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The SEC Doubles Down

Weekly recap: Regulators go all-in, Blur makes its play
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Feb 18, 2023 • 7 min read

Dear Bankless Nation,

Regulators are champing at the bit to bring crypto down, but the market don’t care.

For our weekly recap, we dig into:

  1. Regulators go after BUSD
  2. Wen U.S. regulation?
  3. Blur chases OpenSea
  4. zkEVM wars are heating up
  5. Cryptovillain updates

- Bankless Team

📅 Weekly Recap

Here’s a recap of the biggest crypto news from the second week of January.

1. Regulators go after BUSD

After the crackdown on Kraken last week, the SEC is turning its attention to the BUSD stablecoin.

Branded under Binance but issued by Paxos, a New York regulated company, BUSD is the third largest stablecoin in DeFi at a ~$15B market cap, behind USDT (~$70B) and USDC (~$41B).

The SEC is threatening to sue Paxos for failure to register BUSD as a security under federal securities laws.

Why is a stable-value asset being targeted as a security anyway? Paxos issued a press release February 13th disagreeing with SEC’s stance, and reiterated that BUSD is fully backed 1:1 by $16B of US dollar-denominated reserves and segregated in bankruptcy accounts.

New York financial regulators are saying that BUSD was “left open to use by bad actors” and ordered Paxos to stop all minting of BUSD. Paxos is complying with the regulatory action.

Binance CEO CZ is now distancing itself from BUSD. In a Twitter Spaces, CZ reiterated that BUSD was merely branded but not created by Binance, and they would likely begin working with other stablecoin issuers USDC and USDT.

Binance is even reportedly considering delisting all US-based cryptocurrencies, as reported by Bloomberg — though CZ denied it.

As BUSD starts to wind down, market concentration in stablecoins is likely to increase and become less competitive. Not only has the SEC stifled existing market competition in favor of incumbents, it has also led potential competitors like PayPal to halt work on their own stablecoins.

2. Wen U.S. regulation?

The SEC still hasn’t laid down any clear rules for crypto, but it is creating targeted, discriminatory rules by enforcement that present plenty of roadblocks for the industry. The SEC is in the midst of passing a new law that disqualifies crypto trading and lending platforms as “qualified custodians” of crypto, unlike chartered banks, or financial institutions registered under the SEC or CFTC.

“We should have come up with a working regulatory framework by now,” says, former SEC counsel TuongVy Le.

Meanwhile, Hong Kong is making regulatory progress. By June 1 2023, Hong Kong will officially legalize crypto purchasing and trading for all citizens.

3. Blur chases OpenSea

OpenSea’s current most formidable competitor Blur finally dropped its BLUR token Tuesday.

360M BLUR (12% of total supply) were distributed to holders. Over 50% of BLUR was claimed in the first hour, and gas fees rocketed to ~581 gwei on that day. BLUR started trading at $5, plummeted to $0.70 and has since straddled around $1.20.

The third largest recorded claim got 2.5M BLUR (~$1.6M).

Can Blur kill OpenSea? Blur’s trading volumes momentarily exceed OpenSea’s on the day of the airdrop, but it remains to be seen if this is sustainable.

In a blog post, Blur founder Pacman is recommending that Blur enforces full royalties on collections for creators that block trades on OpenSea at the smart contract level.

In response, OpenSea is dropping fees to 0%, implementing a 0.5% minimum creator earnings model, removing the blocklist on Blur.

For more insights, see How Blur Can Win on the Bankless newsletter and our podcast interview with Pacman.

4. zkEVM wars are heating up

The EVM (Ethereum Virtual Machine) is great because it’s the most proven blockchain infrastructure in terms of network effects and uptime. And zero-knowledge rollups are great because they’re the one piece of tech that’s poised to greatly scale crypto without making a centralized tradeoff.

Put EVM and zk-rollups together, and you have what everyone's been raging about for the past half-year: the zkEVM.

The race to the first zkEVM is heating up. After more than a year of R&D, Polygon has an official launch date for its zkEVM on March 27th.

For the week of February 3rd, Polygon’s zkEVM testnet reached ~297K transactions, deployed 5.7K contracts, and generated 75K proofs. For all the data, check out the tweet below.

Following closely behind is zkSync’s zkEVM “Era”. Over the past four months, Era reached ~9 million transactions and deployed 30K contracts over 497K active addresses.

Projects can apply to deploy now and test their dapps on zkSync Era.

5. Cryptovillain updates

Sam Bankman-Fried was released on $250M bail in December. The identities of his bond guarantors were revealed this week to be Larry Kramer, dean emeritus at Stanford Law School, and Andreas Paepcke, a senior research scientist at Stanford University.

Sam’s parents Joe Bankman and Barbara Fried also hold positions on Stanford’s faculty. Looks like it wasn’t Mr. Wonderful after all.

Celsius is reaching a sale plan for small debtors (below 5K) to recover 70% of their funds back, while larger debtors will receive 30-40%.

Source

Finally, remember Terra? The SEC is charging its figureheads.

In the SEC’s words: “Terraform and Kwon raised billions of dollars from investors by offering and selling an inter-connected suite of crypto asset securities, many in unregistered transactions”.

These “securities” include tokens that mirrored US stocks on the Mirror protocol, the UST algorithmic stablecoin, and the Anchor lending market for advertising UST as a yield-bearing stablecoin. Terraform and Kwon also “misled investors about the stability of UST”.

The SEC also alleges that an unidentified U.S. trading firm helped rescue the peg of UST when it depegged in 2021. That firm is now being revealed to be Jump Trading.

Other news:

Not financial or tax advice. This newsletter is strictly educational and is not investment advice or a solicitation to buy or sell any assets or to make any financial decisions. This newsletter is not tax advice. Talk to your accountant. Do your own research.

Disclosure. From time-to-time I may add links in this newsletter to products I use. I may receive commission if you make a purchase through one of these links. Additionally, the Bankless writers hold crypto assets. See our investment disclosures here.

Published in Bankless

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