This week promises to be one to remember for the crypto industry.
On Monday, the U.S. Securities and Exchange Commission (SEC) filed a lawsuit against Binance, the world's largest cryptocurrency trading platform. Binance and its CEO Changpeng Zhao faced 13 charges, including that a variety of listed tokens were "unregistered securities," Mix customer assets with their own assets, allow U.S. customers to use Binance Globe, use virtual transactions to deliberately increase Binance.US platform trading volume, etc.
Binance immediately responded that the company has been actively cooperating with the investigation and working hard to reach a negotiated settlement, but the SEC directly chose enforcement action. Binance will vigorously defend the platform, fight against the SEC, and continue to work tirelessly to become a safe and trustworthy platform.
Subsequently, it released the Strong Together statement again, stating that Binance did not misappropriate user assets, its wallet addresses were open and transparent, it did not provide unsecured loans, it did not make large political donations or large-scale sponsorships of media/sports/entertainment, and it stated that it would continue to build for users and stand up for the crypto industry.
On Tuesday, the U.S. SEC sued Coinbase, a U.S. cryptocurrency compliance trading platform, accusing it of failing to register as an exchange, clearing agency and broker with the SEC respectively. It also defined the pledge services provided by Coinbase and the large number of tokens being traded on the platform as "unregistered securities."
Currently, ten states in the United States have taken legal action against Coinbase for providing staking services, including Illinois, Vermont, Alabama, Kentucky, California, Maryland, Wisconsin, Washington, New Jersey, and South Carolina.
Coinbase’s official Twitter account responded: “Cryptocurrency has come a long way. In the United States, it still has a long way to go. We are ready!”
It is obvious that Coinbase is also ready to fight the SEC to the end.
Coinbase CEO Brian Armstrong questioned the true purpose of the SEC's lawsuit:
1. The SEC reviewed the business and allowed the company to go public in 2021.
2. Repeated attempts to register, but concluded that the SEC did not have an open path to registration.
3. The SEC and the U.S. Commodity Futures Trading Commission (CFTC) have conflicting views on the regulation of cryptocurrencies, and they cannot even agree on “what are securities and what are commodities.”
4. The U.S. Congress is still in the process of formalizing regulatory laws by introducing legislation, but other crypto-friendly countries have already directly enacted clear laws. The SEC does not issue a clear rulebook, but directly regulates through enforcement.
Why approve Coinbase’s IPO in 2021 and then sue 2 years later to ban the same service?
Therefore, compared with FTX, the real purpose behind the SEC's heavy blows against two major crypto giants within two days is questionable.
Ripple CEO Brad Garlinghouse joked that this was the SEC trying to "distract" the public's attention from the "FTX debacle." SBF was the second largest donor to Biden's presidential campaign, and Biden appointed Gary Gensler as the current chairman of the SEC.
Some notable differences between the two lawsuits:
1. The SEC seems to be intent on “crushing” Binance
- Coinbase will need to repay all “ill-gotten gains” related to what the SEC calls violations, as well as civil penalties and other forms of investor relief. When Kraken settled with the SEC in February over issues related to its collateral product, it was forced to pay a $30 million fine.
- Binance not only had to pay a similar fine, but was also ordered to permanently ban itself from securities and cryptocurrency trading businesses.
2. Coinbase is a “battle of life and death”
On the other hand, compared with Binance, the battle between Coinbase and the SEC is a "life-and-death battle." Coinbase is more focused on the U.S. market, with more than 80% of its revenue coming from the U.S. last year. While Coinbase may continue to operate normally in the short term, the SEC's allegations may cause Coinbase to suffer reputational damage, which in turn may cause users to withdraw funds from the platform.
Furthermore, if Coinbase settles with the SEC, what is the cost? If regulators want to promote innovation goals through prosecution rather than writing carefully crafted rules, then this is no different than doing nothing.
It is good to hope that the crypto industry will not be labeled as the "Wild West" and it is also for the protection of investors, but the SEC may have gone too far by blindly taking enforcement actions without clear legal guidance. This provides other countries with the opportunity to become cryptocurrency havens. Places such as South America and the Caribbean are becoming increasingly popular with crypto companies because they are friendlier and more open to cryptocurrencies than the United States.
Senator Cynthia Lummis, who has long been committed to introducing crypto regulation bills to the United States, said in a statement: The SEC has failed to provide a registration path for digital asset exchanges, and worse, has failed to provide adequate legal guidance on the difference between securities and commodities. The SEC continues to rely on law enforcement supervision and continues to harm the interests of investors. Real investor protection requires the establishment of a sound legal framework that exchanges can comply with, rather than "pushing" the industry away from the United States. The U.S. Congress needs to pass a crypto regulation bill as soon as possible.
This is by no means an exaggeration. Recently, Derek Boirun, the founder of Realio, a real-world asset (RWA) tokenization project, complained in a blog post that "unfriendly regulators forced him to leave the United States." The following is a translation by Bai Ze Research Institute with slight deletions and modifications:
This summer, 2023, I will be leaving the United States for an indefinite period of time. Born and raised as a 42-year-old American citizen, I am doing this for the sole purpose of protecting my constitutional rights, my family, and my company from government overreach. This is like something out of a surreal novel, but this is my story.
I am the founder of Realio, a blockchain company that, as the name implies, is focused on building digital infrastructure designed to put real-world assets, such as real estate, on-chain. We started building this company full-time in 2018 and have invested a lot of time and money into its development. From the beginning, our core focus has been on regulatory compliance, as investing in real-world assets, whether on a blockchain or not, is generally subject to securities laws. After all, investing in real estate is not new, and neither are securities laws, so doing it “on a blockchain” sounded very feasible.
Fast forward to 2022, after surviving the economic collapse caused by COVID-19 (mostly because the crypto market is growing rapidly), we are growing and optimistic about businesses issuing security tokens (tokens that are issued publicly under a legal and compliant regulatory framework) on our platform. Since we believe compliance is achievable, we generally ignore most of the narrative happening in the crypto industry, which also happens to be where most of the money is going. A lot of people have become very rich by chasing the "fast money", anonymously or not, but we stayed the course. We even chose to "tokenize" our own company through a compliant security token issuance. Fortunately, we managed to raise enough funds to sustain development and construction for a few years. We are very grateful for the support of companies like Algorand, who invested in us through their token ALGO (just today I had to hear Gary Gensler consider ALGO to be an unregistered illegal security). If it weren't for Algorand's generous investment, and the price growth of ALGO, we might be in a very different situation in terms of funding.
Between 2020 and 2023, the majority of our time was spent on compliance.
We launched a “tokenized” fund and spent a lot of money on top lawyers to register the fund with the SEC under the 40 Act. We spent more on this than many startups’ entire operating budgets. By the end of 2022, after multiple calls with SEC staff explaining the structure, we were ready to file registration documents. Then the FTX bankruptcy happened. Not long after, through conversations with lawyers, I learned that the SEC was closing registration for all “tokenized” funds seeking to be licensed. However, this was the only way for us to register or comply.
At the same time, we applied for a Regulation CF portal license with FINRA, which was also a very expensive process... As with the SEC, we had multiple calls with their staff and worked through all of our questions. However, after the FTX bankruptcy, FINRA requested a call with us to review our details. We were prepared and answered all of the questions in good faith. However, we couldn't help but feel that the call was just a "formality" with the staff repeating basic questions over and over again in order to put us off or get us into some technical issues. After the call, we received a list of follow-up questions from them that were very extensive and even beyond the scope of our application. It was clear to us that FINRA could delay it for years, so we decided to put the application on hold until the new administration took office.
Most blockchain-based asset issuers don’t actually have a path to registration, and this isn’t for lack of trying or lack of compliance. I can attest from experience that regulators have not acted fairly or kindly toward the crypto industry. I’m no stranger to the various tactics that regulators have employed against us, typical “bureaucratism.”
Yet, the talented people in the crypto industry are working to build a better world financial system. This is not a game or politics for us. Many of us left our careers in the traditional field to do this. Now, we are leaving the United States too.
Money, is the last stand for freedom. We will not sit quietly and watch as you continue to control and manipulate us. Despite your position, you do not have that power. You do not have the right to tell us what the market wants and does not want. This is exactly the kind of overreach we fought to be independent of in order to build this country. The capital markets are being suffocated by regulations that do not actually protect anyone except the wealthiest.
Leaving the United States wouldn't be easy. I have a family, they love New York, etc. But I have an obligation to protect what we've built, and that means seeking a country that will support us in continuing to build.
We will not stop, we will continue to build the new digital world we have been working so hard to build.
risk warning:
According to the "Notice on Further Preventing and Dealing with the Risks of Virtual Currency Trading Speculation" issued by the Central Bank and other departments, the content of this article is for information sharing only and does not promote or endorse any business or investment activities. Readers are requested to strictly abide by the laws and regulations in their area and not participate in any illegal financial activities.
