Makerdao Co-Founder Rune Christensen: Defi Frontends Might Need Licenses to Operate in Europe

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Mark Cuban, John Reed Stark clash over the cause of FTX’s collapse

July 5, 2023 Coin Telegraph

Beaxy

Mark Cuban thinks the SEC could have saved U.S. customers from FTX had it adopted Japan’s approach to crypto regulation, but John Reed Stark disagrees.

Billionaire entrepreneur Mark Cuban has again locked horns with former securities chief John Reed Stark, this time over who was ultimately to blame for FTX’s collapse and the impact on creditors.

During a heated back-and-forth exchange, Cuban argued had the United States Securities and Exchange Commission set “clear regulations,” no one would have lost money from its collapse.

Stark earlier suggested cryptocurrency and stablecoins — including central bank digital currencies — solve no problems and that the crypto industry operates without regulatory oversight, consumer protections and audits, among other things.

You should read up on how Japan deals with regulation. https://t.co/yHCVwZAqvG

When FTX crashed, NO ONE IN FTX JAPAN LOST MONEY.

If the USA/SEC had followed their example by setting clear regulations that required the separation of customer and business funds and clear… https://t.co/Msvn9o9PCU
— Mark Cuban (@mcuban) July 4, 2023

Cuban argued that Japanese regulators — an increasingly Web3 friendly jurisdiction — are an example of a regulator that has done it right.

“When FTX crashed, NO ONE IN FTX JAPAN LOST MONEY,” he said.

Stark — a cryptocurrency skeptic — shot back, saying it “seems a bit of a stretch” to blame the SEC for the collapses of FTX, BlockFi, Celsius, Terra and Voyager, or what he called “dumpster fires.”

While Stark conceded that the SEC isn’t always right, he claimed the regulator saved investors “millions, perhaps even billions” in crypto losses.

The ex-SEC official claimed while the cryptocurrency industry seeks regulatory clarity, whenever rules are promulgated or proposed, “the crypto industry cries foul” and often responds by filing a “flashy legal challenge to its enactment.”

Cuban hit back, explaining the “best way” to prevent cryptocurrency fraud is to implement “brightline investor protection regulations.” He added:

“Anyone who doesn't register is de-facto in violation, can't operate and will be shut down. That's how you protect crypto investors.”

Stark, however, claims that the SEC only charged the likes of Binance, Coinbase, Beaxy and Bittrex months after the regulator made it clear that those firms were not in compliance.

“[These firms] opted to ignore the SEC — and reap profits for as long as possible without registering,” Stark added.

That is worthy of study Mark, thanks.

The laws in Japan require crypto exchanges to register with authorities, to keep customer money separate from their own accounts, to hold at least 95% of customers’ digital assets in a cold wallet and to entrust clients’ holdings of…
— John Reed Stark (@JohnReedStark) July 4, 2023

It is the second time in three weeks that the pair have clashed over how cryptocurrency should be regulated.

On June 11, Cuban called out the SEC for purportedly failing to provide cryptocurrency firms with a clear registration process.

He claimed it’s “near impossible to know” what constitutes security because the SEC’s “Framework for ‘Investment Contract’ Analysis of Digital Assets” document fails to explain how cryptocurrency firms can come into compliance.

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Binance Netherlands exit — Dutch central bank says registration failings are confidential

June 21, 2023 Coin Telegraph

Binance

De Nederlandsche Bank cannot share details of Binance’s registration failings in the country due to the confidentiality requirements of its supervisory laws.

The details behind Binance’s failed efforts to register for a virtual asset service provider (VASP) license in the Netherlands remain unclear due to the confidentiality requirements of the Dutch central bank’s supervisory laws.

On June 16, Binance announced it would terminate its services in the Netherlands with immediate effect, having failed to get the all-clear from De Nederlandse Bank (DNB). From July 17, Dutch customers will only be able to withdraw assets from the platform, while trading and deposits were stopped on the date of the announcement.

Binance claimed it had undergone a “comprehensive registration application process” to obtain a VASP license in the Netherlands and explored “alternative avenues” to serve Dutch residents in the country. The exchange indicated that it would continue its effort to obtain authorization to provide its services and products in the country.

Cointelegraph reached out to Tobias Oudejans, DNB press officer for supervision, fintech, cryptocurrencies, resolution and payment systems, to ascertain the final details of Binance’s failed registration efforts.

Oudejans said the central bank could not share more details about Binance’s registration due to legal requirements of supervisory laws:

“Because of confidentiality as demanded by our supervisory laws, we cannot elaborate on anything concerning our supervision on individual institutions or the possible licensing trajectories they may be in.”

Oudejans added that the DNB wanted to stress that its perceived silence over this specific supervisory outcome and similar issues ‘might wrongly be attributed to an unwillingness to comment,’ but was necessitated by Dutch laws.

Binance would have joined a list of 35 VASP that have completed registration with the DNB. This includes the likes of Coinbase Custody International Limited, Coinbase Europe Limited, eToro (Europe) Limited, BitPay and Bitstamp.

Oudejans said VASP registration requirements in the Netherlands are in line with the similar requirements for other types of financial institutions under the DNB’s supervision. These are based on the Netherlands Anti-Money Laundering and Anti-Terrorist Financing Act, locally known as the Wet ter voorkoming van witwassen en financieren van terrorisme (WWFT).

The implementation of the European Union’s recently published Markets in Crypto-Assets regulation (MiCA) could provide Binance an alternative avenue to operate in the Netherlands come 2024. As Oudejans explained, the global exchange could gain access to the Dutch market if it has met the necessary requirements in other EU member states:

“It is not yet clear in what way MiCA will be implemented in the Netherlands, but indeed it looks like it will be a different law than the WWFT and possibly on a European level there may be access to the Dutch market for registered entities from other EU-countries.”

Binance has already indicated that it is ramping up efforts to be fully compliant with the new EU rules set out in MiCAR.

Binance was handed a $3.6 million (3.3 mln euro) by the DNB in July 2022 for operating without clearance in the Netherlands.

Meanwhile Coinbase obtained a green light from the DNB in September 2022 as it began to explore expansion away from the United States and into Europe. The U.S. exchange is embroiled in a high-profile legal battle with the U.S. Securities and Exchange Commission over allegations that it has been operating as an unregistered securities exchange, broker and clearing agency.

Magazine: Opinion: GOP crypto maxis almost as bad as Dems’ ‘anti-crypto army’

‘Near impossible to know’ what is and isn’t a security: Mark Cuban on SEC

June 12, 2023 Coin Telegraph

binance lawsuit

The billionaire is the latest to argue that the United States Securities and Exchange Commission hasn’t provided crypto firms with a registration process to follow.

Billionaire investor Mark Cuban has become one of the latest industry figures to call out the United States securities regulator for purportedly failing to provide cryptocurrency firms with a clear registration process.

The Shark Tank investor claimed in a June 11 tweet that no registration exists in the SEC’s “Framework for ‘Investment Contract’ Analysis of Digital Assets” document, making it “near impossible to know” what constitutes a security in the “crypto universe.”

“Unfortunately none of the elements presented in this page are part of the registration process. Which makes it near impossible to know, with or without an army of securities lawyers, what is or is not a security in the crypto universe.”

This is an SEC WEB PAGE about the howey test and tokens that often conflicts with what @SEC_Enforcement has said publicly. It's worth a read to get more clarity on what may or may not be a security https://t.co/m5E9V0Pd18

Unfortunately none of the elements presented in this… https://t.co/iZ9Gn5SADK pic.twitter.com/kGHgsZkOaH
— Mark Cuban (@mcuban) June 11, 2023

While a step-by-step outline isn’t provided, the document does briefly explain what is required for firms pursuant to U.S. federal securities laws.

Among the requirements included the need to disclose all information necessary for investors to make “informed investment decisions” and other “essential managerial efforts” that impact the success of the enterprise.

Meanwhile, Cuban noted that other sectors in the finance industry are receiving much more transparency from the SEC. Rather than labeling “stock loans” as securities or suing brokers and banks, they’re engaging in a “comments process,” Cuban explained.

“They should do the same thing with crypto as an effort to determine which aspects of crypto are securities and which are not,” he added.

Here is the SEC calling the stock loan industry "opague" and requiring transparency. Note, they are not calling "stock loans" a security as they are trying to do with the loaning of crypto assets. Nor are they suing the Stock Loan Departments of brokers/banks. They are going… https://t.co/0gSjAuAkWS pic.twitter.com/GfWm3m1jOB
— Mark Cuban (@mcuban) June 9, 2023

U.S. Senator Cynthia Lummis has also lashed out at the regulator for failing to provide a “robust legal framework” or at least offer “legal guidance” in some form for firms to comply with:

My statement on the SEC suing Coinbase, inc. https://t.co/5KNEM0IPSV pic.twitter.com/EgRIxrIcjj
— Senator Cynthia Lummis (@SenLummis) June 6, 2023

Last week, SEC Chair Gary Gensler claimed at the Global Exchange & Fintech Conference on June 8 that a registration process exists and that firms “know how to register.”

His comments were made in relation to Coinbase and Robinhood’s recent claims that they tried to register but the SEC rejected the attempt.

The SEC sued Binance on June 5 and Coinbase on June 6, alleging the exchanges broke various securities rules, most notably for purportedly offering cryptocurrencies that the regulator considers to be unregistered securities.

A total of 68 cryptocurrencies are now considered to be securities by the SEC.

Magazine: Crypto regulation: Does SEC Chair Gary Gensler have the final say?

Crypto Exchanges Must Share User Data With Russia, Prosecutor General Demands

April 9, 2023 Bitcoin.com

What are the Howey test and its implications for cryptocurrency?

March 18, 2023 Coin Telegraph

Coin Telegraph

The Howey test’s impact on cryptocurrency, explained — legal implications, compliance requirements and more.

What is the Howey test?

The Howey test is a legal test used in the United States to determine whether a transaction qualifies as an investment contract and, thus, is considered a security under federal law. The test was established by the U.S. Supreme Court in SEC v. W.J. Howey Co. (1946), and it has since been applied in numerous cases to determine whether various financial arrangements and offerings constitute securities.

According to the Howey test, a transaction must contain an investment of funds in a group venture with the expectation that all gains will come from group efforts. A transaction is deemed a security if it satisfies these requirements, in which case it is subject to federal securities laws and regulations.

Understanding the criteria for a security

The test involves three key criteria that must be met in order for a transaction to qualify as a security, as discussed below:

The first criterion is a financial investment, which means that participants in the transaction must be risking their own money. This comprises both financial and in-kind investments.

The second requirement is a shared enterprise, which denotes that the financial success of the investors is somehow connected. This can be proven by providing evidence of the investors’ resource pooling or reliance on a third party to manage their investments.

The third criterion is an expectation of profits solely from the efforts of others, which means that the investors are relying on someone else to generate a return on their investment. This could include, for example, profits generated by a third-party manager or profits generated by the efforts of a particular group or organization.

Coincidence? On the same day as the Ethereum Merge, SEC chair Gary Gensler says proof-of-stake cryptocurrencies could be seen as a security under the Howey test. https://t.co/D24G9edoc7
— Cointelegraph (@Cointelegraph) September 16, 2022

The implications of the Howey test for cryptocurrency: Is it a security or not?

The implications of the Howey test for cryptocurrency are significant, as the test provides a framework for determining whether a particular cryptocurrency offering should be classified as a security under U.S. law. If a cryptocurrency offering meets the criteria outlined in the Howey test, it may be considered a security and subject to federal securities laws.

This has important ramifications for crypto businesses and investors since breaking federal securities laws can result in penalties, legal action and reputational harm to the business. To make sure they are in compliance with federal securities laws, cryptocurrency companies should carefully consider the Howey test before creating their offerings.

Tokens that do not pass the Howey test are considered utility tokens that provide investors with access to a future product or service or can be redeemed for discounted fees. While utility tokens are typically not considered securities, the SEC has suggested that the presence of a utility token framework does not necessarily mean that a project is exempt from being classified as a security.

Ultimately, the implications of the Howey test for cryptocurrency will depend on how regulators choose to apply the test in practice and how cryptocurrency companies choose to structure their offerings to comply with federal securities law.

Compliance with federal securities laws: What cryptocurrency companies need to know

Cryptocurrency companies need to be aware of the federal securities laws in the United States to ensure compliance with them. Here are some key things to keep in mind:

Securities laws apply to cryptocurrencies: Several cryptocurrencies are seen as securities by the Securities and Exchange Commission. This implies that cryptocurrency businesses must abide by federal securities laws, including the requirements for registration and disclosure.
Token offerings may be subject to securities laws: It can count as a securities offering if a cryptocurrency company sells tokens to the general public in return for cash or other assets. As a result, the business would have to adhere to securities rules, which would include registering the offering with the SEC.
The use of funds must be disclosed: A cryptocurrency company must state its financial goals when raising money through a securities offering. The business must also keep investors informed about how the money is being used.
Trading platforms may be subject to securities laws: Exchanges for securities may include cryptocurrency trading platforms that let users purchase and sell tokens. If so, the platform would have to file an SEC registration form and adhere to other securities regulations.
Penalties for non-compliance can be severe: Significant penalties may be imposed for non-compliance: A cryptocurrency corporation might incur severe consequences, such as fines and legal action if it violates federal securities regulations.

Therefore, cryptocurrency companies need to be aware of and comply with federal securities laws in the United States. This includes understanding whether their tokens are considered securities, disclosing the use of funds, and complying with registration and disclosure requirements.

France on the verge of passing stringent crypto firm licensing laws

March 1, 2023 Coin Telegraph

Coin Telegraph

The bill was passed with a vote of 109 in favor and 71 against and will now rely on the approval of president Emmanuel Macron to be signed into law.

The French National Assembly has voted in favor of legislating stricter licensing rules for new cryptocurrency firms in order to harmonize local laws with proposed European Union (EU) standards.

The vote was passed with 109 votes (60.5%) in favor to 71 (39.5%) against. The French Senate has already passed the bill, which now goes to President Emmanuel Macron, who has 15 days to either approve it or send it back to the legislature.

✅ Projet de loi DDADUE dans les domaines de l’économie, de la santé, du travail, des transports et de l’agriculture | Adoption par l’Assemblée nationale, compte tenu du texte de la commission mixte paritaire.
En savoir plus ➡️ https://t.co/CDlQxPrs1b #DirectAN pic.twitter.com/PZ2uuC4MrS
— Assemblée nationale (@AssembleeNat) February 28, 2023

If passed, the new law would oblige France-based cryptocurrency service providers to comply with stricter anti-money laundering rules, show that customer funds are segregated, adhere to new guidelines on reporting to regulators and provide more detailed risk and conflict of interest disclosures as a means to strengthen consumer protection.

The contents of the bill would not, however, apply to the 60 crypto firms registered with the Financial Markets Authority (AMF), the nation’s financial regulator. These firms will continue to comply with the AMF’s rules until the likely passing of the EU’s own crypto regulations with the Markets in Crypto-Assets (MiCA) bill.

The stricter rules would therefore only apply to crypto firms that register from July onwards.

Among the 60-AMF registered companies include Binance, which recently began piloting in-store payments in France with the cloud-based payment platform Ingenico via Binance Pay.

Crypto payments just got easier in France

We've recently partnered with @ingenico, a global payment solutions provider, to enable users to pay in crypto through #Binance Pay.

Another milestone for global crypto adoption pic.twitter.com/S8f8Pab7nW
— Binance (@binance) February 22, 2023

The legislative push for stricter licensing rules was initiated by Hervé Maurey, a member of the French Senate’s finance commission, who in Decemberproposed an amendment to eliminate a clause enabling crypto companies to operate without a full license until 2026.

Bank of France governor, Francois Villeroy de Galhau, also pushed the agenda in a Jan. 5 speech to members of the finance sector in Paris.

Like many regulators around the world, Villeroy de Galhau cited the need to respond to the recent turmoil in the cryptocurrency market as the motive behind the bill, which he wants to come into effect “as soon as possible.”

While MiCA will likely serve as the blueprint for cryptocurrency market regulation in the EU, he added that France simply couldn’t wait around for the more comprehensive laws enacting the licensing regime on digital asset service providers..

The EU is set to finally vote on MiCA regulation in April after two postponements. A successful outcome would likely see the highly anticipated crypto laws come into force sometime during 2024.

Coinbase staking ‘fundamentally different’ to Kraken’s — chief lawyer

February 22, 2023 Coin Telegraph

Coin Telegraph

After the SEC’s crack-down on Kraken, Coinbase’s legal head outlined the differences between Kraken’s staking product and its own.

The staking services offered by cryptocurrency exchange Coinbase are “fundamentally different” to what was offered by its peer exchange Kraken — which recently came under fire from the United States securities regulator — according to Coinbase's head lawyer.

Paul Grewal, Coinbase’s chief legal officer, made the comments in his response to a shareholder question regarding its staking services during a Q&A session on the exchange’s fourth-quarter results, noting:

“The staking products that we offer on Coinbase are fundamentally different from the yield products that were described in the reinforcement action against Kraken. The differences matter.”

The first point of difference Grewal highlighted was that Coinbase users retain ownership of their cryptocurrencies at all times.

In its user agreement last updated Dec. 15, 2022, Coinbase states that it merely “facilitate[s] the staking of those assets on your behalf,” but may not replace any Ether (ETH) lost to slashing — which refers to the blockchain's mechanism for punishing bad behavior by reducing a validator’s tokens.

Grewal also suggested that another difference was its customers have a “right to the return,” with the firm unable to “simply just decide not to pay any returns at all.”

He pointed to the exchange's registration as a publicly-traded company as another critical point of difference, which enables customers to have “deep transparent insight into our financials.”

In comparison, the Securities and Exchange Commission's (SEC's) complaint against Kraken alleged its users lost control of their tokens by offering them to Kraken's staking program and investors were offered "outsized returns untethered to any economic realities" with Kraken also able to pay "no returns at all.”

Grewal however reiterated calls for regulatory clarity on staking services in the U.S. suggesting the SEC was outlining their expectations in court complaints rather than through clear regulations, noting:

“Rules making clear these distinctions would provide very real clarity and we think the public shouldn't have to parse complaints in federal court in order to understand what a regulator expects.”

In a Feb. 13 tweet, Grewal had opined that staking in itself was not a security transaction, using an analogy of harvesting oranges to elaborate on his position.

If I grow oranges myself and harvest them myself, the oranges are not securities. If I grow oranges myself and harvest them using a contractor that charges me a fee, the oranges are still not securities.
— paulgrewal.eth (@iampaulgrewal) February 13, 2023

On the back of SEC Chair Gary Gensler calling on firms to register products with the regulator, Grewal indicated that Coinbase has no issues registering products with the SEC where “appropriate,” but added:

“I think it's fair to say that at this point in time, the path to registration for products and services that may qualify as securities has not been open, or at least readily or easily open.”

Coinbase is currently facing an SEC investigation into its products similar to the one that resulted in Kraken settling with the regulator for $30 million and being prohibited from offering staking services to its U.S. clients.

Coinbase intends to put up a fight, however, with CEO and co-founder, Brian Armstrong, suggesting the company would be willing to challenge the regulator and take the matter to court.

Coinbase's staking services are not securities. We will happily defend this in court if needed.https://t.co/GtTOz77YV3
— Brian Armstrong (@brian_armstrong) February 12, 2023

Kazakhstan Law Limiting Crypto Miners’ Consumption of Electricity Enters Into Force

February 11, 2023 Bitcoin.com

‘Kraken Down’ — SEC commissioner rebukes own agency over recent action

February 10, 2023 Coin Telegraph

Coin Telegraph

"Today, the SEC shut down Kraken’s staking program and counted it as a win for investors. I disagree and therefore dissent," said commissioner Hester Pierce.

United States Securities and Exchange Commission (SEC) commissioner Hester Pierce has publicly rebuked her own agency over the shut down of Kraken's crypto staking program in the United States.

The commissioner blasted her regulator in a Feb. 9 statement called "Kraken Down," noting that regulation by enforcement “is not an efficient or fair way of regulating” in an emerging industry, stating:

Today, the SEC shut down Kraken’s staking program and counted it as a win for investors. I disagree and therefore dissent.

Peirce's statement also slammed the regulator for shutting down a “program that has served people well."

“Using enforcement actions to tell people what the law is in an emerging industry is not an efficient or fair way of regulating. Moreover, staking services are not uniform, so one-off enforcement actions and cookie-cutter analysis does not cut it," she said.

My thoughts on today's Kraken settlement: https://t.co/mijt3MNN4U
— Hester Peirce (@HesterPeirce) February 9, 2023

Peirce implied the regulator was “lazy and paternalistic” and suggested the SEC should have initiated a “public process to develop a workable registration process that provides valuable information to investors.”

Coinbase CEO and co-founder Brian Armstrong agreed with Peirce’s comments in a Feb. 9 tweet, suggesting that requiring businesses to register its staking services is a “disingenuous offer” as there is no clear path to registration.

Well said. There was no way to register (a disingenuous offer).

“Using enforcement actions to tell people what the law is in an emerging industry is not an efficient or fair way of regulating.” https://t.co/6wVZZbQt23
— Brian Armstrong (@brian_armstrong) February 9, 2023

Earlier this week, Armstrong said he had heard “rumors that the SEC would like to get rid of crypto staking in the U.S. for retail customers,” and said “it would be a terrible path for the U.S.” as it would further drive crypto businesses offshore.

Coinbase is currently the subject of a SEC probe similar to the one which resulted in the Kraken settlement, which it revealed in an Aug. 9 SEC filing was also related to its staking services.

On Feb. 9, the SEC announced that it had reached a $30 million settlement with crypto exchange Kraken, saying it failed “to register the offer and sale of their crypto asset staking-as-a-service program.”

Today we charged Kraken with failing to register the offer and sale of their crypto asset staking-as-a-service program, whereby investors transfer crypto assets to Kraken for staking in exchange for advertised annual investment returns of as much as 21 percent.
— U.S. Securities and Exchange Commission (@SECGov) February 9, 2023

Kraken said in a Feb. 9 blog post that it would still offer staking services to non-U.S. customers through a subsidiary, but according to the SEC announcement the firm is permanently banned from providing staking services to U.S. residents, even if they sought to register it with the regulator.

Peirce, also known as the SEC’s “Crypto Mom,” has been a strong advocate for the crypto industry during her time at the regulator.

Peirce has previously proposed a “safe harbor” for token projects which are looking to build decentralized networks, in which the network developers would receive a three-year grace period where they were exempt from SEC legal action, with an updated version of the proposal released on Apr. 13, 2021.

registration

What is the Howey test?

Understanding the criteria for a security

The implications of the Howey test for cryptocurrency: Is it a security or not?

Compliance with federal securities laws: What cryptocurrency companies need to know

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