When we see largely peace-loving, crypto-nerd, not-racist, “DAOs” use virtually identical communications facilities, we should not also conclude that this makes crypto people extremists, or that this makes DAOs friendly to extremists, or even that DAOs are appropriate for extremists. It means that DAOs, like many other online communities which use Discord and make it one of the most popular social media applications in the world, including political movements, all emphasize participation over secrecy. Adding a DAO into the mix does not create a “safe haven” from anything, and certainly doesn’t “circumvent government regulation and security services (sic) monitoring activities.” Quite the opposite, in fact.
Further, the SEC writes: “In advance of the offering, Impact Theory publicly stated that it would deliver ‘tremendous value’ to KeyNFT purchasers. Impact Theory also stated that it would use the offering proceeds for ‘development,’ ‘bringing on more team,’ and ‘creating more projects.'” The company sold NFTs, condensed those proceeds into a single wallet and used the funding to pay vendors and service providers, the SEC added.
This is the culmination of a yearslong effort in the U.K. government to create new rules to govern cryptocurrency business within its borders. As such, it represents something of a departure for the U.K. from its usual approach to crypto asset regulation. Historically, Britain’s financial regulators have not had the power to regulate – and thus have avoided regulating – crypto-assets such as Bitcoin, Ethereum, Cardano, or Cosmos in their capacity as investments, at least in the same manner that they regulated TradFi instruments such as securities. This differs significantly from the regulatory landscape in the United States where, infamously, the SEC asserts more or less plenary authority over the cryptocurrency sector by utilizing 90-year-old securities legislation, and in relation to which it has been prosecuting a regulation-by-enforcement campaign in the federal courts.
I am not going to bore you by quoting chapter and verse on broker-dealer registration requirements. I also won’t go into a detailed Howey analysis on many of the coins mentioned in the complaint – including Solana, ADA, Matic, Filecoin, SAND, AXS, CHZ, FLOW, ICP, NEAR, VGX, DASH, and NEXO. The important thing here is that the SEC is seeking, as a remedy, a permanent injunction against Coinbase from operating an unlicensed exchange. If they can get one of the tokens to stick and win at trial, they may be able to shut down Coinbase’s core business completely.