Welcome back everyone. I am Caspian Sea and I'm joined
as usual by my partner in crime. Mr. Bennett Tomlin, how are you
today, doing pretty good. How are you, gasps?
I'm tired, but I'm good as usual.
Kind of a hectic, few days. A lot of press releases from
tether lately, but we already went over tether and their big
12 auditing. It's funny to me that they're
doubling down on that I guess is the only thing I want to say
about that but we're here to talk about something else today.
Today we are talking about newly found or not newly found.
So right word here, perhaps finally realized regulatory
risk. That is there and seems to be
permeating the cryptocurrency industry in regard to exchanges
specifically. So I think the first one we
should probably talk about Is coinbase, because there they
have a large. We have a big American audience.
They have a huge American usership.
So let's, let's start with coinbase and talk about what
seems to be relevant from them. Yeah.
So I think there's a couple things going on with coinbase
right now. The first is that the Department
of Justice Just indicted one of their former managers in several
of their Associates for being involved in an insider trading
scheme. And what was interesting is that
the SEC came out as part of this case and ended up saying that
nine of the assets that this individual had Insider traded
were Securities at the time. There was a bunch of people
upset that the SEC was using this is their opportunity to try
to label these things as Securities instead of going
after the appropriate Target like coinbase.
Luckily a few days later. Bloomberg reported that coinbase
was under investigation for listing unregistered securities.
Yeah, so, I'm going to, I'm going to go ahead and refer to
coin basis blog, which as of recording, they released two
press releases on the same day, and one the day before.
So three press releases in a two-day period.
One is the crypto Securities Market is waiting to be unlocked
but first, we need workable rules.
The second is institutional insights are To crypto financing
and last coinbase does not list Securities and of story.
Now, this is obviously the most interesting one.
It's the shortest also it is by their Chief legal officer, Paul
Greenwall who was at one point sitting on, I believe the
California Appellate Court. The seventh set was it, Seventh
District 9th District, something like that.
Apple in the course tricks as a Judge.
He was a big. It was a judge.
He's now their Chief legal officer.
He's been so for a while this two-minute blog post just says
that they don't list Securities. There's no real argument about
it. You know, there is an argument.
The argument is that coinbase has a process that decides
whether or not things are securities in.
All of these cases coin basis process, these are not
Securities and so these are not Securities regardless of what
the Securities enforcement commission, might think Right.
And do we know what their process consists of?
Well, I think it consists of calling up coinbase Ventures.
Seeing what the biggest investment.
I'm I'm being somewhat glib but I mean, we're talking about an
exchange that has listed tether. Well, Gary Gensler saying, he
thinks I'll stable coins are securities listed EOS despite
them agreeing to a consent order that their initial sale of the
ERC 20 token was a security sale and like Litecoin write.
Like this is a, this is an Change with a long history of
curious listing practices. I previously have talked about
Charlie lie, not on this podcast.
But I remember mentioning that day that all of this came out,
that they were looking at. Do we have the names of the
tokens that were mentioned by the SEC?
Can you, can you give us those names?
Yes, at least several of them tribe, Malcolm X, X, Y 0,
whatever, that is. Gala ens and power among others.
I'm sure I can find a listed, alchemax know this person
Insider traded elk mix. Apparently, I don't see, because
this was a thing. There was a nine mention in, at
the time, coinbase only had seven of them listed.
Oh, that's interesting. I do think it's funny that
alchemax was mentioned because that is another thing that we
have not talked about on here but did not.
We're not big fans of otherwise. Um, so yeah, I wonder, I wonder
what, their wonder what their process is for taking care of
all this stuff. I have a feeling it is not very
thorough but they should share that anyway, if they Some
process to determine whether these things are securities or
not and it's actual, you know, they're actually able to
determine it better than apparently better than the SEC.
Then they should probably share that with the SEC and with the
public at large right? Yes.
Well and I mean we do know a while ago that coinbase
published this blog post entitled improved Clarity and
guard rails for new assets and coinbase that talked about some
of the additional steps. They were taking to help make
sure there was no conflict of interest and oh my God it was
written by the person who got into Cited what like coinbase
coinbase after a his name, they did scrub his name from the
article though, to be fair. So that's good.
So, yeah, a lot of transparency from these companies is what we
are is what we're noticing, they're very open and they want
regulatory Clarity, but only at the regulatory.
Clarity says, my God, you're doing great.
Look at these tokens. How could they ever be
Securities? It's just a bunch of people
investing money in a Team control the entire thing.
And you hope that by making your investment, you'll end up
earning more money. How could that possibly be a
security? Yeah, end of the story.
So, I that that seems like big truck that, huh?
Yeah, we do not list Securities, period II love that bit for
necks and coinbase and stuff like end and blog posts, like..
There, like a fucking 14 year old girl.
Like blogging and saying, like I just can't deal with this
anymore. I'm over it period, end of
paragraph. Nothing else to say and you're
like, hmm, I think there's a lot more to be said here, Goose
until you can't just say that. I'm sorry.
It's not cast their just dejenne Builders and this is just how to
Jen Builders who get out there and make things make things
period. End of story.
Maybe if we didn't criticize these things, they wouldn't be
Securities, you know. The other exchange that we
wanted to discuss was another one that's been, that's been a
topic of discussion for us previously.
So we talked about it in our crypto, in our crypto, Capital
core, worked directly with Kraken.
Kraken noticed red flags with them and drop them.
So we previously had mentioned that before.
I think we also have seen that Jesse Powell is talked openly on
Twitter and other platforms about how they use Pal and other
kind of third-party payment processors as ways to pay out
customers, which obviously, I think you just it doesn't seem
like that's acceptable, but I don't know.
Anyway, what's, what's the deal with them?
And why are they getting brought up Suddenly as well?
Well, they're being brought up because the New York Times
reported that the treasury Department is investigating
them, and is likely to find them for serving sanctioned company
or countries. Excuse me, and in the New York
Times reporting, they mention how at one point, Jesse Powell
shared a spreadsheet that had listed where all the customers
were that were verified customers of Kraken and on it,
they just openly list. Did a bunch of people and
sanction company countries. Excuse me and so they, they sent
that in the company slack. And that's what Jesse Powell was
doing when he wasn't arguing, whether or not, he should be
able to say the n-word they should take slack away from
Jesse just as an aside. And so it seems the treasury
Department is investigating crackin for sanctions violation,
right? So we've got sanctions
violations and possible kind of what appears to be listing
listening security is that probably shouldn't have been I
stood, I posed the question on Twitter about a hypothetical and
so I want to make sure that everybody is clear.
We aren't not asking this question because I think it's a
definite or even likely. I'm posing this question as a
hypothetical because I think this is what's ever on
everyone's mind, is this idea that what's the worst-case
scenario for coinbase? If if the SEC does indeed find
that they've listed perhaps some unregistered securities At ease
and what seemed to be the scariest response to that was, I
believe it was by with this is like the third episode in a row.
I've mentioned, Patrick Mackenzie, I think Patti at
patio 11 on Twitter who said something along the lines of
well, anyone who bought these tokens that the price, they
purchased them at can then request that coinbase pay them
back at purchase price. Give them the money back at
purchase price. Would probably be pretty
devastating for coinbase in a number of different ways.
First off, that's going to end up being quite a bit of money if
people take advantage of it and obviously the market is down so
they probably would but additionally it's troubling
because if that is proven and they do have to delist all these
tokens, I would presume that they are going to have to delist
many more tokens. And that that Could pretty much
fuck up their entire business model.
Yes, yes you are absolutely right.
That if going base is no longer allowed to list, whatever shit
coins, they want. Their business model is fucked.
Their entire business model, has become charging exorbitant fees
to retail and trying to attract ever more retail investors by
listing and increasing list of shit.
Right? So yeah, if they get told, that
can't list most of these anymore, that fundamentally
Alters their business model, but also that has Acid ramifications
across the entire industry because if all these things are
securities than all the places listing them are doing our
Securities. Exchange is now in, are either
going to need to register d-list these and do list a bunch of
other preemptively like you're talking about any of the lending
places are now doing like lending against Securities and
need to make sure they're doing that appropriately.
And like the fundamental structure of everything altars
in a way that no one is ready for.
I guess. I guess I'm wondering.
What we're seeing with Kraken is a far different issue.
I'm wondering how common you think that is as an issue for
crypto currency exchanges. I also am wondering.
I know I've written about this and I think you probably have
to, but I'm wondering about jurisdiction here, right?
So, how much will these will these Securities issues or
whatever? Alter, let's say, by Nance from
doing business or FTX from doing business, - but I was going to
bring up by Nance next when you asked about cracking because and
I feel like this has gone under noticed is that a couple weeks
ago, Reuters had the reporting that by Nance had served a bunch
of Iranians right and advise lated sanctions.
And so this reporting coming from Bloomberg, so close on that
suggests to me that the investigation into Kraken to
which she responded. We're always under
investigation. It was New York Times, wasn't
it? Yes.
Yes, but not for buying answer. Finance.
It was a Reuters investigation for this one.
It was New York Times but in both cases that you're going to
be remembered just now. Oh sorry.
You're right. No, it's New York Times.
I meant yeah, New York Times. Okay cool.
I'm just Bloomberg, Bloomberg, had the scoop on coinbase being
under investigation by the SEC. You're right.
New York Times but I think that I think it hints at the
possibility that there is a much larger federal investigation
going on And we've seen basically a whole bunch of
federal agencies have ongoing investigations into bitfenix,
tether by Nance and apparently cracking all the time.
If you listen to Jesse. Now we know coin basis under SEC
investigation, I think that it is plausible that there is a
much broader Federal regulatory, wake up going on than I
previously assumed and that I might have previously.
Misjudged it sighs. Yeah.
I mean, it could very well be that we have another Liberty
reserve on our hands, but we're Black Friday, you know, I don't,
I also, I think it's our responsibility to not wear black
Friday, but I, the look, I want, I want to sing saying dramatic
statements like that. I want to equalize this and make
sure that we are not from menteng Panic or, you know,
causing people to immediately go out and sell whatever they hold.
That is not what we're trying to do.
We're talking about a real risk and the fact that it's a risk.
It does not mean that it's going to happen.
Does not mean that anything. Ultimately bad will happen to
any of these exchanges. We have no idea what's going to
happen and in the past five years, nothing has happened.
So I think it's fair to say that, like if you look at the
past five years of History, it hasn't been a big issue, right?
So then I mean there's been little things.
There's been like the cftc fine against bitfenix.
There's been the New York attorney.
Ernie general office. Going after bitfenix and tether,
wonderful things that happened. And I'm glad they happen.
But that is a very small numerical set.
When you can think about how many crypto currency exchanges
have existed and falling apart, or still exists to this day.
So, yeah, those numbers are very tiny and even the ones we're
talking about real regulatory risk, I mean, I don't have, I
don't really know. I don't know, they obviously,
they're able to get Liberty reserve, that's in Costa Rica.
So I think that's a pretty amiable country to American law.
But I think a lot of these individuals have like, 3, AC
and, and we already saw, I mean Arthur didn't Arthur Hays of
bit, Max Fame. Which is, if anyone is
unfamiliar is a essentially, a derivatives.
It's not, it's not it's not physical physically settled.
In exchange. It's like spot, right?
It's not spot its derivatives trading so they just it's not
spot. It's a it's a.
What's the other one futures? Derivatives leverage, its
Futures contracts. Yeah, it's Futures contracts.
Its Futures contracts. Its Futures contracts.
And they famously. I think the even the company is
something like 100 X, or whatever.
It's called. It's a they famously.
Let you 100x, your leverage and immediately get liquidated if
you wanted to do that but he ultimately Arthur Hays.
Who was the CEO got in trouble with with?
I believe it was the S. It was at the SEC or the doj is
the doj Andrew. Sa issues.
Bank. Secrecy Act, Right?
Banksy could be Bank. Secrecy act.
So yeah, Arthur has got in trouble, but he was in
Singapore. Kind of on the Run eventually
turned himself in. It seems like he's going to get
off with a slap on the wrist and be fine.
I don't I don't see much happening there.
If any of these work out that way, I would presume it would
also be similar but like the actions of 3ac, for instance, or
do Quan make one wonder if these individuals Is amiable to US,
law and coming in and talking to us regulators and lawyers after
getting in trouble. So I have my doubts.
Yeah, yeah. I mean there's certainly reasons
to have doubts for several of the reasons you brought up here.
One, there hasn't been a ton of regulator action.
There hasn't been a ton of law enforcement actions of betting
against. It has been a very safe bet and
then as you mentioned, cryptocurrency companies, very
intentionally play a game where they try to position themselves
out of actions and in places where it's going to be expensive
or politically difficult for the u.s. to enforce its laws.
Right? That's part of the tactic and
we've talked about it on half a dozen of these episodes, but
like that doesn't apply to coinbase, that doesn't apply to
Kraken. That doesn't apply to anyone
who's in a place with a pretty comfortable extradition treaty.
Like there's still a lot of people who are still potentially
in play and a lot of other people who can have their life
made immeasurably more difficult.
If that The tactic that US law enforcement and Regulators are
actually intending to go with but like you said, there's
reason to bet against that and I think that like part of the
regulator in action, we've seen over the last few years is what
is kind of really driving the manufactured outrage who you see
in the cryptocurrency ecosystem in response to this right?
Is that oh now you're going to say these are securities.
I've been doing this for years and now it's a problem.
Cool SEC. I've been even trying to talk to
you about my process where I rubber-stamp any that comes into
my office and you wouldn't even listen.
Like and so like the fact that there has been nothing means.
When there is something, it's such a jarring contrast that you
get these. We don't listen Curiosities
period and the story could never happen.
We're way too careful about these tokens including one token
that as soon as it was listed published a press release that
said, power Ledger's, power token skyrockets on coinbase
date, coinbase debut, clearly decentralized.
Clearly not a security The story period.
It's it's it's manufactured its fake.
It's a yeah it's up to the point where I recall a specific lawyer
who I won't name on cryptocurrency Twitter doing a
little mini Thread about how this was outrageous.
That this insider trading guy was getting, I was getting
charged with obvious insider trading.
It's not outrageous. I think everybody is looking at
this and going Mmm. Wow yep.
That looks like insider trading and those sure as shit look like
Securities, that's been everyone's response, who has a
working brain and to to see this lawyer genuinely trying to it's
but you need somebody to defend every criminal and I'm glad
there are people there to do it, but the arguments were so silly
and they amounted to like, I basically what I've heard the
best Arguments for for this, not being insider trading.
And people who suggest do you remember there?
Was someone who said to us? Like what if what if you gave
maybe these people wouldn't be insider trading if they got more
Equity where they got more, if they got better charms on their
employment and it's like so bribe people to not do the worst
possible thing. Financially, I don't know, it's
out, it's insane to me. These takes at all.
If you want to defend the guy you know cool.
I that he needs Defenders. That's great.
And everybody needs a someone to defend them.
When this kind of thing is happening.
That's part of the American system, thankfully.
But yeah, weak weak. Weak arguments from these people
at least online. Hopefully, his lawyer, does a
better job than these people were doing well, anyway, one of
the last one. So one of the interesting things
about that is. So this insider trading was not
detected by Brian Armstrong's monitor.
System. He was trying to brag about on
Twitter. It was actually a at Kobe and
Twitter who originally pointed out to these wallets.
And he also tweeted that he was asked, by several people to stop
tweeting about this because it was going to be bad for the
industry to draw attention to it.
Because Regulators would want to get involved if they thought
that was happening. And like it's CZ responding to
the block going recommend, no more stories like these for the
good of you and our industry, right?
It's the The same fucking thing. It's if you talk about the
project, if you talk about the problems then they're real.
If you don't we can ignore him. Yeah this is and this is another
thing we saw there's a this is not a regulatory risk but there
was a big thread about by @l ironic100 and he did a thread
about this essentially this thing called helium.
Honestly, I don't want to get deep into the Weeds on this one
but basically they were offering like a system for people to get
Need to offer Wi-Fi hotspots, right?
And that was essentially, that's the essentially, that's the
elevator pitch LaRon did the math, and it basically amounts
to a take, like, 200 years or people on Reddit, we're doing
the math. But it amounts, like, it would
take 220 years to recoup, the cost of your investment for
buying the hardware to do this thing.
And I actually had someone reach out to me a week before that
thread or something like five days before that thread.
And Say, hey, what do you think about helium?
Like, do you think helium is? You must think helium is pretty
interesting? And I was like, no, no, of
course, like I was like, this is this is somebody trying to solve
The Last Mile problem but not even considering the Last Mile
and all I had to do was think about the people who were going
to be most heavily invested in this dumb idea and it's going to
be people in a city who won don't really need hot spots
already, they have internet. But to if you were to do this
all over a city, you would have people competing all The same
places to be offering hot spots in the exact same insect exact
same place. That is unnecessary repetitive
and bad. Meanwhile people in rural areas
wouldn't it still would not be able to get very good internet
and so they would need to have wired or cable door, you know,
fiber you know whatever. We like they need they need
something to connect to an internet and generally people
who live in a rural area, want a tech like service, they want
some Buddy to be able to come out and fix it when it goes
down. I don't think.
I don't even know if helium offers that I doubt it.
But anyway, I guess what I'm saying here is that there's been
a lot of promises and conjecture a lot of nothing.
Bad can possibly happen. And I think we're realizing now
that it can, it can and it does and not all of these things are
winners. And if you're going to list all
this stuff, if you're going to just go For it.
They're probably going to be some level of consequence.
I suspect eventually. Who knows how big or terrifying
those consequences are? Maybe they're maybe it's I think
I asked the question originally. I'm thinking that the ultimately
the worst thing that could happen to coinbase would be a
fine and it sounds like it could be much worse but that's still.
I still think it would ultimately probably be like a
slap on the wrist in it. Please don't do this again you
know. Yes.
So I again, we're not trying to stir fucking fear, his, I guess,
is why we're not trying to start stir fear, but there are real
risks and they're descending on cryptocurrency.
Well, in, right. I thought the most interesting
thing about livens read was not the threat itself, I mean, yeah,
helium has basically no Revenue. It was all over inflated and
tokens and stuff during a hike phase without any real
substantial there there, you know.
But I thought the much more interesting thing was the
reaction to the threat, right? We had like the For the peace
and in a 16z partner coming out and being like oh this is so
mean, this criticism isn't fair. This is so so hard for us.
It doesn't even talk about all the great build out that helium
has accomplished despite the fact that no one seems to want
it and it doesn't talk about how Innovative this is.
And so it's just totally not fair to these experimenters who
just want to innovate man man yeah there we go again with
experimenting an art but whatever also also wait I think
just that One, at least keep a key was the one responding,
right? And he was the one when the
podcast and gave the really bad houses on the Block Chain use
case and then later posted a different clip of him out of
different podcast, right? And wasn't his use case at that
point helium. I think his second web three
years case after he bombed, the first time was helium.
I'd have to look it up to be sure.
But yes and then he did just just yeah, he did a seventh.
The the writer is yeah response to know Paki broke that the
writer was Said that Paki wrote a 7,000 word, Novella Novella
response to that thing. And someone noticed that it was
clearly, angsty towards lorant Lear on, but they point they
were like, yeah, he deserves this hate and and, and Packy was
like living in it and enjoying it and saying like, yeah, I'm
glad you noticed this because this guy is just a bad actor and
it's like no man you just wrote a 7,000 word response about a
broken thing and And you're not even acknowledging your own,
your own participation. There were more people being.
I honestly wish there was more people being held responsible in
some way. I don't even mean in a
regulatory sense, you know what I mean?
Like I don't want everybody to go to fucking jail.
That's not my point but like I don't know.
Time Magazine, she should not be allowed to even write anything
critical about web 3 like after Schilling X.
You mean guys shield shield it the whole way up.
From axi Infinity, which they shield and talked about how
great it was for Filipinos. And now they're like oh my God,
it's a Ponzi scam and you're like, are you guys just who
could have ever figured that this out to their own and ftes
that they were showing at at the top?
I'm sure that those time fucking those Time Magazine entities are
doing just great. I'm sure the floor isn't falling
out from those things, right? I just give me a fucking break.
Dude, you're not allowed, stop. Oh, but you can't say who's
allowed to say. They what kind of what is it?
Reliable ner narrator I guess is the word I would want to use
like they're not reliable narrators.
You know, they clearly had an Mo they clearly went for it and
it's the same as that New York Times article about the cuckoo
birds from the latecomers guide to crypto, just a bunch of a
bunch of fucking nonsense. And then the same people who go
out and write these Like highly praising a bunch of garbage then
later. Right and go.
Like I can't believe it was a scam and you're like maybe you
can't believe it was a scam because you did zero fucking
research at the beginning you know, maybe that's why.
I don't know. That's crazy, I guess crazy that
journalists for respectable. Media operations should do their
own research at. That's what I mean.
It's just like someone should hold them responsible.
They are the ones who should be held responsible as well.
They are the ones who help people forget, but like Ponzi
schemes work best when the media plays right into them and says
oh my God, how does he do it? Man?
Money. That's how the first Ponzi
scheme. Made a bunch of money.
How does he do it? It's incredible.
Look at how much these people are benefiting everyone's
getting rich and you aren't but Unfortunately there's no
regulatory risk for this. There is, you know, for these
companies and these there should be but none of them are going to
get sued. And I don't necessarily think
they should but more, I think like me either.
I think that we've talked about before, a lot of these
institutions are gradually eroding, the trust that they
have left and are doing a poor job of maintaining.
Painting and continuing to build that trust.
Yeah, I want to thank them for doing such a piss-poor job
because without them doing such a piss-poor job, we wouldn't be
able to talk about this and people wouldn't seek us out to
be like hey what the hell is actually going on or for that
matter? Molly white, who's been doing an
excellent job of archiving, all these web three scams and Zach
xbt, who's basically a full-time journalist exposing scam after
scam after scam, like he's doing the This job.
So I don't know. I in some sense I'm like, well,
there you go. Guess we know who's actually
doing the hard work. Now, I think it was worth
talking about, we're interested in seeing how this plays out?
I thought that was interesting. They mentioned that Cuba was one
of the countries and how many people 73.
Although the one with the most was Iran, which if you were
going to pick one of the two to have the most, you would want it
to be Cupid right now. Yeah, totally.
Totally. I mean what Cuba's not I know
Are listed on the, you know, state state sponsors of
terrorism. But but what a fucking a
needless for them to be head, does not show the same biggest
the biggest threat to America. So I don't know.
I I'm not suggesting either of us are big fans of Cuba but I
just don't think they're something.
Listen. I don't ever worry about Cuba.
There are tons of problems with the US sanctions regime, not the
least of, which is that many of the She's on it are not really a
material threat and that many of the sanctions are implemented in
a way where it's not really hurting what you want to hurt.
Plenty of reasons to criticize. It bad idea to send an Excel
file in your company. The slack that says, here's how
we were violating them like, yeah.
It's been a, it's been an interesting week.
I think a lot of people are kind of hoping that this is the end
of the bear Market that we're approaching the end of this.
And that was, that was it? I just Have no, I do feel that
way but my feelings just feels like there's more.
It feels like there's still some stuff I've done my point being
maybe maybe number goes up, maybe number goes up, but I
think the regulatory risks are so much more clear now than they
ever have been before and good luck to tether, by the way, with
their new messaging service, you know, I think that's such a
important thing for them to work on right now.
I know that the audit is a, it's been on its way for about five
years, I know they're there. They're working on that and it
should be here, probably in a week, maybe less even.
So I know they're working hard on that and getting this
messaging app up and running that quick proves that they have
their priorities straight. So I'm just proud of them.
When you say, Ted that say, when you say tethers, new messaging,
a regulatory risk. Right now, you say to others,
new messaging, you mean the video messaging?
Not like the whole swarm of bots that have invaded every platform
to talk about tether, right? No.
No, I'm not, I'm not talking about their beautiful PR
campaigns that they run. Inconsequent messaging that
talking. I'm not talking about that or
the idea that they just invented, Big 12 Auditors.
There there they've they've now created a new auditing regime.
I mean, I love it. Let's change the system, make it
the Big 12 Auditors. Guys will have to keep track of
them because it'll shift constantly, but man, these
centralized everything, I don't know.
Yeah, tethers on top of it anyway, like subscribe, you
know, I don't know, hit that tether button.
That's a thing. I hope night then donate some
tether. To our test.
Arthur Andersen audit again? Yeah.
Make art make Arthur Andersen great again.
Maga maga make Arthur Andersen great again.
Make bitfenix great. Again, let's do this.
What could go wrong?