62 research outputs found

    Comment Letter to the U.S. Treasury Department regarding the Risks of Stablecoins

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    This letter responds to the U.S. Treasury Department’s request for public comments on President Biden’s Executive Order No. 14067, “Ensuring Responsible Development of Digital Assets” (Mar. 9, 2022). This letter contends that (1) digital stablecoins currently pose significant risks to U.S. financial markets and investors, (2) stablecoins will create great dangers for our financial system, economy, and society if they become a widely-accepted form of payment for consumer and commercial transactions, and (3) allowing Big Tech firms and other commercial enterprises to issue and distribute stablecoins would seriously undermine our nation’s longstanding policy of separating banking and commerce. In view of the foregoing hazards, Congress and federal agencies should designate stablecoins as deposits and require all issuers and distributors of stablecoins to be chartered as FDIC-insured banks. Congress and federal agencies should also reject proposals that would (i) allow uninsured banks to issue or distribute stablecoins, or (ii) regulate stablecoin providers in the same manner as money market funds, or (iii) provide pass-through federal deposit insurance coverage to customers of nonbank stablecoin providers. This comment letter is also available at https://www.regulations.gov/comment/TREAS- DO-2022-0014-0203

    Extending Cognitive Assistance with AI Courses of Action

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    NPS NRP Technical ReportThe objectives of this study is to research and assess the initial stages of the evolution of Human-Machine Teaming (HMT) mission workflows which is focused on transitioning of automation tasks from humans to machines using a technique to digitize mission workflows. Also, study the advanced stage(s) of the evolution of HMT to include Courses-of-Action (COA) in Wargaming and how decision-making (DM) AI functions play what role natural language processing (NLP) plays. In addition, this study will explore the viability of NLP in HMT peer-to-peer COAs generation. Finally, this study will leverage complex Joint Naval Force EABO scenario (UNCLASS) designed by MCWL to explore NLP and distributed agents managing the decision making of operators using various modes of HMT interface of AI run-time execution agents thereby enriching digital workflows. The research questions that will be address will include: 1) What is the best approach for a cognitive assistant to learn mission workflows so that recommendations can be made to a human operator?, 2) How can cognitive assistants switch between modes of automatic, advisory, or monitoring?, 3) What are the key parameters for switching?, 4) How does the CA learn to switch to make appropriate recommendations?, 4) What is the cognitive intersection between domain specific environment awareness and situation awareness?, and 5) What happens when a target switches context? The methodology will use quantitative research methods. The methodology for this study will be based on SME input to gain an understanding of mission workflows and tasks, MCWL-developed Joint Force EABO scenario leveraged for a case study and collaboration with the Wargaming Center in Quantico, VA. Based on a scenario, the independent variables will be the inputs into the cognitive assistant. The dependent variable(s) are the output of the system such as if the system recommends the role of automatic, advisory, or monitoring. The plan for this study is to leverage a complex joint Naval Force EABO scenario in studying a role of enrichment digitization of the workflows including utilization of scenario-driven HMT modes and sub-modes; review digital workflows from Master Thesis: "Fire Support Coordination Cognitive Assistant", USMC Capt. Benjamin Herbold, NPS, Graduation Year: June 2020; gain understanding of wargaming COA Digital Mission Command Joint Forces hypergame; develop expertise on modes of Human-Machine Teaming control and their sub-modes of automatic, advisory, and monitoring; study evolution from a single "interactive" mode of HMT proposed for the Fire Support Coordination Digital Workflows to the planning phase in Fire Support Coordination; study NLP and associated theories as a framework to situate the research; and coordinate with other entities such as MIT LL, DARPA, BAE, USMC AI COI, MCWL, and ONR.HQMC Plans, Policies & Operations (PP&O)This research is supported by funding from the Naval Postgraduate School, Naval Research Program (PE 0605853N/2098). https://nps.edu/nrpChief of Naval Operations (CNO)Approved for public release. Distribution is unlimited.

    How Crisis Affects Crypto: Coronavirus as a Test Case

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    Everybody is talking about cryptocurrencies. These digital tokens, which started in a one-asset market, have swiftly ballooned into a massive and diverse “cryptomarket.” The cryptomarket is still mostly unregulated, but this is about to change. With President Biden’s adoption of the Executive Order on Ensuring Responsible Development of Digital Assets, regulatory initiatives are being adopted abroad, and global regulation looms ahead. In light of the expected regulatory changes, two important questions emerge: is there a clear rationale for legal intervention in the cryptomarket? And if so, what type of regulation is optimal? This Article is the first to consider how to regulate the cryptomarket through an empirical analysis of how the COVID-19 crisis affected the cryptomarket. We take a two-step approach to answer these pivotal questions. First, we analyze empirical evidence from the early days of the COVID-19 pandemic to better understand the risks posed by the cryptomarket when a crisis emerges. Second, we apply a law-and-economics approach to identify which market failures are consistent with the data and derive novel regulatory lessons. Our empirical analysis reveals an interesting pattern: investors initially shifted funds to the cryptomarket when the pandemic erupted, but then made a U-turn and diverted funds out of cryptocurrencies, leading to a plunge in the market. We maintain that such investor behavior can have both rational and behavioral explanations, which in turn affects the optimal choice of regulation. Accordingly, we map each rational and behavioral explanation onto potential market failures by surveying different possible interpretations of our findings, such as substitution effects between traditional markets and the cryptomarket, exploitation of investors in the form of pumpand- dump schemes, and other criminal activities. We then discuss how each type of failure can serve as justification for regulation and derive regulatory lessons on how to best intervene in the cryptomarket depending on the source of the market failure

    Unpacking the Societal and Institutional Risks of Crypto Assets: The Policy-Innovation Nexus

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    The Crypto Winter of 2022 exposed multi-dimensional risks in the crypto ecosystem which extend beyond technical imperatives to include societal and institutional factors. A domino effect saw several major crypto firms losing large amounts of investor cash or becoming bankrupt. This practitioner focused study adopts a grounded methodology to gather empirical data from regulators, crypto firms, and investors on developing a policy framework for crypto assets. The case study context is the US regulatory environment. Findings show regulatory agencies face ideological, operational, and technical obstacles, as they engage in debates about the efficacy of competing regulatory scenarios. The paper presents two major tensions which require the attention of policy makers and legislators to mitigate future societal and institutional risks from crypto assets

    UNITING U.S. AGENCIES TO FIGHT THE ILLICIT USE OF CRYPTOCURRENCY

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    In 2022, the Biden administration published an executive order in which the growing use of digital assets was deemed a national security threat. While this thesis focuses on cryptocurrency, it is more broadly about how the United States can—and should—employ a whole-of-government approach to counter a continuously evolving and adapting threat environment. This thesis begins by examining several assumptions regarding malign actors’ adaptations, the adoption and use of emerging technologies by these actors, and strategies for the United States in applying its instruments of power to combat these developments. The research assumes that many adversarial entities engage in multiple activities, such as terrorism, insurgency, and criminality; as these organizations form new alliances, they are also developing new evasion techniques; and this increasingly amorphous threatscape, defined by new malign alliances and technological tools, will require the United States to utilize the entire homeland security enterprise, from the Department of Defense to law enforcement, to confront these actors. This thesis utilizes these assumptions as a foundation to construct an informed policy options analysis that puts forth potential, long-term frameworks to counter this growing diversity of threat actors and their use of increasingly technical and sophisticated tools of evasion.Civilian, Department of Homeland SecurityApproved for public release. Distribution is unlimited

    Creating a Path to Regulation -- Digital Assets, Howey and the Regulatory Dilemma

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    Navigating Supply Chain Multiverses: The colliding worlds of ESG and Product Compliance Reporting, implications for reporting across global supply chains

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    Companies that place products onto the marketplace, whether they are internally manufactured or sourced from a supply chain face ever increasing requirements to provision data, wherever the products are sourced and transported from, manufactured, and distributed at applicable local, regional, and global levels. The Product Compliance world considers product safety and regulatory compliance activities. The Environmental, Social, and corporate Governance (ESG) world considers a much broader range of sustainability and social development related activities, performed at a corporate level. ESG reporting was originally developed within the financial sector by investors to aggregate a given organization reporting against ESG related topics. The European Union (EU) has been implementing additional EU ESG reporting requirements, in the form of several directives and regulations flowing down from the EU Green Deal (EC, 2019), which aligns all it’s actions against the EU 2030 Climate Target Plan (EC, 2021a), this includes EU Capital Markets Action Plan (EC, 2020a), which includes direct intervention in the financial sector, requiring EU financial sector to adhere to the new EU ESG reporting requirements when providing financial services to industry. As a result, companies within the EU will need to adhere to these new EU ESG reporting requirements, which include reporting at economic activity and product level, to obtain investment from the EU financial sector, hence a significant additional burden of reporting will be placed against global supply chains in a significantly different manner to traditional ESG reporting, resulting in the collection of data and reporting linked to economic activities and at the product level, fusing the worlds of Product Compliance and ESG reporting. Existing systems and standards will need to be updated to reflect the granularity and accuracy of data to be reported. This paper contributes to existing literature by identifying a research gap in understanding the emerging ESG reporting requirements globally, and their resulting implications in terms of supply chain data collection and ESG reporting requirements. The outcomes of this paper support the development of organisational action plans to implement systems and solutions to enable adherence to the new requirements

    Cryptocurrency, Legibility, and Taxation

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    In Jarrett v. United States, a taxpayer in Tennessee is arguing that staking cryptocurrency did not result in him earning “income” under federal income tax law. This case illustrates the fundamental challenge that cryptocurrency and blockchain technology present for tax law. Wealth creation in the crypto space is not readily legible to the state. This absence of legibility threatens tax law’s reliance on placing economic activities into categories to determine how they should be taxed. Furthermore, this case highlights the harms Congress and Treasury are risking by not taking action on cryptocurrency taxation. The uncertainty and lack of guidance on the appropriate taxation of cryptocurrency is opening the door for a critical juncture in tax law to be decided via strategic litigation. This threatens a jurisprudential evasion of the democratic and administrative process in a high-stakes moment for tax law

    Privacy Implications of Central Bank Digital Currency

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    One hundred five countries, representing over 95 percent of global GDP, are exploring central bank digital currencies (CBDCs), a new form of digital money that is different from privately issued cryptocurrencies and stablecoins. As central banks worldwide grapple with CBDC design options, privacy has become a critical feature and concern. Many central banks, government agencies, NGOs, think tanks, and even the general public have already addressed the importance of privacy and called for privacy in CBDC systems. Some economists, computer scientists, engineers, and legal scholars have already moved forward to design a privacy-preserving CBDC.However, when addressing the importance and preservation of privacy, all parties seem to overlook two very important issues: (1) What does privacy mean here? and (2) What privacy problems do CBDCs create? Before proposing solutions, one must understand which problems must be solved. In this article, I explore these two critical issues. I first adopt Daniel Solove’s pragmatic approach and Helen Nissenbaum’s contextual integrity theory to conceptualize privacy in the context of CBDCs. Next, I investigate the dataflow of four structural and foundational CBDC designs and conclude that each design will result in various potential privacy issues, including mass surveillance, misuse and abuse of CBDC data by central banks and intermediaries, and more. In the end, I propose three legal and technical principles as a reference framework for designing a privacy-preserving CBDC.This article makes four contributions. First, it fills the gap in the privacy and CBDC literature (which lacks a thorough analysis of the concept of privacy in the CBDC context) and lays the foundation for future work on solutions to protect privacy by first identifying privacy problems that could occur in various CBDC designs. Second, this article helps central banks rethink their roles in the digital age, especially in a situation where the use of central bank money (i.e., cash) is shrinking dramatically and central banks’ authority is constantly challenged by the privately issued digital currencies such as cryptocurrencies and stablecoins. Third, this article benefits commercial banks and payment service providers and helps them seize the opportunity to work with central banks to provide a CBDC that meets users’ needs and strengthen their roles in the financial and payment markets. Fourth, this article particularly benefits individuals, both everyday mobile-payment users and the unbanked and underbanked populations. It not only educates individuals about the privacy problems that could occur if one decides to use CBDCs but also equips potential users with the knowledge necessary to demand privacy protection in CBDC systems
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