Welcome to our quarterly Space and Time ecosystem update. In this edition, we recap our conversation with Space and Time’s co-founder and legal advisor, as well as how the company is preparing for the Clarity Act, whether or not it ends up passing.

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Space and Time launched its Clarity Compliance Framework back in May, which maps its data network to four areas for which the Clarity Act mandates new requirements: protocol transparency, tokenization and digital assets, stablecoin and protocol rewards, and markets and credit. 

The framework also includes a compliance and auditing layer that takes the data from each of those sources and produces disclosures and audit trails that regulators and counterparties ask for. 

Space and Time indexes activity from other blockchains, and runs queries across both onchain and offchain sources. Each result carries a cryptographic proof that anyone can check against the chain’s state. The setup can make evidence available on demand, so a reserve attestation or reward calculation can be verified by a third party at any moment.  

Ultimately, the framework aims to help crypto companies meet disclosure requirements

Reserves are where Nate Holiday, co-founder of Space and Time, sees the clearest demand. He says crypto firms keep asking why they can’t borrow against tokens on an exchange. 

“If we take all those off to collateralize them up for a loan, then we can’t run our business,” he said during Token Relations’ quarterly webinar with Space and Time, describing what he hears from firms. 

He compared the situation to a lender asking a contractor to liquidate his equipment first, in order to obtain a loan. “We know you’re a cement-mixing truck business, but in order to get a loan, you have to sell all your cement mixers and then we’ll give you the loan,” he said. “If I’m a construction company, I don’t have to go sell all my trucks to get a loan.”

Holiday said the solution is a record the lender can check continuously. “[Banks] would want to be able to check on that anytime of the day, any second of the day, to make sure that the loan is secure,” he said.

According to Rika Khurdayan, regulatory advisor at Space and Time, custody suffers from a similar problem. “There is a point in time when a custodian goes through an audit and a third party certifies that at a certain point in time, the assets were in place, the reserves were met,” she said. “They don’t really make the assets continuously verifiable.” 

However, in crypto, that gap grows larger as the market is always open and assets can be moved constantly. “You would really want to know what is happening with the assets rather than waiting for an annual audit,” Khurdayan said. “It's more a complementary layer, and I think, sophisticated custodians will ultimately really like that because it lets them turn custody from something like, ‘Trust us, we are regulated, and thus your assets are safe,’ to, ‘Hey clients' counterparties, you'll be able to verify the reserves and the status of the assets and where they sit and how they move at any point in time’.”

Holiday said reserves and custody both have similar requirements, and the Clarity Act is only going to make those needs more explicit. “If you want to play in the world of the Clarity Act, you’re going to have to prove a lot of data, and you’re going to have to be very clear on what you’re providing as a product,” he said. 

Ultimately, Holiday expects the Clarity Act to encourage customers that are already headed in that direction. “Clarity will make a lot more of the large customers feel more confident in moving faster,” he said. “But the technology is really for any business that wants verifiability, transparency and security — it doesn’t apply to just crypto.”

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This information is for entertainment purposes only. It should not be considered financial advice, nor should it be used to make investment decisions. Cryptocurrencies are high risk and you should consult a financial professional before making any financial decisions. Make sure you do your own research.