Unchained - Why Senator Pat Toomey Thinks SEC Chair Gary Gensler Is Wrong About Crypto - Ep. 399

Episode Date: September 23, 2022

Pat Toomey, U.S. Senator for Pennsylvania, talks about legislation in the crypto industry, how to determine if something is a security, the future of CBDCs, and much more.  Show highlights: the structural differences between crypto tokens and securities why Sen. Toomey is demanding crypto legislation why “regulation by enforcement” does not provide clarity how to determine if a token is decentralized whether proof of stake consensus turns tokens into securities Sen. Toomey’s take on the new framework for stablecoin regulation whether it is appropriate to ban algorithmic stablecoins the importance to make disclosures so that regular users understand the risks of crypto how the collapse of Terra and other crypto companies like Voyager and Celsius affected lawmakers’ perception of crypto whether the US Treasury made a mistake with the Tornado Cash sanctions what the government should take into account in regards to a central bank digital currency (CBDC) why he believes the White House reports on crypto are not helpful and whether entrepreneurial talent is migrating to other countries the likelihood of any of the crypto bills passing soon Thank you to our sponsors! 1inch Crypto.com Messari Sen. Toomey Twitter  Previous Coverage of Unchained on regulation: Congressman Ro Khanna: How to Get More Democrats into Web3 The Legal and Regulatory Fallout From Terra’s Collapse: Who Will Pay? Why the Crypto Industry Believes SEC Regulation by Enforcement Hurts US Consumers SEC Views Gary Gensler’s comments on PoS tokens Sen. Toomey’s opinion White House Reports Stablecoins Stablecoin Draft Bill Bloomberg article: Senator Pat Toomey Still Sees Chance of Stablecoin Legislation This Year Sen. Toomey’s framework for payment stablecoins that he released last spring Tornado Cash Treasury Press release  Previous coverage of the Tornado Cash Sanctions on Unchained: Is TRM Labs Blocking Addresses From DeFi Protocols? Ari Redbord Says No  Tornado Cash Sanctioned. Did the Government Overstep Its Bounds? The Chopping Block: Did OFAC Overstep by Sanctioning Tornado Cash? Given the Sanctions on Tornado Cash, Is Ethereum Censorship Resistant? Preston Van Loon on Ethereum's Merge and His Lawsuit Against Treasury Ian Balina 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 a senior editor at Forbes, was the first mainstream media reporter to cover cryptocurrency full-time. This is the September 23rd, 2022 episode of Unchained. A lot can happen in crypto in 24 hours. Subscribe to Unchained on YouTube at YouTube.com slash snees slash unchained podcast for your morning roundup of top headlines in 60 seconds or less. Don't miss Mainnet, the most anticipated crypto event of the year, September 21st to 23rd in New York City. Get $300 off your pass today by visiting mainnet. Events and entering promo code unchained at checkout. See you this fall at Mainnet 2022. 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. One inch is a top dex aggregator that finds the best rates across multiple networks. Why use a single dex when you can use them all? Get one inch on your phone now or swap on one inch. Today's guest is U.S. Senator for Pennsylvania, Pat Toomey. Welcome, Senator. Well, thanks for having me, Laura. Good to be with you. The biggest question regarding crypto regulation in the U.S. has been for quite some time what it is that makes a crypto token a security. I've heard you say that you disagree with SEC Chair Gary Gensler when he says that he seems to believe that all tokens accept Bitcoin

are securities. And I've also heard you say you believe that existing regulations created in the 1930s and 40s don't fit with crypto. So what regulatory regime is, do you think makes sense for crypto? Well, there's a lot to unpack there, Laura, as you know very well. So first of all, there are such important differences between all the crypto or most of the crypto tokens, certainly those that I'm at least somewhat familiar with, as compared to conventional securities. Most crypto tokens do not, for instance, have a direct claim on an issuer. most do not have an explicit return built into them.

Well, stocks and bonds do have a direct claim on issuers. They do tend to have a direct built-in integral return. And then, of course, very fundamentally, all conventional securities that I can think of are, in fact, issued by some entity. And that is a centralization that is at the heart of securities law. But crypto tokens are often issued in a decentralized fashion, or at least they become decentralized. So these are really, in my view, very, very important distinctions between the crypto world and the conventional security world. It's not very helpful to simply declare that they're all securities. I think that ignores these important differences.

And even if you think that they are sufficiently like securities that we ought to call them that, it's, I think, impossible to deny that much of securities law and regulation couldn't possibly apply. And so, for instance, a simple example is all the regulatory regime developed around T plus two settlement for securities. Okay, I get that for security. But how does that apply to crypto, which has like immediate real-time settlement, so to speak? What are you supposed to pause it for two days? I mean, you know, it obviously doesn't make sense. And so this is part of my ongoing argument with Chairman Gensler.

First of all, you should acknowledge that there are these very important structural differences. And secondly, even if you believe that despite the differences, crypto's have to be considered securities, then you owe it to a marriage. to lay out for us how you would resolve the fact that existing securities regulation clearly doesn't apply in many aspects in many circumstances. And he won't do that. He doesn't provide that. So that's why I think we need legislation.

Frankly, with the legislation, you know, I guess you could say it's almost gets to be semantics about whether it's a security or not. What matters is it is different and it needs to be regulated differently. and Congress ought to set up the guidelines for how we go about that. In the absence of congressional action and the absence of Chairman Gensler going through a formal rulemaking process where we would be able to have a debate about exactly how this ought to work. In the absence, what we have is regulation by enforcement. One day you wake up and find out the SEC is going after someone for something.

And okay, so that's supposed to put everyone on notice. But what if your thing is a little different than there? It's no way to regulate this really, really exciting, new and very different technology. And that's why we need legislation. So a previous SEC director, Bill Hinman famously said that he felt ether was sufficiently decentralized to be considered a commodity. And SEC Commissioner Hester Purse also has focused on a token being considered decentralized to not be considered a security. You just pointed to the same line. But that's not well

defined to a lot of people. And I think there are a lot of tokens that sort of straddle that. So do you have certain kind of factors that you would be looking at or certain thresholds that you would consider to be definitive in terms of whether or not something's decentralized? Yeah. So that's one of the questions that we've got to figure out, right? Certainly centralization seems to me a necessary element in defining something as a security. But it may not be sufficient. It could be one of several criteria. We could decide to go down the road of deciding what constitutes sufficient decentralization that you can avoid being classified as a security. We could go down that road. Or we might say that there are other elements of crypto that is sufficiently different that we're simply going to

treat it in a different way. We'll have. a separate regime for it and not have to go through an exercise of deciding when you have crossed the threshold into sufficient decentralization. Because I think it could be hard to do that. I'm not saying it's impossible, but that could be tricky. And that's part of why I'm kind of leaning towards a separate regime for crypto. So I'm sure you're well aware that last week on the day that Ethereum merged to a proof of stake chain, Chairman Gensler also said that he felt that proof of stake coins could be

considered securities. I wondered what you thought of that opinion. Yeah. So, yeah, I'd like to hear him explain how and why that is. By the way, I think you could construct transactions with crypto tokens that the transaction is essentially a security, right? It's like gold is a commodity, obviously. We all agree on that. But if you enter into an arrangement, with someone whereby they lend you gold and you pay them periodic payments in gold with a promise at the end to give them still more gold. Yeah, that's a security. It doesn't turn the gold into a security, by the way, but the transaction is. So if that's what he's getting at, then he should say so and he should spell that out. It's not obvious to me that a proof of stake mechanism by itself turns something

into a security. You referenced this earlier, but I'm sure you're well aware that a lot of people in the industry have been up in arms about what they consider to be the SEC trying to assert jurisdiction over the industry in a sort of sideline way through these enforcement actions. Some examples are the Coinbase insider trading case where obviously this was just against the Coinbase employee and his associates, but through that, the SEC said that nine of the tokens on Coinbase were securities. And then recently, in an enforcement action against YouTube personality, Ian Bolina, the government said that since the preponderance of Ethereum nodes were in the US, therefore the SEC had jurisdiction over Ethereum. So I wondered what you thought the SEC was

doing there if you agree with the industry that this is a sort of sideline way of asserting jurisdiction. I do think it's very problematic. And this goes back to my earlier point. What I think is we are seeing an ongoing pattern of regulation by enforcement. They declare they're going to enforce something against someone. They go and have their proceeding. And the rest of the world is supposed to infer from that what is acceptable and what is not acceptable. Well, this is a very, very badly flawed process for a lot of reasons. One is it essentially means regulation that is not subject to the ordinary vetting and public input process of the Administrative Procedures Act. There's a reason that we have a process for developing regulation. We don't leave it to the enforcement arm of a particular

regulator to devise this. And then another problem is what I alluded to a moment ago, even if you can see what the SEC has chosen to pursue for an enforcement action, maybe your project is just a little bit different in ways that leave a complete uncertainty as to whether you are also likely to be subject to that SEC enforcement. This is why clarity and bright sunshine and a fair process that takes public input and allows us to develop a rational system, that would be the right if you can see that these are all securities, right? Which this is what Chairman Gensler insists. there's an author who had a line, and I'll have to paraphrase it, but the gist of it is that Mr. Gensler insists that he should be the one to write the rules, and he refuses to write the

rules. This is the problem that, and I'm not sure he should be the one writing the rules, but at a minimum, if he's going to insist this is all his jurisdiction, I think he needs to provide a lot more clarity than he has. All right. So, I mean, there's just so much we could talk about with the SEC, but there's plenty of other topics. So in a moment, we're going to turn to stable coins, but first a quick word from the sponsors who make this show possible. To swap crypto, a user has to choose among hundreds of dexes on multiple networks, all offering different rates and fees. Do you want to avoid that hassle? Swap on one inch, a top decks aggregator built to get you better rates than any single decks. Enjoy unlimited liquidity across multiple

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travel and dining means you not only satisfy your travel bug, but your taste buds too. That's the powerful backing of Amex. Conditions apply. Back to my conversation with Senator to me. So the night before a recording, Bloomberg reported that there's a draft bill in the House that would put a two-year ban on what the bill called indogously collateralized stablecoins or what the crypto community might call algorithmic stable coins or perhaps even crypto-collateralized stable coins. What do you think of this potential bill? Well, I'm glad that there is a serious discussion underway with my house colleagues and it's bipartisan and I'm very much hopeful that we would be able to reach an agreement on providing a

framework for stable coin regulation because I think it's a very, very exciting technology. I think it does make sense kind of segregate this piece of the crypto ecosystem and have a regulatory regime for stable coins. So all of that I think is great. We don't have an actual agreement yet, right? We haven't seen the press release from Maxine Waters and Patrick McCamp announcing their agreement on a piece of legislation. So at this point, it's still a work in progress. There's a few things that are important to me. And I would hope that any final agreement should there be one would reflect that.

I don't think it's necessary or appropriate to ban algorithmic stable coins for several reasons. One is, frankly, if we have a sensible, rational regulatory regime for asset-backed stable coins, I think an awful lot of the world is going to naturally gravitate to that part of the market. And so what's the problem? Secondly, algorithmic stable coins by their nature are not part of the conventional financing system. They are, by definition, not backed by cash or securities. And so it's hard for me to see the threat to the overall financial system, to see a systemic threat that would justify certainly a prohibition. Thirdly, I would say, how do we know this can't be done in a sensible fashion?

Sure, Tara and Luna, that was a debacle. That collapsed that was obviously flawed in its design. But I don't know that it's impossible to come up with an algorithmic mechanism where there's a token that backs up another token. And I would not want to preclude that possibility. So I'm not a fan of any kind of prohibition. I haven't studied the language. in this idea, this proposal.

I'm not sure there actually is specific language. So I'm not sure how broadly it sort of suspends the issuance of new algorithmic stable coins. But as somebody who was always skeptical about the ability of Tara to hold its value when I learned of the design of the interaction, I nevertheless think it's a bad idea for government to just prohibit it. That doesn't seem right to me. There's other things that are really important to me as well. One is that we make sure that stable coin issuers have multiple possible paths to follow.

I'd be concerned, for instance, if the only path to being an issuer of a stable coin were to be regulated by the Fed, that might be a sensible. In fact, I think it is sensible for that to be a path, but not for it to be the only path. And one of the reasons is, let's be honest, institutionally, it's not. not clear to me that the Fed is very enthusiastic about this whole invention, right? I think the as an institute, I'm not referring to any particular individual, but sort of institutionally and culturally, the Fed's probably not wildly enthusiastic about stable coins. That would be one factor. The other factor is the Fed might very well at some point have a conflict of interest in the sense that they may decide to pursue a CBDC. And if they do, they might see.

see stable coins as a competitor to their own product. How are they going to treat that? So my approach, and we've released draft legislation that would show how we could codify this, would be to allow issuers who wish to to be regulated and supervised by the Fed, but not to make that the only possible arrangement. Earlier in your remarks, and I don't know the exact wording that you used, but you talked about how you felt that, you know, there shouldn't be a ban on experimentation with things like algorithmic stable coins. However, I'm sure you're well aware that the Terra Luna collapsed,

wiped out $60 billion in value and there was this sort of contagion that happened that really did affect a lot of everyday people. You know, you can read their Celsius or, you know, even, yeah, on different forums, you know, had their life savings wiped out, different things like that. And so when it comes to kind of consumer protection, you know, I imagine that people that want to regulated, that's the angle they're taken. So what would you propose to sort of prevent that kind of experimentation from having those types of effects, if anything? Yeah, I really think that the sensible approach to take is to require disclosure, right? Make sure that people are able to understand what they're getting themselves into. I don't think it's the role of government to

protect people from themselves, to ban investments that might be sensible investments, even if the government or a particular official doesn't like them. I think we do too much of that already, for instance, the way we limit all kinds of investment opportunities in things like private equity and hedge funds and venture capital only to wealthy individuals. Because the assumption is if you're not wealthy, you're not sophisticated. You don't understand this. And so you're going to be forbidden. That's a terrible idea, in my view. And I don't want to impose that in the crypto space. So I'd be perfectly open to a discussion about how do we make sure that people understand that if they're buying Terra, it is not backed by cash and U.S. Treasury securities.

It is backed by another cryptocurrency. I think we want to make sure people are able to make an accurately informed judgment, but I don't like the idea of forbidding them from doing what they want to do with their own money. My guess is that the bill that was reported on by Bloomberg last night, you know, potentially proposing this ban might have kind of come out of the collapses of Terra, but also the contagion of three arrows capital, Celsius and Voyager. And I just wondered if you could talk generally about how these major collapses in events in crypto have affected the perception of crypto by lawmakers. Yeah, it's a great question. I will say, I think one effect has been to heighten the awareness. and the sense of urgency, maybe overstating it a little bit,

but to some degree an urgency for setting up a regulatory framework. I think that's true among some of my colleagues in the Senate, some in the House, also some in the administration. I think there's probably fair to say that for some folks who are certainly aware of this space, but not paying a whole lot of attention, the collapse of really a very large stable coin caught their attention and probably also a little bit of a sigh of relief that it wasn't an asset back stable coin because of the concerns of contagion. So I think it did catch people's attention. Look, we've got a lot of colleagues who take a much more protective view of consumer protection than I do.

and I think it's more paternalistic. I think they would clearly like to ban this whole category. I've got colleagues on the Senate Bank Committee would ban all things crypto. I'm pretty sure. I pretty much said so. I think that's a really amazingly terrible idea. But these failures has definitely underscored the vulnerability and given some impetus to getting something done. Now let's talk about the sanctions on tornado cash.

I'm sure you're aware that this was the. the first time that the government has sanctioned a series of smart contracts rather than a person or an organization, it's certainly in the crypto industry caused, you know, just a lot of consternation, a lot of unexpected consequences. Do you think that the government got this wrong? Yeah, honestly, this is something I'm still wrestling with because I think there's a real challenge here. I think the crypto universe has an understandable concern if the government is the size. now that we can sanction code, where does that end? And what's the limiting principle here? And that's, you know, that that feels a lot like an infringement on the First Amendment even, right?

So, so that's, that's problematic. That is worrisome. I get that. But it's also true that really bad actors like the North Koreans were probably using Tornado cash as a way to launder money, Breaking in and stealing crypto, I think, is part of their business model, especially from bridges among platforms, and then going to tornado cash to kind of sterilize it so they could then, you know, find a way to keep their ill-gotten gains. So there are real problems. I'm not sure this was the right solution. I'm also a little concerned that it was OFAC that did it. But it's, this is a dilemma that we're going to have to work out together. So now let's talk about the White House reports that came out on crypto. I mean, they've been kind of trickling out, but there were a few that came out last week. There was one that suggested that the Federal Reserve continue to research central bank digital currencies. And based on our discussions of stable coins, I was curious for whether or not you thought the government should pursue a CBDC. So I'm not reflexively, totally opposed to any pursuit of a CBDC. I'm skeptical, though. I do have certain sort of thresholds that are really important to me. For instance, I would strenuously oppose any pursuit of a central bank digital dollar that gave the Fed or any central government entity the ability to surveil individual transactions,

right? That should be a complete non-starter. That, to me, absolutely precludes universal retail accounts at the Fed, which many of my colleagues, that's the most attractive thing to them about a digital dollar, is everybody having an account of the Fed. I think that's a terrible idea. I'd be completely opposed to that. I also think that operationally, I'm not sure the Fed can pull this off, right?

I mean, it should be either an open source code or at least something that developers can build on. There's all kinds of big security concerns about something that can withstand the continuous was hacking attempts that would be there. So I don't know how likely it is that the Fed can do this, can get it right, can do it in anything like a timely fashion, and can do it without infringing on the privacy of the American people. So if someone came along and convinced me there's a way to do all of those things and have a central bank digital dollar, then I'd be open to that conversation. But here's the other thing. If we've got a well-regulated, well-functioning, robust stable coin industry with private issuers issuing stable coins at work, then how much do we need a

central bank digital currency? So I guess what I'm saying is I want the technology to be built into our currency. I want the dollar to have the most sophisticated technological capabilities on the planet. I want to be able to have smart contracts running on our money, but I'm not sure the Fed has to do that. And I know that stable coins can do that. So I guess I'm not absolutely dug in, opposed, but I'm a skeptic. Yeah, what you were saying reminds me of former CFTC chair, Chris Giancarlo, his view that it's better to do something, yeah, more like public-private partnerships, not a true CVDC, but make it more competitive. So, you know, circling back to this SEC question, one kind of like side commentary on that is that the SEC.

actions here have led the US to be less competitive when it comes to crypto and that they're entrepreneurs who are leaving to go to other jurisdictions. They're not offering their entrepreneurial efforts to American consumers. Between, you know, what you read in the White House reports on crypto last week and this idea that the U.S. might be falling behind in this area after being a leader in technology for so many decades, I was kind of curious whether or not you thought the White House reports sort of show that we are now going ahead in the right direction. or if it's maybe this continuation of perhaps entrepreneurship leaving the U.S.? Yeah, honestly, I don't think these White House reports are terribly helpful for this underlying

problem that we have. I think you identify it's a very real problem. I think I've spoken directly with a number of developers who are very concerned that the legal uncertainty under which they're operating is very unhealthy and that there are people leaving the country and this ecosystem, which should be thriving and growing here, is migrating to other places. That's terrible for the United States. These White House papers, they're pretty vague. They were like studies. I didn't see. And by the way, to some degree, I think in tone anyway, they reflect at least a skepticism, if not a hostility for this whole space, which I think is not terribly healthy. So I'm not very impressed, frankly, with that work. I think we need to be. I think we need to

move in a different direction. Okay. Last quick question. There's been a number of bills proposing crypto legislation. There's been the Lemmas Gillibrand bill, Stabenow-Busman. I just wondered what you thought of the odds of something being passed and if so, which bill maybe had the highest likelihood. Yeah. I still think there's a, the best chance of getting something passed is, I think, a stable coin bill. I think it is the simplest. There are the fewest issues to have to wrestle with for a variety of reasons, the stable coin legislation, I think, still has the best chance. It is also true that there are significant negotiations actually underway in the stable coin space. I know the administration would actually like to get something done. So I think the chances of something

broad and sweeping like the Gillibrand Lummis Bill is not likely that that will get passed. that's not to say it's not an important contribution to this whole discussion and to the momentum that we need. But I think it's unlikely to get past. My focus is to try to help get a stable coin bill across the goal line. We got a good stable coin bill. And by that, I mean sensibly regulated that allows for the innovation, allows for multiple competing models, and allows them to thrive. I think that would be extremely constructive for the whole ecosystem. And it would demonstrate that we are capable of laying out these frameworks. And maybe next year we could do something that would go beyond that.

All right. Well, Senator, it has been such a pleasure having you. Thank you so much for coming on Unchained. Thanks for having me. This has been great. Don't forget. Next up is the weekly news recap. Stick around for this week in crypto after this short break.

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Thanks for tuning in to this week's news recap. Wintermute, a crypto market maker, was hacked for $160 million worth of crypto. according to CEO and founder of Gennie Guy Voi. The exploit was related to the firm's defy operations, but the over-the-counter and C-Fi functions are safe. Guy Voi assured that the company remains solvent with twice over that amount in equity left and said he is treating it as a white hat attack. The Wintermute team has contacted the hacker and offered 10% of the stolen funds as a bug bounty. It also warned, if the stolen funds are not returned by the deadline, you will force us to remove our bounty offer and white hat label.

We will then proceed accordingly with the appropriate authorities and avenues. This is the seventh largest exploit in crypto. The top of the list is still led by the Ronin attack, followed by Pauly Network and Wormhole. The hack was related to a vanity address vulnerability, which was recently discovered by the one-inch team. In fact, earlier this week, someone drained over $3 million from one of these addresses. This is not the first mishap suffered by Wintermute this year, as it also lost 20 million OP tokens worth $27 million at that time due to a mistake. Turun Chitra, managing partner at Robot Ventures, called the Wintermute team,

incompetent on this week's show of the chopping block, official video out Saturday. In related news, a hacker called ZeroX Riptide identified a bug within Arbitrum Nitro, the latest upgrade to the Ethereum Layer 2. flaw was related to the bridge between the Ethereum Mainet and Arbitrum and would have allowed anyone to replace the destination address with their own. The White Hat hacker was rewarded with 400th or around $500,000. Doe Kwan not in Singapore, but denies being on the run. The Financial Times reported that authorities in South Korea have asked Interpol to issue a red notice for Doe Kwan, four months after the collapse of the Terra blockchain. A red notice is a request to launch.

enforcement worldwide to locate and provisionally arrest a person pending extradition, surrender, or similar legal action. South Korean investigators have been looking into the implosion of the terror network and analyzing whether Kwan violated the country's capital markets law. Last week, a court issued an arrest warrant for Kwan, but his whereabouts are still unknown. After the police confirmed that he was not in Singapore, authorities have decided to ask the worldwide enforcement organization for some help. However, Kwan tweeted, I am not on the run or anything similar. For any government agency that has shown interest to communicate, we are in full cooperation and we don't have anything to hide. Last week,

the Ministry of Finance of South Korea stated its intent to void Kwan's passport to force him to return to the country. To date, Interpol has not yet added Kwan to the red notice list. Giants battle over Voyager's assets. Crypto exchanges FtX and Binance are leading the auction for troubled crypto lender Voyager, according to the Wall Street Journal. Voyager is going through bankruptcy proceedings and is one of the many crypto firms that collapsed this winter. The auction for its distressed assets started last week. Finance has reportedly offered $50 million, a slightly better proposal than its competitor FTX. At the company's peak, Voyager was worth $3.9 billion. Since the bankruptcy, it has

lost more than 95% of its value. Voyager had provided loans to bankrupt crypto fund Three Arrow's capital, and this exposure was the main catalyst for the collapse of the company. In addition, Voyager lent $200 million to Alameda research, Sam Bankman-Fried's trading firm. This week, Voyager agreed to repay the loan in exchange for $160 million in collateral Voyager has been holding. Speaking of troubled crypto companies, Celsius has asked the bankruptcy court for permission to sell $23 million in stable coin holdings. If the motion is approved by Judge Martin Glenn, Celsius will have more liquidity to continue its daily operations.

In addition, another video of Celsius's revival plan was leaked this week. Apparently, the firm is considering issuing wrapped tokens to give back some customer funds. CoinFlex, a crypto exchange based. in Singapore, which halted its operations in June, announced an official restructuring proposal that would give creditors the rights to 65% of the company. Meanwhile, FTX is still showing strength during these tumultuous times. The firm is reportedly raising up to $1 billion at a valuation of $32 billion. According to CNBC, FTX would use the funds for additional dealmaking. Coinbase reportedly had a trading business unit. Coinbase, the largest cryptocurrency exchange in the

United States set up an internal crypto trading desk last year, according to the Wall Street Journal. Also last year, executives at the company testified before Congress and stated that they were not running a proprietary trading business. However, the Wall Street Journal says that the company hired senior Wall Street traders to create a new business unit called Coinbase Risk Solutions. The report claimed that the business unit was dissolved five months after its creation. Coinbase published a blog post stating that the report was inaccurate. it. Coinbase does not operate a proprietary trading business or act as a market maker. The exchange also said, from time to time, Coinbase purchases cryptocurrency as principal, including for our corporate

treasury and operational purposes, but it doesn't view it as proprietary trading. The week post-merge. The highly awaited merge happened a little over a week ago, but even though the upgrade went as smoothly as it could have, the markets have seen quite a bit of volatility. Before the merge, ETH was trading it around $1,600. However, it took a downturn and it hit a low of 1,229 after the Federal Reserve announced a 75 basis points hike in the interest rate on Wednesday. That caused a bloodbath in the crypto and stock market. Following the merge, the Ethereum proof of workfork went live, despite many doubts. Within hours after the main net announcement, Justin Sons Exchange Polonex decided to support a different fork of the chain,

Ethereum Fair, which is supposedly supported by the community's majority. However, it looks like the fork is not going very well. Cybersecurity company BlockSex said that it detected replay exploits on the blockchain, which resulted in an extra 200 ETHW tokens being captured by the attacker. The ETHW token performed quite poorly and is trading at approximately $5. only 0.4% of ETH. Some analysts were estimating that ETHW would account for 2 to 3% of Ethereum's market cap, but the market says otherwise.

Tether to issue supporting documentation. Tether, the issuer of Staplecoin USDT, has been ordered by a judge to provide financial records to back its issuance. This is related to a lawsuit which alleges that Tether, in cooperation with its sister company, Bitfinex, conspire to manipulate the price of BTC and other tokens. with non-backed issuance of the stable coin. The judge is also ordering Tether to share details about the accounts it holds at Crypto Exchanges, BitFenex, Poloniacs, and Bitrex. Tether replied in a statement,

The order is a routine discovery order and does not in any way substantiate plaintiff's meritless claims. Cracken's CEO steps down. Jesse Powell, CEO of Crypto Exchange Cracken, disclosure, a former sponsor, will step down from his role. Powell founded the company 11 years ago and was able to grow it into one of the largest crypto exchanges in the market. He will act as chairman of the board and will focus on product development and industry advocacy. Dave Ripley, Cracken's chief operating officer, will replace Powell as CEO. Powell said on Twitter, Cracken is an excellent hands with Dave Ripley. I'll continue to be highly engaged as chairman.

Big thanks to the team for trusting me, our investors for taking a chance, and all my industry peers on the front lines. Finance CEO Cheng Peng Xiao saluted Powell. Like raising a kid, a founder has to let go sooner or later. NASDAQ to offer crypto services. Equity exchange operator NASDAQ is planning to launch its own cryptocurrency custody service, according to Bloomberg. The second largest stock exchange in the world is preparing to capitalize on the nascent crypto industry and will reportedly offer crypto services for Bitcoin and Ether to institutional investors. NASDAQ is establishing a new crypto-focused unit called NASDAQ digital assets, which will be run by Ira Auerbach, a former employee of crypto exchange Gemini. This new service still requires regulatory approval. In other adoption news, the state of Colorado will accept crypto payments for taxes.

Governor Jared Paulus, a longtime crypto advocate, who has also been featured on Unchained, said Colorado is tech forward in meeting the ever-changing needs of businesses and residents. Time for fun bits. The rainbow has a new color. The Bitcoin Rainbow model finally broke this week, or so it was thought, as the price of Bitcoin seemed to close below 19,000 on Monday. Eric Wallho's been touting this model for a long time said, It's Over and posted a hilarious meme of the rainbow chart being defeated in a Dragon Ball

Z fight. However, the very next day he told you. tweeted, oh wait, Bitcoin had a daily close above 19K in the end. Sorry, y'all. Rainbow not dead. Also, after Holger, a crypto-twitter person commented, Indigo was always missing. The chart was updated to include a purple band,

which reads, one BTC equals one BTC. However, Jackus, another crypto influencer, posted, a fixed rainbow chart, which projects that the price of VTC will go to zero. Thanks so much for joining us today to learn more about regulation in crypto and Senator Pat Toomey. Check out the show notes for this episode. Unchained is produced by me, Laura Shin, with help from Anthony Yoon, Matt Pilchard, Juan Oranovich, Pamajimdar, Shashonk, and CLK transcription. Thanks for listening.