EU Parliament Votes to Pass Crushing Crypto Rules
The Devil and the Dictionary
A new proposal from the SEC would expand the definition of “dealer” to include those that engage “in a routine pattern of buying and selling securities that has the effect of providing liquidity to other market participants”. SEC Chair, Gary Gensler, made an official statement that he supports the proposal because it “reflects Congress’s statutory intent that firms engaging in important liquidity-providing roles in the securities markets, including in the U.S. Treasury market, be registered with the Commission.” He continued:
“Requiring all firms that regularly make markets, or otherwise perform important liquidity-providing roles, to register as dealers or government securities dealers also could help level the playing field among firms and enhance the resiliency of our markets.”
Expanding the definition of “dealers” to include those who “employ passive market making strategies” that have “the effect of providing liquidity” would expand the realm of regulation to the DeFi space.
This particular use of linguistic alchemy to wield power through the re-defining of words could have potentially brutal ramifications. Gabriel Shapiro, general counsel at crypto research firm Delphi Digital, warns that if allowed to proceed, this could literally “kill the tech”. Gensler argues that these “dealers” could just simply abide by his perpetual invitation to “come in and register”, but as many are pointing out, even that facade is fading and the true motivations are showing through the cracks.
This is currently just a proposal and has not yet been made into any law. As we reported recently on Elizabeth Warren’s attempt to redefine “transaction facilitator”, it may take more than just clever words on a paper to actually sway the growing defense of crypto on the Congress-room floor.
$600+ Million DeFi Hack
The Ronin Network, an ethereum-pegged sidechain, experienced a massive hack this week with over $600 million worth of crypto (173,600 ETH) stolen.
The Hack Explained
The Ronin network is a layer 2 chain for ethereum that was created specifically for Sky Mavis games like Axie Infinity. The validators run a network-level bridge which ports across assets from ETH, and there are nine validators, with five signatures required for withdrawals. The attacker stole the keys for five of the Ronin validators and signed withdraws, which made the bridge contract on the ethereum side think that the bridged assets were withdrawn on the Ronin network side, so it released the assets on the ETH side.
According to the Ronin official blog:
"Five validator private keys were hacked; 4 Sky Mavis validators and 1 Axie DAO. … the attacker found a backdoor through our gas-free RPC node, which they abused to get the signature for the Axie DAO validator. This traces back to November 2021 when the Axie DAO validator was allowlisted to distribute free transactions. This was discontinued in December 2021, but the Axie DAO validator IP was still on the allowlist."
Thus the attacker was able to drain Ethereum and USDC deposits from the Ronin bridge contract.
Some say that it will be impossible for the attacker to launder 600M worth of crypto, and that they would have better luck returning the funds and receiving a bug bounty instead, which could still be worth millions. Indeed the 2016 Bitfinex hackers were recently arrested despite their careful efforts to launder funds over a number of years.
It seems that instead, the attacker has opted to start using centralized exchanges to launder their funds, including Huobi, FTX and Crypto.com. Given how easily funds can be frozen and seized on centralized exchanges, some are considering this move a misstep.
Let’s hope the hacker turns whitehat and uses this discovery to improve the system for everyone rather than tear it down. As always, understand the risks inherent with DeFi if you’re exploring this exciting new territory!
EU Parliament Votes to Pass Crushing Crypto Rules
Despite objections from major players in the crypto industry, the EU Parliament voted on Thursday to pass new crypto rules that would outlaw anonymous crypto transactions. These rules wouldn’t just extend AML (anti-money laundering) regulations to the crypto space: they would be unfairly applied to the crypto space, far more overreaching, and almost impossible to comply with. Rather than AML applying to fund-movements over $1000 euros, it would apply to the transfer of ANY amount of crypto. There would also be further reporting requirements, as Coinbase CEO, Brian Armstrong, explained:
“Any time you receive 1,000 euros or more in crypto from a self-hosted wallet, Coinbase will be required to report you to the authorities. This applies even if there is no indication of suspicious activity.”
EPP economic spokesperson, Markus Ferber, emphatically disapproved of the action Thursday via an emailed statement:
“Such proposals are neither warranted nor proportionate… With this approach of regulating new technologies, the European Union will fall further behind other, more open-minded jurisdictions.”
Brian Armstrong continued:
“This eviscerates all of the EU’s work to be a global leader in privacy law and policy. It also disproportionately punishes crypto holders and erodes their individual rights in deeply concerning ways. It's bad policy.”
The final form of the rule still needs to be discussed, in negotiations between the EU Parliament, European Council, and the European Commission. If 71 members of the European Parliament oppose the rule then it can be changed. If you’re an EU resident, it would be a great idea to reach out to such members to voice your disapproval.
As Ledger CEO Pascal Gauthier said, “EU Parliament chose fear over freedom”:
“A new regulation was just voted on that paves the way for a massive surveillance regime over Europe‘s financial landscape.”
Aww Hell No…
Will Smith’s slap was felt across the physical AND digital world, completely distracting everyone from anything that actually matters - and now there is an NFT collection to commemorate the event.
The collection by NFT artist SlapDAO, is available on Opensea and sports a collection of over 2000 versions of the now meme-ified moment with various texts to suit your fancy. There is also a token called “Will Smith Inu” which has begun trading on decentralized exchanges such as UniSwap. In a world that fetishized celebrities, buying an NFT to immortalize their lowest moments, or a token that mints their moments of imperfection, is the ultimate flex. To top it off, the value of these tokens should also last as long as your attention span.
CBDC and ECASH
Senator Elizabeth Warren says it’s time for the US to move in the direction of creating a CBDC. In an upcoming interview with "Meet the Press Reports," she said:
"So, a lot that banks do wrong: if you think, 'We could improve that in a digital world,' the answer is, 'Sure you could.'
But in that case, let's do a central bank digital currency. … Yes, I think it's time for us to move in that direction."
Warren has notoriously come after crypto in many attempts to control it and curtail its use. Her most recent effort was in the form of a disastrous sanctions compliance bill for crypto companies, which was put forward under the guise of targeting Russia, but is really just another way of tightening crypto regulation. In her interview she said that, regarding bitcoin, “I think it's going to end up getting regulated.” She also said that she thought crypto was much like the housing bubble and crash of ‘08. You can read our thoughts about that here.
Meanwhile, a bill was introduced this week called the "Electronic Currency And Secure Hardware Act" (aka ECASH Act). Rather than putting the Federal Reserve in charge of issuance as would be the case with a CBDC, it would be controlled by the treasury as an electronic version of the US dollar.
According to an official fact sheet, the new E-cash would have to abide by the following mandates:
E-cash must be legal tender, created and issued into circulation by the Treasury
E-cash must be distributed and used directly by the American public via widely available hardware devices and be capable of peer-to-peer, offline transactions
Ecash must prioritize and promote universal access and usability – particularly as relating to individuals with disabilities, low-income individuals, and communities with limited access to internet or telecommunications networks.
E-cash must incorporate key security and functionality safeguards – including anonymity, privacy, and minimal generation of data from transactions.
E-cash must also be distributed through secure hardware devices that are secured locally via cryptographic encryption and cannot contain personal identifiable information or be subject to surveillance, transactional data collection, or censorship-enabling features.
Merchants may not impose any fee for using e-cash payments or purchases.
The US Treasury must prioritize the use of hardware and software technologies issued under open-source licenses.
A Digital Dollar Council within Treasury must be established to coordinate with other relevant U.S. departments and agencies
Consultant on the project, Rohan Grey, said:
“We’re proposing to have a genuine cash-like bearer instrument, a token-based system that doesn't have either a centralized ledger or distributed ledger because it had no ledger whatsoever. It uses secured hardware software and it's issued by the Treasury.”
Details are unclear on how they would plan to execute such a proposal, or ensure robust privacy, but it is refreshing to hear people at least talking about the importance of financial privacy.
Regardless, we have low hopes for any digital implementation of the USD, and presume that any such creation would just become another means of financial control.
By Will Sandoval, NBTV Associate Producer, and Naomi Brockwell.
Special thanks to Kieran Mesquita!