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The Texas Work Group on Blockchain Matters met on August 19, 2022, to hear invited and public testimony on decentralized autonomous organizations (DAOs), blockchains, and digital currencies to identify economic growth and development opportunities, assess existing blockchain technology, build expertise across relevant industries, and offer policy recommendations. A video of the recording can be found here.

 

This report is intended to give you an overview and highlight of the discussions on the various topics taken up. It is not a verbatim transcript of the discussions but is based upon what was audible or understandable to the observer and the desire to get details out as quickly as possible with few errors or omissions.

 

Invited Testimony

Sam Padilla, Web3 Customer Engineer, ATX DAO

  • Blockchain Engineer at Google
  • ATX DAO promotes local crypto projects with artists and offers policy recommendations
  • Convinced Texas needs to recognize DAOs as legal in the economy to be competitive
  • Opening a bank account, receiving payment, and setting up a payroll made difficult for DAOs under current laws
  • Existing legal structures don’t need to be reinvented for DAO3
  • Create registrar for people who want to register DAO in Texas
  • Reusable KYC attestations:
    • NFTs can be used to represent ownership
    • Recording contracts can be executed through blockchain
  • Multi-signature wallets- like joint checking accounts with LSE members; are not as anonymous as they should be
  • Hacking of crypto wallets is happening regularly, and anonymity is crucial to DOAs functioning effectively
  • Legal landscape must change quickly with blockchain technology and agrees with decision to set up a committee on this topic
  • Less bureaucracy and more clarity in language necessary for crypto laws
  • Member Bratcher – What’s the latest thought process on registering to contact anonymous DAO members in the case of a legal issue?
    • In future, DAOs could be required to go through KYC attestation where a person could remain anonymous, but company doesn’t, creating greater accountability
    • There’s an impression that people in crypto want anonymity to participate in illicit activities but that’s a myth; it’s a matter of security and personal financial privacy
    • DAOs need to be regarded as a legal entity by the state
  • Chair Reyes – Want this done through a DAO LLC or via existing organizations?
    • The latter, the simpler the better

 

Scott Beck, CEO, United Texas Bank

  • Wants to speak to blockchain and digital currencies
  • UTB operating alongside fintech and blockchain companies on cutting edge of crypto technology and future of banking
  • Important for government to provide guidance on property rights and innovation in digital technologies
  • Through legal framework can create fairer playing field domestically and internationally
  • Recommendations:
  • Stable Coins- designed to have relatively stable price, pegged to fiat currency; “stable coins” are a misnomer because managed by non-banks due to lack of legal designation
  • Texas needs to designate stable coins as backed by permissible reserved assets, permitting banks to reserve coins as assets
  • Limit of issuance of dollar-backed stable coins to banks; stable coin issuers should be limited to banks due to legal framework and expertise, making them well regulated
  • Government should allocate property rights and resources to stimulate economic growth
  • Suggests a digital asset custody regime like Wyoming to ensure security of digital assets
  • Establish clear rules for security interest and assets in cryptocurrencies; have a user-friendly way to perfect security interests
  • Establish clear rules on how digital assets are handled in bankruptcy, clarity in protection for customer assets necessary
  • Incentivize blockchain development and innovation, like Singapore
  • Member Villaseñor – If stable coin recommendations were adopted, what are some examples of how they could be used?
    • Circle is not a bank but holding stable coin assets
    • If there’s a run, then there’s a destabilization in the economy as a whole
    • Need a bank to issue stable coins directly to hold cash sitting at the Fed
    • Crypto ecosystem can move value back and forth while pegged to USD
    • Banks could issue stable coins to customers, using new technology to watch and maintain what’s happening with tokens in their digital wallets out in the economy
    • Opportunity to speed up time with which you can settle; State can define money and how they interact with electronic records, creating more legitimacy
  • Chair Reyes – For what purpose do you want stable coins defined as money?
    • Wants permissible investment for stable coin
  • Member Bratcher – Agrees with his thought process; seems anticompetitive though
    • Thinks stable coin should be pegged to USD to underpin it in US Treasuries to prevent systemic runs to control money going in and out of fed; money held at banks FDIC insured
  • Member Bratcher – Should Texas adopt special purpose digital asset custody regime?
    • Wyoming a good framework but don’t need to replicate it exactly
  • Member Bratcher – HB4474 is not sufficient? Texas will likely adopt ULC’s most recent guidance
    • Can only speak to UCC, which has gotten it right on controllable electronic records
  • Member Calicott – How do your recommendations lead to a fairer system?
    • Blockchain necessary because it allows people to shift outside of banking system to move their currency without control of a bank, leading to more stability

 

Travis Iles, Commissioner, Texas State Securities Board

  • TSSB regulates securities but hasn’t tried to so with technology and innovation, only really dealing with bad actors
  • Started training internally on digital assets and cryptocurrencies
  • USITech was first threat in December of 2017, starting necessary law enforcement work in their area; BitConnect followed
  • 50 law enforcement actions have taken place to put bad actors in their place, doesn’t see that changing any time soon
  • Trying to protect Texas investors to foster a positive environment for capital formation
  • Excited about potential applications and doesn’t want to limit continued development and innovation in this space; fraud the biggest barrier due to lack of measured regulatory approach
  • Member Anderes – What constitutes a security? It’s been subject to debate. How is TSSB dealing with this?
    • Flexible definition intentional to pivot toward investor threats

 

Public Testimony

Brian Buckles, Self

  • Taught economics at Baylor and several universities in Dallas
  • Speaking about handshake block-chain to preserve liberties for future generations
  • Decentralization- need to upgrade the internet because powerful tech companies have monopoly power to increase prices, monitor online actions, and undermine political candidates
  • Censorship resistance- censorship resistant handshake block-chain decentralizes root zone to determine if a website can be trusted
  • Security- cyberattacks occur frequently and need enhanced security to preserve privacy
  • Decentralized domain name built on top-level domain would eliminate need to remember hundreds of passwords
  • Texas has opportunity to lead the way on bitcoin by including handshake block-chain, adapted for DNS

 

Nole Oppermann, Founder, Hey tx

  • Hey tx a handshake company; handshake has similar ethos to Bitcoin with no centralized company
  • Providing actionable items is his priority for the workgroup
  • Starting a business can be cost-prohibitive; Texas can save $10M annually through legislation minimizing those barriers
  • Wants to extend current internet; sees HNS as the future
  • Member Weston – Decentralized DNS a benefit for small businesses?
    • Buckles – Big tech companies determine who gets domain names; some throwing political groups off their domain names when they don’t like them
    • Opperman – Hackers exploit DNS service provider names, HNS fixes this; digital ownership incentivized through DNS; Handshake making web more anti-fragile, more robust
  • Chair Reyes requests a more technical description of how decentralizing DNS would work, which they agree to provide
  • Chair Reyes – How do you suggest giving every citizen a domain name?
    • Opperman – When registering a business, should be offered an opportunity to also register a domain name on HNS, integrating different browsers

 

Michelle du Plessis, Founder & CEO, MyDATA

  • Foreign-trained lawyer actively involved in blockchain in Lichtenstein, which is on forefront for blockchain development through their Blockchain Act
  • Sees future nestled in blockchain but need more security and opportunity to be compensated
  • Can protect and monetize your own data through similar actions to the Blockchain Act, providing more control to each data subject and blocking out big tech companies
  • A .texas domain name would keep big tech companies away from monetizing personal data
  • Chair Reyes – Is this mechanism a data trust?
    • No, a marketplace with tokenized data exchange to be stored where you feel safe storing your data
  • Chair Reyes – Do we need decentralized identity mechanisms to make this work?
    • No, but makes it more secure so would recommend it

 

Lindsay Vermont, Self

  • Heard during invited testimony advocacy for issuance of stable coins within current system and she wants to emphasize that if that were to happen, it would be programmable and it would centralize all control of those coins and who they’re issued to
  • Government centralization of stable coin would put control in hands of the Fed and take it away from freedom of individuals
  • Need to pass legislation to ensure no corporation can do business in TX if they don’t accept different kinds of cryptocurrency
  • Texas should require that new digital currency from federal government should be pegged to a tangible commodity
  • Member Bratcher – Does it become onerous for businesses to accept all cryptocurrencies?
    • More related to larger businesses to ensure they’re not censoring currency

Adjournment