On The Brink with Castle Island - Weekly Roundup 06/09/23 (SEC v Coinbase and Binance, Market Structure bill, the curious case of Prometheum) (EP.430)

Episode Date: June 10, 2023

Matt and Nic return for another week of deals and news. In this episode: Token disclosure practices Matt tries pickleball Sequoia is breaking up into parts Will Chinese and American capital markets be severed? What's in the proposed House market structure bill? Coinbase sues Coinbase and Binance How does the SEC think BUSD is a security? The SEC approves Prometheum as a crypto broker dealer Prometheum's CCP ties Did Gensler solicit Binance to advice them before he ran the SEC? What's going on with Prime Trust? Content mentioned: Tommy Tuberville in the WSJ, Crypto communism has a new meaning Sponsor notes:  Coin Metrics STATE OF THE NETWORK - Token Unlocks & Free Float Supply Shocks in Digital Asset Markets  In this issue of Coin Metrics' State of the Network, we analyze the impact of token unlocks and free float supply shocks through the lens of various unlock events to explore the behavior of participants under different market conditions

Brought down by bad mortgage investments, Lehman, which has 25,000 employees, will be liquidated. The federal government loans American International Group, AIG, $85 billion. This is a different kind of market, and the Fed is asleep. The federal government is stepping it to stabilize Fannie Mae and Freddie Mac, the two mortgage giants that have been threatened by the housing crisis. The Bank of England has pumped 75 billion pounds more to Britain's ailing economy with a new round of Concentive Easing. You've printed a couple trillion dollars, and all of a sudden, people start to worry. So out of this worry, we have something called the Bitcoin. Bitcoin.

Welcome to On the Brink. I'm Matt Walsh. And I'm Nick Carter. This episode is brought to you by Coin Metrics. And here is the Metrics Minute. For today's Metrics Minute, we are looking at token unlocks and free float supply shocks. Starting with optimism, a layer two scaling solution for Ethereum, they had a recent token unlock at the end of May. 60% of circulating supply was unlocked.

Trade volumes rose to over 100K-Eth in anticipation of the event. The price of OP fell from $1.6 to below $1.35. The governance token for the 1-inch network had a major unlock with about 200 million tokens released to the team investors. Spot volumes broke 10 million prior to the unlocked. Similarly, UMA had significant trade volume following a supply unlock leading to a $5 million rise in supply. After looking at a bunch of these unlocks,

the data reveals a price increase of tokens with significant unlocks, which suggests that the supply increases actually have a relatively low impact on prices. Kind of an interesting contrarian take there. More on unlocks in coin metrics data network. That's your metrics minute. Yeah, that is contrarian.

So bullish unlocks. Bullish unlocks. Slightly bullish unlocks. Yeah. I mean, the idea could be that the news around the unlock brings new attention to the token itself. And maybe the market's actually somewhat able to price these things in at a time. I mean, ultimately, we'll get to all the regulation stuff this week, but they'll need to be some sort of a disclosure requirement on these tokens.

And the unlocks, you'll have to have like an Edgar database-style system here that runs through the government, is my guess. And so these unlocks, you should be able to study them a lot more, a couple of years in the future once you have some of these market clarity issues figured out. You'd think blockchains were uniquely suited to doing this kind of disclosure and smart contracts. It should be just inscribed on chain and visible for anyone to see. Weirdly, and I remember talking about this with Ryan Selkis back in 2017, back when he was first crafting the ideas from Massari. and as an industry we completely failed to do this.

It's a huge own goal. Huge on goal. Yeah, there's no crypto Edgar, no crypto-Native disclosure regime that exists. I don't know, you know, we constantly complain about the SEC, et cetera, fine, but there's also no self-regulatory organizations that do this in crypto. So it's not like we're laying the groundwork for a solution here, because the whole industry has been so lax in terms of creating good tools to disclose supply changes, which is the most basic form of disclosure.

Yeah, and I think it's scandalous, and there will be issues with the SEC around some of these unlocks and some of the preferential deals that certain investors got on some of these things. So it's something that the industry should have been aware of and fighting towards for a while, and unfortunately it'll just be the regulators that mop it up. Yeah. So I think there's still an opportunity, you know. You don't need to wait for the government to force you to do it. Just start being more transparent.

Well, and it's not, it's not just because it's the right thing to do. It's because your customers will demand that. And so if you're running a decentralized pieces of infrastructure, decentralized exchange, it's not in your customer's best interest to have the token supply manipulated or, you know, a huge dumping event that was unknown. So eventually, folks will just. demand these things and they won't use products and services that don't have that transparency. There's a couple of papers that are interesting that said they looked at claims regarding supply,

and I'll have to dig these up, claims made regarding supply changes in the white paper, and then they looked on chain to see if these schedules were encoded into the smart contract itself. And much of the time, they weren't, even though, of course, they could have been. So these were just social soft promises made. And then in some cases, the schedule wasn't adhered to at all. In fact, there's numerous examples of unanticipated inflation, covert inflation, questionable stuff like that. So we're just not using blockchains in the way that they're most suitable here,

which is predictability and transparency. So we had a busy week on the podcast this week. Ria sat down with Lili Infante, the founder and CEO of Cat Labs. talking about blockchain forensics, crypto crime, and a bunch more. And then we all had our offsite. So we were just up in Portsmouth, New Hampshire this week. Lovely little city. It's a charming little town.

It'd never been before. I didn't even know there was a Portsmouth in New Hampshire. Yeah, it's nice, right? It's on the water. I think there's one mile of coastline in New Hampshire, and it's pretty much just Portsmouth and Rye, I think. So our fund activity was we played pickleball to, Yes, I played pickleball for the, that was the first time I ever played.

Yeah, I have to say, not to, you know, Lord knows you could, you don't need any compliments on this, but you are pretty good at pickleball. Well, I played a couple hours, several hours a week, I would say. It's a fun sport. You acquitted yourself well, I thought. Thank you, thank you. You can get a good workout there. I was sweating by the end of it.

Yeah, I love pee ball. You know, the beauty of the sport is that you just don't have to be that good to have fun, unlike golf or tennis, for instance, where you need so many lessons to enjoy it even a little bit. Yeah, you can pick it up pretty quickly, which is what I liked about it. So those good little team bonding activity. No one got seriously hurt. There was definitely some, like, minor injuries and things like that. A lot of people were sore the next day, but we got through it relatively unscathed.

Yeah, pickleball actually a lot of injuries in that sport because, I think the average age of players is a bit older. And it's a lot of people that don't play sports otherwise that get into pickleball. And so you actually see lots and lots of pickleball injuries these days. It seems like an Achilles injury waiting to happen for a lot of people. You really need to stretch before you start. Yeah, a lot of lateral movement.

So this week, in contrast to last week, was incredibly busy on the news front. It was so much going on, mostly bad. But let's start in the deals first. First one up is Argus. This is a Web3 gaming company. They raised $10 million from Honda Ventures, Robot Ventures, Anagram, Dispersion, and others. Then we have Demox, a crypto wallet company.

They raised $4.5 million from Hack VC. This is an interesting one. Meanwhile, insurance Bitcoin, which is a life insurance company based in Bermuda, raised $19 million from Sam Altman, Gradient Ventures, and others. It's an interesting name. Yeah. Next up, we have Norrie, Carbon Removal Marketplace, Building on Blockchain Rails. They raised $6.25 million from M13, Toyota Ventures, Placeholder, and Cargale.

They also announced the Matt Trudeau, formerly of AresX, has joined as CTO. Great hire over there by the Norie team. Congrats to Matt Trudeau and the team on the raise. Next one up is Informal Systems, a Cosmos Development, group. They raised 5.3 million from CCMC Global, nascent, Maven 11, and others. Then we have Lens Protocol, which is the Web3 social platform. There is 15 million from IDO, General Callis, blockchain capital, and Pompter Crew. And the last one up is Tyco Labs. This is an Ethereum scaling solution. They raised 22 million from Sequoia China and others. I guess we won't

be calling out Sequoia China much more. So did you see this? They broke up Sequoia, China, Sequoia India, and then Sequoia. And so Sequoia keeps the name in the U.S., but these geopolitical tensions with China have forced the split of the Sequoia Empire. Yeah, something that a lot of us thought would probably eventually happen. I mean, both parties in the U.S. are aligned on being China Hawks. I would say that's one of the few bipartisan issues there. And I kind of agree, I think, and then coming.

years, it's going to become difficult to raise from USLPs and invest in Chinese startups, especially where this national security concerns. And I think equally it's going to become difficult for Chinese investors to invest in U.S. companies because the perception is that they would exert governance and control and push those companies in the direction of following more CCP values. So I think the, the will. be a severing of capital markets between the U.S. and China in both directions. And it looks like this is a directional indicator of that. Well, we'll definitely get to that. We're already seeing that play out in the crypto space, which is very interesting. Where do you want to start this week?

Obviously, there's Binance, there's Coinbase. Last Friday, you know, if those things had not happened, last Friday after we recorded, this market structure bill came out. So I thought that was going to be the biggest story this week. But the SEC, maybe strategically, some would say took all the headlines. Yeah. Let's start with the market structure bill. So this was widely applauded on crypto Twitter, I would say, unveiled by the chairs of the House Agriculture and Financial Services Committees in the House.

Sweeping piece of legislation, why don't you give us the highlights there? I mean, this is the bill that we've all been waiting for. I was shocked at how detailed it was. And so we'll link to this in our newsletter, but there's a very detailed bill. There's also a two-page summary, and then there's a nine-page summary. So you can sort of choose your own adventure here.

But basically the gist of it here is this bill endeavors is to give clarity on securities versus commodities. And it gives a pathway for a project, a startup, to raise capital under the SEC's oversight, and then to have a period of time to decentralize a network from a functional perspective and bring that token into a commodities regime where the CFTC would ultimately have oversight of that. And it creates these frameworks for the types of businesses that you would need to do the classification of your business as a broker under the various regimes.

So I read it as an incredibly positive piece of legislation that would promote capital formation in the United States because it would basically just give you rules of the road. And for these projects and these teams that have a brokerage business and they, you know, they might want to list securities, they might want to list commodities, this just gives a very clear rules of the road on how you would do that. And as I read it, it makes it possible theoretically to be playing in both waters. And so to be a platform that has securities as well as has commodities. So I think it's exactly what we need. The fact that it is working through the Agricultural Committee as well as the Financial Services Committee means that you're sort of playing in the SEC's sandbox and the CFTC's sandbox and you're trying to appease both sides.

I just have no idea if this is viable because right now it's a Republican bill. There will be hearings on this. They'll push this forward. I just don't know how many Democrats are going to get on board with this. I could see this passing the House. I have a harder time seeing this passing the Senate. And I wonder if these enforcement actions that came out this week just complicate that. I guess there's more to say on that later.

But overall on the bill, I think it's incredibly positive. And it's written by people that really understand this is the other thing that comes across loud and clear. It's just very detailed around how blockchains work and how the capital formation process work. So it's written by people that have sat down and actually listened to the industry, which is great. Yeah. I mean, regardless of whether this passes,

it's an impressive piece of work and it shows a strong command of what the industry wants here and I think honors the substance of what's happening here, which is, yeah, there are things which look like securities and then there are things which don't. And it breaks out the relative jurisdictions of where these things should trade and who's overseeing them. It formalizes the the regulation here, which is completely slapdash and mostly absent. And it carves out very clear delineations for what the SEC covers versus what the CFTC covers. So overall, I saw a very favorable reaction to the bill from the industry. And yeah, now it's in the hands of the Senate and the political dealmaking process, TBD, on whether any crypto legislation will be passed.

for the remainder of this Congress. But either way, an impressive piece of work. I also think it's impressive for what they didn't try to chew off here. So this is explicitly looking at centralized venues and the projects that get launched here. It does not include defy. And so it asks the SEC and CFTC to conduct a study on decentralized finance, including analysis of the size, scope, role in nature of defy protocols. But it doesn't hop right in and,

and like regulate them, I guess, study on non-fungible digital assets as well. And so it's really focused on the launching of tokens and the ancillary trading and custody of those tokens. So we'll see where it goes, but it's a really good start. It's sort of like the answer is right in front of us. And are we going to just sit through multiple years of enforcement actions to get to the regulatory clarity or will we actually get a Congress that wants to step in and do their job, frankly, and pass these. You have these unelected bureaucrats that are basically making policy

in the United States right now. But you do have certain congressmen that are stepping up and want to actually impose a capital formation order here. So we'll see where it goes. Yeah. So speaking of which two major cases from the SEC this week, kind of interesting timing, Monday, the SEC brings a suit against Binance, which will cover Tuesday. They file their suit against Coinbase. I don't think that's a coincidence. It looks to me like they're trying to paint the narrative such that people think of Binance and Coinbase is the same thing, which they're very different, of course,

and have very different risk appetites and regulatory approaches, et cetera. Couldn't be more different, really. Both of them pretty aggressive. So I guess it's dig into both complaints, starting with Binance. Yeah, so this Binance one is dropped on Monday. And I guess before we hop into Binance, you're exactly right on the timing here. So just take a step back and think about this. So you have a proposed market structure bill out of Congress whose job it is to write laws.

And then you have the SEC coming out on Monday, whose job it is to enforce laws, basically just trying to come in and just set a market structure. with this Binance and Coinbase news. So it was not unnoticed by the politicians. Rishi Torres, who's a Democrat out of New York, said, this latest enforcement action against Coinbase is an egregious example of regulation by enforcement. It demonstrates a complete contempt for Congress,

which is in the process of developing a framework, of course, referencing the bill we just talked about. So Gensler is trying to get on the board here with a win. And frankly, just to kind of get into the details, he probably will have a win here on Binance. This thing looks pretty tough if you're Binance. So it's a 136-page complaint. It goes after them for being an unregistered exchange,

but it also goes into some pretty intricate detail around their mishandling of know-your-customer rules and around mishandling customer funds with associated market-making entities that are owned by CZ. So I look at this and say, you know, it's quite different from the Coinbase one in the sense that you're explicitly being accused of mishandling customer funds.

They have some chat logs that are extremely damning around the Binance chief, the finance chief compliance officer saying, bro, we're running an unregistered securities exchange, which you never want to have that in writing. But it goes into detail on some of the tokens that they say are securities. B&B, BUSD, Solana, Cardano, Polygon, Filecoin, Cosmos, Sandbox, Mana, Algarand, Axi Infinity, and Cody. So, you know, my take on this is that it looks a lot like the Coinbase one, if you just look at it from an unregistered securities perspective, but it just

has all these ugly details around customer funds. And if any of that stuff's true, I don't know how Binance US makes it out of this. Yeah, I think Binance US is done and dusted, frankly. I mean, I know there's injunctions to try and get them to cease operating sort of within the next few days. actually. And I agree. I mean, Binance is a sprawling empire, basically controlled by one man, largely exists offshore, no clear regulator or domicile. It's not operating under any framework. And given that, I think they have been fast and loose in terms of, you know, what funds are hosted where, what's being commingled with what. And of course, they've had a incredibly aggressive listing strategy. Binance U.S. also not clear how much, how arm's length it is

from the core business, what the relationship is there. I think the allegation is that it's a much closer relationship than was represented. And the Binance U.S. was kind of this red herring that was held up to try and get Binance into the U.S. despite it just being effectively an arm of the mothership. One interesting allegation that I thought that I focused on reading this lawsuit was actually BUSD. So you might wonder why the SEC thinks BUSD is a security, given that it's a stable coin. And it looks like their reasoning is that BUSD was marketed as, even though it doesn't natively bear interest, it was marketed as being a vector into these interest-bearing programs, various earn programs and yield options. And so even though BUSD itself,

didn't bear interest, it was kind of marketed as this thing to buy, which you would then post on the Binance platform, which could use it to bear interest. So that in some way transformed it from a stable coin, which of course, typically you wouldn't think as a security into a security because you're expecting profit from it. The remainder of the tokens that they allege our securities, frankly, I kind of understand the case there. BUSD was the one thing where I sort of raise an eyebrow initially, but I also got it in this case. Yeah, I think that's right. The BUSD one seems like a stretch.

I think they could win easily on some of these other ones, but that topic is going to take two to three years to play out in court. It will just be interesting to see how this KYC, the compliance, the mishandling of customer funds. That's the type of stuff that can get acted on, I would think, a lot quicker. And the SEC is seeking an asset freeze. I guess that got denied initially. So they tried to effectively just shut.

shutdown Binance US. But like you said, it's hard to imagine a world where Binance US is going concerned business here. It's just, it's really hard to imagine them being around. So definitely see how that one plays out Tuesday. Coinbase suit is brought also, you know, charged with being an unregistered securities exchange, broker clearing agency. They're not claiming that there is any mishandling of customer funds or illegal trading against customers. But they do claim that there were many assets listed on the platform, which are securities. So namely Solana, Cardano, Polygon, file coin sandbox, Axi Infinity, Jilis, flowed affinity near VJX, Dax, Dash, and Nexo. Their Coinbase's chief legal officer, Paul Growl, said they will take this fight to the

Supreme Court if necessary. So they intend to fight. Um, kind of, I suppose not that surprising. Again, look back a few years in the past, Coinbase did take a much more aggressive listing approach. And so I think it was bound to happen eventually where the SEC would scrutinize them for some of the tokens they'd listed following that pivot and claim they were securities. So this is one of those fights. I think a lot of people expected would happen. And given that the SEC takes the attitude or Gensler does, that the vast majority of all tokens are securities going after an exchange as a high leverage play against the broader token ecosystem that seems to be to be to make sense.

So yeah, this will be a fight. So I guess you have two sides of this. So the good news if you can find good news in these things is that there will be regulatory clarity here at some point. The bad news is that it could take a while. So on one hand, you have regulatory clarity via the courts because Coinbase is very well capitalized. They will fight this. It will take two to three years is my guess. And there will eventually be some sort of a court judgment around whether or not Coinbase was running an unregistered securities exchange, whether or not some of these tokens actually are securities or not. So you could get regular, you could get clarity that way. Alternatively, you could get something like this crypto market structure bill or something like the Loemis Gillibrand

bill from last year that apparently is still alive. And you just get enforcement or sorry. and you just get the ability to have a bill that just gives the guidelines. And then I think these lawsuits, you know, maybe they just start to go away because it's just clear, okay, here that we will comply now that we have a framework, we'll fall into this framework. So I think one or two of those things will happen. Maybe they'll both happen. But it could take a while.

So I think the best bet as an industry is to get behind anything that has a shot of passing as a crypto market structure bill. That's really incumbent on the industry, I think, is to just, just support sensible regulation here because it's clear we need to be regulated. It's also notable that the SEC hasn't been as aggressive in the case of Coinbase. In Binance's case, they try to basically freeze up the operations of the U.S. Exchange and freeze assets of Binance directors that may have been onshore. There's also the allegation of fraud in the Binance complaint.

That's not the case with Coinance. Coinbase, they're not moving as aggressively there. And frankly, Coinbase is a publicly listed company in the U.S. So they are, by virtue of that, following pretty standard practices that all public companies have to adhere to. So I see a difference in the aggressiveness here. Nonetheless, definitely a knock for Coinbase. Their shares have fallen about 20% since the case came out.

What's clear to me is that Gensler probably won't be around the SEC when this is ultimately all decided. And so from a political perspective, you know, maybe this is a pretty sensible thing for an ambitious person to do is go after the largest players in the industry. And then, you know, look, it's a two to three year process. Clayton left right after Ripple. Could we see Gensler run for Congress? Sorry, could we see Gensler run for Senate? Could we see him step into some other role under another democratic regime? Who knows?

But I'd be pretty surprised if he sees these cases through. Yeah, there won't be a quick resolution here. So I do see this as Gensler's ripple case, the way that Clayton launched that case and left. So I don't know what it means for Gensers' legacy. It won't be resolved when we're another. Coinbases made it clear they're going to fight it, even if they lose, they'll appeal. right. So this will be something that's outstanding. If you look at the ripple case, that's lasted for years and years. And there's still no resolution there. So a far more expedient outcome would be

for Congress to pass some sensible legislation carving out how these things are regulated and how exchanges should operate. I mean, it just saved the taxpayers a lot of money, right? Ultimately, how many of these you can have? So you have all these tokens that they're now saying are securities is the next thing they're going to go after all those teams, I would imagine, right? And so just how many of these cases can the SEC actually be doing? If you had a bill on crypto market structure that said what was a security and what wasn't, and then how you trade them and custody them, all of a sudden you just get into compliance with that bill

and then go after the people that don't, which is going to be a much smaller list. It would just save us all a lot of money. I suppose the SEC's objective could be to, even as these cases are pending, try and impose a kind of chilling effect on the onshore crypto industry by persuading other exchanges to delist all of the tokens in question and basically force the industry offshore. So I could see that being the objective that even pending any

resolution in this case, all of the assets that they've named basically end up being proactively delisted by Coinbase and every other domestic exchange. You know, you hear these stories about how during the Trump administration, he had Manukin come into the Oval Office, and he just told him to figure out how to make the price of Bitcoin go down. And you wonder if there's also just this sense of you don't want to be the administration where crypto just went to the moon. And given everything that's happening with the national debt and the printing of money, do you really want to be the guy who was in charge when Bitcoin went to 250K

and people started to have a fiat currency crisis? you know, and that could be another angle here, frankly. Yeah, I mean, but if the Fed does, for whatever reason, start to provide liquidity an new while we're already in an inflationary era and it looks like we're heading towards monetary repression, that would be a very strong catalyst. So it may well be the case that this administration is the one that's remembered for that. same way

Nixon is remembered for the Nixon shock and I also want to be somewhat fair to the SEC here because we've been saying that a lot of these tokens are securities for an awful long time and I actually genuinely think

that some of them are and still are so it's clear there's been this is not a black and white issue there's been a lot of garbage listed on these exchanges there's been a lot of issuers that have done very shady things

a lot of these things have absolutely no technical merit. And we shouldn't really have them be treated as commodities. So it's a tough one. Yeah, I agree. I mean, if you've listened this, we've done 420 something episodes if you listen to the podcast, our position is very clear. A lot of these things are in registered securities. That's definitely the case. We're not seeking to exculpate Coinbase and Binance or any of these specific projects that were listed there. Among those names we read, some of those are definitely meritless and resemble securities. However, there hasn't been any legal framework for exchanges to be compliant in the U.S. So right now, the U.S. government is taking the attitude that

virtually everything happening in crypto is illegal. So that also doesn't work for the industry. and on top of that, sharing the potential collapse of an exchange like Coinbase specifically, leaving Binance outside from now, they have been a major force for adoption of Bitcoin and other crypto assets in this country in a safe and secure way without loss of user funds in a trust, an incredible way for over a decade now. So they also operate a non-custodial wallet, so they're not entirely custodded a company. So they've done more to onboard people, institutions, retail to Bitcoin in the crypto industry than virtually anyone else. Finance, for all of their flaws, which certainly are numerous, have done the equivalent for the world outside the US. And they operate

peer-to-peer exchanges where there's no Fiat on RIMs, they can still get access to crypto. So these two firms are the two most influential firms, I would argue, in the history of the crypto space. Undoubtedly, they've been a net positive, I think. I don't think that's a controversial thing to say. So when I see Bitcoiners sharing the possible dissolution of these two firms, it doesn't make any sense to me. First of all, Bitcoin is something that should survive through the free market, not through government mandate or using the state power against your perceived enemies. And second of all, these two firms have done a huge amount to monetize Bitcoin, disperse it throughout the world, give people tools to hold it, whether it's custodial or non-custodial.

Of course, some of these assets are securities, and we've been critical of the listing policies. I think anybody would be. But there is no clear framework here. So I'm pretty sympathetic, ultimately, especially to the plight of Coinbase, which is a credible public company, behaving as a public company does, building products that are useful for their end users, and now find themselves in a protracted battle with U.S. regulators. I totally agree with that. I mean, the other thing that was, I just think, very disingenuous by the SEC, is a couple of weeks ago, they approved this Promethean Ember Capital request to operate

as a digital asset securities broker-dealer. So it was a first-of-its-kind type of approval. it allows Prometheum to do custody services for retail digital assets. There's just not, there's like no digital asset security. So I don't know what these guys are actually listing. I guess nothing now. But Prometheum went on Laura Shin's podcast and started talking about how everything is a security. Coinbase should be shut down.

And all these tokens should have some sort of rescission event where you go in and you swap out your salana for compliance salon or however they think this is going to work. It's totally far-fetched. It'll never work. These private blockchain people that have come back as ATS people that actually think that the existing regulation is going to be conducive to them building businesses, I think, are dreaming. Maybe that business is viable if you get a crypto market structure bill, and it's clear what's a security and what's a commodity.

It's completely unfeasible to have L-1s just flipping the switch over to securities. In any event, that said, Prometheum has this license now. Tommy Tuberville, who's a Republican senator out of Alabama, has this crazy op-ed in the Wall Street Journal today that I had no idea. Prometheum is actually owned by a Chinese group. So the Wang Chang blockchain group apparently is a controlling shareholder, a large shareholder in this thing. And the principal person there is affiliated with the Chinese Communist Party. And so the whole purpose of this op-ed is why is it that we are allowing a Chinese firm to have oversight of personal identifiable information of U.S. retail? And this is like the groundbreaking approval here.

That looks awful to me that they would not allow Coinbase to go through and get this designation, which they've been pushing for. Coinbase actually owns a broker dealer. But you're going to give it to this Chinese-controlled group? That's insane. Yeah, this is absolutely preposterous. I couldn't believe this article when I read it. So the one designated golden child here that the SEC will give a license to is called Prometheum. It's a spin out of a Chinese Communist Party affiliated firm.

And this is being held up as the model to follow, whereas these onshore businesses that are accountable, have tens of millions of users, play by the rules. They're stonewalled. This reminds me of the FTX saga, again, where Gensors. is giving airtime meetings, his attention to FTX, totally bad actor, meanwhile stymying the domestic crypto industry. It's even worse here because this is a CCP affiliated firm. I mean, a beggars belief. That's crazy.

So, you know, they got the TikTok thing going on. And then, you know, if you register with this prometrium thing, then who knows is your driver's license and your credit card and your social security number. knows what happens to that. So who knows? I'm sure it's not going anywhere, but we'll keep an eye on it. There's a couple other kind of odds and ends here. So Robin Hood's chief compliance officer, Dan Gallagher, said this week that they have been attempting to follow the SEC's advice to come in and registered, but they've just been Stonewall. So the SEC has just said, no, there's no path for you. So they wanted to get one of these digital asset broker-dealer licenses, but we're, I guess,

just told no, don't bother. Yeah, another example of why Gensler's positioning here is disingenuous. if you're a compliant domestic operator, you have no ability to register, even though they keep saying coming to register. The one entity that's allowed to register is a proxy for the Chinese Communist Party. Do you see this? I just blew out my elbow, my shirt.

Another dress shirt bites the dust here. That's the second time that's happened on a podcast. So for the listeners, Matt was gesticulating so wildly that he literally tore a hole in the elbow of his dress shirt. shirt. That's how fired up he was getting. This is why we need to move this podcast video so we can capture those timeless moments. Oh, the podcast studio is ready. We just are missing a wire. So everything is ready to go to video except for a wire. So we got to get the wire. So yeah, this video is coming. So I'm not entirely pro video because frankly, we're always looking a little disheveled when we

record the roundup. Sometimes we record it at the late hours of the evening. Sometimes it's after a happy hour, you know, so we're not always looking our best when we record this show. But I guess we're going to video. That's what's happening. You're going to give the people what they want. They would have just seen me gesticulating wildly about the Chinese Communist Party and then just a Brooks Bros shirt, just biting the dust, which again, Brooks Bros, ever since they went bankrupt, just terrible quality. This is, you seem to go through a lot of these shirts. That's not the first time that's happened either. I know, it's not. It's a problem. It's a big problem. I actually got some DMs the last time this happened, some good.

advice on the shirts. So I need to figure out what the good brands are. So Heath Tarbert, former chairman of the CFTC, has joined Circle. Huge hire for them. Big congrats. That's a that's a monster hire. I remember seeing Heath talk at the DC FinTech Summit, one of my favorite conferences and was very impressed by him. So awesome got for Circle. Congrats the team there. And then the CFTC So this is a bright spot, actually. So the CFTC has approved CBO Digital to clear margin digital asset futures. And this is something that, so CBO Digital, they bought ErisX and turned it into CBO Digital.

ErasX was pursuing this margin digital asset futures construct where, as opposed to having a fully collateralized contract, you could have margin, which I think will expand the size of the market pretty significantly for regulated derivatives. I think it's the first one in the United States. So huge congrats to the team over at Sibo. I think that that like moves the needle pretty materially for that business, I think. Other just odds and ends. And it's hard to tell if this is part of the Binance PR machine,

but there was a story that came out on CNBC last night that Gary Gensler was in talks and offered to be an advisor to Binance at one point when he was working at MIT DCI in 2019 and that he sent his testimony that he made in a certain congressional panel. he sent that ahead of time to someone at Binance. Is this confirmed or is it still just a rumor? This is like a CNBC report that was clearly leaked from Binance. I have no idea if it's true. That is remarkable if true.

I mean, the guy soliciting to advise an offshore exchange that he later sued. That's, and Binance has asked for him to be recused in this because of that. So it'll be, it'll be a court judgment here. This will come to light. We'll find out if this is true or not. See discovery on that. Yeah. Another bit and Bob here,

FTCX leak document states that they plan to formally market their offshore exchange in Q3 and Q4. So FtX 2.0 still potentially happening. I think the events of this week support the existence of FTCS 2.0. I remain in FtX 2.0 stalwart. I support the revival of that exchange in a compliant way. Everything that they weren't before and that their current peers aren't, they can be. I don't know, man. You can't run an exchange without market makers and who's going to want to play ball there.

I mean, I guess you could count on some of the market makers that lost a lot of money, that they would be incentivized to be there. But do you think that FTCS actually would have worked if it didn't have its own? proprietary trading firm attached to it? We're going to find out. Yeah, was it, could it stand on its own two feet? Or was it always just subsidized by the low-grade fraud going on? So speaking of FTX, I've been listening to this new podcast, which is really good. It's called Spellcaster.

It's a Wondry Bloomberg thing with Hannah Miller at Bloomberg is the, is the investigator. And they just, they're two episodes in, and they're starting to talk about the origin of FTX. I didn't realize that when Sam left Jane Street, he said he was leaving to go work at Will McCaskill's nonprofit. And usually when people leave, you know, to go to a competitor, it's super contentious, but it wasn't. But he went there for like two months, but he was simultaneously building Alameda. So he actually was starting like a competitive firm. It was this huge con. I'm kind of surprised. I guess Jane Street just decided not to go after him. But it sounds like they would have had a perfect basis that he was just playing them saying he was going to this nonprofit.

It meanwhile is just building a crypto trading competitor. Well, I don't want to spoil anything, but we were interviewed for this podcast. We were. I don't know if we made the final cut. We'll see. Not sure we had anything that interesting to say there. Final bit and Bob here. As it turns out, there's been a lot of noise around prime trust, potentially being distressed in some way,

which I don't know how. They're not a lot of details on that. A report came out in Coindus saying that BitGo, has reached a preliminary agreement to buy them. That's interesting. Which is equally interesting because the former leadership of Prime Trust went ahead and founded, what's it called Fortress? Fortress Trust. Fortress Trust.

So there's basically a copy paste of Prime Trust that exists called Fortress Trust, which some of Prime Trust clients switched to. And now Prime Trust itself is potentially being bought by Bicco. So a lot happening there, a lot of noise on Twitter about this. People think the prime trust is in some way distrust. I guess we'll find out what that means in the coming days. I don't understand for the life of me what's going on right now with this prime dress thing. So those guys have been implicated in FTX.

They've been implicated in Binance, all sorts of shady stuff. What the hell's going on? Swan Bitcoin ran all of their stuff on top of Prime Trust, apparently. So they're just like custody at all of Swan's assets. and now Swan is on Fortress Trust. And Biko. So Fortress Trust, of course, found it by prior Prime Trust folks. So Swan's saying they left Prime Trust,

but they're just using the successor organizations. I don't know what's going on. Not your keys, not your keys, not your coins. Yeah. I mean, look, if you can use a Bitcoin-only brokerage, use one that built their entire back in themselves. Yeah. Yeah.

Look, we're invested as well. River Financial. I use it. It's very good. What's going on? So New York is under this haze here. This is crazy. The wildfires. I'm having coughs up here in Boston because of it. Yeah. I flew into New York yesterday. And as we were leaving

for LaGuardia, the captain gets on the mic and he says, yeah, you know, Ligardi just called a ground stop to all flights. And then he said, prepare for takeoff. So he didn't seem concerned by the fact that no other flights were coming or going. We flew in. And it was like flying into hell.

Wow. It was this infernal orange myasma enveloping the city. And you get out and it sounds like you're around a campfire. It's like this acrid smell. It smells like burning wood. And it's coming from Canada like hundreds of miles away. Crazy. It's like being a blade runner.

It's absolutely insane. hopefully that passes by the weekend all right i think that's it for the week have a safe and healthy weekend and we will see you on monday