Unchained - SEC’s Hester Peirce Tackles ‘Frustrating’ Crypto Regulation – And Why It’s So Slow - Ep. 507

Starting point is 00:00:00 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 eight years ago, and as a senior editor at Forbes was the first Main Tree Meteor Porter to cover cryptocurrency full-time. This is the June 16th, 2023 episode of Unchained. Co-Pilot is a best-in-class personal finance app for Mac and iOS, designed to give you a complete view of your financial life. Use code unchained for a free two-month trial and get started today to see your money in a whole new way. Secure your crypto accounts with a secure email service. Proton mail is end-to-end encrypted, meaning that no one, not even Proton, can access your emails.

Starting point is 00:00:46 Go to proton.com. 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. Today's guest is SEC Commissioner Hester Purse. Welcome, Commissioner Perce. Hi, Laura. It's great to be back.

Starting point is 00:01:06 The SEC has taken a particular approach to regulating crypto in the U.S. And in the last few months especially, it's becoming more clear that it's regulation by enforcement. If you became the chair of the SEC today, what would you do in the first six months to regulate crypto in the U.S.? Well, thanks, Laura. And I do want to start with my standard disclaimer, which is that. my views are my own views as a commissioner and not necessarily those of my fellow commissioners or the SEC as a whole. If I were able to set the agenda for the SEC, which would require me to be chair, I would, I think, take each of the discrete issues around crypto, try to develop some

Starting point is 00:01:46 sort of position paper so that we could then put those out for people to look at, comment on, and then come in and actually have a discussion. I think it's really valuable to have people discussing the same document together to sort of assess whether the approach laid out in the position paper makes sense or not. And then move on from there. I think that there are a number of issues, discrete issues, that could be addressed to make it clear either how we as an agency need to move forward or maybe to lay the groundwork for Congress to move forward.

Starting point is 00:02:26 This kind of conversation is something that we could have in conjunction with the CFTC. Obviously, would be respectful of wherever Congress is. I think that's important as well. I mean, there's a lot of activity right now in Congress on crypto, and so the agencies need to be looking to Congress for their direction. But I think the agencies also can be pretty helpful in thinking through some of the more technical problems and doing that, again, with the help of industry. And what are those discrete areas that you would want to look at?

Starting point is 00:02:59 So I think question number one is what kind of disclosure do you want when people buy tokens? That's something you can talk about. Second thing is, if you have trading platforms, what would a good set of rules look like for trading platforms and who might be the agency that would oversee that would oversee those or would it be a joint effort? And again, some of these questions are going to be resolved by Congress, not necessarily by the SEC. And then another area would be custody. There's some unique issues around custody of digital assets. And I think that's something that you'd want to think about. You'd want to think about, and again, some of this may not fit within the SEC's jurisdiction,

Starting point is 00:03:44 may or may not. You'd want to think about stable coins, how they should be regulated. So those are some of the places where I would start, I think it would be, it would make sense. You want to also have a framework for people to identify which regulatory regime they fit in. And I think that would be something that could be discussed as well. In a recent interview on Unchained premium offering, former SEC cyber enforcement chief Rob Cohen said that he thought it was unfair that the SEC has been naming crypto tokens as securities and lawsuits where the token issuers are not named as defendants and so are unable to defend themselves. What's your response to those remarks? You know, this is one of the areas where people really want to get clarity around what's

Starting point is 00:04:31 going to be treated as a security and what's not a security. And I've been talking about this for a long time that I think we need to be very legally precise and how we're thinking about these things. And you do end up in a situation where, and it's not only a. in crypto, but there are many areas where we may bring a lawsuit and someone else may have an interest in the outcome of that lawsuit or even in the fact that we brought a lawsuit. And that can be very problematic. One of the more famous enforcement cases the SEC has made in crypto was the one against EOS, which is now perceived as a slap on the wrist, since EOS raised $4 billion in an ICO, for which the company that launched the network paid only $25 million in a fine.

Starting point is 00:05:21 In contrast, some of the tokens that have been named as securities in the recent lawsuits followed all the rules. They qualified for proper exemptions so they wouldn't have to register their tokens at securities. Now their tokens have been named as securities in these lawsuits. Why do you think these enforcement actions have been so unevenly applied? And do you agree with how they've been applied? I think if you look at trying to address the issues and create, crypto using an enforcement approach. I think we're all going to agree there are a lot of frauds in the

Starting point is 00:05:53 space where you're basically using the label crypto and you're raising funds for yourself that you're going to run off with yourself and you're lying to people. I think we can all agree that that's an appropriate place for enforcement to come in. As I've said, though, if we're going to try to go on an ICO by ICO, token by token approach, we're going to be at this for many, many years. It's a very slow way to do things. So I think we really need to think about providing a regulatory solution to the, you know, again, they're real issues around information asymmetry and around protecting customers

Starting point is 00:06:36 that we want to think about. We can think about those, but I think a regulatory approach is better. Now, I will say that people need to be aware. that we look at each case on its facts and circumstances, and, you know, you can look at a few facts. You can pick out a few facts and say, well, I think this case should be compared to another case and this case doesn't appear fair in comparison to this other case. But there may be other facts that way one way, that, you know, push one way or the other. And I think it's really important to remember that.

Starting point is 00:07:10 You know, if you want to know how I feel about particular cases, you can look at my voting record on those cases. It doesn't come out till, I will say, if we're bringing a litigated action, you won't see that until the conclusion of the litigation. If it's a settlement, you can look at that closer to real time. I recently did an interview with two crypto trading platforms that had gotten FINRA approved to trade digital asset securities. One of them, in particular, Prometheum, received a special purpose broker-dealer license. And I wondered what you thought of this as a path for existing crypto exchanges such as Coinbase, Cracken, Gemini, etc. Well, we put that special purpose broker-dealer relief out. I think at the end of,

Starting point is 00:07:54 it was December 2020, if I recall correctly. And so we now have one firm that has been able to get through and get this designation. And even at the time that we put that relief out there as made it available to people. I thought it was too narrow. It makes it quite difficult to use that relief. So now we have an opportunity to see how it will work, but I think people really need to look at the conditions in that relief and see how narrow they are and ask whether, is that really the solution, the regulatory solution that we're looking for? My response would be, I don't think that's the regulatory solution. We need to really sit down and come up with a serious framework. That was a baby step, right? I'm not saying that it was good. We did something.

Starting point is 00:08:46 I was happy at the time we did something, but I never viewed it as the solution to the problem. On my show, Prometheum's CEO, Aaron Kaplan, seemed to imply that Ether, for example, is a digital asset security and so could be listed on the Prometheum site. Do you agree with that? Or if you, I mean, obviously, you may not be able to answer for Ether specifically, but their website included like screenshots of trading, for instance, like comp or something like that. So, you know, if you agree that tokens that are kind of all in that class could be agreed, then I wondered who you thought would register those tokens as a security with the proper paperwork and disclosures, if any.

Starting point is 00:09:28 Laura, I think what you're pointing out is that there are unique aspects of digital assets that I think require us to think about what the right regulatory, framework is, not trying to jam digital assets into an existing regulatory framework. And that's something that I've been talking about for some time, but many others have been talking about this for a long time as well. It's not an objection to addressing the investor protection or customer protection concerns that are out there. It's not an objection to getting information out there. It's just trying to think, how does it make sense to get information out there. There are different approaches that are floating around. We have a legislative draft that's out

Starting point is 00:10:16 there now that people are looking at. There are ways to deal with this. But I think just assuming that you can take these digital assets, which, as you point out, are quite different from your traditional share of a company that the company is obviously going to be the one to provide the disclosure or something. And so that's why I think. we've wasted a lot of time, not sitting down and figuring out reasonable solutions that address concerns, but also are practical and answer questions about what does this actually mean for these tokens in the primary market and the secondary market? How are they going to trade? Who's going to trade them? Do you need intermediation? All of these kinds of questions. And so between the last

Starting point is 00:11:06 two answers, it sort of feels like what you are saying is that even with these SBBD licenses, that it's pretty limited in what you can list. And for instance, something like an ether or a comp or, you know, similar tokens probably wouldn't be. Laura, I'm not going to speak to that. And I, you know, I think we have to see how this develops. The approval just came through. I haven't had a chance to talk to the particular company post-approval. So I don't know what their plans are. I think that the issue, though, is that we have to stop thinking about just putting our existing regulatory framework, you know, insisting that our existing regulatory framework doesn't need any adjustments at all when Congress told us we're giving you exemptive authority.

Starting point is 00:11:58 We're giving you the ability to make adjustments. And so we need to do that. And people need to understand what is it we're allowed to do and what structure do we have to adopt in order to do that. And you see it over and over again that we're just making these statements that, no, you have to fit into the existing model. We saw that with the definition of exchange release that came out recently. You know, we're not acknowledging the fact that the technology offers some new qualities, some of which make it harder to regulate, some of which make it unnecessary to regulate. So let's think about each of these on its own and stop just trying to do everything through enforcement or through we need to have conversations that involve all of the potential competitors,

Starting point is 00:12:55 and we want to make sure that we're not designing a regime that works only for one company. We wanted to work for many so that we can have lots of competition. So in a moment, we're going to talk more about the communication protocol definition. But first, a quick word from the sponsors who make this show possible. The scorebed app here with trusted stats and real-time sports news. Yeah, hey, who should I take in the Boston game? Well, statistically speaking. Nah, no more statistically speaking.

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Starting point is 00:14:41 You can enter code unchained in onboarding for a free two-month trial and get started today to see your money in a whole new way. Back to my conversation with Commissioner Perce. So as you mentioned, there's also this proposed rulemaking on the definition of an exchange, and some lawyers are viewing the current version as an effective ban on public blockchains in the U.S. Because, for instance, it would require all validators to form a group and come in and register as either national security exchanges or ATSs, which stands for alternative trading systems. As an example, there's 773,000 validators on Ethereum alone. And so forcing them to become an organization forces them to become centralized.

Starting point is 00:15:26 So what's your response to this notion that this change in rolemaking could effectively ban public blockchains in the U.S. or force blockchains themselves to become more centralized? One thing is that it made that release in which we asked for more comments. So we had put out an initial rule proposal and this was an additional request for comment with a lot more detail about how it might apply in the space. whereas the first release didn't talk about defy or crypto at all. This one was all about it. And I think if you read it, their statements made about the current state of the world, even before that proposal goes into effect. So I think people need to look at that release very closely.

Starting point is 00:16:12 But I don't see how people are better off if they come to you with a technology that says, we want to do away with intermediaries so that people can interact directly with one another or more accurately interact with code. So your response to that is to say, find an intermediary because we want to be able to regulate it, or your response is shut down, or your responses get out of the United States. I don't understand how that benefits the American people. I mean, I'm looking forward to reading the comments. I think the comment period might have just closed, or maybe it's today, I don't know,

Starting point is 00:16:47 but it's closing soon if it hasn't already. And a couple comments had come in when I last looked at the file, but I'm looking forward to reading what people have to say. And maybe there's something I'm missing about how people think that the technology can work with the regulation. But I don't think it's a good solution to say, find an intermediary or close down. On Tuesday, the SEC released emails around Bill Hinman's 2018 speech, and he's the former director of corporation finance, in which he said, leaving aside the manner in which Ether was sold, that it is presently not a security. And looking over the emails, it looks like at least 19 people weighed in on the phrasing of his

Starting point is 00:17:31 speech, including the Office of the General Counsel. Wouldn't that suggest that Hinman's speech saying Ether was not a security, not only reflected his personal remarks, but that of the agency? Here's one important thing to understand about regulatory agencies that a lot of people don't think about until they're actually either working in a regulatory agency or working with a regulatory agency on the outside as a lawyer who interacts with the regulatory agency. You know, you've got a lot of rules. The SEC has a lot of rules about a lot of different things. And when we as a commission, I'm one of five and we make the decisions in terms of updating rules. or new rules or bringing enforcement actions. But there are a lot of interpretive questions that come up.

Starting point is 00:18:19 There are a lot of questions about I'm trying to do X and can I do this under the rules? If you required every time someone would have to go to the commission itself to get an answer, people would never get answers out of the SEC. So there has been a tradition of staff being able to provide. for example, no action relief or staff being able to go to a conference and make a statement and talk about how they're thinking about a rule. They're doing it in their capacity as, you know, on the staff, but they're explaining how they're thinking about things. If we really want to shut all that down, people will never be able to get answers from their regulator. And those are

Starting point is 00:19:06 answers that people really need to proceed forward. No one, as I started out this conversation, I can't speak on behalf of the commission. I can only tell you what I think as a commissioner. No one else can do that either. But I think you really wouldn't want to have a situation where the only time the agency spoke was when it adopted, proposed or adopted a rule or brought an enforcement action.

Starting point is 00:19:30 Okay. But, I mean, it does seem then that it is true that in a way the speeches are another way for the agency to make its views known. And then we could extrapolate that. to what happened with Bill Hennman's speech. Let me tell you, though, that if I go on the website and look at a speech that Chair Gensler gave, that's not speaking for me.

Starting point is 00:19:52 He might have one view. I might have another view. So, and frankly, if, you know, I have often take issue with rulemakings and enforcement actions. I sometimes issue dissents on enforcement actions. So the fact that someone on the staff has said something doesn't mean that I or the rest of the commission agree with that. And so I think that it is really important for people to understand that in every agency is different. We're unusual and that we're a five member commission. So there are five of us who are decision makers. But even in an agency, and look, I'm not an

Starting point is 00:20:29 administrative lawyer. So you probably should talk to one of them to get more detail on these kinds of things. But even in a single director agency, you have staff and you have people who need to call up the staff to say, hey, how are you thinking about this staff? And the staff can provide their answer. Now, if you look at no action letters, what they say is the staff will not recommend that the commission take an enforcement action if you follow these conditions. Doesn't say the commission won't. It just, yeah, it's a pretty good, it's a pretty good guide for you because, you know, it's the commission looks to the staff because they're experts for guidance, but it doesn't mean that the commission has to do what the staff says. Would you say that the SEC

Starting point is 00:21:22 has changed its stance from Chair J. Clayton to Chair Gensler regarding crypto? And if so, is that inconsistency in its approach, a typical characteristic of regulation in the U.S. across like, you know, in any agency? Or is the SEC's lack of consistency atypical for a government agency and maybe even problematic? The goal of having a five-member commission, which is politically balanced, is that you have more consistency over time so that you don't have rules that change that swing dramatically, right? You have rules that are more consistent over time. But that doesn't mean that when a new chairman comes in, the new chairman doesn't bring his own thoughts about things. And And we've seen with this commission that, and this is outside the crypto space, but there were

Starting point is 00:22:08 rules that we had adopted under the prior chairman that have gotten reversed under this one. So there certainly can be change over time. But you also have to look at change in the environment in which we're regulating. And everyone knows that 2022, for example, was not a great year for crypto. A lot of things happened. And I think it affects the way all of us think about crypto. So I can't speak for Chair Gensler, whether his views align with Chair Clayton. All I can say is that I've been at the agency for over five years.

Starting point is 00:22:45 And it's very frustrating to me that in that time, we haven't done something more productive. Has the year of 2022 when crypto changed the way that you view crypto, given your history as crypto mom and being viewed as more of a proponent? of the industry than other SEC commissioners? I mean, I wouldn't describe myself as a proponent of the industry. I'm a proponent of people's ability to make decisions for themselves to try things, even if those things fail. But I don't think that people in crypto should delude themselves about when you have centralized

Starting point is 00:23:17 entities. You're going to, you know, don't think that just because they have crypto on the front door, you're not going to experience the same kind of problems you would experience with other kinds of centralized entities. And I think people in the industry could be doing a lot. lot better job of looking at 2022. And there are people doing this in the industry, but I think people should really be looking at this and saying, what can we do even without a regulatory framework? We don't need regulators to tell us to be more careful. We don't need regulators to tell us

Starting point is 00:23:50 to put in some of these protections. And I think it's good when the industry kind of steps up and says, all right, we're going to recognize that centralized entities have these problems, and we're going to take steps to protect that. And we're really going to think about where does decentralization makes sense? If we decide that I'm not saying the industry makes a decision as a whole, right? But if people decide that they want something to be centralized, that they think it's, it makes sense for centralization to remain, well, put in protections around it. So, Has it changed the way I think about crypto? No, I mean, I think it's been a reminder to me as well as to everyone else that, you know,

Starting point is 00:24:33 the same kinds of problems show up in lots of different ways and in lots of different areas. But it has, I think, convinced me even more that as regulators, when we fall down on the job of not putting in a regulatory framework that makes sense, it is so much harder to distinguish the good actors from the bad actors. And we actually undermine protection of American people by making it so hard for people to figure out, how can I set up a business, do it legitimately, and not spend all my time thinking about regulation. I want people to think about what it is they're trying to build, and I want the regulatory framework to be clear enough so that they know, okay, here's what I have to do to be in compliance. And I'm going to do that. And then I'm going to spend the rest of my time

Starting point is 00:25:27 actually thinking about what it is I'm trying to build. I think we've probably changed the way the whole industry has developed in the United States because everyone is thinking all the time of, well, I don't want it to be considered a security. So I'm going to design it this way instead. And I don't think that's helpful to anyone. You know, I have to say that your remarks remind me a lot of a recent interview I saw of Brian Armstrong, the CEO of Coinbase being interviewed by the Wall Street Journal. And it almost feels like the sentiments that he was saying are being echoed by you. And I don't have a question there. I know you probably don't want to speak about specific cases, but I can't help be struck by the similarities.

Starting point is 00:26:09 I don't want to address that specifically, except to say that I'm someone who comes to regulation with a view that the American people should be free to do. own thing and make their own decisions. There are times when regulators have to step in. We have a regulatory framework, which I have an obligation to uphold because Congress gave it to us and told us to do it. But we also should not be in a world where the government is making merit-based decisions about what people can and cannot do. And that's where I feel that we're in a world where we're using regulatory ambiguity to prevent people from doing things that they want to do. And I don't see why I should step in ahead of that.

Starting point is 00:26:59 As a regulator, I need a reason to step in. We're just not approaching this in a way that I think is the best. And I'm hoping that we will wake up tomorrow. Keep saying this. I keep hoping it that we'll wake up tomorrow and we'll say, all right, let's think about how we can really do this in a way that's efficient and effective, gets to the problems that we've all seen crop up, but also allows people to try things and to fail. You know, it's not up to me to decide whether crypto is going to change the world or not.

Starting point is 00:27:32 It's up to me just to set up a framework within which people who think it will change the world can go try their thing and do it in the United States, not have to run to some other country to do it. it because frankly, people in the U.S. will be better protected if the innovation is happening in the U.S. Last quick question. There's a bill that's been introduced in Congress to ask Gary Gansler from his position as chair. However, and whenever he leaves, how committed is the staff to applying or enforcing the stance that everything in crypto besides Bitcoin is a security? We at the SEC have a very hardworking, dedicated staff. I know that a lot of people in crypto are very frustrated with the SEC, but we have a great staff.

Starting point is 00:28:22 Staff is duty bound to respond to the decisions made by me and my fellow commissioners. And so to the extent that people have complaints about the SEC, and then many of them do direct them at me, but that is the appropriate place to direct them. It's at the commission itself. So the way the commission goes will depend on who's running the commission. All right. Well, thank you so much for coming on Unchained. Thanks, Laura. It's been a pleasure.

Starting point is 00:28:51 Don't forget. Next up is the weekly news recap. Stick around for this week in crypto after this short break. 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.

Starting point is 00:29:23 Link in the description. Thanks for tuning in to this week's news recap. Reflation of Hinman documents sparks Ripples call for probe. As mentioned during the show, former SEC Director of Corporation Finance, William Hinman's emails, about the status of ether as a security or non-security were revealed this week. Ripple has now initiated calls for a renewed probe into Hinman following the exposure of these documents tied to the ongoing SEC lawsuit against Ripple. Ripple's chief legal officer, Stuart Alderani stated,

Starting point is 00:29:56 quote, an investigation must be conducted to understand what or who influenced Hinman. The documents suggest that Hinman planned a conversation with Ethereum co-founder Vitalik Bouturin to better comprehend the workings of the Ethereum Foundation, a point that further fuels ripples push for a new investigation. This discussion aimed to underpin Hinman's opinion that ETH wasn't a security. Gabriel Shapiro General Counsel at Delphi Labs tweeted, quote, We need Congress to step up and create a clear, reasonable, easily navigated set of fit for purpose rules for crypto.

Starting point is 00:30:28 Background of Prometheum founder prompts questions. Prometheum, a previously under-the-radar firm, made headlines in the crypto universe after co-founder Aaron Kaplan's testimony before a U.S. House Committee. Kaplan, mirroring the SEC's perspective, advocated for current securities laws to govern the crypto world. At the committee meeting, Kaplan stood up for the SEC's governing structure, suggesting that existing regulations provide, quote, a compliant path forward for crypto in the U.S. He sharply criticized those platforms that don't comply with these laws, labeling them as, quote, reckless and unlawful. In an interview with unchained, he stated, quote,

Starting point is 00:31:03 crypto exchanges argue that there's a lack of regulatory clarity because they're literally best served by the lack of regulatory clarity. Some people in the crypto community are claiming Prometheum's past isn't squeaky clean. For instance, it's been revealed that the firm has paid over $1.5 million in sales commissions to accompany with numerous regulatory infractions. In fact, it was involved in the Long Island Ice Tea Company that pivoted to Long blockchain and was the subject of an SEC enforcement action. Also, the credentials of two Prometheum officers have come under scrutiny as their law school

Starting point is 00:31:35 lost its accreditation. Adam Cochran, partner at Sinemhain Ventures, has speculated about Prometheum strategies, highlighting that the company's website features tokens that were named as securities in the SEC lawsuits against Binance and Coinbase, potentially suggesting that Prometheum had some foreknowledge of which tokens would be labeled as securities. Cochran suggests that Promethe may be getting a regulatory break, manipulating its regulatory connections, or even running a dubious scheme. In response to the revelations, the blockchain association submitted a Freedom of Information Act request to the SEC, seeking details about the crypto broker. SEC versus Coinbase, a 120-day

Starting point is 00:32:15 countdown begins. In the latest update on the legal battle between the SEC and Coinbase, the agency has requested more time to respond to Coinbase's petition for clarity on digital asset industry rules. Despite Coinbase's pushed for a court-mandated response, the SEC said that the breadth of the rulemaking petition filed just months ago and recently supplemented by Coinbase needs a thorough review. The SEC anticipates that staff will be able to give a recommendation to the agency on the petition within the next 120 days, with a status report to follow. Coinbase Chief Legal Officer Paul Graywall tweeted, quote, they ignore the clear statements of the chair that confirm that they have no intent to issue new rules. FtX's customer confidentiality upheld amid legal turmoil. U.S.

Starting point is 00:33:00 bankruptcy judge John Dorsey has allowed collapsed crypto exchange FTCS to permanently redact customer names from bankruptcy-related court documents. This decision concludes a lengthy dispute between FTC's bankruptcy estate and external parties, including media outlets and government lawyers who sought access to the customer list. Judge Dorsey emphasized customer protection, stating, quote, we want to make sure that they are protected and they don't fall victim to any types of scams. The ruling supports FTC's argument that revealing customer names could harm the exchange's sale value. Moreover, the U.S. Department of Justice's case against Sam Bankman-Fried, former CEO of FD,

Starting point is 00:33:40 faced a key decision when the Bahamas Supreme Court ruled that Bankman-Fried could contest additional charges being added beyond the original eight brought in December 2022. The additional charges center on wire fraud, securities fraud, money laundering, and conspiracy to defraud the Federal Elections Commission. The court's decision came after Bankman Freed's defense team contested the inclusion of five additional charges, including bank fraud and bribery, arguing their inclusion violated the terms of extradition from the Bahamas. Thursday afternoon, Judge Lewis Kaplan agreed to allow prosecutors to charge him on those additional charges in a separate trial set for the spring of 2024. Black Rock files for Bitcoin ETF. Black Rock's I shares unit has submitted paperwork to the SEC to create a Bitcoin Spot ETF. The proposed

Starting point is 00:34:27 Post fund, named the I-Share's Bitcoin Trust, will primarily consist of Bitcoin held by Coinbase on behalf of the trust. Despite the SEC's history of rejecting similar ventures, many people are saying that BlackRock's prominent position in asset management and political influence could potentially sway the outcome. Uniswap announces new draft code with customizable liquidity pools. Uniswap, the largest decentralized crypto exchange by volume, released the draft code for its fourth version, introducing the concept of customizable liquidity pools. The new V4 will feature hooks, which are smart contracts that allow developers to create custom liquidity pools and introduce innovative features. These hooks will enable the creation of on-chain limit orders, automatic deposits

Starting point is 00:35:11 to lending protocols, auto-compounded liquidity provider fees, and more. However, in the latest episode of the chopping block, Haseeb Qureshi, Robert Lesh, Tom Schmidt, and Turin Chitra raised concerns that that implementation would bring problems around security and user experience. The release of the draft code is the first step toward launching Uniswap v4. The team plans to engage with the Uniswop community and iterate on the code base over time. The new version will be deployed once a consensus is reached on the final version. Don't miss next Tuesday's episode of Unchained with Uniswop founder, Hayden Adams. North Korean hackers launder $100 million in stolen crypto.

Starting point is 00:35:48 The North Korean hacking group, Lazarus, known for its prolific cybercrime activities, has reported reportedly pocketed over $100 million in stolen crypto from the recent atomic wallet hack. Initially, the loss was estimated at $35 million, but the amount has nearly tripled, according to blockchain analytics firm, Elliptic. The hackers have started laundering the stolen funds through Garan Techs, a crypto exchange sanctioned by the U.S. Treasury's Office of Foreign Assets Control, or OFAC. The stolen assets were traded for Bitcoin on Garrentex, then laundered through the coin mixer Sinbad.

Starting point is 00:36:20 Elyptic, which attributed the attack to the Lazarus Group, has been working with investigators and exchanges worldwide to trace and freeze the stolen funds. However, the effort has resulted in just $1 million in stolen assets being frozen so far. Despite the magnitude of the heist, Atomic Wallet has yet to provide an explanation to its customers. Bankruptcy surge sweeps industry. In the face of rising financial turmoil, Bank, a unit of Crypto custodian Prime Trust, filed for bankruptcy, citing a deficit, citing a deficit, of $5.4 million against $17.7 million in assets. The company is wrestling with issues, including a contentious acquisition by Bicco and allegations of unauthorized asset transfers to Fortress NFT Group by former officers. Meanwhile, TrueUSD and South Korean firm Haru Invest,

Starting point is 00:37:08 which have banking relationships with Prime Trust, also paused stable coinments and redemptions, saying it was due to bank's internal struggles. Here's a recap of related bankruptcy news from this week. Cryptolender Genesis continues mediated discussions with parent company Digital Currency Group to determine paybacks. The latest negotiations indicate substantial agreement on key issues, but DCG and hedge fund 3 euros capital will likely not receive the full value of their claims. Bankrupt Crypto Lender Voyager Digital plans to reopen its app for initial distribution of funds to creditors, estimated at 35% of claims worth a collective $1.3 billion. According to Bankruptcy Plan Administrator Paul Haig, Voyager may also permit withdrawals from June 20th to July 5th.

Starting point is 00:37:55 The estate of Bankrupt Hedge Fund 3AC petitioned a New York court to declare founder Kyle Davies in contempt for his noncompliance with a subpoena and proposed a $10,000 daily fine. Meanwhile, Celsius updated its bankruptcy plan after the Fahrenheit Consortium's successful bid for assets. However, the plan has met legal resistance from borrowers who claim it violates consumer lending laws. Lastly, the U.S. wing of BitTRAx, another bankrupt crypto exchange, will commence customer withdrawals after gaining clearance from a Delaware court. The exchange had filed for bankruptcy in May amidst legal opposition from the U.S. government over millions and alleged sanctions violations. The CFTC earns a victory over Uki-Dao. In a groundbreaking decision, the decentralized autonomous

Starting point is 00:38:39 organization, Uki-Dao, has been ordered to halt operations and pay a fine of over $643,000, marking a sweeping victory for the U.S. Commodity Futures Trading Commission. This outcome was determined by U.S. District Judge William Horrick, setting a legal precedent by holding a Dow liable for law violations. As the CFTC Division of Enforcement Director Ian McGinley emphasized, quote, this decision should serve as a wake-up call to anyone who believes they can circumvent the law by adopting a Dow structure. The CFTC claimed Uki Dow and its precursor B0X offered leveraged and more. margined retail commodity transactions outside of a registered exchange and didn't meet Bank Secrecy Act obligations. Dow members' personal liability could be on the table, according to Jason

Starting point is 00:39:27 Civallari Product Council at Grayscale, stating that participation in a Dow could make members personally liable if the Dow does something illegal. USDT experiences a massive sell-off. Unusual trading activity was detected in the liquidity pools of major defy protocols, uniswap, and curve, as millions of dollars worth of the stable coin, USDT is being aggressively sold off. In Curves 3 pool, a liquidity pool for stable coin exchanges, UST made up a whopping 73% of the total pool, a surge only paralleled twice in the past two years. Research analyst Dan Smith raised concerns about Tether, the firm behind USCT, being forced to redeem the stable coin, saying, quote, bad time to be testing Tether. On the other hand, Palo Ardoino, CTO of Tether,

Starting point is 00:40:15 responded confidently, tweeting, quote, we're ready to redeem any amount. Curve finance founder faces lawsuit. Curve finance founder Michael Igorov is entrenched in legal turmoil as three venture capital firms, Parify Capital, Framework Ventures, and 1KX filed lawsuits against him in the U.S. The ongoing legal battle stems from claims of misappropriated trade secrets and an alleged breach of contract involving a near $1 million investment in Curve. The firms claim that Igorov used their investments for purposes other than agreed upon, specifically the funding of Curve's liquidity pools. Ingorov responded, stating that the U.S. lawsuit is simply an attempt to leverage the

Starting point is 00:40:55 country's unfavorable crypto climate following a lack of success in the Swiss proceedings. Time for fund. We've all heard it. The SEC is coming after crypto. But are they? Ginny Hogan from Unchained gives the scoop. Okay, you've all heard it. The SEC is coming for crypto, except it's the government.

Starting point is 00:41:15 So are they actually coming? Or are they going to put a line in the budget to put together a commission to decide whether or not it makes sense to come for crypto in the next several decades? No, this time they're actually coming. SEC Chair Gary Gensler is determined to tame what he calls the wild west of crypto, which honestly makes it sound way cooler than it is. If you've ever dated a crypto bro, you know that insecurity plays a big role in their lives, and that is in many ways what this fight is about.

Starting point is 00:41:39 Gensler believes most cryptocurrencies are securities and should be regulated as such. His current targets are Coinbase and Binance, and while it is stressful, the good news is that the Coinbase CEO Brian Armstrong is not at risk of losing any hair from the stress. Others say that the lawsuits could compel crypto companies to move overseas. And honestly, if that happened, I would be so grateful that I might start once again right swiping on lawyers. Thanks so much for joining us today. To learn more about Commissioner Hester Purse and the SEC's regulation of crypto, check out the show notes for this episode. Unchained is produced by me, Laura Shin, without from Kevin Fuchs, Matt Pilchard, Zach Seward, Juan Oranovich, Sam Shre Rum, Ginny Hogan, Jeff Benson, Leandro Camino, Pamajumdar, Shashon,

Starting point is 00:42:23 and Margaret Curia. Thanks for listening.

Unchained - SEC’s Hester Peirce Tackles ‘Frustrating’ Crypto Regulation – And Why It’s So Slow - Ep. 507

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