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Welcome back to Chain Reaction.
It’s been quite a long week (and it’s not over yet).
Unless you live under a rock, you know that the U.S. Securities and Exchange Commission came out guns blazing on Monday and Tuesday, by suing the two largest crypto exchanges, Binance and Coinbase, respectively.
It’s important to note that the lawsuits were fairly different, although both exchanges faced securities laws violations. In the Binance suit, the exchange and its CEO Changpeng Zhao as well as two other parties are facing 13 charges including lying to regulators about its operations.
Binance’s attorneys from Gibson Dunn and Latham & Watkins alleged that SEC Chair Gary Gensler offered to be an advisor to its crypto exchange in 2019, when Gensler was teaching at Massachusetts Institute of Technology’s Sloan School of Management, a filing on Wednesday stated.
The SEC’s investigations into Binance began in 2020 and 2021, about a year after Gensler and Zhao allegedly last spoke.
Given the claimed ties between Gensler and Binance and Zhao, the exchange’s lawyers asked the SEC for his withdrawal from any actions regarding the company, but the attorney’s said they haven’t gotten a response from the agency.
Separately, the SEC’s lawsuit against Coinbase came less than 24 hours after the Binance one, but was focused on the exchange operating as an unregistered securities exchange, broker and clearing agency, the agency alleged.
Both filings listed a handful of cryptocurrencies as securities, with 12 assets noted in the Binance suit and 13 in the Coinbase one, though the SEC said it was “not limited to” those.
Even through all this chaos, crypto markets weren’t hugely altered by the SEC suits. In the initial 24 hours after the two lawsuits, the crypto market was green.
But since then, the two largest cryptocurrencies by market capitalization, Bitcoin and Ether, fell 2% and less than 1%, respectively, over the past seven days, CoinMarketCap data showed. The global crypto market cap decreased 2.7% to $1.1 trillion, during the same time frame.
I’ve spoken with countless sources, read far too many court documents and interviewed Coinbase’s chief legal officer Paul Grewal to make sense of this week’s pandemonium. More details and deep dives can be found below in chronological order.
This week in web3
The charges also included misleading investors about Binance’s systems to detect and control manipulative trading; regulators say that the exchange didn’t take proper steps to restrict U.S.-based investors from accessing its platform. The SEC also alleges that cryptocurrency BNB and stablecoin BUSD are securities. Binance claimed in a post on Monday it actively cooperated with the SEC’s investigations and recently engaged in discussions to reach a “negotiated settlement to resolve their investigations,” however the SEC “abandoned that process and instead chose to act unilaterally and litigate.”
A number of sources that TechCrunch+ spoke to on Monday shared similar sentiments that the charges against Binance were unsurprising. Binance.US has been in “hot water for a while,” Chris Martin, head of research at Amberdata, said. “Just look at the CFTC suit against them, which appears to have been a warning shot.” The SEC’s action comes a few months after the CFTC filed a lawsuit against Binance and Zhao for allegedly evading U.S. rules by offering unregistered futures and options contracts to American traders.
In the Binance lawsuit, the SEC alleged that the exchange’s cryptocurrency BNB and stablecoin BUSD were securities in addition to 10 other cryptocurrencies: Solana’s SOL, Cardano’s ADA, Polygon’s MATIC, Filecoin’s FIL, Cosmos’ ATOM, Sandbox’s SAND, Decentraland’s MANA, Algorand’s ALGO, Axie Infinity’s AXS and Coti’s COTI. What made the agency highlight these cryptocurrencies, and not the hundreds of others tradable assets on the exchange, is unclear.
The SEC has lately taken an increasingly active role in the burgeoning blockchain sector, and previously served Coinbase with a Wells notice in April. Coinbase, in contrast, has taken a publicly defiant tone, arguing that the crypto market deserves a tailored package of rules. The SEC, however, disagrees, apparently determined on applying existing securities law to the American company.
If it wasn’t clear, the waters have been very hot in the crypto industry this week, thanks to the SEC. The industry is asking why these suits took so long to come to fruition, why some crypto assets are being labeled as securities and not others and whether the SEC’s actions will impact domestic and global fintech innovation — all of which SEC Chair Gary Gensler tried to address in a live interview with CNBC on Tuesday morning. “This is about both investors and issuers in the crypto space, to bring them into compliance.”
After the SEC filed 13 charges against Binance and CEO Changpeng Zhao, as well as BAM Trading and BAM Management, it has requested a temporary restraining order to freeze assets for all of the parties involved, according to a filing on Tuesday. The filing shows that the motion was granted.
We sat down with Paul Grewal, chief legal officer at Coinbase, to learn more about the company’s operations going forward, how it plans to deal with the legal process, its level of confidence amid the crackdown and plans for best and worst case scenarios. (The whole interview has also been shared in a bonus Chain Reaction episode.)
The latest pod
Grewal has been at Coinbase, the second largest crypto exchange globally, for almost three years. Previously he was the vice president and deputy general counsel at Facebook, among other roles.
This week, Grewal has been busy testifying before Congress and addressing recent legal ramifications Coinbase faced.
We dove into:
- Potential crypto legislation from Congress
- U.S. agencies’ sentiment toward digital assets
- Future of assets listed on its exchange
- Binance’s SEC case
He’s a five-time New York Times bestselling author and previously created Wine Library, one of the first e-commerce platforms for alcohol, in the early 2000s. In 2009, he co-founded VaynerMedia with his younger brother AJ, and today the company services clients like PepsiCo, GE, Johnson & Johnson, Chase and others.
Gary Vee is a “die hard” New York Jets fan (and wants to buy the team one day), as well as an investor in a handful of major companies like Twitter, Venmo and Facebook — which we talk about in the episode.
We discussed a handful of topics surrounding the NFT ecosystem, how Gary Vee got into the space and gained traction for his collection, and where he sees the sector going long term.
We also talked about:
- The VeeFriends origin story
- The importance of intellectual property
- Mainstream adoption
- The future of NFTs
- Advice for other projects
Follow the money
- Aave’s Lens Protocol raises $15 million to build the decentralized social web
- Taiko Labs raises $22 million across two rounds to build a decentralized, Ethereum-equivalent ZK-Rollup
- Haun Ventures led $10 million round for crypto game developer Argus Labs
- Meanwhile, a Bitcoin-focused life insurance provider, raises $19 million at $100 million valuation
- Cosmos ecosystem-focused Informal Systems raises $5.3 million
This list was compiled with information from Messari as well as TechCrunch’s own reporting.
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