SEC Attacks Crypto - Will it Succeed?
The Web Three Newsletter | 15th Feb, 2023
Happy Wednesday, people !
Here we are again - with three opinion pieces from the world of Web3
This week, we’re taking a look at :
1️⃣ The Big Story : SEC Attacks Crypto - Will it Succeed ? 🤔
2️⃣ Opinion : Is SEC Really the Big Bad Wolf? 🐺
3️⃣ Opinion : $2Trillion is Laundered via Crypto Annually- What can be Done? 💸
1️⃣ The Big Story : SEC Attacks Crypto - Will it Succeed?
Polygon’s Chief Legal Officer Marc Boiron joins “The Chopping Block” show to examine the SEC’s recent enforcement ramp-up.
The BUSD Shutdown : Here’s what’s happened
📊 BUSD is the third largest stablecoin in the world, with $16 billion in circulation. It's issued by Binance, the largest crypto exchange in the world, and is used mainly on the Binance platform.
🤝 Binance partnered with Paxos, a company that issues stablecoins on behalf of others, to issue BUSD. However, Paxos was recently issued a Wells notice by the SEC, which plans to sue them for issuing an unregistered security.
In response, the New York Department of Financial Services (NYDFS) ordered Paxos to stop issuing BUSD, causing the supply to contract as customers redeemed their tokens for other stablecoins or cash.
SEC’s concerns regarding BUSD…
BUSD : A Security ? The SEC's concerns about BUSD's status as a security likely stem from allegations that BUSD wasn't always backed by the appropriate amount of assets.
Was BUSD backed 1 to 1 ? 🧐 There are also concerns about the way BUSD was wrapped and traded on the Binance Smart Chain, which may have resulted in it not being backed 1-to-1 by the BUSD on the Ethereum network.
What happens to stablecoins from here?
All of this raises questions about the status of stablecoins as a whole and how regulators will view them going forward.How will it affect other stablecoins on the market? Only time will tell.
📢 NYDFS issued a notice to Binance about their BUSD stablecoin, sparking speculation that other stablecoins like USDC may be affected. The details of this development are not yet public.
Here’s what’s puzzling : Binance's BUSD is being targeted, but similar stablecoins like USDC have been offering interest rates on Coinbase for two years.
Possible reasons for targeting BUSD include bridging issues, consumer protection concerns, or a broader debanking initiative. This move may be due to regulation by enforcement, and it may be related to the FTX incident that happened three months ago.
The exact reasons why they are targeting BUSD is not known yet. Is it because of its affiliation with Binance, or is it because of some bridging issue? It's hard to say at this point, but we can expect a new regulatory regime that may target other stablecoins.
The speakers clarified that they do not celebrate the failures of others and that it's not good for anyone in the industry. They emphasized that all layer one (L1) and layer two (L2) solutions do well with the industry growing. They concluded that they want to see the market grow, and this news does not help at all.
The podcast also discusses Kraken’s settlement with the SEC and Uniswap governance. Check out the full episode here
2️⃣ Opinion : Is SEC Indeed the Big Bad Wolf? 🐺
It's easy to criticize the SEC for its crypto crackdown, but is it a consequence of the industry's own shortcomings? This piece argues the industry has failed to take the necessary steps to protect investors, and the SEC is now taking action.
The US Securities and Exchange Commission (SEC) has taken center stage with major enforcement actions, and the continued ascendance of Ordinal inscriptions (NFT collections) on Bitcoin has fascinating and potentially major implications.
The SEC’s crackdown on crypto
🔫 The SEC has focused much of its crackdown on entities that many crypto veterans would consider “the good guys,” and on services that are far less obviously dangerous than those that ran wild in 2021 and 2022.
🤔 Actions against “the good guys”
The crypto industry as a whole still needs to look inward and reckon with its own responsibility and ask how it can better marginalize frauds on the front lines the next time.
There’s some political expediency at play, as these actions come after a year in which the SEC failed to spot or prevent massive frauds, making a show of enforcement on targets of convenience.
The SEC’s crackdown is likely to put a lot of misplaced burdens on entities that are substantially blameless.
3️⃣ Opinion : $2 Trillion is Laundered via Crypto Annually - What can be Done?
Despite crypto winter, investigators have loads of cases involving crypto. The right tools and training can help them close cases more quickly.
Summary of post on Hackernoon
🕵️ Cryptocurrency and Illicit Activities
Criminals use cryptocurrency for illegal activities like money laundering and drug trafficking, because it allows them to move large sums of money without revealing their identity.
Despite the decrease in the value of cryptocurrencies, their appeal to wrongdoers remains high, and a small but significant percentage of money laundering involves crypto.
🦹 Challenges in Combating Crypto-related Crimes
Investigators need to know what questions to ask and what information to gather to enforce new laws related to cryptocurrency and crime, and they need capable tools that match the speed of cryptocurrency and criminals to stay ahead of their cases.
Funding may undermine the effectiveness of law enforcement agencies in combating cryptocurrency-related crimes.
The U.S. Office of Foreign Assets Control (OFAC) has cracked down on some cryptocurrency businesses, but law enforcement agencies need to be prepared to ask the right questions and use effective tools to stay ahead of criminals who use cryptocurrency.
Cryptos's Impact on Global Finance
Cryptocurrency introduces speed to global finance, making it easier for criminals to move money across international borders.
New altcoins and innovations in the crypto industry are incentivizing adoption and supporting the advantages of cryptocurrency over the criminal element.
If the United States asserts jurisdiction over cryptocurrencies and digital assets, law enforcement officials must anticipate new expectations and demands from regulators and crime victims.