Welcome to The Node. This is Daniel Kuhn and Prachi Vashisht, here to take you through the latest in crypto news and why it matters. In today’s newsletter:
On Friday, Texas financial regulators suggested crypto lender Voyager Digital sell off its estimated $1 billion in crypto assets rather than signing a deal for Binance.US to acquire it due, in part, to the possibility Alameda Research claw backs a loan it gave to prop up Voyager before both filed for bankruptcy protection. The watchdog also raised concerns about Binance.US’ potentially illegal staking program as well as its corporate parent’s regulatory woes. Meanwhile, the French police have arrested two suspected attackers of the decentralized finance (DeFi) protocol Platypus, which recently lost over $9 million in assets in a flash loan drain. The platform aims to repay at least 63% of user funds. In other news, crypto markets remain resilient despite weaker equity markets and increased regulatory activity in the U.S., according to a report by Citi.
Very ‘Decentralized’
Decentralized finance platform Oasis seized assets connected to last year’s $140 million Wormhole bridge exploit and returned them to an “authorized third party” after being ordered to do so by The High Court of England and Wales. The company exploited “a previously unknown vulnerability in the design of the admin multisig access” to retrieve the funds. In other news, Solana stopped processing transactions for several hours beginning Feb. 25. Developers restarted the chain early Feb. 26, and as of today are unaware of the root cause of the outage. Finally, The Rock Trading (TRT), an Italian cryptocurrency exchange halted operations recently after warning customers of liquidity issues last week
Global Perspective
After the G-20 meeting on Saturday, India announced new global crypto rules will be based on a synthesis document produced jointly by the International Monetary Fund (IMF) and the Financial Stability Board (FSB). As per Indian Finance Minister Nirmala Sitharaman, the synthesis paper is expected to be readied by September. Meanwhile, Illinois’ first regulatory innovation officer, David DeCarlo, is advocating for the state to adopt a regulatory regime similar to New York’s “BitLicense.” Finally, on Monday the Tel Aviv Stock Exchange proposed plans that may soon allow its nonbanking members to offer crypto services to the public – if passed.
Sound Bites
“Many of the targets of these hacks are defy protocols that have vulnerabilities.”
– Chainalysis head of research Kiim Grauer, on CoinDesk TV’s “First Mover”
The Takeaway: Political Genius?
Securities law has been a main conversation topic for the crypto intelligentsia and unintelligentsia since New York magazine published an interview with Gary Gensler, where Intelligencer author Ankush Khardori drilled the top U.S. securities regulator late last week about his meeting with Sam Bankman-Fried. There are many threads to pull here, including an important philosophical point about securities law.
In the interview, Gensler suggested that all cryptocurrencies other than bitcoin are securities. The direct quote was: “Everything other than bitcoin, you can find a website, you can find a group of entrepreneurs, they might set up their legal entities in a tax haven offshore, they might have a foundation, they might lawyer it up to try to arbitrage and make it hard jurisdictionally or so forth.” As many crypto lawyers have said, U.S. Securities and Exchange Commission Chair Gary Gensler does not determine the law or how it is applied. That’s the job of the courts. His input obviously matters, but his word is not law (here is a good Twitter thread from attorney Logan Bolinger on this point).
No one should be surprised by Gensler’s statements. In fact, he has already said that he views bitcoin as a commodity and all other cryptocurrencies as probably securities. If direct quotes from CNBC interviews aren’t enough for you, then consider cryptocurrency exchange Kraken’s recent SEC settlement and shuttering of staking services for U.S. clients as additional proof. Nevertheless, Gensler’s reiteration of “bitcoin is a commodity; cryptocurrencies are securities” has been cause for celebration in the corner of the internet where a certain breed of Bitcoin maximalist lives. (I should know, I spend a lot of time there.) These self-described toxic maximalists celebrate bitcoin’s special status as a nonsecurity and other cryptocurrencies’ unspecial status as securities.
Never mind how odd it might seem that bitcoiners are celebrating regulation, it’s more useful to think about whether regulation even matters. I’ve written before that “… it doesn’t matter whether bitcoin, ether, SOL, dogecoin or AVAX are deemed securities,” and I still believe that. What actually matters is the SEC’s mandate to enforce laws against market manipulation to protect investors is a valiant purpose, and contending that market manipulation only matters in the context of securities is exactly wrong. Who cares if bitcoin is a commodity, security or a pet rock? The answer is: A lot of people. But the right answer is: No one should.
Bitcoin market manipulation should be stomped out too, it’s not just a nonbitcoin crypto problem. It’s not like commodities are immune from market manipulation or anything like that (just ask gold and silver). Practically, from the perspective of a lawyer, trader or entrepreneur, it might matter if Gensler stands up and contends that some asset is a security. But the broader point is that nothing would change about what that asset fundamentally is whether he calls it a security or not. It would just mean that a different U.S. regulatory body might have some jurisdictional claim over that asset.
We shouldn’t ask: “Is XYZ a security?” We should instead ask: “How much does securities law and regulation matter if XYZ is borderless, decentralized and censorship resistant?”
Meet Heka Funds, the Tether whale that never stops giving (Protos)
Richard Heart followers lose faith as PulseChain, PulseX face delays (Protos)
Twitter’s Crypto Ambitions Up in The Air After Senior Exec Exits (Blockworks)
NFT Royalties Are ‘Not Going Away on SuperRare’: Co-Founder Jon Perkins (Decrypt)
Can Gary Gensler Survive Crypto Winter? D.C.’s top financial cop on Bankman-Fried blowback. (New York)
Over the past few months, CoinDesk has been developing a reward system fo Consensus 2023 attendees to bring long-term value. We’ve partnered with Art Blocks Engine, TokenProof and Passage Protocol to launch the Consensus Multi-Year, Multi-Tiered NFT Ticket, coming on March 2. Learn more.
Hot Take
Kudos for making it this far! On occasion, we’ll give our loyal Node readers the opportunity to claim DESK, our social token, which is a mechanism for returning the value of engagement directly to the users who create it.
