When Michael Corleone ordered hits on rival bosses in The Godfather, he had Don Cuneo locked inside a revolving door and shot. Getting whacked while trapped behind a barred door appears to be the treatment United States Securities and Exchange Commission Chair Gary Gensler has in mind for U.S. crypto projects based on recent SEC enforcement activity and comments by the chair.
The SEC should not be left to wage an unsupervised dirty war on crypto. Congress must both defend its oversight authority and give American crypto developers, entrepreneurs and users a clear path to lawfully carry on their business. Providing a common-sense disclosure framework for asset-backed stablecoins is the place to start.
Gensler’s SEC appears to be attempting to settle “all family business” with crypto. On Feb. 9, the SEC settled allegations that Kraken’s “staking-as-a-service” program (a way to earn rewards for helping to maintain crypto networks) constituted the illegal sale of unregistered securities. Later in the month, news emerged that the SEC sent a Wells notice to stablecoin issuer Paxos, indicating a potential future enforcement action over its Binance USD (BUSD) token (a Binance-branded asset designed to keep a 1:1 peg with the U.S. dollar), which the commission apparently also alleges is an unregistered security. And Gensler indicated in a recent interview that basically every crypto project — “everything other than Bitcoin” — could have an SEC target on its back.
The SEC maintains it is merely enforcing existing registration and disclosure requirements on crypto tokens and services it considers securities. But this is misleading for two reasons.
One, the applicability of securities laws to the projects at issue — Kraken’s staking service and Paxos’s BUSD stablecoin — is, at the very least, contestable. Even more so if the idea is that every crypto token other than Bitcoin (BTC) is to be considered a security. And two, a regulator interested in getting consumers the best disclosures about new products, including stablecoins, would provide clear guidance on how to do so. The SEC hasn’t.
Related: Expect the SEC to use its Kraken playbook against staking protocols
With Kraken, the SEC alleged its staking service involved a type of security known as an investment contract. In broad strokes, these securities cover an investment with an expectation of profit based on others’ managerial…
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