Hazy New York | Hazy Regulators

Market structure bill | Optimism Bedrock | Limiting monopolies

Decential Media
A weekly recap of the most insightful news, analysis, and capital flows in the wild west we call crypto.

Hello and welcome back to the Web3 Rewind! Per usual in this industry, lots has happened this past week. Here's what we have in store for you:

  • Gensler cracks down, again đź« 

  • A new market structure bill đź“„

  • Optimism Bedrock launched 🚀

  • Native USDC on Arbitrum đź’µ

  • Self-limiting Ethereum validators 🤷‍♂️

Hey Everyone! We have a new email newsletter coming called The Beat. Starting June 15, The Beat can be delivered straight to your inbox with all the latest about where music meets web3. You can subscribe here.

The Latest

So crypto is beginning to get what it has been asking for – legislation to establish how the industry is to be regulated. It’s about time and pardon the cynic in me for thinking if FTX – and the copious bribes, I mean campaign contributions, handed out around DC by Sam Bankman Fried – hadn’t imploded we wouldn’t be here right now. But never mind that.

The discussion draft released by Republican House members Patrick McHenry, chairman of the Financial Services Committee, and Glenn Thompson, chairman of the Agriculture Committee, is a welcome start to the conversation about crypto rules. It’s an important contrast to what SEC Chairman Gary Gensler has been saying, that peer-to-peer distributed systems and crypto broadly fall under existing securities law. That no new laws are needed. He’s wrong. All you have to do is look to the second page of the discussion draft where the definitions start. Terms like “blockchain” and “decentralized network” are spelled out in archaic charming legislation-ease. (The decentralized network definition, in particular, needs work as to my eye it might prohibit blockchains from forking and has a non-marketing clause for blockchain tokens that’s as broad as they come.)

This is the work that needs to be done. Other bills are out there too, and it has to be said that the draft bill is a hell of a long way from being law. Democrats need to get up to speed on this tech and stop demonizing it. The world is moving to offer crypto firms much more stable environments compared to the U.S. This is a big test for the crypto lobby in DC, but at least they have a solid beginning, a foundation, to build upon. — Matthew Leising, editor in chief, Decential Media

Here we go again dept.

SEC Suing Binance + Coinbase

In a flurry of enforcement activity, the SEC filed lawsuits against Binance, Coinbase, and filed a temporary restraining order against Binance and its founder CZ. The restraining order has the potential to freeze the assets of Binance US, and the market has already started pricing that in. Tokens are already trading at a premium on Binance US, with BTC trading at a 7% premium. This is reminiscent of FTX where users were no longer able to transfer dollars off-exchange, and fancied their chances in transferring crypto instead.

Binance US announced that they would be removing certain trading pairs, and stopping OTC trading. It’s looking all but over for Binance US as US citizens lose another exchange. Binance as a whole represents over 50% of crypto spot trading volume, so if things start getting serious, I would pay close attention to liquidity in the markets as it starts thinning.

Coinbase handled the lawsuit a little differently. They proceeded to post a video that stated:
- Coinbase mentioned staking 57 times in their S1 report
- Coinbase met with the SEC and asked for guidance 30 times in 2022
- Coinbase rejects 90% of assets because they don’t pass legal standards
- The year the Howey test was written in (1946)
- The jobs at risk of being driven offshore (1,000,000)
- Countries currently establishing comprehensive rules for crypto (33)
- Comprehensive rules that the SEC has established for crypto in America (0)

A simple question that is being asked is if everything about Coinbase is so illegal why is the US government selling seized BTC on Coinbase? And why did the SEC approve Coinbase’s IPO?

Rather than harping on regulation through enforcement for the nth time, let’s put some numbers to the situation. BCG projected fintech to be a $1.5 trillion industry by 2030, and perhaps one might see crypto as the second coming of fintech, just better. There are 7,605,892 individuals employed in the finance and insurance industry in the US, not including all the jobs that crypto will eventually create. According to this report, the US is the top place for blockchain talent. There’s a non-zero chance crypto eventually revolutionizes technology and finance. If all that value creation and value capture happens offshore, which is happening at this rate given the regulatory environment, politicians and lawmakers will eventually be in for a rude awakening at the lost economic opportunity. â€” Joseph Cooper, Decential Media

Crypto charting

Here's a deeper look into the economics and mechanics of web3 and crypto courtesy of charts by Pyth Data Association. To see more Pyth research click here.

SEC Sued Binance and CZ for US Securities Law Violations. $BNB

Big news in the crypto world with the SEC not only suing Binance, but also filing a lawsuit against CZ for violating federal security laws. The regulator also alleged that BNB and the BUSD stablecoin were both securities and that Binance’s staking service violated securities laws. The SEC said in the filing that it considers most major cryptos, including L1 tokens, as securities, but they did not mention Bitcoin and Ethereum. CZ responded on Twitter with 4 (his way of signaling FUD) and promised that the exchange will defend itself in court. $BNB was down 15% on the week at the time of writing.

It didn’t stop there - SEC sued Coinbase as well! $COIN

The day after its lawsuit against Binance, the SEC filed a lawsuit against Coinbase for alleged violation of federal securities laws and operating an unregistered clearing agency, broker, and exchange. Coinbase stock opened ~20% lower before recovering partially. Coinbase also reiterated their intention to defend themselves in court against the SEC’s allegations.

Apple Launched Their Much Anticipated AR Product - Vision Pro. $AAPL

Is this the start of a new era? Apple announced their first new product in many years - the Vision Pro. An augmented reality headset, it introduces spatial computing - you can use your hands to control what you see. This can be a paradigm change in how people work and interact with each other. However, there was a catch. Each headset is priced at $3500, which would probably mean only the most enthusiastic folks will try it out.

Quick Bits

McHenry - Thompson Market Structure Bill

  • Regulation for digital assets is hard; we get it. However, some regulators out there are busy creating sound regulatory frameworks rather than a certain someone who is regulating purely through enforcement.

  • A joint market structure bill was proposed last Friday, paving the way for sensible regulation. The bill outlines various definitions of commodities and securities, and also what decentralization really means.

Optimism Bedrock Launched

  • A rollup’s business model is simple. Take in transaction fees as revenue, and pay to post transaction data on the L1 as a cost of goods sold. Optimism recently conducted a successful protocol upgrade.

  • The upgrade is poised to reduce the cost of goods sold by a significant margin, make transactions cheaper and make deposit times shorter. This is one of the ways blockchains are improving their business models.

Native USDC on Arbitrum + Celestia

  • If you own some US dollars, sometimes you may be more comfortable holding physical cash under your mattress than holding it in a bank account with a piece of paper that says you own this bank account.

  • That’s exactly the situation Circle is solving with native USDC coming to Arbitrum and Celestia. This means you’ll be holding USDC that lives “under your mattress”, instead of under someone else’s mattress. This is a significant problem for existing blockchains, as they often issue a token that signifies ownership of the underlying token held somewhere else entirely.

And last but not least

Self-Limiting Ethereum Validators

In a capitalistic society, if you told any monopoly to self-limit their market share, they would likely laugh you out of the room, and then maybe perhaps sue you. But that is exactly what the Ethereum community is virtue signaling Lido, the largest liquid staking protocol by a wide margin, to do. Lido currently has a 31.6% market share of all ETH staked, just shy of the 33% mark where an attacker could stop Ethereum from finalizing. No one is going to stop themselves from becoming a monopoly.

I’m not going to bore you with the technicals. But if the community (stakers) really cared enough about decentralization, they would simply self-limit Lido’s market share by staking their ETH with smaller liquid staking protocols. In that idealistic world, there would be no need for a protocol implemented self-limit. Over the long run, market forces are efficient, and the market will express their preferences. If stakers value the liquidity, composability, and safety of Lido more than running their own validator or staking with a smaller protocol, then Lido will simply gain an increasing market share. The market has its own distinct set of goals; never forget that. — JC

Out of the Ether: Special NFT Edition

Have you read the definitive history of Ethereum? No? Well then get your special edition of Out of the Ether while you can. There are only 1,000 that were printed and each copy is an NFT that can be registered on the Lukso blockchain’s Universal Profile protocol.