Elizabeth Warren and the myth of the crypto voter


Crypto is a powerful force in Washington, there is no doubt. Sam Bankman-Fried may have turned on the spigot of cash to lobbyists and politicians, but his legacy has been continued by leaders from Brian Armstrong to Chris Dixon, who have become an active presence—and prodigious source of donations—in D.C. One crypto-powered super PAC, Fairshake, has raised around $80 million to deploy in this year’s elections.

The lingering question is whether voters will care. Coinbase, who filled the SBF-sized hole in crypto advocacy in the wake of FTX’s collapse, often cites a poll it conducted with Morning Consult: 52 million Americans own crypto. Therefore, the company argues, 52 million people could cast the deciding vote in an election that pits a pro-crypto candidate against an anti-crypto candidate.

That’s assuming, of course, that any of those 52 million people are swayed by their holdings. They could have $1 in Dogecoin, they could have lost $1,000 on TerraUSD, or they could have their entire life savings in a Trezor wallet—we don’t have granular insight. To counter that, Coinbase refers to a different figure: Nearly nine in ten Americans believe the financial system needs changing (I would be amused to find the odd one out who thinks we’re doing a-okay.)

Maybe there is a silent majority of voters incensed by the SEC’s interpretation of the Howey Test, and maybe there isn’t. This election cycle, the theory could finally be put to the test. Several races are pitting prominent anti-crypto voices in Congress against digital asset advocates, including Senate Banking Committee Chair Sherrod Brown (D-Ohio), who is running against a former car dealer and blockchain evangelist named Bernie Moreno. The marquee contest, however, will be the crypto industry’s (second-)favorite villain, Elizabeth Warren (D-Mass.)

After some carefully placed speculation, the crypto attorney John Deaton announced yesterday that he would be running against Warren in the otherwise sleepy race for her senate seat. For those of you on Crypto Twitter (X?), Deaton is a prolific presence, with over 300,000 followers on his main account and another 130,000 for a news account run by his law firm. With his shaved head and bushy goatee, the former Marine gained a following through his advocacy for Ripple, becoming a leading voice for the notorious XRP Army.

His odds seem slim. As a disclosure, I was born and raised in Massachusetts. Warren may be from Oklahoma, but she made the Commonwealth of Massachusetts her home, becoming a permanent professor at Harvard in 1995. She earned a name for herself during the financial crisis, advocating for—and helping create—the Consumer Financial Protection Bureau. After the Republican Scott Brown shocked the country by winning a special election for Ted Kennedy’s long-held seat, Warren handily beat him in 2012. She won her 2018 race by a margin of 24 points.

Like Warren, Deaton is not from Massachusetts—he was raised in poverty in Detroit, as he details in his new memoir, Food Stamp Warrior. While he attended law school in Boston, he has not lived in Massachusetts since, instead setting up his law firm in nearby Rhode Island. Just two months ago, he first speculated on Twitter about buying a home in Massachusetts to challenge Warren, citing her opposition to crypto. Records show that he registered to vote as a Republican in Massachusetts less than a month ago.

If Deaton wants to create any grassroots support in Massachusetts, it will surely be from crypto fans—the only community where he has any degree of name recognition. Yet in interviews announcing his run, he said he wants to focus on “kitchen table issues,” not cryptocurrency, according to the Boston Globe. A heavily produced ad announcing his run doesn’t even mention crypto.

Clearly, his entrance into the race got under Warren’s skin, who tweeted yesterday that the “MAGA Republican machine couldn’t find a single Republican in Massachusetts to run against me,” instead finding some from Rhode Island with the backing of “special interest groups.”

Although Deaton responded that no one recruited him, he will almost certainly have the financial backing of Fairshake and other crypto donors. Whether he leans into his blockchain bona fides—or can find any voters in Massachusetts who are swayed by his crypto support—is another matter.

I’m heading to Boston to attend a Coinbase-hosted “State of Crypto” town hall tomorrow, where Deaton’s candidacy will surely be the main topic of discussion. Say hello if you’re there as well.

Leo Schwartz


The New York-based venture firm Hack VC raised a $150 million fund dedicated to the digital assets industry and has already deployed about a third of its capital. (Bloomberg)

A coalition of international law enforcement agencies brought down the notorious ransomware group LockBit and seized more than 200 cryptocurrency wallets. (TechCrunch)

The USDC issuer Circle announced in a blog post that it will end support for its token on the Tron blockchain, which has been plagued with accusations of money laundering. (Reuters)

The president of 21Shares, one of the Bitcoin ETF issuers, said that the field will shrink to three to five players next year. (Decrypt)

As Congress continues to drag its feet on crypto legislation, the U.K. government plans to get approval for new rules on stablecoins and staking services within the next six months. (Bloomberg)


2021 is back, baby:

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Exclusive: RW3 Ventures raises $60 million crypto VC fund with backing from Mubadala and Raptor Group


On Thursday, the VC firm RW3 Ventures plans to announce the successful close of its first fund, a $60 million war chest led by Raptor Group, the family office of billionaire Jim Pallotta, as well as significant support from Mubadala, one of the sovereign wealth funds of Abu Dhabi.

In an interview with Fortune, RW3 founder and managing partner Pete Najarian said that the firm’s name-brand backers and commitment to real-world blockchain use cases like music and health care will help it ride an anticipated bull market, despite the fund’s relatively small size when compared with the leviathans of the last cycle.

“We wanted to be nimble and have a first fund that crushed,” Najarian said. “I actually love our size right now.”

TradFi meets crypto

Before founding RW3, Najarian had deep roots in crypto, working on the institutional business at Xapo Bank, the early digital asset adopter led by Wences Casares, and later serving as the chief revenue officer at BitGo after Xapo sold its custody and wallet business to Coinbase.

Najarian partnered with Pallotta to create RW3 in 2021. Before founding Raptor, Pallotta was the vice chairman of Tudor Investment Corporation and held executive positions with AS Roma and the Boston Celtics.

While RW3 is a separate entity from Raptor, Najarian said that the fund benefits from the family office’s strong network connections, including in the hardware space—one of RW3’s investments is in a company working on a cryptographic technique called fully homomorphic encryptions that could disrupt semiconductor manufacturing, although Najarian declined to share the name.

Najarian said RW3 began raising from limited partners for its first fund in the second quarter of 2022 and has deployed less than 50% of its capital. The participation of Mubadala reflects a new willingness for sovereign wealth funds to venture into crypto after the disastrous collapses of 2022, with FTX backed by groups including Singapore’s Temasek. As Abu Dhabi and Dubai seek to cement their status as crypto hubs, Mubadala has invested heavily in the industry.

Najarian said RW3 has more than 25 other limited partners in RW3’s first fund, although he declined to provide a specific figure.

Real-world use cases

According to a new report published by PitchBook on Thursday, the fourth quarter of 2023 saw a slight increase in crypto venture investments, the first quarter-over-quarter increase since the first quarter of 2022, with analyst Robert Le predicting an increase in venture funding in 2024.

RW3 has been an active player in the crypto venture space. While the buzzword in the digital asset industry has been real-world assets, or the tokenization of instruments like carbon credits and fiat currencies, RW3 partner Joe Bruzzesi told Fortune that the firm’s focus is on real-world use cases for blockchain. In other words, RW3 wants to support applications that move beyond speculation.

Early deals for RW3 include a lead investment in Rymedi, a health tech platform that uses blockchain to transfer medical records, and a co-lead of the seed round for CAT Labs, a cybersecurity and forensics startup founded by a former Department of Justice special agent. RW3 also invested in the Web3 gaming studio Gunzilla and the K-pop music label Titan Content.

Najarian said RW3 prefers to invest through a combination of traditional equity and token warrants, a common strategy among crypto venture funds, although the firm also does token-only deals. RW3 can also invest in public market liquid tokens, although only up to 20% of its overall portfolio.

“We think there’s a limitation to the addressable market of much that is being built only to satisfy a crypto-native world,” Najarian told Fortune, adding that RW3’s target investments help bridge Web2 and Web3.

Learn more about all things crypto with short, easy-to-read lesson cards. Click here for Fortune’s Crypto Crash Course.

The ‘lowest-hanging fruit’ of crypto legislation still seems like a pipe dream, with the House stuck on a stablecoin deal


We may be well into February, but it’s always Groundhog Day when it comes to a stablecoin bill. I’ve now been covering its progress since October 2022, back when Patrick McHenry (R-N.C.) was the ranking member of the House Financial Services Committee and referred to his effort with then-Chair Maxine Waters (D-Calif.) as an “ugly baby” that would eventually get passed. Speaking at an event in D.C. that month, a pre-collapse Sam Bankman-Fried described stablecoins as the “lowest-hanging fruit” that regulation could address.

A lot has happened since then, to say the least. The Republicans took control of the House, perhaps deflating Waters’s drive to get a deal done. The mini-banking crisis of last March plunged Circle’s reserves into chaos, eroding the crypto industry’s argument that fully collateralized stablecoins could be as safe as a dollar. And just when McHenry finally brought his bill for a committee vote, the White House stepped in, worried that any legislation could undermine the power of agencies like the Federal Reserve and Office of the Comptroller of the Currency.

Normally, I would refrain from writing again about the long-fated bill, whose odds of passage before the next presidential election seem as narrow as the banking system it proposes. But then Waters gave an interview to Politico last week where she claimed that she and McHenry were “very, very close” to a deal—she even added another “very close” for emphasis.

Many in the crypto industry rejoiced, especially given the gloom of anti-money-laundering hanging over all discussions of legislation in D.C. Stablecoins, after all, still seem like the easiest path for a bipartisan deal, legitimizing domestic players like Circle and PayPal while gnawing away at the wildcat Tether’s growing dominance.

Reality signaled otherwise. Treasury Secretary Yellen testified at both the Senate Banking Committee and the House Financial Services Committee, emphasizing for the umpteenth time that financial regulators wanted a federal regulatory floor for stablecoin issuers. This has long been the sticking point for negotiations, with Republicans—and some Democrats, especially in New York—wanting to uphold the sovereignty of state regulators like the New York Department of Financial Services.

“Waters may have overstated the situation,” one source working in D.C. crypto policy told me. “There are still a bunch of issues to deal with.” Another told me that McHenry and the Federal Reserve were not close on a deal. “It’s looking less and less promising as each day goes by,” they said. McHenry’s office did not respond to a request for comment.

Adding to the complications is the fact that it is an election year, and Waters may want to wait until the dust settles to see if she can reclaim the chair position and pass her preferred version of the bill. That’s not to mention the general turmoil in Congress, where Republicans can’t even manage to pass their own legislation, and the new emphasis on anti-money-laundering crypto legislation on both sides of the aisle.

I checked in with Ritchie Torres (D-N.Y.), the second-term congressman from the Bronx, who bucked with Democratic leadership and voted for the stablecoin bill last July. “We in Congress have a self-destructive habit of deferring to agencies so excessively that we essentially have given them veto power over our legislation,” he told me over text. “The Treasury and the Federal Reserve should surely have a seat at the table but neither should be given veto power over a bipartisan compromise.”

It’s a view that the two agencies, and their allies in the White House, are unlikely to agree with.

Torres proposed a tiered system of regulation, with a “reasonable threshold” for when the federal government becomes the primary regulator of stablecoins, and allowing 100% of stablecoin reserves to be in Treasuries, as opposed to bank deposits, which doomed Circle last March.

While Torres declined to comment on the ongoing negotiations, he shared the oft-repeated view on the bill. “Stablecoin is the lowest-hanging fruit,” he said. “So if there is no path to stablecoin regulation, then there is no path to any crypto regulation.”

Leo Schwartz


A look into Bullish, the crypto exchange with a checkered past that purchased CoinDesk for close to $75 million. (Fortune)

The crypto super PAC Fairshake, powered by an $80 million war chest, is airing television and digital ads across California in the state’s pivotal senate race. (New York Times

Robinhood reported a 10% increase year over year in crypto revenue in its fourth-quarter earnings as the investment platform seeks a greater market share in digital asset trading volumes. (CoinDesk

The XRP issuer Ripple is buying Standard Custody & Trust Co., a New York trust charter holder, which signals its intention to expand its operations beyond payments. (CoinDesk)

The sentencing of Binance founder Changpeng Zhao was delayed until April, while FTX founder Sam Bankman-Fried‘s sentencing date is quickly approaching. (Fortune)


Inflation is hitting every sector hard:

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Bullish paid close to $75 million to acquire CoinDesk. Here’s what we know about the company and its plans for crypto media


The ensuing bear market hurt the longtime trade publication’s parent company, Digital Currency Group, leading to layoffs of nearly 50% of CoinDesk‘s editorial team and for DCG put the outfit up for sale. One media report suggested that DCG, which had purchased the publication for only $500,000 in 2016, could fetch as much as $300 million from the sale, but, as with so many things in the crypto world, that figure reflected a wide gulf between aspiration and reality.

In November, DCG completed an all-cash deal with the digital asset exchange Bullish. The sale price was in the range of $70 million to $80 million, according to a person familiar with the deal. (The Block, a competitor, sold to the Singapore-based Foresight Ventures in November 2023 at a valuation of $70 million.)

Now, as a slimmed-down CoinDesk enters its new ownership era, the respected crypto publication hopes to maintain editorial independence while finding stability in a volatile industry. Whether this will come to pass depends on its new owner, whose values are untested and whose business strategy is unclear.

“So far, it’s cautious optimism,” said one CoinDesk staffer, who spoke with Fortune on the condition of anonymity.

Who is Bullish?

The collapse of crypto markets in late 2022 exposed the tension of Digital Currency Group’s relationship with its portfolio publication. CoinDesk not only helped precipitate DCG’s financial troubles but continued to report on the ensuing lawsuits and bankruptcies that plagued owner Barry Silbert’s empire.

Bullish will inherit the same complicated relationship. Led by former New York Stock Exchange President Tom Farley, Bullish is backed by investors including Peter Thiel’s Founders Fund, though it lacks the market presence of competitors like Coinbase and Binance. According to CoinMarketCap, Bullish is the 89th-largest exchange by trading volume and unavailable to U.S.-based users.

Launched in 2021, Bullish was the latest venture for a flailing crypto company called Block.one. Cofounded and led by a crypto entrepreneur named Brendan Blumer, Block.one created a blockchain called EOS in June 2018, raising over $4 billion—an incredible sum even during the manic era of “initial coin offerings”—in the largest-ever offering of its kind.

While Block.one marketed EOS as a competitor to Ethereum, the platform suffered from congestion issues and critiques of centralization. In 2019, the Securities and Exchange Commission ordered Block.one to pay a $24 million penalty as part of a settlement for its unregistered initial coin offering—an arrangement that many in the crypto industry viewed as favorable given the SEC’s subsequent enforcement actions. Today, EOS is the 32nd-largest blockchain by total value locked, according to CoinMarketCap.

Bullish represented a new attempt at legitimacy for Block.one, seeding the exchange with liquidity from its EOS proceeds and planning to take the company public through a special purpose acquisition company. Bullish called off the deal, which had proposed to value the transaction at $9 billion, in 2022.

Given Bullish’s checkered history, its purchase of CoinDesk raised questions about whether the exchange would honor the publication’s commitment to reporting. In an interview with the Wall Street Journal following the deal, Farley said Bullish was willing to invest “a lot of money” in CoinDesk and that the outlet would operate as an independent subsidiary.

A new leaf

On Thursday, Bullish announced a restructuring of CoinDesk‘s leadership team, despite initially claiming it would stay in place. Longtime CEO Kevin Worth and several other executives were forced out, and former Bullish business development head Sara Stratoberdha was appointed CEO. It will be her first foray into media after working at financial firms including Blackstone and Credit Suisse.

CoinDesk will remain an independent subsidiary of Bullish Group and Sara is committed to maintaining CoinDesk‘s journalistic independence and integrity,” a CoinDesk spokesperson said in a statement shared with Fortune.

On Friday, Bullish held a town hall with CoinDesk employees to explain the changes, with Stratoberdha answering questions from both the editorial and business sides of the publication. The CoinDesk staffer said the shakeup was expected due to the publication’s struggling revenue figures and last year’s layoffs. “There’s not going to be a lot of tears shed,” the staffer said about the restructuring.

The main concern for editorial staff is whether Bullish will allow CoinDesk to maintain its independence. The staffer said that the retention of key staff, including editor-in-chief Kevin Reynolds, was a positive sign, adding: “I do generally think it’s probably a little too early to start putting dirt on our graves yet.”

Learn more about all things crypto with short, easy-to-read lesson cards. Click here for Fortune’s Crypto Crash Course.

Crypto rally boosts Digital Currency Group’s financials amid lawsuits and Genesis bankruptcy


After starting 2023 in the depths of a bear market, the crypto empire Digital Currency reported a strong fourth quarter, as well as a valuation of $4.4 billion and an investment portfolio of nearly $1 billion, in a letter sent to shareholders on Monday.

For fiscal year 2023, DCG reported EBITDA of about $275 million, up from $261 million in 2022, as consolidated revenue declined to $749 million from $813 million. Quarter-on-quarter EBITDA rose more than 40% to nearly $100 million, as the fourth quarter in 2022 produced a loss of $7 million.

Founded in 2013, the Barry Silbert-led company has long been a bedrock of the crypto industry, with portfolio companies including the asset manager Grayscale, the lender Genesis, and, until last year, the trade publication CoinDesk.

Thanks to its outstanding loans through Genesis, Digital Currency Group began flailing with the failure of the hedge fund Three Arrows Capital in 2022. The collapse of another key counterparty, FTX, drove Genesis into bankruptcy in early 2023, embroiling DCG in a series of lawsuits with former partners and regulatory agencies, including the Securities and Exchange Commission and the New York Office of the Attorney General.

After a disastrous 2023, which included public spats between Silbert and the Winklevoss twins, Monday’s shareholder letter aims to help dispel doubts about the imperiled empire, even as lawsuits continue to swirl.

A mixed bag

Despite myriad legal challenges, Digital Currency Group benefited from a rally in Bitcoin prices to close the year. Part of this was spurred by one of DCG’s portfolio companies, Grayscale, which won a battle with the SEC in August to convert its longstanding Bitcoin trust into an exchange-traded fund. As of Monday, Grayscale’s ETF has a market cap of around $23 billion, with the firm charging fees of 1.5%.

Digital Currency Group was further boosted by $38 million in revenue from its mining company Foundry in the fourth quarter of 2023, although the figure was still down 22% quarter-over-quarter due to lower mining prices.

The letter also cites the November sale of CoinDesk, a leading crypto publication, to the digital assets exchange Bullish, although it doesn’t specify a deal size. CoinDesk spurred the collapse of FTX after publishing the balance sheet of the associated trading firm Alameda Research, although the ensuing bear market caused Digital Currency Group to cut off funding to the outlet, which laid off nearly 50% of its staff in 2023 before further restructuring announced last week.

Genesis is another obstacle, with Digital Currency Group challenging its portfolio company’s bankruptcy plan. In a court filing on Friday, DCG attorneys requested an emergency conference in the Chapter 11 proceedings, disputing a payment plan proposed by the bankruptcy estate and writing that the Genesis bankruptcy estate’s proposals represent a “gross abuse of process and breach of fiduciary duties.”

While Genesis has settled its two lawsuits from the SEC and New York’s attorney general, Digital Currency Group is still mired in litigation, with Attorney General Letitia James last week ramping up her fraud charges against Silbert and his empire to $3 billion.

“This is the same baseless complaint recirculated to generate another round of press headlines,” the shareholder letter read, adding that Genesis’s settlement with the Office of the Attorney General was a further attempt to circumvent bankruptcy law.

“We will continue to fight this attempt to undermine the law,” wrote the investor relations team.

Learn more about all things crypto with short, easy-to-read lesson cards. Click here for Fortune’s Crypto Crash Course.

NY attorney general ramps up fraud charges against Barry Silbert-led Digital Currency Group, now seeks $3 billion


After initially alleging that DCG, whose portfolio companies include the crypto lender Genesis and the asset manager Grayscale, defrauded investors out of more than $1 billion, Friday’s complaint ups that figure to $3 billion.

“The fraud and deceit were so expansive that many additional people have come forward to report similar harm,” James said in a statement shared with Fortune. “This illegal cryptocurrency scheme, and the horrific financial losses that real people have suffered, are yet another reminder of why stronger cryptocurrency regulations are needed to protect all investors.”

An empire in decline

Founded in 2015, Digital Currency Group helped build the foundation for the crypto bull markets of 2017 and 2021 through its diverse array of investments and portfolio companies. Genesis served as a crucial source of capital for other crypto projects, including Sam Bankman-Fried’s trading firm Alameda Research and the hedge fund Three Arrows Capital, while Grayscale offered Bitcoin to a wider demographic of investors through its trust product, GBTC. Until recently, Digital Currency Group also owned CoinDesk, the leading crypto trade publication.

The collapse of crypto firms like Terraform Labs, FTX, and Three Arrows Capital in 2022 led to a crisis for Digital Currency Group, with Genesis unable to recoup its loans to failed companies. As a result, Genesis filed for bankruptcy in January 2023, sinking another of DCG’s key projects—a partnership with Gemini, the crypto exchange founded by the Winklevoss brothers.

Gemini had launched a product called Earn, which promised investors interest rates as high as 8% in exchange for depositing their cryptocurrencies with the platform. In exchange, Gemini lent the crypto to Genesis, which in turn lent the assets to firms like Alameda and Three Arrows Capital. The program also collapsed due to systemic failure in the crypto industry.

The New York Office of the Attorney General was one of several regulators to bring charges against Digital Currency Group and Gemini, with the Securities and Exchange Commission filing its own lawsuit in January 2023. In her initial complaint from October, James named not only Digital Currency Group, Gemini, and Genesis, but also Silbert and former Genesis CEO Soichiro Moro, alleging that they had withheld key financial information from investors and tried to conceal losses with questionable accounting.

‘Nothing new here’

James’s complaint against Digital Currency Group and its associated entities has become the marquee action for the office, which has taken strong enforcement actions against other actors in the crypto industry, including the stablecoin issuer Tether. James is also trying to advance her own crypto regulation—a crusade that’s drawn controversy due to its perceived overlap with the other New York financial regulator, the Department of Financial Services.

On Thursday, James’s office reached a settlement with Genesis, ensuring that any assets will go to former Earn customers and Genesis creditors, and ensuring that Genesis will no longer do business in New York.

Friday’s complaint indicates that James intends to move forward with her lawsuit against the other named parties, however. The updated filing says additional investors came forward after the initial lawsuit, with the estimated figure of lost funds nearly tripling. James is seeking restitution of the full $3 billion figure.

The sole bright spot in Silbert’s once-prospering empire might be Grayscale, the asset manager that managed to convert GBTC into an exchange-traded fund in January after winning a lawsuit against the SEC.

A spokesperson for Digital Currency Group said in a statement to Fortune: “There is nothing new here. This is the same baseless civil complaint recirculated to generate another round of press headlines. We will fight the claims aggressively and we will win. DCG has always conducted its business lawfully and with integrity, and DCG and Barry Silbert will be fully vindicated.”

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Leading senators express concern over crypto case in which SEC admitted to misleading statements: ‘Trust is undermined’


A group of Republican senators have sent a letter to Securities and Exchange Commission Chair Gary Gensler expressing concern over a lawsuit against the crypto firm DEBT Box in which a federal judge threatened to sanction the agency over misleading statements.

“The public must have well-placed confidence in the Commission’s enforcement actions, its motives for undertaking them, and its professionalism when carrying them out,” read the letter, sent Wednesday and signed by J.D. Vance (R-Ohio), Thom Thillis (R-N.C.), Bill Hagerty (R-Tenn.), Cynthia Lummis (R-Wyo.), and Katie Boyd Britt (R-Ala.) “This trust is undermined, and your mission compromised, by episodes like the DEBT Box.”

Since taking over as SEC chair in 2021, Gensler has drawn criticism from members of Congress on both sides of the aisle for his approach to the crypto industry, which he argues operates outside of compliance with U.S. securities laws. After the collapse of the crypto exchange FTX in November 2022, Gensler stepped up enforcement actions against leading firms, including Coinbase and Binance.

A lawsuit against the obscure Utah firm DEBT Box has proven the most difficult for the regulatory agency, however, after Judge Robert Shelby accused SEC lawyers of making misleading statements and possible deception in a December filing. According to Shelby and the defendants from DEBT Box, agency lawyers misrepresented key facts while seeking a temporary restraining order and an asset freeze of the crypto company.

After Shelby ordered the agency to explain its missteps, the SEC filed a mea culpa later in December. Enforcement chief Gurbir Grewal admitted that the division “fell short,” apologized for its actions, and pledged to conduct mandatory training for staff involved in the case.

In another filing in late January, the SEC asked Shelby to dismiss the case without prejudice—meaning it could later retry the charges—and argued that further sanctions were unnecessary.

While Shelby has not yet filed his response, the DEBT Box defendants are asking for stronger action, including a request for the SEC to pay for legal damages and for Shelby to dismiss the case with prejudice.

Wednesday’s letter from the Republican senators, led by Vance, reflects the heightened stakes of the otherwise inconsequential lawsuit. The lawmakers are using the episode to advance their complaints of Gensler’s administration, which critics argue is politically motivated, especially with crypto. Gensler has waded into other politically fraught arenas during his tenure, including rulemaking related to Environmental, social, and corporate governance, or ESG.

“It is unconscionable that any federal agency…could operate in such an unethical and unprofessional manner,” the senators wrote. They added that the misstep by the agency suggests that other enforcement cases “may be deserving of scrutiny” and that the SEC’s proposed remedy of staff training wouldn’t be sufficient.

Other industry groups have also responded to the case. In a statement shared with Fortune, American Securities Association President and CEO Chris Iacovella echoed the critique of the senators: “[Grewal’s] division intentionally misled a federal court in pursuit of a political agenda against an industry the SEC doesn’t like.”

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Nayib Bukele is an autocrat, not a Bitcoin savior


On Sunday, Salvadoran President Nayib Bukele won re-election in a landslide, claiming to secure more than 85% of the vote. From the outside, his victory seemed like a triumph for a nation once synonymous with poverty and gang violence. Under Bukele, El Salvador has become one of the safest countries in Latin America, driving widespread support for his mano dura approach.

Bukele’s cheerleaders expand far outside of the tiny Central American nation, with Bitcoiners representing one of his most faithful legions of support. Bukele, after all, declared Bitcoin to be legal tender in 2021, and continues to work with firms like Bitfinex and Strike to attract crypto investor interest.

The reality of Bukele’s rule is far more sinister. As president, his tactics have been repressive and anti-democratic: Ousting five Supreme Court magistrates and replacing them with loyalists, pushing the chamber to authorize consecutive presidential terms and clearing the constitutional path for his reelection, sending armed troops to occupy the parliament building amid a crime bill dispute, and rounding up thousands of innocent people in his draconian crackdown.

Bukele’s reign has all the hallmarks of an autocrat—he even welcomes the associations, trolling his critics by branding his social media accounts as the “world’s coolest dictator.” He has backed up the self-chosen title with a bevy of laws that press freedom groups describe as clear censorship attempts. Unsurprisingly, his reelection was marred by vote count irregularities.

And yet, Bukele is still widely embraced in the crypto crowd. When Rep. Ilhan Omar (D-Minn.) sent a letter to Secretary of State Anthony Blinken last week urging action on Bukele’s threats to Salvadoran democracy, she was met with vitriol from blue-check-marked crypto acolytes on X, with one prominent Bitcoiner telling her, “You need to go back.”

Bukele advocates outside of El Salvador argue that extreme measures were necessary to solve the country’s pervasive occupation by gangs like MS-13—an argument that avoids the uncomfortable truth that the violence stems from disastrous U.S. policy and that Bukele seems to be working directly with organized crime to maintain peace, which is not addressing the root causes of the conflict. Still, it is undeniable that Bukele had achieved at least a temporary peace, which has driven widespread domestic support in a country that never recovered from its civil war that ended in 1992.

What is more disturbing is Bitcoiners’ abandonment of their core ideals. Satoshi envisioned an alternative financial system that would not be subject to despotic governments and institutions—one that would be in the hands of its users. Even Bukele’s rollout of Bitcoin stood in stark contrast to those founding principles.

I visited El Salvador in November 2021 to report on Bukele’s Bitcoin gambit, which had been live for several months. The Bukele administration had commissioned a custodial wallet called Chivo that Salvadorans could use to hold and transact with Bitcoin, even seeding the wallet with $30 worth of Bitcoin to incentivize adoption.

The rollout, of course, was a disaster, with the cash-driven population unwilling to switch over to a volatile cryptocurrency for daily transactions, and bugs and security issues blemishing the launch. While that was expected, Bukele’s approach was even worse—it was unclear who actually controlled the country’s crypto holdings, and any illusion of “not your keys, not your coins” was quickly abandoned. When I spoke with Bitcoiners from the U.S. who had traveled down to visit the supposed crypto promised land, many were dismayed to find out that Bukele’s opaque launch was really just a P.R. stunt.

Not much has changed. Bukele has managed to attract luminaries like Max Keiser, Jack Mallers, and Paolo Ardoino to the country, but adoption is still near zero, and promised initiatives like a “Bitcoin City” and “Volcano Bond” have gone nowhere.

Don’t trust, as Bitcoiners love to say. Verify.

Leo Schwartz


The controversial crypto firm Prometheum announced the launch of custodial services for Ether, a move that legal experts say could force the SEC to finally decide on Ether’s security status. (Fortune)

A New York judge ruled that Ripple Labs would have to provide financial statements to the SEC on the institutional sales of its token, XRP, as part of an ongoing lawsuit. (CoinDesk)

Fireblocks, a leading crypto custody provider, announced layoffs of 3% of its workforce amid broader industry cutbacks. (Bloomberg)

The SEC expanded its definition of a “dealer” to include more types of financial institutions, including different crypto firms like automated market makers. (CoinDesk)

Treasury Secretary Janet Yellen repeated her call for new legislation to plug regulatory gaps in spot crypto markets and for stablecoins. (The Block)


More setbacks for Solana:

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SEC may be forced to declare Ethereum a security after controversial new launch


Prometheum plans to announce on Wednesday the launch of custodial services for Ether, the native cryptocurrency of the Ethereum blockchain, whose $280 billion market cap is second only to Bitcoin’s. The move is part of a larger strategy by the crypto firm to get regulators to identify Ether as a security—a position widely unpopular among industry peers.

So far, the Securities and Exchange Commission has avoided taking a position on Ethereum’s legal status even while declaring more than a dozen other popular cryptocurrencies to be securities. The latest gambit by New York-based Prometheum, which claims it has discovered a compliant path for crypto within existing laws, could force the agency’s hand. 

Legal experts have told Fortune that Prometheus’s plan to launch its custodial service may compel the SEC to resolve the long-running Ethereum question. If the agency does indeed proclaim Ether to be a security, Prometheum could be in a pole position when it launches its planned trading platform next quarter—even as the rest of the industry insists crypto can’t be viable without new laws.

A controversial new player

Longtime crypto exchanges like Coinbase and Kraken offer trading platforms in the U.S., allowing users to buy and sell popular cryptocurrencies like Bitcoin and Ether. While many of the firms have been around for more than a decade, they still operate outside of the regulatory framework of the existing financial system, which has led lawmakers to propose new rules for the industry. 

SEC Chair Gary Gensler, who has stepped up enforcement after the disastrous collapse of FTX, has said existing rules are sufficient and filed lawsuits against exchanges for failing to register with the agency. In response, companies like Coinbase have argued that the existing rules are outdated. 

While much of the U.S. crypto industry has sided with Coinbase, Prometheum has taken a different—and contentious—approach.

Founded by two brothers, Aaron and Benjamin Kaplan, Prometheum received regulatory approval in 2021 to operate an alternative trading platform—similar to a stock exchange—where users can buy and sell different securities. The company went on to gain widespread attention in mid-2023 when it announced a first-of-its-kind approval from the Financial Industry Regulatory Authority—an industry oversight body that’s independent of the SEC—to operate as a special purpose broker-dealer for digital asset securities. The SEC first created the designation in 2021, but no other firm has failed to obtain a license, though others, including Robinhood, have tried.

Prometheum’s claim to have found a compliant path for crypto trading immediately drew condemnation from legal figures in the crypto industry, who argued that even if the SEC and FINRA approved Prometheum’s structure, it would not have any assets available for trading. That is because, skeptics argue, the SEC has jurisdiction over securities, while cryptocurrencies like Solana and Ether are more like oil or gold—assets that don’t fit the legal definition of security and so can’t be registered.

The Kaplan brothers, in contrast, agree with the SEC’s assessment that most cryptocurrencies are securities. They argue that Prometheum will be able to list different crypto assets as securities under an exemption called Rule 144, which is used to trade restricted stocks, and that they can use blockchain data to determine whether the assets have been in circulation for more than a year—a key factor for the exemption. As an ATS, Prometheum will not have to work directly with the issuers but instead can choose which assets to list.

Prometheum’s claims have not only riled the crypto industry but Republican lawmakers, who have argued that Gensler had propped up the little-known firm to further his own regulatory agenda. In a June appearance on CNBC, for instance, Gensler touted Prometheum’s registration as a special purpose broker-dealer as an example of a compliant path for the industry. And last June, the company received a prized invitation to testify at a Congressional hearing about crypto despite having virtually no presence in the industry.

The debate over Prometheum’s proposal has until now been theoretical, but Wednesday’s announcement of Ether custodial services, which are slated to launch by late March for institutional clients, means the company is on the cusp of becoming the first crypto exchange to compliantly offer assets like Ether for trading.

“We want to work with the crypto industry,” Benjamin Kaplan said in an interview with Fortune. “Our goal is not to destroy, it’s not to harm, it’s not to undermine—it’s to help build.”

‘Move the ball forward’

In the traditional world of stock markets, the various steps that make up a trade are divided among different firms. For instance, a retail trader visits a broker like Fidelity to buy a share of Apple stock, leading Fidelity to turn to a broker-dealer like Citadel to fill the order. Next, a firm called the National Securities Clearing Corporation, a subsidiary of the Depository Trust & Clearing Corporation, figures out who owes what in all the trades the broker has made that day—a process known as clearing.

At this point, another DTCC subsidiary called the Depository Trust Company steps in to oversee the funds and securities moving from one party to another—a process called settlement. Finally, an institution—either the original broker or a firm like State Street or BNY Mellon—serves as the custodian, meaning it holds the actual securities on behalf of the investors.

One of the reasons for separating these various functions is to prevent conflicts of interest. If Citadel, for example, was serving as both an exchange and a broker-dealer, it could digest customer trade information and front-run orders. Separating brokers into distinct entities also prevents markets from having a single point of failure, as happened with FTX.

James Angel, an associate professor at Georgetown focused on financial regulation, told Fortune that much of the separation is also historical—a convention that the crypto industry is seeking to disrupt with the help of blockchain technology.

Firms like Coinbase offer clearing, settling, custody, and trading services under one roof, an arrangement that provided partial fodder for the SEC’s lawsuit against the exchange. The agency’s primary complaint, though, was that Coinbase and others had not registered with the SEC to offer any of these services—even as it sold what the agency deemed to be securities. 

Prometheum, meanwhile, believes it has found a way to sell crypto without triggering any of these objections from the SEC, in part by dividing itself into two entities.

One, the alternative trading system, is a member of FINRA and registered with the SEC, and will provide a front-end platform for investors to buy and sell crypto assets. The other entity, Prometheum Capital, is the company that received the special purpose broker-dealer license and a final go-ahead from FINRA in January to offer the clearing, settling, and custody services necessary to complete the trades.

The upshot is that, while firms like Coinbase have been battling with the SEC, Prometheum has been getting approvals from FINRA, which is nominally independent of the agency but also works closely with the SEC and is ultimately subject to its oversight. It is also notable that, while other firms have applied to receive the special purpose broker-dealer license—the one created by the SEC in 2021 and issued by FINRA—Prometheum is the only one to receive it.

Now, Prometheum’s custodial services for Ether announcement suggests the company is on track to offer the popular cryptocurrency for trading to institutional investors later this spring. More consequentially, by offering custodial services for Ether, Prometheum is claiming that Ether is a security—a critical question that the SEC has yet to decide on—and doing so as a FINRA and SEC-regulated business. 

“You have to be able to custody before you trade,” Aaron Kaplan told Fortune. “This is hopefully going to move the ball forward.” 

‘It’s a gamble’

Fortune spoke with four lawyers and academics with expertise in digital asset regulation who agreed that Prometheum’s custody launch could lead the SEC to finally rule on Ethereum’s legal status, especially because Prometheum prominently displays its registered status with the two organizations on its website—a decision that Boston University lecturer Mark Williams described as “marketing.” 

“It’s a gamble,” Williams told Fortune. “Maybe it’s part of their business strategy to force the hand of the SEC.” 

William Brannan, vice chair of the crypto practice at Lowenstein Sandler, said that Prometheum would be creating “unnecessary controversy” by announcing Ether as the first asset it would custody due to the SEC’s reluctance to take a stance on it. 

Even though Prometheum’s primary regulator is FINRA, which operates separately from the SEC, Brannan said FINRA likely would be working with the SEC on the question of Prometheum’s launch of Ether custodial services due to the decision’s magnitude.

“My hunch would be that, particularly for these types of issues, FINRA is in very close contact and consultation with the SEC, and would likely be liaising with them and seeking to get some clarification on their position,” Brannan told Fortune

According to a company spokesperson, since Prometheum received the special purpose broker-dealer license from FINRA, it doesn’t require further approval to make assets available for custody, but it has informed FINRA of its plans to offer services for ETH.

Spokespersons from FINRA and the SEC both declined to comment when reached by Fortune.

If the SEC took action to stop the offering, it would likely come after Prometheum launched its custodial services for Ether. Still, Ron Geffner, a partner at Sadis & Goldberg and a former SEC enforcement attorney, said that he does not expect the SEC to block Prometheum’s approach due to Gensler’s stated desire to find a company that can operate under the SEC’s preferred guardrails. “The SEC, given their position on crypto being a security, wants successful registrants in the marketplace that are complying with federal securities laws and supporting their position,” he told Fortune

The question remains whether Prometheum can draw investor interest—and whether its approach will survive subsequent SEC administrations. The Kaplan brothers argue that creating a compliant approach will drive institutional participation in the crypto industry, although they haven’t specified if the trading platform has potential clients lined up. Williams expressed skepticism that Prometheum would pull off its bold move. “They’re not market-tested, so I would just have some caution in regard to their ability,” he told Fortune.

But even if Prometheum can’t drum up demand, or running the operation proves too expensive, a successful launch could upend the industry’s argument that crypto is incompatible with existing securities laws. And that clarity, Brannan said, wouldn’t be the worst thing.

“There’s a certain degree of value,” he told Fortune, “in just knowing exactly what the rules of the road are.”

Tether still has nearly $5 billion in loans despite pledging to reduce exposure to zero


The stablecoin giant Tether has spent years trying to shirk allegations of opaque operations and reserves. The crypto firm’s latest attestation boasts record profits but leaves unanswered questions about its secured loan program, which still stands at nearly $5 billion despite pledges to reduce exposure to zero.

Tether says its eponymous stablecoin, currently the largest in circulation with a market cap of over $96 billion, is backed one-to-one mostly by U.S. dollar equivalents like Treasury bills, a claim often disputed by critics and addressed through quarterly attestation reports by the accounting firm BDO Italia.

Recent quarterly attestations have revealed growth in Tether’s secured loan program, where a percentage of its reserves are lent out to unknown borrowers. In its attestation from the second quarter of 2023, released in October, Tether said it had nearly $5.2 billion in outstanding loans, despite previously claiming it would reduce its secured loans to zero during 2023.

While it was a reduction from the previous quarter, Tether only had excess reserves of $3.2 billion, meaning the loans constituted $2 billion of its reserves. If borrowers couldn’t pay back the loans, the result could have been a shortfall in Tether’s holdings in the event of mass redemptions—a potential risk to the stablecoin, whose massive footprint undergirds much of the crypto ecosystem.

In response to a September article about its second-quarter attestation, which revealed loans of $5.5 billion, Tether spokesperson Alex Welch told the Wall Street Journal that the firm had received “a few short-term loan requests” from clients with longstanding relationships and decided to accommodate them. She added that the loans would be eliminated by 2024.

The report raised speculation over Tether’s business activities. With interest rates at historic highs, the company could secure easy profits by putting the stablecoin reserves in U.S. Treasury bills and other dollar-like equivalents. Instead, a significant portion of its reserves were held in Bitcoin, loans, and a $2.2 billion category called “other investments.”

Bloomberg columnist Matt Levine wrote that Tether was likely making the loans to “support its borrowers,” meaning it has collateral in assets like cryptocurrencies and wants to exchange them for dollars. “Tether will provide the money, secured by the crypto, not because that’s a good deal for Tether but because Tether is being a good citizen of the crypto ecosystem and supporting its counterparties,” he wrote.

‘Still committed’

Tether’s fourth-quarter attestation, released on Wednesday, reveals a slight reduction to Tether’s secured loan program, which now stands at $4.8 billion, although its excess reserves of $5.4 billion are now larger.

“Tether is proud to announce that it has achieved its goal of removing the risk of secured loans from the token reserves,” the firm wrote in an accompanying blog post. “While such secured loans are widely overcollateralized, Tether accumulated enough excess reserves to cover the entirety of the exposure.”

The post adds that the increase in excess reserves is a result of a “record-breaking” net profit of $2.85 billion, as well as the appreciation of its gold and Bitcoin reserves.

Despite the milestone, Tether has not reduced its loan program to zero. Furthermore, its attestation shows that much of its reserves are still volatile assets, including $2.8 billion of Bitcoin and $5.6 billion classified as “other investments.”

When contacted by Fortune, Tether spokesperson David Pourshoushtari pointed to a blog post published after the Wall Street Journal‘s September report. In the post, Tether writes that the banking industry has proven “incapable of keeping up with evolving global financial markets, something the Wall Street Journal has disregarded countless times in pursuit of tarnishing the reputation of true innovators like Tether.” It muses that the Wall Street Journal‘s reporting is “merely an attempt to manipulate tabloid-style reporting to appease their ‘friends’ entrenched in the old guard.”

The September post does not address why Tether continues to have billions in loans, but says that the firm is “still committed to removing the secured loans from its reserves.”

Pourshoushtari did not respond to a follow-up question.

Learn more about all things crypto with short, easy-to-read lesson cards. Click here for Fortune’s Crypto Crash Course.

Amid illicit finance debate, a new proposal wants the Treasury Department to treat DeFi like infrastructure


Convincing lawmakers to take a thoughtful approach to crypto regulation is no easy task. The collapse of FTX confirmed for skeptics that the space is filled with fraud and casino-like incentives. The Hamas attack on Oct. 7, and subsequent revelations about illicit financing using crypto, proved even more disastrous. No matter that the volumes may have been exaggerated—for some politicians, a single dollar of crypto going to Hamas or North Korea’s Lazarus Group is too much.

Recent legislation targeting money laundering and “know-your-customer” gaps in crypto reflects this approach. Every piece of technology in the broader crypto ecosystem is a nail awaiting the existing hammer of laws, like the Bank Secrecy Act, which could treat services such as wallet providers, miners, and blockchain validators as financial institutions, rather than often autonomous pieces of software.

Lawmakers, of course, are subject to political pressure. After an event like Oct. 7 and reporting about the role of crypto, they are sprung into action and forced to use legislation as a blunt instrument. The bills can be refined through new drafts and markups, and the line between press releases and policy proposals is blurred.

Regulatory agencies are in a different position. Rather than posturing about potential laws, they have to act against existing threats and work within the existing legal framework. This has generally not worked out for the crypto industry, at least in its own estimate—just look at the SEC.

When it comes to pressing concerns over illicit financing and pesky questions of how to approach the KYC and AML of crypto services, the remit has largely fallen with the Treasury Department and Justice Department. Both have taken actions detested by many in crypto, including both sanctions and criminal charges against Tornado Cash, an open-source software tool called a “mixer” that helped obscure crypto flows by organizations including Lazarus.

In late November, Treasury Deputy Secretary Wally Adeyemo stood in front of a gathered crowd of crypto policy bigwigs and shared his vision of expanding the department’s regulatory remit, which would mean classifying much of the sector as financial institutions. “Clearly what is happening now doesn’t work,” he said, putting the onus on the industry to come up with solutions.

This week, the industry answered. Three of those bigwigs—including Rebecca Rettig, the chief legal and policy officer of Polygon Labs, and Michael Mosier, a former Treasury official—released a 45-page proposal that aims to create a framework for Treasury to regulate the complex world of DeFi, or decentralized finance. Unlike centralized crypto platforms like Binance and Coinbase, many services in DeFi (like mixers such as Tornado or decentralized exchanges like Uniswap) operate as neutral software, which the authors argue makes them more akin to internet infrastructure like VPNs and other communication tools. Critically, that means they cannot be subject to the same AML and KYC obligations of financial institutions dictated by laws like the Bank Secrecy Act.

The proposal is dense and filled with acronyms that I won’t attempt to unpack in my remaining word count, but the highlights are dividing the world of DeFi services into different classifications that would be handled by different divisions of Treasury, like the Financial Crimes Enforcement Network (FinCEN) and the Office of Cybersecurity and Critical Infrastructure Protection (OCCIP). While some of the proposal would require new legislation, much could be carried out through existing rulemaking powers.

When I spoke with the authors yesterday, Mosier compared the advent of digital payments to the evolution of communication, whose advance from telegraph messages to switchboard operators to automated packet switching meant that anyone could call anyone else. “The world didn’t end and we just found other ways to manage that risk,” he said.

I asked Mosier, who was an acting director at FinCEN, whether he thought his former colleagues would engage with such a nuanced proposal, rather than take the approach that any dollar worth of crypto used as illicit finance is too much. Convincing officials that DeFi protocols should be treated as “critical infrastructure”—a designation from 1998 that means the tools are “essential to the functioning of the U.S. economy,” as the authors put it—seems like a tall task.

“You’re more likely to hear that opinion on the Hill from lawmakers,” he said. “I tend to get it much less from [Treasury] people because they’re the ones who do enforcement, and they realize that we would have shut down the entire banking system by now if the answer was zero tolerance.”

Leo Schwartz


After a federal judge accused the SEC of misleading statements in a crypto case, the agency is asking to dismiss the lawsuit. (Fortune

Crypto investors are pouring billions of dollars into a DeFi strategy called restaking with the promise of high yields—and higher risks. (Bloomberg)

Donald Trump hosted a gala in November for holders of his NFTs, and it was just as strange as you would expect. (Rolling Stone)

Solana is spinning off a separate entity to focus on engineering amid regulatory scrutiny over whether the project is truly decentralized. (Fortune)

German police seized over $2 billion in Bitcoin related to the operation of a piracy website that violated copyright laws. (CoinDesk


FTX bank run jokes never get old:

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SEC asks to dismiss contested crypto case in which agency faces sanctions over ‘materially false’ statements


The Securities and Exchange Commission is seeking closure on a lawsuit against a crypto firm that’s put the regulatory agency in the unusual position of facing sanctions from a federal judge.

In a court filing on Tuesday, SEC attorneys asked Judge Robert Shelby of the Northern Division District Court of Utah to dismiss the agency’s lawsuit without prejudice, meaning the case could be retried, in order to avoid any potential disciplinary actions.

“While the Commission recognizes that its attorneys should have been more forthcoming with the Court, sanctions are not appropriate or necessary to address those issues,” the SEC lawyers wrote.

‘Undermined the integrity of the proceedings’

Under Chair Gary Gensler, the SEC has embarked on a campaign of enforcement actions against companies in the crypto industry, which Gensler has argued operates largely outside of compliance with U.S. securities law.

One lawsuit filed by the SEC over the summer alleged that a firm called DEBT Box had defrauded investors out of nearly $50 million by selling unregistered securities. As part of the action, the SEC successfully obtained a temporary restraining order and asset seizure to stop DEBT Box’s operations. SEC lawyers submitted an ex parte application, meaning the firm was not informed of the action and could not challenge it in court, with agency lawyers arguing that DEBT Box’s defendants were actively trying to stymie SEC efforts.

But subsequent arguments by the defendants shed doubt on those accusations. The agency’s lawyers argued that the defendants had closed bank accounts and transferred operations overseas in response to the SEC’s investigation, and that they had shut down specific social media accounts to hide suspicious activity. Defendants provided evidence refuting these claims.

In response, Shelby ordered the agency to “show cause” for its actions, or prove its basis for the initial ex parte application, restraining order, and asset seizure. In his filing, Shelby expressed concern that the agency had made “materially false and misleading representations” to freeze millions of dollars belonging to the defendants and that its lawyers had “undermined the integrity of the proceedings.”

‘Enormous damage’

In a late December filing, lawyers for the SEC admitted to missteps in the case, promising to conduct mandatory training for staff members involved in the investigation.

While the case was being tried in a district court in Utah, SEC enforcement chief Gurbir Grewal wrote to Shelby that he understood the ramifications of the agency’s actions. “I understand that the division fell short of these standards in this case, and I apologize for that shortfall,” he wrote in the filing.

The agency sought to avoid any sanctions, arguing that the training would suffice and that its lawyers had not engaged in “bad faith conduct.” It admitted that lawyers had made errors in presenting evidence and that it did not have proof of overseas transfers, instead making an inference based on a YouTube video from one of the defendants.

In a subsequent filing, the DEBT Box defendants pushed back on the SEC’s muted mea culpa, arguing that the agency “knew that it lied” and caused “enormous damage” by suppressing evidence. They sought to dismiss the case with prejudice and asked the judge to order the SEC to pay the defendants’ fees and costs incurred for the temporary restraining order and asset freeze.

The SEC’s filing on Tuesday does not meet the defendants’ demands. While the agency agreed to dismiss the case, by doing so without prejudice, it could bring the charges again at a later date. SEC lawyers argued that dismissal with prejudice is only appropriate in cases of “willful misconduct,” citing previous case law, which they say did not happen here. The lawyers also argued against granting the defendants’ request for repayment.

A spokesperson for the SEC said that the agency had no comment beyond the public filing.

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Chris Dixon, the philosopher king of crypto, makes a fresh case for blockchain. Is he too late?


In October 2022, just weeks before the collapse of FTX, Chris Dixon sat down to write a book about crypto. The venture capitalist and eternal optimist wanted to share a fresh vision for the technology he had come to love. Having founded startups in an earlier era of the internet, before the likes of Google and Facebook gobbled up every dollar, Dixon believed the decentralized promise of blockchain could reinvigorate the early building blocks of an open internet. 

By the end of 2022, that vision was belied by an industry dominated by a casino mentality and defined by criminal hucksters like Sam Bankman-Fried. The failure of FTX felt like a turning point where, for many onlookers, crypto became synonymous with fraud. 

“I was like, ‘Fuck, this is depressing,’ and then I felt sorry for myself,’” Dixon told me over breakfast last week. “And then I was like, “I can look at this as a depressing moment, or I can look at it as an opportunity.’” 

He had worked in tech for decades, from an entrepreneur building early AI companies to an angel investor to a partner at the venture giant Andreessen Horowitz (a16z). He had never experienced as wide a rift in the public perception of his projects and his own understanding. “I could potentially try to close that gap,” he thought to himself. 

The result is Read Write Own, a manifesto on the virtues of crypto that will likely become a combination of bible and self-help book for those who still share the view that blockchain technology will usher in the next age of the internet. The book, which will be released Jan. 30, is a lucid defense of an industry that has often become a parody to the outside world.

Though just 52, Dixon serves as a kind of elder statesman for crypto. He argues that blockchain can be more than “number go up” gambling and a plaything for self-described degens—it can be an apolitical software that saves the internet from its corporate overlords.

As the head of a16z’s crypto firm, Dixon is not just an armchair theorist. He has real skin in the game, to the tune of $7.6 billion of his investors’ money. His book is not just a treatise on the future of the web. It’s a call to arms for the survival of the industry. 

Courtesy of a16z

The cathedral and the bazaar

Dixon thinks of the internet in terms of networks—not only how people connect, but how different technologies interact to build the infrastructure we know as the web. 

Most of what we think of the internet today is owned and controlled by massive companies. Everything from WhatsApp to Gmail to the cloud computing services powering them is run by a handful of firms that not only dictate how the platforms operate but siphon nearly all of the profits, felling entire industries from newspapers to travel agencies.

It wasn’t always that way. The early developers of the internet imagined more open networks that would be governed democratically, with decisions left in the hands of the people—or at least anyone who cared enough to be involved. 

This vision still lives in the building blocks of the modern internet, through protocols like SMTP, which standardizes email communication, and HTTP, which helps computers talk to each other. Another, DNS, allows us to visit webpages with human-readable names, like Fortune.com, rather than a series of numbers. 

These protocols are generally free or very cheap to use, and either open source or managed by nonprofits tasked with maintenance rather than profit-seeking. Their existence is the reason that email isn’t controlled by Google, URLs by Amazon, or web surfing by Microsoft

“I always detested Microsoft,” Dixon told me. It may seem an odd statement from one of the most powerful men in tech, and especially one who works at a venture firm that helped build the internet as we know it today by plowing billions of dollars into companies like Facebook and Twitter

Despite his affluence and high profile, Dixon has a laid-back affect. He suggested we meet at a diner—his favorite spot in Tribeca had closed, so I found one near the Fortune office. Eating a plate of eggs, sausage, and potatoes, he seemed more like a college professor than a venture titan, speaking in paragraph-length answers that would rise in tenor as he became worked up over an idea. The academic persona was punctured when we stepped outside to his waiting black SUV and driver. 

Dixon said his career has been driven by a love of open-source software, like the operating system Unix. It’s what drew him to blockchain. He is a prolific blogger, and around 2009, began to write about the centralization of the internet. Specifically, he became transfixed by an analogy created by the coder Eric Raymond called the “Cathedral and the Bazaar.” In the cathedral model, software is tightly restricted to an inner circle of developers, generally employed by a corporation, who can build elaborate and beautiful structures that are closed to outside contributors. The bazaar, in contrast, is open source—hectic and without clear order, but alive through collaboration. 

At the time, platforms like Twitter and Facebook still tried to style themselves as bazaars. They invited developers to build apps on their platforms, and Twitter pledged to support RSS, another open-source protocol that allows users to follow diverse websites and blogs. Still, Dixon understood that they functioned more like cathedrals, writing at the time of his fear they would cut off access. “The problem is Twitter isn’t really open,” he blogged in October 2009. “At some point, Twitter will need to make lots of money to justify their valuation.” He was right, of course.

Meanwhile, earlier that year, the pseudonymous figure known as Satoshi Nakamoto published his white paper introducing Bitcoin to the world. Dixon was not an immediate convert. Bitcoin’s purported use case is financial, with Nakamoto envisioning the original cryptocurrency as a new form of money, while Dixon cared more about broader infrastructure protocols. Still, he saw the value of blockchain—a new type of network whose ownership could be dispersed and governed by its participants and run by software. 

After several years writing small checks as an angel investor where his influence was limited, Dixon joined a16z and the VC big leagues in 2012. “The only reason I wanted to go join a VC firm was if I could level up and really try to figure out the new computing movement,” he told me. 

It wasn’t immediately clear that blockchain would be the future. One of Dixon’s first bets was on the nascent crypto exchange Coinbasein 2013, but he also made investments in the VR company Oculus, later acquired by Meta, and the drone startup Airware, which folded in 2018. 

He expected Bitcoin to evolve in a way that would allow software developers to add new features and expand on blockchain’s use cases. The Bitcoin team never did. Instead, a new blockchain called Ethereum launched in 2015, with the promise of allowing coders to create any fashion of decentralized apps. A16z launched its first crypto-dedicated fund, headed up by Dixon, three years later. 

‘Sugar high’

Dixon’s pitch for blockchain is simple—it’s summed up elegantly in the title of his book. The first era of the internet, facilitated by early protocols and innovations like the web browser, allowed us to consume—read—information. The second, driven by corporate networks like Facebook and Apple, allowed us to create—write—our own content. The third, driven by blockchain, will put us in charge, from making decisions to reaping the proceeds—own.

A decentralized social media platform, for example, would allow users to vote on content moderation and keep its code open-source to allow for a vibrant ecosystem of third-party apps. Without all of the ad revenue going to the platform, users could actually monetize their own content, and a token system could distribute earnings and serve a double purpose as a governance mechanism. 

It’s a nice world to imagine, but one that has not come to pass more than 15 years after Bitcoin’s emergence. That’s not for a lack of trying. There have been plenty of crypto projects aimed at consumers, and billions of dollars of capital plowed into making them catch on. And yet, crypto has still not had its “ChatGPT” moment—the so-called “killer app” that helps it break through to the mainstream. 

A common refrain in crypto is that we’re in the early innings—that it took decades for everyday people to come to the internet. The first paper on artificial neural networks came in 1943, more than 75 years before the launch of ChatGPT. Dixon acknowledged that he is often too early on trends. He built his first AI company in 2009 and ended up selling it to eBay because of the subpar technology. 

Dixon is a believer in “feature parity,” the idea that crypto apps will only catch on when they’re as good as their non-blockchain competitors. With slow processing times, often exorbitant fees, and perpetual security concerns, that day seems far off. “How many killer apps can you make when it costs $10 for a transaction,” he said. Still, Dixon said there’s an “optimistic scenario” where blockchain computing power is sufficient in the next 12 months. I asked if we could be over a decade away, as he was with his first AI gamble. “I hope not,” he said, laughing. 

In the meantime, the only aspect of crypto that has caught on is speculation—from the recent fervor over the Bitcoin ETF to digital asset casinos like FTX. 

“People can’t help themselves but talk about prices all the time,” Mary-Catherine Lader, COO of the a16z portfolio company Uniswap Labs, told me. “There’s a human draw to money.” 

Dixon describes the crypto speculation frenzy as a “sugar high.” It not only creates a bad image for the space, crowding out users, but frustrates his portfolio companies that are trying to build unsexy infrastructure. “There’s other guys down the street saying, ‘Hey, flip Bonk,’” he told me, referring to a newly hyped memecoin on the Solana blockchain. “And that gets the attention.”

In response, Dixon has taken on an unusual role for a venture capitalist, spending time in D.C. to lobby for new laws to govern crypto. Like many in the industry, he believes that the Securities and Exchange Commission is stifling innovation by going after tokens like Solana that offer utility and homegrown companies like Coinbase, while allowing so-called shitcoins and offshore exchanges to flourish. 

A16z crypto has hired former regulators and political staffers, and Dixon himself is a prolific donor, with public data from OpenSecrets showing that he’s contributed to more than a dozen crypto-friendly members of Congress. “This is gritty, tedious work, meeting with lawmakers,” Ron Conway, the venture legend and Dixon’s longtime friend, told me. “Most venture firms shy away from this activity.”

Ben Horowitz, a cofounder of a16z, told me that the firm decided to enter lobbying after seeing big tech firms like Meta flex their influence in D.C. “These very powerful companies with monopoly products are very active in Washington,” he told me. “If nobody represents little tech, we’re going to get regulatory capture and a big slowdown in innovation.” 

The venture elephant in the room

The irony that a16z has become a champion of a decentralized web is not lost on Dixon. With its investments in companies like Airbnb, Facebook, and Twitter, the venture firm helped shepherd in the corporate-owned internet era that Dixon is now pleading that we move on from.  

“I thought it would be much more fragmented, and I was wrong about that,” Dixon said. “We neither knew nor wanted to be creating a system that would also then lead to the demise of venture capital, because you’d have four companies controlling the internet.”

In Horowitz’s estimation, a16z has largely moved on from Web2 bets, even outside its crypto fund, except the photo-sharing app BeReal (He didn’t mention that the firm also contributed $400 million to help Elon Musk acquire Twitter in 2022.) “That’s the nice thing about being a venture capitalist,” Horowitz said. “You can place many investments.”

While VCs can spread their bets around, in the case of crypto, the participation of a massive venture firm still stokes fear that it could undermine blockchain’s mission of decentralization. Like other crypto VCs, a16z often receives tokens in lieu of traditional equity for its investments, meaning it could have an outsized influence in the governance of projects.

The concern has sparked controversy, such as when a16z backed an unpopular proposal for Uniswap to use LayerZero, another portfolio company, as underlying infrastructure, rather than a competitor named Wormhole. While a16z tried to deflect criticism by arguing it had distributed tokens to student clubs and nonprofits, outraged purists on Crypto Twitter accused the firm of “owning” Uniswap’s ostensibly open protocol. 

Lader, who works for Uniswap Labs, which is technically separate from the Uniswap protocol, said she doesn’t discuss governance with Dixon. Still, she argued that decentralization isn’t a guarantee of equal distribution of ownership, but instead an indicator of “fair, open access.”

Another issue plaguing crypto VCs is the tendency to dump tokens for short-term gains. In traditional venture capital, firms hold on to investments for years until they exit, either through an IPO or acquisition. With crypto, tokens can vest in as little as a year.

“If you’re a crypto VC, your obligation is to cash out as soon as possible,” said Omid Malekan, an adjunct professor at Columbia Business School. “That design is very bad for the long-term viability of most crypto projects.” 

Dixon acknowledged that many crypto VC firms operate more as hedge funds, but said that he pushes for longer lock-up periods—he even helped introduce a provision to this effect in proposed crypto legislation. “Short-term incentives are a very dangerous thing,” he told me. According to an a16z spokesperson, the crypto funds still hold 94% of all the tokens it has purchased in private market transactions. 

The more existential question for Dixon is whether crypto projects need venture-scale investments and the expectations that come with them. He is betting that the recipients of a16z funds will not only serve as the foundation for the next generation of the internet but reap billions of dollars. 

When I asked Horowitz, he compared the gamble to DNS, the protocol that translates domain names. They aren’t investing directly in the utility, but the tokens—sort of like if a venture firm had bought a slew of URLs in the early days of the web. “I don’t actually think there’s a tension there,” he said. 

Malekan, the academic, argued that recent trends have demonstrated otherwise, especially as VCs invest in the knotted tangle of foundations, labs, tokens, and protocols that often undergird crypto projects. The ones that have succeeded, such as Bitcoin and Ethereum, required little funding. “In crypto, you can almost argue there’s a very strong negative correlation between success and the amount of money that you raise,” he told me. “It’s not just succeeding as a project—you have to act like a billion-dollar company.”

While Dixon says that tokens are a way to drive participation through healthy speculation, like home ownership, they could just as easily recreate the harmful, profit-driven incentives that built our current internet. One consumer crypto project that broke through to the mainstream, the a16z-backed Axie Infinity, spurred a warped, alternate economy where workers in the Global South plowed their savings into the game and played it as a second job. The game’s brief success may have been an experiment gone awry, but it was still a glimpse into what a venture-backed, blockchain-dominated future could entail.

For now, it’s a theoretical question, with Bankman-Fried barely in our rearview mirrors and the crypto sector searching for a foothold. Dixon is notoriously media-shy, skirting the usual conference circuit and rotation between CNBC and Bloomberg TV that’s common among his peers. With Read Write Own, he is emerging from the shadows, ready to take the mantle of leadership and carve a path forward for both his industry and the nonbelievers. The baggage of a16z may not make him the ideal messenger, but he’s at least a compelling one.

“If we can make it work, it just seems like a very powerful and big opportunity, because it’s very contrarian,” Dixon said. “And by the way, that’s how you make money.”

Blockchain companies are meeting with Sen. Warren’s office: ‘No one’s going to educate them if we don’t’


The crypto industry loves a villain. Sometimes, the candidate comes from within, if they commit a world-historical fraud or betray some core Bitcoin orthodoxy. More often than not, blockchain acolytes glom onto an outside figure—think Gary Gensler or Jamie Dimon.

Elizabeth Warren has emerged as the antagonist du jour. The senator from Massachusetts, known for her crusades against big banks, has never been a fan of crypto. Like many Democrats in D.C., she ramped up her criticism in the wake of FTX’s 2022 collapse, introducing a controversial anti-money laundering bill just over a month after the crypto empire’s fall. Early last year, Politico reported that she was building an “anti-crypto army.”

In the past few months, Warren has taken an even more vocal stance, tying digital assets to terrorist financing in the wake of October’s Hamas attacks on Israel and doubling down despite industry pushback over the scale of illicit payments.

In late December, Warren’s offensive seemed to take a personal turn as she sent letters to Coinbase, the leading trade group Blockchain Association, and the think tank Coin Center to inquire about the number of former military and civilian officials, as well as ex-members of Congress, that they employ. “This abuse of the revolving door is appalling, revealing that the crypto industry is spending millions to give itself a veneer of legitimacy,” she wrote.

As I learn as I continue to cover D.C., the politics that happens in public is very different than the politics that happens behind closed doors. Except for the fringes on either side of the political spectrum, legislators and staffers tend toward chumminess, with hyperbolic speech usually aimed more at media attention than ideological purity.

That’s not to say that Warren doesn’t believe what she argues—all evidence points to her being one of the more principled members of Congress, despite what her critics claim. Instead, the inflammatory discourse surrounding her stance on crypto just means that everyone outside of D.C. thinks her office is closed for dialogue.

Last week, a delegate of Massachusetts blockchain entrepreneurs met with a senior staffer in Warren’s office, along with a handful of other members of Congress from their home state. Phil McMannis, the founder of the Boston-based tokenization firm Waev Data, reached out to her office ahead of a planned trip to D.C. with Coinbase’s Stand With Crypto advocacy initiative, not expecting much. Instead, he got a meeting with Warren’s economic policy advisor, Gabrielle Elul. “I was surprised to see they said yes,” he told me.

McMannis, along with the representatives from other crypto companies and a Coinbase lobbyist, laid out their concerns about Warren’s proposed bill to Elul, along with elucidating what they view as the non-financial use cases of crypto, such as health data privacy and creator financial empowerment. Katherine Kuzmeskas, the CEO of the firm Tamarin Health, said that she expressed her concern that Warren’s proposed legislation could make users reveal their personal data if the digital health industry began leveraging blockchain for patients to manage their own health data.

McMannis told me that he was encouraged by the familiarity around crypto that Elul seemed to show, even if she had a “poker face” as they voiced their issues with the bill. Still, McMannis said that Warren’s office was open to meeting and that Elul said the best way for the staff to learn more about the industry was for companies to continue to reach out to the office.

“Senator Warren’s office engages with a wide range of stakeholders with a diversity of perspectives,” a spokesperson said in a statement shared with Fortune. “Enacting stronger anti-money laundering rules for the crypto industry is a top national security priority, particularly as the U.S. Treasury Department urged Congress to pass provisions from her bipartisan bill and recently sanctioned crypto exchanges linked to Hamas terrorists.”

The meeting likely did not represent a sea change for Warren’s openness to crypto—a Coinbase spokesperson told me that the company’s policy team has met with her office in the past, although they still put out a press release yesterday afternoon trumpeting the delegation.

For McMannis, the takeaway was that everyone is still trying to figure out what’s happening, from entrepreneurs to members of Congress. That’s even more true for the messy process of legislating, despite what the headlines say. “It’s [lawmakers’] job to listen to us and hear our feedback and represent our voices,” he said. “No one’s going to educate them if we don’t.”

Leo Schwartz


A Bloomberg legal analyst is predicting that Coinbase has a 70% chance of dismissing the SEC‘s lawsuit. (Fortune)

A software bug took down 8% of Ethereum‘s validators over the weekend, raising concerns about the operations of the blockchain. (CoinDesk)

The failed crypto exchange Mt. Gox appears to be progressing with its efforts to repay former customers following a decade-old hack. (Cointelegraph)

The top Democrat on the House Financial Services Committee has questions for Meta about recent activity around its blockchain trademarks. (The Block)

The price of Bitcoin briefly dropped below $39,000 as selloff pressure from Grayscale‘s GBTC pushes the cryptocurrency’s correction. (CNBC)


Bitcoin’s downward trend is impacting everyone:

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SEC blames ‘SIM swap’ attack for disastrous X hack ahead of Bitcoin ETF approval


In a statement shared with Fortune, an SEC spokesperson said the agency was the victim of a “SIM swap” attack—a technique where cybercriminals convince mobile carriers to transfer phone numbers to a new account.

While Monday’s explanation provides additional context as to how a hacker gained unauthorized control of a key government office’s social media account, the SEC said it’s still working with law enforcement agencies to determine who carried out the attack.

The hack

On Jan. 9, crypto industry onlookers monitored SEC accounts for any notice of the agency’s decision on Bitcoin ETFs, a financial vehicle that would allow investors to trade the popular cryptocurrency as shares on major exchanges. After years of rejecting applications for Bitcoin ETFs, the SEC was poised to approve the applications of a dozen-odd firms, including BlackRock.

While analysts predicted the decision would come on Jan. 10, the SEC’s official X (formerly Twitter) account made a surprising announcement just after markets closed on Jan. 9: The agency had approved every application. Many on the social media platform were celebrating.

Still, something seemed off—there were no new filings to support the decisions, and the SEC did not post any updated news on its website. Soon after, Chair Gary Gensler posted on his own account that the SEC’s account had been “compromised” and that the agency had not yet approved the listing or trading of any of the ETFs.

As speculation swirled, SEC staff clarified that someone had gained unauthorized access to the agency’s X account and was working with law enforcement officials to find the culprit.

Criticism poured in from all sides, with gleeful crypto advocates pointing to past SEC guidance on cybersecurity practices, and lawmakers from both parties calling for an investigation into what happened.

‘Issues accessing the count’

The SEC is still investigating how the hacker was able to convince the carrier to change the SIM for its account, and how they knew which phone number was associated with the account.

SIM swaps are often carried out through social engineering: A cybercriminal calls a cellphone provider such as T-Mobile and convinces an agent to transfer over the control of a phone number to a new SIM card. With control of the phone number, the attacker can reset passwords and take over the victim’s accounts.

The attacks are common in crypto, with Vitalik Buterin—the cofounder of Ethereum—losing access to his X account in an incident in September, with a hacker posting a malicious link to Buterin’s page and stealing over $691,000 from unsuspecting victims.

One protection against SIM swaps is multifactor authentication, which provides an additional layer of defense. According to the SEC spokesperson, the agency’s X account had multifactor authentication enabled but removed it in July due to “issues accessing the account,” adding that the feature since has been enabled on every SEC social account where available.

Under Elon Musk’s ownership, X has faced criticism over cybersecurity, including for removing multifactor authentication for non-subscribers in February. Moreover, many users turn to SMS-based multifactor authentication, which wouldn’t prevent a SIM swap attack.

In its statement, the SEC said it’s coordinating with different law enforcement and federal oversight agencies, including the SEC’s Office of Inspector General, the FBI, the Department of Homeland SEcurity, and the Department of Justice.

The spokesperson said there’s no evidence that the hacker gained access to SEC systems, data, devices, or other social platforms.

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LedgerPrime alumni launch crypto hedge fund Split Capital to focus on liquid tokens


As crypto markets roar back, alumni from a major trading firm have launched their own crypto hedge fund, Split Capital.

With a focus on liquid tokens, according to cofounder Zaheer Ebtikar, Split Capital will employ a “long-biased” strategy, meaning long-term prices will be expected to rise alongside an active management approach.

Investors include the venture fund Novi Loren, the digital asset fund UTXO Management, and Dan Matuszewski, who’s the cofounder of the digital asset fund CMS Holdings. Ebtikar declined to provide the fund’s size due to regulatory restrictions.

Arguing that the middle 80% of the token market often gets overlooked because of short-term incentives, Ebtikar told Fortune that Split Capital aims to support crypto projects on longer time frames and help build out the ecosystem.

“Once assets become liquid, they just no longer get any love—and VCs move on to the next thing,” Ebtikar said. “We want to be much more founder-aligned.”

Courtesy of Split Capital

‘The shiny new thing’

Before starting Split Capital, Ebtikar worked as a portfolio manager at LedgerPrime, a trading firm acquired by FTX in 2021 that changed its structure to operate under the umbrella of Alameda and FTX’s U.S. subsidiary. Although LedgerPrime planned to refund outside investors and transition into a family fund in 2022, it became tangled up in FTX’s ensuing bankruptcy after the Sam Bankman-Fried-run crypto empire collapsed in November 2022.

“We did everything right, in our power—just wrong place, wrong time,” Ebtikar said. “So we did have a bit of a chip on our shoulders to make things right.”

LedgerPrime alum Michael Churchouse and Nai Boonkongkird, who has a Ph.D. in astrophysics from Sorbonne University, joined Ebtikar in founding Split Capital. Shiliang Tang, the former chief investment officer at LedgerPrime, is serving as an advisor.

From Split’s vantage point, the unique incentive structure of crypto venture capital harms the overall marketplace. Unlike traditional VCs, crypto VC firms often have shorter time horizons due to the liquid nature of token investing. Through investment vehicles like SAFTs, VCs can receive the promise of future tokens instead of traditional equity, which in turn might unlock one to two years after an initial investment, as opposed to waiting several years longer for a company to be acquired or go public.

“The overwhelming majority of the capital in crypto is venture money,” said Ebtikar. “Their mandate is, ‘Buy the new shiny thing early, evangelize it, and then sell it at a premium to retail.’”

Bigger venture firms such as a16z Crypto and Haun Ventures push back on that critique, arguing that they support projects over the long term, but the space remains rife with venture firms that operate more like hedge funds. According to Bloomberg, crypto hedge funds lost an average of 52% in 2022, although they returned over 40% in 2023.

Ebtikar said that by investing in less-popular tokens, Split can both find undervalued investments and drive growth of the ecosystem, where currently too much market value of a project’s token is tied to speculation, not the project’s underlying value.

The U.S.-based Split, which launched earlier this month, is registered with the Commodity Futures Trading Commission—a requirement because it trades derivatives to hedge investments.

“We have this thesis that in the long run, we can’t just keep making new tokens and pumping those out and having those exist without crypto folding in on itself,” Ebtikar said. “Gambling is not a multitrillion-dollar [total addressable market].”

Learn more about all things crypto with short, easy-to-read lesson cards. Click here for Fortune’s Crypto Crash Course.

No knockout in latest Coinbase-SEC fight: Both parties still awaiting judge’s decision


Arguing in front of Judge Katherine Polk Failla of the Southern District of New York, Coinbase’s lawyers sought to dismiss the SEC’s lawsuit from June 2023 that alleges the firm operates illegally by offering crypto trading and staking services without first registering with the agency.

Failla spent five hours grilling each team of lawyers. Central to the lawsuit is the debate over whether crypto assets are securities, and therefore overseen by the SEC. The agency has long argued that the Howey test, a Supreme Court framework established in 1946, ensures that most crypto assets fall under existing securities law. Crypto advocates, including Coinbase’s lawyers, argue that Howey does not apply to the novel structure of crypto assets and that the SEC is overreaching.

As the crypto industry clamors for regulatory clarity amid a bevy of lawsuits from the SEC, Coinbase’s court case represents a key pivot point for the embattled sector, with a loss potentially crippling the ability of many digital asset firms to operate in the U.S.

‘Contractual undertaking’

Although cryptocurrencies have existed for 15 years, with Bitcoin created in 2009, the SEC has dragged its feet on clarifying whether major crypto assets like Ether and Solana fall under its regulatory remit. (The agency has conceded that Bitcoin is a commodity.)

That changed in a series of lawsuits brought by the SEC against different token issuers and intermediaries, starting with a 2020 case against Ripple, the creator of XRP. After the broader collapse of the crypto industry in 2022, the SEC ramped up its efforts, suing Terraform Labs as well as exchanges including Coinbase, Binance, and Kraken.

In each of the lawsuits, the SEC made a similar argument: Howey establishes that a security is an investment in a common enterprise with the expectation of profit derived from the profit of others. The agency argued that different cryptocurrencies satisfied the criteria, meaning that many platforms selling the assets weren’t operating in compliance.

At Wednesday’s hearing, Patrick Costello, the SEC’s assistant chief litigation counsel, expanded on the agency’s view that the tokens themselves are not a security—but that when customers buy them on a platform like Coinbase, they’re investing in the network behind the tokens, whose issuers often make promotional statements to boost their value. “One cannot be separated from the other one,” he said.

The question has already been contested in two other cases decided at SDNY. In the Ripple lawsuit, Judge Analisa Torres found that XRP was an investment contract only when sold to institutional investors but not in the open market—secondary sales, like on Coinbase. Just a few weeks ago, Judge Jed Rakoff disagreed, establishing a broader definition of crypto asset securities in the SEC’s lawsuit against Terraform Labs.

Led by William Savitt, the co-chair of litigation for Wachtell, Lipton, Rosen & Katz, Coinbase’s legal team seemed to take an even looser view than Torres’s ruling. He argued that the Howey test did not apply to cryptocurrencies sold on Coinbase at all because there’s no explicit investment contract present—sales on secondary markets like Coinbase are just trades between strangers.

Failla noted how the SEC’s stance could push the boundaries of securities into realms it doesn’t intend to venture into, including collectibles. The SEC sought to establish a “limiting principle,” arguing that investors buying tokens with the understanding that they were buying into the ecosystem—driven by promotional materials—would create an investment contract. Savitt argued that many commodities, such as gold, have promotional statements, and what sets securities apart is the “contractual undertaking that gives an interest in the business.”

‘Just out of luck’

While discussions around Howey ate up most of the hearing, the judge also weighed two other debates. The first surrounded staking, a product offered by Coinbase that allows users to deposit certain cryptocurrencies to earn a yield.

As an SEC attorney explained, Coinbase is taking an established technology—in this case, the staking rewards program endemic to certain blockchains like Ethereum—and building an enterprise on top of it, which they say constitutes an investment contract.

Coinbase’s counsel disagreed, arguing that the tokens always belong to the users, not Coinbase, and that the users are merely hiring Coinbase to stake the tokens on their behalf.

A more contentious—and potentially consequential—debate hinged on the Major Questions Doctrine, another Supreme Court precedent that states Congress should not delegate issues of major political or economic significance to agencies like the SEC. In other words, the SEC should not create its own de facto legislation for consequential issues without explicit instructions from Congress.

Failla referenced how Congress is actively weighing crypto legislation and how Sen. Cynthia Lummis (R-Wyo.) even filed a brief arguing in favor of Coinbase that questioned whether the judge would be stepping outside her lane by creating precedence in the absence of congressional action. The agency argued that crypto’s relatively small imprint on financial markets meant that the Major Questions Doctrine did not apply, and that the SEC’s duty is to apply existing securities laws to new financial sectors.

In her questioning of Coinbase’s lawyers, Fallia seemed hesitant to apply the Major Questions Doctrine, alluding to the fact that it is rarely invoked in decisions. “I worry that I am, in my own lane, doing exactly the thing that you’re arguing the Commission is doing here, which is to take power I don’t have to stop activity I shouldn’t be stopping,” she said. “I do have a concern about not recognizing someone’s authority to do something in this space. The answer may be that I’m just out of luck until Congress acts.”

Acknowledging her reticence, Coinbase’s counsel argued that the SEC was effectively creating rules through enforcement actions against a nascent industry. “The SEC should follow enforcement and rulemaking actions that make sense of the statutory language and that does not twist it upside down,” Savitt said in his closing summation.

After five hours, Failla didn’t issue a ruling from the bench. She asked for more time to weigh the arguments.

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Exclusive: Genesis reaches settlement with New York regulator, will forfeit BitLicense and pay $8 million fine


The New York Department of Financial Services plans to announce later today a settlement with Genesis Global Trading, a subsidiary of the major crypto conglomerate Digital Currency Group.

After an investigation found significant failures in Genesis’s anti-money laundering and cybersecurity programs, the trading firm agreed to surrender its BitLicense, cease operations in New York, and pay an $8 million fine.

“Genesis Global Trading’s failure to maintain a functional compliance program demonstrated a disregard for the Department’s regulatory requirements and exposed the company and its customers to potential threats,” said Superintendent Adrienne Harris in a statement shared with Fortune.

Rise and fall

Founded in 2015, Digital Currency Group helped lead crypto’s growth in the U.S., fueling bull markets with its lending practice Genesis Global Capital and its asset manager, Grayscale. Genesis Global Trading, a distinct entity from Genesis Global Capital focused on providing trading services to institutional and accredited investors, served as a crucial arm of the digital asset empire.

DCG was also at the center of crypto’s collapse in 2022, drawing regulatory scrutiny from both state and federal agencies. Genesis’s lending practice worked with failed firms including the hedge fund Three Arrows Capital and Sam Bankman-Fried’s Alameda Research, spurring its own bankruptcy in early 2023. Genesis later faced lawsuits from the Securities and Exchange Commission and the Office of the New York Attorney General for allegedly offering unregistered securities.

While Genesis Global Trading was not included in the bankruptcy and was not a named party in the lawsuits, it still suffered from the parent company’s broader setbacks. In September, the firm announced it would shut down its over-the-counter trading platform in the U.S.

Genesis Global Trading also was the only DCG entity to hold a BitLicense in New York. DFS is notably the only U.S. regulator at both the state and federal levels to offer a comprehensive crypto supervisory framework, with Genesis receiving its license in 2018.

The DFS settlement comes amid increased discussion in New York over how to handle crypto regulation. As Fortune reported in December, DFS approved a program called Gemini Earn for a separate BitLicense holder, the Winklevoss-led Gemini. The Genesis lending arm served as the counterparty for the investment vehicle, which collapsed amid the failures of Three Arrows Capital and Alameda in 2022 and became the target of lawsuits from the SEC and New York’s attorney general.

Staffers in New York Attorney General Letitia James’s office, after she proposed legislation in May to expand her office’s purview, have pointed to Gemini Earn’s failure as evidence of shortcomings within DFS. This week, New York Comptroller Thomas DiNapoli—a supporter of James’s legislative proposal—released a report questioning the efficacy of the state’s BitLicense program.

In a statement shared with Fortune, a DFS spokesperson said that Harris initiated an internal assessment of the department’s virtual currency unit after arriving in September 2021, adding that the comptroller’s review “identified the same areas for improvement that the Superintendent began remediating in 2021 before the audit.”

Although James’s office has brought actions against two BitLicense holders—Gemini and the trading platform Coin Cafe—DFS has largely managed to prevent the collapses endemic to the crypto industry through the supervision of its licensees. In January 2023, DFS reached a $100 million settlement with Coinbase over failures in its compliance program, although Coinbase was not required to forfeit its BitLicense.

‘Significant failings’

According to a consent order shared with Fortune, DFS conducted two examinations of Genesis—one from May 2018 through March 2019, and another from April 2019 through March 2022. After finding deficiencies in the firm’s anti-money laundering and cybersecurity programs in the first examination, DFS subsequently found Genesis had directed “little effort or resources” to addressing those deficiencies despite significant growth in Genesis’s business. After initiating an enforcement investigation, DFS found that Genesis had violated its virtual currency and cybersecurity regulations.

The department determined that Genesis didn’t complete a risk assessment that met its requirements until mid-2022, meaning it never had proper controls in place to address the “high inherent risks” of certain products. Genesis also didn’t make sufficient disclosures to its customers, including details like the amount and type of transactions, and it failed to document anti-money laundering policies that would identify unusual or suspicious transactions. The firm also didn’t designate an anti-money laundering officer to oversee compliance.

In its second examination, DFS found that suspicious activity reports, or SARs, filed by Genesis did not meet its standards and that no SARs were relayed to Genesis’s board of directors until the summer of 2022. Genesis also did not conduct enhanced screening of employees and third-party service providers, which is required by the Treasury Department.

DFS also found Genesis’s cybersecurity practices to be insufficient. The board of directors didn’t annually review and approve its practices, and it failed to protect sensitive data and nonpublic personal information.

As part of the settlement, Genesis agreed to pay a fine of $8 million, with the relatively low amount reflecting Genesis’s cooperation during the investigation and efforts to update its programs. Still, Genesis agreed to cease all operations in New York and surrender its BitLicense.

A spokesperson for Genesis did not immediately respond to a request for comment.

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SEC approves Bitcoin ETFs in long-awaited decision after hacking incident on Tuesday


In a filing, the agency announced that applications for 11 issuers including BlackRock and Grayscale had been approved—the culmination of a process that began in 2013 when the Winklevoss twins unsuccessfully sought approval for the first Bitcoin ETF.

Crypto pipe dream

ETFs, or exchange-traded funds, have grown in popularity over the last two decades, providing investors access to a basket of assets such as stocks or commodities that can be traded in the form of shares on major exchanges.

A spot Bitcoin ETF, which tracks the current price of the popular cryptocurrency, has long been a pipe dream for the crypto industry, with the hope that it would open new flows of investments from wealth managers and everyday traders who otherwise would not buy digital assets on exchanges like Coinbase.

Under successive administrations, however, the SEC rejected applications for spot Bitcoin ETFs, citing the immaturity of the market and the potential for manipulation. Even after the agency in 2021 approved a Bitcoin futures ETF, which trades derivatives on by Commodity Futures Trading Commission-regulated exchanges, the SEC has continued to deny applications for spot ETFs.

The dynamic changed when Grayscale, a prominent crypto asset manager that runs the largest Bitcoin trust, sued the agency in 2022 for allowing futures-based ETFs but not spot vehicles. In anticipation of a victory, BlackRock filed for a spot Bitcoin ETF in June 2023—a signal to many that approval was inevitable. After Grayscale won its case in August, the timeline was set into motion.

The last few months have been filled with speculation over when an approval might come, as well as how the mechanics around such novel products would work. After a flurry of meetings between prospective issuers and the SEC in December, the agency pushed a cash model for creation and redemption of shares, meaning the onus for buying and selling Bitcoin would be on the issuers.

Race to the finish

Anticipating that the SEC would relent—even under the crypto-skeptical chair, Gary Gensler—the Bitcoin ETF race attracted major players from across the worlds of traditional finance and crypto. While BlackRock remains the highest-profile issuer, thanks to its existing fleet of ETF products, other firms include Fidelity, Franklin Templeton, and Cathie Wood’s ARK.

Crypto-native firms, hoping to entice investors by touting their experience in the digital assets space, include Grayscale, Hashdex, and Valkyrie.

The frenzy has also attracted other players that are not issuing Bitcoin ETFs, but taking on other roles. Coinbase is serving as the Bitcoin custodian for the majority of the issuers, while firms such as JPMorgan, Jane Street, and Virtu are set as authorized participants—the partners who sit in between issuers and investors to handle the creation and redemption of the ETF shares.

Due to the crowded field of entrants, which includes 11 newly approved issuers, firms have spent the past weeks undercutting each other by offering fee reductions and waivers. Others have relied on marketing campaigns with flashy television ads and appeals to the crypto community. One issuer, the asset manager VanEck, pledged 5% of profits to the developers who maintain Bitcoin’s blockchain.

The next development to watch will be how much capital flows into the newly opened market, as well as which issuers capture the most market share. In a Twitter Spaces last week, Matthew Sigel—VanEck’s head of digital asset research—claimed that BlackRock anticipated $2 billion of capital to flow into ETFs from existing Bitcoin holders alone.

Onlookers had Wednesday circled on their calendar because it was the deadline for the SEC to approve the first issuer in line, ARK. Despite assurances of the date, shockwaves rippled through the crypto world on Tuesday when a tweet from the SEC official account appeared to announce the approval of every Bitcoin ETF application. The agency quickly clarified that its account had been hacked, with the culprit still unknown.

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With the fake Bitcoin ETF approval, Gary Gensler created his own worst nightmare


Sometimes I struggle to find a meme to feature at the bottom of this newsletter. Today was not one of those days.

After weeks of frenzied reporting and anticipation, everyone seemed to settle on Wednesday as the finish line for the great Bitcoin ETF scramble, with Gary Gensler’s SEC likely approving some—if not all—of the applications for the long-awaited financial vehicle at the close of markets.

We were all taken by surprise when the SEC Twitter account instead posted yesterday at around 4:11 pm that it had granted approval for spot Bitcoin ETFs, with gleeful accompanying posts from the biggest accounts on Crypto Twitter announcing that every single application—including the SEC nemesis Grayscale—had been given the green light.

It all seemed too good to be true. In the aftermath, I spoke with one prospective issuer who told me they were immediately dubious. They were expecting to receive word from their listing exchange partner after the SEC moved its 19b-4 from pending to approved, or else they would get a call from SEC staff granting an order of effectiveness on its S-1. It’s the kind of mind-numbing bureaucratic legalese that has permeated this process, but ultimately reflects that its conclusion is unlikely to take place on a social media platform run by Elon Musk. After the SEC had followed all of the correct procedures for months, it just didn’t feel right, the issuer told me. “That was my gut,” they said.

So what happened? The Fortune newsroom looked like a scene out from an Oscar-bait movie about a bygone era, with my editors and myself shouting back and forth across cubicles about whether the Twitter account had been “compromised,” as Gensler’s Twitter account soon announced, or hacked. In other words, did some poor staff member set the wrong day when they scheduled a Tweet, or had someone gotten access to a key governmental social media account?

As the smoke has cleared, the latter seems most likely, although conspiracies will continue to swirl. Around 6:32 pm, an SEC spokesperson emailed reporters that there was “unauthorized access and activity” on its Twitter account, which had been terminated, and that it was working with law enforcement to investigate what happened.

A few hours later, the “Safety” account for Twitter—if there is such a thing anymore—reiterated the assertion, posting that an “unidentified individual” had seized the SEC account by obtaining control over a phone number associated with the account through a third party. It included a cheeky reminder for users to enable two-factor authentication, which the SEC apparently had not done.

As many have pointed out on Twitter, the real upshot of the episode is a pervading sense of irony. For years, the SEC has cited market manipulation as a reason not to approve spot Bitcoin ETFs, which would grant investors the ability to trade the popular cryptocurrency in the form of shares on major exchanges. On the eve of its approval, spurred by the agency losing a landmark court case against Grayscale, the SEC is the one who fell victim to manipulation, with the tweet spurring $90 million in liquidations due to Bitcoin price volatility.

As always, observers will view the scandal as a Rorschach test and retreat to their tribal corners. Crypto critics are claiming this is evidence that crypto is too immature to handle an ETF, while advocates—including prominent lawmakers—are taking the opportunity to escalate their denunciation of Gensler’s SEC.

The only thing we can all agree on is that this is another embarrassing misstep for Gensler in the Bitcoin ETF circus. As Georgetown finance professor James Angel astutely pointed out in Capitol Account, all the SEC has done with its drawn-out process of litigation and approval is to create a marketing cyclone for the financial vehicle, which otherwise could have just been a niche way for investors to gain exposure to Bitcoin. While the agency’s laborious approach, such as working with issuers on the mechanics of cash vs. in-kind creates and redemptions, is no doubt constructive, it has also invited a degree of scrutiny and attention that seems wholly unnecessary.

The latest scandal is just the cherry on top. You can bet that if the SEC finally grants issuers the green light tonight, it won’t be on Twitter.

Leo Schwartz


The once prolific trading firm Jump has largely retreated from the crypto industry, including sitting out the recent Bitcoin ETF frenzy. (Fortune)

A shadowy advocacy organization is leading crypto lobbying efforts in Washington, D.C. and beyond, although its backers remain unknown. (CNBC)

A relentless crypto promoter named “Bitcoin Rodney” who sold himself as a financial guru to the stars was taken into custody amid allegations of being involved in an unlicensed money-transmitting business. (Rolling Stone)

The crypto custodian BitGo gained approval to offer digital payment token services in Singapore as the country continues to attract key players in the industry. (CoinDesk)

A key CFTC advisory committee advanced recommendations on DeFi, urging increased knowledge for policymakers, new regulatory frameworks, and enhanced enforcement. (The Block)


Just too many to choose from

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Exclusive: Jump sits out Bitcoin ETF race amid broader crypto pullback


As prospective issuers for a spot Bitcoin ETF race toward a finish line, one name has been notably absent: Jump, a trading firm closely associated with the crypto industry. While other market-making firms like Jane Street and Virtu have partnered with issuers to play a key role known as an authorized participant, Jump declined to be involved.

The decision follows a tumultuous two years for Jump, which included its involvement with the notorious digital asset firm Terraform Labs and a massive hack of one of its crypto projects, Wormhole. According to people familiar with the matter, Jump’s decision to shy away from the emerging Bitcoin ETF industry reflects a broader strategic retreat from the crypto space where it was once omnipresent.

Big names line up for Bitcoin ETFs

The Securities and Exchange Commission, which has rebuffed applications for Bitcoin ETFs, is expected to finally relent on Thursday and let a dozen-odd firms launch the novel financial product. The bid to launch an ETF has become a frenzy in recent weeks and is dominated by the high-profile names of would-be issuers, which include the likes of BlackRock and Fidelity. Other firms are occupying key behind-the-scenes roles, such as Coinbase, which plans to serve as Bitcoin custodian for many of the prospective issuers.

In the esoteric structure of ETFs, authorized participants also fill a critical need, serving as a middleman between the issuers and investors to create and redeem shares of the ETFs.

ETFs, which have been a fixture of financial markets for several decades, allow investors to trade baskets of assets such as stocks or commodities. The proposed Bitcoin ETFs, however, present a unique challenge. Many of the authorized participants likely to participate in ETFs, such as major banks including Goldman Sachs and JP Morgan, lack experience buying and selling cryptocurrencies or are otherwise restricted because of SEC regulation around broker-dealers.

In part to address this issue, the SEC pushed issuers toward a cash model for creation and redemption, meaning that the onus for buying and selling Bitcoin would be on the issuers, not authorized participants, rather than an in-kind model, where the authorized participants would handle the Bitcoin. This allowed a broader array of traditional market participants, with many issuers listing JP Morgan as an authorized participant in their latest filings.

Other authorized participants named in filings, however, included market-making firms with experience in the crypto sector, including Jane Street—the former employer of FTX founder Sam Bankman-Fried—and Virtu. Fidelity tapped another crypto trading firm, Cumberland DRW, to buy and sell Bitcoin for its ETF, as well as Jane Street.

Jump absent from ETF frenzy

While Jump had previously been floated as a crypto-friendly firm that could participate as an authorized participant, it did not appear in any capacity on any regulatory filings. One prospective issuer told Fortune that they did not reach out to Jump to participate, nor did Jump reach out to them.

Speaking on the condition of anonymity, a person familiar said the company declined to participate because it didn’t make sense from a revenue experience, as well as its lack of experience with ETFs. Jump is also not serving as a liquidity provider or market maker for the ETFs on exchanges, a role distinct from an authorized participant, although the person said that Jump still plans to actively trade the ETFs, should the SEC grant approval.

Others told Fortune that Jump’s absence reflected its overall retreat from crypto. Until recently, Jump Crypto—the digital asset unit of Jump Trading—was one of the most active players in the sector. As revealed in an SEC lawsuit, Jump poured millions of dollars into fraudster Do Kwon’s Terraform Labs, and the firm also developed a messaging protocol called Wormhole, investing over $200 million into the project after a massive hack.

In the wake of its disastrous crypto bets, including the collapse of Terra’s so-called stablecoin, Jump began to pare back its involvement in digital assets. Bloomberg reported that Jump Crypto cut its workforce by roughly half after peaking at around 150 in 2022, and the firm parted ways with Wormhole at the end of 2023, just before Wormhole announced a new funding round at a $2.5 billion valuation. Other Jump alumni spun off crypto projects including the smart contract platform Monad and the blockchain-based data service Pyth Network.

Even with Jump’s retreat from crypto, its woes are not over. In late December, a federal judge ruled that fraud-related charges in the SEC’s lawsuit against Terraform Labs would go to jury trial. Part of the case will include Jump’s alleged involvement in artificially maintaining the peg for its stablecoin.

Learn more about all things crypto with short, easy-to-read lesson cards. Click here for Fortune’s Crypto Crash Course.

SEC Twitter account hacked, promotes fake Bitcoin ETF news


After the official Twitter account for the U.S. Securities and Exchange Committee tweeted the long-awaited approval for spot Bitcoin ETFs, Chair Gary Gensler took to the social media platform to announce that the account had in fact been hacked.

“The @SECGov twitter account was compromised, and an authorized tweet was posted,” he wrote. “The SEC has not approved the listing and trading of spot bitcoin exchange-traded products.”

This is a developing story.

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Valkyrie cofounder predicts Wednesday approval amid Bitcoin ETF frenzy: ‘It’s almost surreal’


Everyone in the crypto world has Wednesday circled on their calendar: It’s the day the SEC is expected to finally approve spot Bitcoin ETFs, a vehicle that will let U.S. investors for the first time trade the popular cryptocurrency in the form of shares on a major exchange.

Steven McClurg is the cofounder and chief investment officer of Valkyrie, a crypto native asset manager that is one of a dozen-odd prospective issuers vying to sell Bitcoin ETF shares after the SEC gives the green light. Unlike other players from traditional finance vying for an early market advantage, including BlackRock and Fidelity, Valkyrie hopes its digital asset bona fides will give it an edge for investors. The firm already has two crypto ETFs: One that invests in public Bitcoin mining companies and another that invests in Bitcoin and Ether futures contracts. And in a nod to the prodigious world of crypto memes, Valkyrie chose BRRR as the ticker name for its spot Bitcoin ETF—a reference to the sound of the Federal Reserve “money printer.”

On Monday, McClurg stopped by the Fortune office to talk about his opinions on the SEC, the advantages of cash versus in-kind redemption models for ETFs, and the battle over fees. A veteran of TradFi himself, McClurg offers a unique perspective as someone straddling the line between Wall Street and crypto “degens.”

This interview has been edited for clarity and length.

We’ve reached a fever pitch with Bitcoin ETF approval. How optimistic are you feeling?

My first couple of years in college, I was a theater minor. The best way I can think about it is Waiting for Godot. That’s how I felt for the first three years of this, but now it’s come to fruition. It’s almost surreal.

In the last six weeks, we’ve put massive amounts of work into it. There are a lot more hurdles in this ETF than most other ones that we’ve had to get through. We got the word that something was going to happen right before Christmas break. The communication was very simple: The SEC had a lot of papers to review. If you want to make sure that you’re in that first batch to be reviewed, make sure to have everything in by the end of the month.

So the whole team has been working through that break and last weekend. The filing today is a massive, massive milestone. And got it done. So we’re just very excited and proud of the work.

At what point did you become optimistic that the SEC was going to approve the ETF?

Back in October, we got the very first comments on our ETF filing after three years. Things were moving. We didn’t have an idea of what the timing would be, but we knew that they were getting ready.

What’s your understanding of the next steps? There has been reporting about a potential commission vote, even though there isn’t one scheduled.

We’re just in a slight holding pattern. I’m in the camp where I believe that sometime after the market closes on Wednesday, the ETFs will go effective, meaning they trade on Thursday. That doesn’t mean that that’s going to happen, but that’s that’s what I believe is going to happen.

I’m not aware of any type of commission vote, and I’ve never heard of an ETF that needed a commission vote. There have been a lot of people who have spread that rumor, but we have no understanding of any type of commission vote for this.

I don’t know how each commissioner would vote, but I have a pretty good idea of how some of them would if that were to happen. There are at least two commissioners that I believe want this to happen and have been for the whole way: Mark Uyeda and Hester Peirce. And I also believe that Gary Gensler has been wanting this to happen as well. Look at the facts since he took over as chair. We got a Bitcoin futures ETF very quickly. Then we got an Ether Futures ETF and now we’re getting a Bitcoin spot ETF. There are a lot of people on Twitter who like to hate on Gary Gensler, but from my chair, he’s been very good for for Bitcoin.

Valkyrie was in a unique position of not meeting with the SEC during the period in December when many issuers were coming in to argue for in-kind creates and redemptions. What’s your view?

A lot of people on my team, including myself, have managed ETFs in the past. One of the pieces of misinformation out there is that most ETFs are always in-kind creates and redeems. That’s not the case. It’s probably the case for equities. But most of my experience is on the bond side and more esoteric types of ETFs. And even though they allow for both, you typically always do cash, so I’m used to cash creates and cash redemption.

The other thing is when it comes to cash creates, it also allows for more market participants. A lot of the banks just don’t know what the rules allow them to do. So they think, if it’s cash creates, we’ll do it, and if it’s in-kind, we’re just going to have to wait. Setting the standard of cash creates helps beef up the market in the early days. It doesn’t mean that it won’t change later. But for a launch like this, you need as many market participants as possible.

Besides authorized participants, the other main partner is the crypto custodian. In your case, that is Coinbase, which is in a lawsuit with the SEC. Is that a concern for you?

We don’t have any concerns there, and I’ll tell you why. Almost every firm on Wall Street has had issues or a lawsuit or an investigation by the SEC, and often. Every time that the SEC investigates UBS, people aren’t pulling their money.

The other thing that’s important here is that there are several sides to the Coinbase business. It looks like what the SEC is going after is the tokens on Coinbase’s consumer-facing exchange business. And we’re not facing that business at all. We’re facing their institutional custody business so when you bifurcate that, we don’t have any issues with their institutional business.

There’s a possible future where Coinbase only offers custodian services in the U.S. and then its exchange business offshores.

That’s what I would do if I was ruling Coinbase.

We saw a dynamic in the filings today where issuers are trying to undercut each other with fees and waivers. Your fee, which is set at 0.80%, is higher than many of your competitors. What’s your approach?

There was the first round of filings. A few people disclosed fees, and a few people didn’t. Our understanding after speaking with the SEC was that they wanted a 100% finished application, so that’s what we delivered. We filled in every blank.

During this last round, where everybody filed this morning, a lot of the issuers took the opportunity to lower their fees. We decided not to do that at this point. But we’re constantly evaluating and looking to be competitive. But we also want to note that we’re not going to be the cheap, low-cost provider either. We’re a little bit more sophisticated when it comes to Bitcoin storage, security, and trading.

You’ve got investors waiting at the gates and they’re going to go with the name that they recognize. Frankly, the most well-known name is BlackRock. Most people are going to choose BlackRock. But then there are a lot of people who recognize the name BlackRock and say they don’t like that name. So what are the other names that they like? At the end of the day, people are going to choose the adviser that they’re most comfortable with.

If they’re looking for something that’s more brand-name and well-known, that’s probably not us. If they’re looking for experts in this space, there are no gimmicks here, we’re not putting out TV ads, we’re just experts in Bitcoin. That’s who’s going to choose us.

Who do you think your main bucket of investors will be? Is it retail or institutional?

We will probably be bifurcated between institutional and retail. [Registered investment advisers] are probably going to go for BlackRock or Fidelity, just because you don’t get fired for choosing Blackrock when you’re handling other people’s money. But I think the retail audience certainly recognizes us. I know when Ether futures launched, we had about the same volume as everybody else put together. We’re going to appeal to people who are looking for experts and are looking for good active managers who are not going to mess it up.

So much about Bitcoin ETFs seems to be paradoxical to the founding principles of Bitcoin, which decries intermediaries and centralization. How do you think the ETFs fit within the broader ethos of Bitcoin?

I actually believe that ethos. I self-custody my own Bitcoin, and I also have Bitcoin through GBTC in my retirement account. I’ve got Bitcoin in a Valkyrie trust in my retirement account. I own the Valkyrie Bitcoin futures ETF. I own the Valkyrie Bitcoin miners ETF in my own accounts. I like the idea that you have options.

That’s part of the Bitcoin ethos, which that way over here, we’ve got the super technical people that can go out and buy Bitcoin, they can hold it on their own keys, they can memorize their seed phrases, good for them. Maybe in my 30s, I could memorize a 24-word seed phrase, but I can’t today. I certainly know how to store it, and I certainly know how to you know how to manage it, and not everybody knows how to do that.

Bitcoin ETF battles escalate as issuers including BlackRock and Cathie Wood’s ARK set fees and offer waivers


After months of court cases and endless filings, the Securities and Exchange Commission looks poised to approve the first spot Bitcoin ETFs this week. In anticipation of the floodgates opening, issuers are attempting to undercut each other by offering low fees to investors.

If the SEC moves forward with spot Bitcoin ETFs, which provide investors exposure to the current price of Bitcoin without having to hold the volatile cryptocurrency, it will kick off a race between major players like BlackRock and Fidelity that are hoping to plant a flag in a market potentially worth billions.

Besides factors like name recognition and trust, the fees charged by issuers to investors are one of the clearest ways to attract early investors. Last week, two issuers—Fidelity and Mike Novogratz’s Galaxy/Invesco ETF—released the first indications of what pricing would look like. Fidelity set its fee at 0.39%, while Galaxy put its fee at 0.59%, also announcing it would also waive fees for the first six months of operation and $5 billion in assets held.

Filings on Monday escalated the arms race. The crypto-native fund manager Bitwise squeaked in with the lowest fee, 0.24%, while the ETF and mutual fund manager VanEck set the second-lowest overall fee at 0.25% while also announcing last week it would donate 5% of its Bitcoin ETF profits to the group of developers, known as Bitcoin Core, who maintain the blockchain. Several other issuers came close, with Franklin Templeton setting its fee at 0.29% and BlackRock’s iShares ETF announcing a 0.3% fee.

Others, including Bitwise and BlackRock, aim to sweeten the pot of early entrants by following Galaxy’s model and waiving fees for a set period and for the amount invested at the beginning of the process. In a further attempt to compete with its more traditional competitors, Bitwise said it would waive fees for the first six months or $1 billion invested. Close on its heels, BlackRock set its waiver period at 12 months or $5 billion invested.

BlackRock announced it would waive fees for the first 12 months or $5 billion invested. The 21Shares Bitcoin ETF, released in partnership with Cathie Wood’s ARK Invest, set a waiver period of six months or $1 billion, with a fee of 0.25% after.

Grayscale, which paved the way for SEC approval of Bitcoin ETFs through its landmark court case against the agency decided last year, set a less competitive rate of 1.5%—still lower than its current fee of 2% for its Bitcoin trust. “Hard to imagine [an] advisor (where the big money is) picking a 1.5% ETF when others [are] sub 40pbs,” said Bloomberg senior ETF analyst Eric Balchunas on Twitter.

Grayscale may have a different advantage over competitors, however. Unlike other issuers, which are creating new offerings, Grayscale is “uplisting” its existing Bitcoin trust, which has long been one of the most popular investment vehicles in the digital asset space. As Fortune previously reported, there is still a possibility that this process means Grayscale’s Bitcoin ETF is the first out of the gate. Even so, the SEC seems set on having coordinated launches to avoid a situation like ProShares’ Bitcoin futures ETF, which launched in 2021 and has captured over 90% market share.

$2 billion

For now, the date to watch is Jan. 10, the deadline for the SEC to decide on the next ETF application in line—ARK 21Shares. Bloomberg reported that issuers have been given until Monday morning to submit the last revisions to their applications, with the SEC set to vote on the filings midweek.

Many in the crypto industry are hoping Bitcoin ETFs will finally encourage traditional investors, from wealth managers to everyday traders, to enter the market. In a Twitter Spaces last week, the head of digital assets research for VanEck said that he heard that BlackRock has $2 billion of capital lined up from existing Bitcoin holders who want to put their funds into spot Bitcoin ETFs.

Rather than buying Bitcoin on exchanges like Coinbase, or self-custodying the asset through hardware wallets, Bitcoin ETFs would allow investors to hold the cryptocurrency through their brokerage accounts for a small fee. The process would not be immune from the risks of the crypto industry. Coinbase, for example, is still set to be the Bitcoin custodian for the vast majority of the issuers—an irony given its ongoing lawsuit against the SEC.

Even with optimism that the agency is set to approve spot Bitcoin ETFs, there is still a possibility that the commissioners and Chair Gary Gensler will delay or reject the applications. On Saturday, Balchunas tweeted that he estimates a 5% chance of rejection, which would likely spur additional court cases. “You gotta leave a little window open for these things,” he wrote.

Learn more about all things crypto with short, easy-to-read lesson cards. Click here for Fortune’s Crypto Crash Course.

Mark Cuban-backed neobank Dave announces repurchase of $100 million investment from FTX


The U.S. neobank Dave has reached an agreement with FTX Ventures, the venture arm of the failed crypto exchange FTX, to buy back a $100 million promissory note that it issued in 2022.

With a shared goal of disrupting the U.S. financial system, the two firms formed a strategic partnership in March 2022, which included both the $100 million investment from FTX Ventures in the form of a promissory note as well as plans for Dave to build crypto-related products. Friday’s announcement reflects Dave’s full retreat from the deal in the wake of FTX’s catastrophic collapse in November 2022.

In a statement, Dave founder and CEO Jason Wilk said that the neobank could afford the repurchase of the promissory note at a discounted price of $71 million while continuing to expand.

“We remain confident that we have sufficient capital to execute on our growth plan,” he said.

The rise of Dave

Dave, among a growing class of challengers to traditional banks, offers services like checking accounts but without physical branches. Founded in 2016, it raised over $500 million in funding—including a $3 million seed investment from entrepreneur Mark Cuban—before its IPO in January 2022.

The company, named after the story of David vs. Goliath, offers customers no-fee checking accounts and $100 in overdraft protection for $1 a month. But Dave also has faced criticism for its no-fee claims, with an investigation by the Los Angeles Times showing that costs associated with its cash-advance product could include extra charges for expedited service, along with a tipping feature.

With the Sam Bankman-Fried-founded FTX ascendant, the two companies teamed up in 2022 during the heady days of a crypto bull market. Dave signaled an intent to incorporate crypto features into its app, as other financial technology platforms like Robinhood and Venmo were delving into blockchain technology. Dave received the $100 million investment from FTX Ventures and formed a strategic partnership with the exchange’s U.S. branch to introduce digital asset payments onto its platform.

Up until its collapse, FTX and Bankman-Fried were prolific investors, including a $600 million stake in Robinhood. As part of the bankruptcy process, recipients of FTX capital such as Dave are working to repay capital injections rather than be subject to potential clawbacks.

While FTX is lurching forward with a potential relaunch, Dave continues to expand its financial services, including a push into generative AI. In December, Dave launched an AI-driven chatbot called DaveGPT that can respond to customer inquiries in real-time. Wilk, the CEO, said the bot boasted an 89% resolution rate.

Learn more about all things crypto with short, easy-to-read lesson cards. Click here for Fortune’s Crypto Crash Course.

Coinbase is playing a ‘dangerous game’ against the SEC with its stablecoin USDC


In a year shaped by court cases, 2023 had one last surprise up its sleeve. On Dec. 28, with dreams of a Bitcoin ETF lulling the crypto industry to 2024, Judge Rakoff of the Southern District of New York issued a summary judgment against Do Kwon and his failed Terraform Labs.

Pleased not to be spending New Year’s Eve in a Montenegrin or Brooklyn holding cell, the rest of the crypto sector applauded the resolution to the Terra debacle, though questions of fraud and the involvement of Jump Trading will be left to a jury trial in January. Still, unlike July’s surprising Ripple decision, Rakoff’s reasoning could spell trouble for the future of the industry.

As always, the ruling hinged on the question of whether the crypto tokens that Terraform offered investors qualified as unregistered securities. The edge case was UST, Terra’s signature stablecoin, which was ostensibly pegged to $1—until it disastrously was not.

The Howey test, after all, determines that an investment contract is defined as an investment of money in a common enterprise with the expectation of profits derived from the efforts of others. If stablecoins are set at $1, how could they represent an investment contract?

Even putting aside the separate Reves test, which complicates the designation of a security, Rakoff said that one factor clearly puts UST in the investment contract category. Terraform offered the stablecoin in conjunction with a lending and borrowing protocol called Anchor that promised yields of up to 20%. As Rakoff wrote, UST on its own was not a security, but instead constituted an investment contract when offered in combination with Anchor.

Stablecoins remain a corner of crypto where regulators will give the most leeway, with their novel status presenting a jump ball situation between the SEC, CFTC, OCC, Federal Reserve, and Treasury Department (which isn’t even to mention state regulators). After legislation targeting an update to anti-money laundering provisions, stablecoin supervision represents the lowest-hanging fruit for Congress.

And yet, while it may have been evident before, there is now a clear judicial decision that explains when the SEC could target stablecoins. Two of the biggest issuers—Paxos and Tether—have opted not to offer yields to investors for their products, which could either enter them into bank or security territory, despite the historic returns on cash-like instruments. USDC, still the second-largest stablecoin by market cap despite its ruinous 2023, is a separate matter.

USDC is already a unique situation. Nominally, its issuer until recently was the Centre Consortium, which was really just a partnership between Circle and Coinbase. In August, the two firms finally sunset Centre, formalizing the stablecoin’s 50/50 split, though Circle would continue to handle matters of governance. Coinbase, however, is the main purveyor of USDC. If you go on its dedicated page now, you’ll be met with an offer: Buy USDC and earn a 5.1% reward by “simply holding USDC on Coinbase.”

At this point, you may ask yourself why the USDC rewards program is so different than UST and Anchor Protocol. I did, so I asked Todd Phillips, a financial regulation expert and assistant professor at Georgia State University. “Coinbase is playing a dangerous game,” he told me. “I do not know how they can justify that as not being an investment contract.”

There are several complicating factors. For one, Coinbase says that the rewards come from its own funds, which it writes off as marketing expenses, as opposed to doling out yields based on its own investments. At worst, one could describe this as a subterfuge to hide that the yield is still just a promise of Coinbase’s future success. According to Phillips, any “rational court” would see through the tactic.

For another, Phillips filed an amicus brief on behalf of the SEC in its ongoing lawsuit against Coinbase, so he already has a clear point of view. So does Coinbase, however. As the company has made clear in its legal battle against Gary Gensler, it wants an update to U.S. financial regulatory policy—which could include a refresh of the Howey test. As CEO Brian Armstrong marches forward with his crusade, USDC could become collateral damage.

Leo Schwartz


Prospective spot Bitcoin ETF issuers are jockeying for an early mover advantage as the SEC appears to be on the precipice of approval. (Fortune)

The Bitcoin miner CleanSpark plans to launch an in-house trading desk to maximize returns on its holdings, joining other miners such as Marathon. (Bloomberg)

Shares of publicly traded crypto companies, including Coinbase, fell sharply on the first day of trading in 2024 despite Bitcoin‘s rally. (CoinDesk)

Longtime crypto skeptic Jim Cramer touted Bitcoin as a ‘technological marvel’ as the proto-cryptocurrency continued its surge. (The Block

Parts of the U.S. infrastructure bill that impact crypto taxes went into effect, including requirements for reporting transactions greater than $10,000 to the IRS. (Cointelegraph)


Crypto skeptics survived 2023 with their reputations intact:

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Fidelity sets Bitcoin ETF fee at 0.39% ahead of expected SEC approvals


As the Securities and Exchange Commission appears on the precipice of approving the first wave of Bitcoin ETFs, issuers are jockeying for an early advantage to attract investors.

In late December, two of the major issuers—Fidelity and Galaxy/Invesco—released details on their fees, while a slew of issuers named authorized participants, setting the stage for a battle to gain a crucial early-mover status.

The crypto industry has long looked at a spot Bitcoin ETF as a surefire vehicle to bring traditional investors, from retail traders to asset managers, into the volatile sector.

Since the Winklevoss twins first filed for approval in 2013, the SEC has rejected applications, citing the immature Bitcoin market and the potential for manipulation. After the crypto asset manager Grayscale won a critical court case against the agency in 2023, however, the SEC has signaled its intention to open the floodgates to the investment vehicle, which tracks the current price of Bitcoin.

There are currently 12 issuers vying for spot Bitcoin ETF approval, including BlackRock, Fidelity, Grayscale, and Franklin Templeton. In late December, Reuters reported that the SEC asked issuers to file their last revisions to their applications by the end of the year ahead of a launch date that could come as soon as Jan. 10—the deadline for the SEC to approve or reject the first issuer in line, Ark/21Shares.

New details

As issuers file updates to their applications, the details of how the ETFs will function has come into focus. For weeks, the predominant question has focused on the model of redemption that issuers will follow. ETFs, or exchange-traded funds, function with the help of institutional investors called authorized participants who can create or redeem individual shares in the fund as part of an arbitrage system that keeps the price of the ETF shares close to the value of the underlying asset. While most ETFs hold traditional stocks or bonds, which are simple for authorized participants to buy and sell, a Bitcoin ETF presents a more challenging model.

Rather than having authorized participants buy or receive Bitcoin directly from the issuer—the “in-kind” model—the SEC pushed issuers to follow a cash model, which would put the onus of Bitcoin buying and selling on the issuer, reflecting the agency’s reluctance to allow broker-dealers to handle Bitcoin.

In updated filings from Dec. 29, Fidelity, Galaxy/Invesco, WisdomTree, Valkyrie, and BlackRock all listed the first authorized participants that they will work with. Fidelity and WisdomTree both named Jane Street Capital, a secretive trading firm that previously employed FTX founder Sam Bankman-Fried. BlackRock and Galaxy/Invesco, a partnership between the crypto firm run by Mike Novogratz and the traditional investment management company, both named JP Morgan and Virtu, a market-making firm. Valkyrie named Jane Street and Cantor Fitzgerald.

More critically, two of the issuers released details on the fees that they will charge investors for the ETF—a key detail that could determine the most popular options in the crowded field. Invesco/Galaxy announced that it would waive fees for its first six months of operation and for the first $5 billion in assets held, followed by a 0.59% fee. Fidelity announced its fee would be 0.39%. Eric Balchunas, a senior ETF analyst for Bloomberg, predicted on X that BlackRock would set its fee at 0.47%.

As the crypto industry waits for the SEC’s final decision, the price of Bitcoin is rallying on an expectation of approval, soaring to nearly $46,000 on Tuesday morning—its highest price since April 2022.

Learn more about all things crypto with short, easy-to-read lesson cards. Click here for Fortune’s Crypto Crash Course.

Judge rules Terra ‘stablecoin’ and other tokens are securities in victory for the SEC and departure from Ripple case


A federal judge sided with the U.S. Securities and Exchange Commission in a closely watched crypto case on Thursday, ruling that four crypto tokens offered by the failed Terraform Labs company—including UST and LUNA—constituted unregistered securities.

As the crypto industry battles regulators over how to classify digital assets, the decision is a setback for the sector’s interpretation of securities law and a departure from a separate decision by a different judge in the Southern District of New York over the token XRP.

In his 71-page decision, Judge Jed Rakoff wrote that there is “no genuine dispute” that the four crypto tokens offered by Terraform were securities because “they are investment contracts, arguing that defendants wanted to “cast aside decades of settled law,” citing the seminal Supreme Court precedent called the Howey test.

“Howey’s definition of ‘investment contract’ was and remains a binding settlement of the law, not dicta,” wrote Rakoff.

The trials of Do Kwon

During crypto’s bull run of 2021, Terraform Labs represented one of the most successful projects in the sector, raking in billions of dollars and backed by prominent investors in the space. With its so-called algorithmic stablecoin, UST, Terraform co-founder Do Kwon promised a crypto token that could maintain a $1 peg through a complicated system of distributing a secondary cryptocurrency called LUNA.

Less than a year later, UST lost its $1 peg in a spectacular meltdown in May of 2022, causing investors—including retail traders across the world—to lose their money. The prices for both UST and LUNA plummeted in a death spiral. Kwon was soon arrested in Montenegro, triggering an ongoing extradition fight between the U.S. and his home country of South Korea, with fraud charges brought by the U.S. Department of Justice.

In February 2023, the SEC sued Terraform Labs and Kwon, alleging that they orchestrated a multi-billion dollar securities fraud by offering unregistered securities, including UST and LUNA, as well as two other crypto tokens tied to the ecosystem, MIR and wLUNA.

In response, lawyers for the defendants made a similar argument to other crypto companies currently in legal battle with the SEC: U.S. securities law is antiquated, and crypto tokens do not fall under the traditional definition of the Howey test because they did not represent an investment in a common enterprise with the expectation of profit derived from the effort of others. UST, after all, was meant to maintain a $1 peg.

After U.S. District judge Analisa Torres ruled in a separate court case involving the crypto company Ripple—finding that its crypto token XRP itself was not a security, and that its sale only constituted an investment contract in certain contexts—lawyers for Terra filed a motion to dismiss.

Rakoff, the judge overseeing the Terra case, threw cold water on his colleague’s decision, dismissing the motion and rejecting the approach used by Torres to distinguish how different digital assets are sold.

Thursday’s decision furthers Rakoff’s argument that the sale of Terraform’s crypto assets constituted an unregistered security. Even with UST, the token meant to be pegged to $1, Rakoff argued that holders of the token could deposit the tokens in a proprietary protocol developed by Terraform to earn back a yield. The distinction, however, seems to support the argument that stablecoins that do not offer a yield would not constitute a security.

Rakoff left one matter of the case unsettled—the question of fraud claims related to UST’s depeg brought by the SEC. In his decision, Rakoff wrote that the SEC’s evidence for its allegations comes from third-party whistleblowers that should be heard before a jury. Furthermore, he argued that defendants have shown a “genuine dispute” over whether a “reasonable investor” would have found statements around UST’s depeg to be misleading. Part of the pending case will relate to the involvement of Jump, a prominent trading firm that served as one of Terra’s main backers.

The SEC has already appealed the Ripple decision to the U.S. Second Circuit Court of Appeals, and the issue of when a cryptocurrency is a security is likely to end up before the Supreme Court in the future.

The jury trial is scheduled to begin in January 2024.

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SEC ‘deeply regrets’ errors in crypto case, asks judge to waive sanctions after misleading statements


Attorneys for the Securities and Exchange Commission apologized to a judge on Thursday for misrepresenting facts used to secure a restraining order and asset freeze against a crypto firm.

In a filing submitted to the U.S. District Court of Utah, in response to the judge’s order to show cause for its misstep, the SEC attorneys wrote that the commission “deeply regrets these orders” and promised to conduct mandatory training for staff members involved in the investigation.

“I fully appreciate the extraordinary responsibility entrusted to the SEC when enforcing federal securities laws,” wrote SEC enforcement chief Gurbir Grewal. “I understand that the Division fell short of these standards in this case, and I apologize for that shortfall.”

The rare rebuke of the agency stemmed from litigation filed by the SEC in July against the crypto firm Digital Licensing Inc., or DEBT Box. In the complaint, the SEC alleged that the project had defrauded investors out of nearly $50 million.

As part of the lawsuit, the SEC sought a temporary restraining order and asset seizure against the firm and its directors, arguing U.S. District Judge Robert Shelby that the defendants were seeking to move operations overseas to avoid regulatory oversight. To ensure that DEBT Box could not empty its bank accounts before the SEC took action, the agency filed an ex parte application, meaning the firm was not informed of the proceedings and could not challenge the motion in court.

After the judge approved the order, the defendants challenged that the SEC was misrepresenting facts. For example, the bank had closed some of its accounts, not the project itself, and the company had transferred much of its operations months before the lawsuit, not immediately preceding it.

After the revelation, the judge issued a strongly worded order asking the SEC to explain its actions, writing that he was “concerned” that the agency had “made materially false and misleading representations…and undermined the integrity of the proceedings.”

With Chair Gary Gensler escalating his campaign of enforcement actions against crypto firms, many in the industry pointed to the case as an example of the agency moving too aggressively against the sector.

‘Lapses in judgment’

In the 27-page response filed on Thursday, SEC attorneys acknowledged that the agency “fell short.”

“The Commission cannot let its zeal to stop ongoing fraud interfere with its duty to be accurate and candid,” the filing states.

While the judge cited potential sanctions against the agency, SEC attorneys said that mandatory training would suffice, arguing that its staff had not engaged in “bad faith conduct.”

According to the filing, the SEC assigned a new team of attorneys from the agency’s Office of the General Counsel to assess its missteps, arguing that it concluded its staff “did not intend to mislead the court.”

Instead, because of the haste to prepare applications for emergency relief, staff made errors in presenting and contextualizing its evidence. For example, SEC staff did not have direct evidence of recent overseas transfers by DEBT Box, but instead was making an inference based on a YouTube video by one of the defendants.

Furthermore, while the SEC admitted that its investigation was covert, its staff had interacted with certain defendants’ social media pages in such a way that the staff believed it could have alerted them about the investigation. In one instance, SEC staff that some of the defendants’ YouTube videos had been taken down and had blocked their Instagram accounts.

“The Commission” according to the filing, “has identified errors and lapses in judgment that it will take steps to remedy.”

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Exclusive: NY financial regulator approves Paxos expansion to Solana, allowing for its first stablecoin issuance beyond Ethereum


The leading stablecoin issuer Paxos has received regulatory approval to expand its products to the Solana blockchain, which it plans to launch on January 17, 2024.

With peers including Circle and Tether vying for critical market share, the expansion is a major step for Paxos, which touts its relationship with the New York Department of Financial Services (DFS).

“Paxos is the most regulated stablecoin issuer in the world,” Walter Hessert, the head of strategy at the firm, told Fortune in an interview. “We are the only company that has been issuing regulated stablecoins at scale—period.”

Stablecoin wars

Cofounded by financial veteran Charles Cascarilla, Paxos became the first crypto firm to receive a trust charter under the new digital asset regulatory regime implemented by DFS in 2015. To this day, DFS remains the sole U.S. financial regulator to implement a comprehensive framework for crypto, which has attracted a number of leading companies, including Coinbase and Gemini.

Paxos received DFS approval to issue its first stablecoin in 2018, which it called Paxos Standard, rebranding the token to USDP in 2021. Stablecoins are a type of crypto token pegged to an underlying asset—in this case, the U.S. dollar. Unlike the other leading USD-pegged stablecoins Tether and Circle’s USD Coin, Paxos only issues USDP on Ethereum due to restrictions by DFS.

Paxos has argued that its commitment to working directly with DFS on issuance, rather than operating outside of the framework of a financial regulator, sets it apart from competitors. While Tether is often critiqued for its offshore, opaque operations, Circle also presents itself as following U.S. regulatory standards, although it does not issue USDC under DFS supervision. As a result, Circle offers USDC across more than a dozen blockchains, including Tron, which has come under fire in recent months for facilitating illicit finance.

“From a growth perspective, you’d like to issue across every single chain,” Hessert said. “Circle and other players can issue on to other protocols, but no one knows who’s overseeing it—or what their process is.”

He argued that Paxos’s approach helps gain trust with its partners, including major financial players like MercadoLibre, Paypal, and Mastercard, that customer protections are in place.

Even so, Paxos has had its missteps. One of its first stablecoins, BUSD, was issued in partnership with the leading crypto exchange Binance. After reports surfaced that Binance was creating a synthetic version of the stablecoin with questionable reserves, DFS ordered Paxos to stop issuing the token. As Fortune later reported, over 95% of Paxos’s revenue came from that partnership.

Hello, Solana

Paxos received a “non-objection” from DFS to expand USDP from Ethereum to Solana, after what a spokesperson described as an “extensive and exhaustive review,” although the firm declined to specify how long the process took.

While Hessert declined to say what type of information DFS required for the Solana expansion, citing the confidential supervisory process, he said it involved an internal risk framework built by Solana to assess the blockchain and its processes, including its compliance protocols.

First launched in early 2020 with the promise of increasing transaction speeds and reducing costs compared to Ethereum, Solana became one of the most popular blockchains before taking a major hit last year due to its association with Sam Bankman-Fried. While its native token, SOL, is still far off from its all-time high of about $260, it has gained substantial traction over the past month.

Hessert said Solana’s speed and cost relative to Ethereum will make it an attractive option for Paxos’s partners, who aim to implement stablecoin in use cases from cross-border remittances to payments for goods and services.

“We’re actually going to start to see this new wave of adoption be enabled in ways that we haven’t seen in stablecoins yet,” he told Fortune.

For now, Paxos’s highest-profile project is its new stablecoin PYUSD, issued in partnership with PayPal. Hessert said he imagines that firms like PayPal will want to expand to Solana. Paxos’s first Solana-based offering will be USDP, which has a market cap of just $370 million, compared to nearly $25 billion for USDC and nearly $94 billion for Tether.

A spokesperson for PayPal declined to comment.

Hessert said Paxos hopes to gain approval to issue stablecoins across other layer-1 and layer-2 blockchains, although he declined to provide specific examples.

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