September 16, 2022
Illustration: lvcandy/DigitalVision Vectors/Getty Images; Protocol
Good morning, and welcome to Protocol Fintech. This Friday: a Tornado Cash update, Gensler on Capitol Hill, and winners of the Merge.
Crypto has been pushing hard against the Treasury Department’s Tornado Cash crackdown, which the industry largely denounced as a sweeping move that doesn’t make sense. Not only is the blanket ban controversial, but supporters say imposing a ban on the widely used software would be impractical, if not impossible.
The counteroffensive may be working: The federal regulator appears ready to temper its anti-Tornado Cash campaign.
Tornado Cash isn’t just for criminals. But that’s what the new rule announced by the Office of Foreign Assets Control implied, citing the open-source software tool’s role in money laundering and other crimes.
That said, the ban isn’t as draconian as some critics feared. The sanction backlash, which includes a Texas lawsuit bankrolled by Coinbase, apparently prompted OFAC to clarify its Tornado Cash rules.
“These guidelines are very narrow,” Greg Kidd, founder of VC firm Hard Yaka, told Protocol. But, he added, the clarification on dusting and “the notion that OFAC won’t prioritize enforcement against these marginal circumstances" are positive steps. In fact, Callahan said he thinks OFAC’s Tornado Cash sanction “will probably lead to more acceptance” of the software even as it leads to “increased scrutiny on its use.”— Benjamin Pimentel (email | twitter)
Software is changing payments and banks should care: At Modern Treasury, we built a platform to complement banks’ existing products to help them prepare for a future led by software. We’re here to help them future-proof their business so that they can participate in and lead in the next phase of financial services.
On Protocol: The Biden administration is offering a deeper look at its crypto game plan.
The DOJ is boosting its crypto crime-fighting team. The Justice Department has tapped more than 150 federal prosecutors across the country to bolster law enforcement’s efforts to combat the rise in crime linked to the use of cryptocurrencies such as bitcoin.
Crypto-focused open banking startup TrueLayer cuts 10% of staff. The London-based firm laid off about 45 employees, citing market conditions.
Tech workers laid off in crypto winter are bouncing back quickly. Other crypto firms, tech companies and financial heavyweights are all still hungry for tech talent despite the recent run of layoffs.
SEC chair Gary Gensler reaffirmed before the Senate Banking Committee his belief that bitcoin is not a security, unlike “a vast majority” of other cryptocurrencies. With bitcoin, Gensler said, “there's no group of individuals in the middle. So investing public's not betting on somebody in the middle.”
“And we finalized!” Ethereum co-founder Vitalik Buterin crowed in a tweet as the crypto network’s much-anticipated shift to a proof-of-stake system was completed. “Happy merge all. This is a big moment for the Ethereum ecosystem.”
The Ethereum Merge, which finally happened this week, gave Coinbase and Robinhood a much-needed boost over the past month.
Robinhood and Coinbase are still reeling from the crypto crash, which has wiped out about $2 trillion in value and caused their shares to plummet this year.
But excitement over Ethereum’s pivot from proof-of-work to proof-of-stake — which is expected to transform crypto’s second-biggest ecosystem — sparked a mini rally in the shares of the two major crypto marketplaces.
Software is changing payments and banks should care: Activities that once took place in person or over the phone—getting a loan, making a payment, investing in a security—now occur entirely within software. Covid has only accelerated this trend. To remain a part of clients' financial lives, banks need to play well with software.
Thanks for reading — see you Monday!