jurisdictions worldwide.
Germany’s financial regulator Bafin began an investigation in August to determine whether Worldcoin had the correct permissions to operate; Argentina’s Public Information Access Agency swiftly followed suit, with a probe to assess the legality of Worldcoin’s data collection practices within the country; France’s data regulator, the CNIL, carried out “checks” at the Paris office of Worldcoin as part of a CNIL investigation into the company’s privacy practices; and Kenya initiated the shutdown of Worldcoin’s activities in the country due to concerns about data safety and the integrity of the project’s financial transactions.
Notably, Worldcoin has yet to launch in the U.S. due to “regulatory uncertainty.” In an interview with Bankless in May, co-founder Alex Blania was reluctant to explain how Worldcoin would function in the U.S. due to potential legal ramifications.
“Many of the details we can’t talk about here [due to] regulatory uncertainty in the United States,” said Blania.
One could argue, given how the global launches have gone for Worldcoin, that this so-called regulatory uncertainty may have prevented U.S. consumers from being exposed to a seemingly risky, or at the very least questionable and uncertain, venture.
In summary, it might seem obvious and sensible that a digital asset exchange that has run afoul of the law and several investment firms with significant skin in the game would seek regulatory clarity, and pointing out their vested interests and backstories doesn’t necessarily diminish the validity of their arguments. However, when hearing calls for “clear and consistent regulation” and “cooperation in policy,” it’s always worth keeping in mind whether those voices are neutral observers of the status quo who see a problem that needs fixing or people who have a substantial stake in a particular outcome.
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