blockchain tipsheet

SEC targets Uniswap, DeFi

Wells Notice alert…

It appears that much like Coinbase and Kraken, decentralized crypto exchange Uniswap, has received a warning – a Wells Notice – that a formal action against the company by the Securities and Exchange Commission (SEC) is imminent.

According to Uniswap, the charge appears to be that the company is running an unregistered exchange. See the Uniswap blog post which provides a full-throated Uniswap defense on why they aren’t culpable: “We are confident that the products we offer are not just legal – they are transformative.”

Fortune’s Jeff John Roberts discusses the news, “The impending Uniswap lawsuit comes at a time when the crypto industry has loudly complained the SEC has been operating in bad faith when it comes to the sector, pursuing enforcement actions despite clear rules while failing to account for crypto’s distinct blockchain-based technology.” Read more.

Uniswap  COO Mary-Catherine Leder commented on X yesterday after the news broke, “Uniswap is an upgrade to the financial system, whether the SEC recognizes it or not. I bought my first bitcoin in 2011, started BlackRock’s crypto efforts in 2015 and left TradFi in 2021 to go all in on DeFi as COO of Uniswap Labs. I did that because I believe onchain markets will be better markets.”

She continued, “The tech can be complex, but the values are simple. Traditional markets rely on who you know. In DeFi, access is equal. $2 [trillion] in volume, no hacks. 16m wallets. Self-serve markets on blockchains are a technical reality, and they aren’t going away. It’s a better system, and we’re going to fight to protect it.” See her tweet.

more tips:

• • “Wells Notice” definition – Cornell Law School

what you should know: This impending enforcement action by the SEC could be introducing a wild card among voters in November – the DeFi vote. It seems inconceivable that this action will incite anyone from the anti-crypto side of voters. But, pro-crypto voters – particularly the subset using DeFi – could be further encouraged to seek favorable candidates and platforms.

Continue reading “‘Transformative’ Uniswap And DeFi Prepare For SEC Battle; TradFi’s Illicit Finance Problem”

crypto bills update

With the clock ticking on the 118th Congress, Politico’s Morning Money reported yesterday that a House floor vote – originally planned for Q4 2023 and interrupted by the Speaker switch – is now expected sometime in the current calendar quarter for the digital asset market structure bill [H.R.4763]. Majority Whip Tom Emmer (R, MN) is also trying to add elements of his “Securities Clarity Act” [H.R.3572] which Politico says “runs the risk of hurting what’s already proven to be narrow Democratic support for the underlying legislation.” And, the Whip’s “CBDC Anti-Surveillance State Act” [H.R.5403] may also complicate matters. Meanwhile, the stablecoin bill [H.R. 4766] is still in the same place it was last month -waiting for a “legislative vehicle.”

Read more.

what you should know: Speaker Mike Johnson (R, LA) would appear to be a wild-card in the process. He’s not the technology advocate that former Speaker Kevin McCarthy (R, CA) was. Also, House Financial Services Chair Patrick McHenry (R, NC) has shared some criticism of Johnson which may create additional friction within the Republican caucus and with McHenry’s digital assets agenda. Continue reading “Crypto Bills Await House Floor Votes; Senators Tillis, Hagerty Intro AML Discussion Draft”

Senate Banking – tomorrow

Tomorrow’s Senate Banking hearing, “An Update from the Treasury Department: Countering Illicit Finance, Terrorism and Sanctions Evasion,” with Deputy Treasury Secretary Wally Adeyemo could rekindle a series of bills which are intended to address relevant digital assets anti-money laundering (AML) shortcomings.

See tomorrow’s hearing page. Proceedings begin at 10 a.m. ET.

To be clear, digital assets has yet to be announced as a main focus of the hearing. But given the past history of Ayedemo and the Banking Committee’s Democratic leaders, a digital assets discussion seems inevitable.

Bills from Democratic Banking panel members who have been critical of crypto include:

• • Senator Elizabeth Warren’s (D, MA) Digital Asset Anti-Money Laundering Act (DAAML) [S.2669]
  • Senator Jack Reed’s (D, RI) Crypto-Asset National Security Enhancement Act (CANSEE) [S.2355]
  • Senator Mark Warner’s (D, VA) Terrorism Financing Prevention Act [S.3441]

Banking Chair Sherrod Brown (D, OH), who may have an AML bill of his own, said back in January that his committee would look back into the AML/digital assets issues again. Still, movement on the bills has slowed and this is in spite of the fact that that financing of terrorist organization Hamas and the October 7 terrorist attack in Israel had seemingly given the AML bills new momentum. (See Sen. Warren’s letter on “crypto-financed terror” signed by 100 Dems in October.)

Chair Brown – like many lawmakers – has likely been bogged down by his own re-election campaign.

what you should know: Also in play will be the use of sanctions and its effectiveness against terrorists using crypto. As she did in January on X, Senator Warren may cite the Government Accountability Office’s (GAO) report which was published out of the blue in January, “The Effectiveness of Economic Sanctions At Risk from Digital Asset Growth.” See it. Continue reading “Anti-Money Laundering Bills May Get New Life; Tornado Cash, Code And Culpability”

illicit finance hearing

Next Tuesday’s Senate Banking hearing titled, “An Update from the Treasury Department: Countering Illicit Finance, Terrorism and Sanctions Evasion” led by Chair Sherrod Brown (D, OH) will likely include discussion on digital assets.

The sole witness will be the ubiquitous Wally Adeyemo, Deputy Secretary of the Treasury,  an articulate anti-crypto advocate of Dem leadership. Back in November, Adeyemo had sent letters requesting more power over crypto to Senate Banking and House Financial Services. The next day, Adeyemo challenged the crypto industry in a speech at the Blockchain Association’s Policy Summit which included a discussion about the tools U.S. Treasury is seeking – and why. Read that speech.

See the hearing page.

what you should know: Will Democrats like Chair Brown and  Senator Elizabeth Warren (D, MA) use the hearing as a launchpad for their own illicit finance bills targeting digital assets? If they do not use it as a launchpad, it seems fair to wonder if the effects of crypto campaign dollars and pro-crypto candidates running against each Senator have re-configured existential priorities.

The Hester Peirce SEC

In a keynote speech at Tuesday’s annual “SEC Speaks” conference connecting the legal community with the Securities and Exchange Commission (SEC), SEC Commissioner Hester Peirce (R) provided another pointed commentary on the direction of her Commission especially as it relates to digital assets and  broader recommendations to the SEC and the securities community it encompasses.

Read the speech – this could be seen as a potential plan – and pitch – for an SEC under Commissioner Peirce if the White House changes parties this fall.

Peirce cited guidance from the controversial Staff Accounting Bulletin 121 (SAB 121) as a particularly “pernicious weed.” and suggested, “Rules of such broad effect should be set by the full Commission, not by staff answering only to the Chairman.” Chairman in the case of SAB 121 is Gary Gensler who oversaw the instatement of the rule beginning in April of 2022. Continue reading “Senate Banking Hearing On Illicit Finance With Treasury; Hester Peirce Challenges SEC Dem Majority”

financing terrorism

Yesterday, The Wall Street Journal revisited terrorism-financing-via-crypto themes echoed in previous pieces (1, 2) as well as last week’s Bloomberg article showing Russian cryptocurrency exchange Garantex continues to thrive in spite of sanctions.

Payments using the stablecoin Tether are at the root of both stories as Brian Nelson, U.S. Treasury’s undersecretary for terrorism and financial intelligence, tells the Wall Street Journal in a statement, “Russia is increasingly turning to alternative payment mechanisms to circumvent U.S. sanctions and continue to fund its war against Ukraine.” Read the WSJ article.

what you should know: There appear to be two key areas of concern for the crossroads of digital assets and money laundering: Russia and Hamas.

At a House Financial Services (HFS) hearing about FinCEN (Financial Crimes Enforcement Network) in mid-February, Nelson appeared as a witness where House Majority Whip Tom Emmer (R, MN) reminded Nelson of a November letter he and a bipartisan group of members had sent to the White House and U.S. Treasury regarding getting data on digital assets involvement in Hamas and terrorist financing. 

The Majority Whip said to Nelson at the hearing: “Treasury has the data to paint the correct narrative” on digital assets and Emmer openly wondered why Treasury didn’t offer a more informed opinion.  Nelson seemed to claim they did offer an informed opinion. More highlights from the hearing are here.  

financing terrorism – Tether 

Tether, the company, didn’t respond to the reporters for the WSJ article yesterday, but did synchronize its release of Tether’s “Completion of System Organization Control (SOC) 2 Type 1 Audit.” The company made a case for cleaning up its anti-money laundering act by explaining in a blog post about the new audit: “The SOC 2 Type 1 audit examination is a gold standard in security compliance developed by the American Institute of Certified Public Accountants (AICPA), and underscores Tether’s position as an industry leader committed to delivering a secure experience.” See the blog post. Continue reading “Terrorism, Crypto And Russian Sanctions in WSJ; Rep. Nickel Growing Dem Support”