Are Binance and Coinbase Doomed? 💣
Weekly News Recap: 🎤 New podcast on the SEC lawsuits, 📄 a new crypto bill in the U.S., 😢 a $35 million loss, and more ❕
In today's episode of Unchained, Laura speaks with Electric Capital General Counsel Emily Meyers, who shed light on the SEC's lawsuits against Binance and Coinbase.
While the cases allege that both platforms were operating as unregistered securities exchanges, the SEC's charges against each differ significantly. For Binance, there are additional accusations of fraudulent activities.
Meyers notes an interesting strategy in the SEC's approach, stating: “All they have to do is prove that one [token] is a security in order to prove that either Binance or Coinbase was operating an unregistered securities exchange.”
Despite these legal battles, Meyers affirms that crypto in the U.S. is far from over and stresses the need for active legislative engagement for clear crypto regulation.
Weekly News Recap
US House Republicans Propose New Crypto Bill
As discussed briefly on the show, Despite negative regulatory news around Binance and Coinbase, there was a potentially significant development with U.S. House Republicans proposing a bill to pave the way for crypto assets to be classified as digital commodities. Republican Chairs Patrick McHenry and Glenn Thompson spearheaded the initiative, with the legislation seeking to settle a long-standing debate around the classification of digital assets as either commodities or securities.
The proposal put forward a set of criteria for a digital asset to be considered a commodity, with one key element focused on the decentralization of the blockchain network. Under this framework, an asset could be classified as a commodity, as long as the network is sufficiently decentralized, and no individual or entity owns over 20% of the network's tokens. The bill also requires that, in the previous 12 months, a single person should not have had the power to "control or materially alter" the network.
Coinbase’s Chief Legal Officer Paul Grewal lauded the effort for laying "a strong foundation for regulatory jurisdiction and definitions" in the crypto space.
Despite the bill's potential to clarify regulatory boundaries for the digital asset industry, the legislation still needs broad bipartisan support for it to become law. This follows a growing rift between Democrats and Republicans on crypto regulation, with different bills from each party currently in the House Financial Services Committee, and a polarism that far extends this industry.
Atomic Wallet Breach Results in $35 Million Loss
Decentralized wallet provider Atomic Wallet was rocked by a security breach that left some users in dire straits, leading to $35 million worth of crypto assets being siphoned off, with one user reportedly losing nearly $8 million in USDT tokens alone.
Crypto analytics firm Elliptic connected the exploit to the notorious North Korean hacker collective, Lazarus, due to the ill-gotten gains being funneled through a mixer often utilized by the group. The exact method of the exploit remains undetermined; however, previous warnings from cybersecurity firms about vulnerabilities within Atomic Wallet's system raise questions about the team’s effort to address them.
Criticism has been leveled at Atomic Wallet for alleged negligence, with MyCrypto CEO Taylor Monahan accusing them of ignoring a security report flagging critical vulnerabilities. She said: “Your security posture sucks, you refuse to listen to people, you aggressively silence people, and your products and services facilitate theft on a daily basis and have for years.”
The breach only adds to the increasing number of crypto industry hacks this year, underscoring the urgency for robust security measures within the sector. If you want to hear more about crypto wallets and security, don’t miss this week’s Unchained Tuesday episode with Ouriel Ohayon and Itai Turbahn.
The Met Plans to Return FTX's Donations
The Metropolitan Museum of Art (the Met) intends to return $550,000 to the now-bankrupt cryptocurrency exchange FTX. The funds were donated to the museum last year under the entity West Realm Shires Services, a subsidiary operating FTX.US.
The museum received two donations from FTX, one in March and another in May, both of which it aims to return. FTX’s founder and former CEO Sam Bankman-Fried, known for his philanthropic activities and ‘effective altruism’ philosophy, has reportedly spent $93 million on political donations. The court is still to approve the Met's return of donations to FTX, with a hearing scheduled for June 28. FTX, under new CEO John Ray III, is working to recover assets to repay creditors affected by the exchange's collapse. The return of donations is seen as a necessary step in this recovery process.
Genesis Gains Reprieve in Bankruptcy Proceedings
In the unfolding saga of Genesis Global's bankruptcy case, U.S. Bankruptcy Court Judge Sean Lane recently granted an extension for Genesis to file its recovery plan. The company now has until Aug. 2, as opposed to their initial request for an Aug. 27 deadline. This deadline, however, hinges on Genesis maintaining collaboration with its Official Committee of Unsecured Creditors.
Meanwhile, FTX, a notable creditor of the company, was denied participation in mediation talks, with Judge Lane emphasizing the need for a degree of confidentiality in these discussions. FTX had alleged Genesis owed them nearly $4 billion, a stark contrast to Genesis' zero-dollar estimate — a dispute to be resolved in future hearings.
In addition to this, defunct crypto hedge fund Three Arrows Capital (3AC) is fervently advocating for a seat at the mediation table. The failed fund has asserted claims of over $1 billion against Genesis.
These developments occur amidst increasing frustrations from Genesis' creditors, such as Gemini and customers affected by Genesis' financial downfall, who are calling for a swift resolution. The judge, however, insists that extending mediation won't necessarily prolong the case, but potentially prompt faster resolution.
Do Kwon Is Released on Controversial Bail
Terra cofounder Do Kwon was granted bail, at €400,000 ($427,740), by Montenegro's High Court, after it was initially denied. His approval came amid allegations of him funding Montenegro’s political party, Europe Now — claims which outgoing Prime Minister Dritan Abazović is pushing the Special State Prosecution to investigate.
Kwon and Terra's former CFO Han Chang-joon are embroiled in a case of allegedly attempting to travel with fake documents. This incident comes after the Terra ecosystem crumbled in May 2022, causing a collapse worth $40 billion. The fallout led to South Korea and U.S. authorities requesting Kwon's extradition to face charges after the Montenegro trial.
Adding to the mystery, there are reports of Kwon's connection with the leader of the Europe Now political movement, Milojko Spajic. While Spajic denies these claims, the emerging scandal could pose a significant challenge if Spajić leads the parliament after the upcoming elections. In the meantime, Kwon is under house arrest, awaiting his court appearance on June 16.
In a statement to the press, Abazović warned: "We cannot become a breeding ground for global fraudsters, even if they use blockchain or anything else."
Arbitrum Suffers Unanticipated Halt
Arbitrum, a Layer 2 scaling solution on Ethereum, experienced a temporary halt on Wednesday, pausing transactions for roughly an hour. With over $2.24 billion in deposits, the stoppage was initially attributed to the sequencer, a key transaction-processing software component, running out of Ether, used for transaction fees. However, contrary to this explanation, Arbitrum developers cited a sequencer batch poster bug as the cause of the interruption, noting that the Sequencer's wallet is programmatically refilled.
Regardless of the exact cause, the incident underlines the tension between decentralization and the practicalities of operational control.
Blockchain Association Stands Against Tornado Cash Sanctions
In a recent development, the Blockchain Association filed an amicus brief supporting Coin Center's lawsuit against the U.S. Treasury over its sanctions on Tornado Cash, the cryptocurrency mixer which the US government alleges was used to launder more than $7 billion worth of digital assets.
Kristin Smith, CEO of the Blockchain Association, argued that Tornado Cash is a tool, and sanctions should target those who misuse it, rather than the tool itself. “Punishing the tool itself simply because it can be used by anyone, including bad actors, runs contrary to the values this country was founded upon,” Smith said.
The suit also emphasized the need for financial privacy in the digital asset industry, underlining that users seek tools like Tornado Cash to maintain privacy without compromising blockchain technology benefits.
Tapping on the privacy debate on blockchains, Luke Tchang, CEO of Nocturne, told Unchained: “It's just very hard to imagine a future where everything is public by default.”
FUN BITS 😁
We just talked about Do Kwon’s bail, but let’s now hear it from stand-up comedian Ginny Hogan.
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