The lawsuits filed by the US Securities and Exchange Commission (SEC) against crypto exchanges Binance and Coinbase last week is snowballing into a major fight between the digital asset industry and the regulator, with the hawks in the crypto industry alleging the regulator of acting at the bidding of the big finance led by banks.
The sober voices in the sector, however, called for fostering collaboration between the industry and regulators to strike a balance between promoting innovation and ensuring investor protection.
Mahin Gupta, Founder of Liminal, the Singapore-based wallet infrastructure firm with major operations in the UAE, said transparency regarding operations of crypto industry players is crucial, as is constructive engagement with regulators.
“Web3 enterprises must prioritize compliance with all relevant laws and regulations. They should also establish robust internal controls to safeguard investor interests,” Gupta told Arabian Business.
Mark Basa, managing director of XWECAN Web3, however, was harsh in his reaction to the US regulator’s action, believing that the SEC will eventually go after the entire crypto industry.
“The SEC is rampantly trying to do the bidding of every bank, special interest group that does not want people to own their own money,” Basa told Arabian Business in an emailed statement.
“There is some good work produced by the SEC, but much of it is too short sighted,” he said.
Lawsuits against Binance, Coinbase
The SEC filed lawsuits against Binance and Coinbase on consecutive days last week, accusing both entities of selling “unregistered securities” (aka crypto) to US citizens.
The US market regulatory considers all crypto assets except Bitcoin (BTC) as securities, and the lawsuit reportedly claimed that Binance, Binance.US, and the exchange’s CEO Changpeng Zhao offered unregistered securities in the form of BNB crypto tokens and Binance-linked BUSD stablecoins to the general public.
As for Coinbase, regarded by many in the industry as one of the most compliant entities, SEC said it has been operating without proper registration.
The US market regulator also cited Solana (SOL), Cardano (ADA), Polygon (MATIC), Filecoin (FIL), Cosmos (ATOM), Sandbox (SAND), Decentraland (MANA), Algorand (ALGO), Axie Infinity (AXS), and Coti (COTI) as examples of such unregistered securities.
Binance’s US entity labelled the lawsuit against it an example of “extremely aggressive and intimidating tactics in its pursuit of an ideological campaign against the American digital asset industry.”
It also assured users that their funds were safe, and the exchange is actively cooperating with the SEC’s investigations and addressing their concerns.
SEC faces backlash
The SEC, however, faced an onslaught of backlash from the crypto community in the wake of the two lawsuits.
While several industry players cautioned serious short-term and long-term harm to the digital asset industry as also to investment and job generation in the US due to the SEC action, some of the neutral observers called for legislative actions to put in place regulatory mechanisms for the industry.
Marc Beckman, founder of DMA United, said the latest developments highlight the critical need for the US to establish bipartisan legislation surrounding cryptocurrency and digital assets.
“Cryptocurrency is a new technology that requires elected officials with knowledge surrounding the nuances of Web3’s ecosystem to consider new solutions, beyond legacy legislation and the alphabet agencies’ over-arching grab for control,” Beckman reportedly said, adding that “today’s uncertainty has already created a chilling effect on job creation and investment in the US”.
DeFi (De-centralised Finance) analyst Miles Deutscher, however, was more acerbic in his reaction.
“So, let me get this straight. The SEC says that “Coinbase has operated as an unregistered broker since 2019”. Yet Coinbase IPOd in April 2021. So you’re telling me that the SEC let an “unregistered broker” IPO – after carrying out due diligence?,” Deutscher said in a tweet.
Antonio Juliano, Founder and CEO of leading decentralised crypto exchange dYdX, tweeted that it was “obvious the SEC is coming after crypto.”
“They are clearly acting in bad faith, outright stonewalling anyone who asks for guidance and spraying enforcement actions to everyone,” Juliano said.
Liminal’s Gupta said the recent lawsuits filed by the SEC against Binance and Coinbase indicated a significant shift in regulatory approach towards the digital asset industry.
“Previously, the SEC had faced criticism for its perceived slow response in regulating the industry, which allowed certain malicious actors to operate without proper oversight, as exemplified by the FTX incident.
“This [last week’s lawsuits] marks the beginning of a series of actions aimed at establishing tighter control over the industry,” Gupta said.
He said while these measures may ultimately contribute to legitimizing the web3 industry in the long run, it is important to acknowledge that such strong actions could potentially stifle innovation.
“Therefore, web3 firms need to proactively prepare themselves for heightened regulatory scrutiny,” Gupta said.
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