Exodus: Interview about Stablecoin Regulation and Why Wall Street is Pushing into Crypto

Veronica McGregor, CLO at Exodus and former CLO at ShapeShift, has invested twenty years on the legal frontlines of crypto so with Cryptonomist.

Veronica McGregor, CLO at Exodus and previous CLO at ShapeShift, has actually invested twenty years on the legal frontlines of crypto so with Cryptonomist we decided to interview her to talk about how stablecoin regulation could limit how users hold and move their own crypto, the behind-the-scenes modifications public crypto firms are making to prepare for more TradFi-style guidelines and why Wall Street’s push into crypto custody might develop legal conflicts with decentralized wallet models.You have actually cautioned that stablecoin regulation might restrict how users hold and move their crypto. Can you discuss how these policies could straight impact non-custodial wallet users?Stablecoin regulations that are too overbroad and target the transmission of value instead of simply issuance, danger pulling non-custodial wallet users into a compliance framework that was never ever designed for them. Categorizing wallet service providers as “cash transmitters” or “monetary organizations” would open the floodgates to effectively limiting self-custody. We have actually worked to make certain this is not the case with both the GENIUS Act and STABLE Act. It continues to be a continuous top priority with market structure as well.Some propositions recommend requiring KYC on stablecoin transfers– even peer-to-peer. Do you see this as feasible from a legal standpoint, and what precedent may it set for more comprehensive crypto use?Requiring KYC on peer-to-peer stablecoin transfers isn’t simply infeasible, it would redefine what it implies to “hold” your own assets. Legally, we don’t ask somebody to check ID before handing a buddy $20. Pushing that burden onto people sets an unsafe (and impractical) precedent where individuals using their own digital assets are controlled as financial institutions.Having dealt with both Exodus and ShapeShift, how have you seen compliance methods evolve as public analysis of crypto companies has intensified?At both Exodus and ShapeShift, I have actually seen direct how compliance has grown and not just in conference guidelines but in anticipating them. As analysis increased, so did the need to formalize legal functions, include structured governance, and build facilities to safeguard user rights and company integrity, without ceding to centralization. At Exodus, we actively engage with regulators and legislators to guarantee protection of self custody, a core concept of crypto, which functions as an essential element for customer defense. We’ve seen bad actors in the crypto space before, and these events just highlight the significance of keeping control over your own digital assets.Are there internal shifts taking place at public crypto business– like governance, audits, or disclosures– that the general public doesn’t see, but that are driven by looming TradFi-style rules?Definitely. There are internal shifts taking place that most users never ever see. From board-level governance to financial audits and proactive disclosure practices, public crypto business are getting ready for a world where crypto may be managed more like conventional finance, even if we don’t fully concur with that direction.How do you encourage companies to balance development with the increasing pressure to “imitate banks” in their legal structures and reporting?I advise companies to stay real to crypto’s core of openness, user empowerment, and decentralization, while likewise recognizing that accountable innovation typically means structure in public. You do not need to “act like a bank,” however you do have to reveal regulators that you aren’t hiding behind the tech. Offered the general public nature of the blockchain, our market is inherently more transparent than conventional financing and our guidelines need to be appropriately tailored to deal with the various types of threats that might exist within crypto as compared to banking. Wall Street institutions are entering the crypto custody space aggressively. What type of legal conflicts do you anticipate in between these custodial models and decentralized wallets like Exodus?As TradFi goes into crypto custody, the legal divide between self-custodial and custodial designs– the latter describing personal self-custody– is going to sharpen. The disputes will occur around liability, disclosure, and control. Self-custody doesn’t featured third-party threat, and that’s a legal difference that regulators and policymakers will require to account for. I was fortunate to take part in the SEC’s crypto roundtable to go over custody, and I stressed the requirement to 1) identify internal institutional custody from self-custody, and 2) protect optionality so that people are not forced to count on institutions who internally custody properties. This will continue to be an essential message moving forward.Do you think regulators truly understand the distinction in between self-custody and third-party custody– or are they composing rules that efficiently disregard that distinction?We’re seeing favorable momentum. While some legacy structures do not yet show the subtleties of self-custody, there’s been a shift in awareness over the past few months. Regulators are beginning to engage more directly with the technology and understand the significance of distinguishing between platforms that hold, or control, user funds and tools that empower users to hold their own secrets. There’s still work to do, however the discussions are taking place, and that’s a huge advance from where we were even a year ago. The recent draft of the clearness Act also clearly maintains the right to self-custody, which our company believe would prevent regulators from restraining individuals’ ability to have self-hosted wallets now and in the future.Could we see a future where retail users are lawfully pressed away from self-custody in favor of institutionally managed environments? What would that imply for crypto’s founding ethos?We were encouraged to see President Trump’s executive order reveal the requirement to secure self-custody, and we are also seeing the proposed CLARITY Act codify that executive order. That issue has been part of the discussion, however we’re likewise seeing increased acknowledgment, even from conventional financial players, of the worth that self-custody brings. The goal isn’t to shut down development; it’s to ensure it runs in a way that safeguards user options. The difficulty is ensuring guidelines do not accidentally leave out people from managing their own possessions. However I’m optimistic that with continued education and dialogue, we can strike a balance that supports crypto’s fundamental values and addresses regulatory goals.From your point of view on the legal frontlines, what’s the most significant regulatory blind spot when it comes to crypto that lawmakers still aren’t addressing?Aside from the SEC-CFTC jurisdictional line on defining what constitutes a ‘security,’ one location that still needs more attention is how we specify control. There’s a tendency to treat all crypto services as custodial by default, when in fact, the models vary widely. That said, we’re seeing growing interest from policymakers who wish to comprehend the distinctions between wallets and exchanges, in between procedures and platforms. It’s a complicated landscape, but the genuine interest in getting it ideal is there. I believe we’re approaching a more thoughtful, collaborative regulative approach, and that’s a motivating indication for the space. The tough part is assisting compose legislation that anticipates the next phase of development in blockchain. We require laws that stand the test of time and we are happy to be helping as an active voice in DC to guarantee that’s the case.What guidance would you give to legal teams at start-ups getting in the crypto space now, especially due to the quickly tightening international regulative environment?My guidance would be to build your legal technique early, and bake it into the product roadmap. The entire company requires to work as a team and not develop products in a vacuum. That is, legal and compliance require to be involved early on to avoid hold-ups down the road. Regulation is coming, however that doesn’t suggest you need to compromise your objective. Focus on user protections, be transparent about your operations, and engage in education and conversation with policymakers before they compose guidelines that are not fit for function.