Unchained - The Lummis/Gillibrand Crypto Bill: Is the 'Ancillary Token' Approach the Best Way? - Ep. 361

Episode Date: June 10, 2022

Lewis Cohen, lead attorney at DLx Law LLC, joins to discuss the recently proposed Lummis-Gillibrand bill, the Responsible Financial Innovation Act, which he helped shape. In this episode, we cover:  how Lewis was impressed by Gillibrand’s and Lummis’s offices’ hard work and bipartisanship   how the bill creates a new definition for an “ancillary asset” with split oversight responsibilities between the CFTC and the SEC  how the bill proposes a test of managerial centralization as a determinant of disclosure requirements for digital assets  his response to criticism that the ancillary token approach is more complicated than need be and gives too much power to the SEC  why the bill didn't adopt an approach more similar to something like SEC Commissioner Hester Peirce’s token safe harbor proposal  how Lewis would respond to SEC Chair Gary Gensler’s contention that the vast majority of digital assets are securities  how Cohen is concerned about legislation or regulation impinging on basic freedoms to transact by over-applying securities regulation what kind of SEC disclosures will be required for “ancillary assets” and the requirements for projects to be able to cease mandatory disclosure how the bill defines stablecoins whether the requirement for stablecoins to maintain reserves means the end of algorithmic stablecoins or whether they will just be called something else how the bill handles DAOs and how legislation in this area must be delicate why Lewis believes the proposal is a “bright spot” for thoughtful US legislation and bipartisanship why he doesn’t see the bill being adopted in the current Congress  Thank you to our sponsors! Crypto.com: https://crypto.onelink.me/J9Lg/unconfirmedcardearnfeb2021  Ava Labs: https://avax.network     EPISODE LINKS    Lewis Cohen  DLx Law LLC: https://dlxlaw.com/ Twitter: https://twitter.com/NYcryptolawyer  LinkedIn: https://www.linkedin.com/in/lewis-cohen-a3211410/   Lummis-Gillibrand Proposal (Responsible Financial Innovation Act)  Legal Memo from DLXLaw : https://dlxlaw.com/wp-content/uploads/2022/06/DLX_FSV-summary_RFIA_060722.pdf Lummis-Gillibrand Section by Section Overview (summary by bill authors): https://www.gillibrand.senate.gov/imo/media/doc/Lummis-Gillibrand%20Section-by-Section%20%5bFinal%5d.pdf Responsible Financial Innovation Act (full text): https://www.gillibrand.senate.gov/imo/media/doc/Lummis-Gillibrand%20Responsible%20Financial%20Innovation%20Act%20%5bFinal%5d.pdf Blog post intro (by Senator Kirsten Gillibrand) : https://gillibrandny.medium.com/the-responsible-financial-innovation-act-218a764abd6c Commentary: CoinDesk recap: https://www.coindesk.com/policy/2022/06/07/key-us-senators-introduce-bill-outlining-sweeping-plan-for-future-crypto-rules/ Fortune on what the bill means for algo stablecoins: https://fortune.com/2022/06/08/algorithmic-stablecoins-terra-luna-crypto-regulation-senate-bill-lummis-gillibrand/ JW Verret's critique: https://twitter.com/JWVerret/status/1534165678831325191?s=20&t=nIWYdZKJzXsr-SVK7F_W9w Learn more about your ad choices. Visit megaphone.fm/adchoices

Hi everyone. Welcome to Unchained. You're a no-hype resource for all things Crypto. I'm your host, Laura Shin, author of The Cryptoians. I started covering crypto seven years ago, and as a senior editor at Forbes was the first mainstream media reporter to cover cryptocurrency full-time. This is the June 10th, 2022 episode of Unchained. With the Crypto.com app, you can buy, earn, and spend crypto in one place. Download and get $25 with the code. Laura, link in the description. Hey, builders, looking for one of the best scaling solutions in crypto? That's easy. Avalanche's breakthrough subnet design lets you minimize transaction costs and maximize your speed, consistency, and user experience. To experience Web3 like never before, head to avox.network to learn more. Today's guest is Lewis Cohen, co-founder of DLX Law.

Welcome, Lewis. Hey, it's great to be here, Laura. Heads up, everyone. I still do not have my nice mic, even though I had the cord that hooks my mic up to my computer, shipped to me. Apologies for the sound. Hopefully I will get this while I'm here in Austin. On Tuesday, Senators Cynthia Lemmiss and Kirsten Gillibrand introduced a new crypto bill called the Responsible Financial Innovation Act. It defines digital assets, plus largely places them under the regulation of the Commodities Futures Trading Commission, which is largely seen as friendlier to the industry. Lewis, you were involved in helping to shape the bill.

Can you tell us more about what this bill would do and what it is proposing? Yeah, thanks, Laura. I think it's really exciting to see this. I know the senators, Lumbus and Jilla brand, worked really hard to come up with sort of a balancing here in terms of addressing the securities laws and commodity laws, issue around digital assets, and what they put in place, I think, think is a really interesting and pretty innovative framework. The SEC has, of course, repeatedly cautioned us that all ICOs are securities. There's securities issues all around here. And the

senators certainly agree there are securities issues all over the place. What the bill does, though, is it teases out where the securities activity sort of ends and where activity between parties who have nothing to do with fundraising or any securities activities are involved. And so in that way, it uses a key defined term, ancillary asset. And what ancillary asset is really intending to do is recognize the way the law currently works. And that is, you know, you've probably had many guests on your show, I'm guessing Laura, who've talked about the famous Howie test, the Supreme Court case that helps to delineate when security is present. And very often people will recite, I would joke sometimes that I have a

tattooed on my arm, but people would joke about the four prongs of the Howie test, that there's an investment of money in a common enterprise with a reasonable expectation of profit, primarily from the efforts of others. But what's often not mentioned are the words that precede that, and that's really kind of part of a key piece of the Lomas Bill. The words that precede that in the Howie case or that in a contract transaction or scheme. What that means is that the court with the Howie test is looking at transactions or arrangements where funds are being raised in what appear to be regular commercial transactions. Hey, would you like to buy some whiskey or some orange groves or whatever it may be? But really nobody wants the whiskey or the orange groves that are

being offered. What they want to do is make a profit to the efforts of the sponsor. The Lumas-Chillibrand Bill does not disturb that. So it recognizes that all of that activity is securities activity. Really, it focuses on the assets that are the object of those schemes, the ancillary assets. And it recognizes that those ancillary assets themselves, unless they have the characteristic of a security, are not themselves securities, and therefore can and should generally trade in commodities markets overseen by the CFTC. It adds, though, two really interesting pieces. One is a sort of materiality threshold, and that is that the asset that's traded has to be traded at sufficient volume to make it sort of relevant to have a public policy interest.

And that amount in the bill is $5 million equivalent of daily average trading. So if an asset is not trading much at all or certainly below the threshold, it's sort of not something that the bill concerns itself with. And the second thing, and this is really the critical thing, is that whoever was effectively raising the money, the sponsor, the project lead, are continuing to provide what the bill refers to as the essential managerial or entrepreneurial efforts that drive the value of that asset. In kind of common speak, that's what usually people mean when they refer to a project being sufficiently decentralized or not sufficiently decentralized. So when you add this all up, Laura, what we're saying is that where an asset is sold in a securities transaction,

where it's traded as significant volume, and where the project team, is still actively involved, effectively. It's not sufficiently decentralized. Then there are disclosure requirements that have to be made to the SEC. And those disclosure requirements will allow market participants to give a much better sense of what's going on with the transaction. But at the same time, people trading the asset in the market do not have to worry about being engaged in sort of being a securities dealer or a national securities exchange or anything like that. So it really finds a balancing there. I know there's a lot to sort of take in with all of that, but it's, again, in simplest and summary form,

it allows people who are not involved in the securities activity to use digital assets in the way that they're intended without the sort of Damocles of securities compliance hanging over them, while ensuring that those who do use digital assets to raise funds and who continue to be involved with that fundraising activity have securities obligations. So I have seen some chatter amongst the kind of crypto law crowd. And there's a lot of commentary around Title III of the Act, which is what you were talking about here, how the ancillary tokens are used. And much of the bill brings crypto under the CFTC's purview. J.W. Verrett, who's a law professor at George Mason Law School, and he teaches securities and corporate and banking law with blockchain applications. and also recently served in the SEC's advisory committee. He said to me that he felt that this ancillary token approach is more complicated than need be. And he also said that he felt it put too much power in the hands with the SEC because they could seek a ruling from the judge that an exemption will not apply by a term called judicial presumption. And he said that that

process he felt could take years and for that reason could actually be a cudgel that the SEC would hold over project's heads. What do you say to that? I think JW is a great advocate for the industry and for investors. And I think he's got, you know, a lot of important insights. That being said, is to really the two points, Laura, that you mentioned. And I saw J.W.'s comment and responded to him offline. Number one, in terms of complexity, yeah, no, for sure, it's complicated, but this is, you know, a very complicated problem. And I think when you, when you boil it down, the answer is reasonably simple, which is assets that are not securities shouldn't be regulated as if they were, and people who raise money through the sale of securities should be held

responsible for the statements that they make. So that's in the simplest terms, I think that's pretty easy to understand. In terms of the cudgel, it's a great point that he makes because in the law in the U.S., and you've probably done podcasts around the world, so you have a sense, we have principles-based system of common law. And that means that we don't have bright line tests. And personally, I would say that that's a strength of our legal system, not a weakness. But one of the factors, one of the consequences, I should say, Laura, about having a principles-based test is that you don't have bright lines. And that's just the nature of things. The law seeks to be fair and balanced and to ensure that people don't use this law once it's adopted as a way to circumvent the securities law as

for actual securities transactions. And so the provision that you mentioned that JW highlighted is one where, in fact, you know, the law seeks to ensure that workarounds can be stopped. It takes a lot of effort. I want to emphasize this does not give the SEC an ability at a blanket basis to say, you know, all of these tokens are securities. Instead, it requires the SEC to go after a specific project where, in good faith, that believes that there is a real workaround or abuse taking place and requires them to have a

notice and a hearing for every single asset. So that's not something that the SEC can and should have the resources to do across the board. So I think it's right to give the SEC the opportunity to look for people who are trying to cheat around the edges in a principles-based scheme. But it's not something that as a practical matter is going to fundamentally impact the vast majority of projects, people should look at the law for themselves in Title III, and what they'll see is that not only are there protections for the SEC, but there are protections for projects, including assumptions that if the SEC has not raised concerns within a finite period of time, 90 days, then the project can continue. And also, even if the project is asked to present

reasons why effectively it believes it's no longer sufficiently decentralized, The only consequence of this is not that all of a sudden, you know, the market stops and people can no longer use the token. It simply means that the project has six more months of providing disclosure, which is, you know, not the end of the world. So this is not something that's going to fundamentally disrupt, you know, projects from continuing. It may, you know, cause them to extend slightly the period in which they provide reporting

to the market. But other than that, there's no other consequence. It doesn't sort of turn something that was not a security into a security. So that's really important to understand. understand. So in a moment, we're going to talk about some of the other ways in which people felt that this could be handled. But first, a quick word from the sponsors who make this show possible. In just a year and a half since launching on Mainnet, Avalanche has built a vibrant community of builders, leaders, and innovators expanding what's possible in Web3. And the real superpower of

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I did see additional commentary where people felt that something akin to SEC Commissioner Hester Purse's token safe harbor proposal, which would give token projects three years in which to decentralize and to no longer be classified as a security might be a better way to handle this issue. What's your take on that? Commissioner Perce is a true leader here. And the challenges that she's faced in trying to advocate for not necessarily the crypto industry, but just common sense are incredible. And so she deserves,

you know, credit from all of us. I think her safe harbor proposals, both the original proposal and 2.0 proposal, which again, brilliantly she put up on GitHub, which is, I think, tremendous, are great ideas. The challenge with the safe harbor is that is twofold. Firstly, it embraces what some people refer to as the morphing concept, the idea that a digital asset can start life as a security, then based on things entirely extrinsic to the digital asset, later but no longer be a security. And then later, if it sort of other things happen, the asset would would rebecome a security. This is a concept that's just not supported in the law. And really, upon any extended thought, doesn't make a lot of sense. Assets don't change their character based on

extrinsic factors. So I don't think it's a great idea to embrace this morphing concept. The second thing about the safe harbor that is a challenge is that it asserts that tokens are securities and then accepts them from some of the securities law rules that would otherwise apply if they were securities. The tokens are not securities. And I don't think that, from a policy point of view, making exceptions for things that really are securities is a great idea. If you're a security, then you should, you know, as Commissioner Carolyn Crenshaw noted, when she responded to this, put your big boy pants on and comply with securities laws. Why do you deserve any particular exemptions? So creating a safe harbor that would give special and

preferential treatment for crypto is not something that I think is fair and balanced. And I think, you know, Commissioner Prenshaw's critique was, unfortunately, you know, really on point there. So the Lamaschilla brand bill does not do that. It does not create an exception for anything. In fact, if anything, it enhances the SEC's oversight responsibilities. But in doing so, it also recognizes that the, you know, most digital assets that we use don't have the characteristics of securities and therefore, you know, third parties, like people like

you and me, when you buy ETH on Gemini or, you know, I buy, you know, AVE tokens on Coinbase, none of us are engaging in securities transactions. That's kind of a legal affection and something ridiculous. And so Llamis Gillibrand, you know, helps all of us work with crypto while still keeping the responsibility on the people who benefit from the fundraising. And in that sense, I think it's a much more balanced way of approaching the issue. So you say it so clearly as if it's very well established that tokens like Eith and AVE or whatever these other assets are are clearly not securities. But the chair of the SEC, Gary Gensler, has made some noise in the other direction.

And he doesn't, I think, view these things as so clear cut. So what makes you so certain? And how would you respond to some of his statements? he seems to think that actually the vast majority of digital assets are securities. Sure. We have a long promised paper. If you followed me on Twitter, you know. We analyzed all 259, I believe it is, appellate cases involving the Howey test since its inception, every single one of the investment contract cases. And based on that in-depth, longitudinal review, you know, I can say with confidence that there's nothing in the case law that supports the idea that an asset

that's recognized as not a security should be hypothetically treated as security when it's traded between people who are not otherwise involved in the transaction. Like you and me, buying assets on Gemini or just trading amongst ourselves or using a decentralized exchange. Moreover, we have the SEC's own words. You may be familiar if you follow the whole ripple saga that a group of disgruntled XRP holders attempted to intervene in the Ripple case as defendants, which is kind of an unlikely thing. And in doing so, they filed a motion with the court in the Ripple action, and the SEC responded.

And on page 24 of that response, the SEC acknowledged that the XRP token is not in itself a security. And it said, well, similar to the Graham token in Telegram, it's not a security, but it's the embodiment of an investment contract. And so I think there the SEC kind of put their cards on the table. The problem with the statement on page 24 is it doesn't have a footnote and there's no case law support because it's really a novel theory. And it's well within the SEC's rights to advocate for novel theories that an asset that is not a security can somehow embody a scheme. But that's not something that has been adopted by any appellate court. And it's one that presents, you know, real challenges for the market. Because, again, thinking of you and me, how do we know when a given asset does or does not embody a scheme?

We have no basis for determining that. And yet, if you were a dealer in a commodity asset and you couldn't figure out that it embodied an investment scheme, you might be subject for liability of violating the securities laws as an unregistered exchange or unregistered broker dealer, that the law doesn't work that way and it doesn't support putting people in jeopardy that way. So what Llamis-Chillabrand does is says, let's keep the securities law. where they belong, where everybody can determine them. And for third parties, we're not affiliated with the transaction, these things look like commodities and they're presumed to be commodities absent again, like you said, somebody, you know,

doing some clever workaround. So I think this creates a balanced approach that the SEC can, and in the long run, I think, will, you know, absolutely accept and embrace as something that's very pro-favorable for them and favorable for the CFTC too and giving them oversight over the commodities markets. that these digital assets traded. One other aspect of the bill involves stable coins, and in light of the recent collapse of the stable coin, it's interesting that the definition of payment stable coin in the bill defines that term as a stable coin that is backed by reserves issued by a business entity.

So what does that mean for algorithmic stable coins such as Terra had been, would they be prohibited based on this definition, or does it simply mean that, anything, you know, that is under the algorithmic stablecoin model simply would not be called a stable coin or? Yeah, that's a great question, Laura. Algorithmic stable coins are a subset of an example of what digital assets can do. Because digital assets at the end of day are just code, you can kind of make them do anything you want.

And it's really difficult to tell people not to do certain things. So the bill itself endeavors to address the kind of stable coin that we most commonly see and think probably is most commonly and properly used. You know, it's an interesting thing whether there can ever be a viable algorithmic stable coin. I tend toward the skeptical on that front, but, you know, I'm not going to say it's an impossibility. That is a matter that's hard to legislate around. Sometimes I would say, Laura, that people ask, well, what isn't a digital asset as a very existential, you know, platonic question? What's a digital asset? And oftentimes I'll answer by asking a question, very platonic-like, right? What's a piece of paper? What is a piece of paper? Well, whatever it is, it's what's written on it, right? And it's the same thing with a digital asset. The digital asset is a medium. It's not an end. And so what it is depends on its facts and circumstances that around it, what the code does, what promises, if any, are made. All of those factors, just like a piece of paper. If I write, you know, Laura, we go out for beers later.

And I forgot to bring my wallet and I say, I promise to pay you, you know, $150 plus interest by next week. I've given you a note, right? The piece of paper became a note. If I write, oh, let's get into a business venture together and this will represent one share of that business interest, it could be an equity security. The piece of paper is whatever you do with it. And a digital asset is just the same thing. So with stable coins, it really depends on how the stable coin works. The bill addresses, you know, the most important area of regulation, which is a digital coin.

or payment stable coins, which are backed by Fiat dollars, but it leaves to elsewhere, how do you manage all the wild and crazy things that can go on with digital assets? You can put one digital asset inside another digital asset. We have all these wrapped digital assets. You have all kinds of things going on in this exciting area. I think it's terrific, but each one has to be examined on their own terms. And I think the bill wisely, when it comes to stable coins, limits itself to a defined area. The bill also has a provision for DAUs or decentralized autonomous organizations to be considered as legal entities, what's the intention of that clause? To me, DAUs are one of the most fascinating areas in blockchain and

crypto, full stop. Broadly, the bill tries to help sort of provide some guidance to the taxation of DOWs by at least creating some subset of DOWs that can be taxed in a certain way. I think some people misread the bill saying, you know, you must fall into those categories. or somehow you're not allowed or I don't know what people thought. It's really just a way of organizing certain DAOs and then taxing them in a certain way. People are free to organize themselves in any way they want. You know, a DAO is like a social club with a common treasury. People can come and go and be part of it or not as they see fit.

What fascinates me about DAO's Laura is what you can accomplish with them. And I think the maker community is perhaps the most exciting example right now of something that's both at scale and operated over an extended period of time. But we don't know where it goes. The bill is not trying to define, you know, what it takes to be a Dow or, you know, what are good Dow's or bad Dow's or, et cetera. It's simply trying to say for certain sorts of Dow's that that have a legal wrapper and embrace that how they can and should be taxed. And it's endeavoring to be helpful in this regard is I'm not a tax lawyer. So I'm not necessarily best positioned to go into detail. the tax. But I think the important thing, Laura, for your listeners, is that it's not trying

to be prescriptive as to what is a permitted doubt or what is not. The bill also removes the capital gains tax obligations for cryptocurrency transactions of $200 or less. Are there any other parts of the bill that we've not touched upon that you'd like to call attention to? Yeah, I think really it's the interplay here between finding a way, you know, we've had for the last, you know, four or five years this fundamental kind of knocking of heads of everything's so security, nothing's so security. The SEC should oversee things. They shouldn't. And the bill for the first time really provides a path forward that balances those two things.

And I think is a kind of detente or glass-noss between, you know, kind of warring factions. And to me, that's the most exciting thing. I would add to it. And I really, I say this, and I think for all of us who are, you know, American citizens, you know, we don't often necessarily get up and wave the flag. To see Senators Gillibrand and Lumas come together, I'm certain that they have significant differences in many policy areas, but being able to work together across the aisle to present something that makes sense for both of their constituents and for the U.S. as a whole, it makes me

really proud. I have to say, I think this is a very, you know, proud moment to say that, you know, for all of our many complaints about our government and how it works, whichever side, you know, of things you're looking at, I think this is an opportunity to see two leaders in the space and two women leaders, right? you know, step up and say, we're going to get past all that and make something work. And I think, you know, the two senators and their staffs deserve immense credit here from all of us, even if you disagree, even if you think it's a terrible solution. I think that's fine. Comment on it. It's not going to get, you know, adopted in this Congress. We all understand that. I think it will be up on

GitHub. I understand that's the expectation and engage in the process and be part of that change. You know, instead of sitting on the sidelines and complaining, the bill gives us for the first time, everybody an opportunity to say what they feel. And let's see if we can create something here in the U.S. that's made in America and really as good as anything there is out there in the world when it comes to a regulatory framework for digital assets. Yeah. And I should note that Senator Gillibrand is on the Agriculture Committee and Senator Lemis is on the bank committee, both of which are key committees for moving this kind of legislation forward. So we will see what happens, especially in the next Congress, when this bill might kind of get more air.

time. All right, well, thank you so much for coming on Unchained. Laura, it's been by pleasure. Thank you so much. Don't forget, next up is the weekly news recap. Stick around for this week in crypto after this short break. Hey, builders, looking for one of the best scaling solutions in crypto? That's easy. Avalanche's breakthrough subnet design lets you minimize transaction costs and maximize your speed, consistency, and user experience. To experience Web3 like never before, head to Avox.com. to learn more. Thanks for tuning in to this week's news recap.

Tara must face subpoenas and investigations from SEC and Korean authorities. Bloomberg reported Thursday that the SEC is investigating the marketing claims behind TerraUSD, aka UST, the now defunct algorithmic stable coin that collapsed last month. According to Bloomberg sources, the SEC will be attempting to determine to determine whether U.S.T. marketing violated several federal U.S. investor protection laws. Terraform Labs said it was unaware of SEC action related to U.S.T. marketing, and the SEC has declined to comment. Also this week, court documents published by the U.S. Second Circuit on June 8th made clear that Terraform Labs and its co-founder Doe Kwan will be required to

comply with SEC subpoenas related to the ongoing investigation of Terra's mirror-protechrofenes. protocol. Kwan had initially been served with a subpoena in this investigation upon his arrival at Masari's mainnet conference in New York in September 2021, where he was a speaker. At the time, Terraform Labs argued that the SEC lacked jurisdiction over the entity due to Terraform's lack of sufficient contacts with the U.S. It also argued that the SEC violated its own rules of practice when it served the subpoena by handing a copy to Kwan in person. Despite Tara's lawyering, the court ruled that the SEC was in line with its own roles and did have jurisdiction in the case because Terraform Labs had U.S. employees and had previously

stated that 15% of its users resided in the country. Investigations are also ongoing in Korea. According to the Financial Times, the Seoul Metropolitan Police Agency said it was looking into allegations that employees of Terraform Labs embezzled an undisclosed amount of the organization's Bitcoin holdings. Those holdings had allegedly been loaned to market makers to help buttress the UST peg last month, but there has been no independent verification that the funds were used according to their stated purpose. Robsden merges successfully. Wednesday morning, Ethereum's Robsden test net, the largest of its three test nets, completed the Protocol's first successful public merge of an active test network, Ethereum's other two test nets,

Gorley and Sepolia, are expected to merge as well in the coming months. In the proposed merge of the Ethereum main net to be enacted Q3 or Q4 of 2022, the existing economic activity on the proof of work chain will be merged into the proof of stake chain currently being run on the beacon chain with a set of independent validators each staking 32Eath. While Robston's successful dress rehearsal bodes well for the technical aspects of the merge, concerns are building about the centralization of staking, both in terms of software clients running the network, as well as staking as service providers. For example, the prison client holds a two-thirds market share in the validator set for Ethereum's beacon chain, which is worrying, because if

Prism had a bug, it could cause a consensus failure on the network. Additionally, staking services contribute to the centralization. More than a third of all validators are controlled by staking services, of which Lido is far and away a leader. And a significant portion of the rest are operated by centralized exchanges. OP tokens stolen on back of Wintermute mix-up. 20 million of the new OP tokens from Optimism were stolen due to a mistake made by Optimism's market-making partner, Wintermute.

Optimism provided the tokens to Wintermute in the form of a loan. Unfortunately, for Wintermute, the address they had supplied and confirmed to the Optimism team was an Ethereum wallet that did not have proper support for Layer 2 chains. An adversarial actor took possession of the 20 million OP tokens that had been sent to the defunct address. Optimism and WinterMute both published statements on the matter. WinterMute has taken full responsibility for the attack and promised to buy tokens on the open market to counteract any sales by the attacker and to make the protocol whole. Wintermute also

promised to pursue legal recourse against the attacker, provided the tokens are not returned within the next week. If they are returned, a gig is in the offing. Wintermute described the adversaries actions as rather impressive and offered an opportunity for consulting work. Kane Warwick, founder and CEO of Optimism-based derivatives liquidity protocol synthetics, wrote in a tweet thread Wednesday, seeing the funds in your address is not sufficient as a test. The correct way to test a transaction is to ensure you can move the received tokens, but like 0% of people do this.

My conclusion after years of watching this stuff happen is that it's not possible to avoid every mistake, but communicating them transparently and quickly is the optimal approach. Finance faces increased scrutiny. A number of developments this week increased scrutiny of finance. by regulators and law enforcement in the United States. Bloomberg broke a story about an SEC investigation into the initial coin offering, or ICO, of B&B, a token with a nearly $50 billion market cap. The B&B ICO occurred in 2017.

100 million tokens were sold to the public for $15 million. The firm has recently backed away from its initial promise to use 20% of the exchange's profits to buy back the token each quarter. Chang Feng Xiao, founder and CEO of finance, claimed in a 2020 blog post that the decision was a result of legal advice, so as not to classify B&B as a security, according to Bloomberg. Also this week, Reuters released an investigative report on how finance became a hub for hackers, fraudsters, and drug dealers to the tune of $2.35 billion. The report caused a stir in the community, Binance responded in a blog post by publishing a portion of

its email correspondence with Reuters. related news, Binance received regulatory permission for the opening of regional European headquarters in Paris this week. After 18 months of work with French regulators, the exchange has agreed to invest $100 million in France to advance crypto technology and donate $2 million for the restoration of a room in the Chateau Versailles. Crypto adoption highlights. First, PayPal finally enabled crypto withdrawals from its platforms to self-hosted wallets or addresses. This move comes by popular demand from PayPal's users. Next, Grayscale is also pushing forward seriously with its effort to convert the GPTC Trust into an ETF. The firm has retained Donald B. Verilli, an Obama-era

Solicitor General, to buttress its legal team as the clock ticks on the final month before a response is due from the SEC on Grayscale's application. The GPTC to BTC discount currently sits at nearly 30 percent, according to the Block's crypto data. Finally, a new crypto exchange is coming from TradFi, thanks to plans by Citadel and Virtue. ECO Labs' discord is compromised. On June 4th last Friday, the Discord server of Eugel Labs was hacked. A participant obtained the login credentials of a senior community manager and absconded with keys controlling approximately 32 NFTs,

including one B-A-Y-C-NFT, according to Cryptosecurity Research firm Peck Shield. The attack was first publicized by Twitter user NFT Herder. Yuga did not confirm the hack until 11 hours after the initial tweet from NFT Herder. This was the second time in less than 10 months that Yucalabes has been compromised. On April 26th, 2022, Yukalabs disclosed a $2.6 million loss in a fishing attack related to an intruder accessing its Instagram account. When B-A-Y-C founder Gordon Goner responded to the incident, he blamed Discord. saying Discord isn't working for web tree communities. We need a better platform that puts security first.

However, Stephen Fink of Nounsdown tweeted that it's users' faults for clicking on phishing links. You didn't lose your NFT because you used Discord. You lost your NFT because you sign a malicious transaction with your key. Yuga Labs recently raised $450 million in venture funding in a seed round entailing a monster valuation. Osmosis bug in a temporary lapse in judgment. The osmosis decks was compromised on Thursday after a bug was found that allowed users to increase their position sizes without adding capital through the deposit and withdrawal of funds.

An official post from the osmosis team stated liquidity pools were not completely drained. Deves are fixing the bug, scoping the size of losses, likely in the range of roughly $5 million and working on recovery. On-chain activity and validators were paused upon discovery. of the vulnerability, but not before $5 million was lost. One culprit was the fire stake validation pool, which reported that it had taken $2 million from the protocol during a temporary lapse of good judgment. Representatives from the poll said,

we were thinking about our family's future and not the future of our community. Osmosis remains non-functional as at the time of this recording. Time for fun bits. Neil Stevenson, inventor of the term Metaverse gets his own. Science fiction author Neil Stevenson coined the term Metaverse in his 1993 science fiction novel, Snow Crash. Now he's partnering with Crypto-OG Peter Vescenes to create a Metaverse project called

Lamina 1. Lambda 1 will have a focus on virtual reality and augmented reality integrations. The ultimate goal is to create a 3D Metaverse based on Snow Crash. TestNet and Mainet implementations are intended to be released later this year. Jay-Z and Jack Dorsey fund financial literacy school at Brooklyn Project. Jay-Z and Jack Dorsey are teaming up to launch a financial literacy program in the Marcy Houses, a Brooklyn Public Housing Project where Jay-Z grew up. The program will offer classes such as, What is Money?

What is cryptocurrency? What is blockchain? And how to keep yourself safe from scammers? Participants will receive a MiFi device, a smartphone, and data plan setup that they will be able to keep after the conclusion. of the class. The curriculum has been developed by black Bitcoin billionaire and crypto blockchain plug with an eye toward reducing barriers and improving access to Bitcoin and to finance in general. Thanks so much for joining us today. To learn more about Lewis and the Lama Sintilla Brand Bill, check of the show notes for this episode. Synthetics founder, Kane Warwick, is launching

his next mentor program and I'm excited to select one of the projects from my community. If you're a female founder working on L2s who'd love to be supported by a DFI pioneer, send an email to Hello at Unchainedpodcast.com with the septic line, Kane mentorship. Mentees will get one-on-one time with Kane, plus group sessions to talk you through topics like capital raising, token design, and more. Unchained is produced by me, Laura Shin, with help from Anthony Yun, Matt Pilchard, Mark Murdoch, Pam Majjimdar, Shashok, and CLK transcription. Thanks for listening.