SEC - Page 29

The U.S. Securities and Exchange Commission (SEC) is facing criticism for its recent enforcement actions against the decentralized crypto exchange Uniswap, which seem to deviate from its own historical guidelines.

Adam Cochran of Cinneamhain Ventures has pointed out these inconsistencies, drawing from multiple precedents in SEC’s own archives.

Historically, the SEC has issued “No-Action Letters” indicating a more flexible interpretation of what constitutes an exchange.

Notable instances include 1986, 1991, and 1997 when entities seeking to establish electronic systems for routing and matching trades were not classified as exchanges.

“But the SEC concluded that because the execution was on a separate system that matching, routing, communicating and ordering as a ‘computer service system’ did not meet the holistic definition of ‘an exchange,'” Cochran explained, referencing the SEC’s past decisions.

Further, Cochran highlighted instances in 1989 and 1990 when the SEC differentiated front-end interfaces from exchanges.

“The SEC guidance found that because these interfaces, even though they profited from bringing together buyers and sellers to exchange explicit securities the fact that the settlement and payment happened elsewhere meant these interfaces were not exchanges,” Cochran elaborated.

In 1998, the SEC appeared to settle this issue definitively in its No-Action Letter LEXIS 18 by deciding it would no longer entertain requests for such clarifications.

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Cochran’s review also included guidance from 1979, 1996, and 1999 which asserted that merely connecting buyers and sellers does not an exchange make, emphasizing that “The exchange needed to involve the legal transfer of the assets and/or finances.

So even though a buyer on Uniswap may commit to a purchase, by signing a transaction with their private key the Uniswap Labs frontend, isn’t what’s settling it.”

Additionally, Cochran mentioned a 1998 SEC finding that an electronic system serving as a primary listing location for unlisted common stocks does not qualify as an exchange if it does not clear and settle transactions.

“In this case, the commission found that once again, so long as their informational interface was no clearing and settling these transactions, then just because it was the primary listing location of an asset, it was not somehow more of an exchange.”

Despite this backdrop, Uniswap Labs has been under the SEC’s lens since 2021, culminating in a Wells notice on April 10, indicating potential enforcement.

Uniswap Labs has defended its position by asserting that it merely developed the front-end portal of the app, distinct from the Uniswap protocol—a self-executing code made public.

Cochran supports this view, clarifying, “In fact, we know these elements are distinct, because you can execute trades on the smart contract through other interfaces (like Etherscan or swap aggregators), or even directly through a node.”

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Crypto.com’s branch in Dubai, CRO DAX Middle East FZE, has recently achieved a significant regulatory milestone by obtaining full operational approval from Dubai’s Virtual Assets Regulatory Authority (VARA).

This landmark approval, announced on April 9, marks the first time a cryptocurrency exchange has been authorized to handle fiat transactions within the United Arab Emirates (UAE).

This development follows the initial licensing phase, where Crypto.com met all pre-operational requirements set by VARA since the virtual asset service provider license was issued in November 2023.

With this new operational status, Crypto.com plans to launch its exchange services specifically aimed at institutional investors, alongside qualified retail investors.

The platform will offer a variety of financial services, including spot trading, staking, brokerage, and Over-The-Counter (OTC) trading, focusing on settlements for specific markets.

Eric Anziani, Crypto.com’s president and COO, highlighted the significance of this achievement, stating, “Being the first global crypto operator operational with fiat in the UAE is a significant milestone and reflects our dedication to working closely with regulators to advance the industry responsibly.”

He also emphasized the importance of the upcoming institutional services exchange as a key driver for the company’s growth in the region.

Stuart Isted, Crypto.com’s general manager for the Middle East and Africa, reiterated the company’s commitment to regulatory compliance and responsible industry advancement in partnership with VARA.

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Founded in Hong Kong in 2016 and now headquartered in Singapore, Crypto.com has been actively expanding its international presence.

This includes efforts to navigate the evolving regulatory landscape in Europe, highlighted by the anticipated impact of the Markets in Crypto-Assets Regulation (MiCA) on the expansion of major crypto exchanges.

Furthermore, Crypto.com has engaged in strategic partnerships, such as its collaboration with Latin America’s largest investment bank to support the BTG Dol stablecoin, and its initiative to launch a cryptocurrency trading app in South Korea.

Despite its achievements, Crypto.com has faced regulatory challenges, including a fine from the Dutch central bank for registration issues, which the exchange contested while continuing its operations in The Netherlands.

This series of strategic moves and regulatory navigations underscores Crypto.com’s ambitious efforts to solidify its position in the global cryptocurrency market.

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On April 9, a significant security risk for Telegram users was highlighted by the blockchain security firm CertiK, revealing a vulnerability that could lead to malicious attacks via the desktop version of the messaging app.

CertiK, through an alert on X (formerly Twitter), disclosed a “high-risk vulnerability in the wild” that could allow hackers to execute remote code execution (RCE) attacks through Telegram’s media processing.

This vulnerability, found specifically in the Telegram Desktop application, makes users susceptible to attacks through specially crafted media files, like images or videos.

CertiK’s findings have stirred concerns, prompting them to advise users to modify their Telegram Desktop settings to prevent automatic media file downloads.

This precaution involves disabling the auto-download for “Photos”, “Videos”, and “Files” within the app’s settings, specifically under the “Automatic Media Download” section for all types of chats.

Despite these claims, a Telegram spokesperson denied acknowledging any such vulnerability within Telegram clients.

The revelation of this vulnerability has brought attention to the ongoing security challenges faced by Telegram, especially given its popularity in the cryptocurrency community for its features that support communication, file sharing, and cryptocurrency transactions through its Wallet service.

This service, notably, opts for a custodial approach to managing users’ assets, differing from the conventional method where users control their private keys.

This isn’t the first time Telegram has been in the spotlight for security vulnerabilities.

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Previous instances include a 2023 discovery by a Google engineer of a bug in the macOS version of the app that could allow unauthorized access to a device’s camera and microphone, and a 2021 incident identified by a Shielder researcher involving modified animated stickers that could compromise user data.

Telegram’s response to such vulnerabilities has been proactive, with the platform’s bug bounty program, initiated in 2014, inviting developers and security researchers to report potential security issues in exchange for financial rewards.

The program aims to address and mitigate security concerns by leveraging the expertise of the wider security community.

However, despite Telegram’s efforts to secure its platform and the skepticism around the current vulnerability’s existence, the dialogue between security experts and Telegram continues, underscoring the complex landscape of digital security and the ongoing need for vigilance.

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Caroline Pham, a commissioner at the U.S. Commodity Futures Trading Commission (CFTC), raised concerns about potential conflicts between her agency and the Securities and Exchange Commission (SEC) following a recent crypto enforcement initiative.

On March 29, Pham articulated worries that the CFTC’s recent actions against KuCoin, a cryptocurrency exchange, might overlap with SEC’s regulatory domain.

The CFTC accused KuCoin of various breaches of the Commodity Exchange Act and its regulations on March 26, aligning with criminal allegations by the U.S. Justice Department.

Pham expressed apprehension that the CFTC’s strategy might encroach on SEC’s jurisdiction, potentially jeopardizing long-established investor protection laws by confusing financial instruments with financial activities.

She underscored the difference between owning shares and trading derivatives, indicating a fundamental distinction in how financial markets operate.

This situation reflects broader debates within U.S. legislative and regulatory circles regarding the oversight responsibilities of the CFTC and SEC, especially concerning cryptocurrency regulation.

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The classification of cryptocurrencies as either commodities or securities is a central theme in these discussions.

The debate has intensified, particularly around Ether, after Prometheum, a crypto company, announced its intention to offer custody services for it as a security.

The dispute over Ether’s classification is critical, as the CFTC’s complaint against KuCoin implied that Ether is a commodity.

Nonetheless, legal experts have noted that any move by the SEC to classify ETH as a security could significantly influence the CFTC’s decisions on various applications for spot Ether exchange-traded funds awaiting review.

The disagreement between the two regulatory bodies highlights the complexities of regulating emerging technologies like cryptocurrencies, as they challenge traditional regulatory frameworks and necessitate a clear delineation of oversight responsibilities.

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In a landmark decision, the U.S. Court of Appeals for the Second Circuit has ruled in favor of Coinbase, a prominent cryptocurrency exchange, amidst a legal battle that has garnered significant attention.

This ruling confirms that the sale of cryptocurrencies on Coinbase’s platform does not contravene the Securities Exchange Act, marking a considerable triumph for the company and the broader cryptocurrency sector.

This case revolved around a nationwide class of individuals who engaged in token trading on Coinbase from October 8, 2019, to March 11, 2022.

The core of the litigation questioned whether the cryptocurrencies traded on Coinbase qualified as securities under the law.

The plaintiffs brought forward claims under the Securities Act of 1933 and the Securities Exchange Act of 1934, along with alleging violations of securities laws in California, Florida, and New Jersey.

They argued that Coinbase had been involved in the sale of unregistered securities and breached multiple securities laws.

Contrarily, Coinbase maintained that the sales of crypto-assets on its platform did not fulfill the definition of a securities transaction, challenging the applicability of securities laws to these operations.

The Court of Appeals dissected various elements of the case, overturning certain lower court rulings while upholding others.

Specifically, it acknowledged the possibility of Coinbase’s liability under the Securities Act for the sale of unregistered securities but dismissed the claims under the Securities Exchange Act due to a lack of evidence for transaction-specific contracts essential for rescission under Section 29.

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The interpretation of Coinbase’s user agreements, which have changed over time, played a pivotal role in the court’s decision.

The variance in language across different versions of the agreements introduced complexities regarding title and privity issues, underscoring the importance of clarity on the applicable version of the user agreement.

From one perspective, the plaintiffs see this verdict as a positive development in ensuring cryptocurrency platforms comply with securities laws, thereby protecting investors in the rapidly evolving digital asset space.

On the other hand, Coinbase views the ruling as an affirmation of its stance that secondary sales of crypto are not securities transactions.

Coinbase’s Chief Legal Officer, Paul Grewal, took to the X social platform to express gratitude for the decision, highlighting that the Second Circuit has reiterated the absence of private liability for secondary digital asset trading on exchanges under federal securities law.

He emphasized the crucial role of contractual agreements in this context.

Moreover, Coinbase underlined the importance of regulatory clarity to nurture innovation in the cryptocurrency industry, indicating the significant implications of the Court of Appeals’ decision for the regulation of cryptocurrencies and digital assets.

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In a recent revelation by CoinGecko, the memecoin sector has distinguished itself as the most lucrative narrative within the crypto market this year.

A staggering average return of 1,312.6% was seen across leading memecoins by market cap.

New entrants like Book of Meme (BOME), Brett, and Cat in a Dogs World (MEW) broke into the top 10 by market value following their March launches.

Brett achieved an astonishing 7,727.6% return by Q3 2024’s end, outshining Dogwifhat (WIF) with its 2,721.2% growth, spurred by a Solana-based memecoin craze.

CoinGecko analyst Lim Yu Qian highlighted the exceptional performance of memecoins, stating, “Notably, the memecoin narrative was 4.6 times more profitable than the next best-performing crypto narrative of tokenized real-world assets (RWA), and 33.3 times more profitable than the layer 2 narratives with the lowest returns in Q1 this year.”

As it stands, memecoins boast a market cap of $60.93 billion, a notable 176.9% rise from the previous quarter and making up 2.32% of the total crypto market.

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This surge outpaces the capitalization of sectors like decentralized physical infrastructure networks ($29.98 billion), layer 2 solutions ($32.39 billion), and others, underscoring the memecoin market’s growth and investor appeal.

Google Trends data reflects a peak in “memecoins” searches, hitting a near five-year high in March, indicative of soaring global interest.

This uptick in popularity and increased transaction volumes points to a broadening investor base and vibrant community engagement around memecoins.

The sector’s success coincides with Bitcoin’s record-breaking rally, with its price surpassing $73,800 for the first time, ahead of a supply halving event.

This achievement has arguably fueled broader interest in cryptocurrencies, including memecoins, as investors look to capitalize on the burgeoning market.

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