Proof of Progress: Digital Sovereignty Alliance

The evolving nature of crypto adoption has posed an important question for regulatory bodies. It is not simply about whether or not digital assets need to be regulated. Rather, it is about how to do so without stifling technological advancement, while also protecting user and investor interests in an expanding crypto industry.

At TOKEN2049, Adrian Wall made the case for a different approach to crypto regulation. "We really need to be focusing on regulating risk, regulating intermediaries," the founder and managing director of the Digital Sovereignty Alliance told Block Insider,

"Let's not worry about regulating the infrastructure underneath. It ought to be neutral. Resilient, but neutral."

Wall runs a nonprofit in Washington that does two things: educates legislators, traditional finance, and the public about digital assets, and advocates for what he calls "the best rules of the road, not just for any one player or any one stakeholder, but really for the entire ecosystem." Since the Clarity Act failed, the second job has become a question of election math.

Clarity Act: What Failed and What Worked

According to Wall, the year that the Clarity Act legislation took just to get rejected by Congress was not wasted. He said,

"We spent a year talking about it, people are so much more versed in the lingo. More than the lingo, they're so much more versed in what it actually means, what this technology can do. And yes, we didn't get it across the finish line, but I think it's just a matter of time."

The cost of not having it is specific. While the SEC and CFTC have provided regulatory clarity, that is not the same thing.

"It's not statutory, and until it's statutory, you're not going to see people coming in and investing. So your institutional investors are still going to be on the periphery watching it from the sidelines."

His framework for how technology meets regulation has four steps: someone solves a problem, it gets mass adoption, regulators catch up, then innovation resumes. The US is stuck at step three.

"Had we passed Clarity, I'd say the next two years are going to be amazing. Now we're going to have to push that horizon out a little bit."

The Midterm Scenarios

Asked for a prediction, Wall offered one, but also acknowledged the uncertainty. He assumes Democrats take the House. The Senate, he says, is a coin flip, even "in states that you would never expect."

"If the Dems take the Senate, I actually think that sets crypto regulation back," he said. "Elizabeth Warren becomes the Senate Banking Committee chair, and we know her stance on crypto." The other outcome is the one he finds interesting.

"If the Republicans keep the Senate, different story. Now you have a truly bipartisan Congress by definition. You've got a Democratic House, you've got a Republican Senate. These two, I think, could absolutely bring back Clarity with a new Congress."

A lame-duck pass before January is possible in his view but "depends on how aggressive the crypto industry's PACs are."

A year from now, his honest expectation is modest. "My hope is that Clarity will have passed either in a lame-duck session or we'll be talking about it again. Probability is quite low, just being honest."

Yield, Risk and the Stablecoin Question

Wall's "regulate risk" principle shows up most clearly in his approach to stablecoin yield. Instead of going for a yes-or-no framing, he said,

"It's not whether I think you should be able to generate yield on it or not. It's what the yield is based on."

A stablecoin backed by high-quality liquid assets and one backed by some other instrument carry different risk, and the yield has to reflect that. "Does the consumer know about the risk?" is the question he thinks regulators should be asking. He noted that the compromise reached during the Clarity bill negotiations, before it failed, was to prohibit yield on idle stablecoins but allow it when put to work in lending or staking.

On tokenization, Wall draws a simple distinction between just digitizing an asset and creating a token with real-world utility, a test he first used on a panel at UPenn. "Any fool can digitize an asset. If you really want to tokenize it, you need a couple of things."

Those criteria include an underlying asset, liquidity, demand, settlement ability, and utility the non-tokenized version lacks. He explained,

"I could tokenize this bottle of water, but if I trade it, who's going to buy it? Without those things, that's how I distinguish wrapper versus tokenization."

Nigeria, Syria and the 400 Million

The part of DSA's work that produced the hardest numbers is outside the US. Wall cited the global unbanked population falling from an official 1.7 billion to around 1.3 billion, and attributed "the vast majority of that 400 million" to digital assets, while acknowledging that he did not have the exact statistic at hand.

The mechanism, in his telling, is inflation. "Let's take Argentina, for example. 2,000% inflation in the last 5 years. You go to bed one night, and you wake up, and your money is worth half of what it was the night before." A dollar stablecoin, for that person, "is a lifesaver."

DSA's role is on the regulatory side of that adoption. It is "working very closely with the Central Bank of Nigeria on their VASP bill and also their sandbox," which now covers both US dollar- and naira-backed stablecoin issuers. The questions the central bank is asking are practical: how much of the reserve should sit in-country, what mix of dollars and naira, and what transaction volumes should trigger concern about capital flight.

More recently, "we've recently had outreach from the Ministry of Finance of Syria asking for similar assistance." Wall described a country rebuilding a financial system from nothing and choosing to write digital regulation into it from the start, in part because foreign reconstruction money needs a way to pay local wages in a cash economy.

Teaching It

Wall was one of the few interviewees at TOKEN2049 to lead with education. DSA has partnered with professors from Harvard's business school, a distinction he was careful to draw, to teach digital-asset case studies on Alibaba, Coinbase and Wells Fargo to high school and college students, who he said, "traditionally don't get access to that type of methodology until business school, if they go that far."

The community programmes are the part he calls his favourite. They serve diaspora populations from Nigeria, Argentina, and the Philippines, among others, already transacting in stablecoins out of necessity. He said,

"They actually get the technology. They understand the utility. What we do is we work with them on learning some of the other things they can be doing with it, some of the DeFi protocols, some of the DeFi financial instruments that they have access to because they don't have access to traditional banking."

His closing advice to founders was about the same gap. According to Wall,

"Just because you understand it doesn't mean everybody else understands it. There's a commercial opportunity which you absolutely should go after. But there's an educational component that you need to invest in to make sure you're bringing everybody else along with you."