Unchained - Coinbase’s Top Lawyer Calls SEC Wells Notice a ‘Massive Overreach’ - Ep. 472

Episode Date: March 24, 2023

Paul Grewal, Coinbase’s chief legal officer, shares his concerns about the SEC’s recent warning that it would pursue legal action against the crypto exchange. With the U.S. markets regulator failing to provide clear rules on digital assets, Grewal discusses the implications for Coinbase and for the future of crypto in the United States. Show highlights: why Grewal was not surprised by the Wells notice  how Coinbase asked the SEC multiple times for clear rules and got no response, according to Grewal how the SEC is withholding information about which rules Coinbase allegedly broke, according to Grewal Coinbase’s efforts to disclose everything about its operations  whether Grewal thinks there was a change in the regulators’ approach after the collapse of FTX why Grewal thinks this is not the right way to go to keep crypto in the United States the jurisdictional fight between the CFTC and the SEC whether Coinbase will proceed with litigation  why Grewal thinks the Wells notice is a “shot at crypto as a whole” why Coinbase believes that its products are “fully compliant” what opportunities the U.S. Congress has to legislate blockchain technology Thank you to our sponsors! Crypto.com Railgun DAO  Guest Paul Grewal, chief legal officer at Coinbase Previous appearances on Unchained: Just a Coincidence? Coinbase and Polygon Lawyers See Bad Omens in SEC Crackdown Links Coinbase:  We asked the SEC for reasonable crypto rules for Americans. We got legal threats instead. The Crypto Securities Market is Waiting to be Unlocked. But First We Need Workable Rules. Unchained:  SEC Issues Coinbase a Wells Notice U.S. Supreme Court Hears First Crypto Case: Coinbase Arbitration Dispute Bloomberg: Coinbase (COIN) Gets SEC Wells Notice Over Crypto Offerings Learn more about your ad choices. Visit megaphone.fm/adchoices

Hi, everyone. Welcome to Unchained, your no hype resource for all things Crypto. I'm your host, Laura Shin, author of The Cryptopians. I started covering crypto seven years ago, and as the senior editor at Forbes, was the first mainstream reporter to cover cryptocurrency full-time. This is the March 24th, 2023 episode of Unchained. If you've been enjoying Unchained, please leave us a review on Apple Podcasts or Spotify. With the Crypto.com app, you can buy, earn, and spend crypto. one place. Download and get $25 with the code Laura. Link in the description. Ever wanted to use Defi without being tracked? Railgun is a leading defy privacy solution on

Ethereum, BSC, Arbitrum, and Polygon. Shield your funds and use them privately in your favorite defy apps, while Railgun's cutting-edge zero-knowledge system encrypts your data from public view. Yes, that includes dextrating. Visit realgun.org or use the Railway app at Railway.xy-Z. Today's guest is Paul Graywall, Chief Legal Officer at Coinbase. Welcome, Paul. Thank you, Laura. Thanks for having me on. The SEC just served Coinbase with a Wells notice, which is an intention to sue or issue an enforcement action. For a while, it's been apparent that the SEC and Coinbase haven't engaged in some sort of dialogue, even if at times it's been a little testy. From your perspective, what happened here? How did things get to this point?

Well, Laura, as you point out, Coinbase has been talking to the SEC, not just for many months, but in fact, for many years. Our conversations predate when we became a publicly listed company in April 2021. And since that time, we've continued to have productive, even if sometimes challenging conversations on a range of issues. What happened yesterday is that we were informed that the SEC was issuing a Wells notice, which is a formal notification that the commission was intending to pursue. claims against Coinbase or violating federal securities laws. And while we were disappointed by that notice, we weren't surprised at all, given that for many, many years now, we've been trying to get reasonable rules operating in plain sight, and the commission is simply chosen or refused to engage with us. And so essentially, were you about to come to some agreement on something,

and then they issued the Wells notice, or what was kind of the trigger for that? Well, just to give you some sense of the conversations that predated the notice, we have met with the SEC on at least 30 occasions over the last nine months to try to get to some common understanding of what registration could look like for a cryptocurrency exchange like Coinbase. We had 30 or more other engagements with them over that same period of time, all focused on what reasonable rules could and should apply so that a cryptocurrency exchange could be registered, operate inside of the regulatory perimeter. How could we accommodate the unique elements of blockchain technologies so that investors and consumers get the information they need? And at the same time, the fundamental structures of blockchain networks are understood and respected. And yet every time we have attempted to engage, address particular concerns that might come up, we've essentially hit a brick wall. It's also important, I think, to understand, Laura, that we have not limited our engagement with the SEC to simply these private conversations. Going back to last July, for example, we filed a petition for formal rulemaking, which is a public request at the SEC issue rules.

And in that petition, we laid out something like 50 or more questions that we think need to be answered in order for any crypto framework to make sense. Again, we were given essentially no response. Even after we filed not one but two separate comments to our own petition in which we spoke specifically to, what do issue or disclosures need to look like? What does staking look like under a registration regime? All of this, unfortunately, has led us to this point where the commission appears to be choosing litigation and court fights over some type of public conversation that allows everyone to have a say, and then for everyone to understand what rules need to apply. We think that's a mistake.

And so what did the Wells notice say? Like, what do you think it is that the SEC will allege as to the nature of your violations? Well, the Wells notice itself was very generic. If you look at it, and in fact, all of your listeners can look at it if they go to my Twitter feed because I posted it, it's essentially a boilerplate recitation of a variety of statutes that fall within the SEC's jurisdiction and a claim that Coinbase is somehow violating them. We asked the commission, once we received word that this notice was coming, can you tell us what particular tokens give you concern? Can you explain to us why staking and our arguments that staking is not a security are somehow flawed? And over and over again, we were told that we would have to simply rely upon the guidance that the SEC has issued and the statements that the chair has made from time to time that all assets effectively other than Bitcoin are security. So it has not been a productive conversation and it has been much more of a monologue than a dialogue.

But we've kept at it because we think that reasonable rules are important. We think it's a much better way to regulate an industry that there be rules issued pursuant to notice and common rulemaking. And unfortunately, this commission has decided that that process set by Congress doesn't apply to them and that court is the place for these issues to be resolved. And so just to understand the origin of the investigation, is it from the conversations you were having or does it concern any particular offering such as their Earned program, which is around staking? Laura, I'd love to be able to tell you exactly what process.

products are at issue and what particular claims the SEC will be making in court. But unfortunately, the commission has chosen to withhold that information from us and simply proceed to a Wells notice. Now, we have some understanding of what concerns the chair and others have about crypto in general, because of course we pay very careful attention to what the chair has said. And so we have attempted to anticipate concerns and present our views on, for example, why staking, at least as offered by Coinbase is not a security, or alternatively, why our rigorous process for reviewing assets

does keep those assets that may qualify as securities off our exchange. We've laid out, for example, that of the thousand plus assets that we've considered for listing, we've rejected over 90% of them for the very concerns and reasons that the SEC professes to have when it comes to digital asset securities. And, of course, all of this was laid out in, painful detail when we attempted to become a public company back in April 2021. Just to give you one interesting fact from that process, Laura, staking was listed over 50 or 60 times literally in our S-1. So we've been operating in plain sight. We've attempted to engage productively on this.

And over and over again, what we've seen from the commission is a refusal and simply a reliance upon litigation or threats of litigation in order to get answers. And so at that time, Coinbase went public and the SEC reviewed your S-1. What was the nature of the questions or the discussions that happened around those various activities, such as, you know, the listing of assets and staking, et cetera? Well, we had a very exhaustive discussion about all of the different elements of our business and how we operate as a business and intend to operate as a public company if our S-1 registration were to be approved. The fact of the matter is that we had nothing to hide. We have relied upon a rigorous asset listing process going back to well before we had any interest or intention in becoming a public company.

And we laid all that history out for the commission. We specifically referenced our staking programs over and over and over again in our F1. And since we have been a public company, we have filed a petition for rulemaking, laying out the issues we think need to be resolved. We've had these many dozens of private conversations with the SEC to try to work through. what market structures could make sense or would make sense under our registration regime. And it over and over again, we've just been met with silence. We don't think that's the right way to regulate this industry, obviously. And out of curiosity, was there any sense that things changed based on some of the bigger news of last year that cast perhaps a negative light on the crypto industry and on exchanges in particular?

Specifically, I'm speaking of FTX. I wondered if you noticed any kind of change in tone based on those events from last year. Well, there's no question that FTX was a watershed moment for the industry and for the commission itself. And for good reason. What happened at FTX was clearly a fraud. And we have been very public and clear that we believe the fraud that took place needs to be addressed. Now, perhaps it should have been addressed before it was allowed to take place. I would be curious to see, for example, what Wells notice may have issued to Mr. Bankman-free. or to FDX, I suspect none was. And yet here we are years after becoming a public company under the auspices of the SEC, requesting publicly and privately reasonable rules that we can all live

with. And yet we find ourselves receiving the Wells notice and having to prepare for court. It's not a place I wanted to be at, but it's a place I'm prepared to be at on behalf of Coinbase because this is not the right way for America to continue its preeminent role in crypto and in technology more generally. And just to understand, like, when you were undergoing that process with the SEC, what would generally happen in that kind of process? And because basically from your blog post, it's sort of seen you were saying that the turn of events here was really out of the ordinary. So if you could just kind of, yeah, paint that picture of what is a more typical process I'd be interested to hear. Yeah.

Well, the process we followed, at least initially, was a very typical process. Again, I would point to the fact that as a company seeking to go public, we had no choice. And we're eager to share all the details of how our business operated. And yet, again, there didn't seem to be any problem back in April of 2021 and for the years that followed. Since that time, we also followed a fairly standard process as we sought to introduce new products and services. We reached out to the SEC. We offered and delivered presentations and detailed discussions of how our products and services work, why we believed the law permitted it, how we thought new rules could have.

help clarify certain ambiguities in the laws. So that was all a fairly normal, typical process. What has been less than normal is that over the course of those many, many discussions on a variety of topics, we have received literally zero feedback on why we were wrong, where we were mistaken in our understanding of how the 33 and 34 Act and the how we test and all of that applied. That's highly unusual, particularly for a commission that is charged with, protecting the public interest. All right. In a moment, we're going to talk about conflicting statements from regulators, but first a quick word from the sponsors who make this show possible. Join over 50 million people using crypto.com, one of the easiest places to buy, earn, and spend over

250 cryptocurrencies. Spend your crypto anywhere using the crypto.com visa card. Get up to 5% cash back instantly. Plus, 100% rebates for your Netflix and Spotify subscriptions and zero annual fees. Download the crypto.com app now and get $25 with the code Laura. Link in the description. At Medcan, we know that life's greatest moments are built on a foundation of good health, from the big milestones to the quiet winds. That's why our annual health assessment offers a physician-led, full-body checkup that provides a clear picture of your health today,

and may uncover early signs of conditions like heart disease and cancer. A healthier you means more moments to cherish. Take control of your well-being and both. an assessment today. Medcan, live well for life. Visit medcan.com slash moments to get started. Back to my conversation with Paul. So I'm sure close watchers of regulation of the crypto space will be quite well aware that there seems to be somewhat of a turf war between this SEC and the CFTC and conflicting statements even from the chairs. Gary Gensler, as you mentioned, the chair of the SEC seems to believe that all cryptos, aside from Bitcoin, are securities, whereas the chair of the

CFTC has at least indicated that ether would also be a commodity. So I was curious for your thoughts on how you manage those types of contradictory statements and also to know in your ideal world, how would the SEC regulate you and how would the CFTC regulate you? Or what areas would they regulate you for? Laura, as someone who has been involved in these issues for years yourself, you certainly can appreciate that this jurisdictional fight between the SEC and the CFTC is not anything new. This has been going on really for as long as crypto has been in existence. But the statements by the respective chairs of the commissions are really quite striking, if you think about it. You have the chair of the CFTC saying something diametrically opposed and at direct odds with, the chair of the SEC has said when it comes to one of the most important tokens in crypto, which is, of course, ETH. At the same time, you have courts that are weighing in on these questions,

raising serious doubts about the state of affairs as a result of this clash between the regulators. In the Voyager bankruptcy case, for example, the federal bankruptcy judge in that case, in a written opinion, issued a scathing assessment of the clash between the regulators on what assets are securities and what assets are commodities. And the fact that exchanges and other members of the crypto ecosystem have been operating in plain sight for years. And yet they still have no clear resolution or guidance from those charged with establishing rules and standards.

We don't have a particular dog in the fight as to which regulator oversees what part of crypto. Although we have some opinions about that, the main thing is to get clarity around this. And so, you know, in the meantime, as American regulators seem to be squabbling over, you know, key elements of their respective jurisdictions, we're seeing a very different conversation taking place outside the United States. In the UK, in Australia, in Germany, in Singapore, all over the world, regulators are saying, yes, we need to protect consumers. We need to protect investors. But let's do so in a sensible way that promotes innovation and make sure that this industry, which is not going anywhere, which is here to say. stay is properly overseen and properly regulated. That's really, I think, as striking as anything

to me, the difference between what we're seeing in Washington and in capitals all over the world. And so what are the next steps here? Are you going to be submitting a Wells response? And if so, what would that say? Well, the Wells process does permit a company like Coinbase to submit its arguments to the SEC. And I expect that we will take advantage of that opportunity before the Commission makes a final decision on whether to proceed with litigation. I will say, Laura, that because this is not our first encounter with the SEC on these same issues, because we've been trying to talk to them for many months and indeed many years about these issues, I'm not terribly optimistic that anything that we will say or present will change anyone's mind, but it's

important that we run that process. I think it's also important to understand that this is not just a fight for Coinbase. This is a fight for all of crypto. If responsible actors with serious AML and KYC programs publicly listed that are filing petitions for rulemaking and attempting to engage with the government can be treated in this fashion. Nobody else is safe either. And I think it's important to understand that this is not just a shot at Coinbase. This is a shot at crypto as a whole. And so we will certainly do our part to defend against what we think is massive overreach on the part of the commission. But it's not just a fight that Coinbase. base has to fight alone. This is really something that all of crypto, I think, needs to be very

careful attention to. And we're going to make sure that all of these issues that we're dealing with with the SEC are explained and disclosed and described to the public as a whole to the best of our ability so that everybody can have a clear understanding of where things stand. And when you said that you felt that this was a shot at crypto as a whole, do you also believe that it's a shot at Bitcoin? Because sometimes when I listen to Gary Gensler, he just seems like almost like a Bitcoin maximalist. And so in that regard, maybe, you know, that would be in touch. What's your opinion on that? Well, we love Bitcoin at Coinbase. And obviously, our roots run deep with Bitcoin. If you look back to when Brian first started the company over a decade ago,

I don't know if the chair has any particular affinity for Bitcoin or anything else. He may be to be dealing with the political and practical realities that the very first blockchain-based network and token would be even more different. I think to attack directly than some of the other tokens and projects that he's taken aim at. I think the main thing, though, that stands out in my mind about this approach is that you and I sitting here today can't really explain, nor could anybody else, what's special about Bitcoin that distinguishes it from a whole host of other projects out there. I have my own theories. I could surmise what those differences are, but that's the job of the regular. Their job is to tell us

what differences matter, why one particular project is on one side of the rules or the law, and others may be on the other side. And then we all have a responsibility to follow those rules. I'm happy to follow the rules. Laura, Coinbase is happy to follow the rules, but we need rules to follow. If they want to throw the rule book at us, fine. Write the rule book. That's what we're asking for. And yet over and over again, we just see this reliance on the part of regulators, and in particular the commission on ambiguity, innuendo, and supposition, as opposed to standards that we can all apply. Over and over again, I've seen that Coinbase in its blog posts will say things like

Coinbase does not list securities, but it sort of seems you're implying that it is the regulator who decides that. So, you know, do you just feel very confidently that what Coinbase's listing processes would align with what the regulators would be? Or, you know, how do you reconcile the difference between the blog post and what you just said? to be very clear, Laura. Congress tells us what the laws are. The regulators are charged with interpreting those laws and developing clear rules, but at the end of the day, the courts are responsible for deciding who is right and who is wrong. That is not the charge of any regulator on its own. We should be able to get to clarity and certainty without having to go to court,

but if this fight has to go to court, not just again on behalf of Coinbase, but on behalf of all of crypto, the courts are going to have the final say here. There should be no mistake about that. And so under what circumstances would you settle? Well, to be clear, I'd rather be talking to you on this podcast about new products and services that Coinbase is offering. We don't relish a court fight. And in most cases, there is usually a reasonable resolution in which one side gives a little bit for its part and the other side gives a little bit for its part and and and the case is resolved. We're always open to conversation. I don't know how much more clear we could be about that other than the point to our long history of screaming from every rooftop, give us rules and tell us what the

standards are. So I'm always going to keep an open door on behalf of the company. I know Brian and our other leadership feel very strongly that we should try to work to reasonable accommodations where we can, but the rule of law has to matter. This can't be arbitrary. This can't just be a reflection of personal preference or policy when the law makes clear that products and services that Coinbase offers today are fully compliant. And we're going to stand up and vindicate that principle if required. And so if the SEC prevails and it ends up being something where Bitcoin is not seen as a security, but all the other cryptos are, then how would Coinbase comply with that? What would that look like? And is that something that you would be amenable to?

Well, to be clear, the SEC deciding that is the first step in a long process. As we've seen in the Ripple case and others, litigation can often take not just months, but years. And there are hearings and trials and appeals that can extend far off into the future. We've built our entire business law, as you know, because you've been studying and this industry and covering Coinbase for a long time on two core principles, security on the one hand and trust on the other. And trust, first and foremost, is about following the law. That's what we're doing here. We are standing up for the rule of law by challenging this overreach on the part of the government.

We'll let the courts decide in due course where these lines ultimately will need to be drawn. But in the meantime, we're very excited about our business. We continue to ship new technologies and announce new products. For example, our base layer two is recently announced, and we're very excited about that. So, you know, we've got a lot of lawyers at the company. I've got even more lawyers outside the company working on behalf of us. We'll take care of the court issues and due course. In the meantime, our product leaders, our engineers, and others,

they're going to keep designing great things. And I'm very confident that this will not distract us from our long-term mission. Last question for you. If Congress were to pass crypto legislation this year, what kind of elements would you like to see in the bill? We would love to see legislation passed by Congress. It's one of the reasons why a week or two ago, I testified before the Digital Ascassad Subcommittee of the House Financial Services Committee,

we think there are unique opportunities to get legislation done, even in a very politically charged environment in Washington right now. For example, stable coins. We think that there could be sensible standards enacted in legislation as to how stable coins should operate, what the reserves are, what audit requirements apply, what transparency is made available. So that's one area where I think there's a real opportunity for Congress to step in and provide greater clarity. But there are others. Our Congress has now, pending before it, you know, any number of draft bills that get at what the jurisdiction of the CFTC is, what the jurisdiction of the SEC is.

How could securities be defined much more clearly through legislation so that we're not playing this guessing game here in the United States that doesn't seem to ever come up outside of the United States. So any number of these areas could be quite productive for Congress to engage in. I think the main thing is for the Congress to understand it, unless and until it steps in, either through legislation or through oversight, agencies, perhaps even rogue agencies, are going to fill that vacuum. We think that's a real mistake for American innovation and competitiveness. All right, Paul. Thank you so much for joining us on Unchained on what I'm sure is a busy day for you. Thank you, Laura. I really appreciate the opportunity.

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With the RBC Avion Visa, you can book any airline, any flight, any time. So start ticking off your travel list. Grand Canyon? Grand. Canyon? Grand. Great Barrier Reef? Great. Galapagos? Galapago. Switch and get up to 55,000 Avion points that never expire. Your idea of never missing out happens here. Conditions apply. Visit rbc.com slash avion. Thanks for tuning in to this week's news recap. Montenegro arrests Doe Kwan while New York prosecutors charged him with fraud. Early Thursday, Montenegro and police arrested an individual suspected of being Doe Kwan, co-founder and former CEO of Terraform Labs and one of the world's, quote,

most wanted fugitives, according to Philip Adzik, Minister of Interior of Montenegro. Kwan was apprehended at the Podgorizza Airport while trying to fly to Dubai with forged Costa Rican documents. He and his traveling partner, Terraform Labs' CFO, Han Cheng June, were allegedly carrying falsified Belgian documents, according to Interpol. And the police also took three laptops and five mobile phones from the two. South Korea, the United States, and Singapore are all seeking his extradition. Later in the afternoon, prosecutors in the Southern District of New York charged Kwan with eight counts, including securities fraud, commodities fraud, wire fraud, and market manipulation. These charges are on top of accusations of fraud by the Securities and Exchange Commission a month ago.

Kwan is wanted for financial crimes related to the management of his company, which created the Terra blockchain. The collapse of the Terra Luna ecosystem in Mayla, last year, resulted in losses exceeding $40 billion. Flagstar's signature deal excludes $4 billion in digital asset deposits. The sale of signature bank's assets to Flagstar Bank, subsidiary of New York Community Bank Corp, did not include its crypto business. That was comprised of approximately $4 billion of deposits, according to the Federal Deposit Insurance Corporation, or FDIC.

The FDIC confirmed the sale, but said that depositors associated with the digital banking business would receive their deposits directly from the FDIC. The decision has sparked criticism from industry watchers, with some suggesting that regulators are trying to, quote, kill crypto. The Blockchain Association has launched an investigation into allegations of debanking of crypto firms and actions taken by regulators that may have contributed to the failures of signature and other banks. Speaking of the FDIC, the Financial Times reported that back in January, short-seller Markahodes warned the agency that signature was involved in a legal crypto transactions and lacked proper controls, leading to its collapse and raising questions

about its risk management and regulatory oversight. Bologi Srini Vosin prognosticated hyperinflation and bets $1 million. Following the recent bank collapses, news of the U.S. government printing $300 billion in activating the bank funding term program, tech founder Bolli Srini Vosin is predicting a catastrophic future for the U.S. economy. Srini Vosin accepted a $1 million dollar bet from Social Democrat James Medlock that the U.S. would not enter hyperinflation. Sreeny Vossin bet one BTC against that thesis at 40 to one odds and set the term at 90 days, meaning he was betting the U.S. dollar enters hyperinflation within 90 days. He proposed using a mutually agreeable custodian to ensure the bet's settlement in case of

digital dollar devaluation, suggesting a smart contract with U.S. stable coin instead of U.S. dollars. The wager has drawn significant attention from the crypto community. Sreeni Vossin asserts that banks and regulators have misled depositors and dollar holders regarding bank insolvency, similar to the 2008 financial crisis. He argues that investors in long-term treasuries were wiped out in 2021, and those in short-term treasuries could face the same outcome in 2023. In this context, the tech billionaire thinks Bitcoin will outperform all risk assets and that the U.S. dollar currency is going to be worthless.

While some assert that he truly believes what he's saying, others surmise that this is a marketing ploy, since the attention he has gotten off his bet would have been much more expensive in a traditional fashion. This week's episode of The Chopping Block discussed the bet, so make sure you check it out. FTX recovers $460 million in assets from Madulo Capital. FtX, the crypto exchange founded by Sam Bankman-Fried, has entered into a settlement with Madulo capital, a, quote, obscure crypto fund, and will recover $460 million. in assets for stakeholders. Bankman Freed has given a total of $475 million to Medulo through Alameda Research's venture portfolio, according to recent court documents. As the fallout of FTX continues

to unfold, the company's liquidators are now suing the liquidators of Bahama-based FTCS digital markets, accusing it of wrongfully claiming rights over the firm's assets. They allege that FTXDM was created as an offshore haven for fraud. FDX's new management argues that FTCSDM was a legal nullity and its entire existence was part of criminal conspiracy. They also claimed that Bankman Freed maintained close relationships with Bahamian law enforcement agencies and political figures to minimize his criminal and civil exposure. As evidence of fraud, the FDX debtors highlighted a $143 million transfer from FTCS trading and Alameda's accounts to FDM through Farmington State Bank and Silvergate Bank. In related news, according to a leaked email correspondence obtained by the Washington Examiner,

SBF met with FTIC chairman Martin Grinberg months prior to the exchanges collapse, where they discussed FTS's, quote, superior risk model and the need for crypto regulations. Lastly, according to a presentation filed to the bankruptcy court on Friday, Bankman-Fried's firms had a $6.8 billion gap in its balance sheet during its bankruptcy filing last November, which included major shortfalls for FtX. com and FTXUS, while Alameda Research and FTX Ventures held positive net assets. Arbitrum AirDrop goes live, crashes site. Layer 2 Arbitrum airdropped its token Arb on Thursday, making 1.6 billion tokens,

or 11.6% of the total supply, available to early users. The website crashed immediately after, while the token price settled at about $1.45 as of press time. The Ethereum scaling solution will now also become a Dow. With token holders in charge of governance decisions for the protocol, in an unusual move, the Dow will be self-executing, meaning that the governance decisions will result in the protocol upgrades being automatically integrated on chain. It will be one of the more decentralized governance models, though a 12-member security council will also have control over the code base in cases of emergency. SEC sues Justin Sun for securities and market manipulation.

The U.S. Securities and Exchange Commission filed a lawsuit against Justin Sun, the founder of Tron, over the alleged sale and air dropping of unregistered securities, fraud, and market manipulation. The SEC accused Sun of creating, quote, an extensive wash trading program to boost the trading volume of Tron's native token TRX and BitTorrent tokens. Sun and his companies also allegedly coordinated a promotional campaign with celebrities, including Lindsay Lohan and Acon, without disclosing payments made to them. The SEC's case highlights the potential risks that investors may face with unregistered securities in the crypto industry. Celsius custody account holders to receive majority of crypto assets.

Celsius custody account holders who were not in the yield-bearing program are set to receive 72.5% of their cryptocurrency holdings after a federal judge approved a settlement in the company's bankruptcy case. Judge Martin Glenn of the U.S. Bankruptcy Corps for the Southern District of New York approved the settlement between Celsius debtors, the unsecured creditors committee, and an ad hoc group of custodial account holders. Account holders must opt into the settlement which will settle all causes of action against Celsius concerning their custody assets. The 72.5% return will be paid over time, excluding transaction fees. In January, Glenn ruled that assets and Celsius earn accounts, which earned yield for the customers, belong to the company, not customers. DeFi Lama

drama. A drama unfolded within the DeFi Lama team over a potential token launch, pseudonymous developer ZeroX-NGMI accused the company's founders of attempting a hostile takeover and launching a token without support, prompting team members to fork DefyLama. The new aggregator called llama-D-Fi is strikingly similar to Defy Lama in design and layout. Despite these claims, some DefyLama employees insist there was no hostile takeover. The root of the conflict appears to be disagreements over monetizing the platform. co-founder Zero X LOM 4, they reportedly favored launching a token while other team members were against, citing concerns about the token's value and legality. Defi Lama later clarified on Twitter that

there was no Lama token planned and that anyirdrop would be discussed within the community. Coinbase wanted to rescue Circle. During the turmoil surrounding Silicon Valley Bank's collapse, Coinbase reportedly offered Circle an instant $3.3 billion line of credit to ensure full liquidity for USDC's reserves after the stable coin lost its peg to the US dollar. The arrangement was never executed due to the FDIC's intervention, which guaranteed full repayment to SBB depositors, causing USDC to regain its dollar peg within hours. Coinbase's offer reflects its partnership with Circle, established in 2018 through the Center Consortium, which enables tokenization and redemption of USDC into dollars on both platforms. Speaking of the USDC, DPEG, Circle CEO Jeremy

Alar confirmed that a Twitter thread from Circle's chief strategy officer and global head of policy promising USDC holders a one-time bonus in the form of an air drop was fake due to his account being hacked. Coinbase takes arbitration dispute to U.S. Supreme Court. Coinbase appeared before the U.S. Supreme Court on Tuesday, marking the first time a cryptocurrency-related case reached the highest court of law. The issue at hand is whether CoinVay should be granted the right to halt customer lawsuits from proceeding through the courts while arbitration disputes are resolved. The court is expected to issue a ruling by June, potentially setting a precedent for future class action lawsuits against major crypto exchanges.

SEC subpoenas sushi swap. The SEC didn't stop at Coinbase and Justin Sun this week. It also served a subpoena to the entity behind Defy App Sushi Swap. The decentralized autonomous organization behind the protocol is considering the creation of a $3 million legal defense fund. Head chef Jared Gray disclosed the subpoenas in a proposal on the Platform's Governance Forum but did not reveal the reasons behind the regulatory inquiry. The proposed legal defense fund would cover legal costs for core contributors and consist of $3 million worth of USDT, coming from various sources

such as can pie, sushi's fee diversion protocol, grants, and sushi sales. The community is currently voting on the proposal with 72% of voters in favor so far. Oiler finance hacker returns some funds. On Monday, the hacker responsible for the Oiler Finance exploit returned a small portion of the $197 million worth of crypto stolen, amounting to $3,000, ETH, or $5.4 million. This development led to defy lending platform Oiler Finance entering negotiations with its anonymous exploiters to recover the remaining stolen funds. The ongoing discussions took place through on-chain messages between both parties. On Wednesday, another twist occurred when the infamous Ronan hacker sent a suspicious encrypted message to the oiler hacker, which on-chain analysts believe could be a

fishing attempt. The Euler team advised the hacker to be cautious while using the encryption tool mentioned in the message. In response, the Euler hacker confirmed their intention to return the stolen funds to the Euler team. These developments have left market participants undecided in whether the blockchain messages between the two hackers were part of an actual attempt to steal funds or just a show put on by both parties. Last week, the Euler hacker, sent 100-Eath to the Ronan Hackers' wallet address, causing confusion over potential links between them. Time for FunBits. Ginny from Unchained has something to say about FTCS clawing back funds from Adulo Capital.

Listen to her, give her take. Fair claws are only my second favorite claw today. FTX has entered into an agreement to claw back 99% of the value of the assets held at Modulo Capital, a so-called obscure crypto fund, aka Cryptof, SBF, funded last year. Modulo capital was founded in March 2022 by two people, one of whom was romantically involved with SBF. Two of SBF's exes were getting rich off FTX money. I was like, that's what they liked about him. SBF claims to have given Modulo capital $75 million less than he actually gave him. His defense, $75 million to SBF is nothing.

That's what, like two extra weeks in jail? Unfortunately, it does represent 99% of Modulo's total assets, which is not like the time Mark Zuckerberg pledged 99% of his wealth to charity. Except in this case, I think, Modulo actually is going to have to pay up. Now, FTX and Alameda have to give up their claims to Modulo, which seems fine. That's like sending your food back to the chef after you lick the plate clean. SBF is not immediately responded to requests for comments, but if we know SBF, it should be about 13 seconds.

Thanks so much for joining us today. To learn more about Paul and the Wells Notice issued to Coinbase, check of the show notes for this episode. Unchained is produced by me, Laura Shin, with all from Anthony Youne, Mark Murdoch, Matt Pilchard, Zach Seward, Juan Oranavich, Sam Shree Rum, Ginny Hogan, Ben Munster, Jeff Benson, Leandro Camino, Pamma Jimdar, Shashonk, and CLK transcription. Thanks for listening.