MAP Protocol

Ben Strack

The UK&#8217;s top finance regulator is currently in the process of finalizing rules concerning crypto marketing. This action is being taken because it says that there is a &#8220;growing mismatch&#8221; between consumers&#8217; investment decisions and their risk tolerance.



New regulations from the Financial Conduct Authority (FCA) require those promoting crypto assets to put in place clear risk warnings, ensure advertisements are not misleading and allow for investors to back out of potential investments within a set timeframe.



A policy statement published Wednesday said the latest rules “strikes the right balance between consumer protection and promoting potentially beneficial innovation.”



The regulator finalized rules last August to ensure firms marketing “high-risk investments” include better risk warnings, but noted at the time the regulations would not apply to crypto promotions.



Now, after considering feedback from <a href="https://blockworks.co/news/uk-crypto-regulation-in-the-works">a February proposal</a>, the FCA’s rules around crypto promotion are “near final,” according to the policy statement.&nbsp;



They are expected to take effect on Oct. 8 after a four-month transition period.



&#8220;It is up to people to decide whether they buy crypto, but research shows many regret making a hasty decision,” Sheldon Mills, the FCA’s executive director of consumers and competition, said in a statement. “Our rules give people the time and the right risk warnings to make an informed choice.&nbsp;&nbsp;



To legally promote crypto assets to consumers, people and businesses must be “authorized,” registered with the FCA or communicating in compliance with an exemption. Promotions not made using approved methods are punishable by up to 2 years in prison, fines, or both.&nbsp;



The new rules also require those marketing crypto assets to UK consumers to introduce a 24-hour “cooling-off period” for first-time investors with a firm.&nbsp;



This would prohibit a company or individual to send a consumer what the FCA calls a Direct Offer Financial Promotion (DOFP) unless that consumer reconfirms their request at least 24 hours later.&nbsp;



“This is intended to ensure that extra protections kick in before consumers are in a position — as a result of the DOFP — to take the crucial step towards placing their money in the investment,” the FCA’s policy statement notes.



​​Susannah Streeter, head of money and markets at financial services company Hargreaves Lansdown, labeled the cooling-off period one of the more significant requirements.&nbsp;



In particular, she noted, it helps novice users of exchanges who might get “cold feet” when it comes to crypto investments.&nbsp;



“This may help reduce the pile-on effect with some coins surging to eye-watering levels spurred on by frantic purchases driven by the [fear of missing out] effect,” Streeter added. “The FCA is clearly worried that far too many consumers are gambling away their money, desperate to catch a ride upwards, no matter how risky the journey is.”



<h2 class="wp-block-heading">More crypto holders to protect</h2>



The new rules come as the number of crypto holders in the UK more than doubled in a one-year span, according to FCA survey findings published Wednesday.&nbsp;&nbsp;



Conducted in August 2022, the survey gathered responses from more than 2,000 people in the country. UK adults holding crypto assets numbered roughly 5 million at the time, according to FCA findings — up from 2.3 million in 2021.



The most common reason for purchasing crypto assets — as reported by 40% of respondents — remains “as a gamble,” according to the FCA findings. Roughly 30% of those surveyed said they regretted purchasing cryptoassets.



In terms of crypto promotion, 36% of adults have digested crypto-related advertisements. Eighteen percent of crypto users reported being influenced to purchase such assets because of advertising.



The FCA regulations also follow the SEC’s crackdown on crypto exchanges in the US. The securities regulator <a href="https://blockworks.co/news/binance-changpeng-zhao-face-sec-charges">brought lawsuits against crypto exchanges Binance</a> and <a href="https://blockworks.co/news/sec-sues-coinbase-allegations">Coinbase</a> on Monday and Tuesday, respectively, for allegedly operating unauthorized exchanges and other securities violations —&nbsp;



The exchanges have denied wrongdoing.&nbsp;



Binance.US said in a tweet that the SEC filing is “unjustified by the facts, by the law, or by the Commission’s own precedent.” Coinbase Chief Legal Officer Paul Grewal said Tuesday that the SEC’s enforcement-only approach in the absence of clear crypto guidelines hurts companies like Coinbase “that have a demonstrated commitment to compliance.”



“It’s clear the FCA recognizes the damage that can be done to overall investor confidence when such high-risk investments are bought by people who seem woefully unaware of the risks,” Streeter said. “However, it knows it’s also walking a tricky tightrope.”&nbsp;



She added: “It recognizes these beefed-up safeguards are needed to ensure consumers are more protected from another FTX style implosion, but at the same time it doesn’t want to quash innovation in the digital coin and blockchain space.”



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UK Regulator’s New Crypto Rules Include ‘Cooling-off Period’ for Investors

Michael Bodley

Swan Bitcoin appears to have been struggling as the company has moved to transfer all of its assets to two new custodians — even as its CEO harshly criticized other crypto exchanges in the wake of the SEC’s lawsuits against Binance and Coinbase this week.&nbsp;



Users of the bitcoin-only trading platform this week have reported significant outages that they say have prevented them from moving assets with ease. Fiat on- and off-ramp services were affected.&nbsp;&nbsp;



The company said in a <a href="https://help.swanbitcoin.com/hc/en-us/articles/14874253038743-New-Partners-at-Swan-May-2023-">statement</a> posted on its website Wednesday that “all funds are being transferred” to its qualified custodians, Fortress Trust and BitGo Trust Company. CEO Cory Klippsten confirmed this in an email to Blockworks in which he also noted that the company was migrating from Prime Trust and Fireblocks.



The US-based company’s site also listed a number of service outages dating back to May 26.&nbsp;



Whether the root cause of Swan’s problems — which appear to span multiple weeks — could be attributed entirely to the custodian switch was not immediately clear.&nbsp;



The company told customers that the transfer of their assets to Fortress and BitGo commenced on May 26, coinciding with the outages. Swan said that the company “carefully weighed the pros and cons” of moving all assets in one swoop, adding that it had reached a consensus that “moving at once will create the least amount of disruption for Swan clients.”



Swan’s website on Wednesday separately said its “bitcoin purchasing” and “ACH Pull” services were both “under maintenance.”&nbsp;



“Communication with clients has been constant and detailed,” Klippsten told Blockworks Wednesday. He added that withdrawals of BTC and USD were available throughout the custodian migration via client service channels. The ability for users to withdraw via the website or app directly resumed Tuesday.&nbsp;&nbsp;



<h2 class="wp-block-heading">‘Degraded performance’ across business lines</h2>



At the same time, Swan’s wire transfers, as well as its custody and trading business lines, were both operating under “degraded performance.” The company on its website listed a “major platform upgrade” as being under way each day since May 30.&nbsp;



Swan attributed its custodial switch to plans the company put in place in January. At the time, Klippsten <a href="https://www.swanbitcoin.com/bitcoiners-its-winning-time/">wrote</a> that his company had 100 full-time employees, or “Swans,” divided across five continents and cited its “rapid expansion into new products and markets.”



From its roots at a bitcoin (<a href="https://www.blockworksresearch.com/assets/btc">BTC</a>) exchange, Klippsten’s Swan has over the years rolled out a number of new bitcoin-only products.&nbsp;



Those include support for both retail and institutional investors, including an advisory service designed to cater to registered investment advisers (RIAs). Swan has also played up its BTC-based retirement account services, as well as bitcoin maximalist job boards.&nbsp;



But Swan’s Twitter account, as well as that of Klippsten, has been active this week reacting to the <a href="https://blockworks.co/news/binance-changpeng-zhao-face-sec-charges">SEC’s allegations against Binance</a> and <a href="https://blockworks.co/news/sec-sues-coinbase">Coinbase</a> for alleged securities violations and other charges.



The exchanges have denied wrongdoing.&nbsp;



<figure class="wp-block-embed is-type-rich is-provider-twitter wp-block-embed-twitter"><div class="wp-block-embed__wrapper">
<blockquote class="twitter-tweet" data-width="550" data-dnt="true">Imagine if Coinbase focused on Bitcoin financial services rather than altcoin trading. They’d be a massive financial institution with millions of diehard fans around the world. No one forced Armstrong to go along with Balaji’s plan to add a hundred unregistered securities.&mdash; Cory Klippsten 🖐️ Swan.com 🦢 #Bitcoin (@coryklippsten) <a href="https://twitter.com/coryklippsten/status/1666156758061191168?ref_src=twsrc%5Etfw">June 6, 2023</a></blockquote><script async src="https://platform.twitter.com/widgets.js" charset="utf-8"></script>
</div></figure>



The company hosted a Twitter <a href="https://twitter.com/SwanBitcoin/status/1666444081612873730">Space</a> about the lawsuits — which included “#Bitcoin Not Crypto” in the title.



Klippsten called the SEC’s lawsuit against Coinbase an outcome that was “obvious, inevitable and entirely self-inflicted” in a Wednesday Twitter thread, calling out Coinbase CEO Brian Armstrong and Balaji Srinivasan, a former chief technology officer at the exchange.



Coinbase Chief Legal Officer Paul Grewal said Tuesday that the SEC’s actions amid the lack of US crypto regulations harms companies like Coinbase “that have a demonstrated commitment to compliance.”&nbsp;



<h2 class="wp-block-heading">Custodial migration “not 100% complete”</h2>



Some Swan users appeared confused as to the status of their services, Swan on its website site said it had put in place a number of measures to update customers on the status of their assets.&nbsp;



That included a new “snapshot” feature designed to provide a placeholder update of customer balances “at the time of migration.” The custodial switch was still not “100% complete” through 5 pm ET on Wednesday.&nbsp;



Customers could not, however, view the balance of their dollar holdings during the move. Swan told customers that the migration ought to be complete by June 11 — it started on May 26.&nbsp;



On Wednesday, “self-service Bitcoin withdrawals” remained unaffected by the outages, while “instant buys,” as well as “automated savings plans” and “automated withdrawals” were not operational.&nbsp;



Klippsten said he expected “buys” to be available on Wednesday night or Thursday, adding that new user sign ups could resume by the weekend.



Swan capped off its post by saying that the company would re-open in Texas in a “plan to return by July or August.” And the firm told customers that it’s “working on bringing Swan services to New York” within three to six months.&nbsp;



“Stay tuned for an email announcement!” Swan said.



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Swan Bitcoin Customers Struggle to Buy BTC

Bessie Liu

Decentralizing Ethereum layer-2 solutions has been an ongoing challenge for ecosystem participants, but Figment Capital thinks that distributed sequencer technology (DST) could put an end to this headache.



Sequencers are blockchain nodes run by layer-2 solutions to reach consensus. They are a critical tool to help build and propose blocks, and significantly reduce the cost to transact on Ethereum.&nbsp;



In today’s ecosystem, layer-2 solutions largely maintain only one sequencer — meaning that it is subject to centralization risks.&nbsp;



If rollups end up being centralized systems built on top of a decentralized network, then it defeats the purpose of having a decentralized system in the first place, Dougie DeLuca, an investor at Figment Capital, told Blockworks.



“We came up with a new idea for a potential sequencer design,” DeLuca explained. “What we’ve been ideating is a new solution that can essentially serve as a stop gap solution until a more complex and maximally decentralized design is available to be used.”



This design is largely similar to distributed validator technology (DVT), where the responsibilities of a validator are distributed across different operators or machines.



“Right now with validators you have one operator, one machine, and if a validator becomes compromised or goes offline, they would be subject to slashing conditions — which basically means they will get penalized for not doing the work that they’re supposed to do,” DeLuca said.&nbsp;



With DVT, you can have one validator being serviced by six different machines, DeLuca noted.&nbsp;



“What that accomplishes is fault tolerance, which means if one sub-validator cluster goes offline, the other five are still working as intended, so as a result we get a more resilient network,” he said.&nbsp;



DVT also enables features such as network geographic distribution — making networks less prone to regulatory risks and network outage (such as the <a href="https://blockworks.co/news/beacon-chain-temporarily-stops-finalizing">most recent Etheruem outage</a>).



Using DVT as a framework, DeLuca noted that he and other Figment team members had an idea of repurposing it for sequencers.



“There are people using it today who can testify that it works, so instead of thinking of a brand new design that would take forever to implement, let&#8217;s think of something that can be used in the mid-term…so just like DVT, DST can be applied to a single sequencer and it can distribute responsibilities of running the sequencer across a cluster of machines and operators,” he said.



Although Figment Capital will not be building out the technology themselves, DeLuca shared that Obol Network is currently having conversations with different rollup teams to explore the possibilities of this technology.



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Figment Wants to Bring Distributed Validator Technology to Sequencers

Casey Wagner

Binance’s auditor spotted red flags in the exchange’s business practices years ago, newly filed evidence in the SEC’s suit against the exchange shows.&nbsp;



Armanino, Binance’s accounting firm, recommended the exchange stop commingling client and company funds in 2022, court declarations entered Wednesday show. The auditor made a variety of other suggestions based on “significant deficiencies” found in the business’ practices.



In a letter sent to BAM Management US Holdings in May 2022, accounting firm Armanino warned the company that keeping client and customer funds in the same bank account could create regulatory issues down the line.&nbsp;



“We still encourage management to fully segregate all customer assets from corporate assets as a best practice as we expect future potential regulatory requirements in this area,” Armanino wrote in the letter.



Accountants found “significant deficiencies,” across several of Binance’s divisions throughout 2019, including incorrect financial reporting, poor safeguarding of assets and insufficient custodian controls, according to a letter sent to BAM dated May 27, 2020.&nbsp;



Binance poorly handled data, Armanino said, and had “issues in data integrity,” court documents reveal. Armanino advised the company to provide more transparency around data collection and implement better processes to ensure accuracy.&nbsp;



Regarding safeguarding assets, the auditor took issue with who held bank access at Binance. “Susan (from Binance.com),” who was not a C-suite level employee, acted as the “approver of the company’s account,” court documents show.&nbsp;&nbsp;



In terms of custodian controls, Armanino suggested in 2020 that Binance “should periodically inquire and test the controls to ensure the processes at the custodian are functioning as intended and reliable.”&nbsp;



Armanino <a href="https://blockworks.co/news/ftx-nexo-auditor-armanino-to-quit-crypto-after-8-years-report">stopped working with all crypto clients</a>, including FTX.US and Kraken, in December 2022 after FTX’s bankruptcy and subsequent legal troubles. Armanino had previously worked with various crypto clients since 2014.&nbsp;



The SEC announced charges against Binance and related companies, including Binance.US, BAM Trading and BAM Management US Holdings on Monday. The regulator alleges the exchange commingled client assets with company funds and violated US securities laws.



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Auditor Armanino Said Binance Mixed Company, Client Funds in 2021

James Cirrone

Binance.US has indefinitely suspended its over the counter trading platform following <a href="https://blockworks.co/news/binance-changpeng-zhao-face-sec-charges">an SEC lawsuit into its global counterpart Binance</a>, which has rocked the crypto world over the past three days.



The announcement came roughly three hours ago via a blog <a href="https://support.binance.us/hc/en-us/articles/15133607064983-Binance-US-Will-Remove-Select-Trading-Pairs-Has-Paused-OTC-Trading">post</a> on the Binance.US site. In it, the exchange told customers that it will notify them “if and when OTC trading becomes available again” in the coming weeks and months.&nbsp;



Deposits and withdrawals remain available, the blog post noted.&nbsp;



It’s important to note that shutting down OTC trading still means retail customers will have the ability to trade on the public exchange. OTC trading refers to instances where people are matched directly with buyers, and typically has the advantage of more liquidity. It’s usually reserved for institutional clients.



Other prominent US crypto exchanges including Kraken and Coinbase also maintain OTC desks, though neither — particularly Coinbase, a company <a href="https://blockworks.co/news/sec-sues-coinbase">facing a similar SEC crackdown</a> to Binance — have shut down their OTC services.&nbsp;



Binance.US also initially told customers that dozens of USDT trading pairs will be delisted from its advanced trading platform Thursday at 12 pm ET. 



Some notable UDST pairs set for removal included <a href="https://blockworks.co/price/aave">AAVE</a>, <a href="https://blockworks.co/price/mkr">MKR</a>, <a href="https://blockworks.co/price/mana">MANA</a>, and <a href="https://blockworks.co/price/sushi">SUSHI</a>, all of which were down more than 5% over the preceding 24 hours.



But later on Wednesday evening, Binance said it would no longer be delisting the tether pairs. &#8220;Following community feedback, Binance.US will no longer remove any USDT Advanced Trading pairs. All cryptocurrencies and USDT pairs remain available to trade.&#8221;



The advanced trading interface lets Binance.US users select which trading pair they’d like to use, and the feature is available to all users who have passed the basic verification process.&nbsp;



According to an April <a href="https://blog.binance.us/advanced-trading-redesign/">post</a>, there were 280+ trading pairs. With its latest rash of delistings, Binance.US has reduced that to 226.&nbsp;



Several bitcoin (BTC) and BUSD trading pairs were removed as well, but all USD trading pairs remain. Binance&#8217;s stablecoin BUSD is <a href="https://blockworks.co/news/paxos-to-cease-minting-new-busd-and-end-relationship-with-binance" target="_blank" rel="noreferrer noopener">set to be phased out</a> entirely over the next year by its issuing partner Paxos following an SEC Wells notice.



Binance&#8217;s BNB has tanked 8.5% over the past 24 hours and 15% over the past week.&nbsp;



Blockworks reached out to Binance.US but did not receive an immediate response.



Updated Jun. 8, 2023 at 4:28 am ET: Changed headline and added context following Binance&#8217;s update.



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Binance.US Pauses OTC Trading, Culls 8 Bitcoin Trading Pairs

Darren Kleine

Web3’s social media landscape is pretty chaotic, Chase Chapman says.



“I have struggled to adopt almost all <a href="https://blockworks.co/tag/web3">Web3</a> social platforms because I don&#8217;t need five versions of Twitter.”



It’s especially a barrier for consumers who feel at home in well-established, massive Web2 communities like Twitter or Instagram.



Chapman, the host of the On the Other Side podcast (<a href="https://open.spotify.com/episode/2UG7WCxmd752XWoSMohFm9?si=q5H0Ihu4S_mqwE5_vqFFRw">Spotify</a> / <a href="https://podcasts.apple.com/us/podcast/74-monetizing-web3-social-w-nir-kabessa/id1570685120?i=1000615998401">Apple</a>), spoke with Nir Kabessa, the co-founder of Web3 social network aggregator Yup, about the problem — and interestingly, the advantages — of fragmentation in the nascent space.



“It&#8217;s exciting and unfortunate simultaneously,” he says. The enormous amount of experimentation taking place in Web3 is a huge positive, he says, but the fact that social media is highly dependent on the network effect tends to limit the user experience.



With the growing variety of decentralized social protocols, it can be difficult to settle comfortably into the Web3 neighborhood. “Not having all your friends on the same platform or having only some of them on those platforms” is a source of friction, he says.



The path to success, Kabessa says, is to recognize that the <a href="https://blockworks.co/tag/evm">EVM</a> — the Ethereum virtual machine — is the underlying social network, rather than any of the competing individual protocols operating on it. 



“Twitter is our core competitor, rather than each other.”



<h2 class="wp-block-heading">The EVM as the social network</h2>



Instead of expecting a singular decentralized social network to take on the Twitters and Instagrams of the Web2 world, Kabessa sees the EVM as a whole competing against centralized platforms.&nbsp;



“There&#8217;s an enormous advantage in adopting each other&#8217;s standards” to make this possible, he says, citing <a href="https://www.farcaster.xyz/">Farcaster</a> and <a href="https://blockworks.co/tag/lens-protocol">Lens Protocol</a> as examples of platforms that are adopting an EVM identity with a common social graph.



“You&#8217;re signing in with Ether addresses to those platforms,” he says. In Lens Protocol’s case, Kabessa explains, minting, posting and other social activities take place on-chain. “I see every additional experiment like this is growing the EVM pie.”



Yup’s approach as a Web3 social aggregator is to gather in the variety of protocols to a singular interface, where the experience “feels much more uniform,” he says. “It&#8217;s not fragmented. They&#8217;re not missing any content from their friends that are hopping on these individual platforms.”



But even more importantly, he adds, users are not starting from scratch with their social graph of friends, followers and interests. “We already know a lot about them based on their on-chain activity and their behavior on these other platforms. So you really get this compounding value of bringing it all together.”



Kabessa explains that Yup provides a set of feeds from protocols like Lens, Farcaster, Mirror, and even from <a href="https://blockworks.co/tag/nfts">NFTs</a> and the decentralized social media platform, Bluesky.



“You&#8217;re able to essentially post once and it&#8217;ll post to all those platforms,” he says, allowing for comments on posts and engagement with friends across protocols. “Not only is the content of your friends all in one place, but you&#8217;re actually able to engage with it.”



Whereas the walled gardens of Web2 social media would never allow for such an integrated experience between disparate platforms, Web3 has no such limitations, according to Kabessa.



“And that&#8217;s a massive advantage.”



<h2 class="wp-block-heading">Time for a social media renaissance?</h2>



With protocols like Lens and Bluesky open-sourcing their apps, Kabessa says they’re trying to make it “as easy as possible for new developers to start building clients on top of it.”



“That&#8217;s going to lead to a renaissance of very feature-specific clients that people are very eager to use,” he says.



One example of this shift in thinking is a retro-web project called “Old Instagram,” that “gave you version one of Instagram,” Kabessa says.



<iframe loading="lazy" frameborder="0" height="200" scrolling="no" src="https://playlist.megaphone.fm/?e=BWG8457035718" width="100%"></iframe>







“It was doing really well on the app store until Facebook shut it down.”



“In this new world,” Kabessa says, “we&#8217;re gonna see a lot of examples of those things that I think will be really exciting. Like, give me the vintage version of Lens, or give me Farcaster with only the first thousand users, or give me a version of Bluesky that&#8217;s just videos.”



The ability to build at scale, he says, reliably knowing that the customized experiences won&#8217;t be restricted in some fashion “will incite people to build a lot of really exciting stuff.”



“And we&#8217;re already starting to see it a little bit.”



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Web3 Social Will Lead to a ‘Renaissance of Feature-specific’ Apps

Mantle Network is preparing for its mainnet launch. Earlier last month, the Ethereum layer-2 scaling solution, and BitDAO, the team building the rollup merged, forming the Mantle ecosystem.



Unlike other Ethereum layer-2s that exist today — such as optimistic or zero-knowledge rollups — Mantle is designed to be completely <a href="https://www.blockworksresearch.com/research/mantle-bitdaos-modular-ethereum-l2">modular</a>. 



This means that it outsources its data availability layer — the system that stores transaction data — rather than using Ethereum mainnet. Data storage represents the bulk of the cost of other layer-2s, and is one reason why <a href="https://blockworks.co/news/ethereum-cancun-upgrade-blobs">EIP-4844 or proto-danksharding</a> is so eagerly anticipated.



Although keeping data off of Ethereum mainnet <a href="https://blockworks.co/podcast/0xresearch/c0175a70-d863-11ed-8e0b-3fb41bc77b68">has its advantages</a>, such as drastically increasing efficiency, it also comes with a few downsides in the area of security and trustlessness.&nbsp;



This merger was a decision made by BitDAO to set the stage for future ecosystem products, according to head of ecosystem Arjun Kalsy.



BitDAO has one of the largest <a href="https://openorgs.info/">DAO treasuries</a> in crypto today, valued at nearly $3.7 billion, although 78% of that is currently held in the DAO’s own token (<a href="https://blockworks.co/price/bit">BIT</a>). This massive war chest is largely a result of its partnership with Singaporean centralized exchange ByBit which has pledged 25 basis points of all its futures trading volumes to BitDAO’s treasury.



BitDAO investments have been varied, so the motivation was to streamline the different moving parts in the ecosystem under one unified brand, Kalsy noted.&nbsp;



“If the user or the developer or the community is interacting with us, they should be interacting with one brand rather than interacting with a DAO with a separate token,” he said. “Which is when we decided on [one brand].”



As such, a new token in line with the Mantle brand (MNT) will also be issued. Kalsy notes that this decision was made because the existing BitDAO token is not designed for on-chain use and lacked critical functionality.



In contrast, MNT will be used for ecosystem participants to pay gas fees and contribute through ecosystem building through its grants program, Kalsy explained. It will also be used for staking — where staking is required in the ecosystem —&nbsp;and for voting on governance proposals.



“Essentially what we want to do with this entire ecosystem is we want to take one token, which is the MNT token, build new products, and then continue to keep building utility for that,” Kalsy said.



Staking will be a large focus moving forward for the new ecosystem, he said, citing the 13% treasury allocation to ETH that could be used to earn further revenue.



“What we felt was that we could create our own LSD protocol, we could stake our ETH that would give us yield, which we can use for ecosystem building, and so on and so forth,” he said.



BitDAO’s treasury contains $507 million in ETH and almost $300 million in stablecoins according to <a href="https://defillama.com/protocol/bitdao">DeFiLlama</a>.



The Mantle testnet has been live since January, and mainnet launch is estimated to occur sometime in July.&nbsp;



Kalsy claims there are now over 11,000 weekly active users on the Mantle testnet and around 92 deployed applications.



Although Mantle <a href="https://explorer.testnet.mantle.xyz/">testnet data</a> can not confirm Kalsy’s claims, at the time of writing, the testnet data does show that the network has processed over 10 million transactions, and seen almost 850K wallet addresses created.



It is also important to note that some of the deployed applications referenced in their ecosystem are not fully operational, though Kalsy notes this is because “testnets provide an iterative ‘beta’ environment for dApp builders to improve functionality and identify potential bugs.”



“The ‘live’ nature of such experimentation implies that these dapps will naturally vary in their maturity and readiness. After all, testnet phases are meant to iron any technical difficulties, big or small,” he said.



Kalsy could not “confirm or deny” if there will be an upcoming airdrop, but he notes that “we are looking to incentivize early users, especially folks who have been regularly doing transactions on the testnet.”



Existing BIT tokens will be converted to MNT prior to Mantle’s mainnet launch in Q3.



“The token conversion process is already underway, and holders will be able to access various <a href="https://discourse.bitdao.io/t/passed-bip-21-optimization-of-brand-token-and-tokenomics/5327">official token conversion</a> channels. Existing token holders have the option to convert their tokens anytime during the conversion period,” he said.



The token conversion process will ensure that existing holders continue to have governance rights, he notes.



A <a href="https://snapshot.org/#/bitdao.eth/proposal/0xe81f852d90ba80929b1f19683da14b334d63b31cb94e53249b8caed715475693">governance vote</a> authorized the brand and token conversion as well as a new tokenomics model “endorsed by the community” Kalsy said.



Voting authority in the DAO is delegated to a small subset of token holders, with nearly 100% of the unanimous vote in favor coming from 20 wallet addresses.



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Mantle Network Readies Mainnet, Fueled by BitDAO Largesse

When it comes to the blockchain application solutions that rule the roost in today’s industry, three general models have risen to dominance.&nbsp;



<a href="https://blockworks.co/tag/ethereum">Ethereum</a>, with its “<a href="https://blockworks.co/tag/layer-2-2">layer-2</a>” scaling solutions taking on specialized tasks, appears to be enjoying the most attention and adoption at the moment. Secondly, the higher throughput camp of protocols like <a href="https://blockworks.co/tag/solana">Solana</a>, <a href="https://blockworks.co/tag/aptos">Aptos</a>, and <a href="https://blockworks.co/tag/sui">Sui</a> has emerged, handling everything within a monolithic design. The third group tends to fly under the radar, with the “internet of blockchains” <a href="https://blockworks.co/tag/cosmos">Cosmos</a> interchain ecosystem being the most prominent example.



Sommelier Protocol co-founder, Zaki Manian, who helped build Cosmos, warned in a recent <a href="https://twitter.com/zmanian/status/1658152508571697152">tweet</a> that time is of the essence for the Cosmos ecosystem. The app-chain hub solution needs to break out from the shadows of its blockchain rivals and make its own mark, before all of its unique offerings are swallowed up by competitors, he said.



<figure class="wp-block-embed is-type-rich is-provider-twitter wp-block-embed-twitter"><div class="wp-block-embed__wrapper">
<blockquote class="twitter-tweet" data-width="550" data-dnt="true">I think Cosmos social capital has about 12 months to do something unique and differentiated otherwise we get swallowed by Eth flavored variants of Cosmos originated ideas like roll apps and Eigenlayer. I feel intense urgency. The hour is late.&mdash; Zaki ⚛️🍷 (@zmanian) <a href="https://twitter.com/zmanian/status/1658152508571697152?ref_src=twsrc%5Etfw">May 15, 2023</a></blockquote><script async src="https://platform.twitter.com/widgets.js" charset="utf-8"></script>
</div></figure>



The two co-founders of the Cosmos liquid staking company, Stride, Aiden Salzmann and Riley Edmund, spoke to Blockworks on the 0xResearch podcast (<a href="https://open.spotify.com/episode/3QtlRYmL1EuuUW1Ha5rdzU?si=fMUZ1_KMRcO4dJqtkRSfPg">Spotify</a> / <a href="https://podcasts.apple.com/us/podcast/liquid-staking-will-supercharge-cosmos-defi-aidan-salzmann/id1651683074?i=1000616036247">Apple</a>) about the comments and the urgency for Cosmos to stand out from the crowd.&nbsp;



“We debated this at length internally,” says Edmund. “Cosmos has a ton of new tech shipping over the next six months.”



Ethereum layer-2 solutions lack client-based interoperability and are not as trustless as Cosmos solutions, he says, “at least until something like ZK (<a href="https://blockworks.co/tag/zero-knowledge-rollup">Zero-Knowledge</a>) L2s” is further developed. Cosmos provides both <a href="https://blockworks.co/news/cosmos-hub-and-the-future-of-shared-security">shared security</a> and <a href="https://blockworks.co/news/interoperable-nft-standard-cosmos">interoperability</a> right now, he says.



Ethereum enjoys much broader distribution, Edmund concedes. “Cosmos doesn&#8217;t even have a Metamask yet.”



“ETH has so many more users,” Edmund says, adding that Ethereum has succeeded in achieving “institutional penetration” and already provides easy tools for custody. “Many teams choose to build roll-ups on Ethereum instead of app-chains for these reasons.”



“L2s have some of the most exciting partnerships in the entire digital asset space,” he says, pointing to Coinbase choosing to build the <a href="https://blockworks.co/news/coinbase-base-mainnet-launch-soon">Base layer-two protocol</a> with <a href="https://blockworks.co/tag/optimism">Optimism</a> <a href="https://blockworks.co/tag/rollups">rollup</a> technology on Ethereum as an example.



Yet, he cites “evidence of momentum” for Cosmos, as well.



<h2 class="wp-block-heading">Pent-up innovation</h2>



“On the Cosmos side, dYdX” — a decentralized exchange service that is <a href="https://blockworks.co/news/decentralized-exchange-dydx-to-build-its-own-blockchain">moving over to Cosmos</a> from Ethereum due to scaling limitations —&nbsp; “is coming in,” he says. Noble recently added the capacity for <a href="https://blockworks.co/news/cosmos-boards-defi-train">Circle integrations of the USDC stablecoin</a> in the Cosmos <a href="https://blockworks.co/tag/defi">DeFi</a> space, he adds.&nbsp;&nbsp;



Edmund goes on to list a range of additional developments in the Cosmos ecosystem, including innovations from Celestia and Metamask. It’s “a bunch of pent-up innovation that has been done over the past few years, but hasn&#8217;t quite shipped yet,” he says, “and we might see the fruits of that labor in the next three to six months.&nbsp;



Edmund says the impending developments might “totally change” how Cosmos is experienced and perceived by the “broader crypto world.”



Blockworks researcher Sam Martin agrees. “On the one hand,” he says, “you have all these awesome things occurring in Ethereum and its L2 ecosystem with partnerships like with Coinbase, Worldcoin, etcetera.”



On the other hand, Cosmos is finally adding “missing pieces” like native USDC, Martin says, along with <a href="https://blockworks.co/tag/liquid-staking">liquid-staking</a> support. “There&#8217;s just so many tailwinds for the Cosmos ecosystem.”



“It&#8217;s going to be the most interesting time there has ever been to pay attention to the Cosmos ecosystem.”



<iframe loading="lazy" frameborder="0" height="200" scrolling="no" src="https://playlist.megaphone.fm/?e=BWG5840569458" width="100%"></iframe>







Blockworks researcher Dan Smith sees the sense of urgency to make an impact as an industry-wide sentiment. “It&#8217;s hard to pick one ecosystem right now for me and be like, all right, the time must be now, because it kind of feels like for all of the industry, that&#8217;s where we&#8217;re at.”



Stride co-founder Aiden Salzmann acknowledges that Cosmos has “struggled” with navigating in a united direction, due in part to its multi-chain structure. “When everyone has their own chain and everyone&#8217;s sovereign, sometimes people are rowing in different directions.”



With the recent innovations like the <a href="https://blockworks.co/news/cosmos-greenlights-interchain-security">launch of interchange security</a> and some changes to Cosmos Hub tokenomics, Salzmann says “people are feeling this sense of urgency and maybe rowing a little bit more in the same direction.”



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‘Pent-Up Innovation’ Ready for Launch on Cosmos

Just after the SEC announced back-to-back lawsuits against major crypto exchanges Binance and Coinbase, crypto industry members and legal experts appeared before a majority Republican committee to engage in much more amicable dialogue.&nbsp;



The House Energy and Commerce Committee Subcommittee on Innovation, Data and Commerce gathered Wednesday to discuss blockchain technology and the future of Web3. Lawmakers focused on how to keep America at the forefront of crypto innovation, and use cases for different blockchain and distributed ledger technologies.&nbsp;



US lawmakers are making a mistake by allowing the conversation around crypto to be dominated by the security versus commodity debate, Rep. Rick Allen, R-Ga., said.&nbsp;



Blockchain technology could advance contract tracing efforts for Covid-19 and other diseases and improve security for data relating to national security, Hasshi Sudler, professor and CEO of Villanova University College’s engineering and internet think tank, said in his <a href="https://d1dth6e84htgma.cloudfront.net/IDC_Sudler_Testimony_Blockchain_Hearing_2023_06_07_41bd54f603.pdf?updated_at=2023-06-05T15:53:16.141Z">prepared testimony</a>.&nbsp;



Smart contracts could help improve regulatory compliance and supply chain management, Carla Reyes, associate law professor at SMU Dedman School of Law, added.&nbsp;



“Legislative and regulatory discussion related to blockchain technology generally centers on financial use cases,” Reyes said. “This hyper-focus on one segment of blockchain technology-related use cases…heightens the risk of discouraging useful innovation in areas unrelated to finance and financial services.” 



As witnesses and lawmakers speculated about potentially revolutionary blockchain innovations, the lack of regulatory clarity in the US continued to act as a dark cloud.&nbsp;



When asked how the US government could partner with the industry to advance modernization, witnesses mentioned that the current regulatory environment is a major barrier. 



“How the government approaches jurisdiction over blockchain entities” needs to be sorted out, Ross Schulman, senior decentralization fellow at the Electronic Frontier Foundation, said.&nbsp;



Top talent is not going to stay in or come to the US unless there is a major policy overhaul, Ryan Wyatt, president of Polygon Labs, added.&nbsp;



The hearing comes on the heels of a separate House hearing Tuesday, where the <a href="https://blockworks.co/news/coinbase-in-house-hot-seat">Agriculture Committee grilled exchange executives and former regulators</a> on compliance and consumer protection.&nbsp;



Wednesday’s energy and commerce hearing marks the first time lawmakers have hosted a crypto hearing that addressed non-financial use cases.&nbsp;



“While cryptocurrencies represent one application of this technology, the underlying technology merits further attention of the other new opportunities and applications it facilitates,” Committee Republicans said in a <a href="https://d1dth6e84htgma.cloudfront.net/IDC_Memo_Blockchain_Hearing_2023_06_07_4a7b8d6056.pdf?updated_at=2023-06-05T14:02:41.599Z">memo</a> ahead of the hearing. 



Capitol Hill has a busy crypto agenda this summer. The House Financial Services Committee will <a href="https://financialservices.house.gov/calendar/eventsingle.aspx?EventID=408851">meet again</a> on June 13 to discuss regulatory clarity and many Congress members on both sides of the aisle plot to <a href="https://blockworks.co/news/crypto-bills-make-hill-debut">introduce and advance legislation</a> in the coming months.



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House Hearing Tackles Non-financial Use Cases for Crypto

Katherine Ross

The SEC slapped both Binance and Coinbase with weighty lawsuits within 24 hours — but their content appears to hinge upon markedly different legal arguments. 



The US securities overseer also had to adopt its legal positioning to the complex structure of both crypto exchanges.&nbsp;



The SEC claims that <a href="https://blockworks.co/tag/coinbase">Coinbase</a> and the exchange’s holding company violated five laws, while Binance’s suit claims 13 violations. In addition to Binance, <a href="https://blockworks.co/tag/sec">SEC</a> attorneys named CEO Changpeng “CZ” Zhao as a defendant, along with BAM Trading Services and BAM Management US Holdings. 



Philip Moustakis, a partner at New York-based law firm Seward &amp; Kissel, told Blockworks that “the fundamental difference” between the two cases is that the SEC hit Coinbase with a “straight registration violations case.”



The SEC’s <a href="https://blockworks.co/tag/binance">Binance</a> lawsuit, meanwhile, filed on Monday one day prior to the regulator’s Coinbase action, contains a number of more complex allegations — which could be tied to more weighty consequences.&nbsp;



“The Binance suit, in addition to registration violations, includes allegations of fraud, market manipulation, commingling of investor funds, diversion of investment funds,” Moustakis said. “So they are different cases.”



Brian Armstrong, CEO of Coinbase, also <a href="https://blockworks.co/news/coinbase-responds-sec-lawsuit">clarified that the cases were different</a> in a tweet Tuesday afternoon.&nbsp;



“In case it’s not obvious, the Coinbase suit is very different from others out there – the complaint filed against us is exclusively focused on what is or is not a security. And we are confident in our facts and the law,” Armstrong <a href="https://twitter.com/brian_armstrong/status/1666129111025324035">tweeted</a>.



Both Binance and Coinbase have pushed back against their respective lawsuits.&nbsp;



“We respectfully disagree with the SEC’s allegations,” Binance told Blockworks in a statement. The exchange also denied that it “operated as an unregistered securities exchange or illegally offered and sold securities, including by offering BNB, or the BUSD fiat-backed stable coin.”



<h2 class="wp-block-heading">Latest SEC move against Binance, Coinbase&nbsp;</h2>



Both Binance and Coinbase have faced US legal action this year. Coinbase is currently locked in a legal battle with the SEC after it <a href="https://blockworks.co/news/sec-serves-coinbase-in-latest-alleged-crypto-securities-violation">was served with a Wells notice in March</a>.



Coinbase then <a href="https://www.coinbase.com/blog/we-asked-the-sec-for-reasonable-crypto-rules-for-americans-we-got-legal">sued</a> the SEC for clarity. When a <a href="https://blockworks.co/news/sec-responds-to-coinbase-request-for-action-no">court ordered the SEC to respond</a>, the SEC said, “deliberating over the kind of significant changes sought by Coinbase, which could affect both crypto assets and the securities markets more generally, takes time.”



Binance <a href="https://blockworks.co/news/bitcoin-and-ether-are-commodities-says-cftc-in-binance-lawsuit">was targeted by the Commodities Future Trading Commission</a> in a March 27 suit, with the CFTC directly naming Zhao and former chief compliance officer Samuel Lim. 



The action said that the exchange had unlawfully “operated a facility for the trading of futures, options, swaps, and leveraged retail commodity transactions involving digital assets that are commodities” for US customers.&nbsp;



Here’s a look at the differences — and similarities — between the SEC’s most recent lawsuits.



<h2 class="wp-block-heading">Coinbase</h2>



In <a href="https://blockworks.co/news/sec-sues-coinbase">Coinbase’s lawsuit, the SEC is targeting Coinbase</a> for allegedly operating as an unregistered exchange and offering unregistered securities.



The bulk of the 101-page doc focuses on 13 purported securities: SOL, ADA, MATIC, FIL, SAND, AXS, CHZ, FLOW, ICP, NEAR, VGX, DASH and NEXO.&nbsp;



Though several overlap with those listed in the Binance suit, the SEC delineates its arguments for deeming the cryptoassets securities in both legal actions.&nbsp;



For example, Polygon’s native token, <a href="https://blockworks.co/price/matic">MATIC</a>, is named in the suit — with the SEC using a 2021 tweet from Sandeep Nailwal, the protocol’s founder, as evidence that the “founders of Polygon continue to promote the platform through various social media.”&nbsp;



The two main allegations in the suit appear to fall closely in line with the SEC&#8217;s plan for Binance. The targeting of both exchanges&#8217; staking services is also quite similar. 



Here are the specific violations that the SEC names in the Coinbase suit:



<ul>
<li>Section 5 of the <a href="https://www.nyse.com/publicdocs/nyse/regulation/nyse/sea34.pdf">Exchange</a> Act, stating that Coinbase meets the criteria of an exchange and did “effect transactions in a security, or to report any such transaction, without registering as a national securities exchange.”</li>



<li>Section 15(a) of the Exchange Act, stating that Coinbase “is a broker and made use of the mails and the means and instrumentalities of interstate commerce to effect transactions in, or to induce or attempt to induce the purchase or sale of, securities, without registering as a broker, and without being exempted from such registration.”</li>



<li>Section 17A(b): Coinbase is said to have performed “the functions of a clearing agency with respect to securities, without registering” as required by The Exchange Act.</li>



<li>The suit claims that CGI violated sections 5, 15(a), 17A(b) of the Exchange Act as the controlling company behind Coinbase.&nbsp;</li>



<li>Coinbase allegedly violated Section 5(a) and 5(c) of the <a href="https://www.govinfo.gov/content/pkg/COMPS-1884/pdf/COMPS-1884.pdf">Securities</a> Act through the Staking Program by selling unregistered securities.</li>
</ul>



<h2 class="wp-block-heading">Binance</h2>



Like Coinbase, the staking program operated by Binance.US is in the SEC’s crosshairs.



“Since at least 2017, Binance and BAM Trading further violated the federal securities laws by illegally conducting unregistered offers and sales of securities to U.S. investors — in Binance’s case, the offers and sales of BNB, BUSD, Binance’s ‘BNB Vaul’” program, and Binance’s ‘Simple Earn’ program, and in BAM Trading’s case, the offer and sale of its staking-as-a-service program,” the suit alleges.&nbsp;



The <a href="https://blockworks.co/news/binance-changpeng-zhao-face-sec-charges">SEC claims Binance and BAM Trading</a> “have engaged and continue to engage in unregistered offers and sales of crypto asset securities.”



BNB and BUSD — Binance’s native tokens — are targeted alongside 10 tokens, which include SOL, ADA, MATIC, FIL, ATOM, SAND, MANA, ALGO, AXS and COTI. 



But the bulk of the lawsuit against Binance targets alleged internal fraud.&nbsp;



“Zhao directed Binance to assist certain high-value U.S. customers in circumventing those controls and to do so surreptitiously because—as Zhao himself acknowledged—Binance did not want to ‘be held accountable’ for these actions,” the filing claims.



It <a href="https://blockworks.co/news/binance-execs-unlicensed-securities-exchange">also cites multiple unnamed executives in the suit</a>, including a chief compliance officer who reportedly said, “We are operating as a fking unlicensed securities exchange in the USA bro.”



They also said, “we do not want [Binance].com to be regulated ever.”&nbsp;



Here are the specific violations that the SEC names in the Binance suit:



<ul>
<li>Section 5(a) and 5(c) of the Securities Act specifically against Binance for the unregistered sales of BNB.</li>



<li>Section 5(a) and 5(c) of the Securities Act, again against Binance, for unregistered sales of BUSD.&nbsp;</li>



<li>Binance also allegedly violated sections 5(a) and 5(c) of the Securities Act for its sale of Simple Earn and BNB Vault.</li>



<li>Section 5(a) and 5(c) violations against BAM Trading for its Staking Program.</li>



<li>Section 5 of the Exchange Act, stating that Binance.com did not register as an exchange.</li>



<li>Section 15(a) of the Exchange Act for Binance not registering Binance.com as a broker-dealer.</li>



<li>Section 17A(b) of the Exchange Act for Binance “failing to register” Binance.com as a clearing agency.</li>



<li>Section 5 of the Exchange Act for both Binance and BAM “failing to register” Binance.US as an exchange.&nbsp;</li>



<li>Section 15(a) of the Exchange Act for BAM Trading not registering Binance.US as a broker.&nbsp;</li>



<li>Both BAM Trading and Binance allegedly violated 17A(b) by not registering Binance.US as a clearing agency.&nbsp;</li>



<li>CZ allegedly violated Sections 5, 15(a) and 17A(b) of the Exchange Act as the “control person over Binance for the Binance.com Platform”</li>



<li>Another violation of Sections 5, 15(a) and 17A(B) against CZ as the “Control Person over Binance and BAM Trading for the Binance.US Platform Violations”</li>



<li>Sections 17(a)(2) and 17(a)(3) of the Securities Acts were allegedly violated by Bam Management and BAM Trading “engaged in one or more transactions, practices, or courses of business which operated or would operate as a fraud or deceit upon the purchaser.”</li>
</ul>



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‘Fundamental Difference’ Between SEC’s Binance, Coinbase Suits

The court overseeing the Coinbase v. SEC case — not to be confused with the SEC v. Coinbase case — is seeking clarity on whether or not the SEC, with its legal action against Coinbase, will be denying the exchange its request for clarity.



The court request comes after <a href="https://blockworks.co/tag/coinbase">Coinbase</a> filed a writ of mandamus, essentially asking the court to oversee the commission’s approach to regulating digital assets. 



The <a href="https://blockworks.co/tag/sec">SEC</a> is now being asked by the court to respond to a few points within seven days. The Court wants to know if the new suit against Coinbase means that the SEC is moving to deny its rulemaking petition, as well as whether the SEC needs more time to ponder the petition.



In addition, the court — in consideration of the writ of mandamus — wants the SEC to give an argument on why the court should not maintain jurisdiction which would allow it to order periodic reports as well as establish deadlines depending on how the SEC responds to the exchange. 



Coinbase’s chief legal officer, Paul Grewal, <a href="https://twitter.com/iampaulgrewal/status/1666234163110748160">tweeted</a>, “We continue to believe that rules of the road, from legislation or rulemaking or both, must come before enforcement actions. That is why we petitioned the SEC for rulemaking nearly a year ago in the first place.”



The SEC has previously been forced by the court to respond to a regulatory clarity request from Coinbase following <a href="https://blockworks.co/news/coinbase-sec-rulemaking-petition">Coinbase’s lawsuit against the commission</a> earlier this year.  



In a <a href="https://blockworks.co/news/sec-responds-to-coinbase-request-for-action-no">May response, the commission said</a>, “Deliberating over the kind of significant changes sought by Coinbase, which could affect both crypto assets and the securities markets more generally, takes time—including, as here, time to weigh whether or not to initiate a rulemaking proceeding about such topics in the first instance.”



The <a href="https://blockworks.co/news/sec-sues-coinbase">SEC filed a lawsuit against Coinbase</a> on Tuesday, June 6, and listed multiple charges against the exchange — including the sale of unlicensed securities and operating as an unregistered exchange.



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Court Requests Clarity from SEC on Coinbase’s Request for Clarity

US Treasury Secretary Janet Yellen said Wednesday morning that in light of the recent SEC lawsuits against <a href="https://blockworks.co/news/sec-sues-coinbase">Coinbase</a> and <a href="https://blockworks.co/news/binance-changpeng-zhao-face-sec-charges">Binance</a>, she supports American financial regulators’ attempts to “protect consumers and investors” who are involved in crypto.



“The SEC, the CFTC, and other regulators have the ability and tools to protect consumers and investors and I&#8217;m…very supportive of seeing those agencies use the tools they have,” Yellen said on CNBC’s Squawk Box.&nbsp;



Despite giving a thumbs up to the <a href="https://blockworks.co/tag/SEC">SEC</a> and the <a href="https://blockworks.co/tag/CFTC">CFTC</a>, which also <a href="https://blockworks.co/news/bitcoin-and-ether-are-commodities-says-cftc-in-binance-lawsuit">sued Binance back in late March</a>, Yellen declined to comment on the individual cases against Coinbase and Binance.



In her televised appearance, she appeared to reference the Treasury Department’s contributions to the Financial Stability Oversight Council’s (FSOC) report that warned about the risks of crypto. FSOC, which is also chaired by Yellen, determined in October 2022 that cryptocurrencies could “<a href="https://blockworks.co/news/crypto-could-pose-risks-to-us-stability-fed-adviser">pose risks to US stability, under certain conditions</a>.”&nbsp;&nbsp;



On top of supporting enforcement against crypto companies, <a href="https://blockworks.co/tag/janet-yellen">Yellen</a> said she wants to see Congress act. She said “additional regulation” for crypto firms is appropriate.



“I see some holes in the system where additional regulation I think would be appropriate,” Yellen said. “We would like to work with Congress to see additional legislation passed.”



So far, Congress hasn’t had much success legislating crypto; <a href="https://blockworks.co/news/crypto-regulation-policy-law">not a single bill has become law</a> as of yet, and the process remains split largely along party lines.&nbsp;



Most recently, a Republican draft bill introduced Reps. Patrick McHenry, R-N.C., and Glenn Thompson, R-Penn., would be a big step in resolving the ongoing dispute between the CFTC and the SEC over which tokens are securities or commodities. The bill, if passed, would allow token issuers to <a href="https://blockworks.co/news/house-republicans-referee-cftc-sec">petition for their currencies to be considered commodities</a>.



Much of Congress’ attention has been focused on cutting off CBDCs at the knees, with <a href="https://blockworks.co/news/crypto-bills-make-hill-debut">two different bills having been introduced</a> to that effect. The Digital Dollar Pilot Prevention Act was penned by Rep. Alex Mooney, R-W.V. and has 16 cosponsors, all of them Republicans.&nbsp;



And Rep. Tom Emmer, R-Minn., introduced his idea of a CBDC ban with the CBDC Anti-Surveillance State Act in February. It has 31 cosponsors — again, all of them Republican.



On the topic of stablecoins, Democrats and Republicans have each <a href="https://blockworks.co/news/waters-floats-stablecoin-bill">released their own draft bills</a>. On their face, the drafts from McHenry and California Democratic representative Maxine Waters are quite similar, but the Republicans’ bill would put more power in the hands of individual states. 



Blockworks previously reported that even bipartisan bills are struggling to navigate key committees and reach the floor for a proper vote. This includes the Responsible Financial Innovation Act, introduced last year by Sens. Cynthia Lummis, R-Wyo., and Kirsten Gillibrand, D-N.Y. The bill is focused on <a href="https://blockworks.co/news/gillibrand-lummis-revamped-crypto-bill">bringing digital assets into the legal fold of the US</a>, but so far hasn’t been reintroduced in the new congress.



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Yellen ‘Very Supportive’ of SEC, CFTC Crypto Enforcement

Over the last few months, the SEC has taken to unilaterally labeling certain crypto assets as securities in unrelated lawsuits. But some industry participants say the agency doesn’t understand the technology behind these tokens well enough to make this claim.&nbsp;



In its complaint <a href="https://blockworks.co/news/sec-sues-coinbase">alleging Coinbase violated securities laws</a>, the SEC listed 12 additional crypto tokens as securities.&nbsp;



The SEC’s suit against Coinbase, announced one day after similar charges were <a href="https://blockworks.co/news/binance-changpeng-zhao-face-sec-charges">unveiled against Binance</a>, focuses on claims that Coinbase facilitated trading of unregistered securities and operated unregistered brokerage services.&nbsp;



In the <a href="https://blockworks.co/tag/coinbase">Coinbase</a> lawsuit, the SEC claims that the following tokens are securities: ADA, CHZ, SOL, AXS, FIL, ICP, FLOW, NEAR, MATIC, VGX, SAND and DASH. 



As of time of publication, Coinbase had not delisted any of the above assets.&nbsp;



In its Binance complaint, the <a href="https://blockworks.co/news/sec-10-tokens-securities">SEC claims 10 tokens</a>, separate from the exchange’s native BNB and BUSD tokens, are securities. The tokens listed in the suit are: SOL, ADA, MATIC, FIL, ATOM, SAND, MANA, ALGO, AXS and COTI.&nbsp;



The <a href="https://blockworks.co/tag/sec">SEC</a>’s move to list tokens in these exchange lawsuits is not new. In its July 2022 <a href="https://blockworks.co/news/wahi-brothers-settlement-sec">lawsuit against a former Coinbase employee</a> for alleged insider trading, which settled on May 20, 2023, the SEC listed nine tokens as securities.&nbsp;



These nine tokens are: AMP, RLY, DDX, XYO, RGT, LCX, POWR, DFX and KROM. Coinbase has delisted only two of these tokens since the lawsuit was announced; Rally’s RLY and RGT, Rari’s governance token. 



<hr class="wp-block-separator has-alpha-channel-opacity"/>



<h2 class="wp-block-heading">News analysis by Bessie Liu</h2>



<h3 class="wp-block-heading">The SEC does not understand crypto tokens</h3>



The SEC has been declaring crypto assets securities — a designation that brings tokens into the same US regulatory fold as stocks and bonds.&nbsp;



The regulator’s reasoning is, however, opaque. And at least in some cases, erroneous. As demonstrated by the SEC’s <a href="https://storage.courtlistener.com/recap/gov.uscourts.dcd.256060/gov.uscourts.dcd.256060.1.0.pdf">lawsuit</a> against Binance on Monday, there are significant inaccuracies underpinning the agency’s move.&nbsp;



It all adds up to a demonstration that the SEC has a general lack of understanding when it comes to the relationship between individual tokens and protocols.&nbsp;



For example, the SEC has <a href="https://storage.courtlistener.com/recap/gov.uscourts.dcd.256060/gov.uscourts.dcd.256060.1.0.pdf">claimed</a> that the “New Tendermint” is a significant contributor to the ATOM token.



“That’s not true, just because someone has made a website and claims they contribute to Cosmos, doesn’t mean they contribute to Cosmos,” Zaki Manian, the cofounder of Sommelier Finance, a protocol in the Cosmos ecosystem, told Blockworks on Tuesday.&nbsp;



Another instance: The SEC has said the Interchain Foundation sold ATOM tokens in 2017.&nbsp;



The Cosmos Hub, the issuer of the ATOM token, <a href="https://blog.cosmos.network/cosmos-hub-to-launch-mainnet-a453d2247a34">launched in March 2019</a>, and ATOM tokens were not transferable at launch — meaning they could not be bought or sold. It was not until April 2019, after a hard fork that transfers were enabled.&nbsp;&nbsp;



“There’s a lot of history to the Cosmos approach to compliance, what you see from the SEC is a very superficial and largely inaccurate characterization of blockchain networks,” Manian said.



<figure class="wp-block-embed is-type-rich is-provider-twitter wp-block-embed-twitter"><div class="wp-block-embed__wrapper">
<blockquote class="twitter-tweet" data-width="550" data-dnt="true">The SEC’s facts on ATOM are pretty poorly researched. The SEC claims that ATOMs were sold in 2017. No one received an ATOM until April 2019 when the network voted to enable transfers. The claim NewTendermint is a significant contributor to Cosmos. No contribution occurred.&mdash; Zaki ⚛️🍷 (@zmanian) <a href="https://twitter.com/zmanian/status/1665778966043475971?ref_src=twsrc%5Etfw">June 5, 2023</a></blockquote><script async src="https://platform.twitter.com/widgets.js" charset="utf-8"></script>
</div></figure>



The ATOM token itself, according to Manian, does not meet the SEC’s standard to be a security, as determined by the Howey test, because the founding entity of the project has collapsed.&nbsp;



One characteristic of the Howey test is that investors can reasonably expect growth “derived from the efforts of others.” There is also an expectation of profit under Howey — often from the security’s originators.



When it comes to ATOM, though, many contributors to its fundraise were also developers behind the project. Thus, the developers of the network and the investors were, at least in some cases, one and the same.



“In the history of Cosmos we recruited as many of the people who had been in the fundraiser as possible, to work, to run nodes and testnets and help build the project, build infrastructure during the launch of every step of way,” Manian said.



<h3 class="wp-block-heading">‘Deflationary model’ token test incorrectly applied</h3>



When it comes to other tokens, including SOL and MATIC, the SEC has designated them securities at least partly due to their “deflationary model.”&nbsp;



Referring to <a href="https://blockworks.co/price/SOL">SOL</a>, the SEC <a href="https://storage.courtlistener.com/recap/gov.uscourts.dcd.256060/gov.uscourts.dcd.256060.1.0.pdf">wrote</a> that “this marketed burning of SOL as part of the Solana network’s ‘deflationary mechanism’ has led investors to reasonably view their purchase of SOL as having the potential for profit to the extent there is a built-in mechanism to decrease the supply and therefore increase the price of SOL.”



However, in the article <a href="https://www.gemini.com/cryptopedia/solana-blockchain#section-sol-token-structure-and-economics">cited</a> by the SEC to support their claim, the author, Anatoly Yakovenko, clearly states that SOL ‘transaction fees’ are burned, a distinction the SEC overlooks but that is critical to the <a href="https://docs.solana.com/transaction_fees">operation</a> of the blockchain, and which is described in more detail below.



The Solana Foundation has noted in its economic <a href="https://docs.solana.com/inflation/inflation_schedule">documents</a> that its token is an inflationary asset. In fact, the SOL token has always been <a href="https://messari.io/asset/solana/chart/sply-circ">inflationary</a>.&nbsp;&nbsp;



<figure class="wp-block-image size-large"><img decoding="async" loading="lazy" width="1152" height="591" src="https://blockworks-co.imgix.net/wp-content/uploads/2023/06/image-8.png?w=1024&amp;h=1024" alt="" class="wp-image-58200" srcset="https://blockworks-co.imgix.net/wp-content/uploads/2023/06/image-8.png?w=1152 1152w, https://blockworks-co.imgix.net/wp-content/uploads/2023/06/image-8.png?w=300 300w, https://blockworks-co.imgix.net/wp-content/uploads/2023/06/image-8.png?w=1024 1024w, https://blockworks-co.imgix.net/wp-content/uploads/2023/06/image-8.png?w=768 768w, https://blockworks-co.imgix.net/wp-content/uploads/2023/06/image-8.png?w=428 428w, https://blockworks-co.imgix.net/wp-content/uploads/2023/06/image-8.png?w=470 470w, https://blockworks-co.imgix.net/wp-content/uploads/2023/06/image-8.png?w=389 389w, https://blockworks-co.imgix.net/wp-content/uploads/2023/06/image-8.png?w=80 80w" sizes="(max-width: 1152px) 100vw, 1152px" /><figcaption class="wp-element-caption">SOL circulating supply | Source: Messari</figcaption></figure>



The SEC drew comparisons to Polygon’s <a href="https://blockworks.co/price/matic">MATIC</a> token. The regulator has claimed that <a href="https://blockworks.co/tag/polygon">Polygon</a> has also marketed that it “burns” MATIC tokens accumulated as fees, indicating that the total supply of MATIC would decrease.”



But the SEC fails to understand something critical to the way blockchains work.&nbsp;



These “deflationary models” use a similar price modulation technique to Ethereum’s <a href="https://eips.ethereum.org/EIPS/eip-1559">EIP-1559 </a>— a fee-burning mechanism intended to minimize congestion. It’s designed to prevent block builders from manipulating fees in a bid to extract more from protocol users.&nbsp;



Polygon’s MATIC, in particular, is designed almost as a <a href="https://forum.polygon.technology/t/eip1559-london-fork-on-mainnet/549">copy-paste</a> from Ethereum.&nbsp;



“If EIP-1559 is a concern, then it’s going to be a concern for Ethereum too because it works exactly the same way,” Matt Cutler, co-founder and CEO of Web3 infrastructure company Blocknative, told Blockworks.&nbsp;



<h3 class="wp-block-heading">ETH gas fees…</h3>



Prior to EIP-1559, gas fees on Ethereum were purely market-based, meaning that everyone paid a gas fee associated with their transaction and whoever paid the most had their transaction included in the blockspace, a situation that created many negative externalities, Cutler said.



“Two trading bots could adversely affect the price of gas fees of the entire network,” he explained.&nbsp;



This in turn made gas prices unpredictable and raised concerns about the idea that privileged actors were able to influence the prices.



EIP-1559 was designed to introduce a base fee — which meant that for your transaction to be included on chain, you must pay the fee.



A base fee is set by the network and must be paid in the network’s native token — so in the case of Polygon, the fee would be paid in MATIC.



“This makes the price much more predictable, and the basic idea is this modulates issuance,” Cutler said.&nbsp;



It is important to note that in the case of ETH, EIP-1559 does not make the asset itself deflationary as it is dependent on marketplace demand. Although it does reduce supply, the rate of issuance of ETH continues to increase, Cutler notes.&nbsp;



Although one could argue that MATIC’s fixed supply could imply that the token has a “<a href="https://storage.courtlistener.com/recap/gov.uscourts.dcd.256060/gov.uscourts.dcd.256060.1.0.pdf">deflationary effect</a>,” its reason for burning tokens is much more complex.



“[The SEC] takes a very narrow piece of a pretty big topic and says it&#8217;s an issue without taking into account all the other reasoning and benefits for doing so. EIP-1559 does not exist purely as a price up. It is a more effective mechanism, a more equitable mechanism and an easier to work with mechanism than that which came before it,” Cutler said.



President of Polygon Labs Ryan Wyatt will also be <a href="https://d1dth6e84htgma.cloudfront.net/IDC_Wyatt_Testimony_Blockchain_Hearing_2023_06_07_e9c81155cb.pdf?updated_at=2023-06-05T15:54:09.404Z">sharing testimony</a> in Washington, DC, today.&nbsp;



“I’ll discuss the critical role Web3 and blockchain infrastructure play in protecting users and ensuring privacy, and share positive use cases,” Wyatt said.



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The SEC Says These Crypto Assets Are Securities: Their Reasoning Is Wrong

Brian Brooks, the former CEO of Binance.US, was cited in a transcript linked to exhibit documents in the SEC’s case against Binance, BAM Trading, BAM Management and Binance CEO Changpeng “CZ” Zhao.



When discussing his role as head of Binance.US, Brooks said, “I did not work for Binance.com, that nobody at Binance.com was my boss, and that my role was to complete and highlight the corporate separateness. So when I talked to CZ, I considered myself to be talking to him in his role as board chair BAM Trading.”



“What became clear to me at a certain point was [that] CZ was the CEO of BAM Trading, not me…That wasn&#8217;t because Binance.com somehow controlled us, but again, he owns the vast majority of Binance.com so I put that aside,” he continued.



Brooks was the CEO of Binance.US from May 2021 to August 2021. In a deleted tweet, Brooks said that <a href="https://blockworks.co/news/brian-brooks-resigns-as-binanceus-ceo">he resigned because of</a> “differences over strategic direction.”



On Monday, the <a href="https://blockworks.co/news/binance-changpeng-zhao-face-sec-charges">SEC filed a lawsuit against Binance</a> with 13 charges, as well as allegations of fraud and commingling customer assets.&nbsp;



Among the charges, <a href="https://blockworks.co/news/binance-execs-unlicensed-securities-exchange">the filing quotes multiple unnamed Binance executives</a> as acknowledging that they were running Binance.com “as an unregistered securities exchange in the USA” and quoted Zhao as actively seeking ways to keep “VIP” customers.



“We don’t want to lose all the VIPs which actually contribute to quite a large number of volume. So ideally we would help them facilitate registering companies or moving the trading volume offshore in some way—in a way that we can accept without them being labeled completely U.S. to us,” he allegedly said in June 2019 during a “weekly meeting of senior Binance officials.”



Binance said it was “disheartened” and “disappointed” <a href="https://blockworks.co/news/binance-pushes-back-sec-lawsuit">with the SEC’s lawsuit and said</a>, “Most recently, we have engaged in extensive good-faith discussions to reach a negotiated settlement to resolve their investigations. But despite our efforts, with its complaint…the SEC abandoned that process and instead chose to act unilaterally and litigate.”



The SEC also <a href="https://blockworks.co/news/binance-us-sec-assets-freeze">filed a temporary restraining order</a> against Binance, BAM Trading and BAM Management — both of which supposedly oversee Binance.US separately from Binance.com.&nbsp;



The temporary restraining order, if granted, would seek to freeze the assets of BAM Trading and BAM Management.



Binance did not immediately respond to a request for comment.



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Ex-Binance.US CEO Says CZ Was ‘CEO of BAM Trading’: Court Docs

David Canellis

The SEC is at it again.



Gary Gensler’s securities watchdog says Coinbase and Binance, the two most dominant crypto exchanges, <a href="https://blockworks.co/news/sec-sues-coinbase">have been</a> up to <a href="https://blockworks.co/news/sec-10-tokens-securities">no good</a>.



Binance allegedly traded against its own customers through subsidiary market makers, while commingling user assets with its own — a big no-no, if true.



But most of the charges (all civil, not criminal) focus on the kind of stuff abhorrent to hall monitor types: supporting trade for unregistered crypto securities.



Exactly what constitutes a crypto security has escaped entrepreneurial startups and their legal teams over the past decade or so.&nbsp;



After suing a handful of token issuers throughout the 2016-2017 initial coin offering boom, the SEC tried its hand at clarity more than a year after the bubble popped.



With a 14-page manifesto, it sought to outline exactly how digital assets might pass the Howey test; a 77-year-old check list for determining when investing in an orange grove becomes an investment contract.



Industry insiders deride those efforts as unclear, <a href="https://blockworks.co/news/sec-crypto-guidance-outdated">out of touch</a>, or unreasonable. Or they <a href="https://twitter.com/brian_armstrong/status/1435439676429537281" target="_blank" rel="noreferrer noopener">ignore</a> the document entirely.&nbsp;



So, when the SEC rattled off 13 cryptocurrencies considered securities in the Coinbase lawsuit, keen observers may have sought a method to the madness.



Round them all up and no realistic pattern appears. There’s native tokens for nine layer-1 blockchains, including Cardano (<a href="https://blockworks.co/price/ada" target="_blank" rel="noreferrer noopener">ADA</a>), Solana (<a href="https://blockworks.co/price/sol" target="_blank" rel="noreferrer noopener">SOL</a>), Filecoin (<a href="https://blockworks.co/price/fil" target="_blank" rel="noreferrer noopener">FIL</a>) and Polygon (<a href="https://blockworks.co/price/matic" target="_blank" rel="noreferrer noopener">MATIC</a>).&nbsp;



(Yes, Polygon is a <a href="https://blockworks.co/news/polygon-trust-crypto-economy-etf-hit-the-market">layer-1</a>!)



There are also four ERC-20 tokens: crypto lending assets <a href="https://blockworks.co/price/nexo" target="_blank" rel="noreferrer noopener">NEXO</a> and <a href="https://blockworks.co/price/vgx" target="_blank" rel="noreferrer noopener">VGX</a>, and cryptocurrencies powering blockchain games Axie Infinity (<a href="https://blockworks.co/price/axs" target="_blank" rel="noreferrer noopener">AXS</a>) and The Sandbox (<a href="https://blockworks.co/price/sand" target="_blank" rel="noreferrer noopener">SAND</a>).



Eight of the 13 ran public token offerings. Four conducted private token sales as part of fundraising. So, it mustn’t be an ICO thing.



Granted, all the native tokens utilize some form of proof of stake in their consensus models — including <a href="https://blockworks.co/price/dash" target="_blank" rel="noreferrer noopener">DASH</a> — even though it’s technically a Bitcoin fork. But so too does Ethereum these days, although its <a href="https://blockworks.co/news/ethereum-to-reach-500000-validators" target="_blank" rel="noreferrer noopener">network</a> is markedly more decentralized than the <a href="https://nakaflow.io/" target="_blank" rel="noreferrer noopener">likes</a> of Chiliz (<a href="https://blockworks.co/price/chz" target="_blank" rel="noreferrer noopener">CHZ</a>) and <a href="https://blockworks.co/price/near" target="_blank" rel="noreferrer noopener">NEAR</a>.



Muddying the waters is that the suit aimed at Binance one day earlier presents a slightly different list. That array includes the native token for Binance&#8217;s branded blockchain, <a href="https://blockworks.co/price/bnb" target="_blank" rel="noreferrer noopener">BNB</a>, as well as Algorand’s <a href="https://blockworks.co/price/algo" target="_blank" rel="noreferrer noopener">ALGO</a> and Cosmos’ <a href="https://blockworks.co/price/atom" target="_blank" rel="noreferrer noopener">ATOM</a>. There’s also Decentraland’s <a href="https://blockworks.co/price/mana" target="_blank" rel="noreferrer noopener">MANA</a> — a rival to SAND.



<figure class="wp-block-image size-large"><img decoding="async" loading="lazy" width="1353" height="899" src="https://blockworks-co.imgix.net/wp-content/uploads/2023/06/binance-coinbase-tokens.jpg?w=1024&amp;h=1024" alt="" class="wp-image-58189" srcset="https://blockworks-co.imgix.net/wp-content/uploads/2023/06/binance-coinbase-tokens.jpg?w=1353 1353w, https://blockworks-co.imgix.net/wp-content/uploads/2023/06/binance-coinbase-tokens.jpg?w=300 300w, https://blockworks-co.imgix.net/wp-content/uploads/2023/06/binance-coinbase-tokens.jpg?w=1024 1024w, https://blockworks-co.imgix.net/wp-content/uploads/2023/06/binance-coinbase-tokens.jpg?w=768 768w, https://blockworks-co.imgix.net/wp-content/uploads/2023/06/binance-coinbase-tokens.jpg?w=387 387w, https://blockworks-co.imgix.net/wp-content/uploads/2023/06/binance-coinbase-tokens.jpg?w=393 393w, https://blockworks-co.imgix.net/wp-content/uploads/2023/06/binance-coinbase-tokens.jpg?w=330 330w, https://blockworks-co.imgix.net/wp-content/uploads/2023/06/binance-coinbase-tokens.jpg?w=80 80w" sizes="(max-width: 1353px) 100vw, 1353px" /><figcaption class="wp-element-caption">Tokens targeted by the SEC as securities in recent lawsuits against Binance and Coinbase</figcaption></figure>



Some discrepancies are somewhat expected, considering the two platforms support different markets. Coinbase doesn’t list BNB, for example. But it does list ATOM.



What gives? Well, page 25 of the SEC’s Coinbase <a href="https://storage.courtlistener.com/recap/gov.uscourts.nysd.599908/gov.uscourts.nysd.599908.1.0.pdf" target="_blank" rel="noreferrer noopener">complaint</a> might reveal the extent of the agency’s careful legal analysis.



A <a href="https://twitter.com/__tux/status/1666090281224265731" target="_blank" rel="noreferrer noopener">screenshot</a> of Coinbase’s website shows 12 of the 13 tokens listed in the lawsuit offered as tradeable cryptocurrencies, in a manner similar to CoinMarketCap.



<figure class="wp-block-image size-large"><img decoding="async" loading="lazy" width="1140" height="1142" src="https://blockworks-co.imgix.net/wp-content/uploads/2023/06/coinbase-tokens.jpg?w=1024&amp;h=1024" alt="" class="wp-image-58193" srcset="https://blockworks-co.imgix.net/wp-content/uploads/2023/06/coinbase-tokens.jpg?w=1140 1140w, https://blockworks-co.imgix.net/wp-content/uploads/2023/06/coinbase-tokens.jpg?w=300 300w, https://blockworks-co.imgix.net/wp-content/uploads/2023/06/coinbase-tokens.jpg?w=1022 1022w, https://blockworks-co.imgix.net/wp-content/uploads/2023/06/coinbase-tokens.jpg?w=150 150w, https://blockworks-co.imgix.net/wp-content/uploads/2023/06/coinbase-tokens.jpg?w=768 768w, https://blockworks-co.imgix.net/wp-content/uploads/2023/06/coinbase-tokens.jpg?w=257 257w, https://blockworks-co.imgix.net/wp-content/uploads/2023/06/coinbase-tokens.jpg?w=261 261w, https://blockworks-co.imgix.net/wp-content/uploads/2023/06/coinbase-tokens.jpg?w=219 219w, https://blockworks-co.imgix.net/wp-content/uploads/2023/06/coinbase-tokens.jpg?w=80 80w" sizes="(max-width: 1140px) 100vw, 1140px" /><figcaption class="wp-element-caption">Coinbase’s website is the new Howey test?</figcaption></figure>



It would be a mighty convenient coincidence for the SEC to conclude that each token was a security, all on its own, with no discernible similarities between them, only to open up Coinbase’s website and see them all offered alongside each other in a single screen.



The only token missing between the screenshot and the Coinbase suit is NEXO. Coinbase’s website lists 30 assets per page. The screenshot only shows 12. It could simply be that NEXO didn’t fit.



To make matters worse, the SEC may well have done exactly the same thing in its Binance suit. Take ATOM, for instance. Both platforms list the token, but the SEC only included it in its Binance filing. Why wouldn’t the SEC label ATOM a security across both suits?



The canary in the coalmine could be COTI, the native token of the self-style “enterprise layer-1” network, which found itself listed alongside MATIC and ADA — despite it commanding a micro-market cap of just $71 million.&nbsp;



Perhaps, rather than clicking on the “Tradable” tab to determine which tokens are securities, the SEC stumbled across COTI after it was briefly ranked as a top gainer or loser on Binance&#8217;s own website.



Crypto entrepreneurs have long wondered if cryptocurrencies realistically map to the Howey test. Perhaps they can, or maybe they can’t.&nbsp;



Let’s just rename it to the “HTML test” and be done with it.



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Did the SEC Just Label Everything On Coinbase’s Front Page a Security?

Shalini Nagarajan

After being sued by the Securities &amp; Exchange Commission (SEC), Binance now faces a class-action lawsuit for allegedly profiting from transactions involving stolen cryptocurrency.



On June 5, law firm Silver Miller along with co-counsel Kopelowitz Ostrow filed the collective action against Binance and its US-based counterpart operator BAM Trading.&nbsp;



As a perquisite, it states that there are more than 100 members of the putative class and the total amount in controversy exceeds $5 million.



Michael Osterer, a resident of New York, serves as the primary plaintiff. He alleges <a href="https://www.silvermillerlaw.com/wp-content/uploads/2023/06/DE1-COMPLAINT-Class-Action-Complaint-against-All-Defendants-01456752xC1DD2.pdf" target="_blank" rel="noreferrer noopener">in a court document</a> that he lost 7.2 bitcoin (<a href="https://blockworks.co/price/btc" target="_blank" rel="noreferrer noopener">BTC</a>) and 449 ether (<a href="https://blockworks.co/price/eth" target="_blank" rel="noreferrer noopener">ETH</a>), valued at over $1 million at the time of the filing, from his Coinbase account in April 2021.



He further claimed that these funds were subsequently deposited in Binance without undergoing the necessary Know Your Customer (KYC) procedures to verify lawful ownership.



The lawsuit cites multiple allegations made in both the <a href="https://blockworks.co/news/bitcoin-and-ether-are-commodities-says-cftc-in-binance-lawsuit">Commodity Futures Trading Commission&#8217;s case</a> and the <a href="https://blockworks.co/news/sec-allegations-against-binance">SEC&#8217;s case</a> against Binance as supporting evidence to establish that US citizens engage in the unauthorized use of Binance.



The plaintiff stresses that Binance is well aware of US-based users using VPN services to access its platform, despite the existence of BAM.



“Binance has a strong monetary incentive to encourage, facilitate, and allow as many transactions on its exchange as possible — even transactions involving stolen cryptocurrency,” the filing states.



“Binance has turned a blind eye to the wide variety of money and cryptocurrency laundering from around the globe it knowingly facilitates through its platform.”



Binance also allowed thieves to launder stolen cryptocurrency by neglecting to establish security measures to verify the lawful ownership of cryptocurrency held in Binance accounts, the lawsuit alleges. This includes the accounts where the plaintiff&#8217;s stolen cryptocurrency was deposited.



To date, Binance has allegedly enabled money laundering by permitting deposits and withdrawals of up to 2 bitcoin per day on the Binance.com exchange without any form of identification verification, according to the case. Blockworks has reached out to Binance for comment.



The lawsuit invites US residents who have encountered an account breach resulting in crypto theft and are interested in investigating the potential laundering of stolen crypto through Binance to contact Silver Miller. It seeks compensation for the plaintiff and other class members in accordance with applicable laws.



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