10 Takeaways on What the Midterms Mean for Web3
Web3 politics have led to web3 policy being far more advanced than I would have thought when 2022 began, but we need to keep building on our momentum
What a night! While votes remain to be counted and races to be called, it’s clear that Democrats vastly outperformed the poll aggregators, the punditocracy, historical trends and crudité voters. I’m grateful to those Democratic candidates who had the courage to run, and to all those who worked so hard for so long to elect them. As someone who views the state of society overall and our politics specifically through the prism of generational shifts, I find inspiration in the generation under 40 who showed up yesterday and who will be the responsible stewards of our democracy in the coming years.
I believe, because of their values, that this generation will provide truly incredible leadership for our country in all walks of life, and I’m excited to do what I can to help expedite their progress into these positions of leadership.
My faith in this generation is what led me to web3. It’s been incredibly powerful to watch web3 developers, founders and innovators build the next evolution of the internet around “small-d” democratic values. Motivated by profound dissatisfaction with both the internet’s current centralized model and an economy that is closed to many, they envision: an internet that is community-owned rather than centralized; economics that are participatory and distributed rather than concentrated and hierarchical; and a society that is inclusive and open, not exclusive and closed.
Much as FDR reimagined the relationship between labor, capital and government to create a new operating system for American democracy that prioritized the common good, this up-and-coming generation is reimagining how we engage with information and economics to advance a fairer society, leveraging the inherently democratic technology of web3.
In the context of the socioeconomic factors inspiring those under 40 to reimagine a better world, I believe their work building web3 will be central to helping to solve many of the policy challenges that I care about and that have made me a Democrat: economic fairness, empowering people over the powerful, participatory governance, and a more open world.
In this spirit of optimism and with an eye to the horizon, here’s my 10-point take—with some learnings and predictions—on what the midterms mean for web3 in the short term:
1. Emergence of the Web3 Voter. Over the course of the campaign, we have seen the emergence of the Web3 Voter and an awareness among the political-industrial complex (candidates, consultants, donors/fundraisers) of a diverse and growing bloc of voters who own digital assets: those under 40, people of color, working-/middle-class Americans, and urban and rural voters. In the US, politics drive the policymaking that results in regulations. More than lobbying power or campaign contributions, the more the Web3 Voter pulls the lever based on a candidate’s position on web3, the faster web3 regulations will emerge and be optimized for better outcomes. The nearly 20% of the electorate who own a digital asset is only going to grow—over 40% of all Americans today say they expect to own them—and the moment campaign pollsters first add a crosstab for owning/not owning a digital asset will be the political tipping-point moment for web3.
2. Transition from agencies dictating policy to legislation shaping policy. The rise of the Web3 Voter has prompted elected officials to engage over policy, and the resulting introduction of major legislation in both chambers of Congress is hugely significant because elected officials who are ultimately held accountable at the ballot will be more responsive to public sentiment than agencies run by bureaucrats. It’s important for the web3 community to appreciate that the legislation is a chance to expand our possible avenues to achieve regulation that advances the best interests of society, rather than rely only on an ossified, unimaginative federal administrative bureaucracy.
It’s also a chance for the Web3 Voter to really flex their muscle ahead of the 2024 presidential election. I’m convinced that web3's greatest political strength lies in the community’s values and growing size. And given that good politics will translate into good policy, those of us working on web3 policy need to engage the community in an open, transparent way so they can actively participate and demonstrate their ballot box relevance to elected and aspiring lawmakers.
3. Evolution from pre-partisan to bipartisan. One of web3's great policy achievements over the course of the midterm election campaign has been its rare bipartisan support. Web3’s bipartisan nature reflects how holders of digital assets represent voter cohorts both parties care a lot about, and how its social value proposition transcends traditional political fault lines. President Biden’s executive order and the role web3 played in supporting Ukraine also were key moments. Today, we have legislation sponsored by some of the most important, respected leaders in Congress and a generation of elected officials on both sides who really get it.
We need to preserve web3’s bipartisan appeal and stay true to its small-d nature, which is its policymaking superpower. And, at the most practical level, if we want good legislation passed, we will need 60 votes in the Senate. In this sense, I see some parallels between web3 and the 1996 Telecommunications Act, another example of a highly partisan environment, yet both parties saw the value in a forward-looking approach. In particular, given that web3 is the front line in the contest with China over who will control our global digital infrastructure, concerns about ceding US national security interests to China’s benefit is one of the few areas on which both parties still agree.
4. Economic competitiveness. As we go forward and seek to deepen web3’s bipartisan support, under any scenario, we need to be clear that US economic competitiveness is central to our desired policy goals. Data such as that contained in the Electric Capital report documenting how the rate of web3 development has increased outside the US exemplifies this kind of powerful argument for web3 politics and therefore web3 policy. And it is in fact the case that current web3 policy, driven by SEC Chair Gary Gensler, is driving the building blocks for the next generation of the web overseas. Both parties will care (Democrats should be sure to read the recent Atlantic essay on economic nationalism by Democratic Sen. Chris Murphy of Connecticut). In our current era of deglobalization, whichever party does better at promoting building in America will be the party that wins key voter cohorts in key states. Democrats will be well positioned if they focus on the need to stop complaining and start building if we want to beat China. No matter what, economic competitiveness will be a major issue in 2023-2024, and neither party wants to be the party that lost the internet to China.
5. Lame-duck hearing possible for DCCPA. Because of its existing bipartisan support and Democrats’ interest in being pro-web3, the midterm results and this week’s Binance/FTX drama will make it possible for the Digital Commodities Consumer Protection Act (DCCPA) to move, with a mark-up as early as mid-November (leadership fights could complicate the ability to prioritize the bill). While the bill needs to be improved in some critical respects, changes to bills typically happen as passage comes down to the wire, and our best chance to get our desired revisions will be to aggressively (though respectfully and with a seriousness of purpose) engage with the key members, including publicly making the case for why the changes represent good policy and good politics in ways that will resonate with them.
For example, Democratic Sen. Sherrod Brown of Ohio is key to getting better language around DeFi. Brown is an advocate for consumer protections and has concerns about crypto that he likely has picked up from influential consumer groups. He also genuinely cares about economic fairness, inclusion and US economic security. Brown is up for re-election in 2024 in what will be a very competitive state where more voters now hold digital assets than union cards (and are overwhelmingly middle- and working-class), and where more than 40% of these digital asset holders use crypto for remittances. We as a community need to help (again, in a respectful way) Senator Brown understand (a) why DeFi helps increase financial access, and (b) why web3 matters to Ohio voters.
6. Shot on goal. If the DCCPA doesn’t move in the lame duck, given the legislative process and priorities of the new Congress, it may be a bit of time before another bill comes along to establish what’s a commodity versus what’s a security. In considering the counterfactual of the DCCPA not passing during the lame duck (and to be clear, while the perfect should not be the enemy of the good—we do not yet have a bill that could be considered "good," particularly when it comes to DeFi), the web3 sector will continue to be subjected to the whims of the SEC, and the sector will need to be ready. It’s been great to see many in the community supporting Ripple’s legal battle with the SEC, as well as Coinbase's legal support for developers. And all a reason why Haun Ventures has pursued rulemaking with the more open-minded CFTC when it comes to creating a framework for DAOs.
7. Playing to win. The election has ushered in a new generation of pro-crypto members of Congress. Web3 super PAC GMI played an important role in identifying and marshaling support in the primaries, including backing John Fetterman for the Pennsylvania senate and Seth Magaziner for the second congressional district seat in Rhode Island. We now have a crypto caucus that is larger post-election than it was before. Of course, over the last two years we also have seen the emergence of leaders in Congress who will be returning to the Hill.
8. Stablecoin. Depending on what happens with the DCCPA, the marquee web3 bill in the next Congress could well be stablecoin legislation coming out of the House Financial Services Committee. There’s a big opportunity here for the US to put in place common-sense rules around collateralization, reporting and liquidity that support the global primacy of the US dollar by using crypto to create more access for the next 1 billion people who will come online.
9. New Hampshire and Nevada. As soon as the polls closed on Tuesday night, the already humming 2024 presidential campaign kicked into high gear (given the underwhelming performance this is particularly the case on the Republican side). Candidates will soon be trekking to early primary and caucus states. New Hampshire, home of the first-in-the-nation primary, and Nevada, home to a key early caucus, also are home to some of the highest percentages of digital asset holders per capita anywhere in the US. These two states present a big opportunity for the emerging Web3 Voter to show up. Given that these voters exist in both parties, and are especially prominent among independents who are able to vote in the New Hampshire primary, candidates will be eager to engage a constituency that accounts for ~20% of the electorate—so long as the voters present as a bloc relevant to both parties.
10. Good politics will translate into good policy. Web3 politics have led to web3 policy being far more advanced than I would have thought when 2022 began, but we need to keep building on our momentum. Let’s keep it going.