Caroline Pham, commissioner of the Commodity Futures Trading Commission (CFTC), speaks during the DC Blockchain Summit in Washington, D.C., US, on Tuesday, May 24, 2022. The summit is gathering the most influential people focused on public policy for digital asset and blockchain innovations, according to the organizers. Photographer: Valerie Pleasch/Bloomberg via Getty Images
Photo: Valerie Pleasch/Bloomberg via Getty Images

The SEC makes a power play in crypto

Protocol Fintech

Fair greetings, and welcome to Protocol Fintech. This Friday: the SEC’s power play in crypto regulation, Three Arrows Capital’s Su Zhu emerges and buggy crypto code gets put on blast.

Off the chain

Visa founder Dee Hock died at home this month at 93. There really wouldn’t be a fintech sector without him. While he didn’t invent the credit card, he created the four-party system — cardholder, issuer, acquirer, retailer — that runs much of modern commerce. In his later years, he took inspiration from how he wrangled a bunch of warring bankers into creating a unified card network and applied it to reinventing the corporation. There’s still so much to learn from Hock, including this recent tweet: “Little of the past can be known, little of the present settled, and little of the future anticipated, yet life pushes us on unprepared into choices between good and evil. Why can't life just leave us alone for a bit?”

— Owen Thomas (email | twitter)

The SEC’s power play

For years, the crypto industry has been in a state of confusion about which tokens are in fact securities and which are not. A case filed by the SEC alleging insider trading by a former Coinbase employee and two accomplices could provide some clarity — but it also threatens to roil the industry and Washington as the march to regulate digital assets continues.

The SEC may be looking to set a new standard. In the complaint, the SEC argues that nine of the 25 tokens that the three individuals traded in are securities under the Howey Test, a longstanding judicial standard that would mean they should be regulated by the SEC.

  • SEC Chair Gary Gensler has often said that he believes that many tokens that are now trading are securities, while bitcoinmay be a commodity. It has also brought enforcement actions against certain tokens that it considers securities that have violated certain laws.
  • The insider-trading complaint makes a direct case that nine tokens are securities: AMP, RLY, DDX, XYO, RGT, LCX, POWR, DFX and KROM. If a judge agrees, that would create a precedent to bring those nine tokens under SEC regulation, and would possibly apply to similar tokens.
  • Aside from the ongoing Ripple case, which was filed under a prior SEC chief, it’s the biggest move yet by Gensler’s SEC to regulate crypto through an enforcement action.

The case also brought to the forefront a behind-the-scenes struggle in Washington. More than one federal agency is seeking to regulate crypto: the CFTC, SEC, FinCEN, IRS, OCC and FDIC, among others.

  • CFTC Commissioner Caroline Pham called the SEC’s Coinbase case “regulation by enforcement” Thursday in a statement shared on Twitter. She appeared to take issue with the SEC seeking to have a judge deem these nine tokens securities. In the process, she shed light on her thinking about which tokens the CFTC might categorize as commodities under its oversight.
  • “The SEC complaint alleges that dozens of digital assets, including those that could be described as utility tokens and/or certain tokens relating to decentralized autonomous organizations (DAOs), are securities,” she wrote.
  • Whether she and her fellow commissioners believe that all utility tokens and other tokens run by DAOs are not securities and should be regulated by the CFTC is not clear, but she noted that there are still “open questions” about utility tokens and DAO-related tokens.

The stakes are high. While the Lummis-Gillibrand bill winds its way through Congress and the Biden administration orders additional studies of crypto, the Coinbase case could determine which tokens are securities and which aren’t.

  • That matters for not just those nine tokens but also the many others that have similar characteristics and freely trade on Coinbase and other exchanges. If those nine are deemed securities, Coinbase and others could have to remove them and similar tokens from their exchanges.
  • Coinbase pushed back, saying the insider trading charges were appropriate but that none of the tokens it trades are securities. It also called on the SEC to initiate rulemaking on digital assets, arguing that current securities laws don’t work for digital assets.

Ultimately, the SEC’s filing of the case may be a strong signal for Congress to act. There’s only so much agencies can do on their own. The “malleability of digital assets” is contributing to the struggle, said Michael Fasanello, chief compliance officer at LVL. His proposal: Set up a coordinating body like the Office of the Director of National Intelligence, which was created to coordinate intelligence after 9/11.

— Tomio Geron (email | twitter)


Chip shortage could undermine national security: The global shortage of semiconductors has impeded the production of everything from pickup trucks to PlayStations. But there are graver implications than a scarcity of consumer goods. If the U.S. does not ensure continued domestic access to leading-edge semiconductor manufacturing, experts say our national security could suffer.

Read more from Micron

On the money

American Express says cardholders are still spending. The credit card company said second-quarter revenue rose 31% as cardholder spending on travel and entertainment topped pre-pandemic levels in April and has continued to improve.

JPMorgan sees a thaw in crypto winter. Demand among retail investors in the crypto market is improving, according to a new JPMorgan Chase report.

On Protocol: One idea to stop email spam? Require a donation from first-time senders. is laying people off. The crypto exchange said it would cut 25% of its workforce. The firm is shuttering its Argentina office and pausing expansion in several other countries.

Minecraft NFT backers ready a plan B. The leader of the Minecraft-based project NFT Worlds said it would reveal a plan of action soon in response to Minecraft instituting a ban on blockchain technology and non-fungible tokens.

Some workers still want to be paid in crypto. About 5% of all payments accepted by remote workers were made in crypto in the first six months of the year, up from 2% in the last six months of 2021, according to more than 100,000 worker contracts analyzed by Deel.

Central Washington's crypto-mining gold rush has slowed. Many of the miners who flocked to the abundant hydropower of Washington state's Columbia Basin over the past decade have either gone out of business or moved to other states, like Texas.


The U.S. is “missing from the table” as other countries advance their CBDC plans, the Atlantic Council’s Josh Lipsky told CoinDesk.

“People may call us stupid. They may call us stupid or delusional. And, I’ll accept that. Maybe,” Three Arrows Capital co-founder Su Zhutold Bloomberg. He said he’d been in hiding because of death threats following his crypto hedge fund, but was communicating with liquidators.

The maintainer of the Websockets open-source project, Qonto CTO Aymeric Augustin, has had it with low-quality crypto software. “I will summarily close issues related to bitcoin or cryptocurrency in any way,” he wrote on the project’s website, citing proof-of-stake’s high energy usage, but he clarified on Twitter for those not in on the joke that his real issue was requests that showed “either the person lacked basic skills to debug their own code or they connected to buggy servers.”

The chart

Tesla bought $1.5 billion worth of bitcoin in early 2021, with plans to sell cars for crypto. Then Elon Musk grew leery of bitcoin’s environmental impact and canceled the bitcoin payment option, but said Tesla would HODL its holdings. That changed in the second quarter as Musk grew worried about the lockdown of Tesla’s Shanghai plant, he told investors. Tesla sold off three-quarters of its bitcoin at a significant loss.


Chip shortage could undermine national security:To ensure American security, prosperity and technological leadership, industry leaders say the U.S. must encourage domestic manufacturing of chips in order to reduce our reliance on East Asia producers for crucial electronics components.

Read more from Micron

Thanks for reading — see you Monday!

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