Block.One, LedgerX and Fairwin
The SEC issued a “jaw-dropping” (as Katherine Wu called it) order against Block.One, though probably not jaw-dropping in the way you would expect. The crypto community was between aghast and impressed at how little ($24 million) Block.One paid as a penalty for holding a $4 billion ICO that lasted a year and even advertised in Times Square. With Zach Fallon, a former SEC staffer, I unpack how that happened and what the settlement means in the larger context of other recent actions.
In related news, some of the biggest crypto exchanges formed the Crypto Rating Council, which rates tokens on how likely they are to be considered securities. However, some in the industry view this as a conflict of interest.
Meanwhile, some Libra Association members are either backing out or contemplating it, while the proposed global digital currency is also making some House Representatives nervous, prompting them to write to Fed Chair Jerome Powell about a digital dollar.
Be sure to check out this week’s Unchained with Emily Parker of Longhash. She gives the inside scoop on what’s really going on with crypto in China, Singapore and Japan, and why not is all as it appears.
This Week’s Crypto News…
The FT reports that PayPal is about to quit Libra. Reportedly, all the other members showed up at a schedule meeting in Washington except for the payments company, where Calibra head David Marcus formerly served as president. This follows on some news earlier this week by the Wall Street Journal that Visa and Mastercard are reconsidering whether or not to participate. Meanwhile, perhaps unsurprisingly, the banks, through the Federal Advisory Council, told the Federal Reserve they didn’t like Libra and thought it would create a “shadow” banking system.
The settlement, unpacked on this week’s Unconfirmed, did not require Block.One to register EOS tokens as securities, because it was a different token sold and traded during the ICO, which then became defunct. Larry Cermak of the Block calls this “a slap on the wrist” and “a horrible precedent” and notes that Blockstack, which went the compliant route, is in a much worse off position than if it had done what Block.One had done.
House Reps. French Hill and Bill Foster wrote a letter to Federal Reserve Chair Jerome Powell asking for the Fed’s view on creating a digital dollar. They wrote, “We are concerned that the primacy of the US dollar could be in long-term jeopardy from wide adoption of digital fiat currencies.”
Coinbase, Kraken [disclosure: a sponsor], Circle and Bittrex founded the Crypto Rating Council to crypto assets based on how likely it is they will be determined to be securities. The Block’s Cermak wrote a tweet storm calling the council a massive conflict of interest and saying that the system was put in place to have plausible deniability for any exchanges that list tokens ultimately deemed to be securities.
The Information reports that crypto wallet Blockchain is experiencing a spate of executive departures. Chief operating office Liana Douillet Guzman and Chris Lavery are reportedly leaving the firm. Meanwhile, the company has struggled with its business model given that its flagship product is free; it only recently launched an exchange, the Pit.
LedgerX CEO Paul Chou tweeted a series of eyebrow-raising statements hostile toward the CFTC last weekend. “No more kissing the ring,” he said, and when allegedly asked by the CFTC to remove the tweets, he tweeted, “No dice. Deny a complete application from us, I dare you @CFTC” In a later tweet storm, he explained that the delay in LedgerX’s approval for its futures product appears to be have been due to the agency, specifically, then-chairman Christopher Giancarlo’s preference for Bakkt to be first.
Yet another lesson in how this technology is still highly experimental: the Fairwin Ponzi enabled the admins to drain the contract, plus had a vulnerability that enabled scammers to front-run users attempting to deposit into the contract so that the ETH deposited would instead be associated with the attacker. When word got out, the funds went pretty quickly, as this graph, tweeted by Gnosis’s Martin Koeppelman shows.
In an interview with Bloomberg, Jered Kenna, who founded the Bitcoin exchange TradeHill back in the day, said that when he started in Bitcoin, “all we talked about was things that actually had substance, and very few people were talking about making money…. And now the only thing people focus on is making money.” (In 2016, I wrote about how hackers stole millions in Bitcoin from Kenna.)