US Wants to Promote 'Responsible Innovation,' Deputy Treasury Secretary Says

Adewale Adeyemo oversees much of the U.S. Treasury Department’s crypto work. He spoke to CoinDesk at Consensus about what he’s seeing and how he’s approaching the sector.

AccessTimeIconJun 28, 2022 at 1:30 p.m. UTC
Updated May 11, 2023 at 3:58 p.m. UTC

We brought some very interesting speakers to Consensus 2022 earlier this month. While I believe the plan is to publish the full videos in the near future, I’ve always found it easier to pick information up by reading it than by watching or listening to it. This week, I’m continuing my exploration into transcripts with snippets from two conversations held at Consensus: fireside chats with Deputy Treasury Secretary Adewale Adeyemo and Ripple CEO Brad Garlinghouse.

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Financial stability

The narrative

I sat down with Deputy Treasury Secretary Adewale Adeyemo earlier this month at CoinDesk’s Consensus 2022 for a fireside chat. I think it was quite enlightening, and I hope you do as well. To that end, some of the discussion is below.

Also: My colleague Zack Seward sat down with Ripple CEO Brad Garlinghouse. I’ve posted a partial transcript of that conversation as well.

Why it matters

Both Adeyemo and Garlinghouse have played significant roles in the crypto industry, particularly over the past 18 months.

These are only partial transcripts that have been edited for brevity. I’ll send around a link when we publish the full videos.

Breaking it down

Nikhilesh De: We've all seen the President's Working Group report, and I know Treasury is working on reports related to that. Could you just provide an update: How are these reports looking? Are there any specific additional policy recommendations you think will come out of them? Or what are you looking at just with stablecoins in general now?

Adewale Adeyemo: I think the truth is that the President's Working Group laid out in lots of ways where we are in terms of stablecoins and went beyond just what Treasury was doing. But the President's Working Group reflected the views of regulators in the space, and it called for legislative action. Now we're engaged in conversations with members of Congress, across parties, because we know this is a bipartisan issue. What we can do here is to provide a regulatory framework that protects financial stability, but also, as we think about the digital asset space, I think it's important for us to think not only about financial stability but also about consumer and investor protections. How do we also think about national security? And how do we think about these things in a way that allows us to promote what I would call responsible innovation, and gives those people who are in this space the ability to innovate, within a sense of “this is the regulatory architecture that will govern here in the United States.”

While we're focused on the United States, I recognize that one of the benefits of digital assets is they're global in nature. And we want to make sure that in the United States, we lead in thinking about these regulatory issues. But in leading, we also bring the rest of the world along with us so that you're facing a regulatory regime that looks similar around the world, rather than differentiated.

As you alluded to, terraUSD and luna collapsed dramatically last month. Are algorithmic stablecoins, which weren't really mentioned in the working group report, something that you'll now be taking a look at? Is that something that Treasury will publish more reports on or recommend action on to prevent that from happening again?

I think the challenge that you have is when a stablecoin isn't very stable, that leaves people with a great deal of concern. Ultimately, one of the things that is true of digital assets, that's true of fiat currency, is that trust is a major part of this. You want to be in a position where people understand the products that they are dealing with. My view is that ultimately, that's why we think legislation in this area is needed in order to give regulators the authorities they need for stablecoins at large.

But I do think you have to look at algorithmic stablecoins and think through what kind of special disclosures, if any, need to be provided there. From my standpoint, one of the most important things we can do for consumers and investors is make sure that they understand the products that they are dealing with, not only in the digital asset space, but in all spaces. Providing them with information that allows them to make better choices is going to be critical here. I think that the reality is that people need to understand where they're putting their money, and what's backing it, frankly, going forward.

You also mentioned the unhosted wallet rule earlier, which I know was kind of put on the back burner in the beginning of 2021. Is that something you're seeing as a rule that the U.S. will actually look to implement? Or is that just more kind of like a framework that you're looking at for potential future rulemaking?

I'm not going to get ahead of our rulemaking process. But I do think that one of the things that we're focused on is how do we address the challenges that unhosted wallets create for national security and for illicit finance. We understand and respect the need for, and the desire to [have] privacy, but we need to make sure that we're also in a place where we're not creating avenues where those who want to move funds illicitly are able to use digital assets more than traditional assets.

We know that criminals and those who are looking to move funds illicitly don't only use digital assets, they use traditional assets as well. The thing we don't want to do is create an advantage for them to move into the digital space. That's not to your advantage, and it's not to our advantage. That's why we think that thinking about the travel rule and the unhosted wallet rule make sense. But we want to do it in a way that addresses the fact that the thing we know that the way we solve these challenges, the way we address them, is about innovation and making sure that we give you the room to innovate within a regulatory architecture that allows us to protect our national security, consumers, investors and financial stability.

Treasury is obviously working on policy recommendations around stablecoins. But a lot of the conversation that I've been hearing, at least from the folks I interact with, is there's this growing question of whether existing laws make sense for addressing digital assets. So that’s taxes, as we just mentioned, know your customer/anti-money laundering but also even some of the independent agencies and how they're approaching it. What are your thoughts? Does it make more sense to try and come up with a “from the ground” brand-new regulatory regime or are the existing rules sufficient?

Yeah, I think it's both. Honestly, you're going to need in some places additional legislation because when you envision some of the rulemakings, no one thought about digital assets. But in other places, we're going to be able to, if we're innovative and meet the innovation of industry, be able to find ways to bring digital assets into the regulatory regime that already exists.

I think this is like when we're trying to think about the travel rule. We think this is a place where we have the tools to be able to think through a regulatory regime that makes sense. I think you're right that all of the regulators are going through this conversation internally in terms of “how do we think about our regulatory regime” and how it applies to digital assets. There you may also see them take some regulatory steps, but also over time, you may also think about what additional regulation is going to be needed.

What I know to be true is something you all know far better than me, [which] is that the digital asset landscape that exists today is not going to be the same one that exists two years from now, three years from now, five years from now. I think the thing as regulators that we need to be able to do and policymakers we need to be able to do is to think through how we build a regulatory architecture that is flexible enough to create opportunities for that innovation in a way that is responsible, and gives people confidence that being engaged in this space is something that is happening within the rules of the road that people expect.

Are there any ideas, tools or projects in the sector that you're really paying attention to, that have your interest on a personal level?

I think the thing I'm paying attention to in this space, and the same thing I'm paying attention to, across the financial sector in general, is, what can we do in terms of financial inclusion? It's a major issue for me, not only internationally, I mentioned Afghanistan. But even think about here in the United States, there are so many places where you don't have access to finance. I think the question is, “how do we make the payment system more efficient and effective going forward?” I think the key is going to be how do we ensure that as more people participate, you have the right types of consumer protections in place, and you have the right types of transparency.

Ultimately, you want to be able to provide remittances at far lower cost to people. I know that there are communities all over this country where people are sending money back to families and other countries, and they are being charged a great deal of money to do that. What we can do to reduce the frictions and the cost and that space, I think it's critical. It's also critical in our country to think through how we can use digital assets to reduce the cost of transacting here. So those are the things that I'm paying the most attention to.

Ripple’s Garlinghouse

CoinDesk Deputy Editor-in-Chief Zachary Seward spoke to Ripple Labs CEO Brad Garlinghouse at Consensus 2022. A partial transcript follows.

Brad Garlinghouse: The headline for me is I feel like [the Securities and Exchange Commission’s lawsuit] looks good in large part; I think it's very clear. The more that has come out, the facts are on our side. I think it's more and more clear [that] the law is on our side. But we have spent … when this is all said and done, we will have spent over $100 million on legal fees fighting the SEC, and the dynamic there is, in my opinion, the SEC bullies companies into settlement because they can't afford to fight.

The reason why this fight is so important isn't just for Ripple. It's really for the whole industry. It was literally four years ago this week that Bill Hinman, the [then] director of Corporation Finance at the United States Securities and Exchange Commission, gave a speech saying that [ether] was not a security. And by the way, let me be clear, I do not think ETH is security. I don't think XRP is a security. But at the time we viewed this as “isn't it great that four years ago, we're starting to provide some leadership and some clarity.” And I view this as actually a very positive sign. I remember there's emails which now the SEC has read from our internal documents, where I sent the team a note saying, “Hey, this is great news. We now have clarity of how the SEC is thinking about this. They used some parameters around decentralization and what have you.”

Look at the fact that four years have gone by. And we still don't have clarity about how the SEC is going to say what is and is not a security. It's worse, actually. Now the SEC, the current chair, [Gary] Gensler is really walking back the statement around ETH. He has been asked directly “is ether a security,” [but] he won't answer the question. How can we be competitive in the United States in an industry where the primary regulator will not provide that clarity?

My experience in crypto is the vast, vast, vast majority of people want to do right by the rules. But you’ve got to know what the rules are. I think the Senate bill that you're describing, I think is a constructive step in that regard, and [can] provide some clarity. There's a bill that was introduced in the House side called the Digital Commodity Exchange Act, which we certainly have been very active advocates of.

I think maybe the most important thing is this is forward progress. I expect there will be some hearings around these bills, and when there's hearings that bring attention to the lack of clarity, and I think it catalyzes and builds momentum to win, I think it’s open for debate. I've talked to some very smart people that think realistically, either the House side or the Senate side, it’s you know, a year away before something gets passed, which, you know, that's a long time from now. And I think the U.S. every day is losing competitiveness, relative to other markets that have clear regulation, you know, clear leaning in.

So it's been 18 months, it's been a bit of stasis. But certainly, you've been doing a lot of work, the business of running this company does not stop, how are you describing the value proposition of Ripple Labs here in 2022?

We only work with regulated institutions, globally. Ninety-five percent of our customers are non-U.S. customers already. Certainly the U.S. case has – we've been able to have one or two contracts we signed here in the United States, but it's been slow going in the U.S. But the great news is demand for one of our core products, we call On Demand Liquidity – that's the product using XRP to move liquidity for institutions that grew already at a billion (dollar) run rate last year, that grew [eight times] year on year and Q1. The demand is clearly there.

And I think one of the opportunities for everyone in crypto is to make sure we're solving real problems. I get super excited about real-world enterprise solutions. NFTs [non-fungible tokens] are certainly an area that I think is here to stay. I maybe somewhat controversially said recently that I thought NFTs were underhyped. People were kind of surprised because they're pretty hyped. What I was calling out is I don't know how to think about NFTs in the context of [say,] is one artist better than the other? Is a Van Gogh worth more than Picasso? I don't know. What I do know is there's a lot of NFTs in terms of tokenization of assets, around real estate, around patent portfolios, around licensing rights. There's all kinds of stuff that I think NFTs will manifest in a way that is great for industries by reducing transaction costs, making these industries more efficient. That's where I think NFTs are underhyped, in terms of how they will integrate into our economy broadly.

I also will say … I think all boats rise, and one of the most frustrating things and you know, CoinDesk has certainly written about this, the tribalism in crypto is holding us all back. We just got to f**king stop it. We have to, we're all on the same team. I really believe that what's good for crypto is good for Ripple. I try to be really careful about, even on stuff that I feel like I don't understand, I'm not trying to bad mouth … But I think what's good for crypto is good for everybody in the industry. I think the tribalism holds us back in a really big way. I am a person who believes in climate change. I'm a person who believes that carbon production is something we got to pay attention to. Again, we're all on the same team here. I think the extent we can use more efficient technologies for solutions, then we should use those. I will pick on the Yuga Labs experience, the transaction fees – let's just boil down. Blockchains are all about removing middleman costs, right?

So the Yuga Labs experience, the transaction fees were 40%. I own bitcoin [BTC], I've said that publicly before, I own ETH, I own XRP, not surprisingly – I think all of them can do well. I think the energy dynamic is a real one. I think we should be intellectually honest about what the real math is, and what are the implications? … I didn't go sell bitcoin because it's proof-of-work.

Biden’s rule

Changing of the guard

Key: (nom.) = nominee, (rum.) = rumored, (act.) = acting, (inc.) = incumbent (no replacement anticipated)
Key: (nom.) = nominee, (rum.) = rumored, (act.) = acting, (inc.) = incumbent (no replacement anticipated)

It’s starting to seem unlikely we’ll see any rapid movement on filling in some of these current roles that have acting heads.


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Outside CoinDesk:

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If you’ve got thoughts or questions on what I should discuss next week or any other feedback you’d like to share, feel free to email me at or find me on Twitter @nikhileshde.

You can also join the group conversation on Telegram.

See ya’ll next week!


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Nikhilesh De

Nikhilesh De is CoinDesk's managing editor for global policy and regulation. He owns marginal amounts of bitcoin and ether.