Unchained - Why the Ooki DAO Case Could Hurt Participation in DAOs - Ep. 402

Episode Date: September 30, 2022

Nikhilesh De, CoinDesk's managing editor for global policy and regulation, comes to talk about the CFTC lawsuit against Ooki DAO and the potential consequences across the crypto industry.    Show highlights: the enforcement action against Ooki DAO and the CFTC’s arguments behind it whether bZx’s statements that the DAO would be beyond the reach of regulators made it a target for the CFTC whether the broader implication of these charges could mean that all DeFi is illegal whether the hacks of bZx made it a high-profile target the CFTC Commissioner Summer Mersinger's dissenting statement and her concerns who the targets of the CFTC enforcement action are the consequences of the lawsuit for token holders and how to determine which token holders are liable why the CFTC chose to post a notice in the Ooki DAO forum and whether that is sufficient notice  what the next steps for DAO members are and whether there will be wide community support Thank you to our sponsors!   1inch Crypto.com   Nik Twitter    Previous Coverage of Unchained on regulation: Why Senator Pat Toomey Thinks SEC Chair Gary Gensler Is Wrong About Crypto Congressman Ro Khanna: How to Get More Democrats into Web3 Why the Crypto Industry Believes SEC Regulation by Enforcement Hurts US Consumers     The lawsuit against Ooki DAO CFTC Filing $250,000 fine Nik’s article CFTC Commissioner Summer Mersinger’s dissenting statement Jake Chervinsky’s opinion Ooki DAO’s options CFTC serving the members of the Ooki DAO via their forum Tim Copeland’s article on what’s next for DAOs 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 Maytree media reporter to cover cryptocurrency full-time. This is the September 30th, 2022 episode of Unchained. Do you have a burning question for the chopping block? Tune in every other Wednesday with hosts Haseeb Qureshi, Tom Schmidt, Robert Leshner, and Rune Chitra. Subscribe on YouTube at YouTube.com slash c slash unchained podcast. 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 decks aggregator that finds the best rates across multiple networks. Why use a single decks when you can use them all? Get one inch on your phone now or swap on one inch.io.

Today's guest is Nick Day, CoinDesk Managing Editor for Global Policy and Regulation. Welcome, Nick. Thank you for having me. One quick note, everyone. Nick is at the Circle Converge conference, so if you hear background noise, it's because he was not able to find a more private place to record. So, Nick, over the last week, we have seen the crypto industry surprised by and kind of up in arms about an enforcement action by the Commodities Futures Trading Commission,

which actually historically has been seen as, you know, an agency that's been pretty favorable to the industry. What happened with this enforcement action? Yeah. So basically in the middle of September, the Commoddy Futures Trading Commission announced that it had settled charges with a company called B0X and as founders on allegations that they were running a unregistered futures commission merchant, meaning they were offering leverage trades and margin trades. and did not go through the usual process in the U.S. to do so. And that's all well and good. But they announced at the same time that they were also filing charges against Uki-Dao, which was the successor to B0X.

And the allegations are the same that Uki-Dao was supporting the listing and trading of unregistered margined leverage trades. But what's really kind of got the industry up in arms is that the CFTC decided, okay, well, you know, a DAO is an unincorporated association, so this is an entity that we can charge, and we're going to charge people based on whether or not they voted in the governance process of the Dow. And, you know, the question is, is that a reasonable way to approach it? And, you know, many in the industry believe that that is, you know, kind of overreaching or without precedent. One other issue that I wanted to ask about was that the CFTC's complaint mentions at various times that the Uki slash BZX founders advertised that the Dow was a way of kind of putting the protocol

beyond the reach of regulators, or they would advertise that the protocol did not require people to undergo, know your customer, or anti-money laundering checks. I was wondering how much you thought that that played a role in the enforcement action, meaning if we were to take a different Defi protocol that's governed by a Dow like Compound or Ave, obviously those probably weren't advertised in that fashion. So do you think that that was really kind of what tipped it over the edge, or do you think this would just apply to any defy Dow? I think that those specific arguments were kind of a, you know, on top of this.

We're going to, you know, note the, you know, these things that the founder said. I don't think necessarily that the, at least the claim that putting it in a doubt would bring it beyond the reach of regulators. I don't think that was necessarily a factor. I think it was just kind of the SEC. or the CFTC saying, hey, look at that. You're wrong. The KYC aspect is, on the other hand,

you know, absolutely one of the charges. It's a key thing for the CFTC, the SEC, the money transmitter laws. It's a core tenant in the U.S. is that if you're offering financial products, you have to conduct KYC, and any company that doesn't is probably going to face similar charges if they're offering these kinds of services.

So that, I think, was a definitely factor. It was a kind of low-hanging fruit. The fact that the founders decided to advertise this as a benefit. I imagine got, you know, the CFDC's ears and, you know, they were like, huh, that seems very odd. That's definitely not important.

As far as utter DAOs, you know, I think what kind of strikes me about this particular DAO is that it was very explicitly created to offer the same, you know, unregistered products that B0X was offering. And so just by participating, you're kind of voluntarily opted into this thing that is, again, the whole idea is to violate the law and offer these things that the founders

clearly knew or appeared to know that this was not how they should have done it. So I think the CFC just kind of looked at this, you know, this really low-hanging fruit. It was a very easy example for them to go after. And it might not lead to a great precedent for the industry, but it's not, you know, I struggle to see what else the CFTC really could have done on it. Oh, interesting. Because I did happen to speak to Gabriel Shapiro of Delphi Digital who this was for my premium offering, and I as of this moment, haven't released it yet, but he said that he thought that this enforcement action kind of indicated that it could make all of defy illegal. So it sounds like you don't agree with that interpretation of

Gabriel's. Well, so I guess first off, I should definitely clarify that I'm not a lawyer and never went to law school for any listeners who want to know. So, you know, I definitely respect Gabe, I think he might be right, but I also think that, you know, the CFTC has traditionally kind of painted this picture of being a friendlier regulator to the crypto industry. I don't know that they'd want to blow it, you know, that entire reputation away by going after all of Defi. But again, I think in this particular case, it was just kind of such a blatant example of a defy project that was trying to break the law that the CFTC said, okay, yeah, you know, we're going to

go after this. I think that, you know, I think the issue that, you know, Gabe has and that a lot of, you know, again, a lot of industry has is that the way the CFTC is going about this is by going after any token holder who voted in the governance process. And so the implication there is, of course, okay, well, if you're voting in any kind of Dow's governance process and, you know, that Dow happens to engage in some kind of illicit activity, even if you're voting to be, you know, to not do the illegal thing, you're still liable. And that's definitely, I think, a concern. If you're part of a DAO and that DAO decides, okay, you know, we're going to get rid of our KYC process. We're going to launch something that could require a KYC process. We're not going to have that.

And you vote against that proposal. The implication here does seem to be that, yeah, you're still going to be held, you know, personally liable, even if you were trying to do your part to not allow that illegal activity to happen. If that's the actual case, and again, the safety hasn't said anything, really so. You know, we don't know if that's how they're going to interpret to say, precedent, but it seems like a reasonable assumption. And so, yeah, I think that is definitely a very

valid concern that a lot of, you know, individuals who are, you know, attorneys and members of Dow's that are watching those are concerned with. Yeah. And this actually takes us to Commissioner Summer Marseinger's dissent. But before we get there, just one last question that I wanted to ask you briefly was BcX actually had also been the victim of numerous hacks in which customer funds were lost. So do you think that that is another reason why this enforcement action happened? against them? Was that just like, you know, another kind of low-hanging fruit type situation? Yeah, I think there was, you know, a lot of attention paid to that. I think there might even have been a lawsuit against the company, which, you know, certainly once you start filing lawsuits

and you have those documents out there, it makes it easier for, for example, CFTC investigators who are, you know, looking at these legal filing saying, oh, okay, so this company did exactly, and then, you know, they're going to check and say, well, they never registered to us. So I think The hacks themselves, I don't know necessarily if the CFTC would have just gone after a company for getting hacked, but it definitely made it a more high profile target. And subsequently, once that's out there, it is a lot easier to say, okay, well, you know, we're going to look into this company and try and figure out what's what. So let's talk about CFTC Commissioner Mercinger's dissent. She said, while I do not condone individuals or entities blatantly violating the Commodity Exchange Act or our rules, we cannot arbitrarily decide who was accountable for those violations based on an unsupported legal theory

amounting to regulation by enforcement while federal and state policy is developing. Can you elaborate a little bit on her objections? One of the key objections is just the CFTC is going after an unincorporated association. And that is a thing in the U.S. It's a term, it's a legal term, but it does seem a little unprecedented in how the CFTC is approaching it. And again, part of that comes down to how are they identifying the individual members. And there's a whole utter debate around that part actually that we should totally get into later. But the question is, you know, who exactly are you trying to sue?

Who are the defendants or respondents in this case? And the CFTC does not currently have an answer to that. She's also got concerns about kind of the legal precedent that the CFTC is going with. Some of that comes down to a state law precedent, which the CFTC may and may not necessarily be able to enforce being a federal agency. again, this is the part where me not being a lawyer kind of becomes a handicap. I'm actually not 100% certain up to legal nuances of that. But the CFTC's case, as I understand it, depends a lot on state tort law. And so a state regulator may want to go after a company for that or private individuals might want to go after a company and state court for that.

The CFTC going after an unincorporated association at the federal level in a federal court might be a little bit more tricky. and it seems like one of Commissioner Mersinger's objections is tied to that. And the other part, of course, is just, you know, going back to the identification question earlier, there are a couple different ways you could approach to DOWs, one being you'd go after anyone who received a token in an Airdrop. Obviously, that's not ideal. People get Airdrop tokens all the time. They don't necessarily know about it.

They don't necessarily, you know, volunteer to get these tokens. If anyone who got, you know, Airdrop the token was sued, that would be pretty bad for the industry. That would be, I think, hilariously. difficult for the CFTC to enforce because it's a lot of people. The utter extreme is you have to identify the individuals that you believe are most responsible, the ones who are absolutely trying to engage in the non-KYC product offerings, the listing of these margin trades, whatnot. Again, I don't think the CFTC has done that at this point.

I don't think they know the identities necessarily, or at least if they do, they haven't said so in any of the court documents I've seen. The CFTC has to still find out who exactly it is they're suing. The middle ground seems to be going after anyone who voted on a governance proposal with their tokens. And this is, again, this is kind of unprecedented. I mean, I'd say kind of. It is very unprecedented. We've never seen this before.

My understanding is, you know, in the dissent, the commissioner said, you know, we should, as an agency, put out a request for comments. we should put out some rulemaking and guidance and figure out, you know, get public feedback, figure out how to do this right rather than put it in an enforcement action, throw it out there where people can't provide feedback unless they are to respondants and just make that precedent. And I think that is fair. You know, this is kind of a situation where if you are trying to create regulation, a feedback process seems to make most sense.

If the goal is to just get this company out and in doing so, create a precedent for yourself through the courts, that might be more like what the skeptics is actually done. Yeah, so we're going to talk a little bit more about the issues around identifying who it is at this enforcement actions for. The first, a quick word from the sponsors you 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 dex aggregator built to get you better rates than any single decks.

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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 Nick. As you mentioned, Commissioner Mercinger said that she felt that an unintended consequence of this enforcement action would be around this issue that you raised, that simply voting in one of the governance proposals would put you in a new category of being able to be targeted, whereas

if you didn't vote, just if you were too busy or whatever, like suddenly you wouldn't be subject to this enforcement action. And so she was saying that this could actually create kind of like two classes of token holders unintentionally. So can you talk a little bit more about, you know, why it is that people are concerned about this? Yeah, I mean, I think the big thing is just if you are a token holder and you're engaging in a Dow in good faith, you might not necessarily have the expertise to understand, okay, well, it's every single thing I do above board, right? Companies have lawyers and legal counsel. They have internal lawyers. They have, you know, GCs, they have external lawyers. They have consultants.

they have usually a dedicated team that says, okay, here are all the things we're doing, here are things that might be in violation of the law, here are things that are definitely not. I don't think a lot of DAOs, or most DAOs, really, have that kind of entities. By design, anyone can participate. So maybe a couple of people in the DAO are aware,

okay, yeah, so most of what we do is above Ford, but this one thing might be illegal. And if most of the DAO is unaware, then they might be held, liable for something that they didn't know about or that they weren't, you know, informed enough to want to, you know, avoid it. And that could be a problem, right? If you are participating in good faith, you're, you think everything's above board and suddenly you get sued, you know, that's damaging. It's a problem, you know, for any individual who gets sued, of course. It's going to be,

it might be on your record or, you know, if people look you up later. Oh, so you got sued by the CFTC for engaging in the list of activity. What's that about? not a good look for a lot of people. So I think that's just one example of how this could be precedential in a kind of, you know, not great way for people who are participating in Dao's. You know, is the effect going to be to depress Dow participation?

I don't know. I do know that, you know, you mentioned Gabe Treviro earlier. I know he has put out a call for any member of Uki Dao who wants representation to reach out. So we'll see if they're able to pull together some legal counsel and, you know, fight this. But there are definitely a couple ways where intentionally or not, the CFTC might be depressing doubt participation and or not centralizing, but at least limiting kind of the growth of this industry in a way that people weren't really expecting or, you know, even thinking about before. Yeah, and I saw Tim Copeland of the block wrote an article.

where he said there were more than 2,200 DAOs, and it was like about $10 billion worth of value in those DAOs. And as you mentioned, you know, Commissioner Mercinger was concerned that this could have a chilling effect on voting in the DAOs and frankly, perhaps on DAOZ altogether. So now let's talk about, you know, an issue that we alluded to earlier. The CFTC posted a notice in the Uki Dow Forum that the members were being served. and they use the username CFTC enforcement. And I wonder, you know, what you thought of that method.

Would there be any defense for people who are Uki Dao token holders that they weren't properly notified? Or what are people saying about this method? Well, so, yeah, I mean, I think the big problem there is we don't know if the actual Dow holders were notified. So what the CFTC did, and this was based on legal filings from earlier this week, first off, they posted the announcement of the lawsuit as well as how the filing. on the forum in the UkiDai website. So I believe that's UkiTrays.com. Anyone can read a forum post, but at the same time, you know,

I've only been part of a handful of forums where I got notifications every time someone posted. I don't know if I'm, you know, it's an opt-in kind of thing. So you don't know for sure that the members who have voted receive that notification. The other thing the CFTC did was they posted the filings and the complaint in a help chat bond on the website. And again, we don't know who that goes to, right?

Does that go to a single individual? Does that go to the team? Is there a team to begin with? We don't know who exactly received that. But what the CFTC has done is asked a district court to approve these methods as proper service and say, all right, well, you've done your part. Now the Dow members are aware that they have been served and have to respond. And they have to respond within, I believe it's three weeks of whenever that's approved. So the CFTC says they posted those documents on September 22nd,

meaning the if approved that that would have until middle of October to respond. Otherwise, you know, we'll see what the judge says, but there's no certainty there. And the CFTC, in fairness, I guess, you know, the issue is, and they said this in their documents, there's no listed officer, there's no listed secretary or agent. They don't have any publicly identifiable people to serve. and so this seems to be the kind of the best method of trying to get in touch. One of the, a paralegal who filed one of the court documents also said that she had been in the Uki-Dao Telegram group and noticed that people were talking about the lawsuit in that, and so clearly they're aware.

But again, we don't know who's actually in that telegram group. I've looked at the Telegram group. It was not particularly active. The most activity happened after one of the admins apparently left publicly announced the dark departure saying it was time to move on. Coincidental, I'm sure. But, you know, it's, there's a lot of uncertainty here. And if the Dow responds, maybe we'll have a better sense of, okay, yeah, we know that they

saw this, or we know that they were, you know, they received a lawsuit. Until then, all we know is that the filings were posted to a website and submitted to a chat bond. And whoever's on the other end, we do not know. Definitely, doesn't seem like the surest way to. deliver that kind of news. So at this moment, you know, what do you think will happen next? What are the Dow form members discussing? You know, what are you hearing and what are you looking out for in terms of upcoming steps? It's really hard to say. I think there's probably going to be a lot of community support for this project, but at the same time, it's difficult

for me to see how exactly the actual facts of the case might be in dispute. And, you know, frankly, It does look like, again, this was a doubt that was created very explicitly to continue on the same activities that the company B0X was doing. And the founders of the company clearly knew that, you know, there were some issues here. They settled, they also settled, by the way, for $250,000, which is a pretty small fine. I mean, it's a lot of money, but relative to a lot of the fines that we see, it's pretty small. So, you know, in that settlement, the founders settled not only to B0x charges, but, they also will not get charged for their activities as part of the DAO itself. They seem to have clearly recognized, okay, yeah, this is not good for us.

So even though the B0X settlement will, in theory, the case will not be used to support the Uki Dao case, it's the same facts and circumstances as far as I can tell. So it's not a good case for the DAO at all. What that means for the industry at large is probably the bigger question. And that's really going to come down to what kind of ruling and judgment the court comes down with, whether it'll say, okay, yeah, this is properly served. If they do, then that's going to be, you know, one point against, you know, serving individual people in the house in future. If they say, sure, you know, the method that you have come up with is reasonable. That could be, again, the scenario I laid out earlier was a hypothetical, but it's a hypothetical that becomes closer to reality if any voting member of a doubt is deemed individual.

individually liable. And if the judge rules, okay, the CFTC is right, the Dow has to disband, they have to refund, whoever, they have to pay a fine, they have to cease and desist, then the next question becomes, you know, how do you enforce that? And then that's when things probably get really weird because we're going to have to, we're going to see a federal agency go after a Dow in an effort to shut it down. And I don't know if they will succeed, but just the fact that that will be happening is probably going to be a, you know, a major cause for concern in the industry. Clearly, I mean, just from all the commentary that the various crypto lawyers were saying, definitely people seemed alarmed. All right, Nick, well, I know that you

have a number of activities at the conference, so I really appreciate that you took the time to come on the show and explain this. No, thank you so much for having me. It's always a pleasure. Don't forget, next up is the weekly news recap. Stick around for this week in crypto after this short break. Join over 10 million people using crypto.com, the easiest place to buy, earn, and spend over 150 cryptocurrencies. Spend your crypto anywhere using the crypto.com visa card. Get up to 8% cash back instantly, plus 100% rebates for your Netflix, Spotify, and Amazon Prime subscriptions. Download the crypto.com app now and get $25 with the code Laura. Link in the description. Move activated.

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Crypto founder becomes crypto fugitive. This week, Doe Kwan became an internationally wanted man, after South Korean authorities said Interpol issued a red notice for him. Kwan is the founder of Terraform Labs, the entity behind the Terra blockchain, which failed catastrophically in May, wiping out $60 billion in value. Earlier this month, a court in South Korea issued an arrest warrant, against Kwan for allegedly violating the country's capital markets law, and the nation's minister of finance stated his intent to void Kwan's passport to force him to return to South

Korea. Even though Kwan's whereabouts are unknown, he has been quite active on Twitter, where he stated that he was not on the run and was making zero efforts to hide. In addition, Terraform Labs sent a statement to the Wall Street Journal saying, the prosecutors are acting unfairly, and that the case has become highly politicized. The firm is also claiming that the Luna token was not a security, which would make the accusations against Kwan invalid. On Tuesday's show, I interviewed Zhang Beck Park, South Korean crypto lawyer, who said that the capital markets law has never been applied to crypto in that country, so it is an unprecedented event. Also, this week, CoinDesk reported that authorities in South

Korea requested that two crypto exchanges frees 3,313 Bitcoin, around $67 million, tied to Terraform Labs and Doquan. However, the Luna Foundation Guard denied ownership of the wallet that was said to have transferred funds to exchanges. Sam Bankman-Fried's FTX won Voyager's auction and is now considering another acquisition. FTCUS won the auction for the assets of Bankrupt crypto lender Voyager Digital, the company announced on Monday. FtX's $1.4 billion bid, comprising the fair market value of all Voyager crypto assets and additional consideration of $111 million, beat out finance and waive financial. Voyager's claims against Three Arrow's capital will remain with the bankruptcy estate. The lender wrote in a statement, FTXUS's market-leading secure trading platform will enable

customers to trade and store cryptocurrency after the conclusion of the company's Chapter 11 cases. This week, Ashwin Prithypaw, the CFO of Voyager Digital, resigned to pursue other opportunities after only five months in the position. Also, FTXUS president Brett Harrison will step down from his position and move to an advisory role. Bankman Freed may not end his buying spree with the Voyager acquisition. Despite how much he's, he will step down. having previously rejected a bailout request from Celsius, he is reportedly examining bidding for the assets of the troubled crypto lender. In addition, CNBC reported that FTX is looking to raise up to $1 billion for additional dealmaking

at a valuation of $32 billion. If you want to know more about SPF and what his investments might look like, be sure to tune in to next Tuesday's show. Mishinsky resigns as Celsius investors try to impose a separate committee. Hours before news broke about SPF's interest in Celsius, Alex Mishinsky, Celsius CEO and founder, announced he would resign, effective immediately. In a press release, he wrote, I regret that my continued role as CEO has become an increasing distraction.

Mishinsky also said he is willing to work with a company to achieve a successful reorganization. at a time in which some executives were organizing a revival plan. Mishinsky had previously been accused of making a series of bad decisions that precipitated the company's collapse. Last Friday, two Celsius investors filed a motion to establish a committee to advocate for them in the bankruptcy case, although the Celsius creditor committee plans to oppose. Additionally, on Thursday, the bankruptcy judge appointed an outside examiner to publish a third-party report on Celsius's storage of its crypto, customer account management, its mining business,

and tax issues. And after Celsius requested permission to sell its stable coin holdings to pay for operating expenses, a Texas regulator objected, saying Celsius was asking for troublingly broad permission to sell assets insufficiently defined for purposes that are also insufficiently defined. Compute North files for bankruptcy as the Bitcoin mining industry stumbles. Compute North, a company that provides infrastructure for Bitcoin miners, filed for Chapter 11 bankruptcy protection in federal court in Texas. According to the filing, the company owes over $500 million to more than 200 investors and owns assets between $100 million and $500 million. The case shows the stress under which the mining industry is operating.

The revenues have decreased significantly due to the bear market, the high hash rate levels, the global energy crisis, which has raised the cost of operations. Earlier this month, Arcane research noted that Bitcoin mining profitability had fallen to its lowest level since 2020. To capitalize on the mining crisis, Cryptobillionaire Ji Han Wu, founder of Bitcoin mining rigmaker Bipmain, is reportedly setting up a $250 million fund to purchase distressed assets from mining firms. In addition, Bitcoin miner Iris Energy agreed on a $100 million equity purchase deal with investment banking firm B. Riley to fund growth initiatives, and Cipher Mining, a Bitcoin mining company, wants to sell $250 million worth of stock.

Global Central Bankers taught crypto. In an online panel hosted by the Bank of France on Tuesday, the leaders of the Federal Reserve, the European Central Bank, and the Bank for international settlements, shared their thoughts on decentralized finance and agreed that defy and stable coins need more regulation. BIS general manager Augustin Carstens believes that defy has structural problems and intrinsic weaknesses, and also that defy has no infrastructure to deal with risks such as liquidity, counterparty risk, and leverage. Fed Chair Jerome Powell expressed concerns over the lack of transparency in defy. However, Matt Wong of Paradigm tweeted in response, this is puzzling because defy is fully transparent. Powell also said regarding a central bank digital currency,

We do not see ourselves making that decision for some time. However, he did say that a CBDC would likely have four characteristics. One, that it would be intermediated. Two, privacy protected. Three, identity verified. So it would not be anonymous. And four, it would be transferable or interoperable. On a related note, the White House is reportedly considering the exit of Treasury Secretary Janet Yellen after the midterm elections.

Stablecoin competition heats up. As the government decides whether to pursue with CBDC, stablecoin providers are not wasting time. Circle, the entity behind the world's second largest stablecoin USDC announced it will soon be expanding USDC to five new blockchains. The expansion is expected to occur sometime around the end of this year or early next. In addition, the company will launch native USDC on the Cosmos Network next year, having a native token eliminates the need for a bridge, thus significantly reducing the risks

associated with moving tokens from one blockchain to another. Furthermore, Jack Dorsey's Bitcoin-focused subsidiary, TBD, partner with Circle to facilitate cross-border dollar-linked stablecoin transfers and savings. Meanwhile, Lightning Labs announced the launch of the Terra Protocol, which would enable stablecoins on the Bitcoin blockchain. By the way, on Wednesday, Binance's convert. version of USDC, USDP, and TUSD began, as the company tries to grow the market cap of its stable coin BUSD. USDC's market cap dropped 5%. The CFTC versus SEC turf war over crypto continues.

On Wednesday, Caroline FAMM, Commodity Futures Trading Commissioner, proposed a new office for crypto retail protection. FAMM cited the crypto crash, risk management failures, and substantial retail losses as reasons to provide further protection to investors. On the same day, at a panel at New York University, CFTC Chair Ross and Benham reiterated his desire for CFTC to be the lead crypto regulator, saying that Bitcoin might double in price if there's a CFTC regulated market. Meanwhile, the SEC has continued its crypto enforcement actions apace. It filed a lawsuit against hydrogen and market maker Moonwalkers for alleged market manipulation and unregistered securities offerings.

Todd Phillips, director at American Progress, explained, the SEC claims hydrogen airdropped some but not all minted tokens, got those tokens listed on exchanges, and then sold some of their retained tokens to the public. Jake Trevinsky, head of policy at the Blockchain Association, complained about the regulation by enforcement, and said, The SEC says airdrops meet the Howie Test's investment of money prong. even if no one makes an investment and no money changes hands.

Proposal to create reversible ETH token standards, Royals Crypto-Twitter. Researchers at Stanford University have proposed introducing reversible transactions to Ethereum to remedy crypto thefts. This consists of creating new Ethereum token standards that allow smart contracts to reverse transactions. Token standards are the set of rules that a smart contract must follow to develop tokens. Kylie Wong, one of the researchers, argued the major hacks we've seen are undeniably thefts with strong evidence. If there was a way to reverse those thefts under such circumstances, our ecosystem would be much safer. However, the proposal caused quite a firestorm on crypto-twitter, where many seemed to feel it would mean that the network would no longer be immutable, one of the core pillars of blockchains.

Another hot topic is that the new token standard would require humans to decide which transactions to reverse, threatening the trust-less, aspect of the network. Matthew DeFerrante, CEO of ZK Labs, tweeted, No contracts would accept these tokens in the first place due to the complexity of handling chains of reversals. Roman Seminov, the founder of Tornado Cash, also raised some concerns about the interoperability of these new token standards with other decentralized applications.

Will ERC 20R be incompatible with the current defy ecosystem, he wondered? Still, reactions were not 100% negative. Emin Gonsier, founder of Avalanche, thought this was a great idea. In Argent, a popular wallet, tweeted, this was an interesting idea, but the problem could be solved in other ways while still remaining truly permission list. Time for fun bits. Fast food Mexican chain Chipotle decided to launch a promotion to celebrate the merge. In a partnership with Cryptopayments company Flexa, Chipotle is offering a 99.95% discount on the

garlic guahillo steak entree. The discount mimics the reduction in energy consumption followed by the abandonment of the proof of work mechanism. What was the name of the promo? Naturally, proof of steak. All right, thanks so much for joining us today. To learn more about Nick and the lawsuit against Uki Dow, check out of the show notes for this episode. Don't miss our daily round above the biggest news in crypto in the Unchained Daily newsletter. Go to Unchainedpodcast.com to subscribe. Unchained is produced by me, Laura Shin, will help from Anthony Yoon, Matt Pilchard, Wat Nirvanavich, Pamma Jimdar, Shishonk, and CLK transcription. Thanks for listening.