Polylastic

Shalini Nagarajan

French luxury fashion brand Louis Vuitton launched a limited edition NFT collection, with each piece in the “Treasure Trunk” collection priced at €39,000 ($41,693). The collection offers select customers an exclusive opportunity to unlock forthcoming products and experiences.



Louis Vuitton&#8217;s NFT launch, called &#8220;Via,&#8221; aims to offer an exclusive gateway to unique products and experiences unavailable to anyone else, according to a <a href="https://press.louisvuitton.com/corporate/louis-vuitton-embraces-the-legacy-of-its-future-through-via-a-first-of-its-kind-trunk/?lang=en" target="_blank" rel="noreferrer noopener">statement</a> released on Tuesday.



In the world of branded NFT projects, it&#8217;s now a popular trend to make hard-to-get and pricey NFTs the ultimate keys to unlock a bunch of cool stuff and unique experiences, both in the real world and online.



Starting June 8, customers in the US, Canada, France, UK, Germany, Japan, and Australia can join a waitlist on a dedicated website to purchase the Louis Vuitton trunks through the Via project.&nbsp;



After connecting their crypto wallets and providing personal details, selected registrants will have the opportunity to explore Via on a private webpage from June 14. From June 16, they can purchase their Via Treasure Trunk using crypto or fiat currency. Participants will soon after receive a specially crafted physical replica of their trunk.



These trunks, available for over 160 years, can be quite pricey, costing tens of thousands of dollars.


<div class="wp-block-image">
<figure class="alignleft size-large is-resized"><img decoding="async" loading="lazy" src="https://blockworks-co.imgix.net/wp-content/uploads/2023/06/Louis-Vuitton-Web3-nft.jpg?w=1024&amp;h=1024" alt="Louis Vuitton Web3 NFT" class="wp-image-58168" width="840" height="472" srcset="https://blockworks-co.imgix.net/wp-content/uploads/2023/06/Louis-Vuitton-Web3-nft.jpg?w=1600 1600w, https://blockworks-co.imgix.net/wp-content/uploads/2023/06/Louis-Vuitton-Web3-nft.jpg?w=300 300w, https://blockworks-co.imgix.net/wp-content/uploads/2023/06/Louis-Vuitton-Web3-nft.jpg?w=1024 1024w, https://blockworks-co.imgix.net/wp-content/uploads/2023/06/Louis-Vuitton-Web3-nft.jpg?w=768 768w, https://blockworks-co.imgix.net/wp-content/uploads/2023/06/Louis-Vuitton-Web3-nft.jpg?w=1536 1536w, https://blockworks-co.imgix.net/wp-content/uploads/2023/06/Louis-Vuitton-Web3-nft.jpg?w=428 428w, https://blockworks-co.imgix.net/wp-content/uploads/2023/06/Louis-Vuitton-Web3-nft.jpg?w=464 464w, https://blockworks-co.imgix.net/wp-content/uploads/2023/06/Louis-Vuitton-Web3-nft.jpg?w=389 389w, https://blockworks-co.imgix.net/wp-content/uploads/2023/06/Louis-Vuitton-Web3-nft.jpg?w=80 80w" sizes="(max-width: 840px) 100vw, 840px" /><figcaption class="wp-element-caption">Source: Louis Vuitton</figcaption></figure></div>


Louis Vuitton has some strict rules in place to prohibit holders from selling or transferring the Via trunks. Holders can&#8217;t sell or give it to someone else, unlike many other exclusive communities.&nbsp;



They’re calling it a &#8220;soul-bound collectible&#8221; as it uses non-transferrable NFTs — often called <a href="https://blockworks.co/news/what-is-decentralized-identity">soulbound tokens</a> —&nbsp;to encourage loyalty and prevent quick reselling. Also, once you buy a Treasure Trunk, you can&#8217;t return it, except in EU countries where, by law, you can change your mind within 14 days of ordering.



Louis Vuitton&#8217;s latest NFT project is a big change from its previous one, called <a href="https://twitter.com/Blockworks_/status/1598316526720806912" target="_blank" rel="noreferrer noopener">Louis The Game</a>, which aimed to educate players about the brand&#8217;s history through interactive gameplay.



Last year, LVMH CEO Bernard Arnault suggested that using technologies like NFTs with high-value items <a href="https://blockworks.co/news/bernard-arnault-owns-nfts">could be beneficial</a> for the brand. He said he recognized the positive impact of well-executed applications of the metaverse and NFTs, and indicated that the brand&#8217;s focus is on maintaining exclusivity and value in their NFT offerings.



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Louis Vuitton Selling $41K NFTs That Can’t Be Resold

James Cirrone

Ben Strack

A collection of states are going after Coinbase for alleged securities violations, yet another blow to the American crypto exchange after <a href="https://blockworks.co/news/sec-sues-coinbase">the Tuesday SEC lawsuit</a>.&nbsp;



Securities regulators from Alabama, California, Illinois, Kentucky, Maryland, New Jersey, South Carolina, Vermont, Washington and Wisconsin are part of a task force aimed at Coinbase’s trading and staking services.&nbsp;



A number of the states noted in news releases that Coinbase’s staking program is not insured by the Federal Deposit Insurance Corporation (FDIC) or the Securities Investor Protection Corporation (SIPC).



Various “show cause” <a href="https://asc.alabama.gov/News/2023%20News/6-6-2023_Coinbase.pdf">orders</a> — such as the one <a href="https://blockworks.co/news/coinbase-staking-program-targeted">issued by the Alabama Securities Commission</a> (ASC) — served to amplify the impact of the SEC’s lawsuit against Coinbase, according to Mark Palmer, a research analyst at Berenberg Capital Markets.&nbsp;



“The orders mean that Coinbase will have to offer a defense of its staking operations within the next 28 days, with the knowledge that its ability to operate in those states is likely to be curtailed,” Palmer said. “Coinbase is also likely to be asked about the size of the commissions that the company charges on staking, which are much larger than average, and the associated disclosures.”



The ASC’s order does not prohibit Coinbase from offering staking, as long as it complies with Alabama’s laws, the agency said in a statement.&nbsp;



Though there is no fee to stake or unstake, Coinbase takes a commission based on the rewards users receive from the network. Standard commission ranged from 25% to 35%, as of March 2.



Richard Mico, the US CEO and chief legal officer at crypto infrastructure provider Banxa, said Tuesday’s actions display the “concerted effort” at both the state and federal levels against crypto, and staking services in particular.&nbsp;



“I suspect we’ll have a better understanding of these actions in the coming weeks, but, again, these measures most certainly appear to have been coordinated well in advance and in turn are targeting critical aspects of the crypto industry in the United States,” he told Blockworks.&nbsp;



Adam Cochran, a partner at venture capital firm Cinneamhain Ventures, said in a <a href="https://twitter.com/adamscochran/status/1666092590981328897?s=20">tweet</a> the claims that Coinbase’s staking service was an unregistered securities offering was “a small issue comparatively” to the rest of the SEC’s lawsuit.



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.”



A company spokesperson told Blockworks Coinbase is reviewing the actions by various state securities regulators and intends to have “productive conversations” with them.&nbsp;



“We are confident that our staking services are not securities under federal or state law,” the Coinbase representative added.



<h2 class="wp-block-heading">New Jersey</h2>



The New Jersey Bureau of Securities <a href="https://www.njoag.gov/new-jersey-bureau-of-securities-brings-action-against-coinbase-citing-crypto-staking-offerings-that-violate-the-securities-law/">issued</a> a summary cease and desist order to Coinbase. As part of the order, the state seeks to levy a $5 million fine against Coinbase for selling “unregistered securities.”



New Jersey is also taking issue with Coinbase’s staking program, which offers five crypto assets including <a href="https://blockworks.co/price/XTZ">XTZ</a>, <a href="https://blockworks.co/price/ATOM">ATOM</a>, <a href="https://blockworks.co/price/ETH">ETH</a>, <a href="https://blockworks.co/price/ADA">ADA</a> and <a href="https://blockworks.co/price/SOL">SOL</a>.&nbsp;



New Jersey authorities claim Coinbase was advertising returns of up to 10% on investments.



“The cryptocurrency securities market is not a free-for-all where companies can make up their own rules,” Executive Assistant Attorney General Shirley Emehelu said in a statement. “These companies play up the rewards but are less likely to address the risks of investing in crypto and through this action we are making sure they comply with our rules.”



Over 145,000 New Jersey residents have invested in staking securities on Coinbase as of March 29, according to the <a href="https://www.njoag.gov/new-jersey-bureau-of-securities-brings-action-against-coinbase-citing-crypto-staking-offerings-that-violate-the-securities-law/">statement</a>.



The New Jersey Bureau of Securities is <a href="https://blockworks.co/news/new-jersey-crypto-bill-impacts">not new to issuing crypto-related cease and desist orders</a> — putting forth its first <a href="https://www.njconsumeraffairs.gov/Actions/BitcoiinLowerCase_CD_7MAR18.pdf">one</a> in 2018 against Steven Seagal-endorsed initial coin offering (ICO) Bitcoiin. The state agency later ordered New Jersey-based BlockFi and Celsius to stop offering interest-earning crypto accounts in July and September of 2021, respectively.&nbsp;



<h2 class="wp-block-heading">Illinois&nbsp;</h2>



The Illinois Secretary of State’s Securities Department mailed a <a href="https://www.ilsos.gov/news/2023/june/230606d1-withattach.pdf">notice</a> of an Aug. 8 hearing to Coinbase and Coinbase Global on Tuesday.&nbsp;



Illinois — like the SEC and other states — claims that Coinbase’s staking products are unregistered securities. If found guilty of breaking Illinois securities laws, Coinbase would have to pay a $10,000 fine per violation.



There are a similar number of staking accounts in Illinois and New Jersey, with Illinois residents having about 140,000 of them — collectively worth $228 million.&nbsp;



If the respondents fail to respond to the Illinois notice within 30 days, they forfeit their right to a hearing.&nbsp;



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



Maryland issued a summary cease and desist <a href="https://www.marylandattorneygeneral.gov/Securities%20Actions/2023/Summary_Order_Coinbase_060623.pdf">order</a> to Coinbase, as well as orders for the exchange to show cause why they shouldn’t be barred from securities and investment advisory business activities in the state.



If Coinbase is found guilty, it would be penalized $5,000 for each violation of Maryland’s securities registration requirements. Additionally, Coinbase will be permanently barred from operating in the state.&nbsp;



Coupled with the order is an opportunity for a hearing, to which Coinbase must respond within 15 days. Failure to respond means all the penalties described in the order will be applied with no further recourse.&nbsp;



As of March 29, over 75,000 Marylanders were “active investors” in Coinbase Earn, whose accounts totaled more than $84 million.&nbsp;



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



Kentucky’s Department of Financial Institutions filed an administrative <a href="https://kfi.ky.gov/Documents/Coinbase%20Global,%20INC.%20and%20Coinbase,%20INC.%202023-AH-0011.pdf">complaint</a> Tuesday and sent it to Coinbase, containing similar allegations and rule violations as the other states’ complaints.&nbsp;



The state is ordering Coinbase to stop accepting new deposits and is levying a steeper $20,000 fine per violation on behalf of the roughly 28,000 Kentucky residents with over $24 million invested in Coinbase’s staking program.&nbsp;



Coinbase has 20 days to respond to Kentucky’s complaint and request a hearing on the matter.



<h2 class="wp-block-heading">South Carolina</h2>



South Carolina ordered Coinbase to cease and desist from doing business in the state based on its investigation that found the crypto exchange was selling unregistered securities.



Should there be no hearing and the order goes into effect, Coinbase will be forced to pay a civil penalty of $4.37 million to the state. If there is a hearing, which Coinbase must request within 30 days from now, a $10,000 fine will be imposed per transgression.



Nearly 44,000 South Carolina citizens were staked through Coinbase, their investments worth over $37 million.



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



California submitted an <a href="https://dfpi.ca.gov/wp-content/uploads/sites/337/2023/06/Admin.-Action-Coinbase-Global-Inc.-Notice-of-Intent.pdf">order</a> telling Coinbase to stop “the further offer and sale of securities” including but not limited to its staking offerings.



The state has roughly 644,000 investors who have staked $1.2 billion worth of crypto with Coinbase.&nbsp;



California investigators allege that Coinbase “willfully violated” state laws and intends to issue a fine of $1,000 for the first offense and $2,500 for subsequent offenses.



Additionally, Coinbase has 30 days to request a hearing, a California government spokesperson told Blockworks.



Representatives from agencies in Vermont, Washington and Wisconsin — also part of the 10-state task force — did not immediately return Blockworks’ request for comment.



Updated June 6, 2023 at 5:47 pm ET: Added comment from Coinbase.



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US States Are Going After Coinbase Following SEC Lawsuit — Here’s How

Katherine Ross

The SEC has petitioned a court for a temporary restraining order against Binance and its affiliates — BAM Management and BAM Trading — in a move that could freeze the assets of Binance.US.



The SEC’s motion, filed in the US District Court for the District of Columbia on Tuesday, named Binance, BAM Management and BAM Trading.&nbsp;



If approved, the restraining order would also prevent defendants from “destroying, altering or concealing relevant records.” It comes one day after the SEC sued Binance.&nbsp;



The order, if granted by the court, would also allow the SEC to order “expedited discovery” of potential evidence. The regulator filed for its motion to be approved on an “expedited basis,” saying a speedy outcome would “ensure the safety of customer assets and prevent the dissipation of available assets for any judgment.”&nbsp;



In making its case, SEC lawyers cited “years of violative conduct” from Binance and its affiliates, as well as “disregard [for] the laws of the United States, evasion of regulatory oversight, and open questions about various financial transfers” when it comes to its customers. 



Binance.US told Blockworks in a statement that “User assets remain safe and secure and the platform continues to be fully operational with deposits and withdrawals functioning as normal.”



The SEC also requested the “repatriation and other specified relief concerning the custody and control of fiat currency and crypto assets deposited, held, traded, and/or accrued by customers on the Binance.US crypto asset trading platform or otherwise held for the benefit of customers of BAM and the Binance.US Platform.”



The SEC on Monday <a href="https://blockworks.co/news/binance-changpeng-zhao-face-sec-charges" target="_blank" rel="noreferrer noopener">filed a lawsuit</a> against Binance, BAM Management, BAM Trading and CEO Changpeng “CZ” Zhao alleging violations of the Exchange Act, Securities Act and potential fraud.&nbsp;



The SEC also claimed that BAM Trading’s staking program on Binance.US is an investment contract — and falls under the definition of a security as a result.&nbsp;&nbsp;



The regulatory agency also <a href="https://blockworks.co/news/binance-execs-unlicensed-securities-exchange" target="_blank" rel="noreferrer noopener">claims</a> Binance and Zhao were “intimately involved in directing BAM Trading’s U.S. business operations.” Zhao was also named in the temporary restraining order. 



Binance <a href="https://blockworks.co/news/binance-pushes-back-sec-lawsuit" target="_blank" rel="noreferrer noopener">denied the SEC’s claims</a>, saying “most recently, we have engaged in extensive good-faith discussions to reach a negotiated settlement to resolve their investigations.



Binance.US added in their statement that “Until recently – despite years of engagement – the SEC Staff has not expressed a concern about the safety of customer assets. And through near around-the-clock dialogue over the past week, company’s counsel addressed SEC Staff&#8217;s concerns regarding the safety of customer assets. Despite the information the company has provided to ensure SEC Staff of the safety of customer assets, the Staff has nonetheless decided to file the motion seeking a temporary restraining order and preliminary injunction. While we are disappointed by this action, we look forward to defending ourselves in court.”



Binance did not respond to a request for comment.



Updated June 6th at 6:10pm ET: Added comments from Binance.US



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SEC Files for Temporary Restraining Order Against Binance, CZ

Casey Wagner

Just hours after his employer was charged by the SEC for a variety of alleged securities law violations, Coinbase Chief Legal Officer Paul Grewal appeared before the House Agriculture Committee to face questions on crypto market regulation.&nbsp;



Committee members gathered Tuesday afternoon to question a five-witness panel made up of Grewal, other industry members and former regulators. Earlier in the day, <a href="https://blockworks.co/news/regulation-by-enforcement-unsustainable">lawmakers grilled</a> Commodity Futures Trading Commission Chair <a href="https://blockworks.co/tag/rostin-behnam">Rostin Behnam</a>.&nbsp;



“I do want to address one more elephant in the room,” Committee Chair Glenn Thompson, R-Penn., said during his prepared remarks, referring to the SEC’s complaint against <a href="https://blockworks.co/tag/coinbase">Coinbase</a>.&nbsp;



“While I will not and cannot speak to any of the specific allegations against [Coinbase], I do want to note that this kind of action is exactly why we are holding this hearing here today,” Thompson said. “Regulation by enforcement is not an appropriate way to govern a market, adequately protect customers or promote innovation.”&nbsp;



Grewal joined <a href="https://blockworks.co/tag/robinhood">Robinhood</a> chief legal compliance and corporate affairs officer Dan Gallagher on the hearing’s second panel. Second panel witnesses also include former CFTC Chair Christopher Giancarlo, former <a href="https://blockworks.co/tag/cftc">CFTC</a> Commissioner and former <a href="https://blockworks.co/tag/sec">SEC</a> General Counsel Dan Berkovitz, as well as Walt Lukken, former CFTC acting chair.



Lawmakers refrained from asking about the specific allegations made against Coinbase, but they did touch on topics addressed in the SEC’s complaint, such as token classification and exchange registration.&nbsp;



“Under the current circumstances at the SEC…the invitation has been extended repeatedly to ‘come in and register,’ yet, like Robinhood, when Coinbase has attempted to do just that, talk about how we could register…after months and months of discussion we were simply dismissed,” Grewal said when asked about how Coinbase has attempted to be compliant.&nbsp;



Coinbase went through an extensive vetting process with the SEC before it was allowed to go public via direct listing in 2021.&nbsp;



“I am still digesting the complaint that was served today,” Grewal said. “What I can speak to, in much greater detail, are the many, many interactions we’ve had with the SEC, going back not just months, but several years.”&nbsp;



Rep. John Rose, R-Tenn., mentioned the SEC’s decision to <a href="https://blockworks.co/news/sec-10-tokens-securities">list several additional tokens as securities</a> in the Binance and Coinbase complaints released this week. He asked Gallagher if Robinhood could simply list any of these assets on their SEC-registered broker-dealer platform.&nbsp;



“No,” Gallagher responded. “You would think with a major broker-dealer sitting on the other side of our house, our primary business, we could simply say ‘OK SEC, you’ve just said these are securities, I’m going to go trade them on my broker platform,’ [but] it’s impossible without major regulatory relief and changes in the securities markets.”&nbsp;



<h2 class="wp-block-heading">Cryptos SEC deems securities on Robinhood</h2>



Solana (<a href="https://blockworks.co/price/sol">SOL</a>), cardano (<a href="https://blockworks.co/price/ada">ADA</a>) and polygon (<a href="https://blockworks.co/price/matic">MATIC</a>), each of which is named in both the Coinbase and Binance lawsuits, are all currently available to buy and sell on Robinhood’s crypto platform.&nbsp;



Gallagher expressed similar frustrations to those raised by Grewal, saying Robinhood has spent more than a year trying to appeal to the SEC’s current regulatory structure.&nbsp;



“When Gensler said ‘come in and register,’ we did…We went through a 16-month process with the SEC staff trying to register as a special-purpose broker-dealer and then we were… told in March that that process was over and we would not see any fruits of that effort,” Gallagher said.&nbsp;&nbsp;



All panelists, and most lawmakers, agreed the path forward for crypto, to protect consumers and foster innovation, is for immediate congressional action to address current regulatory gaps.&nbsp;



Without swift action, “the spot market for digital asset commodities will continue to lack federal supervision,” Grewal said. “we will continue to see this innovation, this industry, invest more and more of its resources outside of the US.



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Coinbase Put in House Hot Seat Hours After SEC Lawsuit Released

Macauley Peterson

The Society for Worldwide Interbank Financial Telecommunication (Swift) on Tuesday announced a collaboration between major banks and Web3 infrastructure provider Chainlink to trial connecting private and public permissionless blockchains.



Swift is a global financial messaging system that underpins most international money and securities transfers. In 2022, it initiated tests to explore the interoperability of private blockchains among financial institutions for tokenized assets. Building upon this initiative, Swift is now expanding the scope of its experiments to encompass public blockchains. To facilitate this expansion, Swift will utilize Chainlink&#8217;s Cross-Chain Interoperability Protocol (CCIP).



“More institutions are beginning to explore how to serve customers on both permissioned and public blockchain networks like Ethereum,” Jonathan Ehrenfeld, head of securities strategy at Swift, said in a <a href="https://www.swift.com/news-events/news/swift-explores-blockchain-interoperability-remove-friction-tokenised-asset-settlement">statement</a>.



The collaboration includes major financial institutions across the globe, including <a href="https://blockworks.co/tag/bnp-paribas">BNP Paribas</a>, <a href="https://blockworks.co/tag/bny-mellon">BNY Mellon</a>, <a href="https://blockworks.co/tag/citi">Citi</a>, <a href="https://blockworks.co/tag/euroclear">Euroclear</a>, <a href="https://blockworks.co/tag/six">SIX Digital Exchange (SDX)</a> and <a href="https://blockworks.co/tag/DTCC">The Depository Trust &amp; Clearing Corporation (DTCC)</a>.



Chainlink is providing what Swift calls an “enterprise account abstraction layer.” Sergey Nazarov, one of the company&#8217;s co-founders, said that he thinks the asset tokenization trend is being embraced by banks and financial market infrastructure institutions alike, which has the potential to “10x the blockchain industry size.” “It shows that the largest financial institutions — even in a down market — are interested in blockchain technology reinventing how the capital markets work,” Nazarov told Blockworks.



CCIP is a “universal messaging interface” for cross-blockchain communications. Its ability to interface with private blockchains, plus security features like an active risk management network, are what differentiate it from alternatives like <a href="https://blockworks.co/tag/axelar">Axelar’s General Message Passing</a> and make it appealing to major financial players, Nazarov said.



CCIP uses the same security model as Chainlink’s oracle network, which has processed over seven trillions of dollars in value, he said.



<h2 class="wp-block-heading">Swift’s goal: Use existing bank systems</h2>



Swift launched its first messaging services in 1977, replacing the prevailing technology of the time, <a href="https://en.wikipedia.org/wiki/Telex">Telex</a> — it was “like a private financial internet before the internet,” Nazarov said. There is a lot of legacy financial infrastructure that banks want to preserve while also gaining the efficiencies that they recognize are available from blockchain networks.



Tom Zschach, chief innovation officer at Swift, sees a <a href="https://blockworks.co/tag/multichain">multichain</a> future, and connecting to hundreds of different chains is not feasible for most banks. Chainlink aims to save thousands of global banks time and money by linking chains through one integration.



“What&#8217;s missing is the ability to send [assets] from a bank chain to a public chain —



banks want to do that,” Nazarov said.



“It’s not called chain link by accident,” he chuckled.



The proof of concept will demonstrate how banks can practically interoperate across these networks, both public and private.



For instance, Nazarov said, a bank can issue a security token on its own private chain, using CCIP, then move the token to the chain of a custodian such as BNY Mellon. It can update a proof-of-reserves record on CCIP, and enable a third bank to buy the tokenized security, and transfer it to its own private chain.



In this example, all the chains in question are private, but Nazarov pointed to <a href="https://blockworks.co/tag/societe-generale">French bank Société Générale’s</a> use of public Ethereum as an example where public blockchains can be in the loop.



“In my eyes, blockchains, public and private, will eventually get enough features that they become the same thing,” Nazarov said, likening it to the evolution of various independent networks into what we now call simply “the internet.”



Once the technology is in place to let banks take various securities and move them around easily, they will adapt certain types for use on public chains, he said.



They are too big a market at this point to ignore.



“I think they realize the digital asset class is not going anywhere,” Nazarov said.



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Banks Can ‘10x the Blockchain Industry’ Says Chainlink Co-founder

Darren Kleine

Every few years, some kind of new standard upgrades the internet experience, providing better performance in one way or another. This, in turn, creates a greater capacity for new applications and wider usage of the technology.



For some advancements at the fundamental level, networking hardware has to be replaced to take advantage of new features. IPv6, for example, was introduced way back in 1998, offering better routing than IPv4 without packet fragmentation, among other improvements. But for it to be adopted by the masses, manufacturers had to roll out newly compatible devices like routers and WiFi chips.



It can take years for base-layer tech to be widely embraced as people gradually upgrade from older hardware. Mass adoption — especially for tech operating at the “ground level” — can be a painfully slow undertaking.



Mustafa Al-Bassam, co-founder of Celestia Labs, compares this process to what he sees as the inefficient advancement of <a href="https://blockworks.co/tag/blockchain">blockchain</a> technology on the Empire podcast  (<a href="https://open.spotify.com/episode/7ti5I16cL86df4F4HHcoTX?si=5wVwveQ7RZ2a_-2lbWcGOA">Spotify</a> / <a href="https://podcasts.apple.com/us/podcast/the-sovereign-rollup-thesis-inevitability-of/id1554930038?i=1000615898020">Apple</a>).



Al-Bassam talks about the implementation of HTTPS — a more secure version of HTTP that uses encryption to send data between a server and a browser —&nbsp; to illustrate his point.



“Imagine if, in order to deploy HTTPs, we had to modify the entire networking layer of the internet and modify the actual routers and the actual WiFi chips and everything like that.”



“It would take ages.”



“And that&#8217;s exactly what we&#8217;ve been doing with IPv6 versus IPv4,” he explains. “That&#8217;s basically taking two decades to get mass adoption because you have to modify every WiFi chip, all the hardware, all the routers.”



Al-Bassam says the analogy can be used to understand the current predominant mindset in blockchain development.



<h2 class="wp-block-heading">When does it end?</h2>



“Imagine if you have to create a whole new <a href="https://blockworks.co/tag/layer-1">layer-1</a> just to experiment with a new execution environment.”&nbsp;



“It would be insane,” he says.



“That&#8217;s basically how we&#8217;ve been operating over the past 10 years.”



Blockchain innovation has been stuck in a “monolithic layer-1 loop,” Al-Bassam says. Every time incremental improvements are made to the execution environment, he says, “we launch a new layer-1.”&nbsp;



<a href="https://blockworks.co/tag/ethereum">Ethereum</a> began the cycle of layer-1 innovation in 2015, followed by protocols like <a href="https://blockworks.co/tag/eos">EOS</a> and later, <a href="https://blockworks.co/tag/cardano">Cardano</a>. In more recent cycles, <a href="https://blockworks.co/tag/solana">Solana</a> and <a href="https://blockworks.co/tag/avalanche">Avalanche</a> joined the fray, and “now we have <a href="https://blockworks.co/tag/sui">Sui</a> and <a href="https://blockworks.co/tag/aptos">Aptos</a>,” he says.



“When does it end?” he asks. “It&#8217;s not sustainable.”



<h2 class="wp-block-heading">A rollup-centric roadmap</h2>



Al-Bassam is skeptical of the constant flow of new layer-1s that only provide incremental improvements and “just copy all the applications from the previous layer-1s.”



Ethereum development is focused on a “<a href="https://blockworks.co/tag/rollups">rollup</a>-centric roadmap” in order to achieve scaling, Al-Bassam says. “It&#8217;s not sustainable to assume one synchronous blockchain will serve the entire web.”



“That&#8217;s ridiculous.”



It&#8217;s like assuming, he says, that “one server will serve the entire internet.”



Al-Bassam’s solution to the monolithic layer-1 loop is to create rollups that don’t require a layer-1 re-jig, instead building on top of networks. Rollups can be developed and iterated without tedious rebuilds of base layers.



Preston Evans, chief scientist at Sovereign Labs, explains his perspective on the current phase of monolithic blockchain development. “Right now, you&#8217;re sharing this single ‘computer’ between the entire world.”&nbsp;



“And so the only thing you can run on that computer is the very highest value thing that you can think of.”



“If there was only one mainframe in the world, we would probably use that mainframe to run Nasdaq or something,” he says. “We would use it for something incredibly high value.”



<iframe loading="lazy" frameborder="0" height="200" scrolling="no" src="https://playlist.megaphone.fm/?e=BWG4184134488" width="100%"></iframe>







Nobody wants to live in a world where computers are only used for Nasdaq, Evans says. “So what we&#8217;re building out is the infrastructure where, suddenly, everybody can have a ‘computer’ at home.”



It’s too early to say what people will do with these new decentralized computers, Evans says. “People didn&#8217;t necessarily predict Friendster, MySpace and Facebook and then TikTok and Instagram.”



“Ten years from now, we&#8217;ll look back and we&#8217;ll think it&#8217;s kind of ridiculous that activity was so tied to prices. That&#8217;s just an artifact of the fact that everything on-chain is financial right now, because chains can&#8217;t support anything non-financial.”



“The reason we need to have chains is not just to scale finances,” he says. “It&#8217;s to enable <a href="https://blockworks.co/news/blockchain-crypto-web3-abstraction">interesting use cases</a> that are just not possible with the limitations of blockchains today.”



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Another New Layer-1? Starting All Over Again ‘Isn’t Sustainable’

As the comment period for the proposed changes by the Financial Accounting Standards Board (FASB) regarding crypto asset reporting nears its end, companies supporting these updates are still requesting further guidance.



Crypto exchange Kraken expects to see additional guidance related to stablecoins, wrapped tokens and NFTs, for example, while accounting giant Ernst and Young and bankrupt crypto lender BlockFi seek revisions.



Grayscale Investments called the current scope of the proposal “understandable and operable” in a Monday letter, but added that “further identification of types of crypto assets may be required for accurate reporting.”&nbsp;



<h2 class="wp-block-heading">A look at the proposed amendments</h2>



Crypto assets, under current Generally Accepted Accounting Principles (GAAP), are considered “indefinite-lived intangible assets” that are tested for impairment — defined as a permanent drop in an asset’s value.



If the carrying amount of the asset exceeds its fair value, an entity is required to recognize an impairment loss and reduce the carrying amount of the asset to its fair value.&nbsp;



But <a href="https://blockworks.co/news/crypto-fasb-accounting-standards">amendments proposed by FASB</a> would instead require entities to periodically measure certain crypto assets at fair value and recognize any fair value changes in net income, according to a <a href="https://www.fasb.org/document/blob?fileName=Prop%20ASU%E2%80%94Intangibles%E2%80%94Goodwill%20and%20Other%E2%80%94Crypto%20Assets%20(Subtopic%20350-60)%E2%80%94Accounting%20for%20and%20Disclosure%20of%20Crypto%20Assets.pdf">draft</a> of the changes published in March.



The proposed changes would also bolster disclosure requirements to “provide investors with relevant information to analyze and assess the exposure and risk of significant individual crypto asset holdings,” according to FASB.



The comment period for the proposals was set to end Tuesday.&nbsp;



Proponents say the new standards would enable balance sheets to better reflect the true market value of the digital assets and could encourage institutions to hold them.&nbsp;



<a href="https://blockworks.co/news/microstrategy-proposed-fasb-amendments">MicroStrategy said in a letter to FASB</a> last month that though it purchased its stack of 140,000 <a href="https://blockworks.co/price/btc">BTC</a> for approximately $4.2 billion, the company currently reports the assets on its balance sheet at $2 billion. &nbsp;



“This rule change will both provide clarity, and remove some of the barriers that previously kept some potential holders of BTC from carrying BTC on their balance sheets as part of their treasury management programs,” Fred Thiel, CEO of bitcoin miner <a href="https://blockworks.co/tag/marathon-digital">Marathon Digital</a>, told Blockworks in an email.



Ben Gaffey, controller at <a href="https://blockworks.co/tag/valkyrie">Valkyrie Investments</a>, said the Accounting Standards Update (ASU) would spur entities to revisit whether crypto on the balance sheet is a viable strategy. However, he argued that the ability to apply the new guidance would not drive such discussions.



“It&#8217;s not a question of whether the crypto asset guidance will be established as [ASU], but whether the scope of the ASU will cast a wide enough net to satisfy entities which go further than bitcoin or ether,” Gaffey told Blockworks.&nbsp;



<h2 class="wp-block-heading">A call for additional guidance</h2>



A few days after business intelligence firm <a href="https://blockworks.co/tag/microstrategy">MicroStrategy</a> expressed support for FASB’s amendments, Kraken wrote in a May 25 <a href="https://www.fasb.org/document/blob?fileName=CRYPTO.ED.014.KRAKEN%20NATALIA%20VORONINA.pdf">letter</a> that it considers the proposed guidance “the first in a phased approach to address accounting for digital assets.”



It noted an “urgent need” for additional guidance related to stablecoins, wrapped tokens and NFTs.



Ernst and Young (EY) said in a June 1 <a href="https://www.fasb.org/document/blob?fileName=CRYPTO.ED.040.ERNST%20YOUNG%20LLP.pdf">letter</a> that language should be revised to ensure the proposed guidance applies to certain wrapped tokens — a tokenized version of a particular asset that is operable on another blockchain.



“The use of certain wrapped tokens has become common in practice, resulting in the availability of quoted prices for them in active markets,” it states. “We believe the proposal should apply to a wrapped token that only grants the holder the same rights as holding an underlying asset that otherwise would be in the scope of the proposal.”



<a href="https://blockworks.co/tag/blockfi">BlockFi</a>, which filed for bankruptcy last November, also submitted a <a href="https://www.fasb.org/document/blob?fileName=CRYPTO.ED.039.BLOCKFI%20INC.%20ROB%20LOBAN.pdf">letter</a> on the proposed changes last week. The company notes it requested a “fair value” model as early as August 2021 in meetings with FASB.



“Change is not easy but in this case it is absolutely necessary,” BlockFi wrote in the letter.&nbsp;



BlockFi requested more clarity around the proposal’s scope, calling it unclear as written. The FASB proposal currently would apply to crypto assets that “do not provide the asset holder with enforceable rights to, or claims on, underlying goods, services or other assets.”



Certain users could broadly interpret &#8220;enforceable rights&#8221; as any benefit inherent within the token&#8217;s specific protocol. These benefits may include rights to staking revenues or airdrops associated with a certain asset.



“This interpretation could eliminate a large portion of digital asset tokens from consideration and undermine the core purpose of this standard,” BlockFi wrote.



Grayscale Investments agreed in a Monday <a href="https://www.fasb.org/document/blob?fileName=CRYPTO.ED.050.GRAYSCALE%20INVESTMENTS%20LLC.pdf">letter</a> that the definition of “enforceable rights” might require additional analysis.&nbsp;



“In addition, questions may arise around the treatment of crypto assets locked up in a smart contract protocol or other [DeFi] protocol,” Grayscale wrote, adding that the company believes&nbsp; such assets should be included in the proposal’s scope.



A FASB spokesperson told Blockworks that FASB staff are set to analyze and summarize all the comments and present them to its board at a future public meeting. The board would then decide to approve a final standard or make changes.&nbsp;&nbsp;&nbsp;



Gaffey said he expects explicit accounting guidance for crypto assets to be finalized by the end of the year.



“Although no expected effective date was included in the draft, the building pressure from the industry over the past few years as crypto assets are adopted by more institutional investors would suggest early adoption — allowing entities to immediately apply the new rules — will be permissible,” he said.



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Industry Weighs in as Crypto Asset Reporting Proposal Hits Final Stretch

David Canellis

It took Marathon years to build out its pricey infrastructure capable of mining 1,200 bitcoins per month. I mine more than that in one second — in Roblox.



One of the most-frequented metaverse platforms worldwide, Roblox recorded about 66 million users every day in May. Users create their own blocky worlds for players to explore with their avatars, which can move freely between “experiences.”



Granted, Roblox is not a Web3 thing. It’s a walled garden maintained by a single software company, akin to Minecraft. But it still fits the “metaverse” definition.



Metaverse blockchain projects such as Decentraland are <a href="https://status.decentraland.org/metrics">seeing</a> about 500 concurrent active users. Roblox’s Bitcoin Miner Beta, by <a href="https://www.roblox.com/games/2629642516/UPDATE-Bitcoin-Miner-Beta">polandgamebuilders</a>, enjoys more than four times that.&nbsp;



The game is something of a bitcoin mining simulator for kids (and crypto journalists out of ideas). It toys with the format perfected by Facebook-centric Zynga games like Farmville:&nbsp;



Buy this thing that unlocks incremental gains over time. Wait long enough to afford an even more powerful thing. Pay real money to speed up the whole process, otherwise: Rinse, repeat.



It’s mind-numbing. In a good way.



<figure class="wp-block-image size-large"><img decoding="async" loading="lazy" width="2560" height="1485" src="https://blockworks-co.imgix.net/wp-content/uploads/2023/06/roblox1-scaled.jpg?w=1024&amp;h=1024" alt="" class="wp-image-58049" srcset="https://blockworks-co.imgix.net/wp-content/uploads/2023/06/roblox1-scaled.jpg?w=2560 2560w, https://blockworks-co.imgix.net/wp-content/uploads/2023/06/roblox1-scaled.jpg?w=300 300w, https://blockworks-co.imgix.net/wp-content/uploads/2023/06/roblox1-scaled.jpg?w=1024 1024w, https://blockworks-co.imgix.net/wp-content/uploads/2023/06/roblox1-scaled.jpg?w=768 768w, https://blockworks-co.imgix.net/wp-content/uploads/2023/06/roblox1-scaled.jpg?w=1536 1536w, https://blockworks-co.imgix.net/wp-content/uploads/2023/06/roblox1-scaled.jpg?w=2048 2048w, https://blockworks-co.imgix.net/wp-content/uploads/2023/06/roblox1-scaled.jpg?w=428 428w, https://blockworks-co.imgix.net/wp-content/uploads/2023/06/roblox1-scaled.jpg?w=450 450w, https://blockworks-co.imgix.net/wp-content/uploads/2023/06/roblox1-scaled.jpg?w=377 377w, https://blockworks-co.imgix.net/wp-content/uploads/2023/06/roblox1-scaled.jpg?w=80 80w" sizes="(max-width: 2560px) 100vw, 2560px" /><figcaption class="wp-element-caption">Humble beginnings</figcaption></figure>



<h2 class="wp-block-heading">Baby’s first bitcoin miner</h2>



Bitcoin mining in Roblox starts with a plot of land. You buy a table for $40 and plonk down a “Budget Graphics Card” (also $40).&nbsp;



That card consumes 1 watt of (made up) energy in return for 0.00004 BTC a second. Bitcoin goes for $5,000 in the Roblox metaverse right now, so 0.00004 BTC is worth roughly $0.20 (to be clear, that’s fake bitcoin, fake US dollars, fake energy and fake carbon emissions!)



Somewhere near the table, place a cheap electricity box, so you can slowly destroy the metaverse’s climate. Or whatever.



<figure class="wp-block-image size-large"><img decoding="async" loading="lazy" width="2560" height="1481" src="https://blockworks-co.imgix.net/wp-content/uploads/2023/06/roblox4-1-scaled.jpg?w=1024&amp;h=1024" alt="" class="wp-image-58058" srcset="https://blockworks-co.imgix.net/wp-content/uploads/2023/06/roblox4-1-scaled.jpg?w=2560 2560w, https://blockworks-co.imgix.net/wp-content/uploads/2023/06/roblox4-1-scaled.jpg?w=300 300w, https://blockworks-co.imgix.net/wp-content/uploads/2023/06/roblox4-1-scaled.jpg?w=1024 1024w, https://blockworks-co.imgix.net/wp-content/uploads/2023/06/roblox4-1-scaled.jpg?w=768 768w, https://blockworks-co.imgix.net/wp-content/uploads/2023/06/roblox4-1-scaled.jpg?w=1536 1536w, https://blockworks-co.imgix.net/wp-content/uploads/2023/06/roblox4-1-scaled.jpg?w=2048 2048w, https://blockworks-co.imgix.net/wp-content/uploads/2023/06/roblox4-1-scaled.jpg?w=428 428w, https://blockworks-co.imgix.net/wp-content/uploads/2023/06/roblox4-1-scaled.jpg?w=451 451w, https://blockworks-co.imgix.net/wp-content/uploads/2023/06/roblox4-1-scaled.jpg?w=378 378w, https://blockworks-co.imgix.net/wp-content/uploads/2023/06/roblox4-1-scaled.jpg?w=80 80w" sizes="(max-width: 2560px) 100vw, 2560px" /><figcaption class="wp-element-caption">How can bitcoin be bad for the environment when you can place trees in your Roblox setup?</figcaption></figure>



The whole idea is to maximize the bitcoin output of your plot of land by slowly phasing out less powerful rigs for more advanced (and expensive) ones.



More expensive machines demand more efficient energy sources, as well as more effective furniture to place them on.&nbsp;



Banal as that may be, it’s how real-life bitcoin mining works. Players must balance their energy consumption (plugged in mining rigs) with their energy production (power sources). 



<figure class="wp-block-image size-large"><img decoding="async" loading="lazy" width="2560" height="1598" src="https://blockworks-co.imgix.net/wp-content/uploads/2023/06/roblox5-1-scaled.jpg?w=1024&amp;h=1024" alt="" class="wp-image-58059" srcset="https://blockworks-co.imgix.net/wp-content/uploads/2023/06/roblox5-1-scaled.jpg?w=2560 2560w, https://blockworks-co.imgix.net/wp-content/uploads/2023/06/roblox5-1-scaled.jpg?w=300 300w, https://blockworks-co.imgix.net/wp-content/uploads/2023/06/roblox5-1-scaled.jpg?w=1024 1024w, https://blockworks-co.imgix.net/wp-content/uploads/2023/06/roblox5-1-scaled.jpg?w=768 768w, https://blockworks-co.imgix.net/wp-content/uploads/2023/06/roblox5-1-scaled.jpg?w=1536 1536w, https://blockworks-co.imgix.net/wp-content/uploads/2023/06/roblox5-1-scaled.jpg?w=2048 2048w, https://blockworks-co.imgix.net/wp-content/uploads/2023/06/roblox5-1-scaled.jpg?w=412 412w, https://blockworks-co.imgix.net/wp-content/uploads/2023/06/roblox5-1-scaled.jpg?w=418 418w, https://blockworks-co.imgix.net/wp-content/uploads/2023/06/roblox5-1-scaled.jpg?w=351 351w, https://blockworks-co.imgix.net/wp-content/uploads/2023/06/roblox5-1-scaled.jpg?w=80 80w" sizes="(max-width: 2560px) 100vw, 2560px" /><figcaption class="wp-element-caption">There’s nuclear-powered bitcoin mining in Roblox, too. For just $95 billion!</figcaption></figure>



Bonafide bitcoin miners do <a href="https://www.theguardian.com/technology/2022/feb/18/bitcoin-miners-revive-fossil-fuel-plant-co2-emissions-soared">exactly</a> the same thing — particularly so-called “vertically integrated” miners such as Stronghold, Marathon and Greenidge. 



<h2 class="wp-block-heading">Bitcoin ATMs also gouge you on Roblox</h2>



There’s also overclocking. If your setup produces more energy than your miners consume, you can periodically force your rigs to run faster than their factory settings, generating more bitcoin in shorter periods of time.



Bitcoin miners also do <a href="https://www.youtube.com/watch?v=OKgpPsjDP5g">this</a>. Miners can use immersion cooling to overwork their rigs — submerging rigs in a funky non-conductive liquid so they don’t fry when juiced to the gills.



<figure class="wp-block-image size-large"><img decoding="async" loading="lazy" width="2560" height="1490" src="https://blockworks-co.imgix.net/wp-content/uploads/2023/06/roblox3-1-scaled.jpg?w=1024&amp;h=1024" alt="" class="wp-image-58060" srcset="https://blockworks-co.imgix.net/wp-content/uploads/2023/06/roblox3-1-scaled.jpg?w=2560 2560w, https://blockworks-co.imgix.net/wp-content/uploads/2023/06/roblox3-1-scaled.jpg?w=300 300w, https://blockworks-co.imgix.net/wp-content/uploads/2023/06/roblox3-1-scaled.jpg?w=1024 1024w, https://blockworks-co.imgix.net/wp-content/uploads/2023/06/roblox3-1-scaled.jpg?w=768 768w, https://blockworks-co.imgix.net/wp-content/uploads/2023/06/roblox3-1-scaled.jpg?w=1536 1536w, https://blockworks-co.imgix.net/wp-content/uploads/2023/06/roblox3-1-scaled.jpg?w=2048 2048w, https://blockworks-co.imgix.net/wp-content/uploads/2023/06/roblox3-1-scaled.jpg?w=428 428w, https://blockworks-co.imgix.net/wp-content/uploads/2023/06/roblox3-1-scaled.jpg?w=449 449w, https://blockworks-co.imgix.net/wp-content/uploads/2023/06/roblox3-1-scaled.jpg?w=376 376w, https://blockworks-co.imgix.net/wp-content/uploads/2023/06/roblox3-1-scaled.jpg?w=80 80w" sizes="(max-width: 2560px) 100vw, 2560px" /></figure>



That’s mostly where any resemblance of realism ends. Many of the bitcoin mining rigs you’ll acquire in Roblox are graphics cards, while mining BTC with GPUs in real life was <a href="https://www.nicehash.com/blog/post/the-history-of-cryptocurrency-mining">phased</a> out within the first three years or so of Bitcoin’s existence, in favor of high-performance ASIC chips built especially for the blockchain’s algorithm.



Mining bitcoin in Roblox is fun — sorta, at least as an adult. You can spend real money on Roblox’s in-game digital currency, Robux (not a cryptocurrency), to set your own price at the bitcoin ATM, echoing the “<a href="https://www.kotaku.com.au/2021/04/the-sims-cheat-code-citizen-kane/">rosebud</a>” cheat code in The Sims. 



But it only took a few hours to gather enough stuff to mine 2,000 BTC per second without buying credits. That’s $10 million every tick at current metaverse prices.&nbsp;



<figure class="wp-block-image size-large"><img decoding="async" loading="lazy" width="2560" height="1507" src="https://blockworks-co.imgix.net/wp-content/uploads/2023/06/roblox2-1-scaled.jpg?w=1024&amp;h=1024" alt="" class="wp-image-58062" srcset="https://blockworks-co.imgix.net/wp-content/uploads/2023/06/roblox2-1-scaled.jpg?w=2560 2560w, https://blockworks-co.imgix.net/wp-content/uploads/2023/06/roblox2-1-scaled.jpg?w=300 300w, https://blockworks-co.imgix.net/wp-content/uploads/2023/06/roblox2-1-scaled.jpg?w=1024 1024w, https://blockworks-co.imgix.net/wp-content/uploads/2023/06/roblox2-1-scaled.jpg?w=768 768w, https://blockworks-co.imgix.net/wp-content/uploads/2023/06/roblox2-1-scaled.jpg?w=1536 1536w, https://blockworks-co.imgix.net/wp-content/uploads/2023/06/roblox2-1-scaled.jpg?w=2048 2048w, https://blockworks-co.imgix.net/wp-content/uploads/2023/06/roblox2-1-scaled.jpg?w=428 428w, https://blockworks-co.imgix.net/wp-content/uploads/2023/06/roblox2-1-scaled.jpg?w=443 443w, https://blockworks-co.imgix.net/wp-content/uploads/2023/06/roblox2-1-scaled.jpg?w=372 372w, https://blockworks-co.imgix.net/wp-content/uploads/2023/06/roblox2-1-scaled.jpg?w=80 80w" sizes="(max-width: 2560px) 100vw, 2560px" /><figcaption class="wp-element-caption">One more hint of realism: The bitcoin ATM where you sell mined coins charges a 35% commission!</figcaption></figure>



In less than a day, I mined millions of BTC in Roblox, while in reality, the largest corporate bitcoin treasury, Grayscale’s Bitcoin Trust, holds only 635,000 BTC ($16.3 billion) after years of accumulation.



But outside of the novelty, there’s something deeply ironic about a very Web2 bitcoin mining simulator finding more popularity than very Web3 metaverse projects.



<figure class="wp-block-image size-large"><img decoding="async" loading="lazy" width="2560" height="1600" src="https://blockworks-co.imgix.net/wp-content/uploads/2023/06/roblox6-scaled.jpg?w=1024&amp;h=1024" alt="" class="wp-image-58064" srcset="https://blockworks-co.imgix.net/wp-content/uploads/2023/06/roblox6-scaled.jpg?w=2560 2560w, https://blockworks-co.imgix.net/wp-content/uploads/2023/06/roblox6-scaled.jpg?w=300 300w, https://blockworks-co.imgix.net/wp-content/uploads/2023/06/roblox6-scaled.jpg?w=1024 1024w, https://blockworks-co.imgix.net/wp-content/uploads/2023/06/roblox6-scaled.jpg?w=768 768w, https://blockworks-co.imgix.net/wp-content/uploads/2023/06/roblox6-scaled.jpg?w=1536 1536w, https://blockworks-co.imgix.net/wp-content/uploads/2023/06/roblox6-scaled.jpg?w=2048 2048w, https://blockworks-co.imgix.net/wp-content/uploads/2023/06/roblox6-scaled.jpg?w=411 411w, https://blockworks-co.imgix.net/wp-content/uploads/2023/06/roblox6-scaled.jpg?w=418 418w, https://blockworks-co.imgix.net/wp-content/uploads/2023/06/roblox6-scaled.jpg?w=350 350w, https://blockworks-co.imgix.net/wp-content/uploads/2023/06/roblox6-scaled.jpg?w=80 80w" sizes="(max-width: 2560px) 100vw, 2560px" /><figcaption class="wp-element-caption">The FluxCard Omega Z mining rig costs $75 billion, but it generates more than 24,000 BTC per second</figcaption></figure>



Perhaps we aren’t very far from a fun crypto “mining” project in something like Decentraland. Something that allows you to “farm” digital “yield” in return for very tangible tokens that can be sold for actual money — be it crypto or fiat.&nbsp;



Such a world would double as a meta take on the <a href="https://blockworks.co/news/will-defi-summer-return" target="_blank" rel="noreferrer noopener">DeFi summer</a> that gripped degenerate imaginations a couple years back.



Until then, mining bitcoin in Roblox is as close as we get. If only it were this easy in real life.



<figure class="wp-block-image size-large"><img decoding="async" loading="lazy" width="2560" height="1600" src="https://blockworks-co.imgix.net/wp-content/uploads/2023/06/roblox7-scaled.jpg?w=1024&amp;h=1024" alt="" class="wp-image-58065" srcset="https://blockworks-co.imgix.net/wp-content/uploads/2023/06/roblox7-scaled.jpg?w=2560 2560w, https://blockworks-co.imgix.net/wp-content/uploads/2023/06/roblox7-scaled.jpg?w=300 300w, https://blockworks-co.imgix.net/wp-content/uploads/2023/06/roblox7-scaled.jpg?w=1024 1024w, https://blockworks-co.imgix.net/wp-content/uploads/2023/06/roblox7-scaled.jpg?w=768 768w, https://blockworks-co.imgix.net/wp-content/uploads/2023/06/roblox7-scaled.jpg?w=1536 1536w, https://blockworks-co.imgix.net/wp-content/uploads/2023/06/roblox7-scaled.jpg?w=2048 2048w, https://blockworks-co.imgix.net/wp-content/uploads/2023/06/roblox7-scaled.jpg?w=411 411w, https://blockworks-co.imgix.net/wp-content/uploads/2023/06/roblox7-scaled.jpg?w=418 418w, https://blockworks-co.imgix.net/wp-content/uploads/2023/06/roblox7-scaled.jpg?w=350 350w, https://blockworks-co.imgix.net/wp-content/uploads/2023/06/roblox7-scaled.jpg?w=80 80w" sizes="(max-width: 2560px) 100vw, 2560px" /><figcaption class="wp-element-caption">Does riding in a Roblox cybertruck turn Bitcoin miners into toolz?</figcaption></figure>



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


<div class="wp-block-post-author-biography">David is an Editor based in The Netherlands focused on data-driven journalism. Previously, he wrote for TheNextWeb&#8217;s crypto vertical before launching Protos in 2021. He&#8217;s a reformed hardline Bitcoiner passionate about permissionless and decentralized networks. Contact David at david@blockworks.co</div>


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If Only Mining Bitcoin Was as Easy as Mining Bitcoin in Roblox

Bessie Liu

Composable Finance is bringing inter-blockchain communication (IBC) from the Cosmos to Polkadot.



IBC, as its name indicates, is an interoperability protocol that helps blockchains communicate with each other in the Cosmos ecosystem.&nbsp;



The protocol is designed with a transportation layer and an application layer; these layers work together so information between different blockchains can be accurately and securely transferred.&nbsp;



Although it is native to the Cosmos ecosystem, IBC can connect to app chains outside of its network. Composable Finance sees this as an opportunity to bring this technology to Polkadot and other ecosystems.



For this reason, the company has chosen to use IBC to connect DeFi functions across different ecosystems, Jafar Azam, head of developer relations at Composable Finance, told Blockworks.&nbsp;



“We believe in a future where users go to an application, and they don&#8217;t care what chains the application sits on, as long as they&#8217;re getting the best and most efficient rate that they want,” Azam said.



While Polkadot does have a counterpart to the IBC called the Cross-Consensus Message Format (XCM), Azam points out that its functionality is restricted to bridging between parachains.



“We looked at how IBC was working, and it had been in communication transfers over the past few years since launch, and due to its trustless nature, we chose it as the transfer layer to bridge to other ecosystems,” he said.



According to Azam, the IBC has already facilitated the connection between Polkadot and Kusama, which serves as Polkadot&#8217;s canary network — a testing ground of sorts for features and functions. There are also plans to establish a connection between Polkadot and Cosmos later this month.



Choosings IBC over other bridging solutions ultimately came down to its decentralized, trustless nature, Azam explains. Noting that a lot of bridge communication protocols rely on multi-sigs, where funds can be withdrawn if multisig holders choose to collude.&nbsp;



“You’re looking at an entire ecosystem being demolished just via four people&#8230;because IBC does not rely on any third party, it’s not a centralized solution,” Azam said. “That’s why we chose IBC.”



Composable Finance is also one of the first teams to implement CosmWasm, a protocol facilitating the creation of modular smart contract code. Composable Finance implemented it outside of the Cosmos ecosystem, enabling existing projects on Cosmos to deploy on Polkadot.



“Polkadot and Cosmos share a similar vision where you have a range of heterogeneous blockchains working together, our goal is bridging between these two ecosystems because everybody has the same vision of a cross-chain future,” he said.



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DeFi Users ‘Don’t Care’ What Chain Apps Are On: Composable Finance

Coinbase CEO Brian Armstrong responded to the <a href="https://blockworks.co/news/sec-sues-coinbase">SEC’s lawsuit against the exchange </a>on Tuesday, June 6.&nbsp;



Armstrong said that the <a href="https://blockworks.co/tag/SEC">SEC</a> reviewed Coinbase’s business in 2021 and “allowed us to become a public company,” despite the 2019 claims in the SEC’s lawsuit. 



“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 tweeted.&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">Regarding the SEC complaint against us today, we&#39;re proud to represent the industry in court to finally get some clarity around crypto rules. Remember: 1. The SEC reviewed our business and allowed us to become a public company in 2021. 2. There is no path to &quot;come in and…&mdash; Brian Armstrong 🛡️ (@brian_armstrong) <a href="https://twitter.com/brian_armstrong/status/1666129111025324035?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 SEC claimed that <a href="https://blockworks.co/tag/coinbase">Coinbase</a> violated the Exchange Act and Securities Act, specifically targeting four violations. 



With the violations, it specified that “since at least 2019, through the Coinbase Platform, Coinbase has operated as: an unregistered broker, including by soliciting potential investors, handling customer funds and assets, and charging transaction-based fees; an unregistered exchange, including by providing a marketplace that, among other things, brings together orders of multiple buyers and sellers of crypto assets and matches and executes those orders; and an unregistered clearing agency, including by holding its customers’ assets in Coinbase-controlled wallets and settling its customers’ transactions by debiting and crediting the relevant accounts.”



The <a href="https://blockworks.co/news/sec-sues-coinbase-allegations">securities targeted by the regulator</a> include SOL, ADA, MATIC, FIL, SAND, AXS, CHZ, FLOW, ICP, NEAR, VGX, DASH and NEXO.



Read more: <a href="https://blockworks.co/news/sec-sues-coinbase-allegations">SEC Sues Coinbase: Here’s What They Allege Coinbase Did Wrong</a>



“There is no path to ‘come in and register’ &#8211; we tried, repeatedly &#8211; so we don&#8217;t list securities. We reject the vast majority of assets we review,” he said.



Armstrong continued, “this is why the US congress is introducing new legislation to fix the situation, and the rest of the world is moving to put clear rules in place to support this technology.”



According to a video, also tweeted by Armstrong, Coinbase met with the SEC 30 times in 2022 to ask for guidance.&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">Regarding the SEC complaint against us today, we&#39;re proud to represent the industry in court to finally get some clarity around crypto rules. Remember: 1. The SEC reviewed our business and allowed us to become a public company in 2021. 2. There is no path to &quot;come in and…&mdash; Brian Armstrong 🛡️ (@brian_armstrong) <a href="https://twitter.com/brian_armstrong/status/1666129111025324035?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 SEC’s lawsuit against Coinbase comes just a day after the <a href="https://blockworks.co/news/sec-allegations-against-binance">SEC filed a lawsuit against Binance</a>. It also targeted the Binance.US Staking Program and claimed that Binance listed securities.



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Coinbase CEO Calls on Congress to ‘Fix the Situation’ After SEC Lawsuit

The SEC’s lawsuit against Coinbase has some wondering why the securities regulator allowed the company to go public in the first place.&nbsp;



But the SEC doesn’t truly “approve” a direct listing, but rather whether the company has fulfilled certain requirements to do so, industry watchers said.



Coinbase first revealed in April 2021 that the SEC “declared effective” its registration on Form S-1 — the initial registration form for new securities — related to a proposed public direct listing of its Class A common stock.



<a href="https://blockworks.co/news/sec-sues-coinbase">The SEC sued Coinbase Tuesday</a> for allegedly operating as an unregistered exchange since at least 2019. Coinbase Chief Legal Officer Paul Grewal said the SEC’s enforcement-only approach amid unclear crypto regulations hurts companies like Coinbase “that have a demonstrated commitment to compliance.”&nbsp;



“For the SEC to now come back around and claim that a bunch of things that were already presented are problematic is nonsense,” crypto podcaster Scott Melker said during a Twitter Space Monday.&nbsp;



Melker’s comments came after <a href="https://blockworks.co/news/sec-allegations-against-binance">the SEC brought a suit against Binance</a> — in anticipation that the regulator would next go after Coinbase after serving the latter company with <a href="https://blockworks.co/news/sec-serves-coinbase-in-latest-alleged-crypto-securities-violation">a Wells notice</a> in March.&nbsp;



Other industry folk took to Twitter, claiming the latest suit is contradictory to the regulator allowing Coinbase’s public listing.&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">The SEC just went after <a href="https://twitter.com/coinbase?ref_src=twsrc%5Etfw">@coinbase</a> The SEC also approved the Coinbase IPO in 2021 This is contradictory This is predatory This is communism <a href="https://t.co/k3KpnIHCH0">https://t.co/k3KpnIHCH0</a>&mdash; Wendy O (@CryptoWendyO) <a href="https://twitter.com/CryptoWendyO/status/1666067395054817280?ref_src=twsrc%5Etfw">June 6, 2023</a></blockquote><script async src="https://platform.twitter.com/widgets.js" charset="utf-8"></script>
</div></figure>



But Joe Carlasare, partner at law firm Amundsen Davis LLC, countered Melker’s point on the <a href="https://twitter.com/i/spaces/1MYxNgkEkYOKw?s=20">Twitter Space</a>, noting that the approval of a registration statement is handled by an “entirely different division” within the regulator.



“You basically have people that look at the paperwork and say are you disclosing everything? Are you making sure that you’re not hiding anything for investors?” he said. “[The SEC decided] to greenlight that even though the underlying activity itself is unlawful in their mind.



“That’s how absurd their reasoning is at the SEC, with all due respect to the people at the SEC,” Carlasare added.&nbsp;



The SEC did not immediately return a request for comment.&nbsp;



Bruce Fenton, managing director at blockchain startup Chainstone Labs, agreed, saying that the SEC approving a public offering is “not passing merit on the business” of that entity.



“There’s no offering that they approve,” Fenton explained. “What they will approve is a registration statement and they basically say this is complete, you’ve disclosed all of the things you need to disclose, you’ve got the auditing that you need and you’ve got the stuff you need to do to be a publicly traded company.”



A year prior to the public listing, Coinbase appointed Deloitte as its independent registered public accounting firm.



Though odd to see the SEC act against a company it essentially allowed to become a public company, Morningstar Analyst Michael Miller said, he told Blockworks that greenlighting that process is “not an endorsement.” Nor is it “a long-term claim on any future changes in strategy the company makes being also OK,” he added.



Gary Gensler became the SEC’s chair in the same month Coinbase went public, and so legwork around the SEC declaring effective the crypto exchange’s registration statement predates him, Miller noted.



Coinbase also expanded the number of cryptocurrencies it was listing on its exchange after it went public, he added.&nbsp;&nbsp;



The company stated a goal to “bring more assets to Coinbase, faster” in a June 2021 <a href="https://www.coinbase.com/blog/embracing-decentralization-at-coinbase">blog </a>post, adding that it would seek to “list all legal assets.”



“Also…we’ve seen some of the issues that can arise when you have an exchange, brokerage and custody service kind of combine into one and the conflict of interest — very loudly with FTX,” Miller said. “So there’s realistically more regulatory attention being paid to that business model.”



Coinbase has repeatedly contended since receiving a Wells notice from the SEC in March that the company does not list securities.&nbsp;



The crypto exchange noted in an April <a href="https://assets.ctfassets.net/c5bd0wqjc7v0/2pW56ln6rPJ7koLHlu2L8G/5041e0166c408698b621fde543539d76/2023-04-19_Coinbase_Wells_Submission.pdf">filing</a> its “extensive efforts” to engage with the SEC during its public listing process, as well as before and after.&nbsp;&nbsp;



“This abrupt move toward litigation did not result from discovering new facts about Coinbase’s business; the commission has the same facts today that it has had for years,” it states. “Nor does it result from the staff’s discovery of something that Coinbase concealed or misrepresented in its extensive engagement with the staff, including during the registration process. Coinbase did no such thing.”



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Coinbase Was Allowed to Go Public, Then Got Sued — Hypocrisy? Not Really, Some Say

A Paypal survey on the metaverse showed that 56% of respondents said that their use of crypto will increase over the next five years.&nbsp;



The study defined the metaverse as “a virtual space where users can act through an avatar and interact with each other and with a computer-generated environment.” It also cites both Meta and Roblox as metaverse companies.



Though the study digs into the role crypto plays, the metaverse definition used by Paypal is not directly related to blockchain technology.



The survey was commissioned by Paypal late 2022 and included 10,000 adults active in the <a href="https://blockworks.co/tag/metaverse">metaverse</a>.



<h2 class="wp-block-heading">Crypto and the metaverse</h2>



Eighty percent of metaverse users currently use crypto, while 97% of metaverse users hold coins — Bitcoin (<a href="https://blockworks.co/price/btc">BTC</a>) takes the cake as the most-held coin, while ether (<a href="https://blockworks.co/price/eth">ETH</a>) and robux (<a href="https://blockworks.co/price/rbx">RBX</a>) come in second and third.&nbsp;



While the metaverse isn’t making easy money for people yet, this is an area that 75% of users are interested in, with the majority wanting to get paid in crypto over fiat despite the market downturn.



However, the metaverse has a few hurdles to overcome with it comes to both interoperability and safety of funds.



“For money in the metaverse to effectively perform the three core functions of money unit of account, medium of exchange, and store of value), the metaverse financial infrastructure needs to provide three kinds of money interoperability – interoperability across metaverse platforms; interoperability between metaverse platforms and other online environments; interoperability between virtual and physical worlds,” the survey <a href="https://newsroom.paypal-corp.com/2023-06-Metaverse-and-Money">said</a>.



The majority of those surveyed also seek the ability to either insure payments against fraud or store digital assets securely.&nbsp;



“In the case of the metaverse, digital wallets could extend to enabling avatar verification and interoperability too,” the survey said.



<h2 class="wp-block-heading">The state of the metaverse</h2>



Paypal said that it expects spending in the metaverse to be in the billions. The survey found that the majority of the users currently engage with video games in the metaverse.&nbsp;



Currently, people are spending $28 billion a year in the metaverse with slightly less than 38 million people.&nbsp;



“Taking current users and future users in the U.S. together, the estimated total spending in the metaverse would be $72.6 billion in the next year and $92.7 billion per year on average in the next 5 years,” the survey said.



In the past year, there’s been mass speculation on the state of the metaverse — is it dead? Evolving?&nbsp;



Meta, which renamed itself after its metaverse plans, was used as a prime example of the metaverse gone wrong, with the stock dipping below $100 throughout 2022 and Meta announcing thousands of job cuts.&nbsp;



Meta’s <a href="https://blockworks.co/news/meta-metaverse-unit-has-lost-5-7b-this-year">metaverse unit lost a whopping $5.7 billion</a> so far this year.



Even <a href="https://blockworks.co/news/microsoft-culls-metaverse-team">Microsoft let go of its metaverse team</a> months after creating it.&nbsp;



However, companies such as Fidelity and Gucci have entered the metaverse. Gucci <a href="https://blockworks.co/news/gucci-yuga-labs-bayc-metaverse">teamed up with the Bored Ape Yacht Club</a> back in March to see how fashion can interact with the metaverse.&nbsp;



Fidelity has <a href="https://blockworks.co/news/fidelity-doubles-down-metaverse">doubled down on its metaverse presence</a>, launching Pancake Empire Tower Tycoon on Roblox and Bloom-o-rama in Decentraland. It’s also not the only — for first — traditional finance company to take steps in the metaverse, with both <a href="https://blockworks.co/news/hsbc-buys-virtual-real-estate-in-sandbox-metaverse">HSBC</a> and <a href="https://blockworks.co/news/jpmorgan-enters-the-metaverse-with-virtual-decentraland-lounge">JPMorgan</a> both making their own metaverse moves.&nbsp;



Apple announced a virtual reality headset on Monday, though the announcement – which happened during the Worldwide Developers Conference – made no direct mention of the metaverse or any of Apple’s plans to enter the category.



The survey’s conclusions compare the metaverse to camera technology. Basically, we may be able to access pictures of places across the globe, but that doesn’t stop people from visiting monuments — and has even evolved to allow us to have a camera with us at all times.&nbsp;



“We imagine, though, that the metaverse will be more like the camera; not a wholesale replacement of our physical lives, but a supplement to them,” Paypal said.



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80% of Metaverse Users Use Crypto, Paypal Survey Finds

On the heels of the SEC suing both Binance and Coinbase, the House Agriculture Committee gathered Tuesday morning for a dual panel hearing to discuss crypto spot market regulation.



Lawmakers first posed questions to Commodity Futures Trading Commission Chair <a href="https://blockworks.co/tag/rostin-benham">Rostin Behnam</a>, before turning to a five-witness panel consisting of industry and former <a href="https://blockworks.co/tag/cftc">CFTC</a> executives. 



Behnam in his remarks focused on crypto token classification, the current pattern of regulation by enforcement and the need for regulatory clarity. The <a href="https://blockworks.co/tag/sec">SEC</a> made a point of deeming more than <a href="https://blockworks.co/news/sec-10-tokens-securities">10 tokens securities</a> between its Binance and Coinbase suits this week.&nbsp;



“There are some who argue ‘the SEC’s got this,’” Dusty Johnson, R-S.D., said during his allotted time to question Behnam.&nbsp;



But should the SEC have total control over digital assets, Johnson asked?



Read more: <a href="https://blockworks.co/news/gensler-dollar-is-digital-currency">Gensler Says US Dollar Is Only Digital Currency We Need</a>



“This is not a zero-sum game,” Behnam said. “For anything that the CFTC might get in legislative or legal authority, I’m not taking it from someone else. There is a regulatory vacuum, there is a gap in regulation over digital commodity assets.”&nbsp;



<h2 class="wp-block-heading">SEC securities authority</h2>



The SEC should have authority over assets classified as securities, according to Behnam, who added that “the fact of the matter is the largest token, bitcoin, is a commodity, and that was determined by a US court, and that, under US law, is unregulated.”&nbsp;



Most exchanges list very few crypto assets that have already been officially classified as commodities, Behnam said. The CFTC chair made the point that, as such, there’s a pressing need to give the regulator additional authority over the crypto commodity sector. 



Several lawmakers aired concerns about the perceived pattern of regulation by enforcement in the US.&nbsp;



“Regulation by enforcement is not an appropriate way to govern a market, adequately protect customers or promote innovation,” Committee Chair Glenn Thompson, R-Penn., said during his prepared remarks.



Rep. Jim Govern, D-Mass., asked Behnam what could happen if this pattern continues.&nbsp;



“The evidence is in our enforcement record, and we even point to the SEC’s enforcement record as well,” Behnam said. “We brought 82 cases over about 8 years, and [these] 82 cases [came from] an agency that doesn’t have regulatory authority.”&nbsp;



The issue is not that the CFTC and SEC should avoid charging entities in violation of existing law, according to the CFTC chair. But it’s rather, in Behnam’s estimation, about a need for more congressional authority to address crypto risks and establish clear policies.



“My fear is that this… is the tip of the iceberg,” Behnam said. “As this market ebbs and flows in size, and it has largely stabilized in the last six months, if it starts to peak and move into a direction of growing, you could potentially have financial stability concerns.”&nbsp;



Tuesday’s hearing started just hours after the SEC<a href="https://blockworks.co/news/sec-sues-coinbase"> unveiled charges against crypto exchange Coinbase</a> for alleged securities laws violations. The complaint was filed one day after the SEC levied <a href="https://blockworks.co/news/binance-changpeng-zhao-face-sec-charges">similar charges against Binance</a>, the world’s largest exchange.&nbsp;



Coinbase Chief Legal Officer Paul Grewal is set to join Dan Gallagher, Robinhood’s chief legal compliance and corporate affairs officer, on the second panel of Tuesday’s hearing.&nbsp;



Second panel witnesses also include former CFTC Chair Christopher Giancarlo, former CFTC Commissioner and former SEC General Counsel Dan Berkovitz, and Walt Lukken, former CFTC acting chair.



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Regulation by Enforcement Is Unsustainable, CFTC Chair Tells Congress

SEC Chair Gary Gensler appeared on CNBC&#8217;s Squawk Box to discuss the recent lawsuits filed by the SEC against Binance and Coinbase. The lawsuits accuse both platforms of operating as unregistered securities exchanges.



Gensler’s main thrust was that Coinbase, Binance and other crypto exchanges are evading American regulation and that “there’s been clarity for years.”



“It&#8217;s fundamentally a lack of controls, deception, [and] conflicts,” Gensler said. “The whole business model is built on non compliance with the US securities laws and we&#8217;re asking them to come into compliance so they&#8217;re going a bit of ‘catch us if you can.’”



Gensler repeatedly touted the SEC’s claim that Binance CEO Changpeng Zhao <a href="https://blockworks.co/news/sec-allegations-against-binance">commingled customer funds with those of his trading firm Merit Peak Limited</a> as an example of why crypto exchanges need more oversight. Binance denied this allegation.



<a href="https://blockworks.co/tag/binance">Binance</a> was a continued target in the interview on CNBC, with fewer mentions of Coinbase. To that end, Gensler suggested that users should think twice about leaving their funds on Binance’s platform.



“Make no mistake, it is not proper custody to have funds and crypto securities on platforms like Binance,” he said.



Gensler also talked about the worth of certain crypto tokens, saying there’s a lot of debate about use cases.&nbsp;



When host Jim Cramer raised several questions about the value of the <a href="https://blockworks.co/news/sec-10-tokens-securities">coins listed as securities in the Binance complaint</a>, such as SOL, ADA, MATIC, FIL, ATOM, SAND, MANA, ALGO, AXS, and COTI, Gensler was much clearer.



“Look, we don&#8217;t need more digital currency. We already have digital currency. It&#8217;s called the US dollar. It&#8217;s called the euro. It&#8217;s called the yen. They&#8217;re all digital right now. We already have digital investments,” Gensler said.&nbsp;



He continued, “We have not seen over the centuries that economies or the public needs more than one way to move value.”



Despite his skepticism of a future where crypto exists alongside fiat currencies, Gensler added that, “if there&#8217;s a real value in these crypto tokens, then compliance will build trust and the business model might change” for crypto exchanges.



He further asserted that the <a href="https://blockworks.co/tag/sec">SEC</a>’s recent actions are “pro innovation,” striking back at Binance’s <a href="https://www.binance.com/en/blog/ecosystem/sec-complaint-aims-to-unilaterally-define-crypto-market-structure-8707489117122437402">claim</a> that his agency is undermining “America’s role as a global hub for financial innovation and leadership.”



“What we&#8217;re doing at the SEC is pro innovation because, without trust, the capital markets really don&#8217;t work,” Gensler said.&nbsp;



Gensler declined to talk about specific communications between the SEC and the companies in question, but said he remains ready to bring additional crypto exchanges into proper compliance.



In terms of the SEC’s goal in court, Gensler said that all it has to do is prove that one crypto token “is a security” and “should be properly registering.”



Gensler has been in the spotlight for months, as his agency ramps up enforcement against crypto companies. When he <a href="https://blockworks.co/news/gensler-house-financial-services-committee">testified before Congress back in April</a>, Gensler refused to answer whether <a href="https://blockworks.co/news/regulatory-clarity-ethereum-gensler">ether was a security or a commodity</a>.



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Gensler Says US Dollar Is Only Digital Currency We Need

In addition to the SEC’s lawsuit against Coinbase — which was filed Tuesday morning — 10 states announced a show cause order against Coinbase.&nbsp;



“The order gives Coinbase 28 days to show cause why they should not be ordered to cease and desist from selling unregistered securities in Alabama,” the Alabama Securities Commission <a href="https://asc.alabama.gov/News/2023%20News/6-6-2023_Coinbase.pdf">wrote</a>.&nbsp;



Securities regulators from California, Illinois, Kentucky, Maryland, New Jersey, South Carolina, Vermont, Washington and Wisconsin are also part of the state task force.&nbsp;&nbsp;



The show cause order from Alabama alleges that Coinbase “violates the securities law by offering its staking rewards program accounts to Alabama residents without a registration to offer or sell these securities.”



It goes on to claim that the “3.5 million staking rewards program accounts nationwide are not insured by the Federal Deposit Insurance Corporation (FDIC) or the Securities Investor Protection Corporation (SIPC),” which means that investors are not protected from losses.&nbsp;



Coinbase’s staking program offers five crypto assets including <a href="https://blockworks.co/price/XTZ">XTZ</a>, <a href="https://blockworks.co/price/ATOM">ATOM</a>, <a href="https://blockworks.co/price/ETH">ETH</a>, <a href="https://blockworks.co/price/ADA">ADA</a> and <a href="https://blockworks.co/price/SOL">SOL</a>.&nbsp;



The SEC pinpointed <a href="https://blockworks.co/news/sec-sues-coinbase">Coinbase’s staking program in its lawsuit,</a> claiming that, “the Staking Program includes five stakeable crypto assets, and the Staking Program as it applies to each of these five assets is an investment contract, and therefore a security.”



Read more: <a href="https://blockworks.co/news/sec-sues-coinbase-allegations">SEC Sues Coinbase: Here’s What They Allege Coinbase Did Wrong</a>



“At all relevant times, the Coinbase Staking Program, as it applied to each of the five stakeable assets, was an investment contract under Howey, and therefore a security, whose offers and sales were subject to registration under the Securities Act,” the suit goes on to say.



The SEC’s lawsuit also alleges that <a href="https://blockworks.co/tag/Coinbase">Coinbase</a> listed and sold unregistered securities.&nbsp;



Coinbase did not immediately respond to a request for comment.



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Coinbase Staking Program Targeted by Alabama Securities Regulator

With Coinbase joining Binance as the second cryptocurrency heavyweight sued by the SEC in roughly 24 hours, the industry is reeling.



And industry participants on Tuesday were amping up their efforts to digest the content — and the implications — of both landmark legal actions.&nbsp;



The SEC this week claimed that both <a href="https://blockworks.co/news/binance-changpeng-zhao-face-sec-charges">Binance</a> and <a href="https://blockworks.co/news/sec-sues-coinbase">Coinbase</a> have been operating unregistered exchanges and listing a number of individual tokens <a href="https://blockworks.co/news/sec-10-tokens-securities">the regulator has deemed unregistered securities</a>.&nbsp;



“But while paying lip service to its desire to comply with applicable laws, Coinbase has for years made available for trading crypto assets that are investment contracts under the Howey test and well-established principles of the federal securities laws,” the SEC claims.



Binance’s CEO, who took to Twitter on Monday after his company was served with the suit, was quick to play to the court of crypto public opinion in responding to the SEC’s suit against rival Coinbase.&nbsp;



Changpeng “CZ” Zhao tweeted, “If you have to pick a fight with everyone, maybe you are the one at fault.”&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">If you have to pick a fight with everyone, maybe you are the one at fault. 🤷‍♂️&mdash; CZ 🔶 Binance (@cz_binance) <a href="https://twitter.com/cz_binance/status/1666067006213222403?ref_src=twsrc%5Etfw">June 6, 2023</a></blockquote><script async src="https://platform.twitter.com/widgets.js" charset="utf-8"></script>
</div></figure>



In expounding upon the Coinbase suit, SEC Commissioner <a href="https://blockworks.co/tag/gary-gensler">Gary Gensler</a> via Twitter early on Tuesday doubled down on his agency’s legal opinion regarding <a href="https://blockworks.co/tag/binance">Binance</a> from the day prior.&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">Coinbase’s alleged failures deprive investors of critical protections, including rulebooks that prevent fraud and manipulation, proper disclosure, safeguards against conflicts of interest, and routine inspection by the SEC. <a href="https://t.co/FwpdmENvoL">https://t.co/FwpdmENvoL</a>&mdash; Gary Gensler (@GaryGensler) <a href="https://twitter.com/GaryGensler/status/1666059466750541825?ref_src=twsrc%5Etfw">June 6, 2023</a></blockquote><script async src="https://platform.twitter.com/widgets.js" charset="utf-8"></script>
</div></figure>



<a href="https://blockworks.co/news/gary-gensler-national-disgrace">Gensler</a> also agreed to interviews on both CNBC and Bloomberg scheduled for Tuesday morning.



<a href="https://blockworks.co/tag/jack-dorsey">Jack Dorsey</a>, in a tweet on Monday, seemingly projected cryptocurrency industry support on the heels of the SEC’s 136-page lawsuit against Binance, the exchange’s US affiliate, and founder Zhao. Dorsey, the chief executive of Block, has been a vocal advocate of cryptocurrencies — especially bitcoin.&nbsp;



Dorsey tweeted, “Steady lads.”



<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">Steady lads&mdash; jack (@jack) <a href="https://twitter.com/jack/status/1665804355478466560?ref_src=twsrc%5Etfw">June 5, 2023</a></blockquote><script async src="https://platform.twitter.com/widgets.js" charset="utf-8"></script>
</div></figure>



Dan Raju, CEO of fintech company Tradier, told Blockworks that greater and clearer crypto regulation by the SEC is long overdue.&nbsp;&nbsp;



“The latest move by the SEC indicates that over time crypto offerings will be regulated and controlled similar to the traditional stack of participants in the equities market,” he said. “I also believe that while in the short run they may have an impact on crypto prices, it will only create retail confidence on crypto in the long term.”



Prior to the <a href="https://blockworks.co/tag/SEC">SEC</a>’s latest move against <a href="https://blockworks.co/tag/coinbase">Coinbase</a>, Paul Grewal, the exchange’s chief legal officer, laid out his ideal framework for more clear rules and regulations around digital assets. Coinbase has repeatedly asked the SEC for updated digital asset guidance.&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">How we define digital assets is critical for enabling innovation. Digital assets are diverse, and if we fail to effectively draw clear definitions of which assets are securities, which are commodities, and which are neither, crypto will continue to sit in regulatory limbo.&mdash; paulgrewal.eth (@iampaulgrewal) <a href="https://twitter.com/iampaulgrewal/status/1665859403520655360?ref_src=twsrc%5Etfw">June 5, 2023</a></blockquote><script async src="https://platform.twitter.com/widgets.js" charset="utf-8"></script>
</div></figure>



Grewal is set to appear before the House Committee on Agriculture to discuss the Digital Asset Market Structure Discussion Draft Tuesday morning.



Kristin Smith of The Blockchain Association was unimpressed with the latest salvo from the SEC, noting that the regulator doesn&#8217;t &#8220;make the law &#8211; it only makes accusations.&#8221;



<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 following statement is attributed to Blockchain Association CEO <a href="https://twitter.com/KMSmithDC?ref_src=twsrc%5Etfw">@KMSmithDC</a>: “The SEC doesn’t make the law – it only makes accusations – and we’re confident the courts will prove Chair Gensler wrong in due time. “Contrary to what Chair Gensler says, there is no regulatory… <a href="https://t.co/EyApCJoDqI">pic.twitter.com/EyApCJoDqI</a>&mdash; Blockchain Association (@BlockchainAssn) <a href="https://twitter.com/BlockchainAssn/status/1666089878940176388?ref_src=twsrc%5Etfw">June 6, 2023</a></blockquote><script async src="https://platform.twitter.com/widgets.js" charset="utf-8"></script>
</div></figure>



<h2 class="wp-block-heading">Did the SEC give “Binance some slack?”</h2>



Traders this week have once again been asking why Coinbase was even allowed to go public in 2021 — considering that the SEC claims that it’s been offering the sale of unregistered securities as well as operating as an unregistered broker since 2019.&nbsp;



“In fact, by suing Coinbase they pretty much just gave Binance some slack to win against their lawsuit as well; since they can just delay until Coinbase finishes and then cite Coinbase&#8217;s case,” @WolfOfPoloniex tweeted.



<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">So in SEC&#39;s complaint vs Coinbase, it states that they&#39;ve been acting as an unregistered broker since 2019. Yet&#8230;. the on April 14th, 2021 <a href="https://twitter.com/search?q=%24COIN&amp;src=ctag&amp;ref_src=twsrc%5Etfw">$COIN</a> became a public company on the Nasdaq. How on God&#39;s green earth do they possibly believe this lawsuit will ever hold up in court?… <a href="https://t.co/tYyEroRN6F">pic.twitter.com/tYyEroRN6F</a>&mdash; The Wolf (@WolfOfPoloniex) <a href="https://twitter.com/WolfOfPoloniex/status/1666061923778187265?ref_src=twsrc%5Etfw">June 6, 2023</a></blockquote><script async src="https://platform.twitter.com/widgets.js" charset="utf-8"></script>
</div></figure>



Crypto analyst Miles Deutscher had similar concerns, tweeting, “So you’re telling me that the SEC let an ‘unregistered broker’ IPO &#8211; after carrying out due diligence?”



<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">So, let me get this straight. The SEC says that “Coinbase has operated as an unregistered broker since 2019”. Yet Coinbase IPOd in April 2021. So you’re telling me that the SEC let an &quot;unregistered broker&quot; IPO &#8211; after carrying out due diligence? Well done Gary. 👏&mdash; Miles Deutscher (@milesdeutscher) <a href="https://twitter.com/milesdeutscher/status/1666061714411106306?ref_src=twsrc%5Etfw">June 6, 2023</a></blockquote><script async src="https://platform.twitter.com/widgets.js" charset="utf-8"></script>
</div></figure>



After <a href="https://blockworks.co/news/sec-serves-coinbase-in-latest-alleged-crypto-securities-violation">receiving a Wells notice</a> from the SEC in March, Coinbase said it would defend itself against a regulator it says is going beyond its authority. &nbsp;



CEO Brian Armstrong said in a Twitter Space soon after the Wells notice that <a href="https://blockworks.co/news/coinbase-happy-to-go-to-court-with-sec">the courts might be able to offer clarity</a> on this matter.&nbsp;



Coinbase <a href="https://blockworks.co/news/coinbase-q1-stats-stand-out">dropped its net loss to $79 million</a> during the first quarter — down from $557 million in the last three months of 2022 — as it sought to reel in spending. The company said it expected costs to rise in the second quarter, in part due to legal expenses.



Ben Strack contributed reporting. 



Updated June 6, 2023 at 10:21 am ET: Added comment from Dan Raju, CEO of fintech company Tradier. Added comment from Kristin Smith of The Blockchain Association.



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