Know & go
- A closer look: This week, Ted Livingston of Kik and Patrick Gibbs of Cooley LLP announced Defend Crypto, an initiative created to crowdsource donations to take the SEC to court should the agency pursue enforcement action. We provide a closer look at the back story, the motivation behind the campaign, and the pushback.
- Three things to know: (1) JPMorgan developed and open sourced an Ethereum compatible confidential transaction solution (2) Salesforce unveiled its Hyperledger-based blockchain solution (3) Egypt proposed a bill that may lifts its ban on cryptocurrencies.
- Market snapshot: Total crypto market capitalization is around $253.3 billion at press time (up 5.4% w/w). BTC is trading at $8422 (up 5.5% w/w), ETH is at $260 (up 4.4% w/w). BVOL (the rolling 30-day annualized Bitcoin volatility as calculated by BitMEX) is 85.3%, up slightly from last week. (5/31 11:00PM ET)
Weekly market snapshot
A closer look: Defending Crypto ⚔️
This week, Ted Livingston of Kik and Patrick Gibbs of Cooley LLP (a law firm) announced Defend Crypto on Laura Shin’s Unchained Podcast. Defend Crypto is an initiative created to collect donations to take the SEC to court should the agency pursue enforcement action. The founders of Defend Crypto say that funds raised will be used to support not only Kik but also other crypto projects that face potential enforcement action. Companies and investors that have contributed funds include Messari, Shapeshift, Circle, Fred Wilson, and William Mougyar, among others. The objective for going to court, should the agency pursue enforcement action, is to get the regulator to establish “a new Howey test for crypto tokens to determine which ones are a security” and help token projects and crypto companies get the clarity they need to operate in the United States.
The crypto industry has been awaiting concrete guidance from the SEC for some time. Last November, the agency announced that it is working on putting together “plain english” guidance that would allow issuers to easily determine whether a token sale constitutes a securities offering or not. In April (six months later), the SEC staff published a Statement on the Framework for Investment Contract Analysis of Digital Assets.
While the guidance the SEC shared in this statement is a step in the right direction, it is “staff guidance” which does not carry the same weight as more formal guidance issued by the Commission “so people have a little bit more certainty,” according to Hester Peirce. Many in the crypto community have criticized the agency for its lack of urgency in providing concrete, binding guidance and direction, a sentiment Peirce has echoed. In her remarks at the Securities Enforcement Forum in early May, Peirce articulated that “[the SEC’s] silence is likely to simply push this innovation and any attendant economic growth into other jurisdictions that have done their work and provided clear guidelines for the market participants to follow.” The lack of clarity is a key reason that the Defend Crypto campaign has supporters, as they believe going to court may speed up the process of receiving concrete guidance.
It’s difficult to opine on potential outcomes (1) if we don’t yet know whether the SEC will pursue an enforcement action against Kik/Kin and (2) if it does, what the action would entail — in a recent episode of Laura Shin’s Unchained podcast, Ted Livingston and Patrick Gibbs outlined that they expect the SEC to make the claim that the initial sale of tokens was the offering of securities (should they pursue action), but they do not know whether the regulator would suggest that recent transactions involve the sale of securities.
One scenario is that the SEC pursues enforcement action against Kik/Kin, and Kik/Kin take the SEC to court. The optimistic view is that if the court rules in favor of Kik/Kin, the favorable ruling could help set a precedent for the industry, expedite the process of receiving more concrete regulation and potentially lead to new, concrete, legally binding rules that provide a more supportive environment for crypto firms and help issuers determine, ahead of issuance, whether their token is a security or not.
On the contrary, if the courts rule in favor of the SEC, the regulator may be more empowered to pursue similar actions against other crypto projects and continue to drag its heels on providing more concrete guidance or developing new rules specific to the crypto industry. If this were to happen, it could push even more crypto innovation and investment overseas, out of the U.S. to jurisdictions that have more favorable and concrete guidelines and rules.
There have been some concerns raised by the crypto community regarding the potential effectiveness of the Defend Crypto approach. For instance, the courts may rule in Kik’s favor — but the process of getting concrete guidance and new rules could take just as long. Further, there is no guarantee the SEC would change existing securities interpretations to suit digital tokens. A court ruling alone, according to Blockchain Association’s Kristin Smith, may not provide enough clarity beyond the status quo, as opposed to an open legislative or rulemaking process, which can result in a “much finer instrument.”
Another basis for pushback has been that the SEC’s efforts in regulating the industry thus far have been successful. In an analysis of the SEC’s recently released framework for digital assets, blockchain advocacy group Coin Center stated U.S. securities laws are already “well-calibrated” to address crypto-related scams without stifling true innovations — those built to obviate reliance on third parties — in decentralized technology. Some members of the crypto community have made similar comments, most in relation to concerns regarding the misleading nature of ICOs and the large amount of people burned by participating in ICOs.
The decision now resides with the SEC to either pursue enforcement action against Kik/Kin or not. If the SEC chooses to continue with the case, it is likely Kik will take the government agency to court given its previous actions. In contrast, should the SEC elect to let Kik go, it will probably set a precedent as to which cases will be pursued in the future and provide some clarity beyond the no action letter and the digital asset framework the SEC issued last month.
For additional developments on crypto policy, the SEC established The Strategic Hub for Innovation and Financial Technology (FinHub) to help blockchain, AI, and fintech firms navigate securities law and get answers to their legal questions. The next FinHub public forum is scheduled for May 31 (today) and will feature remarks from various SEC representatives and four panels discussing distributed ledger technology and digital assets. A live webcast will also be available on the SEC’s main website.
Further reading & listening
Check out our Messari board on the Defend Crypto campaign.
In other news
- The JPMorgan blockchain team developed and open sourced an extension to the Zether protocol that can obscure transaction details such as the amount being exchanged and the identity of the sender. Zether is a decentralized, cryptographic protocol that leverages zero-knowledge proofs for confidential payments and is compatible with smart contract platforms like Ethereum. JPMorgan is likely to integrate the new extension with its custom-developed private version of Ethereum, Quorum. Source.
- Blockchain Wine Pte. selected Ernst & Young (EY) to help build a wine-tracking blockchain platform leveraging EY’s OpsChain — a set of applications and services that help companies commercialize blockchain solutions. Blockchain Wine’s platform — dubbed TATTOO — aims to provide a supply chain solution to help distributors and buyers trace the origin and quality of wines. It uses the ERC-721 standard to tokenize bottles for data collection and management processes, a model that may provide further automation possibilities through the use of smart contracts. Source.
- TradeLens, the shipping blockchain solution developed by IBM and Maersk, will see two new participants: Mediterrenean Shipping Company (MSC) and CMA-CGM, the second and fourth largest shipping companies “in terms of cargo carrying capacity” behind Maersk. These are the first additional carriers to join since the platform’s launch a year ago. IBM and Maersk found it difficult to attract rival carriers early on due to IP ownership concerns. Source.
- BTC price eclipsed 394,000 Argentine pesos (ARS) earlier this week, surpassing the previous all-time high BTC/ARS price set back in December 2017. The peso’s value collapsed last year by 50% and fell even further last month amid concerns over upcoming government elections. Source.
- BitMEX co-founder Ben Delo joined nineteen others in signing the Giving Pledge, the philanthropic initiative created by Bill and Melinda Gates and Warren Buffet to encourage wealthy individuals to donate half of their wealth for charitable causes. The pledge now consists of 204 signatories, including Coinbase founder Brian Armstrong. Source.
- Honeywell International’s blockchain-based online marketplace for used aircraft components recorded $2 million in sales since its launch earlier this year, with an average transaction of about $8,000. The marketplace — dubbed GoDirect Trade — was introduced through Honeywell’s aerospace unit and deployed on one of the Hyperledger frameworks. According to the company, the GoDirect Trade marketplace has successfully cut down the time to locate and purchase used aerospace parts. Source.
- StarkWare, a startup developing zero-knowledge technology for blockchain solutions, partnered with decentralized exchange protocol 0x to test its StarkDEX product (for more on StarkWare and StarkDEX, see our Weekly Crypto Recap 3/22-3/28). The goal of the collaboration is to provide “non-custodial trading at scale.” For reference, current 0x solutions process up to ~3,100 trades a day and are limited by scaling constraints. The introduction of StarkDEX is anticipated to increase 0x exchange processing power to ~500 transactions per second. Source.
- Leading business management solutions company Salesforce unveiled its Hyperledger Sawtooth-based blockchain product. Salesforce Blockchain is intended to be a “low-code” platform — drag-and-drop programming for complex apps — that will enable users to build and maintain blockchain networks and smart contracts for CRM or other data. The company also announced the first clients selected to test the new product: IQVIA (for medical drug labels tracking), S&P Global (for approval process of new bank accounts), and Arizona State University (for academic records tracking). Source.
- A securities settlement blockchain experiment co-launched by German central bank Bundesbank and capital markets company Deutsche Boerse found the new technology to be more costly and slower than traditional solutions. Germany’s central bank president Jens Weidmann noted other financial experiments with blockchain have resulted in similar experiences. Weidmann continued on to say “a real breakthrough in application is missing so far.” But the article states an increasing number of global central banks have started exploring distributed ledger technology solutions. Source.
- A survey led by LendEDU found that while only 7% of adult Americans have invested in crypto, 18% would be interested in purchasing Facebook’s rumored stablecoin. 57% of those who responded positively to investing in Facebook’s coin said they trust Facebook to produce a more reliable product than existing crypto companies. Comparatively, only 27% of those not interested in a Facebook coin point to a lack of trust in the social media giant to handle user financial information. Source.
- Financial services firm Robinhood is in the final stages of a funding round at a valuation of $7-8 billion. The firm is also reportedly discussing a follow-up round with a potential $10 billion price tag. Robinhood, known for its free stock trading app, started to offer trading for select cryptocurrencies in February 2018. Source.
- Standardized Token Protocol (STP) announced it raised $7 million dollars through sales of its STP token. Investors included Neo Global Capital, BlockVC, and AlphaBit, among others. STP is developing an open-source and compliance-proof token issuance protocol. Its STP token can be used to pay for issuance fees and compliance validation, in addition to staking and governance use cases. Source.
- Blockchain startup Crowdz raised a $5.5 million Series A led by Barclays Bank and BOLD Capital Partners. Additional investments came from TFX Capital Partners, Techstars Ventures, and First Derivatives. The funds will be used to help Crowdz continue to build its blockchain-based invoice exchange for B2B payments. Source.
- Blockchain-based lending platform Bitbond is planning to host a security token offering (STO) with a goal of $3.9 million. The German-based firm said the prospectus for its security token (called BB1) and the upcoming offering have been approved by German financial regulators. Source.
Global regulatory roundup
- The Egyptian government proposed a bill that would give the Central Bank of Egypt (CBE) the ability to regulate cryptocurrencies and issue licenses to businesses looking to offer crypto related products. The proposed bill would lift the 2018 ban Egypt placed on all cryptocurrencies under Islamic law. Source.
What we’re reading
- Economic and Non-Economic Trading In Bitcoin: Exploring the Real Spot Market For The World’s First Digital Commodity by Matthew Hougan, Hong Kim, and Micah Lerner (Bitwise)
- Satoshi’s vision for bitcoin as told by its predecessors by Tony Sheng
- Decentralizing Bitcoin’s Last Mile With Mobile Mesh Networks by Richard Myers (Coin Center)
- On Abstraction and Risk by Rocco (Alpine Intel)
- Economically Linking Ethereum 1.0 & 2.0 by Bryant Eisenbach
- Coin Metrics State of the Network inaugural newsletter
- Decred Governance: An Iterative Approach by Max Bronstein
- Decentralizing Bitcoin’s Last Mile with Mobile Mesh Networks by Richard Meyers
- The cryptocurrency startups trying to save Argentina from itself by Kristin Majcher (MIT Technology Review)
- Op Ed: How Fiat Could Fall and Bitcoin Could Soar by Taylor Pearson for Bitcoin Magazine
What we’re listening to
- Unchained: Kin Sets Up $5 Million DefendCrypto.org to Take on the SEC
- Chain Reaction: Enigma’s Tor Bair: Disrupting Facebook and Solving Privacy for Web 3.0
- Contrarian Island: Joshua Frank (The TIE) – Tracking Sentiment
- What Bitcoin Did: Travis Kling on Bitcoin’s Relationship with Financial Markets
- Off the Chain: Yoni Assia, Founder & CEO of eToro: From the Army to an Award Winning Crypto Platform
- Unconfirmed: To the Moon and Back with Polychain’s Olaf Carlson-Wee
- Blockchain Insider: Blockchain for mashed potatoes
- Base Layer: Joey Krug (Augur & Pantera)
- POV Crypto: Is Bitcoin Safe from Itself? — with Dan Held
Circle in the news
- Circle CEO Jeremy Allaire announced Circle will contribute to the Defend Crypto initiative to push for a better U.S. crypto policy. Laura Shin published an article in Forbes highlighting Jeremy Allaire’s recent commentary around the regulatory environment in the U.S. and Circle’s participation in the Defend Crypto campaign.
- Poloniex tweeted the team has resolved 99.9% of the 140,000 open customer support tickets since being acquired by Circle.
Where we’ll be in June
- Money 20/20 Europe, Amsterdam, 6/3-5
- CB Insights: Future of Fintech, New York, 6/11-13
- Fortune Brainstorm Conference, Montauk, NY, 6/19
- MIT Professional Ed – Applied Blockchain Course, Cambridge, MA, 6/24-28