There are many highly inefficient aspects of TradFi, where rotten trees are choking the growth of new sprouts. Some are a result of similar pathologies where the government uses the banking system to subsidize its own political objectives. It would be better for the economy to let them burn. Much of the business model of taking in fiat short-term, on-demand deposits, and parking that money in illiquid long-term Treasurys (subsidizing the government) or mortgage-backed securities (where the government subsidizes unaffordable home prices) needs to burn away. Rent-seeking brick-and-mortar facades, with most customer service outsourced overseas and who earn most of their revenue from overdraft fees, need to burn. Payment systems that bribe cardholders with “cash back” programs then use the market power their consumer bribes give them to gouge the merchant, need to burn. Related: The Federal Reserve’s pursuit of a ‘reverse wealth effect’ is undermining crypto Some smaller and regional banks who have failed to innovate, and for which the otherwise unobtainable bank charter has become the modern-day taxi medallion ensuring them rents from third-party custody of fiat deposits, need to burn away some of the overgrowth as well. Crypto is a revolution in finance, intended to replace the intermediary-centric financial system with a self-sovereign approach where the individual is able to digitally custody native financial assets themselves. This transformation will take time. Developers at decentralized finance (DeFi) protocols and layer-1 blockchains live most of their lives in the fiat economy. The federal government will only accept fiat dollars for tax payments, while banks dominate real estate mortgages. DeFi protocols are making inroads into home mortgages, but that’s at its earliest stages. Consumer finance and tax payments are still fiat-based. And crypto developers at a minimum deserve the same treatment as anyone else participating in the fiat economy. That means they shouldn’t be discriminated against in the provision of basic checking and savings accounts. We need some of the banking system to survive. But we don’t need all of it to survive, and the parts that burn away open opportunities for crypto-native replacements if banks don’t unfairly discriminate against crypto clients.War stories are tedious but I will tell one. When I was senior counsel at House Financial Services in 2014 I subpoenaed the Fed about its management of conflicts of interest over its running a payment system. Turned up crazy stuff…they totally use regulation to help Fedwire. https://t.co/4V3qjUTkub
— J.W. Verret, JD, CPA/CVA (@JWVerret) March 16, 2023
J.W. Verret is an associate professor at the George Mason Law School. He is a practicing crypto forensic accountant and also practices securities law at Lawrence Law LLC. He is a member of the Financial Accounting Standards Board’s Advisory Council and a former member of the SEC Investor Advisory Committee. He also leads the Crypto Freedom Lab, a think tank fighting for policy change to preserve freedom and privacy for crypto developers and users.
This article is for general information purposes and is not intended to be and should not be taken as legal or investment advice. The views, thoughts and opinions expressed here are the author’s alone and do not necessarily reflect or represent the views and opinions of Cointelegraph.