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As blockchain natives, we are no stranger to the Securities and Exchange Commission (SEC).
Through my tenure here as editor, I’ve seen them try to clamp down on NFTs, attack the very fundamentals of blockchain, and engage in smear campaigns against people who are genuinely trying to do good with technology.
And because of this, we see them almost like mortal foes – demons to our angels, the shadow to our light.
While a compelling narrative, I’ve always found that a confusing idea. Isn’t the whole purpose of the SEC to keep us safe?
Why are they trying to destroy innovation, stamping out ideas before they are even born?
Why should they get to decide the framework in which technology can and should innovate, as if they are somehow more just and moral than the rest of society?
These questions have always perplexed me, and even though I’m far away from all the drama, it’s almost as if watching it unravel in real-time grants me a better understanding of myself, of government machinery, and its intent.
So what has changed in their attempt to make blockchain a safer place?
Gary Gensler, the Chair of the SEC, is a very interesting man.
Known as the big daddy of crypto regulation, Gensler’s appointment to lead the regulatory agency marked a significant shift in their approach.
Somehow in his twisted mind, Gensler continues to believe that cryptocurrency assets fall squarely under the category of securities, and as such, they should fall within the purview of SEC oversight.
This is what the young people on the streets call “delulu” these days.
Now I can’t say much about the man and his motivations, but his actions have branded him as public enemy number one – well at least in relation to the cryptocurrency community.
And he’s not totally clueless about crypto – apparently he used to speak highly of crypto and praise it.
But the hate is probably from something more superficial:
Politics change people, and it’s not hard to imagine that the allure of power has changed the man in some shape or form.
Following a soul-crushing defeat by Ripple, where the SEC has been ruled against in their latest bid for an appeal, Gensler these days has wisely decided to move towards an area where has a better chance of making more impact.
The SEC Chair has been taking a stronger approach towards AI and has focused less on crypto.
To that I say, good for him. After all, he can only warp so much reality during his limited tenure.
NFT Scrutiny by SEC
Which brings me to another point – crypto, in it’s rawest, most native form, isn’t the only subject of the SEC’s intervention.
One particular organisation, Impact Theory, was able to raise approximately $30 million from hundreds of investors.
They sold NFTs to raise money for the business. Like, direct to pocket. Yikes.
Fundraising in that manner is pretty archaic these days.
We’ve seen the format change, with examples like goblintown.wtf who offered free mints (you still have to pay for gas), but made their revenue largely from royalty.
Nifty Gateway is Buidling
And based on what I can see, the pendulum swings both ways.
Gensler isn’t the only one that has dug his heels in in support of his belief.
Despite a waning interest in non-fungible tokens (NFTs), platforms like Nifty Gateway, continue to invest, support, and buidl in a dying market.
Their mission is to to make NFTs accessible to everyone.
They have been strongly advocating for NFTs – in fact one of their taglines are “We will not rest until 1 billion people are collecting NFTs.“
I think that’s pretty based.
Stablecoins Are Evolving
And NFTs are not the only thing that has evolved.
Stablecoins have been a rather contentious topic after the UST’s crash.
Luna was the prodigy, it was the one that was going to show us the way towards decentralised finance.
And yet all Do Kwon is showing us is how he remains trapped in a Montenegro prison, sentenced to four months (as a start) in jail.
Then there is the USDT depeg, which just happened in June this year.
All not very inspiring stuff.
Stablecoin provider Frax Finance has come up with a fairly interesting solution to this need for decentralised stablecoins.
The DeFi protocol has decided to fully collateralize their native stablecoin frax (FRX).
And instead of collaterizing it with the USD like how Tether does, they decided to do it with AMO contracts and real-world assets (RWAs).
There are also governance actions facilitated by frxGov which leveraging USD oracles as a reference.
They call this third version the “final stablecoin.”
I’ll be honest and say that I’m skeptical, especially since I sometimes wake up screaming in the night thinking about the UST crash – but I suppose the novelty of it all does warrant another look.
And what about privacy? Has it evolved, since the alleged goal of crypto is to enforce decentralisation and private transactions?
I think this bit hasn’t really taken the turn that we hoped it might.
With more wallets identified ever than ever and with good bounties coming from such deanonymisation (think Arkham Intel), it’s growing increasingly difficult for people to really have privacy in their transactions.
Take for example Vitalik’s personal transactions – every time Vitalik makes a move, or so much as sneezes, we have the entire market reacting, almost viscerally to the change.
And that’s the nature of blockchain, they are in essence trackable wallets.
They are only anonymous insofar as they aren’t tagged with one person.
It’s little wonder that criminals require avenues like TornadoCash.
Tornado Cash allows users to mix their assets and obfuscate the origins of their funds, a service that’s increasingly sought after in a climate of heightened regulatory oversight.
Just recently, the RocketSwap exploiter used TornadoCash to launder a significant portion of the stolen assets.
Naturally, in light of such prolific criminal activity, Tornado Cash’s owner, Roman Storm, also faces persecution from the SEC
Roman’s defense is that he didn’t know that he would be used for money laundering, the protocol was meant to be just a safe way for people to anonymise their transactions.
But let’s be honest here, it shouldn’t come as a surprise that criminals, such as the infamous Lazarus Group, would use that as a first avenue for money laundering.
And sidebar; let’s not be naive.
Wouldn’t shutting down Tornadocash only prompt the rise of clones? After all, the smart contract is publicly available on the blockchain.
Who Shapes Blockchain?
If I were to sit down and really think, it’s almost as if regulatory scrutiny and the tribulations that they have faced has shaped the industry in some sense.
I wonder if the potter shapes the clay? Or does the clay shape the potter?
The potter shapes a clay through his desired output. He takes into account what he wants to do, and he manifests this through his working of the clay.
Yet the clay has properties that are not within his control. Some may be tougher, more resilient. Some softer, more yielding.
He has to shift his techniques and strategies in order to shape it as much as he can.
Similarly, we like to think that crypto’s evolution is shaping crypto regulation – but perhaps regulation is shaping more of crypto than we think.
If you think about it, many new projects are taking the recent Ripple ruling and the SEC’s adherence to the Howey Test to ensure that their tokens not fall under the category of “security”.
And that’s not a terrible thing.