Unchained - ‘Is ETH a Security?’ Why Gary Gensler Couldn’t Give Congress a Straight Answer - Ep. 483

Episode Date: April 21, 2023

It got heated this week on Capitol Hill with SEC Chair Gary Gensler testifying before the House Financial Services Committee on his agency’s efforts to rein in the U.S. crypto industry. Jason Gottlieb, partner at Morrison Cohen, unpacks what was said and whether we’ll continue to see more crackdowns from the U.S. securities regulator. Show highlights: Whether ETH is a security and what would be the impact if it was declared as such by the SEC Whether the SEC is harming investors  What the potential impacts of the SEC lawsuit against Bittrex are Why the case against crypto exchange Beaxy could serve as a precursor to a potential case against Coinbase How the SEC’s lack of clear regulation is pushing crypto out of America, according to Jason Why the SEC is trying to expand the definition of an exchange and its possible effects on DeFi Thank you to our sponsors! Crypto.com Railgun DAO  Guest Jason Gottlieb, Partner at Morrison Cohen & Chair of the Digital Assets Department  Previous appearances on Unchained: The Department of Justice Goes After Its First NFT Insider Trading Case Previous coverage of Unchained on the SEC’s actions:  Rep. Emmer on Why He Believes Gary Gensler Is a ‘Bad-Faith Regulator’ Is the Government Trying to Kill Off Crypto in the US? Coinbase’s Top Lawyer Calls SEC Wells Notice a ‘Massive Overreach’ Links CoinDesk: U.S. SEC Moves Toward DeFi Oversight as It Reopens Proposed Regulations Unchained:  SEC Chair Gary Gensler Avoids Question: ‘Is Ethereum a Security?’ SEC Sues Bittrex, Names Dash, Algorand and Other Tokens ‘Crypto Asset Securities’ Proposed rule: Amendments Regarding the Definition of “Exchange” and Alternative Trading Systems (ATSs) Rendering Innovation Kaput: Statement on Amending the Definition of Exchange POLITICO: McHenry clashes with SEC’s Gensler over crypto crackdown Forbes: Crypto Exchange Beaxy Shuts Down Amid SEC Charges 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 of Forbes was the first mainstream reader reporter to cover cryptocurrency full-time. This is the April 21st, 2023 episode of Unchained. With the Crypto.com app, you can buy, trade, and spend crypto in 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. Visitrailgun.org or use the Railway app at Railway.xyZ. Today's guest is Jason Gottlieb, partner at Morrison Cohen and chair of the Digital Assets

Department. Welcome, Jason. Thanks, Laura. It's great to be back with you. The SEC has been in crypto news for all sorts of reasons recently. Let's start with a big one. SEC Chair Gary Gensler's dancing around the question of whether ETH is a security. In the House Banking Committee hearing earlier this week, what did you think of Chair Gensler's refusal to say whether or not ETH is a security? Look, ETH isn't a security. It's frankly pretty obvious to me. But even if it were, It's too late to do anything about it at this point, right? The SEC has statutes of limitations. Heath was first issued before five years ago.

So there's really very little that the SEC could do about that right now. Now, statute of limitations are very complicated things. So there's a lot of asterisks there. We won't get into that here. But I think that Chair Gensler is facing an uncomfortable reality. Even if he wanted to do something about it, there's nothing he could do about it. And he knows that if he's caught in a sort of trap there, if he declares, yes, I think ETH is a security, it could have all sorts of terrible knock on effects in the market and would really have a

devastating effect on the consumers that he's purporting to try to protect. On the other hand, if he said, well, ETH is not a security, then you'd have a hundred thousand crypto projects saying, we're just like Eith. What's the problem here? So he's caught in this very uncomfortable position where he doesn't want to say anything. But of course, if you have the chair of the SEC who can't even tell us a basic thing like whether ETH is a security, and then in the same breath tell us, but everything in crypto is very clear. The rules are very clear. The guidelines are very clear. It just comes off as nonsense to everyone else who's listening to that. I mean, I guess something that surprised me in your answer is you very clearly said that ETH is not a security, but Chergenser has.

implied in the past that all cryptos aside from Bitcoin are securities. So what gives you the confidence to say that? But also then since he's kind of said it before, like, why didn't he just say it? I mean, I guess you kind of answered that. But anyway, I just find a lot of this sort of contradictory all around. It is. And it speaks to the absolute mess of ambiguity that we're struggling with in the crypto markets. It's one thing for the SEC to wave a hand and say we think all digital assets are securities, but obviously that's nonsensical as a point of view. A digital asset is software, right? And you can sell it as part of an investment contract.

That much is clear. But what's really new and truly innovative about cryptocurrencies is that you can separate the software, the digital asset from the investment contract. You couldn't do that in the old days. If somebody sold you a stock certificate on a piece of paper and that stock certificate came with rights to dividends and ownership and voting, you couldn't take the rights and the essential securitiness off the piece of paper. They were stuck together. Right. And if you took that away, all you got was a piece of paper.

You can't do anything with a piece of paper. But you can do things with tokens, right? ETH is something that you can use for all sorts of things, whether it be technological building or payments. I mean, I paid Gabriel Haynes of ETH to send my son a birthday message. It's hard to say that I engage in the securities transaction there with our machete-wielding screaming friend. So it makes no sense to assert that this as a security. And it's another example of the SEC trying to shove cryptocurrencies into securities rules that aren't built for them. But however, let's just say hypothetically that ETH does.

get named to security at some point in the future, like what would be the knock on effects of that? How would that change the way it's traded or how would that change the asset itself? Well, it would have an immediate hit. And you can see this from every single time that the SEC has attacked projects either directly when they say this project token is a security or when they, as in the case of the SEC's case against Wahee. And we've seen. it also in the New York Attorney General's case against KuKoin that declared eth was a security, whenever a regulator comes out and says this token is a security, the value of that token takes a hit because there's immediate doubt in the marketplace about what's going to happen.

Am I going to be able to buy or sell this on exchanges? Our exchange is going to be forced in some way to consider delisting them. And in this way, you know, myself and many other folks who practice in this. area have been decrying the SEC's targeted efforts to attack crypto projects, particularly when they're not in the room to defend themselves, because it ends up damaging the very consumers they're trying to protect. All of these people out there who hold ETH take an immediate hit on the value of their holdings for really no good reason at all. Like, nothing has been accomplished. So this is far from being investor protection. It really is harming people who are holding

ETH in the markets. So now let's talk about the other big news. Well, there's, I feel like there's so much big news from the SEC this week. But on Monday, the SEC charged Bitrecks with failing to register as a broker-dealer exchange and clearing agency. And in the complaint, they listed six tokens, including Algo, OMG, and Dash as being securities. What were your takeaways from this complaint? And what do you think it pretends for future enforcement actions on exchanges? I think that the takeaways, the SEC is going to continue its pattern of regulation by enforcement and in particular regulation by enforcement against people who aren't in the room, against absent parties. There is nothing that OMG or Dash or IHT or MANA can do to intervene in that

lawsuit or to stand up and say, hey, wait a minute, this is wrong. We're not securities. Or even to employ the kinds of defenses that we alluded to earlier on, say, statute of limitations issues, right? Right from the very beginning of the Bitrex complaint, the SEC is saying from 2014 to the present, Bitrex made available all of these securities. And then if you dig down further into the complaint, you see that the allegations are that OMG did an ICO in June 2017 and started trading on Bitrex in July 2017. That's more than five years ago, which takes a lot of the types of causes of action that the SEC could possibly bring pertaining to OMG directly off the table. But they're walking in through a side door and doing it here. So when you think about tokens that they have scrubbed to make sure that they're not securities,

They've got the strongest argument they can to say that they're not securities, but the SEC gets to just come in and label them securities and in a few paragraphs and a complaint, and they don't have to meet any statutes of limitations. It really does a grave disservice to the people who put in all the hard work on those projects and all the people who are holding the tokens for those projects. Well, what about exchanges that listed those tokens like OMG and Dash and ALGO? So it puts exchanges in a very difficult place because exchanges might wonder, do we now have to delist this or are we going to get in trouble? Can the SEC come after us for just listing this? And I think to be honest, there's a little bit of enforcement fatigue that's set in in the industry. When the SEC first declared that XRP was a security, a lot of the exchanges said, okay, we understand where the SEC is coming from. we don't agree, but we don't want the trouble. So we're going to quietly delist XRP. And then when

the SEC came out in the Wahi case and named nine other token securities, I think a lot of exchanges sat back and said, you know something? We're not going to let the SEC just willy-nilly name things as securities and force us then to take them off of our platforms. Because between that and the settlement with Polonex where the SEC declared that many of the tokens were securities but never actually identified which ones, it then becomes a complete guessing game. We have no idea what the SEC is going to come out and name next or why. So it's sort of a fool's errand to try to start guessing which of these tokens may be the SEC's next target and whether the SEC can possibly prove any or all of these cases. In a moment, we're going to talk more about enforcement actions against exchanges, but first a quick word from the sponsors who make this show possible.

Investing is all about the future. So what do you think is going to happen? Bitcoin is sort of inevitable at this point. I think it would come down to precious metals. I hope we don't go cashless. I would say land is a safe investment. Technology companies. Solar energy.

Robotic pollinators might be a thing. A wrestler to face a robot, that will have to happen. So whatever you think is going to happen in the future, you can invest in it at WealthSimple. Start now at WealthSimple.com. Join over 80 million people using Crypto.com, one of the easiest places to buy, trade, 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. Back to my conversation with Jason. The SEC also recently filed charges against Beeksy, saying it operated as an unregistered exchange. Some are saying that this case could be a playbook for how the SEC could go after Coinbase. So what did the SEC take issue with in regards to Beeksie? And why is this being seen as a precursor to a potential Coinbase case? Well, if we look at both BXE and BitTREX, we can see what the SEC is focused on.

They're focused on Section 5 of the Exchange Act, which deals in affecting transactions in securities, section 15A of the Exchange Act, which deals with being a broker without a license, and Section 17A little B of the Exchange Act, which is performing the functions of a clearing agency without being properly registered as a clearing agency. In the Bitrex complaint and in his testimony before Congress, Gensler went a little further on these points to say that these are traditional exchange functions that have been separated in tradfai markets to avoid conflicts of interest that might occur between these functions in affecting transactions, exchange transactions,

brokering transactions and clearing transactions. So, you know, he's describing this very traditional tradfi world and telling digital asset exchanges, we think all of your digital assets are securities and therefore you must fit yourselves into the boxes of being a securities exchange or an ATS, a broker or a clearing agency. And that's what you can do. And that's all you can do. These are our rules. Follow them or you're done.

And I think that that portends very poorly for a lot of the industry because that attitude would suggest that there is literally no way to be a digital asset exchange in the United States. Because let's face it, you can't be a clearing agency for digital assets that may or may not be securities. You just can't follow all the rules for that. You can't be an exchange or even an ATS. You can't follow the rules for that. And if you want to have digital asset brokers, then FINRA needs to approve digital asset brokers. And the SEC is not letting that happen either. So on the one hand, the SEC is saying, here are all the things that you're doing that are bad.

And all you have to do is follow the rules. But what they're not saying, at least out loud, is, oh, by the way, you can't possibly follow all these rules unless you give up the whole digital assets thing and just go back to traditional securities. The overall effect of that is the SEC's rule is simply, no, you can't do crypto in America. And that's the reason we're seeing people increasingly start to move off short. And so is this why when Chergenser calls on crypto companies to come in and register that people say this is sort of like a disingenuous statement because there isn't anything that they can actually do in that regard? That's absolutely true. And Commissioner Purs has called that out saying, We tell them to come in and register, and they come in and we send them home with a court date.

You know, what has happened when I've gone in to speak with them and when others of my colleagues have gone in to speak with them, we've gone in with projects that want to do the right thing, that really want to register and find that there are problems in the rules and regulations that won't let them follow those rules. They just can't do it with digital assets. So all of the well-meaning projects out there, and the vast majority of these projects are well-meaning, right? If they're calling me, if they're calling other lawyers and saying, please help us follow the law, we want to talk to the SEC and figure out how to follow the law. I mean, these are not the fraudsters in the space. These are not the bad actors. These are the people who want to do it right and want to follow the law.

And we go in and talk to the SEC, and what we hear time and time again is, well, you know, we see some problems with that. We can't give you legal advice on how to structure it the right way. So good luck to you. And this just hasn't been very helpful. We've been asking literally for five, six, seven years for a rulemaking effort that could provide a path to follow the law. Because the good actors, and again, they're mostly good actors. They want to follow the law, but they find they're caught in this trap where if you want to do digital assets, it's virtually impossible to follow every bit of these regulations.

And that's a big problem. It's a big problem in America because it leads to a situation where we're not allowing a path for good actors to be out there, which means, A, you're abandoning the space to some less good actors in some instances, but B, the good actors are going abroad or foreign-run companies are, are stepping into that breach. So if we want to honor investor protection in America, and we do, we have to provide a path for people to actually be registered, to be lawful, and then we can look to those investor protections.

If not, we're basically telling investors, sorry, you're on your own, you know, go somewhere else, and maybe they go to a European exchange or a BVI exchange that are following rules and are registered and are very good, but maybe they go to. some other exchange that doesn't have the same kinds of investor protections that we would like to see. And that's just bad for American investors. Yeah, I saw another argument, like a slightly different way of saying the same thing, which was in the letter by House Republicans on the Financial Services Committee. They said that they didn't believe that national securities exchange regulations made sense

for digital assets because cryptocurrencies can be used for non-investment purposes. So that was like another way of saying, like you keep, you know, trying to fit. fit these companies into a certain box and it doesn't work. So now let's just talk about this effort to expand the definition of an exchange, which I feel like this is maybe a more challenging or even bureaucratic and therefore more boring thing for people to wrap their heads around. But can you explain how it is that the SEC is proposing to change this definition and how that that could impact the crypto world? Yes. So the SEC has a proposed an amendment to Rule 3B16, which talks about requirements

for exchanges. But by expanding the definition of exchange in the proposed rule on which they invited comment, there were numerous comments from people in the crypto industry that said, hey, wait a minute, hang on a second. The definitions that you're proposing would sweep in DFI would sweep in decentralized protocols and force them to do things that they literally cannot do. So, you know, anyone who's listening to your show is going to be familiar with DFI and DFI protocols, but effectively it's just software. So if you have a software protocol where people can interact on a peer-to-proticle basis with that software, there's a limit to what the software can do. It's designed to be limited so that it can be simple, right? You perform your

functions and everything is going to work the way everyone thinks it ought to work. And that's the reason that you don't need the human intermediation. But what the exchange rule amendment would propose to do, at least at first they were doing it in a super sneaky way by not mentioning defy at all, it would sweep in defy and say the defy protocols have certain obligations for reporting and other kinds of obligations that are typically. exchange would have. That makes no sense if you're dealing with just software, right? There is no human there to keep track of all the records and make sure that they're doing the reporting. So a lot of crypto companies said, hey, wait a minute, you're sweeping in defy in ways that

that defy cannot possibly accommodate. And for that reason, we should slow down on this. In last Friday's meeting, the SEC agreed to reopen the comment period, which was the only silver lining here. But the storm clouds surrounding that silver lining was that Chair Gensler made it very clear that yes, the Exchange Act amendments were designed to apply to Defi and were designed to sweep in Defi. And as a result, you know, there's a comment period open. And I do encourage everyone out there to get in comments, you know, send your comments into the SEC. But at the end of it, I don't have a lot of optimism that they're going to change the rule as it is. So I think that we're going to see actions, you know, potentially being considered against D5 protocols under these

rules, which is going to be a complete mess because the rules are nonsensical to apply to D5 protocols. And I think the enforcement actions would similarly be nonsensical. I completely expect the crypto industry to flood the SEC with their own comments on this, as we've seen in the past. But at the end there where you said that it would be a complete mess, what would that look like for the SEC to regulate Defi in the way that it seems they're proposing through this rule change? I mean, in a way, to use a very, you know, silly analogy, right, if Defi protocols are just, you know, their fruits, like they're apples, their bananas, they've got their one thing that they do, it's an apple, you can eat it.

which you can do. And, you know, the SEC's exchange rules are basically mandating that all fruits should be mammals, should be bears. And, you know, the apple can't be. It just can't be. It doesn't work. So we're going to have some enforcement actions against apples, blaming them for not being bears. And it doesn't make any sense to do that. I think what we're giving up is the idea that defy can work. in principle at all. The SEC operates through intermediaries, right? When we talked before about exchanges, about brokers, about clearing agencies, these are all about intermediaries because the SEC, and in fact, the rest of the federal government has decided it can't possibly look

everywhere all at once for everything. The federal government is not Michelle Yao. They're not everything everywhere all at once. So they've decided to rely on these intermediaries to do they're policing for them. If you have a defy protocol, what that does by its very nature is disintermediation. We don't need the intermediary because we've got the software and the software is going to work the way it works every time and that's it. And instead of looking at that software and thinking, hmm, that's interesting. How can we develop this further to try to avoid hacks, to try to avoid people who are manipulating the software in ways it was not designed? Instead of thinking, about the ways we can try to innovate but protect consumers, the SEC's exchange rule is saying,

well, you know, if you can't, if you're not an intermediary, then you can't do it at all. And again, this is just, you know, it's blaming an Apple for not being a securities exchange. Yeah, SEC Commissioner Hester Perci's commentary on this was, quote, it seems perverse to me that we would be encouraging centralization. And she was referring to, you know, just all the collapses that we saw in 2022 and crypto amongst centralized entities. Well, Jason, this has been an extremely illuminating conversation. Thank you so much for coming on Unchained.

It's always great to see you, Laura. Don't forget, next up is the weekly news recap. Stick around for this week in crypto after this short break. Ever wanted to use DFI without being tracked? Railgun is the leading defy privacy solution on Ethereum. It's available on BSC, Arbitrum, and Polygon 2. 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, all without leaving your preferred chain. Yes, that includes Dex trading. Coming soon are integrations with leading yields, lending, and perp trading platforms on multiple chains. Defy and privacy, together at last. Visit realgun.org or use the Railway app at railway.xy-Z to find out more. The ScoreBet app here with trusted stats in real-time sports news.

Yeah, hey, who should I take in the Boston game? Well, statistically speaking. Nah, no more statistically speaking. I want hot takes. I want knee-jerk reactions. That's not really what I do. Is that because you don't have any knees? Or... The scoreback. Trusted sports content, seamless sports betting.

19 plus Ontario only. If you have questions or concerns about your gambling or the gambling of someone close to you, please go to conixontario.ca. Thanks for tuning in to this week's news recap. VC firm wants FTC to reboot. Despite FTCS's controversial collapse and accusations of fraud in November last year, the exchange may soon see a resurgence as venture capital firm Tribe Capital is considering spearheading a $250 million fundraising campaign to bring it back to life. The VC and investor in both FTX and its U.S. subsidiary FTXUS plans to contribute $100 million and raise additional capital from external investors. Tribes co-founder Arjun Sethi reportedly met with FTCS committee of unsecured creditors in January to discuss an informal proposal for the relaunch. This move has raised

eyebrows given FTX's tumultuous past. Also this week, the FTCS Committee of Official Creditors disclosed that it is collaborating with the firm's liquidators to examine options for rebooting or selling the exchange. The committee has urged interested parties to contact the debtors and the committee itself while awaiting the launch of a formal process. These developments follow last week's revelation by FTCS's lead bankruptcy attorney, Andrew Dieterick, that the exchange has recovered $7.3 billion in assets and is looking at potentially restarting the exchange. Meanwhile, basketball legend Shaquille O'Neal has been served in a class action lawsuit against FTCS founder Sam Bankman-Fried, following a three-month pursuit by the plaintiff's lawyer.

Montenegrin prosecutors submit indictment proposal for Doe Kwan. Prosecutors in Montenegro have submitted a proposal for the indictment of Terraform Labs co-founder Doe Kwan and his chief financial officer, Han Chang-June, according to Bloomberg Law. Kwan was arrested in Montenegro last month for attempting to travel with forged documents and is currently in custody in Podgorica. He faces challenges in both the U.S. and South Korea, both of which have filed requests for his extradition, though it is believed that he is in custody. that South Korea will likely be granted priority in the extradition process.

Moreover, the Korean founder sent a $7 million payment to South Korean law firm Kim and Chang, prior to U.S.T. and Luna's unraveling, according to another Bloomberg report, citing local media outlet KBS News. South Korean prosecutors confirm that the report isn't false. However, the law firm has not provided specific details about the case, only stating that it offered legal advisory services and received a fee for doing so. In a separate development, a U.S. judge has denied Kwan's bid to block the Securities and Exchange Commission, or SEC, from seeking records about Terraform Labs from the Singapore Monetary Authority. The SEC is pursuing records as part of its lawsuit against Terraform Labs and Do Kwan, alleging they offered and sold unregistered securities and engaged in a scheme that led to the Stable Coins collapse, wiping out at least $40 billion worth of market value.

Kuan has also been charged with fraud by U.S. prosecutors in New York. Stablecoin legislation heats up in the U.S. The U.S. House Financial Services Committee has released a draft bill proposing a two-year ban on new stablecoins, collateralized by other cryptocurrencies rather than fiat currency. The legislation also calls for federal banking regulators to establish interoperability standards between stablecoin payment systems and puts the Federal Reserve in charge of regulating non-bank stablecoin issuers like Circle and Tether. The bill is expected to generate debate and undergo a revisions in the coming weeks. Circle CEO Jeremy Allaire expressed concerns over the draft bill, tweeting, quote, the role of the dollar in the world is at stake. Meanwhile, Representative French Hill, Republican of Arkansas, and chairman of the subcommittee holding the hearing, praise the bipartisan effort, while Representative Stephen Lynch, Democrat of Massachusetts, question the necessity of stable coins and refer to the draft language as, quote, outdated. During the initial congressional hearing on Wednesday, Democrats voiced skeptic.

regarding the draft bill, casting doubt on the chances of successfully passing Stablecoin legislation in the country. Also in the hearing, New York's banking regulator, Superintendent Adrian Harris, refuted claims that signature bank's failure was due to its exposure to the crypto industry. Harris stated that the bank's collapse was not related to crypto, clarifying that only 20% of that 20% of deposits leaving the bank were crypto-related. She emphasized that the majority of withdrawn funds belonged to normal commercial customers with uninsured deposits. Coinbase would consider locating outside the U.S. While the United States keeps debating on how to regulate digital assets, big crypto players

continue to move forward. This week, Coinbase CEO Brian Armstrong stated that the crypto exchange might consider relocating from the U.S. if regulatory clarity for the industry doesn't improve, with, quote, anything on the table to ensure the company's growth. Furthermore, Coinbase is one step closer to launching an offshore derivatives exchange after obtaining a license from the Bermuda Monetary Authority. The crypto exchange praised Bermuda for being a, quote, highly respected and experienced financial regulator and acknowledged its comprehensive digital asset regulation. Reports suggest that Coinbase's expansion, which includes trading perpetual swaps tied to cryptocurrencies, could occur as early as next week. Voyager's asset sale to Binance U.S. gets greenlight from U.S. government. government. The U.S. government approved the majority of Binance U.S.'s $1 billion deal to acquire

assets from bankrupt crypto firm Voyager. According to recent court filings, the U.S. government agreed to allow non-contentious elements of the deal to proceed before the appeal is heard. The remaining contentious elements, including the exculpation provision, which would keep Voyager from being held liable for past or future civil or criminal liability to the government, will remain on hold. Voyager's creditor committee is now working with Voyager and Byrower. finance U.S. to expedite the process pending district court approval. The deal announced in December aims to return customer funds to voyagers creditors through a voluntary restructuring process. Dutch court grants tornado cash developer home detention. Anotherlands court ruled that Alexei

Pertsiv, the Russian developer involved with the tornado cash privacy protocol, can await trial at home. Pertsv was arrested in August by the Dutch financial crime authority, FIOD. Quote, we are ecstatic that he can be set free, said Pertsov's lawyer, Keith Chang, who emphasized the significance of privacy on Ethereum in Pertsov's defense. Pertsov will be released next Wednesday under electronic monitoring, wearing an ankle bracelet but without financial security. The U.S. Treasury Department previously sanctioned tornado cash, accusing it of enabling North Korea to launder funds. Pertsov faces charges of laundering over 500,000 ether, which he denies. EU passes landmark Mika Crypto Regulation. In stark contract,

to the American approach, the European Parliament has passed the markets and crypto assets regulation, providing clarity and a unified framework for crypto businesses in the EU. Mika, seen as a potential global standard setter, has drawn attention from other jurisdictions and offers legal access to the entire EU market for licensed firms. Russia turns to crypto mining. The Bank of Russia is working on a bill to introduce a, quote, experimental legal regime for cryptocurrencies and export import transactions, to find alternatives to the U.S. dollars' dominance and global finance,

especially in light of international sanctions. The plan includes the establishment of special organizations dedicated to mining crypto and processing payments for cross-border trade deals, although specifics remain to be hammered out. Crypto trading and payments within Russia will stay banned, while the government is developing legislation to create a national agency for licensing and supervising cryptocurrency platforms operating in the country. New tax regulations for miners are also being formulated,

as part of this regulatory effort. Alvira Nailina, head of the Bank of Russia, announced the central bank's intentions, while her deputy, Alexei Kuznov, confirmed that discussions with the government are underway to determine which organizations are eligible to participate and how to vet their business models and banking partners. FlashBots Beta launches MEV Share. FlashBats introduced the beta version of its MEV Share Protocol, designed to distribute maximal extractable value or MEV profits to Ethereum

users. Integrated with FlashBots Protect, an RPC tool that defends against MEV, the protocol gives users control over the execution of their transactions on the Ethereum network. Users can adjust privacy settings and manage order flow sharing while maintaining privacy and earning MEV redistribution awards. The MEV share protocol is available for all MEV niche participants, and the code will be open sourced following the beta phase. If you are interested in learning more about MEV and, in particular, how it

is being distributed back to users, don't miss the Tuesday episode of Unchained where we did a deep dive on the topic. Market responds positively to Shanghai Upgrade. Following Ethereum's Shanghai upgrade on April 12th, the network has seen a significant uptick in interest, as staked Ether deposits have outpaced withdrawals for the first time since the upgrades activation. Data from Nansen reveals that since Monday, the amount of deposits has been consistently higher than withdrawals. Analysts believe that the heightened interest can be attributed to the reduced risk of staking ether, as the Shanghai upgrade allows for withdrawals of locked coins at will. In related staking news, decentralized staking service rocket pool has made it easier for users to become validators

by creating eight ETH bonded mini-poles, which further incentivizes participation in the network. Arbitrum rejects governance proposal to return tokens. The Arbitram community has overwhelmingly voted against the controversial AIP 1.05 proposal, which demanded the return of 700 million ARB tokens from the Arbitrum Foundation to the Dow Treasury. About 84% of voters using 118 million ARB tokens rejected the proposal, which faced criticism as an unnecessary, quote, power play, with some members believing it could jeopardize the Arbitramp Foundation's future if the Dow faced challenges in improving further funding. AIP 1.05 also called for the disclosure of the terms of a $10 million over-the-counter deal with Market Maker Wintermute. However, this was also

posed as Castle Capital founder, Adamist, argued that such disclosure could deter private entities from engaging with arbitram in the future. Maker-Dow approves $500 million USDC transfer to Coinbase Custody. Maker-Dow voted to transfer up to $500 million in USDC stable coins to Coinbase custody, which will pay a 2.6% annual yield on deposits. The decision is part of MakerDA's strategy to diversify its reserves and increase revenues by investing in traditional financial assets. The move follows an earlier decision to move up to $1.6 billion of USDC to Coinbase. As per the approved proposal, the assets in the account cannot be re-hypothicated and must be kept in cold crypto wallets.

Mystery exploit drains $10 million from OG crypto wallets. Metamast developer Taylor Monaghan recently uncovered a large-scale wallet draining operation that has affected crypto wallets on over 11 blockchains. The unidentified exploit has drained more than 5,000 eth valued at around $10 million from long-term users' wallets. Monaghan said, quote, this is not a low-brow fishing site or a random scammer. It has not wrecked a single nob.

It only wrecks OGs. The victim's private keys were created between 2014 and 2022, and their on-chain activity indicated a more crypto-native profile. The exploit is not metamasked specific. and appears to involve compromised seed phrases. While the source of this exploit remains unknown, Kaspersky recently reported serious vulnerabilities in Apple's operating system that could compromise crypto asset security. In related news, the hacker who stole nearly $9 million from Safe Moon's liquidity pool last month agreed to return 80% of the funds, totaling $7.1 million while keeping 20%

as a bug bounty. Soldier Boy was accused of promoting multiple scam NFT projects on social media, research by internet investigator Zach XPT, who found 73 promotions and 16 NFT drops by the rapper, many of which turn out to be scams. Time for fun bits. Ginny from Unchained has a take

on Twitter partnering with E. Toro to launch crypto trading on the Bluebird app. Twitter is partnering with E. Toro to bring crypto trading to the app. This is shocking. I had no idea that Twitter did not already allow crypto trading. Why is there so much spam?

E. Toro is a social trading platform for mom and pop traders. So if I had to guess, I'd say the crypto traders on the app are mostly on the pop side. Twitter has also launched a cash tag feature where if you type a dollar sign before a stock symbol, you'll get the stock price. Although I just tried this with Twitter's own stock and got an error, which is probably a bug. Apparently the cash tag symbol has been used 420 million times, which seems kind of suspicious. 420, really? Why is Elon Musk a parody of himself? Bitcoin is one of the most searched terms, but I imagine we won't get to the the exact number until it hits 69 million. This follows the news of PBS and NPR quitting Twitter

over being labeled government-funded media, which does seem harsh. I once interned at NPR, and I can assure you they're funded by basically no one. Must be somewhat relaxing to be in Elon's shoes right now, though. Like, you can't make Twitter worse. Thanks so much for joining us today. To learn more about Jason and the SEC's recent actions, check out the show notes for this episode. If you've been enjoying Unchained, please rate and review us on whatever platform you listen to Podcasts. Unchained is produced by me, Laura Shin, well-up from Anthony Youen, Mark Murdoch, Kevin Fuchs, Matt Pilchard, Zach Seward, Juan Naranavanovich, Sam Shrewham, Ginny Hogan, Ben Munster, Jeff Benson, Lionra Camino, Pamma Jemdar, Shashonk, and CLK transcription. Thanks for listening.