Decentralized autonomous organizations(DAO) are in blockchain circles. Some are seeking new possibilities in DAO, including CryptoFed, which is the first legal DAO registered in the United States. CryptoFed aims to build a new currency system that solves the problems of the existing currency system. Tokenpost spoke with Scott Moeller and Zhou Xiaomeng, the organizers of CryptoFed, to listen to CryptoFed's story.
Q Thank you for accepting to be interviewed. Please introduce yourself and the company.
Scott My name is Scott Moeller, one of the organizers of the American CryptoFed DAO. I also have the title of ceremonial CEO. It might seem a little strange to have a CEO in DAO. But it's basically for when you are at the initiation stage, we need to have an individual that can sign documents with regulators. Previously, I worked as CEO of MSHIFT, which provided E-commerce, mobile banking, payment, and blockchain services for more than 20 years.
Zhou I'm Zhou Xiaomeng, COO of the American CryptoFed DAO. Like Scott, I worked as COO at MSHIFT. Based on my experience at MSHIFT, I have a broad understanding of the mainstream industry such as mobile banking and payment.
Scott We are emphasizing the MSHIFT experience because we want to show the distinctiveness of CryptoFed. Most cryptocurrency organizations and DAOs are based on crypto engineers interested in blockchain. But we are a Silicon Valley based company. We worked with the Boston Fed for more than a decade, and in 2010, we participated in Fed's mobile payment industry working group. It was a working group with 23 companies, including Visa, MasterCard, PayPal, and AT&T. It was a great opportunity to understand the American payment ecosystem.
Q I understand the name ‘CryptoFed’ implies that it will compete with Fed. What are the strengths of CryptoFed over existing monetary systems? What do you think about the concern that the use of privately issued currencies could weaken the dollar?
Scott CryptoFed is a Decentralized-Central bank. We are creating a superior form of money which puts the central bank and federal reserve into competition. In CryptoFed, each member has sovereignty unlike the current financial system. The key difference between CryptoFed and the Fed is the inflation target. We've been trained our whole lives to think two percent as a healthy inflation. But inflation basically means that the value of money is eroded. The inflation rate of 2% means that the value of your money will be half in 20 years. Now, they say the inflation rate is 7%. People don't know how scary that is. 7% inflation means that your dollar loses half of its value in six and a half years. This is why we started CryptoFed. CryptoFed's goal is to build zero-inflation, zero-deflation, and zero-cost currencies.
Zhou CryptoFed should compete with legal tender. In capitalism, there is one thing that is not competitive: money. The world is now asking for a new monetary system. I think the only way to create a better system is to make a competition. The current monetary system revealed numerous problems after the Great Depression in the 1930s. One of the key problems with the current financial system is that each bank's reserve ratio was set to less than 10% for liquidity. Banks form a business cycle by lending customer deposits. This often causes problems like the great depression. CryptoFed can solve this problem. CryptoFed provides consumers with at least 5% of rewards to promote transactions and keep money circulating.
Scott The benefits of competition goes to individuals. CryptoFed is not a corporation, but a voluntary consensus. We don't force you to participate. After the emergence of the Euro system, currencies such as Mark and Franc disappeared.
CryptoFed is different. The dollar will remain in dollars and Ducat will remain in Ducat. In fact, before 1913, it was possible for the private sector to issue their own currencies in the United States before the Fed was established.
CryptoFed created a currency that could benefit all ecosystem members. Unlike bitcoin, in Ducat, transaction activity itself is mining. You can earn interest by trading or keeping it in your wallet.
Zhou CryptoFed solves the inflation problem with interest. If we issue too much Ducat, the system will raise the interest rate. This will be automatically adjusted by machine learning technology.
Q CryptoFed is the first legally recognized DAO in the United States, and was the first to be approved on the day the related law came into effect. Could you share the background of your application and approval process? When did you start preparing to register for Wyoming?
Zhou Before registering in Wyoming, we had multiple meetings with the banking commissioner and the secretary of state's office for a year. We tried to comply with all regulatory procedures. Regulators have shown remarkable openness in respect of the U.S. Constitution and individual rights. They saw the value of the blockchain industry. Wyoming is taking the leadership of any jurisdiction in the United states. Wyoming is also the first state in the United States to grant women's voting rights in 1888.
Q Wyoming has the most cryptocurrency-friendly policy in the United States. However, at the federal level, regulatory and legal barriers remain for DAOs to overcome. What work is being done to solve these problems?
Scott There is one thing that we need to point out. The U.S. decision-making system is very different from other countries. The state rights trump federal rights, and individual rights trump the state right according to the constitution.
CryptoFed is working with other state authorities to break through federal regulatory barriers. States that have cryptocurrency-friendly policies such as Florida, Texas, and Arizona are paying attention to Wyoming. They can be good partner.
Q CryptoFed tried to officially register its own tokens with the SEC, but it was initially rejected. What was the reason? Have you tried registering the tokens since the initial rejection? What do you think is the probability that the SEC will approve it this time around? What’s your strategy for getting approved by the SEC?
Scott To be exact, it was not rejected. It stayed. SEC claimed there is a problem with Form 10, which is a general application for security registration. Locke and Ducat are not security. But we claimed Form 10 because the SEC asked us to. Gary Gensler asked crypto companies to register. That's why we applied for registration. As far as I know, it is the first time since 1987 that Form 10 has been stayed. We are taking multiple actions to respond to the SEC's decision. We are going to take the bull by the horns.
Zhou SEC can take two ways. One is accepting our tokens as a security. And the other is do not. CryptoFed will make the SEC accept that Locke and Ducat are not securities. SEC requires securities to have more than 10 million dollar assets. CryptoFed has no assets. A subject that has no income or asset is issuing tokens. CryptoFed issues Locke and Ducat so that people can participate. MSHIFT's role is just arbitration. This is why CryptoFed does not need ICOs. SEC claims that we have omitted this information. How can you notify the information that we don't have and will not? There is also a clause that the information can be replaced if necessary, but the SEC rejected it. The only option left for the SEC is admitting that we are not security.
Scott Regarding the asset, some might ask "What happens to my money when I buy Locke?". Those funds remain in the smart contracts. We do not own that fund. All funds of CryptoFed, including the sale of Locke, are only kept for payment or refund purposes. According to GAAP(Generally Accepted Accounting Principles), they cannot be classified as assets.
The first condition of the Howey Test is whether there was an investment of money. There was no investment of money in CryptoFed. It doesn't matter whether the SEC considers us as security or not. What we're concerned about is that the government is driving innovation out of the United States. CryptoFed can solve inflation and bring economic prosperity.
Zhou We claimed Form 10 because we know it might be a problem without the approval of the regulatory authorities. If they see us as security, we have to register and the SEC should accept us. There is no chance of losing the debate with the SEC.
Q It also seems important to increase public interest and participation in DAOs. How do you plan on promoting CryptoFed?
Scott We are not going to promote at all. All we have is a website that describes CryptoFed's business model and token economy. All we do is contact the seller community. We are working with the 'Merchant Advisory Group' in the United States. It is an organization involving 160 famous companies with an average sales of $4.5 trillion. Sixty percent of credit card transactions used in the United States go through these companies. From the seller's point of view, CryptoFed is an ideal option because we offer a zero-cost credit transaction. The average credit card fee is around 2%. Without the fee, they can maximize their profit.
Q Please share the vision and goal of CryptoFed in 2022.
Zhou We are planning to launch Locke in 2022. We plan to collaborate with the seller to carry out the pilot program together. We plan to enter Asian market and expand the U.S. market. We think CryptoFed will become a global currency and be available anywhere.
Scott If the SEC admits that Ducat is not a security, we are going to sell it to overseas consumers outside the U.S. Like bitcoin, Ducat will be available in the global market.