Unchained

Why the SEC Doesn’t Want the Ripple Case to Go to the Supreme Court

Fri Jul 21 2023

Congress ScheduleXRP RulingSupreme CourtNational Security IssuesDeFiCrypto NewsRegulatory DevelopmentsBlockFi ControversyCourt RulingsKey Insights

Description

This episode covers a range of topics including the Congress schedule, the XRP ruling, potential Supreme Court involvement, new bills addressing national security issues in DeFi, and their impact on investment in DeFi protocols. It also discusses recent crypto news and regulatory developments, controversies involving BlockFi and other companies, and important court rulings. Key insights include the SEC's use of crypto news to divert attention, the potential implications of proposed bills on DeFi, and the ongoing scrutiny and advocacy for crypto regulation by industry leaders.

Insights

SEC's Use of Crypto News

The SEC strategically drops major news about crypto before important events in Congress to divert attention.

Impact of Proposed Bills on DeFi

The proposed bills addressing national security issues in DeFi could have serious effects on investment in DeFi protocols, potentially restricting US persons from certain roles and introducing compliance requirements.

Ongoing Scrutiny and Advocacy for Crypto Regulation

Crypto regulation continues to be a topic of discussion, with industry leaders expressing disappointment over court rulings and advocating for legislation.

Chapters

Congress Schedule and XRP Ruling
Potential Supreme Court Involvement and New Bills
Impact of Proposed Bills on DeFi
Crypto News and Regulatory Developments
BlockFi Controversy and Other Crypto News
Summary and Key Insights

Summary

Transcript

Congress Schedule and XRP Ruling

00:00 - 07:02

A graphic showing major events in Congress, particularly at House Financial Services, was tweeted out.
The SEC has made significant announcements about crypto, usually preceding important events in Congress.
Bill Hughes, Senior Counsel and Director of Global Regulatory Matters at Consensus, is today's guest.
He and the host discuss the XRP ruling and the SEC's options for appeal.
The SEC is likely to appeal, as they may believe certain aspects of the decision are flawed.
They are currently assessing the judge's reasoning and considering her conclusions to determine how the second circuit would handle the case.
If they want to appeal now, they have to do it within 10 days by requesting permission from the district court.
The judge may allow an appeal if she deems it important enough to decide at the second circuit rather than waiting until the end of the case.
If settlement is not possible, and if allowed to appeal, they will have to go to the second circuit.
Remaining issues include determining what Ripple executives knew about institutional sales.
It is uncertain whether Judge Torres would approve the appeal or if the second circuit would accept it.

Potential Supreme Court Involvement and New Bills

06:54 - 14:15

The SEC would not favor taking this case to the Supreme Court.
The Supreme Court selects cases based on fundamental questions about authority.
If the second circuit ruling raises a fundamental question about the SEC's authority, the Supreme Court may consider taking the case.
Ripple can file a petition asking the Supreme Court to review their case if they lose in the second circuit.
The Supreme Court has been cautious about administrative agencies' authority.
The SEC's broad interpretation of its own authority may be seen as overreach by the Supreme Court.
New bills have been proposed in the Senate to address national security issues in DeFi.
The first bill aims to hold trading protocols accountable for compliance with US sanctions and anti-money laundering regulations.
The second bill requires regulatory agencies to assess how well regulated entities ensure anti-money laundering compliance when dealing with crypto assets.
The impact of these bills would vary depending on their implementation and could have serious effects on investment in DeFi protocols.

Impact of Proposed Bills on DeFi

13:56 - 21:34

The first bill is currently proposed as an amendment to a military appropriations bill but may not come into effect for two years.
The second bill is expected to start a conversation about addressing the problem next year and may require interfaces to monitor user activity and perform KYC procedures.
If an interface is responsible for all activity on a DEX platform, it could effectively ban US-based interfaces from connecting users with protocols.
These bills could have serious impacts on investment in DeFi protocols.
Proposed legislation would restrict US persons from backing or facilitating roles in DeFi, allowing non-US entities to be involved.
There may be gaps and unintended consequences in the language of the bill, such as a lack of de minimis exception for diffusely backed protocols.
The concept of control in governance tokens remains vague, but there is potential for it to be tightened.
Sponsors of the bill are open to productive conversations but are not willing to do nothing about crypto regulation.

Crypto News and Regulatory Developments

21:11 - 28:43

The SEC uses crypto news to divert attention from Capitol Hill.
Major news about crypto is often dropped by the SEC before important events in Congress.
The SEC may focus on enforcement rather than changing its strategy after the Ripple decision.
US lawmakers are discussing stablecoin legislation and a market structure bill.
Presidential candidates have proposed different approaches to crypto.
SEC Chair Gary Gensler expresses disappointment over the XRP court ruling.
Ripple CEO Brad Garlinghouse is optimistic about the ruling and expects an SEC appeal.
The SEC has started the formal review process for six spot Bitcoin ETF applications.
Binance has laid off over 1,000 employees and scaled back employee benefits.
There is a $125 million deal underway for an investor group to acquire CoinDesk.
Creditors allege that BlockFi ignored warnings and made risky lending decisions.

BlockFi Controversy and Other Crypto News

28:14 - 36:08

BlockFi's lending to Alameda despite knowing about the risks led to losses of over $1 billion.
Mismanagement and excessive risk-taking were significant factors in BlockFi's downfall.
Coinbase CEO Brian Armstrong advocates for crypto legislation amid SEC scrutiny.
Coinbase has paused its retail staking service in four states due to regulatory requirements.
Former Alameda CEO Caroline Ellison expressed struggles with leadership and her personal relationship with Sam Bankman-Fried.
Terraform Labs seeks FTX data for SEC case defense against accusations of misleading investors.
Celsius proposes a $25 million settlement from the proceeds of the GK8 sale to its series B holders, sparking controversy among shareholders.
Arkham Intel Exchange offers bounties for solving crypto mysteries, including the FTX heist, stirring controversy as critics label it a 'docks-to-earns' game.
Uniswap launches Uniswap X protocol to aggregate liquidity across decentralized exchange pools, while Aave deploys its decentralized stablecoin GHO on Ethereum mainnet.
Judge Torres rules that selling XRP on exchanges does not violate securities laws, providing a partial victory for the crypto industry.

Summary and Key Insights

35:46 - 42:37

The episode covers various topics including the Congress schedule, the XRP ruling, potential Supreme Court involvement, new bills addressing national security issues in DeFi, and their impact on investment in DeFi protocols.
It also discusses recent crypto news and regulatory developments, controversies involving BlockFi and other companies, and important court rulings.
Key insights include the SEC's use of crypto news to divert attention, the potential implications of proposed bills on DeFi, and the ongoing scrutiny and advocacy for crypto regulation by industry leaders.