Enterprise Web3 Strategy – Connecting You with an Industry Insider
Jason Schwartz, Partner, Fried, Frank, Harris, Shriver & Jacobson LLP
Web3 is changing the relationships among corporations and consumers. Digital assets allow for more efficient, transparent transactions among businesses, and give consumers the opportunity to shape and share in the success of a brand while keeping their own sensitive data secure. But web3 is also a bewildering world for many newcomers.
Jason Schwartz is a tax partner and co-head of the Fried Frank’s Digital Assets and Blockchain Practice, and is resident in the Washington, DC office. He specializes in tax issues relating to financial products, securitizations, funds, treaties, lending, and crypto. He is recognized as an “Up and Coming” lawyer by Chambers USA in Tax and has been recognized by The Legal 500 US in Tax: Financial Products as a “Next Generation Partner” each year from 2017 to 2021. He writes and speaks extensively on digital assets, and his web3 wallet even includes a sizeable collection of long-form generative art NFTs.
At the D2 Summit, Jason will discuss legal, regulatory, and tax considerations for businesses moving into digital assets, and how he and his firm are working to help educate policymakers on the importance of adopting sensible regulations that promote innovation while curbing abuses.
D2: Jason, why is now the time for enterprise businesses to get into the decentralized space and what is the most essential matter C-Suite executives need to understand to usher in this new landscape?
We’re at a pivotal time in the evolution of public blockchain technology where the tools are well-developed and scalable at low cost, regulated stablecoins allow for an ecosystem agnostic to crypto price movements, and policymakers are increasingly open to helping legitimate use cases flourish. Now is the right time for companies to start thinking about adapting this more modern infrastructure to suit their needs while using it to empower consumers to form communities around their brands.
The most important thing to remember is probably that no one wants to know how the sausage is made, they just want a better product. Just as with web2, the more technological jargon that can be abstracted away, the better the user experience. Web3 doesn’t have to be complicated; it’s actually pretty intuitive when you think of your web3 wallet as your inventory of assets, including both payment methods and credentials like club memberships and even friend lists. Enhancing the user experience is something that large companies tend to be very good at.
D2: What is the biggest misconception about tax obligations for corporations that accept Cryptocurrencies or who want to engage in DeFi transactions?
Many taxpayers are surprised to learn that if they hold a token that has a U.S. dollar value, they will have a taxable event when they dispose of the token, even if they’re using the token to buy something else.
At the same time, it’s possible to structure incentives, tokenized fan clubs, and other marketing items to avoid capital gains taxes on transfers. And as I mentioned earlier, companies engaging in blockchain-based payments can limit their activities to stablecoins if they don’t want to be exposed to token price fluctuations.
In short, because web3 has such a broad reach, it’s hard to make generalizations about tax treatments. It pays to have a trusted advisor to help you think through any potential tax consequences.
D2: Regulation of the Crypto industry is broadly being sought, but depending on the perspective, the vision can vary. Where do you see the United States landing on a government-wide strategy? Should corporate America be worried?
Web3, like web2, has limitless potential uses. It’s impossible to predict policymakers’ reactions to all of those uses. That shouldn’t deter corporate America from using blockchain technology to help increase operational efficiencies and provide a better customer experience with the help of qualified legal professionals.
You may contact Jason at Jason.Schwartz@friedfrank.com.