America's War on Crypto

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Intermediary firms store cash on behalf of their clients in their own bank accounts or coordinate with banking partners to get accounts in clients’ names. While indirect banking isn’t unique to crypto, its importance has become more pronounced owing to the limited number of banks willing to work with digital-asset firms.
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The European Banking Authority (EBA) wants central banks to veto big stablecoins if they believe the cryptocurrencies could threaten their monetary policy.

“Central banks should have the power to veto the widespread introduction of so-called stablecoins,” said EBA Chair José Manuel Campa on Thursday.
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The Securities and Exchange Commission’s crackdown on crypto continues, with Chair Gary Gensler accusing the industry of suffering from “a lack of regulatory compliance, not a lack of regulatory clarity.” But in the agency’s bid to wrangle digital assets by classifying them as securities, it faces significant opposition from an unexpected source—the SEC of yesteryear.

Gensler recently claimed that all digital assets other than bitcoin BTC could be considered securities and could therefore be subject to securities law. But haunting the agency in its legal campaign against crypto are past statements and internal documents that are likely to present a much different opinion. The SEC has tried to keep these documents under wraps in its lawsuit against Ripple Labs. But a federal judge ruled last week that they be made available to the public. The decision marks a big win for Ripple and potentially an even bigger win for the industry.
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Whether it’s the Hinman documents, the Coinbase IPO, or even Gensler’s previous praise of a token he now considers to be a security, the SEC cannot escape past statements and actions that contradict its current positions. And the weight of those contradictions is increasingly apparent to the court.

Case in point: Judge Torres has determined that the emails and documents related to the Hinman speech are “judicial documents,” which means she is likely to rely on them in rendering her final decision.

If Judge Torres ultimately rules in favor of Ripple, the decision would provide a critical legal precedent for the industry. It would insulate digital assets similar to XRP from being automatically labeled as securities by the SEC. And it would all but force the agency to back down from its regulation-by-enforcement approach that is driving crypto investment offshore.

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The U.S. Securities and Exchange Commission (SEC)’s lawsuits against Binance and Coinbase highlight the need for U.S. lawmakers to come up with “a comprehensive framework on how to regulate the crypto industries and the relative responsibilities of SEC vs the Commodity Futures Trading Commission (CFTC),” JPMorgan (JPM) said in a Thursday research report.
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The moves are “creating more urgency for U.S. lawmakers to come up with a comprehensive regulatory framework by this year,” JPMorgan said.

Until this happens, crypto activity will likely continue to move outside the U.S. and into decentralized entities. Crypto venture capital funding will also likely remain subdued, the bank said.
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While the Securities and Exchange Commission (SEC) leans into regulating crypto by enforcement, lawmakers in the House are looking to lay a foundation for rationalizing U.S. crypto policy—releasing a Digital Asset Market Structure Discussion Draft last Friday and holding a pair of hearings this past Tuesday and next.

The Discussion Draft, while in early days, gets the big question right: it would determine whether crypto tokens are securities or commodities largely based on whether the networks over which they operate are decentralized. In addition, the Discussion Draft would help provide regulatory clarity to crypto marketplaces through long‐sought pathways for lawfully registering certain crypto exchanges. While the draft would benefit from some modifications—including to the process for certifying network decentralization and the treatment of decentralized marketplaces—this legislative effort would bring much‐needed clarity to U.S. crypto policy by tackling its thorny questions.
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The poor fit between existing rules and reality stems from the challenge of squaring securities laws designed for centralized firms and financial intermediaries with a crypto ecosystem that includes tokens generated by decentralized networks and traded via disintermediated protocols. Compounding this challenge is the fact that centralized crypto projects can decentralize over time.

The Discussion Draft, to its credit, grasps these nettles. Understanding how is a matter of understanding the security versus commodity debate. A classic security is a share of stock—a partial ownership stake in a company and claim on assets and profits. A stock’s value typically depends on how well a company and its managers perform, so securities regulation seeks to make managers share information relevant to that performance. A classic commodity, by contrast, is a piece of produce (like, say, an orange) that’s standardized and interchangeable. Its value typically depends on supply and demand.

Those arguing crypto tokens are securities analogize them to stocks: they can be sold to raise funds to build out projects and also can be viewed as proxies for those projects’ value.

Those arguing crypto tokens are commodities analogize them to produce. In a famous Supreme Court case on the nature of securities—which is tediously but unavoidably recounted in any crypto regulation discussion—the Court assessed whether an orange grove seller’s scheme to contract with land purchasers to manage orange sales and give them a cut constituted a securities arrangement. It was a securities scheme, the Court reasoned, because the seller’s efforts to manage the operation were essential. Those who argue crypto tokens are commodities point out that while certain token sales may resemble the contract in the orange grove case, the tokens themselves are best analogized to the oranges, which remained commodities notwithstanding the securities scheme.

The Discussion Draft enters this fray by identifying that crypto tokens are neither inherently like stocks nor oranges, but rather resemble one or the other depending on whether there are managers—like the executives at a company or citrus enterprise—controlling the token network.

The Discussion Draft does this through a legal test for whether a crypto project’s network is decentralized. At a high level, it defines a decentralized network as one where no person could unilaterally control, materially change, or restrict general users’ use of the network. In addition, the definition requires that within specific lookback periods, certain persons closely related to the network project have not held or controlled over 20 percent of the network’s outstanding tokens or voting power, contributed intellectual property that materially changed network functionality, or marketed the network or its tokens or issued those tokens, and that certain token issuances were nondiscretionary.

Although it’s possible to quibble over certain details—such as the arbitrariness of a 20 percent holdings cut off and who qualifies as a closely related person—the definition incorporates some key decentralization features, namely the absence of: unified and discretionary control, reliance on or susceptibility to closely related parties’ material contributions or changes, and gatekeeping that excludes general users.

Decentralization is key to the regulatory framework proposed in the Discussion Draft because it is a core component (along with a network becoming “functional”) of the definition of a “digital commodity.” ...

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A newly discovered video from 2018 has reignited the debate over which tokens are and are not securities according to U.S. law, and whether Securities and Exchange Commission Chair Gary Gensler’s present-day declarations represent his true beliefs.

The brief 12-second video clip, which was shot at a 2018 Bloomberg event for institutional investors in New York City, features then-MIT professor Gensler listing a number of important cryptocurrencies which he says unambiguously do not qualify as securities.

“Over 70% of the crypto market is Bitcoin, Ether, Litecoin, Bitcoin Cash,” Gensler says while addressing the audience. “Why did I name those four? They’re not securities.”

The video was widely shared across crypto twitter on June 12, and it set off another round of speculation about what Gensler believed and when, and why his positions appear to have changed so dramatically in recent years.

“What’s Goldman Gary going to say about this one?” tweeted Ryan Selkis, founder and CEO of blockchain analysis firm Messari. “Deep fake?”

In a follow-up tweet, Selkis linked to U.S. House Financial Services Committee Chair Patrick McHenry, who also had difficulty getting regulatory clarity from Gensler during his recent testimony on April 18.


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Blockchain Australia said:

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The growing Australian industry and digital currency exchanges have been working hard to reduce scams and fraud while also operating under a constant fear of “de-banking”. Actions overseas, including around banking of digital asset businesses in the US, create further concerns and Australia is fortunate to have consultation on regulatory reform underway.
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Today, we are taking a further step, and organising a roundtable discussion for 27 June 2023, during Blockchain Week, with the aim of unifying all stakeholders and tackling this issue head-on by using real data. We will invite The Hon Stephen Jones MP, Assistant Treasurer and Minister for Financial Services, the Australian Securities and Investment Commission, the Australian Competition and Consumer Commission, the Australian Bankers’ Association, the major banks, and other interested parties to engage in this crucial dialogue. We want to cultivate a shared sense of urgency and collaboration to protect those at risk of scams without losing the benefits of a growing digital currency industry.

Jackson Zeng, CEO of Caleb and Brown added “The recent decision by banking institutions to restrict millions of their customers from making payments to cryptocurrency exchanges represents a profound curtailment of economic freedom in Australia. Every individual has the inherent right to the economic freedom to make decisions on how and where to use their finances or allocate their investments. The principal role of banks is to facilitate these decisions, not to impose restrictions upon them.”

It’s crucial to remember that all digital currency exchanges operating in Australia are registered with AUSTRAC, the national Anti-Money Laundering (AML) regulator. The Australian digital currency industry has been diligent in its pursuit of tailored, fit-for-purpose regulation, which can assist the public in discerning those operations that adhere to the highest standards and best practices. The enforcement of these standards should remain the domain of our regulators”.

Michael Bacina, Chair of Blockchain Australia said “Banking is an essential service to nearly every Australian business in our increasingly digitised economy, and there is an outsized impact on all customers of a business when payment restrictions or debanking takes place. In many cases it can be fatal for the business.”

Blockchain Australia considers that blanket restrictions have very costly side effects, not only limiting consumer’s use of their own money, but also shifting the behaviour of those at risk of scams or fraud into another type of scam or fraud which may be harder to detect. In our view, it may be more effective for banks to provide opt-in protection and education to users, or provide targeted approaches to specific categories of at-risk customers with appropriate education and notification, to reduce scams, while minimising the collateral impacts which arise from a broader-brush approach.

All Blockchain Australia members are encouraged to reach out to Director Jackson Zeng to contribute to this ongoing effort to keep Australian’s safe and keep Australian’s benefiting from this exciting technology.

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pmbug said:

A bill for stablecoin regulation continues to get refined. There is a lot at stake here

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pmbug said:

Ripple (XRP) scores a split decision in their lawsuit with the SEC. The ruling says crypto sales on exchanges are not investment contracts (securities).

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House lawmakers have failed to reach a bipartisan deal on stablecoins legislation, with Financial Services Committee Chair Patrick McHenry (R-N.C.) blaming White House intransigence for the stalemate while the panel’s top Democrat said it was McHenry who shut down the talks.

The news comes a day after the finance-focused lawmakers advanced three bills on crypto issues to a vote in the full House of Representatives, the first time they advanced laws fully dedicated to the topic.
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Last week CoinDesk reported that a bipartisan grouping of Senators is pondering a rival bill that would put stringent anti-money laundering (AML) requirements on decentralized finance (DeFi) protocols, in effect treating them like banks.

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• The SEC asked Coinbase to delist every cryptocurrency except bitcoin before suing the exchange.
• Armstrong told the Financial Times the SEC recommendation left us no choice but to head to court.

A New York court classified popular cryptocurrencies ether (ETH) and bitcoin (BTC) as "commodities" while dismissing a proposed class action lawsuit against leading decentralized crypto exchange Uniswap in a Wednesday filing.

The lawsuit – filed in April 2022 by a group of investors against Uniswap and its creator Hayden Adams – alleged the DeFi platform violated U.S. securities laws by failing to register as an exchange or broker-dealer, offering and soliciting securities on an unregistered exchange. The suit sought to hold Uniswap accountable for investors losing money to “scam tokens” that were issued and traded on the protocol. The tokens cited in the suit include Ethereum (ERC-20) tokens EthereumMax (EMAX), Bezoge (BEZOGE) and Alphawolf Finance (AWF).

But Wednesday's ruling to scrap the suit before it goes to trial stated the true defendants of the case were the issuers of the "scam tokens" in question and not Uniswap. While Securities and Exchange Commission (SEC) Chief Gary Gensler has so far shied away from calling ETH a security, Judge Katherine Polk Failla of the Southern District of New York directly called it a commodity and declined to "stretch the federal securities laws to cover the conduct alleged," in the case against Uniswap.

The court's opinion on its dismissal of the class action suit could influence future litigation against decentralized protocols and perhaps even those alleging violation of U.S. securities laws.

Judge Polk Failla also oversees the SEC lawsuit against Coinbase.
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The market for stablecoins such as tether (USDT) and USD Coin (USDC) is expected to grow to trillions of dollars of supply and hundreds of trillions of dollars in transaction value in coming years as global audiences increasingly access the U.S. currency through these cryptocurrencies, alternative asset manager Brevan Howard Digital said in a report last week.

Stablecoins will “increasingly provide financial services to the global unbanked and underbanked, provide an escape from high-inflation currencies, and ignite an explosion of innovation built upon these new global open-network money movement rails,” wrote co-head of venture investments Peter Johnson and analyst Sai Nimmagadda.
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“In 2022, stablecoins settled over $11t on-chain, dwarfing the volumes processed by Paypal ($1.4t), almost surpassing the payment volume of Visa ($11.6t), and reaching 14% of the volume settled by ACH, and over 1% the volume settled by Fedwire,” the authors wrote.
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“It is remarkable that in just a few years, a new global money movement rail can be compared with some of the world’s largest and most important payment systems,” the asset manager said.
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Just banning cryptocurrency won't eliminate its risks, a joint policy roadmap published by global standard setters Thursday said.

The policy paper, commissioned by the intergovernmental forum G20 under India’s leadership, combines norms set by the Financial Stability Board (FSB), the International Monetary Fund (IMF) and other international standard-setters for the crypto sector in one report, which found “comprehensive regulatory and supervisory oversight of crypto-assets should be a baseline to address macroeconomic and financial stability risks.”

The IMF-FSB synthesis paper is set to be presented to the G20 this weekend and is part of a series of efforts by international bodies to introduce global norms for the industry, particularly following the numerous crypto enterprise collapses of 2022.

To tackle macroeconomic risks from crypto, the report says jurisdictions should “strengthen monetary policy frameworks, guard against excessive capital flow volatility and adopt unambiguous tax treatment of crypto.”

Thursday’s report reiterated the IMF’s stance that crypto blanket bans may not help in mitigating associated risks and added that targeted restrictions might come in handy for emerging economies in particular.
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The IMF-FSB roadmap addressed another concern of G20 countries about the proliferation of stablecoins – which are crypto stabilized against the value of other assets or currencies – threatening currency replacement or bank runs in emerging economies.

“Rapid capital flight (or reversals) could materialize if foreign currency-denominated stablecoins became easier and cheaper to hold in large quantities relative to foreign currency bank accounts,” the paper said.
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Analysis: US crypto industry comes to Washington, but faces uphill struggle​

... House Majority Whip Tom Emmer has taken the lead in these efforts to combat Gensler and the SEC by introducing an amendment to the Financial Services and General Government appropriations bill. If enacted, this rider would prohibit the SEC from using taxpayer dollars for illegal enforcement actions against digital assets without clear legal authority.

The importance of this rider cannot be overstated, and The Blockchain Innovation Project, a bipartisan advocacy organization designed to educate elected officials on digital assets and blockchain technology, supports the adoption of this rider. At a time when many Americans can hardly reach a consensus on anything, Republicans and Democrats can agree that the overbearing nature of Gensler’s SEC is unacceptable.
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But the chairman of the Financial Services Committee that has shepherded a number of crypto-related bills toward the House floor, Rep. Patrick McHenry (R-N.C.), is now the acting speaker. It’s positive for the crypto industry that he really wants to get digital assets legislation approved, and his new role turns up his volume. What’s bad: He’s pretty busy.

New Speaker

When the Republicans pick a permanent leader, McHenry may have some goodwill to spend. ...

Possibly more important for crypto, Rep. Tom Emmer (R-Minn.) is hoping to step up from House majority whip to Scalise’s majority leader position, which would put a fervid crypto advocate in an even higher role. But he may face opposition, because the same Trump-devoted corner of the Republican Party that ousted McCarthy now seeks to take over the leadership.
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Crypto legislation was on track for House consideration next month, but it’s now less certain when it will come up, observers say.

“The U.S. needs regulatory clarity that protects consumers and promotes innovation, so the hope is that we see movement before the end of the year,” said Ji Kim, the general counsel and head of global policy at the Crypto Council for Innovation, an international advocacy group.

The fate of the digital assets bills considered now in the House is unclear. They could fail to go anywhere at all for the rest of the year, which tends to be the safest prediction for any bills in this Congress. They could achieve floor votes – maybe even victories – but they’d likely meet a quiet death in the Democrat-controlled Senate. Or some portions of the bills could be pushed into must-pass budgetary legislation and ride those coattails into law. But that would likely need support from both parties in both chambers, for which the stablecoin bill may be the more likely.

Whatever happens, the industry isn’t entirely in love with the current language of those bills, so lobbyists are hoping to edit the legislation while it’s in motion.
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pmbug said:

This isn't specific to America, but could have important ramifications globally: ...

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The Finance Ministers and Central Bank Governors (FMCBG) of the Group of Twenty (G20) – the intergovernmental forum comprised of 19 sovereign countries, the European Union, and the African Union – announced that they have formally adopted the G20 roadmap on crypto assets during their meeting in Marrakesh, Morocco on Wednesday.

The roadmap, which was created at the request of the Indian G20 Presidency, was proposed in a joint report by the International Monetary Fund (IMF) and the Financial Stability Board (FSB) titled “IMF-FSB Synthesis Paper: Policies for Crypto-Assets” in September.
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They called for a coordinated implementation of the roadmap, which includes policy frameworks; outreach beyond G20 jurisdictions; global coordination, cooperation, and sharing of information; and addressing gaps in data.

“We ask the IMF and FSB to provide regular and structured updates on the progress of implementation of the G20 Roadmap on Crypto Assets,” they wrote. “We support the ongoing work and global implementation of FATF standards on crypto assets.”
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According to the paper, the first review of the proposed measures’ implementation status should happen by the end of 2025. It is likely that India will provide further clarification on the rules sometime in the next three months as the country’s stint as G20 president will end in December, at which point Brazil will take over leadership of the group.

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For two years, the cryptocurrency world has been waiting to see how the Internal Revenue Service (IRS) would implement the Infrastructure Investment and Jobs Act. Put simply, this law established new reporting requirements that risked setting a de facto ban on cryptocurrency mining and exposing millions of Americans to new felony crimes. The good news is that the IRS’s nearly 300-page proposal is not quite as bad as it could have been under the law. However, that is far from saying it is good policy.

As citizens, companies, and consultants finish crafting their comment letters ahead of the October 30 response deadline, it’s important to take a step back and recognize why businesses should not be required to report customers to the government by default.
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Shortly after the violence erupted in Israel on October 7, an article in the Wall Street Journal pinned part of the blame for terrorist financing on cryptocurrency. That was all that was needed for Senator Elizabeth Warren (D‑MA) to get over 100 members of Congress to sign a letter calling for a crackdown on cryptocurrency in the wake of this tragedy.

Yet it now seems the initial reporting was exaggerated as the Wall Street Journal issued a correction on October 27 to address some of the issues. However, this incident is not the first time one of Senator Warren’s anti‐cryptocurrency letters has been based on questionable data.
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... stablecoins could lead to a fragmented or fragile monetary system and impair financial stability, and are subject to potential fluctuations in exchange values away from par (see Garratt and Shin (2023)). As such, the regulation, supervision and oversight of SAs alone may not be sufficient to mitigate such risks. Other private or public sector efforts, such as improvements to existing payment infrastructures, for example via interlinking of fast payment systems, or the development of CBDCs, may be explored. Potential benefits of using a PDR SA for cross-border payments may be achieved by enhancing existing payment arrangements ...
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Even if PDR, the cross-border use of SAs will have potentially significant implications for central banks, whose objectives include (i) fostering safe, reliable, transparent and efficient payment systems; (ii) promoting monetary stability; and (iii) promoting financial stability. These implications should be carefully addressed if PDR SAs are to have a net positive effect on cross-border payments and the macroeconomy. Where authorities determine that the use of PDR SAs may weaken the resilience of their domestic financial system or interfere with central bank objectives or other public policy objectives, these authorities would need to consider steps (including the possibility to limit or prohibit the use of SAs in their jurisdictions) to mitigate the risks to national payment and monetary systems as well as to financial stability.
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... using PDR SAs may lead to greater challenges and risks to EMDEs than to AEs, especially when denominated in a foreign currency and operating from a foreign jurisdiction, such as in terms of currency substitution, including potential loss of seigniorage, volatile capital flows and difficulties in subjecting the PDR SAs to an appropriate degree of oversight. Currency substitution could undermine the ability of authorities to control the money supply or interest rates, eroding the effectiveness of monetary policy and financial policy control. ...

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Oct. 27, 2023

The Commission has brought many troubling crypto enforcement actions, but the LBRY, Inc. (“LBRY”) case has especially unsettled me. A statement on the case is overdue. I did not support bringing the case, but have been unable to speak publicly about my concerns while the case has been in litigation. Last week, after losing in federal district court on the question of whether the sale of LBRY tokens was an unregistered securities offering, LBRY announced that it will not move forward with an appeal of the decision.[1] Instead, the company will shut down and its assets will be placed in receivership and used to satisfy its debts, including the civil money penalty owed to the Commission.[2] Are investors and the market really better off now after the Commission’s litigation contributed to the demise of a company that had built a functioning blockchain with a real-world application running on top of it? This case illustrates the arbitrariness and real-life consequences of the Commission’s misguided enforcement-driven approach to crypto.

One does not have to dig deep to find fraudulent crypto projects that sold tokens with promises that they did nothing to fulfill. This sad reality makes the Commission’s decision to bring a case against LBRY especially puzzling. LBRY’s approach was more conservative than the approach many other projects took.[3]Here, the blockchain was up and running at the time most tokens were sold, and the Commission’s complaint did not allege, and the court did not find, evidence of fraud. LBRY built a blockchain to facilitate data sharing, afford greater control to content creators, and make censorship more difficult. LBRY created a popular platform on the blockchain for sharing videos and other media.[4] The open-source LBRY blockchain was available for anyone else to use.[5] Why go after a company that sold a token for a functioning blockchain with an established use when we could have pursued plenty of other projects that were outright frauds and did not attempt to comply with the securities laws? To make matters worse, the Commission took an extremely hardline approach in this case. For example, after winning on summary judgment, the Commission sought monetary remedies of $44 million and asserted that LBRY’s offer to burn all tokens in its possession was not sufficient assurance that LBRY would not violate the registration provisions in the future.[6] The Commission’s requested remedies were entirely out of proportion to any harm. Indeed, the court stated during the remedies hearing that “the absence of fraud allegations, [and] the fact that there was some measure of uncertainty” regarding the application of the securities laws when LBRY commenced its offering were facts that “should be taken into account when considering a penalty.”[7] After the remedies hearing, the Commission pared its penalty request back to a significantly lower $111,614, which the court approved.[8]

The application of the securities laws to token projects is not clear, despite the Commission’s continuous protestations to the contrary. There is no path for a company like LBRY to come in and register its functional token offering.[9] Even if a company did manage to register its token offering, it would not be a particularly useful effort. Compliance with the securities laws is important because we want to ensure that people buying securities receive accurate and reliable information so they can assess the risks and rewards of an investment. Here, LBRY made significant disclosures outside of the registration process—disclosures that the Commission did not allege were fraudulent or misleading—and there is little to indicate that LBRY’s disclosures did not provide token purchasers with information adequate to assess whether the tokens were a good fit for them.[10] The time and resources we expended on this case could have been devoted to building a workable regulatory framework that companies like LBRY could have followed. Then the market could have decided LBRY’s fate.

Even if, as the judge ruled here, the offering of tokens should have been registered, our scorched earth approach in remedying the violation was completely out of proportion to any investor harm. How does the result in this case protect LBRY investors, who likely would have preferred that the company continue to exist to support the blockchain, which is still in its infancy? The judge did not rule on whether the token itself was a security or on the status of secondary sales of LBRY tokens,[11] which means that the LBRY blockchain may live on, but its path forward is difficult. The Commission’s action forced a group of entrepreneurs to abandon what they built. Our disproportionate reaction in this case will dissuade people from experimenting with blockchain technology, which LBRY aptly describes as “technology that enables dissent.”[12] A government of a free people should welcome dissent and the technologies that enable it.

Earlier this year, LBRY tweeted: “It’s the year 2028, hundreds of thousands of Americans have been jailed for using illegally cryptocurrency instead of CBDCs, and Hester Pierce [sic] is still just writing dissenting memos.”[13] Although I will be tending bees, not writing dissents, in 2028, I think often about the crux of that criticism and ask myself: “What could I do to help prevent another group of people with a big idea for changing the world from going through what LBRY has over the past several years?” I have not come up with an answer to that question; however, I urge people who have suggestions about how the Commission can right its course on crypto and innovation more broadly, to send them my way.[14]

[1] The End of LBRY, Oct. 19, 2023, https://odysee.com/@lbry:3f/theendo...F3hapkGWcn0D0rOpMG9B8mxN2L73DkJDA77B24uNGt52I.

[2]Id. (“LBRY must die, there is no escaping this. It has lost a judgment to the federal government, has several million dollars in debts, and has pledged to shut down.”).

[3] See, e.g., DAO Today with Alexa Mil Podcast (Dec. 27, 2022), at approximately minute 12 (comments of Jonathan Schmalfeld) (“Lots of people looked at LBRY as doing things the right way. They weren’t doing the ICO. When they released the fully developed platform. The tokens were consumptive. There was an actual use for them on release date. They did a traditional investment raise. They brought on shareholders. They used securities and venture investing. And they didn’t sell tokens as part of that. There wasn’t any kind of pre-token rounds as part of that. And then they waited a year until after the platform was actually working and functional and there was a good amount of videos on there.”).

[4]See Odysee, https://help.odysee.tv/category-basics/whatisodysee/ (last visited Oct. 24, 2023). LBRY subsequently transferred this platform to its Odysee subsidiary.

[5] See LBRY, https://lbry.com/faq/what-is-lbry (last visited Oct. 24, 2023) (describing the LBRY protocol). As the district court noted when it granted summary judgment to the Commission, it was “generally uncontested” that “(1) LBC is a utility token designed for use on the LBRY Blockchain, and (2) some unknown number of purchasers of LBC acquired it at least in part with the intention of using it rather than holding it as an investment.” SEC v. LBRY, Inc., 639 F.Supp.3d 211, 220 (D.N.H. 2022).

[6] Commission’s Opposition to LBRY’s Motion to Limit the Commission’s Remedies at 9-11, 13-15, SEC v. LBRY, Inc., No. 21-cv-260 (D.N.H. Dec. 19, 2022), ECF No.94 (requesting $22 million in disgorgement and a $22 million civil money penalty).

[7]Transcript of Motions Hearing Before the Honorable Paul J. Barbadoro at 50, SEC v. LBRY, Inc., No. 21-cv-260 (D.N.H. Jan. 30, 2023), ECF No. 105; see also id. at 17 (“Let’s be fair here. You are not alleging that LBRY engaged in any fraudulent activity, first. Second, although I held that LBRY had fair notice sufficient to allow for the enforcement of the Securities Act against it for those offerings, the fact of the matter is that this was one of the first non-fraud cases that did not involve an initial coin offering . . .”); and id. at 51 (“You have to go back to the time this action was filed. This was relatively early on in the development of the SEC’s position with respect to crypto offerings . . .”).

[8]Commission’s Supplemental Brief on Remedies at 3-4, SEC v. LBRY, Inc., No. 21-cv-260 (D.N.H. May 12, 2023), ECF No. 107 (requesting a $111,614 civil money penalty and withdrawing the request for disgorgement); SEC v. LBRY, Inc., 2023 WL 4459290 *5 (D.N.H. July 11, 2023) (imposing $111,614 civil money penalty).

[9] See, e.g., Rodrigo Seira, Justin Slaughter, and Katie Biber, The Current SEC Disclosure Framework Is Unfit for Crypto (Apr. 20, 2023), https://policy.paradigm.xyz/writing/secs-path-to-registration-part-iii (“As we have shown above, the current securities framework was tailor-made to regulate fundraising by centralized legal entities issuing securities, such as a company selling shares to the public in its ‘IPO.’ However, crypto assets differ fundamentally from securities and therefore raise different investor disclosure considerations.”).

[10]See, e.g., Coinbase, Re: Petition for Rulemaking – Digital Asset Securities Regulation at 5-6 (Jul. 21, 2022), https://www.sec.gov/rules/petitions/2022/petn4-789.pdf (“The SEC disclosure regime has historically focused on ensuring that investors have material information necessary to make an informed investment decision. Current disclosure requirements, however, do not cover a number of features unique to digital assets that would undoubtedly be considered important when making an investment decision. For example, investors would likely find information about the risk of a network attack, what kind of governance rights are embedded in which tokens, who has the ability to change the code underlying the assets or the network, and other features that do not exist with respect to traditional securities to be material. Additionally, investors would benefit from comparable disclosures across each digital asset security to assist in identifying differences among investment opportunities.”).

[11]SEC v. LBRY, Inc., 2023 WL 4459290, *3 (D.N.H. July 11, 2023).

[12] The End of LBRY, Oct. 19, 2023, https://odysee.com/@lbry:3f/theendo...F3hapkGWcn0D0rOpMG9B8mxN2L73DkJDA77B24uNGt52I.

[13]LBRY Inc, LLC (@LBRYcom), X (Feb. 9, 2023, 4:39 PM),
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pmbug said:

This isn't specific to America, but could have important ramifications globally: ...

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The Bank of England (BOE) will regulate “systemic stablecoins” that are in wide enough circulation to potentially disturb financial stability, while the Financial Conduct Authority (FCA) will oversee the wider crypto sector according to discussion papers published by the two regulators Monday.

The proposals followed broader plans for overseeing the crypto sector published by the U.K. government last week.
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The discussion papers published Monday represent "an exploratory phase in developing the new regime," and after regulators receive feedback from stakeholders on these proposals, they will consult on the final rules, the BOE said. The FCA and the central bank aim to consult on final rules by mid-2024, and implement the stablecoin regimes by 2025, according to a document published alongside the discussion papers.

The BOE’s plans focus on stablecoins pegged to the value of the British pound because the central bank considers these to be likely to be used widely for payments, the bank said in a press statement. Among other things, the central bank is considering limits on individual stablecoin holdings.
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The U.S. Federal Reserve needs to regulate and enforce the law against stablecoin issuers, said Federal Reserve Vice Chairman for Supervision Michael Barr, making the federal-oversight argument that has been the major sticking point as the U.S. House of Representatives debates legislation.
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"We need a strong federal framework," he said Tuesday at the DC Fintech Week event in Washington. "They're creating a form of private money, and private money needs to be well-regulated."
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Crypto once again doesn’t fit into the regulatory round hole. The proposed 6045 digital asset broker regulations – currently in a comment period – are filled with problematic requirements. A few of them make taxpayer compliance impossible.

Digital asset brokers must report proceeds and cost-basis on a proposed Form 1099-DA information return like a 1099-B but for digital assets. The complexity of cost-basis reporting creates multiple issues for both brokers and taxpayers creating even more work for the already daunting task of calculating crypto taxes.

The proposed regs clarify taxpayers have two cost basis choices:

1. FIFO: The default method deems the oldest purchases as sold first.
2. Specific Identification: The taxpayer chooses which digital assets to sell.

Many people in crypto are familiar with FIFO and have already been using it for tax calculations. If taxpayers do not choose FIFO, they get relegated to a “specific identification” where most of the cost-basis issues arise for digital assets.
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Senator Ted Budd (R-NC) has introduced the Keep Your Coins Act, which would protect an individual’s right to conduct transactions with cryptocurrency assets without the need to utilize a third-party intermediary.
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Kraken, one of the longest-running U.S. exchanges, has been accused of commingling customer funds, listing unregistered securities and running a proprietary market making division and prop desk — allegedly putting customers at risk. At times the exchange held crypto belonging to customers valued at upwards of $33 billion, according to the SEC’s complaint.

Further, according to research conducted by Kraken’s auditor in 2023, cited by the SEC, the company had record-keeping issues that led to “material errors” in financial statements about users’ funds, including custodial accounts, between 2020 and 2021. Bank accounts that held customer money were sometimes used to pay operating expenses, due to “deficient internal controls.”
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However, in what could be described as circular reasoning, Orlando noted that the SEC cites its own Binance and Coinbase lawsuits to argue Kraken was also listing unregistered securities because they were “previously alleged to be securities.” He added that this “self-referential allegation holds no legal water,” which could be significant given that the “case will turn on whether the tokens” are under the SEC’s remit.
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In response to the lawsuit, Kraken representatives said the agency’s lawsuit and critical view of crypto as a whole were "incorrect as a matter of law, false as a matter of fact, and disastrous as a matter of policy." It plans to “vigorously defend” itself in court, and that the “law is on our side.”

Kraken employs one of the most sophisticated legal and compliance operations in crypto, a team of dozens of lawyers led by expert Marco Santori. The exchange ultimately settled with the SEC earlier this year after the agency sued over Kraken’s now defunct staking program, which paid out yield to users who deposited tokens into a collective pool and thus resembled an “investment contract.”

At the time, Powell argued that staking isn’t without its risks, but is a clear example of where U.S. citizens should be able to determine what to do with their own money. Kraken, and the other centralized exchanges forced to terminate their staking programs, were offering alternative onramps into an activity that is much harder to do solo.

It’s a fight that in retrospect Kraken shouldn’t have given up so soon. It certainly won Kraken no favors. But also, staking is one of the few consumer use cases where crypto might make sense to the average person on the street. It’s like a savings account, only with better returns and higher risk.
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The proposed rule’s application to self‐hosted crypto wallets (where users control their own private keys) likely will hinge on interpretive questions (including those related to the definition of “wallet functionality”), and these could leave the agency room to find some self‐hosted wallets in‐scope. (If the CFPB were to go this route, it would be yet another example of subjecting a core crypto technology to poorly conceived regulation.)
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These days, nearly everyone in crypto, or close to it, dislikes Gensler’s tenure. He hasn’t provided any legal clarity to token issuers, many say; he hasn’t helped Congress fashion any new crypto-focused legislation (just look at the docket); he’s wound up a lot of people as he pushed an agenda that often seems self-interested and self-centered.

This week, Fortune Magazine took a deep look at Gary’s time at the SEC and put meat on what many of us already know in outline. It’s a great piece based on interviews with “more than 30 financial experts, politicians, and current and former employees from all levels at the SEC and Commodity Futures Trading Commission, including agency leaders,” and you should read it. But, in case you don’t have time, we’ll summarize a few of the takeaways here, especially as they relate to crypto.
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After months of hoping U.S. crypto legislation could win House of Representatives approval this year, lawmakers doing much of the behind-the-scenes work are looking to 2024 as the time when digital assets bills may get passed by that Republican-controlled chamber though the efforts still face an uphill climb in the Senate where Democrats have the reins.
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... Sen. Cynthia Lummis (R-Wyo.) at the same event. Lummis, who has been pressing her own wide-ranging crypto legislation in the Senate, also suggested that the stablecoin bill, specifically, will make more progress next year. "That is an area that could come early in 2024."Rep. Jim Himes (D-Conn.), who has also occupied a leading role in the House negotiations for both bills as the committee's top Democrat Rep. Maxine Waters (D-Calif.) withdrew support, suggested the industry needs to counter what House Democrats are hearing from outside groups and U.S. Securities and Exchange Commission Chair Gary Gensler – a dedicated critic of the industry.

He was among a handful of Democrats on the House Financial Services Committee to buck his party's ranking member on the committee to favor both crypto bills this year. Waters has since indicated she's still open to moving forward on legislation, and Himes said Thursday that if Waters gets on board and the overall House approves a bill, "a Democratic Senate sits up and takes notice."

"On the other side of the Capitol, the weather is uglier," Himes said of the crypto views of some Senate Democrats, including Sen. Sherrod Brown (D-Ohio), who runs the Senate Banking Committee. "You could see a path, but I think it probably starts with a strong bipartisan vote" in the House, Himes said.
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