Crypto Regulation: Can Securities Laws Keep Pace with Innovation?

Nearly everyone agrees that the crypto asset market needs more robust regulation, but there is much disagreement about what the laws should look like as well as who should be legislating and enforcing them.

One key concern is whether crypto assets are commodities or securities, which raises crucial issues about which governing organization should be responsible for oversight and enforcement. Additionally, laws are struggling to keep pace with technological innovation, thereby increasing the potential for scams, fraud and poor practice.

Charles Whitehead, Myron C. Taylor Alumni Professor of Business Law at Cornell Law School and author of Cornell’s Securities Law certificate, discussed the shifting regulatory environment around crypto and what’s next for the revolutionary technology in a recent webcast, “Crypto Regulation: Can Securities Laws Keep Pace with Innovation?”

In the U.S., there are several regulatory bodies overseeing crypto assets. Does this make sense, and if not, why?

It’s referred to as the regulatory alphabet here in the United States: SEC (U.S. Securities and Exchange Commission), CFTC (Commodity Futures Trading Commission), OCC (Office of the Comptroller of the Currency), CFPB (Consumer Financial Protection Bureau). It’s a reflection of the way in which we think historically about how to regulate the industry. The problem is that over time the historical distinctions have fallen away. What may or may not be a banking practice can now pop up in the securities industry. The way we think about regulation and the industry has changed over time, largely reflecting the innovation in the industry itself. Crypto is highlighting a fundamental flaw with the U.S approach to financial regulation, which is that we don’t have a central regulator.

There needs to be a focus on anti-fraud. There needs to be a focus on protecting consumers. The real debate is who is going to do this. I would suggest it’s the SEC.

Why is the SEC uniquely positioned to oversee this?

The SEC is a consumer financial regulator. Their fundamental goal is to protect consumers. They were set up with a view toward protecting retail investors. The regulations that the SEC has for broker dealers, exchanges and people that take custody of these assets were intended to protect investors against the things that you see with FTX: people losing money and the scams that are out there right now. The SEC already has a toolkit, and it makes sense for the SEC to pick this up.

Is crypto more like a currency than a security? It seems like that is how it’s being used or advertised. Why not categorize it that way?

If I were taking crypto and buying a sandwich with it, that would look much more like a currency. That is something that really doesn’t need the protections of the securities laws. To the extent that it’s being used as a way to promote investment, it begins to look a lot more like a security.

Crypto assets are used primarily as speculative investments, which is not in line with the stated vision of most projects out there. How should regulators navigate this?

The whole rationale behind crypto assets was decentralization — a way to create a non-centralized, non-government-controlled medium of exchange across multiple parties. The vision was that it would provide banking attributes without necessarily having a bank, that you’d be able to use crypto assets as a means to support parts of the community that otherwise were not being properly supported by the financial industry. That’s largely not been the case. You can argue that in some cases people pursuing crypto deals are taking advantage of the folks that crypto initially was intended to support.

There will come a time when crypto will begin to look more like a commodity or more like a currency. In that case, the need for regulation drops away. We’re just not there yet. There should be a regulator focused on consumer protection precisely because of the scams.

One of the throughlines here is technological innovation. Law is unable to keep pace, and that creates an environment with increasing potential for fraud like what we saw with Sam Bankman-Fried, the founder and CEO of the cryptocurrency exchange FTX.

FTX is a huge blow to the integrity of the industry just because FTX was viewed as the safe place in which you could do trading activity. The other part is it was done offshore in the Bahamas, so it was being done away from the direct regulatory oversight that you might otherwise see. A large part of what was happening there would have been either prohibited or regulated were we to treat these underlying instruments as securities.

You can’t trust the markets to police themselves. This is a common view that the market will police itself, and that if there had been a problem with FTX, it would have been uncovered much earlier because the market or participants in the market would have seen this. In an enthusiastic market like crypto, you don’t see that type of oversight.

As of August 2022, tells us that the estimates of the total global electricity usage for crypto assets are between 120 and 240 billion kilowatt hours per year. Is there any push to regulate this side of things?

There already are rules in place and government groups like the Department of Energy and the Environmental Protection Agency that have the ability to step in, look at the issues and potentially regulate the usage of electricity, consistent with their mandate for environmental protection and energy conservation.

I would ask not whether we should look at this but whether we’re being broad enough. If electricity is an issue and energy is an issue for crypto, let’s look at the New York Stock Exchange and stocks and bonds that are trading. I believe there are huge amounts of energy being expended there as well.

Want more? Explore Charles Whitehead’s Securities Law certificate program delivered by eCornell.

This post has been edited for length and clarity.

Hear more from Whitehead in the webcast “Crypto Regulation: Can Securities Laws Keep Pace with Innovation?”

The Perfect Match: Pairing Beer with Food

Open a restaurant menu and you will often find a specific wine suggested to pair with a particular dish. But what if you prefer a crisp lager over a fruity Riesling? Certain beers pair just as well with food as wine does: Hefeweizen goes nicely with haddock, for instance, while IPAs are a fine complement to spicy food.

Restaurants all over the country are incorporating beer into their menus, and those who enjoy entertaining at home are considering their own menus. Is it OK to braise a turkey in pilsner? Which dark ale should you add to a beef carbonnade? Understanding the different flavors and complexities of beer can help turn any meal into an unforgettable experience.

In our recent keynote, “The Perfect Match: Pairing Beer with Food,” we explore beer styles and dish combinations with our expert panel: Doug Miller, lecturer in the Cornell University Nolan School of Hotel Administration and author of the Beer Essentials certificate program; Ari Sanders, director of tavern operations at Fullsteam Brewery; and Michael Wille, associate professor of culinary arts at the Culinary Institute of America.

What are some basic rules about pairing food with beer?

Wille: “When I’m trying to pair food and beer, I usually look for things like the flavor impact of the beer; that can range anywhere from delicate to intense. I’m looking at the body of the beer and the type of food I’m pairing it with. Some beers can be light and citrusy and fizzy. Others can kind of have malt characteristics and be dark and caramelly.

I’m usually trying to find harmonies within the flavors. You also might want to look for contrasts. If you have something in your food that might be fatty, you might want to cut that with something acidic, light, or fizzy in the beer. Harmonies and contrast, I think, are two of the most important things to take into consideration.”

Miller: “Look for how the food’s being prepared. Is it fried, so potentially more fat content? Is it grilled, so does it have a smoky element to it, in the case of a steak? Build mostly off the protein. The sauce can come into play, if there is a sauce, but I would key your pairing off how it’s being prepared and the protein or the main component of that dish.”

Is there a hard and fast rule when it comes to pairing beer with food like with wine? For example, most of us think about pairing a white wine with chicken. Does that relate to beer as well?

Wille: “When you have high alcohol, that’s going to usually intensify the heat in a dish. But when you begin to understand some of the flavors and tastes of different styles of beers and you understand complementing and contrasting, the rules are there to be broken.”

Sanders: “I’ve always thought about it as, ‘What does meat eat?’ Meat eats grain. What’s beer made of? Grain. I think beer is always a very natural complement to food. I do think it’s very important to have some intentionality when you decide to set a pairing up. What are you trying to show off? Do you want to break the palate up to reset for the next dish? Are you trying to show off the light buttery complexity of a sauce? Are you trying to show off the richness of a red meat? What you are trying to accentuate when you make your pairing is really important. Intentionality is important, but play. I won’t say rules are meant to be broken; rules help us along the way to learning.”

With beer now becoming more prominent, have you seen a change in your students’ taste buds whereas before the major focus was on wine pairings?

Miller: “I started teaching a beer course 14 years ago at the Culinary Institute of America in Hyde Park, and I would have the students try a sour beer. They were ready to throw it back at me. They just thought there was something wrong with me. And I’m talking about world-class sours like Cantillon and 3 Fonteinen. Now my students love it. One of the reasons this might be the case is we’re looking at the generation that grew up eating Sour Patch candy and sour items, so they were more accustomed to having sourness in their diet.

Also, now they’re shifting away from IPAs. When I taught the class last spring, they were indifferent about IPAs. When it came to lager or pilsner-style beers, they were all in. I’m curious to see when I teach it this spring if this indifference on IPA continues and we have another transitional shift of what’s popular amongst students.”

IPAs can be bitter. Are there some foods to pair with it to make it more palatable?

Sanders: “IPA is probably the broadest category of beer available in America right now. You’ll see an IPA that’s sitting at 135 IBUs, which is how we measure bitterness, and you’ll see one that reads sweet and juicy – almost like lemonade. What I would encourage is to think about what type of flavors you enjoy. Think about what a fruity, juicy, hazy IPA can go well with. I pair those about the way I would pair white wine, with fish or things with light buttery sauces. But every IPA is going to go great with a nice piece of fried chicken.”

Wille: “As chefs we say, ‘Fat is flavor.’ Any item that’s going to have that fat in there is going to be something that’s going to be strong enough to stand up to those IPAs and the bold flavors.”

Miller: “Also, make sure that your IPAs are fresh because IPAs do change. Those lovely, juicy, citrusy notes after about 60 days start changing to be more bitter. It’s not that they spoil or go bad, but the flavor profile changes.”

What are some things people should look for when trying to pick out a beer that they might like?

Miller: “I think the key thing is going to a place where you have a knowledgeable staff, go to your bottle shop or, depending on what state you’re in, a beer store, grocery store, whatever it may be; and talk to that knowledgeable person behind the counter. They could give you a lot of great insight about what just came in. They could make some suggestions on potential pairings. If you can get it from your local tap room or brewery, have a conversation with the people behind the counter. They’re a wealth of information and can help guide you through your beer journey.”

Sanders: “You know what you don’t like, and if you don’t like the food, you’re not going to like the pairing. If you know you don’t like bitter, it’s going to be hard to sell you on a super bitter IPA regardless. Be open to isolating what you don’t like and be open to saying, ‘I really like this thing. Help me find it.’ Again, knowledgeable staff is always key in that choice.”

Have you ever cooked with beer and what have you made?

Miller: “Yes, I’ve cooked with beer. If you look at countries like Belgium, they cook with beer on a regular basis. You go to a restaurant, and the chef is adding beer to the sauce, they’re braising with the beer. I think it also could be utilized if you have a little bit of barbecue sauce in a bottle – add a little beer in there just to shake it up and get the last little bit out. Then pour it into the pot. I use that sometimes.”

Sanders: “I always put beer in my pot roast. I generally use a dark beer. Any local stout I can find, I love in some pot roast. A good coffee porter is a great way to start braising off a pork loin. Sit it overnight in that coffee porter and then do a coffee rub. It’s one of my favorite things to do.”

Wille: “I agree with Ari on the stewing and braising. Those are fantastic culinary techniques where you do a combination of dry and moist cooking.

Ari and I were talking about battering and frying items. Beer is a really important component when you’re making a batter. When you dredge something like fish in flour and then you put it in a wet batter, that beer helps to aerate that batter and give it the light crispiness.”

What are your thoughts on a perfect beer to pair with heavy comfort food?

Wille: “I’m thinking about the malt flavor that’s going to be in those beers or maltiness, having that kind of sweetness that goes with heavy comfort food, so English-style brown ales or something along those lines.”

Miller: “I think it also depends on the weather, too. Being in Upstate New York in the winter, I’m thinking of something a little bit more robust, maybe a little bit higher alcohol, versus if you’re in Arizona where it’s still hot or Texas, maybe you are looking for something lighter like a pilsner or lager.”

What about food preparation? How might that impact pairing?

Wille: “I personally think it’s easier to craft the food to the beer. The beer has already been made, and it’s been put in the keg or the can or the bottle. When you have a taste of that beer, then you could start thinking about the notes that are in there or the alcohol content. Then you craft your food.”

What are the weirdest beers you’ve tried and were you pleasantly surprised?

Sanders: “It was a peated malt sour, and I was very surprised. It never occurred to me that the smokiness of scotch would even be nice soured.”

Wille: “The dill pickle sour, which I thought was a pretty cool, pretty weird beer. Professor Miller and I were talking about the possibilities with that, pairing it with a Reuben or a corned beef sandwich.”

Miller: “When I judged the New York State Brewers competition three years ago, the winner brewed a beer utilizing maple water. Not maple sap, but the maple water from the tree. It was absolutely delightful because it had a slight acidic note to it, almost like a sassafras note to it.”

What are your thoughts about new beer innovations?

Miller: “Beer is always reinventing. You’re now starting to look at new yeast drinks. There are students at Cornell that extracted yeast from an ancient Egyptian vessel and then brewed a beer with it just to see what would turn out. You’re starting to see innovation on lager styles. With the Craft Brewers Association, there are over 120 different beer styles recognized. Don’t get too deep in the weeds on the different variations of these beer styles. But that’s where the beer world is going. Beer is art right now.”

Final thoughts?

Wille: “When you’re pairing your food and your beer, taste both the food and the beer intermittently. Typically, you’ll have one of three outcomes: the food overpowers the beer, the beer overpowers the food, or the two products go so well together that they create more than the sum of their parts.”

Sanders: “The whole point of beer is community coming together, opening a glass, cheers-ing to friends and loved ones. If you like it, don’t be ashamed. Go out there, fly your flag about it. Enjoy the beer you enjoy.”

Miller: “Don’t get caught up in trying to make the perfect pairing. Just enjoy the company you’re with, enjoy the food, and enjoy the beer. Are there opportunities to get geeky on it? Absolutely. But don’t overthink it.”

Want more? Explore Doug Miller’s Beer Essentials certificate program delivered by eCornell.
This post has been edited for length and clarity. Experience the full keynote for “The Perfect Match: Pairing Beer with Food” on the eCornell website.

Advice from the Real Estate Roundtable: Real Knowledge, Real Experience

The commercial real estate industry can feel opaque and even intimidating to outsiders and newcomers. Armed with a bit of practical guidance and the right analytical tools, however, anyone can learn to navigate real estate investment and development.

To learn more about the integral components of commercial real estate, eCornell hosted a special roundtable event with lecturer Jeanne Varney, professor Jan deRoos and lecturer Brad Wellstead from Cornell’s SC Johnson College of Business. Here’s what they had to say.

What are the risks associated with real estate development?

Varney: Real estate development is a time-intensive process. It’s years of planning and construction. The designers, general contractors, architects, and engineers all have to work together to get everything finished. There’s the cost of capital itself, and the financing. Then there are unforeseen conditions, like market dynamics. There are also risks related to liquidity.

Wellstead: In the beginning, the primary risks concern the development. Next, there are schedule, budget, and quality issues to consider. Then, there are risks concerning the internal factors of the development team. There are external risk factors too.

So, from an investment standpoint, why is commercial real estate thought of as relatively sound?

deRoos: If you’ve completed your foundational work correctly, a good asset in a good market with good political support and good financing can produce solid returns for a long time. The retail industry is a recent example of how the world can change: it slowly changes, then all of a sudden there’s a tipping point.

Let’s talk about property prices and how to negotiate when properties are sold.

deRoos: Property pricing is based on expectations of what will happen in the future. It’s the intersection of two things: the cash flow that one can derive from an asset and how the capital markets treat those cash flows. When negotiating a price between a buyer and seller, first you’ll negotiate price. Once you have a tentative agreement, the focus turns to the balance sheet.

deRoos: The first rule of real estate is never fall in love with something that doesn’t love you back. That requires you to know the price at which you could sell it to the market. If it’s worth more to you than it is to the market, you hold it. If it’s worth more to the market than it is to you, sell it. The best asset management discipline is to do that rigorously on an ongoing basis.

Wellstead: It’s important to determine if you are in this for a quick turnaround, which in real estate might be two to three years, or twenty years. This decision influences how you manage that asset.

deRoos: Some create a lot of wealth for themselves by being flippers, and some create a lot of wealth as operators. A flipper is concerned about creating value and exiting at the right time. An operator is focused on leasing activity, taking care of tenants, and enhancing the property value.

Switching gears, what are the most important things to focus on when raising debt capital?

deRoos: You need to maximize your proceeds. In U.S. real estate, non-recourse means that the lender’s only recourse is to foreclose on real estate if you default. You get a free option to sell the real estate to the lender for the remaining balance, which is a bit cynical, but it’s also a very real option. You really need to limit your recourse as much as possible when you borrow.

Why is it more advantageous to raise debt capital over equity capital? What’s the variation in risk?

deRoos: Debt is cheap. Think of it this way: I want to buy something for $100. I have $30 of my own money. I need to raise $70. If I bring in a partner, they want to help me drive the bus. If I bring in a lender, they have their hands pretty far off the wheel of the bus. A lender is much less expensive.

Why is raising equity capital so hard?

deRoos: The hardest thing in life is asking someone to be your life partner. The second hardest thing you’re going to do in life is to ask someone for money. Investors are giving up liquidity. It’s really hard to get your money out. Investors give up control. They have to trust you to do the right thing to produce returns for them. You need to make that attractive by putting a structure in place that gives you all of the returns after I pay debt until you achieve a certain required rate of return, and then I get paid handsomely. It’s called a promote structure, used very commonly in private equity.

What about investment strategy advice? How do you know whether you’re making a good investment?

deRoos: Figure out how you add value and then add value to it. Ask yourself the following: “How will I add value? Do I know design? Do I have unique access to money? Do I have unique relationships with tenants? What is my value-add?” Then partner up with other people who can bring another piece to the table and do the things that really add value.

Finally, let’s discuss the economics of sustainable development.

Varney: There are growing legislative requirements when it comes to sustainable development. There’s a much greater level of education with all of the service providers, architects, engineers, designers, or manufacturers. Some municipalities even have requirements for building certifications like Green Globes or LEED certifications. They have expediting permitting processes for projects that are sustainable. There’s even a growing field for green lending.

More efficient equipment translates into less energy costs, so hopefully higher profitability, or more reliable debt service. There’s also solid research that shows sustainable buildings have higher leasing occupancy rates and higher leasing rate rental rates. Healthier indoor environments means less toxins and more efficient equipment. A LEED certified building is a higher quality building. We call it a halo effect or a positive reflection on the company.

For more information on real estate and investments, check out eCornell’s certificate programs designed by deRoos, Varney and Wellstead, including Commercial Real Estate and Hotel Real Estate, or watch the full Cornell Keynote, A Real Estate Roundtable, here.