and if enacted, it could crush crypto technology, all
without even mentioning the words DeFi or cryptocurrency.
How is this even possible?
Is this some kind of mistake,
intentional ignorance, or something else altogether?
This new proposal by the SEC plans
to to expand on the word
to specifically include treasuries dealers, making
them subject to much more regulation.
A US Treasury is basically a loan that you give to
the US government in return for a small interest rate.
And it turns out that about half of
the trades in this specific market are done
by brokers who may need additional regulation.
Now wait, you're probably wondering, how
does this relate to crypto whatsoever?
I mean, the title of the proposal is
literally about government securities dealers, not crypto.
Well, in this case, it's all
about the footnotes, the fine print.
See, on footnote 36, it states that this
rule would apply to any securities defined by
the document as well as any digital asset
that is a security as defined by the securities act,
meaning if a crypto service is to be determined to
security, it would be subject to far more regulation.
This impacts way more than just large exchanges.
If you do anything in DeFi, it would impact you.
But before we dig into that, we need to
determine what exactly is a security in this context.
If we look over to the securities act
of 1934, we can see the definition of
a security, and that definition includes
This is thanks to what's called the Howey test, a
four-part test that determines if something is a security.
Now there's trouble with the Howey test and crypto.
The test is old, and it's pretty hard to
argue that crypto services like Lending or Staking aren't
some degree of securities under these old guidelines.
And if this proposal is enacted, it would
give just enough wiggle room to regulate crypto
without actually passing a bill specifically on crypto,
like some kind of DeFi sneak attack.
And again, before we talk about how this
impacts you specifically, it's important to ask why
the SEC is acting like they're both ready
and not ready at the same time. It's so strange.
Here's something that Gary Gensler of the
SEC recently said on regulating crypto platforms.
- Those platforms should come in.
They should figure out how to register,
be in an investment protection remit.
Now, not many have.
Really? What about Coinbase, who came to the SEC with
their lending product last year and you threatened to
sue them if they launched the product without giving
any guidance on what they should do.
Every time we ask the SEC what a
securities dealer is, they threaten to sue?
Sure, Gensler, you have on multiple occasions asked crypto
companies to come in and speak with you.
However, many of these companies that have come to
speak with you have soon after found themselves the
targets of enforcement actions or even legal threats.
Gensler even went so far as they
have crypto platforms in ultimatum in December.
Come to us or we'll come to you.
I don't want to kill you.
What would I do without you?
On the one hand, it's kind of hard not
to laugh the SEC's contradictory behavior here, but on
the other hand, it's kind of frightening, like the
SEC is forcing crypto companies to come to their
office if they have no framework to register their
offerings as securities, nor any official determination of what
a security in crypto even is.
It's like when you ask your mom as a kid if
you can go over to your friend's house and she says
no, and you're like, Why can't I go to my friend's house?
And she's like, Because I said so.
The problem is, this impacts anyone who uses crypto
to earn yield, whether that be through staking, mining,
lending, or any other creative use of DeFi.
Going back to the proposal, it states
Treasury's dealers would need to officially register as
securities dealers,
But this also includes anyone dealing in
digital assets, whether that be facilitating transactions,
providing liquidity or "buying and selling
securities for its own account".
What this translates to is anyone who runs a
crypto service where profits are generated or trades are
made would be required to file with the SEC
tens of thousands of stake pools, DEXes, and protocols,
all filing with the SEC.
For the average crypto user, this would mean yields
on your favorite services like lending or staking would
likely go down due to higher expenses and a
strong likelihood that DeFi services would need to require
your personal information, like a Social Security number in
order to use the service.
This would then lead to people illegally using these
services with VPNs, crypto companies moving out of the
US and more centralization in the space due to
the fact that it's
If it's harder to get started, you can bet
fewer and fewer companies will enter the space.
Now for all two of you who in the audience read
this 200 page document, you might be saying, hold on.
It specifically states that operators who control less than
$50 million in assets are not subject to these
rules, meaning small operators would still have a chance.
And you'd be right.
Except footnote 97.
This states that even if you have less than $50
million in assets, your assets can be combined with someone
else's and be counted as more than $50 million.
So there's a gray area to include
just about everything if they want to.
Now, this proposal is just a proposal for now.
But the problem is the SEC likely
already has the authority to regulate crypto.
Here's what Gensler has to say when
asked if they have that power.
- I think that we have robust authorities
at the Securities and Exchange Commission, and
we're going to use them and continue.
Now, this proposal is just one of the
many questionable ways the SEC is approaching crypto.
Like, why haven't they settled
their lawsuit with Ripple yet?
How have they not approved or
even denied the many spot crypto ETFs?
I mean, Grayscale has been trying to get the
SEC to approve their flagship fund GBTC for years.
The CEO said he's considering taking the
SEC to court over the matter.
And what's strange about this is the
SEC is concerned about consumer protection.
I mean, that's their whole job.
However, more than 800,000 Americans already
own GBTC with low protections.
Approval by the SEC would literally
give more protection and safer access
to something that's already being used.
Again, contradictory.
Now listen, I'm not totally against regulations.
I think well educated and revised laws specifically
for crypto are probably a good idea.
I'm all about greater access to the space.
If more safety and regulation means more people
can safely benefit without sacrificing things like solid
lending returns, I'm all for it.
There's no doubt that we have
problems in the crypto space.
I mean, take what just happened to Axie Infinity,
$625 million was stolen in a split second
due to an exploit on Ronin.
If the Wild West and endless amounts of thieves
and hackers are trying to take advantage of weaknesses
on blockchains every single day, it's not perfect.
But that's when people who don't understand the
space come in and say, hey, we had
this one issue over here, so we need
to completely blanket regulate the entire space.
We know, for example, that Iran and North
Korea use cryptocurrencies to evade financial sanctions.
Not a lot, though it turned out to be.
It is a smaller amount chunk than folks thought.
You can make that kind of argument for anything.
Let's get rid of cash because people buy pot with it.
Let's get rid of the Internet because I'm sick
of all the Will Smith memes, which I am.
But you can also make the opposite argument.
90% of donations to Ukraine were done in crypto.
So there you go.
If you just look at that, it's amazing.
That's just not how things work.
Let's not build regulation by cherry
picking the good or the bad.
So is this some kind of shadow attack on crypto?
A conspiracy to control and decimate the entire space?
I wish I knew for certain.
What I can tell you is how this butterfly
effect hurts both you and DeFi services.
DEXes or decentralized exchanges, are
the backbone of DeFi.
This is where you can buy or sell
just about any kind of digital asset.
So you can then do other interesting things.
Unlike centralized exchanges like FTX which use order
books to match a buy and sell, decentralized
exchanges use an automated market maker or AMM.
You can think of it like a little
robot sorting transactions and matching buyers and sellers.
Right now you could copy the code of your
favorite DEX, tweak it to how you like and
launch it and boom, now you're a DeFi operator.
It doesn't mean that you'll have any
users, but you'll be an operator nevertheless.
This is great because
you don't need anyone's permission.
Not the blockchain, not the government, not even the DEX
that you literally copy and pasted their code from.
Lack of permission has helped
this space grow extremely quickly.
That's why DeFi today is completely different
than it was just a year ago.
But this new proposal, unless altered, would mean in
order to start a DEX you would need to
file and receive a dealer application from the SEC.
On the one hand, you can see the logic of
wanting to know these platforms are being run properly, but
on the other hand, we've all dealt with the government
or at the very least gone to the DMV.
If that's any indication of how easy getting approved
by the SEC might be, we can see how
this could slow down innovation in the space.
And if they're too heavy handed, you can bet
that just about every crypto company will quickly move
out of the US to friendlier countries.
If you want to help the fight for DeFi,
I'll leave a link in the description.
Here, you can help by requesting the SEC revise
this proposal for greater clarity on crypto. Regulation in
crypto is likely coming whether we want it or
not, but let's just make sure that it happens
in a well thought out manner, not in the
96th footnote of an unrelated proposal.
Also linked in the description is my Patreon where you'll find
access to all of my buy and sell alerts, my insights
on even and more news events, free coaching every single day
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Just make sure you grab a spot ASAP linked in the
description and I want to thank you so much for watching.