Sarah Brennan is a US corporate & securities lawyer and acts as General Counsel for Delphi Ventures, a VC firm focused on Web3 investment. She has spent 14 years focused on corporate securities law and became active in the digital assets space in 2017.
Brennan is also a co-founder of the LeXpunK project with her focus on legal advocacy for decentralized communities.
Speaking exclusively with crypto.news, the cryptolaw advocate shared her thoughts on crypto super PACs, failed regulation, and the danger of recreating the traditional financial system with crypto all over again.
Major institutions are a “double-edged sword”
Crypto companies like Ripple and Circle have raised over $100 million to fund congressional campaigns over the last year. In doing so, they’ve formed a crypto super-PAC as a response to harsh regulation from the SEC and Biden administration, such as the controversial SAB 121 crypto bill which Biden recently upheld.
“I personally think the SAB 121 is reflective of the Biden admin’s various attempts to cut us off from the broader financial system,” Brennan tells crypto.news. “Ultimately, it seems that while the Biden campaign wants our votes, they do not want to be accountable to us on policy.”
However, while Brennan supports “younger, digitally native candidates” in politics, she expresses concerns over the nature of the lobbying efforts by major players.
“I worry about having political momentum and where that takes us — crypto is not monolithic and decentralized communities are least able to politically protect themselves.“
“We need more creative attempts at regulating that are reflective of the paradigm shifts in crypto,” she says. “I think that large centralized institutions as the predominant ‘voice’ in crypto are a double edged sword,” adding that centralized institutions pose the risk of “recreating tradfi market structure.”
Brennan describes this centralization of political power as “antithetical to the ethos of the space.”
“Our current regulatory system is predicated on these types of intermediaries layered upon one another, all licensed gatekeepers, all rent-seeking. It’s a helluva drug, right?”
“Monopolists like we have never seen”: centralized crypto explained
Brennan explains what consolidation of power in the hands of a few major crypto players would actually look like.
“Without any legislative or regulatory counterbalances, we can fall prey to becoming a veritable hellscape in practice where large centralized actors are positioned to become monopolists like we have never seen,” says Brennan.
“They can vertically integrate and own everything from the infrastructure–L1s, nodes, wallet apps/ custody solutions, miners, validators, governance token supply monopolies–while also having monopolies on more traditional businesses like trading platforms, market making arms, running proprietary VC firms and dev shops.”
“A centralized future in crypto is just doubling down on all the ills of the existing system without adding any societal value.”
Brennan goes on to add that even without centralizing regulation, crypto “could be destroyed by concentration of ownership” by major institutions now dominating the industry.
“I think that people who are newer entrants forget that crypto (Bitcoin) was born of the 08/09 financial crisis. It was a response, a reaction to ‘too big to fail’ monopolists and the ills of the traditional financial system.”
A failed legacy: where SEC regulation hasn’t worked
Large institutions in crypto can and should be regulated, according to Brennan, but the challenges that brings are similar to those in the traditional finance world.
“In crypto, regulating large centralized actors, especially ones that have inherent conflicts of interest in their many businesses that could pose systemic risks, makes a lot of sense,” says Brennan.
“If you are truly a DINO (Decentralized In Name Only) and not decentralized, you should, under law, get treated like any traditional actor.”
A major problem, of course, has been a lack of clarity in regulation to date, which can actually incentivize bad business practices according to Brennan, due in no small part to SEC Chair Gary Gensler.
“Gensler’s legacy, if you could call it that, has been going after good actors and disincentivizing good practices in the space,” Brennan states, adding that “Compliance is often at odds with the business case.”
“Gensler was driven purely by politics and thus failed utterly at driving good policy outcomes to the detriment of all.”
“The harm he created was due in large part to the lack of a policy framework that provided a path for compliance.”
Radical advocacy: How crypto lawyers are fighting back
Brennan is a co-founder of LeXpunK, a cryptolaw advocacy and funding group that brings lawyers, crypto industry professionals, developers, and investors together. One purpose of the group is to create new potential legal frameworks and proposals for consideration by regulators.
In 2022, Brennan and a group of co-authors drafted a SEC framework aimed at allowing token projects to legally issue crypto tokens.
The framework would potentially support the creation of tokens without either falling afoul of securities law or endangering end-users, even for token projects that don’t qualify for the “safe harbor” outlined in existing SEC guidelines.
The proposal was discussed in a congressional committee on Fintech in 2023. While legal pros native to crypto drafting improved proposals for regulators to consider sounds like an ideal solution to today’s problems, the proposal seems to have fallen on deaf ears for now.
“We seem incredibly unwilling as a nation to examine where policy solutions have failed; we lack the ability to pivot or recover, preferring instead to double down.”
According to this legal expert, crypto regulation should focus on pre-emptive antitrust enforcement to prevent institutions from becoming ‘too big to fail’ in the first place.
Brennan believes that by preventing monopolies from forming, supporting decentralization, and targeting criminals rather than the technologies they use, regulators could undo the harm caused in recent years and help foster a safe and thriving digital assets economy.
The difficulty, of course, is getting regulators to listen to experts from the other side of the fence in the first place.
At the time of writing. Brennan is working on a new advocacy initiative to continue her support for decentralized communities.
