SEC’s Crypto Representation seems like Bad Faith

Tim Langeman

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Adam Cochran
@adamscochran

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2/21 First take

@brian_armstrong

‘s post about the SEC blocking Coinbase aggressively, something the entirely doesn’t align with a department that should be acting in good faith to support innovation while protecting consumers.

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Brian Armstrong
@brian_armstrong
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1/ Some really sketchy behavior coming out of the SEC recently. Story time…
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Adam Cochran
@adamscochran

3/21 Then we factor in Gensler’s history at MIT where he spent so much time looking into crypto and decentralized systems. Yet the statements he makes in hearings don’t align with his knowledge.
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Adam Cochran
@adamscochran
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1/2 When Sen Warren asked Gensler about high Ethereum fees on decentralized exchanges and if he knew what the fees would have been like on the crash last Tuesday, he replied: “Whatever the exchange has outlined in their user agreement” Not gas, not code. User agreement.
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Adam Cochran
@adamscochran

4/21 He even seemed to suggest both that securities laws are clear and simple for the crypto market, while also saying congress needs additional laws to clarify them.
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Brad Garlinghouse
@bgarlinghouse
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Chair Gensler insisted (again) in today’s testimony that the securities laws are clear and easily understandable for the crypto market…and then turned around and said Congress needs to write laws to clarify. So which one is it? Thank you @SenToomey for being a voice of reason. twitter.com/business/statu…
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Adam Cochran
@adamscochran

5/21 Meanwhile

@HesterPeirce

has engaged extensively with the industry and made great proposals like the Safe Harbor concept which seems to have not moved forward.

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Hester Peirce
@HesterPeirce
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Safe harbor 2.0 is up. Thanks for all the comments on version 1. Looking forward to your feedback on this version: sec.gov/news/public-st
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Adam Cochran
@adamscochran

6/21 We’ve also seen folks like Rep. Beyer introduce proposed legislation that would create specific guidelines for digital assets, and while not perfect, its a big step forward:
Beyer Introduces New Legislation To Regulate Digital Assets
beyer.house.gov
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Adam Cochran
@adamscochran

7/21 But the SECs current rhetoric is: -We won’t tell you which tokens are securities. -But every platform has lots of tokens. -Therefore some must be securities statistically. (Committing the formal fallacy of ‘possibiliter ergo probabiliter’ for you nerds out there)
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Adam Cochran
@adamscochran

8/21 Their solution is: -Come talk to us. (Coinbase did and instead of conversation is getting legal action) -Simply register (Technologically and legally impossible for a protocol + no burden showing its necessary)
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Adam Cochran
@adamscochran

9/21 A registered securities platform needs things like: -A Transfer Agent -A Clearing House Both are centralized, custodial agents who sit between an exchange and customer.
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Adam Cochran
@adamscochran

10/21 Transfer agents jobs are essentially to record ownership, maintain records, distribute dividends, and cancel/issue various stock certificates. All things that DeFi replaces with the ERC-20 standard and a dashboard that queries the chain.
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Adam Cochran
@adamscochran

11/21 A clearinghouse validates and finalizes the transaction, they basically settle accounts and payments like an escrow agent. Something that is entirely unnecessary in blockchain land because of T-Instant settlement.
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Adam Cochran
@adamscochran

12/21 These two components alone would introduce centralized risk into the process and make it riskier for consumers in defi. So the argument of ‘consumer protection’ falls flat here as that can be met with the digital asset system.
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Adam Cochran
@adamscochran

13/21 But, further to that, there hasn’t been any indication from the SEC that these platforms do meet any actual burden to register.
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Adam Cochran
@adamscochran

15/21 All of their actions have been against frauds, ICOs, centralized platforms, and things expressly marketed as investments (which is all fair) The only “DeFi” platform we saw hit with action was DMM which was not decentralized and was expressly dealing in security products.
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Adam Cochran
@adamscochran

16/21 The SEC isn’t even going after Coinbase for supposed securities listings. Instead its blocking them and issuing them a Wells Notice because of a lending product. Which if they are so sure its ‘got securities’ why not go after that?
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Adam Cochran
@adamscochran

17/21 With Uniswap, the SEC seems more interested “how the team marketed the product” than what the product does. Which if the SEC’s statements were accurate, wouldn’t matter because surely the platform would be a violation regardless of marketing?
How the SEC’s reported Uniswap Labs investigation could signal a new era of enforcement
Crypto-focused lawyers have been waiting for the dam to break on DeFi enforcement, and a reported inquiry into Uniswap Labs could be the floodgates.
theblockcrypto.com