An Open Letter to Congressman Brad Sherman, Regarding Crypto Platforms
December 9th, 2021
Dear Congressman Sherman:
I was extremely impressed by your comments and questioning during yesterday’s House Financial Services Committee hearing on Digital Assets. I loved that you called out the fact that Brian Armstrong, the leader of the “Coinbase Mafia” (which was financed by members of the “Facebook Mafia”, which in turn was financed by members of the “PayPal Mafia”) didn’t even bother to show up.
While I am an advocate of crypto and do not share some of your intense skepticism, I think we can both agree that there is an insane amount of favoritism and self-dealing in this industry. Within the context of the startup sector, entities such as Coinbase and Circle, financed by groups of people who openly brag about self-assembling into cartel-like “mafias,” are able to drown out voices that don’t have the same privileged access to capital (pretty ironic given how much these entities like to talk about creating “financial inclusion”). America is witnessing the weaponization of capital as a means for crafting yet another cycle of problematic monopolies — and you don’t have to take a positive or negative stance on cryptocurrency to find this basic fact to be troubling. During your comments yesterday, you pointed out the role of the same tired old names in finance and tech populating the share registers of the new crypto “upstarts,” so I know you’re aware of this. I hope you’ll push this point further with your colleagues, as they don’t seem to understand the long-term consequences for society.
It was amazing to watch as the panelists unanimously celebrated the prospect of greater regulation and oversight for the crypto markets. While some of the panelists may be genuinely interested in greater clarity and safety for everyone in our ecosystem — which seems to be the case with Bitfury CEO Brian Brooks, who is an immense asset to both his employer and the crypto community — a more likely explanation for companies such as Coinbase and Circle is that they’re seeking to establish themselves in the sort of dysfunctional “permanent winner” position that’s only possible with the help of government-enforced regulation (crafted with the “assistance” of these companies’ lobbyists, of course). They’re celebrating the opportunity for you to codify their right to print billions of dollars a year in monopolistic rents.
There are many people within the crypto community who are extremely concerned about the concentration of value and power in the hands of people such as Coinbase and their “mafia.” Jamie Dimon and JPMorgan can only dream of operating in a manner where they can openly declare an intent to capture a double-digit percentage of both domestic and international capital markets, for both equities and cash-equivalents — yet that’s exactly how Coinbase and friends operate. You won’t hear or read much about this narrative, because these people and their supporters are already at the size where others fear their ability to deplatform them. This leads to the big issue I’d like you to consider, which I think is a lot more important than debates regarding, “is it a security,” and so on: platform risk.
While the Coinbase representative at yesterday’s hearing was excited to discuss the protections that keep questionable crypto tokens and projects from being listed on Coinbase’s platforms, they carefully avoided any discussion of the exact opposite: what if, instead of being concerned about the ease with which assets might be listed on Coinbase, the government became concerned about the difficulty, and the fairness, of the listing process? Coinbase enjoys incredible market power in the United States in the crypto sector, to the point where they can make or break projects by listing or delisting them. Who controls this? How? Is it a fair and transparent process to be listed, to be rejected, and to be delisted? Do projects with investors and stakeholders that have relationships with Coinbase and its executives get preferential treatment? Have they ever?
If you and your colleagues are going to provide Coinbase and its friends with the regulated monopolies they’re hoping to get out of you, I hope you’ll make sure that America’s next generation of innovators don’t have to be part of the “Coinbase Mafia” or funded by someone within that “mafia” to get access to their platform.
Let me tell you, dear Congressman, I know quite a bit about platform risk. I advised the executives at Facebook who built the Facebook Platform, and then became the first application developer to be kicked off the platform. Yes, that’s right, the person who helped Facebook build their platform was also the first person de-platformed by Facebook. Pretty funny, right? Based on my experiences, I can tell you that you and your friends in Congress are repeating the same mistakes you made last time around: while you’re busy debating the merits of crypto and whether or not it’s something of substance, you’re allowing people to assemble platforms upon which they can make or break others with zero consequences for acting in a self-interested or monopolistic manner.
Just because a lot of these projects sound stupid, or seem to have questionable value, doesn’t mean it’s right that the process through which they can live or die is totally opaque and unregulated. Start by regulating that part of the industry first, and then work your way through the other stuff. And pay close attention to the shareholdings and token-holdings of those involved in projects, particularly in relation to the shareholdings and token-holdings of the wallets and exchanges on which they operate — the conflicts of interest that exist, both on and under the surface, make it clear that a lot of these people aren’t joking about the term “mafia.”
In closing, I hope that you’ll eventually come around to seeing the value in cryptocurrencies and digital assets. You’re clearly a lot smarter and a lot clearer in your thinking than a lot of the supporters — we need critical thinkers such as yourself in this ecosystem.
With regards from the other side of the 405,