#293—Consensys takes the fight to the SEC

For digital assets, it’s an existential showdown

Welcome to Yaka Stuff, our weekly newsletter that covers news, industry perspectives, and updates from the Hard Yaka ecosystem. Check out our last report here.

This week:

1. Consensys takes the fight to the SEC

2. What Greg thinks

3. Stat of the week: Turkey loves stablecoins

4. Chart of the week: USDC’s post-SVB comeback’

5. Venezuela prefers Tether

6. Stuff happens

1. Consensys takes the fight to the SEC

The SEC has already gone after many of the biggest U.S. digital asset firms such as Ripple, Kraken, and Coinbase. Recently, it went after decentralized finance or DeFi. (Along the way, a Federal judge reprimanded the agency for “gross abuse of power” in its legal wrangling with DEBT Box.)

Now, they’re going after the very heart of what makes blockchain, well… blockchain—the non-custodial wallet. The elegance of the non-custodial wallet is that you own the keys. All it is is a simple piece of software that allows you to view the state of a blockchain and initiate transactions.

The SEC’s claim? That a company developing non-custodial wallet software, according to the enforcement agency, is operating as an unlicensed broker dealer.

The company in question is Consensys, founded by Joe Lubin, who helped create Ethereum. Consensys has more or less been a vehicle to help develop the Ethereum ecosystem. One of the company’s most popular products is Metamask, a non-custodial wallet for the Ethereum blockchain.

Consensys received a Wells Notice from the SEC on April 10th, and has now preemptively filed a lawsuit in the state of Texas.

Here’s Lubin, in a blog post published last Thursday:

We took this step for two very basic reasons: (1) the SEC should not be allowed to arbitrarily expand its jurisdiction to include regulating the future of the internet; and (2) the SEC’s reckless approach is bringing chaos to developers, market participants, institutions, and nations who are building or already managing critical systems running on Ethereum, the world’s largest platform for decentralized applications. 

And here’s Laura Brookover, Senior Counsel & Head of Litigation and Investigations at Consensys, speaking with Laura Shin on the Unchained podcast (via Jun Hiraga):

We're also looking for a judge to agree with us and find that the SEC has no jurisdiction to investigate Ethereum, to investigate developers, and to investigate code. We are also looking for a declaratory judgment that the SEC's threatened charges against our Metamask wallet, specifically the swaps and staking features are not unregistered securities brokers and they're not distributors, which is the SEC's theory of an unregistered security. So we're essentially looking for our judicial referee to come in and take the reins here because the SEC's investigations have just gone too far.

…

Applications such as MetaMask that allow people to buy, sell, and transfer ether on their own are not securities brokers. The MetaMask wallet, created by Consensys, gives users everything they need to explore web3; from managing their identity, sending and receiving cryptocurrency, to connecting to decentralized applications built on Ethereum. Declaring it a securities broker would effectively block web3 developers from continuing to build next generation applications themselves. 

This is Gensler’s SEC, and so there is, of course, the contention that ETH itself is a security—in part, due to the blockchain’s transition from Proof-of-Work to Proof-of-Stake.

But that’s the status quo here in the U.S.—where the current securities enforcement regime sees everything as a security, and the future of the burgeoning digital asset industry will be determined by judges rather than thoughtful legislation.

Relevant:

• Via Jun Hiraga—Two SEC Lawyers Resign After Agency Censured for Abuse of Power in Crypto Case

• Ripple Says $10M Penalty Enough, Rejects SEC’s Ask of $1.95B Fine in Final Judgment

• Do Kwon's Huge Fine Shows the SEC Is Ratcheting Up Penalties Against Crypto Firms

• Justin Sun directed wash trading scheme from his US apartment, SEC claims

2. What Greg thinks

Here’s Hard Yaka co-founder and partner Greg Kidd:

I think this is the showdown at OK Coral—if Ethereum and Metamask go down, there’s really very little breathing room to have an alternative world of value.  The SEC overreach is at the existential level, and Consensys has decided offense is better than defense at this juncture.

3. Stat of the week: Turkey loves stablecoins

Here’s Axios:

Between the lines: According to the spring report from Chainalysis, spending with stablecoins in the Mediterranean nation has hit 4% of GDP.

Other developing nations are also seeing significant stablecoin use.

• Using data from CCData, Chainalysis shows that Thailand is also seeing more than 1% of GDP in stablecoin transactions, and Georgia is at more than 0.5%.

• The U.S., European Union and the U.K. represent fourth, fifth and sixth place for stablecoin use as a proportion of their economies, though each of those are much larger economies.

That said, Turkey is the second largest (after the U.S.) for fiat purchases of stablecoins.

Relevant:

• The Chainalysis Crypto Spring Report

• Stablecoin Legislation Must Respect the Dual-Banking System

4. Chart of the week: USDC’s post-SVB comeback’

Chart courtesy of Axios

Relevant:

• Stripe Brings Back Crypto Payments Via USDC Stablecoin

5. Venezuela prefers Tether

Here’s Reuters with the exclusive:

Venezuela's state-run oil company PDVSA plans to increase digital currency usage in its crude and fuel exports as the U.S. reimposes oil sanctions on the country, three people familiar with the plan said.

…

PDVSA since last year had been slowly moving oil sales to USDT, a digital currency also known as Tether whose value is pegged to the U.S. dollar and designed to maintain a stable value. The return of oil sanctions is speeding up the shift, a move to reduce the risk of sale proceeds getting frozen in foreign bank accounts due to the measures, the people said.

…

"USDT transactions, as PDVSA is demanding them to be, don't pass any trader's compliance department, so the only way to make it work is working with an intermediary," one trader said, referring to how unusual it still is to pay for oil in digital currencies.

Relevant:

• Tether vows to freeze assets after Venezuela looks to crypto to bypass oil sanctions

6. Stuff happens

• New EU rules to combat money-laundering adopted | News | European Parliament

• Javier Milei Sparks Wild Rally That Makes Peso No. 1 in World

• Is Nightclub Security Good Enough for Stablecoins?

• Jack Dorsey’s payments company, Block, is building its own bitcoin mining system

• BlackRock Bitcoin ETF Is Halfway to Setting a New Record - Decrypt

• Bitcoin-focused payments app Strike opens in Europe

• An NFT series created to change Bitcoin

• Banking in video games and virtual worlds | Consumer Financial Protection Bureau

• Binance sued in Canada for securities law violations

• Philippines SEC orders Apple and Google to remove Binance from app stores

• Robert F. Kennedy Jr. Vows to Put the US Budget on Blockchain - Decrypt

• Via Sam Ostler—Building Bluesky: a Distributed Social Network (Real-World Engineering Challenges)

• Bitcoin Miners Have Raked in Abnormal Transaction Fees Since Halving: Bernstein

• Synapse is Bankrupt. Plus: KYC is still, still broken. But there's hope.