White Star Capital Digital Assets Fund - Newsletter #130
SEC Files Lawsuits Against Exchanges Amidst Wider US Regulatory Efforts
SEC Files Lawsuits Against Exchanges Amidst Wider US Regulatory Efforts
The US Securities and Exchange Commission (SEC) has intensified its regulatory efforts by filing lawsuits against two major cryptocurrency exchanges, Coinbase and Binance. Though they happened one day apart, the allegations faced by Binance are significantly worse than those by Coinbase, although both threaten the long-term US operations of the exchanges. While the lawsuits have sparked debates about the unjustified stifling of financial innovation, they also underscore the need for regulatory clarity by the US government that many in the industry, including Coinbase, have always asked for.
Coinbase’s Lawsuit
The SEC’s lawsuit against Coinbase alleges multiple violations, including operating as an unregistered exchange, clearing house, and broker, as well as selling unregistered securities (including SOL, ADA, MATIC, FIL, NEAR and others).
The SEC's ultimate goal in the lawsuit is to obtain a permanent injunction against Coinbase. If the SEC can prove that any of the mentioned tokens are unregistered securities, it could lead to the shutdown of Coinbase's core US business operations.
Binance’s Lawsuit
The SEC has also filed a lawsuit against Binance, the world's largest digital asset exchange, accusing it of 13 serious securities violations. These are much more serious criminal allegations than those faced by Coinbase. Binance's legal troubles have escalated since a separate lawsuit was filed by the Commodities and Futures Trading Commission (CFTC) in March. The charges focus on Binance's alleged failure to separate its global and U.S.-based operations adequately, as well as its alleged efforts to evade the law. Binance CEO Changpeng Zhao and the exchange itself are accused of misusing and co-mingling customer funds, raising concerns about the security of customer assets.
Regulatory criticism and implications
Binance's charges revolve around unlawful actions by bad actors, whereas Coinbase has consistently strived to operate within the bounds of the law. Coinbase, along with others in the industry, have been hindered by the unfortunate lack of clarity in existing regulations.
Indeed, whether or not cryptocurrencies are securities has always been a point of contention within the crypto industry. The Howey test, established by the U.S. Supreme Court in 1946, is a legal framework used to determine whether an investment qualifies as a security. It consists of a four-pronged test that examines whether there is an investment of money in a common enterprise with the expectation of profits solely from the efforts of others. Cryptocurrencies often possess characteristics of both utility tokens, which provide access to a product or service, and investment tokens, which offer potential financial returns. Determining whether a cryptocurrency falls under the definition of a security requires consideration of its decentralisation and investor expectations, and such subjective analysis means whether or not they are securities has been an ongoing debate and legal uncertainty for over five years now. The SEC's actions have therefore faced criticism for regulatory uncertainty and alleged "regulating by enforcement." Some dissenting voices within the SEC, like Commissioner Hester Peirce, argue for providing clearer compliance pathways for crypto firms.
With that, the lawsuits filed by the SEC against Coinbase and Binance represent a critical moment in the regulation of cryptocurrency exchanges. The outcomes of these legal actions will significantly impact the future of the crypto industry in the United States and potentially influence global regulatory approaches. As investors, we are keen for regulation that strikes balance between investor protection, market integrity, and technological innovation.
🔦 White Star & Portfolio Spotlight
Ledn's June Open Book report
In their report for June 2023, Ledn highlights the use of Bitcoin and USD Coin assets to promote savings interest and reduce loan rates. They emphasize the importance of strict underwriting procedures and strong lending practices, with a focus on low-risk industries to successfully increase returns and protect assets.
Thala unveils updated Analytics page
Thala's updated Analytics page shows over $138k in fees accumulated within the first 60 days across Thala Launch, ThalaSwap, and MOD Vaults. With the launch of veTHL, token holders can soon direct fees through governance, ensuring transparency and on-chain verification.
Superfluid and LensProtocol introduce Alpha Access
Superfluid and LensProtocol have joined forces to launch alpha access to the Superfluid Checkout Widget & Checkout Widget Builder. This open-source toolkit enables seamless checkout experiences and the acceptance of crypto subscriptions and donations through Superfluid streams.
Cometh introduces Alembic, the all-in-one platform powering Web3 games and dApps
Cometh announced the introduction of Alembic, a cutting-edge platform that enables the development of Web3 games and dApps. It tackles challenges like slow transactions and complex onboarding by providing services such as account abstraction, sponsored transactions for zero gas fees, EVM-compatible Layer 2 solutions, and flexible middleware & APIs.
🏦 Enterprises & Institutions
Louis Vuitton to release $42,000 Physical-Backed NFTs
Louis Vuitton is releasing Via Treasure Trunks, a collection of non-transferable NFTs that include a physical replica. Holders will have access to exclusive products and events, with limited releases planned throughout the year.
Apple reveals $3,499 vision pro Augmented Reality Headset
Apple has officially announced the Vision Pro augmented reality (AR) headset at WWDC 2023. The sleek standalone device features high-resolution displays, hand and gesture-based navigation, external cameras and sensors, and the ability to create digital personas for immersive video calls.
OpenAI pledges $1M towards AI-Driven Cybersecurity Initiatives
OpenAI is launching a $1M Cybersecurity Grant Program to enhance AI-powered cybersecurity, empowering defenders and quantifying AI model effectiveness. By supporting projects like honeypots and secure software development, OpenAI aims to equip defenders against evolving malicious AI applications.
Sotheby’s Golden ‘Goose’ sale and Mercedes Benz puts NFTs in Motion
Sotheby's will auction NFTs from 3AC's seized collection, including Dmitri Cherniak's "The Goose" expected to fetch $2-3 million. Mercedes Benz released the "Maschine" NFT collection with Fingerprints DAO, and Nike partnered with EA Sports to introduce .SWOOSH NFTs to the gaming ecosystem.
⚖️ Government & Regulation
SEC allegations against Coinbase
The SEC alleges that Coinbase acted as an unregistered broker, exchange, and clearing agency. They claim that Coinbase sold unregistered securities, including 13 crypto assets. The SEC also targeted Coinbase's Staking program and Coinbase Wallet, accusing them of offering unregistered securities for sale.
Binance accused of unregistered Broker Activities and Securities Offering by SEC
The SEC alleges that Binance, the world's largest crypto exchange, acted as an unregistered broker and sold unregistered securities, similar to Coinbase. The SEC targeted specific cryptocurrencies, including SOL, ADA, AXS, MATIC, FIL, and SAND, in its lawsuit against Binance, claiming that Binance's services, such as its wallet and staking program, involved the sale of unregistered securities.
Regulate AI like Nuclear Power, says UK Labour Party
UK officials are proposing that artificial intelligence (AI) technology be regulated and require a government license, similar to pharmaceutical or nuclear power companies, in order to address concerns. The Labour Party's digital spokesperson, Lucy Powell, supports this approach, advocating for regulation at the developmental level rather than banning AI.
UK considers ‘Crypto Tsar’ to head up regulation
Lawmakers in the United Kingdom are concerned about falling behind the European Union in crypto regulation and are pushing for immediate action. They aim to draft and pass bills within the next two years to establish regulatory leadership and protect consumers in the rapidly growing crypto industry.
Japan’s new Stablecoin framework could spur US to Act
Japan has established a legal framework for stablecoins, mandating that they be pegged to the yen and issued by licensed financial institutions. This initiative aims to facilitate international money transfers and bridge the gap between traditional finance and decentralized finance. Meanwhile, the US faces regulatory uncertainties, impeding its banks from issuing stablecoins as lawmakers and regulators continue to debate and disagree on the matter.
💰 Funding & Exits
PayPal Ventures leads $52M Round for Magic's wallet expansion
Crypto wallet provider Magic has raised $52 million in a funding round led by PayPal Ventures, allowing them to expand their non-custodial wallet infrastructure and drive Web3 adoption. With over 20 million unique wallets generated and a client list including Macy's and Mattel, Magic's enterprise-grade solutions and SDK are used by over 130,000 developers.
M80 raises $3 million to expand 'Web3-enabled' esports organization
M80, a new esports organization founded by XSET veterans, has raised $3 million in seed funding led by ExpertDojo to expand its presence in esports and explore Web3 offerings, including digital items and potential DAO creation. The organization aims to thrive in the evolving esports landscape and believes the industry will weather economic uncertainty by making strategic changes for long-term sustainability.
The Anoma Foundation announces the 3rd fundraise for Anoma
Anoma, the intent-centric architecture platform, has raised $25 million in its third funding round led by CMCC Global and Electric Capital. The funding will support Anoma's vision of revolutionizing decentralized applications and advancing scalability, user-centricity, privacy, and interoperability. Anoma is preparing for its upcoming mainnet launch and expresses gratitude to all supporters and partners in their ecosystem.
Transak picks up $20M for its web3 payments and onboarding platform
Transak, a London-based web3 payment and onboarding infrastructure provider, has raised $20 million in a Series A funding round led by CE Innovation Capital. The investment will support Transak's expansion, focusing on enhancing onboarding solutions for web3 games and financial applications, while attracting mainstream users to the web3 ecosystem.
Bitcoin-denominated life insurance provider sets up shop with $19M funding
Meanwhile Insurance Bitcoin (Bermuda) has raised $19 million in two seed rounds to develop an AI-assisted, bitcoin-denominated life insurance policy. Targeting U.S. citizens with substantial BTC holdings, Meanwhile aims to provide long-term protection in the bitcoin economy, using AI for underwriting and claims while insulating policyholders from bitcoin price fluctuations.
Haun Ventures leads $10M Seed Round for Web3 Gaming Studio Argus
Crypto investment firm Haun Ventures has led a $10 million seed round for Web3 gaming studio Argus, with participation from Robot Ventures, Anagram, Dispersion Capital, Alchemy, and individual investors. Argus has also unveiled the World Engine, an SDK enabling developers to build their own blockchain-based gaming ecosystems, aiming to fuel innovation and growth in the Web3 gaming space.
Binance Labs co-leads a $6.6M seed round for Fusionist to further support early-stage Web3 gaming innovation
Binance Labs and FunPlus co-led a $6.6 million seed funding round for Fusionist, a Web3 gaming company. Fusionist aims to deliver an immersive gaming experience, combining various genres and utilizing NFTs, while building a scalable Web3 gaming ecosystem.
Demox Labs raises $4.5M, readies private crypto wallet
Demox Labs has raised $4.5 million to develop products for Aleo blockchain, aiming to be the top wallet choice for privacy-focused users. Aleo uses zero-knowledge proof technology to enable off-chain calculations and maintain user privacy.
MetaZone secures funding to expand the world’s first Tokenized App platform for the Metaverse
MetaZone, the platform for NFT-based 3D digital content and apps in the metaverse, has raised $3 million in a seed funding round led by Sfermion and CMT Digital. Creators can mint NFTs representing their content, which can be purchased and installed on virtual land, creating new revenue streams and business opportunities in the virtual economy.
🚀 Project Launches & Updates
This Bitcoin tool could change the way businesses use Lighting Network
Lightning data provider Amboss aims to drive enterprise adoption of Bitcoin's Lightning network with its LINER (Lightning Index Rate) index. LINER provides businesses with cost and yield data for Lightning accounts, allowing them to compare it with traditional financial institutions and potentially save on payment processing.
Swift and Chainlink will test connecting over a dozen financial iunstitutions to Blockchain networks
Swift and Chainlink are teaming up with major financial institutions like DTCC, ANZ, BNP Paribas, and Citi to test tokenized asset transfers across different blockchains using Swift's infrastructure. This partnership is a significant move for both the financial and crypto industries, aiming to generate efficiencies, reduce costs, and drive the growth of the blockchain market beyond $10 trillion.
Twitch co-founder's Fractal launches tools to help Devs build NFT Games
Fractal's FStudio empowers game developers to add crypto integrations to their titles without coding, enabling the creation of in-game NFTs, credit card payments for crypto items, and in-game NFT shops. The Web2-friendly approach aims to appeal to mainstream gamers and foster an organic game economy, focusing on fun experiences rather than solely play-to-earn models.
🔥 Other Bits We're Excited About
How the Metaverse may revolutionize the creator economy
Consensus 2023 explored the future of Web3 and its implications for creator-driven digital economies. Web3 aims to empower creators by prioritizing ownership, privacy, and decentralization, but challenges in execution and metaverse ownership persist.
NFT artist Agoria to give fans ownership over upcoming song launch
French DJ and artist Agoria is giving his community, the "Agorians," a shared stake in the royalties of his upcoming song as an NFT token. Teaming up with Bolero, a blockchain-based music platform, fans holding the NFT-based song in their wallet can earn rewards through the "Song Shares" feature.
Bitcoin is now more stable than Amazon and Meta shares amid uncommonly low volatility
Bitcoin's volatility is lower than Amazon and Meta, with an annualized rate of around 32% compared to its average of 71%. However, experts anticipate volatility to return in the fall, coinciding with predictions of a bitcoin price surge during that period.