Casey Wagner

<div id="highlights-block_6356c30cf2dcc" class="highlights">
 <ul>
 <li>Industry members were quick to accuse the framework of being at odds with the founding principles of crypto</li>
 <li>Sam Bankman-Fried is the fourth biggest political donor in the US, and he wants a say in how crypto is regulated</li>
 </ul>
 
</div>



FTX CEO Sam Bankman-Fried is refining — and, in some cases, walking back — the <a href="https://cms.blockworks.co/sam-bankman-fried-proposes-respect-for-ofac-in-crypto-regulatory-framework/" target="_blank" rel="noreferrer noopener">crypto regulatory framework he dropped last week</a>, which he acknowledged is a work in progress. 



Bankman-Fried last week <a href="https://www.ftxpolicy.com/posts/possible-digital-asset-industry-standards" target="_blank" rel="noreferrer noopener">published</a> his take on how the crypto industry should be regulated. The document, dubbed the “Possible Digital Asset Industry Standards,” is a breakdown of how Bankman-Fried thinks the industry should operate, from sanctions policies to token classification. 



Crypto advocates were quick to critique the standards. Erik Voorhees, founder of ShapeShift, penned an <a href="https://www.moneyandstate.com/blog/response-to-sbfhttps://www.moneyandstate.com/blog/response-to-sbf" target="_blank" rel="noreferrer noopener">open letter</a> in response, arguing Bankman-Fried’s suggestions go against the founding principles of crypto. 



“For Sam to suggest that the industry ‘should respect OFAC’ is unbecoming,” Voorhees wrote. “Anyone genuinely advocating for ‘an open, free economy’ cannot support such blatant financial discrimination on millions of innocent people.”



Bankman-Fried responded by saying he sympathizes with “innocent people caught in broader blocks” of sanctions, “policy conversation worth having.”



Others were keen to criticize the proposal’s attitude toward decentralized finance. Twitter users largely agreed that placing DeFi projects in the same regulatory framework as centralized companies would be a mistake.&nbsp;



“SBF is a great entrepreneur. But sadly, he is not the greatest advocate of DeFi and the <a href="https://twitter.com/hashtag/crypto?src=hashtag_click" target="_blank" rel="noreferrer noopener">crypto</a> space,” one <a href="https://twitter.com/cryptoshank_/status/1584537497794904065?s=20&amp;t=4rPTStBAPcfcSBE9DK1d9w" target="_blank" rel="noreferrer noopener">Twitter user</a> said in response to the framework. 



In a <a href="https://twitter.com/SBF_FTX/status/1584095445185622016?s=20&amp;t=jlFb-VlEgU_04IGiwKDRhg" target="_blank" rel="noreferrer noopener">Twitter thread</a> Sunday, Bankman-Fried thanked adversaries for their “constructive feedback” — adding he would edit the original proposal as needed. 



The FTX head maintained centralized exchanges must take responsibility for offering products to users who understand the risks and are able to make informed decisions.&nbsp;



“If you’re going to gate products on regulated exchanges, do it on understanding, not wealth,” he added, highlighting the notion that traders’ capabilities should not be determined by net worth.&nbsp;



The guidelines and response comes as US <a href="https://cms.blockworks.co/crypto-fundraising-startup-sets-sights-on-midterm-election-donations/" target="_blank" rel="noreferrer noopener">midterm elections</a> inch closer. The industry is keeping a close eye on candidates that could advance digital assets. Bankman-Fried in particular has been quick to open his wallet. 



At the beginning of the year, the FTX head ranked fourth out of all US election mega-donors, with a total contribution of more than $39 million, according to Federal Election Commission data and <a href="https://www.opensecrets.org/elections-overview/biggest-donors?cycle=2022" target="_blank" rel="noreferrer noopener">Open Secrets</a>. Bankman-Fried once said he could donate up to $1 billion during the 2024 election cycle but has since backtracked.



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



Start your day with top crypto insights from David Canellis and Katherine Ross. <a href="https://blockworks.co/newsletter/empire">Subscribe to the Empire newsletter</a>.

Sam Bankman-Fried Backtracks on Crypto Regulatory Framework

Shalini Nagarajan

<div id="highlights-block_6352d97fec979" class="highlights">
 <ul>
 <li>“OFAC does not deserve respect. It deserves repeal,” Voorhees said</li>
 <li>Several crypto observers are combating Bankman-Fried’s DeFi proposals</li>
 </ul>
 
</div>



Sam Bankman-Fried asked for critiques on his proposed crypto regulatory framework this week. The FTX head is certainly getting what he asked for.&nbsp;



Bankman-Fried’s outline on Wednesday included a disclaimer, saying the potential set of standards is not “exactly correct” and is “just a draft.”&nbsp;



In the <a href="https://www.ftxpolicy.com/posts/possible-digital-asset-industry-standards">blueprint</a>, he laid out how he believes hacks can be limited and how FTX plans to decide which cryptoassets are securities. He also proposed customer protection standards and a mechanism for audits to confirm stablecoins are appropriately backed by fiat.&nbsp;



He also proposes regulation using “blocklists,” a move that would ban blockchain transfers between sanctioned parties.&nbsp;



“Maintaining a blocklist is a good balance: prohibiting illegal transfers and freezing funds associated with financial crimes while otherwise allowing commerce,” he said.&nbsp;



Added: Bankman-Fried: “Everyone should respect OFAC’s sanctions lists (which, by the way, is already the law).”



A US Treasury subsidiary, OFAC, or the Office of Foreign Asset Control, enforces sanctions against foreign nation-states, blacklisted individuals and red-flagged corporate entities. The aim is to prevent any and all US trade with those slapped with sanctions — a measure that is particularly in play at the moment regarding Russian oligarchs, following the country’s invasion of Ukraine.&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 DeFi Education team has reviewed and considered <a href="https://twitter.com/SBF_FTX?ref_src=twsrc%5Etfw">@SBF_FTX</a> ’s drafted thoughts on crypto regulation. Here’s what we think Sam missed 👇&mdash; BowTiedIguana 🫐 (@BowTiedIguana) <a href="https://twitter.com/BowTiedIguana/status/1583217690537099264?ref_src=twsrc%5Etfw">October 20, 2022</a></blockquote><script async src="https://platform.twitter.com/widgets.js" charset="utf-8"></script>
</div></figure>



A spokesperson for FTX declined to comment.&nbsp;



<h3 class="wp-block-heading">Concerns over ‘respect’ for OFAC in SBF&#8217;s regulatory framework</h3>



On the face, Bankman-Fried appears to be suggesting mostly logical rules that would safeguard consumers, especially vulnerable retail investors.&nbsp;



But Erik Voorhees, ShapeShift co-founder, took up a number of concerns with the crypto billionaire. Voorhees, an early Bitcoin adopter, is one of <a href="https://twitter.com/CroissantEth/status/1583279221853794304" target="_blank" rel="noreferrer noopener">several high-profile</a> industry participants to speak out against some of Bankman-Fried’s proposals.&nbsp;



Although Voorhees agreed on the need for transparency and scam prevention, he did have opposing views on two key proposals: respecting OFAC and licensure for DeFi-related activities.



He said OFAC’s list includes entire countries and took the example of sanctioned Iran, pointing out that it’s illegal for an American to do business with an Iranian.



“You know those insanely brave Iranian women standing up against oppression in Iran right now? Those women espousing the greatest American virtue of individual liberty and doing so while literally facing torture and death?” he said, referring to the <a href="https://www.thecut.com/2022/10/women-across-iran-are-protesting-the-morality-police.html" target="_blank" rel="noreferrer noopener">women protesting</a> against the “morality police” in Iran over the death of 22-year-old Mahsa Amini.&nbsp;



“If you’re an American, it is illegal for you to interact economically with those women, because of OFAC.”



Bankman-Fried suggesting that the crypto industry should respect OFAC is “unbecoming,” he added.



<h3 class="wp-block-heading">SBF advocates licensure for DeFi activities</h3>



Bankman-Fried’s latest thoughts on DeFi are the “most problematic” of his new blueprint, according to Voorhees.&nbsp;



The crypto entrepreneur said the likes of hosting websites on platforms such as Amazon Web Services, which provide a US retail front-end for decentralized protocols, should require some license or registration.&nbsp;



Such a move would require know-your-customer [KYC] checks to use a platform such as Uniswap.



<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">SBF wants to ban DAI and Uniswap and you guys still think he&#39;s on your side? Lol&mdash; Spreek (@spreekaway) <a href="https://twitter.com/spreekaway/status/1582839824763211777?ref_src=twsrc%5Etfw">October 19, 2022</a></blockquote><script async src="https://platform.twitter.com/widgets.js" charset="utf-8"></script>
</div></figure>



“It would mean 80 million Iranians would be prohibited from accessing functions on Etherscan,” he said. “It would even mean a non-custodial Bitcoin wallet interface would be required to spy on its users and report suspicious activities to FinCEN [Financial Crimes Enforcement Network].”



Crypto exchanges such as FTX, Kraken and Coinbase already fall subject to those obligations, he said.&nbsp;



“With Sam’s above suggestion, the burdens would be expanded to every front end access point to the world of DeFi,” Voorhees said.



Bankman-Fried <a href="https://twitter.com/SBF_FTX/status/1582918087959248896" target="_blank" rel="noreferrer noopener">admits</a> he could be wrong about some of his suggested policies — and clarified he didn’t mean DeFi should be censored.



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



Start your day with top crypto insights from David Canellis and Katherine Ross. <a href="https://blockworks.co/newsletter/empire">Subscribe to the Empire newsletter</a>.