Empire Newsletter: SEC faces big court bill after sanctions

Time to pay up. Oh, wait…

Last August, after suing Digital Licensing Inc. or DEBT Box, SEC attorneys were granted a temporary restraining order (TRO) against the crypto company through the use of what Judge Robert Shelby later described as “misleading” statements to the court.

When threatened with sanctions by the court, the SEC conceded “that its attorneys should have been more forthcoming with the Court,” but maintained “sanctions are not appropriate or necessary to address those issues.”

Shelby disagreed, and he sanctioned the agency for abuse of power in March.

Now, it’s time to talk money. A court-appointed receiver and defendants submitted their legal bills to the court last week. The reimbursements they seek add up to around $1.8 million.

The SEC is expected to contest the amount, and then it will be up to the judge to determine how much is owed.

Getting to the bottom of what fees can be reasonably tied directly to the SEC’s TRO, for which they were ultimately sanctioned, is the key. DEBT Box says they have spent nearly $750,000 fighting the SEC’s claims.

When the final number is decided — likely later this spring or early summer — the funds will come from the federal government, probably from the Treasury’s Judgment Fund or the SEC’s own budget.

Two SEC lawyers — Michael Welsh and Joseph Watkins — left the agency in the aftermath of the sanctions. Reports suggest they were pushed out, and we believe it. This was a major mistake. One attorney we spoke to said that if the SEC was a private firm, we’d be seeing a lot more heads rolling.

It looks like the case is going to be tossed. The question is now whether it will be dismissed with or without prejudice (with prejudice means the case has permanently been dismissed and cannot be brought back to court).

As expected, the SEC is vying for dismissal without prejudice while DEBT Box is hoping the case will be tossed with prejudice.

— Casey Wagner

Data Center

Gold’s price is finally coming down. The precious metal hit its lowest level in two weeks as geopolitical tensions began to ease.
It’s a big week for economic data. US GDP is scheduled for Thursday and PCE, the Fed’s inflation measure of choice, is coming Friday.
BlackRock’s bitcoin ETF could become one of the most successful ETFs in history if it hits 70 days of inflows, per Bloomberg’s Eric Balchunas.
Bitcoin (BTC) is holding on to $65K after jumping to $67K overnight.
EigenLayer is up 8% over the past day, with roughly $15B in total value locked, according to DeFiLlama.

Schrödinger’s stake

Takes about the risks of staking and restaking protocols are everywhere: Threats to the moneyness of ether, to capital through slashing, to the very fabric of Ethereum itself.

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The hand-wringing has done little to keep the market away from increasingly experimental staking protocols — it’s all for the points.

About 27% of the ether (ETH) supply is currently staked with mainnet validators (about $101 billion) and more than 42% of that stake is kept in liquid staking protocols like Lido and Rocket Pool.

Six months ago, closer to half of the ETH stake was kept with Lido et al. Restaking and liquid restaking platforms like EigenLayer, Karak, Renzo and ether.fi largely didn’t exist.

In the past three months, the total value locked in liquid staking protocols across the market has dropped 25% from a March peak of $61 billion to $46 billion.

EigenLayer, meanwhile, has led the TVL of restaking protocols to multiply eight times, from $2 billion to $16 billion.

Liquid restaking protocols like Renzo — which utilize EigenLayer to secure small networks with liquid staking tokens (but not yet in return for yield) — have now attracted $10 billion in their own right.

The big question is whether all that TVL would exist if there were no promise of a future EigenLayer airdrop.

EigenLayer has kept track of user participation with a points program, but founder Sreeram Kannan has so far said there are no plans to distribute a token tied to points, although they could be used for governance somewhere down the line.

But should there really be no airdrop (or lackluster yields from EigenLayer AVS), expect the bulk of the restaking and liquid restaking TVL to go elsewhere — namely, protocols with their own points and airdrops.

— David Canellis

Times are a-changin’

The New York Stock Exchange’s data team sent out a survey about 24/7 trading, and while this is — of course — not indicative of any potential change to the current operating hours of 9:30 am ET to 4 pm ET, it’ll be interesting to see how those surveyed respond.

Crypto, which trades around the clock, modernized the way people look at financial markets. Just last year, Robinhood announced 24-hour trading for some assets.

The survey itself isn’t that interesting. It’s not surprising that an exchange like the NYSE would try and gauge interest in such a feature. What is surprising, however, is that the NYSE was the exchange to issue such a survey and not, say, the Nasdaq, which is an electronically-run exchange.

It also wouldn’t be surprising if survey responders were largely against the idea of going 24/7 for a few reasons. The biggest one is liquidity. From weekend missile strikes to exposés, there are a number of ways that the market could take a hit outside of the usual trading hours, and safeguards must be put in place so that the market doesn’t tank at the first mention of volatile headlines.

A former floor trader also told me that any changes will have to be run by the companies listed on the NYSE, which may take some convincing if the exchange were to ever seriously consider switching to 24-hour trading.

But there’s no doubt that crypto markets and new technologies have proven that there’s an appetite for 24-hour trading — and that it can be done safely. Circling back to the point on volatile headlines, bitcoin dropped nearly 5% after Iran launched airstrikes against Israel on April 19, but was able to recover in a few hours.

Don’t get your hopes up for any changes to the current trading hours, though. This kind of change would take years to implement, but maybe crypto’s paved the path forward for the traditional exchanges.

— Katherine Ross

The Works

The infamous “Buy Bitcoin” sign flashed behind Janet Yellen in 2017 is being auctioned off.
Some Redditors on r/MtGoxInsolvency are reporting that the trustee has updated repayment data for their claims.
Outside of running against Elizabeth Warren, pro-crypto lawyer John Deaton filed to appear as counsel for over 4,000 Coinbase customers in the SEC’s case against the exchange.
One professor thinks the passing of the stablecoin bill could be a “disaster,” Bloomberg reports.
The current Bitcoin Improvement Proposal editor, Luke Dashjr, could be replaced as Bryan Bishop’s movement gains momentum, Protos reports.

The Morning Riff

If you were waiting for the US presidential election’s galaxy-brained crypto moment, here’s your chance.

Presidential hopeful Robert F. Kennedy, Jr. declared at a recent campaign stop that he would “put the entire US budget on blockchain” so that “every American can look at every budget item in the entire budget anytime they want 24 hours a day.”

Kennedy continued: “We’re gonna have 300 million eyeballs on our budget, and if somebody is spending $16,000 for a toilet seat, everybody’s gonna know about it.”

Okay. Taking the idea at face value — a perilous notion in any election year — I have some questions. Who’d run these blockchain nodes? If they’re all government-run, why should the average taxpayer trust the data they’d see? Aren’t US budgets already public? Where do I sign up for the BudgetCoin airdrop?

Incidentally, blockchains have been explored by US federal agencies for financial management purposes, including a December 2023 project focused on the federal grant process, so Kennedy isn’t exactly firing in the dark.

Who knows, maybe the degens can help the Defense Department actually pass an audit for once.

— Michael McSweeney

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