Exploring transformation of value in the digital age

By Michael J. Casey, Chief Content Officer

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A barrage of Securities and Exchange Commission enforcements and rule proposals aimed at the crypto industry has policy watchers wondering what the powerful agency is up to. In this week’s column, I look at one particular action taken against Binance and Paxos and question whether the SEC is exceeding its jurisdiction to touch on antitrust matters better handled by the Federal Trade Commission. I explore the lessons the community should take from that in terms of how it tries to shape crypto policy.

These topics, and how policy issues generally have become emotionally charged and complicated in the wake of the FTX collapse, feature in a one-on-one conversation I have with my co-host Sheila Warren in this week’s episode of the “Money Reimagined” podcast. Have a listen after reading the newsletter. 

Crypto Lobbying Needs a Reset: More FTC, less SEC

Chip Somodevilla/Getty Images/PhotoMosh)

Is there a method to the SEC’s madness? 

Of all the SEC’s actions against crypto entities that have stirred the industry’s ire, the agency’s recent move forcing New York-based Paxos to cease issuing its partner Binance’s BUSD stablecoin is the most deserving of an outcry. How, critics rightfully asked, can a token that’s explicitly designed not to fluctuate in price be considered a security?

But a recent account in Fortune suggests the SEC may not have been thinking of securities law at all in that action. Binance was automatically converting competitor-issued stablecoins held by its exchange’s customers’ into BUSD. To me, that looks like an antitrust concern, not one of BUSD being a security.

Now, if there’s one area of enforcement where the crypto community, with its anti-middleman ethos of decentralization, should get behind, it’s prosecution of monopolistic behavior. But that leaves us with the question of why is the SEC getting involved here and not the nation’s trust-buster, the Federal Trade Commission?

I get two takeaways from this:

The SEC’s argument about the one-to-one dollar-pegged BUSD was baffling because it’s hard to see how a stable-value token meets the Howey Test, which, among other stipulations, says that for an instrument to be a security, the buyer must have expectation of profit – i.e. that the asset is going to rise in value at some point. 

But the Fortune account paints an alternative picture of alleged wrongdoing by Binance, arguing that in forcibly converting its exchange customers’ USDC and other stablecoins into BUSD tokens, it captured interest earnings on the reserves deposited against them that should have accrued to issuers of those competing coins. That sounds a bit like the monopolistic practices issues that prompted the U.S. government’s  landmark 2001 lawsuit against Microsoft (MSFT), when it accused the Redmond, Wash., giant of abusing its dominance of personal computers’ operating systems to give its own Internet Explorer browser an advantage over Netscape’s Navigator product.

It makes sense that crypto is opposed to SEC overreach as the constraints it imposes on getting tokens into the hands of retail investors hinders the industry’s ability to build truly decentralized solutions to inefficient, middlemen-run marketplaces in the wider economy. However, crypto should also be vehemently anti-monopoly. The movement’s core foundations are built on resisting these centralizing tendencies, fostering perpetual tension between the ideal of decentralization and the reality of a tendency toward centralization. 

I think it’s wrong, therefore, for the crypto industry to resist engaging the government such as the FTC to encourage competition: On one hand, the government has great power to curtail the advance of this industry, but on the other, it has the power to help it. Crypto leaders should recognize that power and seek to harness it constructively. 

One problem might be that crypto lobbying is largely funded by for-profit service providers who worry about giving up on their own dominant market positions. Perhaps there’s room for a different funding model. Do decentralized autonomous organization structures (DAOs) make sense here, such that private wealthy interests are diluted by a wider body of many smaller contributors? Or is it just a case of the various representative organizations strengthening their independence charters and shifting priorities over the changes they seek and with whom they’ll work with?

Either way, something needs to change. It’s unacceptable that a single government agency is allowed to range beyond its jurisdiction and singlehandedly set this industry’s path.

Off the Charts: Committed

As part of Consensus Magazine’s BUIDL week coverage (see “Relevant Reads” below), my colleague Sage Young put together a piece on developer activity across the entire cryptocurrency open-source ecosystem.

Based on metrics from data provider Artemis that covered the number of weekly “commits” – a measure of work units provided to open-source projects by developers – his story showed that although activity had waned it was not overly affected by a softer price. This tends to support the theory that developers continue to build – or “BUIDL” as the meme goes – even in bear markets. 

I asked Sage to make me a three-year chart from Artemis data showing this activity across different protocols.

First big takeaway: While it’s not surprising that Ethereum has easily the largest amount of developer activity, given its wide-ranging different applications, it’s striking that Polkadot and Algorand are significantly more active than Bitcoin.

The second: Activity on some chains, such as Polygon, seem more affected by the downturn in prices since mid-2022 than others. Is that because of the role that their foundations’ treasuries play in funding the development of projects on their platforms?

The third: The Christian world still tends to dominate crypto development. Those three big dips you see? Those are Christmas breaks. 

The Conversation: NFT Competition

Those who might challenge the argument in this week’s column for tapping government antitrust laws in crypto, embracing natural market disruption to occur organically instead, might well point to the rapid rise of new NFT platform Blur as evidence. Blur has rapidly dislodged OpenSea, the formerly dominant marketplace for non-fungible tokens, as the clear leader in this sector. 

In rebuttal, I would note that Blur’s success came via an indisputably pro-competition tactic – cutting prices – which suggests that for all its prior dominance, OpenSea never really accumulated much monopolistic power. Perhaps that’s because, for creators contemplating a new NFT drop, there’s not the same incentive as for, say, users of a particular token exchange, or for developers building on a particular blockchain to stick with the platform they’re on. Some parts of the crypto world lend themselves to monopolistic opportunities, others not so. 

Putting all that aside, let’s take a look at Blur’s spectacular eclipsing of OpenSea, courtesy of this thread from Axios journalist Brady Dale.

Relevant Reads: BUIDL

Do check out the BUIDL Week coverage, which in addition to Sage Young’s piece on developer activity, includes the following items from the Consensus Magazine team. 

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