Montana's Miner Senate Bill; Maker DAO Lawsuit; CBDC Discussions

DEF Weekly Roundup - 3/3/23

Bill Protecting Cryptocurrency Miners Passes Montana Senate

What happened?

On Thursday, February 24th, the Montana State Senate passed Senate Bill No. 178, a bill that would improve the business environment for miners in the state. It now awaits approval by the House and then Governor.

Specifically, the bill prohibits discriminatory electricity rates on miners and limits local governments’ ability to prevent mining businesses from operating in areas “zoned for industrial use.” Additionally, local governments could not prohibit home cryptocurrency mining unless existing noise ordinances are violated, and exempts cryptocurrency used for payments from additional taxes.

What does this mean?

Not long ago, cryptocurrency mining operations’ use of electricity was a major political issue. The European Union, for example, considered a proof-of-work moratorium as a part of the Markets in Crypto Asset Regulation (MICA), and New York implemented a partial moratorium on mining at the end of 2022. While the debate is less “front and center” than it used to be, Montana’s bill evidences the continuing relevance of this issue and the varying approaches different policies will take to it.

It is encouraging to see Montana seriously consider a policy that would not favor or subsidize cryptocurrency mining but rather protect individuals’ and businesses’ ability to use electricity for purposes they deem productive. We hope to see this bill become law.

A Class-action Lawsuit Against Maker Dismissed By A Federal Judge

What happened?

Last week, a court in California dismissed a class-action complaint against the Maker Ecosystem Growth Foundation that alleged it misrepresented the risks of Maker’s collateralized debt positions (CDPs), resulting in a $8 million loss.

The judge dismissed the complaint for two procedural reasons. First, Judge Chesney dismissed on the grounds that “Maker Growth is not a proper defendant because it has been dissolved, and therefore lacks capacity to be sued.” Second, the claim is barred by California’s “economic loss doctrine”, which prevents recovery of purely economic losses that are the result of one’s own negligence.

However, the judge stated that plaintiffs can amend and file a revised version of this complaint with those issues addressed by March 13th.

What does this mean?

As previously mentioned, this was only dismissed on procedural grounds so stay tuned for more updates on this case.

US Treasury Official Actively Evaluating CBDC

What happened?

On Wednesday, United States Under Secretary of the Treasury for Domestic Finance, Nellie Liang, delivered a speech at the Atlantic Council, in which she discussed the federal government’s recent efforts to accelerate discussions around a central bank digital currency (CBDC).

In her speech, Under Secretary Liang highlighted some of the benefits a CBDC could bring to the financial system, including “help[ing] preserve the dollar’s global role” as the world’s reserve currency of choice and reducing frictions in cross-border transactions. Although Undersecretary Liang reiterated that no final decisions have been made on the issue, she disclosed that US officials “are actively evaluating whether a CBDC is in the national interest.”

When asked about a path forward, Liang suggested that she doesn't “think there’s any predetermined outcome at this point. Interestingly, she touted the potential for a hybrid public-private approach, where the government issued a CBDC that acts as a base layer “backing asset for stablecoins, which could make it easier to transfer value among stablecoins in addition to supporting greater interoperability and choice.”

What does this mean?

CBDCs can be designed such that they replicate the key characteristics of cash that differentiate it from other forms of payment. On the other hand, if poorly designed (like China’s), a CBDC would severely encroach on Americans’ right to financial privacy and enable an unprecedented degree of surveillance of and control over private transactions. Such a system would be anathema to America’s foundational principles.

The right to financial privacy is a fundamental prerequisite to the maintenance of a liberal democratic society. Normative opinions aside, it is undeniable that such questions of major economic and societal importance should be left in the hands of legislative bodies like Congress.