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Scrutiny of major crypto institutions is intensifying

TonHe encrypts the crowd Hardly known for underestimating its own importance.its members call it an implosion ftx, the collapse of a cryptocurrency exchange in November became the industry’s “Lehman Brothers moment,” a nod to the massive fallout from the collapse of an investment bank. Now they say the industry is going through a “Dodd-Frank moment,” referring to the sprawling financial regulations imposed after the collapse of Lehman.

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In the U.S., if crypto companies are fully regulated, they fall under the purview of various agencies — from the Securities and Exchange Commission (Second), market regulators, and Commodity Futures Trading Commission, overseeing commodities, to many state agencies. After pushing crypto products mainstream in 2020 and 2021, all are stepping up enforcement actions against crypto businesses in 2022. But the move to restrict activity in cryptocurrencies of all kinds has now started to hit a frantic pace.

February 9, Second Settlement with cryptocurrency exchange Kraken. The company agreed to pay a $30 million fine and stop offering its staking-as-a-service business, in which customers deposit crypto tokens and exchanges “stake” them on their behalf in exchange for rewards (in the same way banks offer interest). . On February 13, the New York State Department of Financial Services (New York Stock Exchange), a national financial regulator ordered Paxos, a firm that issues stablecoins (dollar-backed tokens), to stop issuing the stablecoin it created for Binance, the largest cryptocurrency exchange.

These actions add to a growing list of law enforcement or investigations targeting crypto companies.July’s Second An investigation was launched into publicly traded exchange Coinbase into whether it listed crypto tokens that were actually securities — a claim the exchange has denied. In August, the U.S. Treasury Department imposed sanctions on Tornado Cash, which runs on the ethereum blockchain and mixes individual cryptocurrency deposits into a pool and then disperses them again, making it difficult to trace ownership.

For many in the crypto industry, these actions are an insult and an attempt to stifle the wellspring of financial innovation. But the sum of the authorities’ actions is telling. First, their priorities became clearer. Second, these agencies have developed methods that can be used to enforce laws or regulations in highly unfamiliar territories.

A priority is to eliminate tools that may be used in financial crimes. North Korean hackers allegedly hired Tornado Cash to launder $450 million in stolen cryptocurrency. New York Stock Exchangeof The action against US-based company Paxos also appears to be motivated by concerns about potential wrongdoing. Binance, which claims to have no headquarters, has been under investigation since 2018 for possible failure to comply with U.S. money laundering and sanctions rules. Paxos has not been asked to stop issuing its own stablecoin, the Pax Dollar — just the stablecoin it created for Binance. In response, exchange boss Changpeng Zhao tweeted that the stablecoin is “wholly owned and managed by Paxos.” Paxos says it “categorically disagrees” Secondinvestigation.

As a result, authorities responded to potential wrongdoing by shutting down interactions with U.S. companies. Since Tornado Cash is a software that runs on the Ethereum blockchain, there is no way to stop it from running. As a result, the Treasury Department has identified wallet addresses associated with the software and banned U.S. institutions such as exchanges from operating with those addresses. Likewise, restricting the activities of non-US firm Binance is harder than restricting the activities of Paxos, which is registered with New York authorities.

The second priority of regulators is to protect consumers. This is evident in the actions taken against Kraken. “Cryptocurrency intermediaries who offer investment contracts in exchange for investors’ tokens, whether through collateral-as-a-service, lending, or otherwise, need to provide the appropriate disclosures and safeguards required by our securities laws,” said Gary Gensler, Chairman Second. He has begun labeling previously unregulated products as regulated securities by default.

Mark Lurie of Shipyard Software, which works on decentralized exchanges, believes that the boundaries that authorities are drawing are “somewhat predictable.” Regulators are applying existing rules and they are targeting US institutions.A lack of imagination can hinder innovation, worries Tuongvy Le, a former Second Law enforcement attorney who now works in the crypto arm of investment firm Bain Capital. “There are indeed novel structures in cryptocurrencies,” she said. Unlike Europe and Singapore, which have proposed new rules, the US has so far relied on existing methods. Still, the introduction of regulation is sometimes welcome. February 15, Second Decided to tighten standards for institutions holding crypto assets. As soon as the news came out, the price of Bitcoin soared.

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