SEC Attacks Crypto - Will it Succeed?
The Web Three Newsletter | 22nd Feb, 2023
Happy Wednesday, people !
We’re back with three key stories from the world of Web3 this week
This week, we’re taking a look at :
1️⃣ The Big Story : Are the Recent SEC Crackdowns a Bad Omen?
2️⃣ Opinion : Crypto Needs Better Entry & Exit Points
3️⃣ NFTs : Bitcoin NFTs are Getting Easier Everyday
1️⃣ The Big Story : Are the Recent SEC Crackdowns a Bad Omen?
In a recent Unchained podcast episode, Coinbase's Chief Legal Officer, Paul Grewal, and Polygon Labs' Chief Policy Officer, Rebecca Rettig, discuss the recent flurry of regulatory activity targeting the crypto industry.
SEC cracking down on staking…
📢 The US government is cracking down on crypto
…And this is causing concern in the industry. In a recent podcast, two experts shared their thoughts on what is happening.
They explained that the crackdown is not unexpected, given recent events in the industry, such as the implosion of FTX.
They also noted that some regulators are under pressure to show that they are responding to events in the crypto market, which has contributed to the increased regulatory activity.
However, they cautioned that the US government needs to be careful not to push innovation offshore and ultimately harm national security.
What is SEC’s Stance on Staking?
The recent settlement between Kraken and the SEC has raised questions about staking and its future in the cryptocurrency industry. Key takeaways from this discussion:
The settlement against Kraken only gives limited insight into how the SEC views the staking product and doesn't provide insight into the law itself.
Kraken's staking product operates differently from other staking products, such as Coinbase's. For example, there is no question about who owns the assets with Coinbase's staking products, as title always remains with the customer.
The SEC's complaint against Kraken distinguishes custodial staking as a service programs from users staking on their own.
The settlement has raised broader questions about how far the SEC is willing to go to cast a shadow over staking in general.
The SEC has urged crypto companies to come in and register.
Here’s a thread by Coinbase CEO Brian Armstrong on this episode :
1/ We're hearing rumors that the SEC would like to get rid of crypto staking in the U.S. for retail customers. I hope that's not the case as I believe it would be a terrible path for the U.S. if that was allowed to happen.
— Brian Armstrong (@brian_armstrong)
Feb 8, 2023
What's Going on with Paxos and the Regulators?
The recent actions by the SEC and the New York Department of Financial Services (DFS) against Paxos have caused confusion and speculation.
The actions by multiple state and federal regulators suggest that the stablecoins issued by Paxos were attracting a unique amount of attention for important reasons.
The DFS focused on whether Paxos was properly examining who's on their platform, separately from the securities law questions debated in the crypto industry.
Paxos is a regulated trust company under the DFS regime, similar to a bank, and subject to regular examinations by the state regulator.
Regulators at the state and federal level frequently coordinate with each other, but it's unclear whether the recent actions against Paxos were coordinated.
It's reasonable to ask why regulators aren't sharing their concerns in a transparent and open forum, instead of leaving it to speculation.
In this excellent thread, Miles Deutscher opines on how BUSD/stablecoins may not really fit into the definition of “securities”
The SEC has labelled BUSD as an “unregistered security”, and is suing its issuer, Paxos.
But how on earth is a STABLECOIN considered a security, when it clearly doesn’t meet the Howey Test criteria.
No one has ever had “the expectation of profit” when buying $BUSD. https://t.co/QXOlDUyvc3
— Miles Deutscher (@milesdeutscher)
Feb 13, 2023
The podcast also disussed regulators’ view on stablecoins, the impact of the Terra/UST episode and Crypto Banking
2️⃣ Opinion : Crypto Needs Better Entry & Exit Points
Łukasz Anwajler, chief technology officer of Ramp, expresses his view that crypto is in dire need of better entry and exit points
Web3 needs better "user journeys" to offer a seamless, secure, and cost-effective way to jump in and out of Web3.
Current user journeys feel convoluted and risky as custodial services take control over funds. Complete in-app experiences are needed, with self-custodial user journeys as the standard.
Fiat-crypto infrastructure providers can help integrate these functionalities into user journeys.
A self-contained "get in, get out" experience reduces the learning curve and is more cost-effective.
A self-custodial journey is more secure, and developers can add a surcharge to create sustainable revenue.
Off-ramp needs to be as simple,fast, cost-effective & secure as on-ramp.
Fully self-custodial user journeys as the default will benefit the space in the long run.
3️⃣ NFTs : Bitcoin NFTs are Getting Easier Everyday
Bitcoin NFTs are getting easier everyday. It’s about time you learnt more about Ordinals…
Bitcoin ordinals are a new type of NFT (non-fungible token) that use the Bitcoin blockchain instead of the Ethereum blockchain. They are created through a process called "inscription" where Bitcoin units (sats) are used. Each inscription is recorded on the blockchain and given a unique ordinal number.
Ordinals have a few advantages over regular NFTs.
First, they are secured by the highly decentralized and secure Bitcoin blockchain.
Second, the actual data (the graphic binary) is stored directly on the chain, rather than being linked to IPFS or a website.
However, they do present some hassle…
Because ordinals are encoded within sats, it's important to use a compatible wallet to store and trade them.
Currently, there aren't any exchanges that fully support selling ordinals, so trading is difficult and requires escrows or trust.
If you want to create your own ordinals, there are a few possible ways to do so, but the tooling is still very nascent. You can use an ordinal creator tool like gamma.io or the Ordinals Bot by Satoshibles NFT project, or you can download a full Bitcoin node and use the ord wallet.
It's important to remember that investing in cryptocurrencies and NFTs is extremely risky, so proceed at your own risk.