The SEC is Suing Coinbase & Binance | Ryan & David

Today Gary Gensler and the SEC officially filed lawsuits against crypto exchanges Binance and Coinbase. We break it all down and share some hot takes on what this means for the crypto industry as a whole. ------ 📣 ASYMETRIX | STAKE stETH NOW https://bankless.cc/asymetrix-pod ------ 🚀 Airdrop Alpha is waiting for you on Bankless.com https://bankless.cc/Alpha ------ BANKLESS SPONSOR TOOLS: 🐙KRAKEN | MOST-TRUSTED CRYPTO EXCHANGE https://k.xyz/bankless-pod-q2 🦊METAMASK LEARN | HELPFUL WEB3 RESOURCE https://bankless.cc/MetaMask ⚖️ ARBITRUM | SCALING ETHEREUM https://bankless.cc/Arbitrum 👾STADER LABS | ETHX LIQUID STAKING https://bankless.cc/Stader 🗣️TOKU | CRYPTO EMPLOYMENT SOLUTION https://bankless.cc/Toku 🎮IMMUTABLE | GAMING ECOSYSTEM https://bankless.cc/Immutable 🛞MANTLE | MODULAR LAYER 2 NETWORK https://bankless.cc/Mantle ------ CHAPTERS 0:40 Is This Lawsuit a Surprise? 2:35 Is This Lawsuit a Suprise? 8:41 An Attack On Crypto 12:05 The 4 Big Questions 17:06 Gary's Public Statements 22:20 SEC Charges Overview 27:47 Analysis on Coinbase 30:31 Brian Armstrong's Take 32:58 The Case Against Binance 38:08 David's Take on All of This 43:38 What "Securities" Are Effected? 48:41 News Price Impact 53:35 Where Does Solana Stand? 57:39 Is ETH The Next Target? 1:02:17 Does Anybody Actually Want This? 1:05:15 Twitter Takes 1:09:08 Gary's Icarus Moment? 1:11:10 Closing Thoughts ------ Resources: Binance Sued https://twitter.com/BanklessHQ/status/1665744014081941506?s=20 ----- Not financial or tax advice. This channel is strictly educational and is not investment advice or a solicitation to buy or sell any assets or to make any financial decisions. This video is not tax advice. Talk to your accountant. Do your own research. Disclosure. From time-to-time I may add links in this newsletter to products I use. I may receive commission if you make a purchase through one of these links. Additionally, the Bankless writers hold crypto assets. See our investment disclosures here: https://www.bankless.com/disclosures

Speaker names marked ? are inferred from speaking time and the show’s known hosts — they are not voice-verified.

• 0:14Ryan Sean Adams?

  Just this morning has sued Coinbase. Yesterday, they dropped a lawsuit against Binance. Gary Gensler and the SEC naming a whole bunch of tokens, tokens that you may own, calling them securities in the complaints issued by the SEC. It seems like the SEC and Gary Gensler is attacking crypto this week. An out and out assault. Of course, this comes on the back of months of US government hostility, what we've been calling Operation Choke Point 2.0. And we want to dive into this subject today. See what's going on. There are a few key questions we need to ask and to try to answer today. David, where do you want to take this episode? Where should we start?

• 0:58David Hoffman?

  I think the first big question that everyone is asking is, is this a surprise or did we see this coming? I saw this pop up on my Twitter notifications. SEC sues Coinbase. And I was like, oh, man, today's the day. And I think we should remind Bankless listeners and viewers that six weeks ago Coinbase was served a Wells notice, which means, what is a Wells notice? A Wells notice says, hey, we are the SEC and we are going to sue you. And Coinbase was like, why? Why are you going to do that? And they didn't, they didn't say anything. So it's worth noting that like, we knew that this was coming. The SEC told Coinbase, hey, we're going to sue you. They didn't tell them why. But not only that, about in last March,

• 1:43David Hoffman?

  the SEC told a federal court overseeing the Voyager bankruptcy that Binance was operating an unregistered securities exchange inside the US, but they had yet to bring charges. And so they, the SEC had officially stated that Binance was an unregistered securities exchange. And so both of these things we've had in history, recent history. So I think there's a lot of fear out there. This is a, this is A scary headline, SEC sues Coinbase, SEC sues Binance, SEC is suing the two largest crypto marketplaces that we have. And so for first cyclers out there who are questioning or having fear, who are scared, I'll say, no, this is, this is not a surprise. Everything in these two complaints

• 2:28David Hoffman?

  against Coinbase and Binance, I will say Coinbase and Binance both saw coming and are probably prepared for. So I will say, this is not a reason to freak out. And probably the industry, we've got this, we've got this under control. That's my high level take for the intro of this. How do you feel about that, Ryan? You're muted.

• 2:48Ryan Sean Adams?

  Yeah, I think I want to unpack that with you, David. And before we maybe get to kind of conclusions or how we're feeling about it, I feel like we should get to kind of the, the intro of what actually happened to get people up to speed because it just started yesterday. Yesterday, the first complaint was filed against Binance. The SEC charged Binance and CZ for operating an unregistered securities exchange and for the unregistered sale of securities. So here's the tweet that David is displaying right now from SEC, at SEC gov, because of course, this is where these things are published these days on Twitter. Today, we charged Binance Holdings Limited, US-based affiliate BAM trading services, which together with Binance operates,

• 3:29Ryan Sean Adams?

  Binance.us and their founder CZ with a variety of security violations. They also, by the way, include kind of a apparent tweet, like an influencer tweet. I'm going to read that quote, "We are operating as an effing unlicensed securities exchange in the USA, bro." Binance Chief Compliance Officer, blown up quote, this was a quote from 2018 that somehow the SEC procured via internal Binance chat logs. So of course, they are making a big deal out of this. And you could see details in the, in the press release. So that's what happened yesterday. Okay. So that was June 5th. This SEC filed charges against Binance entities.

• 4:08David Hoffman?

  13 charges, yes, against all of the Binance entities and CZ himself. So it's a pretty comprehensive set of charges against Binance.

• 4:17Ryan Sean Adams?

  So we had that to absorb. And then just Today as well, the SEC charged Coinbase for operating unregistered security exchange broker and clearing agency. Here's the influencer tweet here. Here's the blown up quote coming from the SEC Twitter account. And this was, I think, a quote that this was something also posted in the complaint itself. You simply cannot ignore the rules because you don't like them, or because you prefer different ones. The consequences for the investing public are far too great. While Coinbase's calculated decisions may have allowed it to earn billions, it's done so at the expense of investors by depriving them of the protections to which

• 4:57Ryan Sean Adams?

  they are entitled. This is the director of the SEC skewering Coinbase for, I guess, ignoring the rules, in his words. And that was the charge that that came this morning and the accompanying press release. And David, we have some market reaction from this already. You want to get into that?

• 5:17David Hoffman?

  Yeah, so Bitcoin, when this news broke yesterday was at $26,800, fell all the way down to $25,500, so down about 5% to 6%. And interestingly, in the last few hours or so, has recovered back to up to $26,500. So we're seeing some recovery in both Bitcoin and Ether. So here's Ether. Ether is actually back up to the price it was when this news dropped yesterday about Binance. And so it was at $1,870, it got down to as low as $1,780. And now it's back up to $1,870. So interestingly, when the Binance news dropped, when SEC announced their lawsuit against Binance, Bitcoin dropped about 5%, Ether dropped about 4%, some of

• 6:02David Hoffman?

  the tokens dropped up to 10%. But since the SEC dropped the news about Coinbase, things have recovered. The blue chips are almost back up to where they were. Solana, which is one of the tokens listed as a security in both the Binance and the Coinbase charges, is still down at the price that it fell to yesterday at $20. So it's about down about 8%. Atom, the Cosmos token, recovered a little bit, but it's still down a little bit south. So the blue chip- Ryan, interestingly have recovered. The tokens listed, which is a subject of this episode, the tokens listed as securities in both the Coinbase and the Binance suits are still hammered a little bit. But it's interesting to see the market react.

• 6:43Ryan Sean Adams?

  What are those tokens, by the way, David? Can we just list them in the intro here? Because I know we'll get into them a little bit later.

• 6:48David Hoffman?

  Yeah, so there's a number of them. The big ones are Solana, Cardano, Matic, AKA Polygon, Filecoin, Axie, Flow, Definity and Near. There are other tokens as well, but these are the big ones that got named as securities.

• 7:05Ryan Sean Adams?

  So yes, to be clear, the SEC actually named these tokens, called these tokens securities in both of their suits, in both of the complaints that they put down. How about the price of coin shares? I heard that took a nosedive after the complaint against Coinbase was released this morning, maybe like down 17% at one point in time.

• 7:26David Hoffman?

  Yeah, that's right. I don't have that pulled up. Actually, yes, I do. Just kidding. Coin down 17% as of this morning, following the SEC lawsuit. So down, it started the week at about $66, is now at $48.5. So that's pretty rough. That's a big bleed of the market cap.

• 7:44Ryan Sean Adams?

  How about some of the other tokens, David? I know BNB token was down bad. Of course, BNB was another one of the tokens that was listed as a security and maybe the SEC has more like to stand on with that one as opposed to the others. I'm not sure, but what are we looking at here? What's this chart showing us?

• 8:01David Hoffman?

  Yeah, so this is all of the tokens that were listed, named as securities. So Cardano, Matic, Filecoin, Atom. The best one of the case, Matic, is down 5.5%. The worst one of the case, which is Sand, which is, I think, one of the lowest market cap ones, is like a Metaverse token, down 10%.

• 8:20David Hoffman?

  Let's see, Filecoin down 9.5%, Cardano down 7%. We don't have Sol in here, but we do have Sol up on the Kraken charts. So like I said, Sol is down how much? Not too bad. It could be worse.

• 8:34Ryan Sean Adams?

  Yeah.

• 8:36David Hoffman?

  Down six and a half percent.

• 8:38Ryan Sean Adams?

  I think the markets are still reeling and trying to figure out what, how to react to this. One high level take I have in the intro before we kind of get into the specifics here. I know there's the four big questions we really want to ask in this episode, but one high level take I have is that this is an attack on crypto. So yesterday I was sort of thinking this was, you know, maybe this in the rest of crypto industries, maybe thinking this was an isolated incident, right? This is maybe, maybe the SEC is trying to clean things up on the Binance side of things. They certainly very explicitly made some comparisons with CZ to SBF and to Binance to FTX, right? And they're certainly using that as much as they could, drawing from that comparison.

• 9:21Ryan Sean Adams?

  But one thing I want to draw everyone's attention to that they didn't, but the Binance complaint, and then this is that they named specific tokens, they declared specific tokens a security. And to me, that is not an isolated incident. That is not an isolated attack on Binance as a whole and CZ or on a particular set of products at Coinbase. When you name specific tokens that are in kind of the top 10, top 25 market cap that have existed for a very long time in crypto, and you declare them securities, Sol, Ada, Matic, Atom, AXS, that to me is a direct attack on crypto.

• 10:02Ryan Sean Adams?

  And here's why I'm reeling from this is I was even looking at Binance and like, I trust Binance at this point more than I trust the SEC. And I don't put a lot of trust in Binance, David. You know what I mean? Like, this agency has lost a ton of credibility in its response to this space. They have not provided clear guidelines. Instead, they're taking this kind of rogue enforcement action. And it seems like Genzler is on a warpath to absolutely tear into crypto to try to.

• 10:34Ryan Sean Adams?

  Kill it in the US to try to damage it, to try to rein it in, to try to completely control it. And that is why this is more than an isolated complaint against two particular exchanges. This to me is an all out assault on crypto and it couldn't be more clear. Look at these events Monday and then Tuesday, we get a Coinbase attack. It goes without saying that Coinbase has tried its best. I mean, their thing is being like, you know, the kid in the class hand always up, always answering a question, kind of teacher's pet with respect to compliance, and they are getting busted as well. That's why this feels like an attack on crypto.

• 11:09David Hoffman?

  It goes straight to the roots of why we are here in this industry, like one of our favorite podcasts, Ryan, the Crypto Renaissance. Crypto is powerful because we can now make financial assets, anyone can make financial assets without asking for permission. Like it or not, that technology, that cat is out of the bag and now people are experimenting with this ability to produce new tokens, to produce new assets, and to deem these things broadly, sweepingly saying, that's a security, that's a security, that's a security. Goes straight to what makes this technology so powerful. And it is exactly what this is predicted by when this new disruptive technology comes to power, the incumbents say like, hey,

• 11:52David Hoffman?

  we're going to make that illegal. And so this whole like, your asset is a security, like the Bitcoiners are saying like Ether is a security. This is not the time to be tribal. There are the, having the nation state name certain crypto asset securities is not for any one tribe's victory over the other. This is like you are saying, an attack on crypto, an attack on our fundamental right to do finance on the internet and to produce and experiment with new crypto assets. Even though that offends Gary Gensler, that is that is too bad for him. So I've got four questions, Ryan, that I think the rest of this show are going to is going to be thematic under, four big questions, right? And so

• 12:34David Hoffman?

  the first one here is Binance questions. It's like, okay, so the suit against Binance, the complaint against Binance has facts and circumstances that is unique from The suit against Coinbase. What about the Binance suit is alleged? And is this really a case against Binance versus the people? Which is, which is one perspective to have, or is this Binance versus the law? Who, what are we trying to unpack here? Did Binance offend humans? Did they aggrieve customers? Did they do something wrong to people's monies? Or did they just violate the law in a bureaucratic way? So that's a big theme of the whole Binance suit. And so that's a topic of conversation that we'll go through when we talk about Binance.

• 13:19David Hoffman?

  Then there's the Coinbase questions. The big one to me is, why did the SEC allow Coinbase to IPO? If they knew that it was an unregistered illegal securities exchange?

• 13:28Ryan Sean Adams?

  Yep.

• 13:29David Hoffman?

  And if it did know that, why? What is the motivation to going back on that choice now? So that's the Coinbase question. The third question, is everything a security now? Because apparently that, if you put these two suits together, that is the common denominator, is that both Binance and Coinbase are illegal, unlicensed securities exchanges. And they're now naming which tokens are securities now for the first time ever. So that is a development in clarity, even though they're saying everything's a security.

• 13:57Ryan Sean Adams?

  Ether not on the list.

• 13:58David Hoffman?

  Ether not on the list, but that is a topic of discussion is like, well, is, does Gary Gensler have one more hat? Like one more trick to pull out of his sleeve? Maybe that's the last, the last thing here. And then the big question, the final big question is, why is the SEC doing this? They haven't even won their case against Ripple, but now they're taking on both Coinbase and Binance. Like Gary Gensler, he's no idiot. He knows that Coinbase will fight him tooth and nail. Same with Binance. So what's his edge? Why does he feel so confident in this? Like what is his motivation? These are the big categories of questions that I have. Is there anything you want to add to that?

• 14:36Ryan Sean Adams?

  No, I just think we're gonna want to conclude as well with where do we go from here? Like what happens next? And how can we, as residents of the United States, at least for a subset of Bankless listeners or worldwide, in whatever jurisdiction you're part of, how can we fight back? How can we resist? What can we do? as individuals. So we'll conclude with some of those thoughts. David, we got to cut to sponsors real quick before we get to the rest of this episode. So let's do that now.

• 15:03David Hoffman?

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• 16:29David Hoffman?

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• 17:12David Hoffman?

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• 17:27David Hoffman?

  So Ryan, Gary Gensler was on Squawk Box this morning making his influencer debut, made some statements about the two suits that just dropped in the last 48 hours. Let's hear what he's got to say.

• 17:39Speaker 02

  In public, these trading platforms, they call themselves exchanges, are commingling a number of functions which in traditional finance, we don't see the New York Stock Exchange also operating a hedge fund, making markets, and as we alleged in Binance, having a sister organization flooding the platform with transactions called WASH Trading and the lack of controls on the platforms is really a web of deception.

• 18:15David Hoffman?

  Oh my god.

• 18:16Speaker 02

  Along with a control person, Mr. Zhao, trying to evade US law.

• 18:24David Hoffman?

  So he was talking about Binance, not Coinbase, in that I'm pretty sure he talks about Binance in all of these clips, but.

• 18:32Ryan Sean Adams?

  It's so much easier for him to talk smack about Binance, by the way, than it is Coinbase, and he knows that, and he's using that to his advantage, isn't he? So a web of deceptions.

• 18:42David Hoffman?

  Right.

• 18:42Ryan Sean Adams?

  Is what deception is what he just called Binance right there.

• 18:46David Hoffman?

  And I think the in-timing of the Binance yesterday, Coinbase today, is a strategy to Coinbase's disadvantage, because now Coinbase is shoulder to shoulder with Binance, and Binance does have skeletons in the closet. It makes it a lot harder to defend against. And so here's another clip, who I'm pretty sure Gary Gensler is just talking about Binance once again.

• 19:09Speaker 02

  There's a lot of question. There's 10 to 20,000 tokens actually in the Coinbase complaint.

• 19:20Speaker 02

  We note that they have through the Coinbase Wallet, you can trade 16,000 different tokens. And there's a lot of debate as to the use cases and whether there's a there or there. Look, we don't need more digital currency. We already have digital currency. It's called the US dollar. It's called the euro.

• 19:40Ryan Sean Adams?

  What?

• 19:43David Hoffman?

  Why does he get to decide?

• 19:45Speaker 02

  And you, you have digital, you have entrepreneurs representing digital investments on this program all day long. And it's, it's whether it's the big tech companies, the automobile companies, you name it. It's all digital right now, the investing world.

• 20:01David Hoffman?

  Wow.

• 20:02Speaker 02

  Is the real underlying value of these tokens? And that's why you need full, fair and truthful disclosures. And that's the regime, the securities laws was set up. When there's a group of entrepreneurs, those entrepreneurs should be able to put their case in front of the investing public in what's called a filing.

• 20:24David Hoffman?

  In what is called a filing?

• 20:27Ryan Sean Adams?

  Wow. This guy just cannot let the market determine the price for things, can he? He has to control it all. What is the use case of all of those coins and tokens? That's the.

• 20:38David Hoffman?

  Did you, did you hear the transition? He goes, what is the use case for these coins and tokens? That's why we need disclosures. Those are, you can question the value of crypto, but you just can't question the value of crypto and then also bridge that to, and everything is like undisclosed, blah, blah, blah, blah, blah, blah, blah. Those are separate issues.

• 20:56Ryan Sean Adams?

  This is a guy like, it's as if he is responsible for like AOL, regulating AOL. And he's going and he's looking at the rest of the internet and he's like, what's the use of all of these websites? We have everything we need already in America, America online. And so there's no utility to go outside of our closed garden.

• 21:17David Hoffman?

  All right. You ready for the last one?

• 21:18Ryan Sean Adams?

  I don't know. I'm getting sick.

• 21:20Speaker 02

  Any one set of conversations between the agency and a company, but we've had discussions with literally dozens of crypto incumbents, including the ones that you just mentioned. And what we find is this is a field that's built, the whole business model is built on non-compliance with the US securities laws. And we're asking them to come into compliance and they're going a bit of catch us if you can. And that's a sort of generalization.

• 21:52David Hoffman?

  So that's talking about Binance. And like that, that's what this problem is, is like, if you go and look at the Binance, uh, what's in the suit and the messages that they apparently got from Binance internal comms, that was the strategy of Binance, of Binance. It was like evade regulations, evade controls.

• 22:10Ryan Sean Adams?

  But like, but like the regulations suck, David. All right. Here's the thing. Why, why do we need a Binance.us? Why do we need like a .us version of all of our exchanges? Why is there a separate Coinbase institutional and then a Coinbase, uh, US? And we get the kind of the Fisher Price version that's made for kids rather than like grown ass adults. It's because this guy, it's because this guy does not make it easy to comply, has not offered any clarity, is just using stick. Oh.

• 22:41David Hoffman?

  Okay. So let's go, let's get into the SEC charges Coinbase for operating an unregistered securities exchange broker and clearing agency. Uh, and so there's a formal complaint that you can read. There's a, will be a link in the show notes. Uh, this is a very, very lengthy document, but, uh, Mike Selig, our friend and lawyer at Bankless here, not our lawyer, but our lawyer, free reoccurring guest.

• 23:03Ryan Sean Adams?

  Good specification there.

• 23:04David Hoffman?

  Good specification. Uh, he tweets out this, uh, thread. And so I'll summarize it here. First, the SEC's, uh, complaint against Coinbase says that Coinbase is operating as an unregistered exchange broker dealer, dealer and clearing agency. The staking programs are securities offering. So that's CBE, Brian, which is a, there's a lot of CBE out there. Uh, and then several coins, including, uh, new ones that were not named in the Binance suit from yesterday, like near, uh, were dubbed as securities. Uh, and so. I think the the interesting tweets are tweet number six. Let's see, where is that? An interesting aspect, and you heard this in the in the clip just now. Interesting aspect of the complaint is the assertion that Coinbase offers brokerage services via Coinbase Wallet,

• 23:49David Hoffman?

  a non custodial digital wallet. Novel theory in asserting that offering a non custodial software product is somehow providing a brokerage service.

• 23:58Ryan Sean Adams?

  Oh, my God. So he's going after the wallet, too?

• 24:00David Hoffman?

  He's going after the non custodial independent wallet. Yeah. SEC bases its conclusion that offering a wallet is broker dealer activity on the fact that while the wallet enables users to access DeFi trading protocols outside of the Coinbase platform that offers securities.

• 24:15Ryan Sean Adams?

  So MetaMask is a unregistered securities exchange.

• 24:19David Hoffman?

  Anything that connects to any DeX, because a DeX connects to unregistered securities.

• 24:26Ryan Sean Adams?

  Your Ledger hardware wallet is you are an unregistered exchange, my friend.

• 24:32David Hoffman?

  Hey, I hate to break it to you, but you are too, brother.

• 24:34Ryan Sean Adams?

  What? Well, where's my Wells notice?

• 24:39David Hoffman?

  I want one.

• 24:40Ryan Sean Adams?

  This is crazy. So I didn't realize it went that that.

• 24:44David Hoffman?

  It went that far. This is a tweet number nine from Mike Selig. This I thought was a pretty big deal. The SEC uses risks disclosures from Coinbase's S1.

• 24:52Ryan Sean Adams?

  You want to pop this to full screen, by the way, so everyone can see.

• 24:54David Hoffman?

  Oh, is this is this not full screen? Oh, this is my this is my desktop browser. Oh, that's not too bad. Well, that's not too bad at all. One more time. The SEC uses risks disclosures from Coinbase's S1 registration. The S1 is what you need to file with the SEC in order to be a public company, which the SEC approved. So the SEC is using risk disclosures from Coinbase's S1 against Coinbase, despite having allowed Coinbase's registration statement to go effective. The complaint asserts that Coinbase knew of the risks based on S1 disclosure that certain crypto assets may be deemed securities because the law is so unclear. Wait, so do you do you get this? So the the the SEC approves Coinbase's S1 and then uses Coinbase's S1

• 25:39Ryan Sean Adams?

  As evidence against them.

• 25:41David Hoffman?

  Coinbase knew that there were potentially securities on the exchange because Coinbase knew that the SEC's law was so unclear.

• 25:48Ryan Sean Adams?

  David, how much more bad faith can you actually get here?

• 25:52David Hoffman?

  It is unreal. It is unreal. So like, first, Coinbase states in their S1 that there is a risk to the company. That they might have securities on the exchange because the SEC is not providing any guidance or clarity, so they don't know. And the SEC is using that statement in the S1 that they approved that saying like, oh, well, you guys knew that you had securities because you guys said that.

• 26:15Ryan Sean Adams?

  It says it right here.

• 26:15David Hoffman?

  Because it says that you guys were worried about it. Right. Because it is, the scripting on this could not be any better.

• 26:23Ryan Sean Adams?

  Okay.

• 26:24David Hoffman?

  Okay. And then the last tweet that I think that is worth pointing out is Coinbase has expressed willingness in its well's response and elsewhere to register with the SEC if the SEC believes that this is needed. The SEC complaint does not appear to acknowledge this fact that Coinbase is trying to be so responsive to the SEC, but instead attempts to characterize Coinbase as knowingly attempting to evade securities laws. So this is why just now, when we listened to Gary Gensler on Squawk Box, Gary Gensler was like, oh, these, these crypto trading platforms are trying to operate intentionally outside of regulatory control.

• 26:57Ryan Sean Adams?

  Yeah, the whole industry was founded on non-compliance and not, you know, playing by the rules and just like scamming investors out of their, their capital. Yeah, Gary.

• 27:08David Hoffman?

  Right. Which is, which is why the timing on Coinbase and Binance is so dubious because they're trying to use the dark gray cloud of Binance to shroud Coinbase's sparkly, clean, good attempt to come into compliance and talk to the SEC.

• 27:22Ryan Sean Adams?

  But even Binance before that, I mean, they're, they're using SBF and FTX and saying, huh, there's another one. We caught another one, right? Here it is. It's Binance that they're using that as well. I, you know, that parent tweet too, and I know we'll get back to this, but the, Mike mentions that it's increasingly clear that SEC agrees with Chair Gensler that virtually all cryptos except Bitcoin are securities.

• 27:46David Hoffman?

  Yeah.

• 27:46Ryan Sean Adams?

  So again, that list of tokens that they named, this isn't the complete list, but Solana, Ada, Matic, Filecoin, Axie Infinity, Stan Token, CHZ, what's that? Flow, ICP, Near, VGX, Dash, Nexo, just a random assortment of coins. Just like, yeah, these ones.

• 28:07David Hoffman?

  Yeah.

• 28:08Ryan Sean Adams?

  Absolutely infuriating. We'll, we'll get back to that, but you've got some more analysis on Coinbase still. What's this?

• 28:13David Hoffman?

  Yeah, this is Colin Belton, another lawyer that we've actually also had on on Bankless. He also pulled out the wallet part of this complaint and said like, hey, this is actually pretty significant. He says, wallet mentioned in a few places as essentially being part of their exchange infrastructure. I suspect that they are trying to position themselves to go after some DeFi apps or interfaces that are non-custodial with this approach.

• 28:35Ryan Sean Adams?

  Basically, if they do this, you can't be a crypto wallet or a crypto company or do anything in DeFi in the United States of America.

• 28:41David Hoffman?

  It goes back to that. I can't remember when this was, but it was like that law that was proposed that would have made every single node operator a custodian and broker dealer because they were processing transactions. It goes back to that.

• 28:51Ryan Sean Adams?

  SBFs, yeah, like, you know, attempted this. Okay, so that's crazy. One thing we should mention, though, is, of course, Coinbase actually has to prove this in court. So these are complaints, these are lawsuits. Sorry, the SEC needs to actually prove these allegations in court. Okay, so Gary Gensler, even though he seems to think he's God King and the SEC seems to think that they can kind of dictate everything in this space, they actually have to prove these allegations in court. And for the judge, a judge and a court system to actually agree with them. So this is still at the allegation phase. It does seem like the SEC is throwing everything they can at the wall here.

• 29:34David Hoffman?

  This is a Meta law man who is a reoccurring law lawyer who's tweeted out about the Coinbase and SEC and all these other subjects that have themed 2022 and 2023. He goes, the SEC alleges that Coinbase has acted as an illegal unregistered securities exchange since 2019, but in April of 2021, the SEC approved Coinbase going public with the listing on the NASDAQ. And in May of 2021, SEC Chairman Gary Gensler testified before Congress that, under the current law, the SEC has no regulatory authority over crypto exchanges. Interesting. He concludes in saying the SEC should lose this case. So he's just, as a lawyer, predicting that the SEC's grounds just aren't strong. So some respite there. How do you feel about that?

• 30:21Ryan Sean Adams?

  If they are, if, if they are just throwing spaghetti at the ball and Gensler and the SEC expect to lose this case, if they have nothing kind of, you know, backing this and the court system just turns them away, then you have to wonder like, what is the point?

• 30:34David Hoffman?

  Right. That, that is such the like, I, we, we've called this like Gary Gensler's Icarus moment, but he's not dumb. He's strategic, right? He's not that dumb. He's got-

• 30:46Ryan Sean Adams?

  What's he doing then?

• 30:47David Hoffman?

  What's he doing? What's he doing, Ryan? I don't know.

• 30:50Ryan Sean Adams?

  Okay.

• 30:51David Hoffman?

  Brian Armstrong tweeted out not too long ago, like within the last few hours, a pretty long tweet, so I'll do my best to read it quickly. Regarding the SEC, Brian Armstrong, the CEO of Coinbase, by the way, regarding the SEC complaint against us today, we're proud to represent the industry in court to finally get some clarity around crypto rules. Thank you Coinbase for going toe to toe with the SEC. Brian continues, goes, remember, the SEC reviewed our business and allowed us to become a public company in 2021. Two, there is no path to quote, come in and register and quote. We tried repeatedly, so we don't list securities. We reject a vast majority of assets that we review. Three, the SEC and CFTC have made conflicting statements and don't even agree on what is a security and what is a commodity. And four, this is why the US Congress is introducing new legislation

• 31:36David Hoffman?

  to fix the situation and the rest of the world is moving to put clear rules in place to support this technology. Instead of publishing a clear rule book, the SEC has taken a regulation by enforcement approach that is harming America. So if we need to avail ourselves of the courts to get clarity, so be it. By the way, in case it's not obvious, the Coinbase suit is very different from the others out there. He's talking about the Binance suit. The compliant, the complaint filed against us is exclusively focused on what is or is on a security, implying that there's, we're not doing any other shady things. It's just about the assets that is on the marketplace. We are confident in our facts and the law. We'll get the job done. In the meantime, let's all keep moving forward and building as an industry. America will get this right in the end.

• 32:20Ryan Sean Adams?

  Well, that makes me feel good.

• 32:22David Hoffman?

  Refreshing.

• 32:23Ryan Sean Adams?

  Yeah, he's like, Gensler in the suit doesn't have a case. In fact, it's kind of good that they've made this, that this is just about, what is the definition of a security?

• 32:33David Hoffman?

  Right.

• 32:34Ryan Sean Adams?

  And, you know, Brian portraying confidence that they'll be able to beat the SEC in court. That's optimistic.

• 32:41David Hoffman?

  Yes. So that is the more optimistic of the two cases. I think we're all feeling good about Coinbase. They are feeling good about themselves. They have very firm ground to stand on and they are prepared for this because Coinbase told them that they were going to sue them six weeks ago. Are you ready for Binance?

• 32:57Ryan Sean Adams?

  Yeah. Okay. So the Binance, different situation.

• 33:00David Hoffman?

  Different situation.

• 33:00Ryan Sean Adams?

  Still part of the same kind of attack and assault. Certainly has a component where Binance is being labeled as an unregistered security exchange. And so all of the tokens that we previously mentioned were in this case as well. But there are some different facts and circumstances that the SEC is alleging against Binance. So what's this one, David?

• 33:20David Hoffman?

  Yeah. So Binance, SEC accuses Binance of mishandling funds and lying to regulators. So this is a, this one's a different beast. So this document, 136 page document, much longer than the Coinbase suit, makes some pretty big claims about Binance. If some of them are kind of par for the course, the more or less the carbon copy of why the SEC is suing Coinbase, but there's also a bunch of additional stuff, which kind of goes to represent like the differences between, you know, if I'll just go back to the intro, where we have our two influencer tweets out of the SEC. The first one, today we have charged Binance Holdings. And then we have this, the, the, the graphic, right? We are operating as an effing unlicensed securities exchange in the USA, which is Binance's Chief Compliance Officer,

• 34:05David Hoffman?

  a quote from a Binance executive member.

• 34:09Ryan Sean Adams?

  Then if you go and I'm sure from this, this person's like internal Telegram account or Signal account or something.

• 34:15David Hoffman?

  To a, to a friend or something. Yeah.

• 34:17Ryan Sean Adams?

  Yeah, this was not, this was not tweeted out or like you've

• 34:19David Hoffman?

  Right.

• 34:20Ryan Sean Adams?

  stated by this executive.

• 34:21David Hoffman?

  Exactly. And then if you compare like the, the tweet about Coinbase, it is a quote from the SEC about how you simply can't ignore the rules. And so like, I feel like that kind of like summarizes the difference in vibes of these two things is Binance is like, Binance is the Wild West.

• 34:37Ryan Sean Adams?

  Yep.

• 34:37David Hoffman?

  Coinbase is, is the East. It is suit and tie. It is playing the same, the regulatory game. Binance is like, oh, Binance is a cowboy and the, these two suits reflect these two things. Uh, and so the SEC suing Binance due to blatant disregard of federal securities laws. Uh, the defendants have enriched themselves by billions of dollars while placing investors' assets at significant risk. Binance has unlawfully solicited US investors to buy, sell and trade crypto asset securities through unregistered trading platforms.

• 35:07Ryan Sean Adams?

  What does, by the way, what does enrich themselves with billions of dollars mean? That just means ran a profitable exchange, right?

• 35:15David Hoffman?

  Uh, not, no, it means they ran an illegal securities exchange, Ryan.

• 35:19Ryan Sean Adams?

  Oh, okay. Sorry. Well, I didn't know what a security was.

• 35:22David Hoffman?

  Okay. So it, it does get worse. It does get worse.

• 35:25Ryan Sean Adams?

  Go on.

• 35:25David Hoffman?

  So, so hold, hold your breath a little bit. Uh, Binance defrauded equity, retail and institutional investors about purported surveillance controls over manipulative trading on the Binance US platform, which were in fact virtually non-existent. Binance, under CZ's leadership, unlawfully offered three essential securities and market functions, exchange, broker dealer and clearing agency on the Binance platforms without registering with the SEC, acutely aware that US law requires registration for these, uh, functions. Defendants nevertheless chose not to register so that they could evade critical regulatory oversight designed to protect themselves, investors and markets. Here's where it gets a little bit worse. Binance and has unlawfully engaged in unlawful, unlawful, unregistered offers and sales of crypto asset securities,

• 36:09David Hoffman?

  including BNB and BUSD, as well as profit generating programs called the BNB Vault and so-called staking investment schemes available in the Binance US. Uh, so that's East Staking. That's actually not the, the worst part. Uh, the worst part is, let's see, let me skip down to this part.

• 36:24David Hoffman?

  SEC also alleges that CZ and Binance exercise control over the platform's customers' assets, permitting them to co-mingle customer assets or divert customer assets as they please, including to an entity CZ owned and controlled called Stigma Chain. Further, the complaint alleges that the defendants concealed the fact that it was co-mingling billions of dollars of investors' assets and sending them to a third-party, Merit Peak Limited, that is also owned by ZOW. And so this is kind of like, oof, SBF, FTX, mislabeled bank accounts. We'll send customers' money wherever we need to, whenever it suits us, because it's the Wild West, and we can kind of do whatever we want.

• 37:08David Hoffman?

  So it's not, Binance is not nearly as squeaky clean as Coinbase is. You're muted.

• 37:15Ryan Sean Adams?

  They're definitely not nearly as squeaky clean. I mean, the first set of those allegations, it was just like you didn't file the paperwork, right? And you didn't do AML KYC types of things, and you listed unregistered securities and that sort of thing, right? Okay, that's one piece. The most concerning bit is what you said about co-mingling funds. But to be clear, I like, I don't know fully what that means. Do you know what that means? I mean, it's freaking impossible, verging on impossible to actually get a bank account for crypto in the United States of America. I mean, like, again, I have no idea whether Binance is clean or not. I'm guessing that there was some fasten loose. I'm guessing that there was some issues here. But like, I just,

• 37:59Ryan Sean Adams?

  David, I have zero trust in the SEC to actually paint a fair picture here and to actually trust, actually, actually protect investor interests. So like, my faith in any of the SEC's like, charges here is Like at an all time low. So I don't know who to believe, but you're right in that Coinbase had kind of no skeletons in the closet.

• 38:24David Hoffman?

  Right.

• 38:24Ryan Sean Adams?

  It seems like Binance has some that you can pull out and cart around and, you know, tweet about and, and, and show the world, you know, and, and try to make an example of. So it's a different situation. I don't know. What, what's your take when you hear all of this?

• 38:41David Hoffman?

  I, I, I think that's right. And so here's a line from the complaint, lacking regulatory oversight. Defendants were free to transfer investor assets as defendants pleased at times co-mingling them and diverting them in ways that properly registered broker dealers, exchanges and clearing agencies would not have been able to do so. So my take on this is the line, properly registered brokers, dealers, exchanges and clearing agencies would not have been able to do, they wouldn't have been able to do anything of value for the crypto world. Like because of what they are, they could not have been Binance. They could not have given like however many hundreds of millions of people the private keys that Binance did. So to me, this is one big point for this is a case of Binance

• 39:22David Hoffman?

  versus the law, not Binance versus the people. This is the co-mingling funds bad. That's not great. Like you're, you're, don't touch users monies in ways that they don't want. Here's where, here's the other half of this part, Ryan, where I haven't brought this up yet.

• 39:36Ryan Sean Adams?

  Okay.

• 39:37David Hoffman?

  There's this BUSD issue where the complaint is that Binance used customer funds to purchase BUSD. So the SEC complaint that

• 39:46Ryan Sean Adams?

  That's not good.

• 39:47David Hoffman?

  Billions of US dollars of, uh, US dollars of customer funds from both Binance and Binance US were co-mingled in an account held by a CZ controlled entity known as Merit Peak Limited. Binance then funneled these customer funds to Merit Peak to purchase Binance's own stablecoin, BUSD. The SEC said that the use of Merit Peak as an intermediary to transfer platform customer monies to buy BUSD, BUSD presented an undisclosed counterparty risk for investors. The regulator, regulator also said that you at Merit Peak's US bank account held at the now defunct Silvergate Bank received as a passer account over $20 billion that customer, that included customer funds from both Binance platforms. Those funds were then sent out to an unnamed trust company

• 40:30David Hoffman?

  in transfers that appeared to relate to the purchase of BUSD. Oof, not great. This is using customers' funds, passing through various entities in ways that like the protections of a broker dealer and into all that stuff would have prevented. And in order to use customer funds in ways that the customers would not have approved of. They did not sign up for the counterparty risk of all these companies. They did not sign up for to have their money end up ultimately purchasing BUSD. This goes to one point towards this is actually Binance versus the people. And so that, that's bad.

• 41:00Ryan Sean Adams?

  No, I agree. I agree. I mean, so one, I'll say allegedly, of course, this is a court filing. This has to be proved. But secondly, yes, if they did indeed do those things, that is bad. And actually, that is what we want. Someone like the SEC.

• 41:16David Hoffman?

  Right.

• 41:16Ryan Sean Adams?

  This, this part of the complaint, this section of the complaint, this is exactly what we want an agency like the SEC to go after. But they didn't stop there. If this suit and this complaint was just that.

• 41:29David Hoffman?

  Right.

• 41:29Ryan Sean Adams?

  Then I don't think I would have a problem with it. Go investigate. Go figure this out. That would be great. That would be fantastic. Like, thank you for doing your job. Would have been nice if you helped with FTX and did some of the same work with FTX months before all of those events happened. But for that part, so here's the thing, is like them declaring Sol and Cardano and Matic and Atom as securities and calling both Binance and Coinbase an unregistered securities exchange, that tells you that the intent is broader than rooting out bad actors and protecting investors and finding out where the frauds are, that this is like

• 42:11Ryan Sean Adams?

  a collective action to bring all crypto under the SEC's control, or like maybe worst case scenario, try to stifle it, try to stymie it, try to kill crypto in the United States. That's why I don't trust these guys, David.

• 42:25David Hoffman?

  Right. It does not appear that the motivation for this suit is actually Binance's skeletons in the closet. It appears that that is just a really convenient fact for the SEC. So Binance put out a statement yesterday responding to the SEC complaint. And like the quotes are kind of like more or less like to like Binance's benefit of being indiscernible from what Coinbase would say. So we are disappointed in the SEC. We have engaged in extensive good faith discussions to reach a negotiated settlement to resolve their investigations. We intend to defend our platform vigorously. The SEC is misguided and continues to not provide clarity and guidance of the digital asset industry.

• 43:08David Hoffman?

  They regulate with blunt weapons of enforcement. The SEC's actions undermine America's role as a global hub for financial innovations and leadership. Alongside the industry, we will defend crypto from misguided lawsuits. And we continue to deliver a safe and trusted platform for our users that holds true to our core value of furthering the freedom of money. So like the, this is the stump speech. And I think Binance is actually benefiting from the fact that Coinbase also has to fight this fight. But like Coinbase is like, you guys, we have to deal with your skeletons in the closet. And Binance is like, yeah, you do.

• 43:42David Hoffman?

  You're muted.

• 43:44Ryan Sean Adams?

  Didn't they make a comment here, David, that this is like, is something to the effect of like the SEC chasing clout? As well, like they were doing this for like posturing rather than actual substance. There's certainly an element to that, too. All right. So, so where do we go from here? We talked Coinbase. We talked Binance.

• 44:02David Hoffman?

  Well, now we got to talk about the tokens. I mean, excuse me, securities, all the securities that are out there.

• 44:07Ryan Sean Adams?

  Everything's a security, I guess.

• 44:09David Hoffman?

  Everything's a security. Yeah. So really just to drive this point home, these are not just a long tail of crypto assets that are definitely scams and pump and dumps. This is not the low hanging fruit. This is Gary Gensler and the SEC going after the big ones. The brothers in arms that we have in the crypto industry, these are the big chains, the top 10 crypto market caps. The ones that we as an industry need to defend from the SEC because this is just an abroachment of power. So we're going to talk about all of the tokens that are now listed as securities, not listed as securities. They're now deemed to be securities by Gary Gensler.

• 44:42Ryan Sean Adams?

  Alleged, we should. He saw us to prove this in court.

• 44:45David Hoffman?

  I'm being facetious here. So like Solana, Polygon, Adam, Near, Cardano. So we're going to talk about the details in these suits and the really the discussion about like, all right, what does this really mean and like, how, what, how does this impact us? So we're going to get to that part next in the conversation. But first, a moment to talk about our fantastic sponsors that make the show possible. If we have used any confusing words, because we are a web three podcast talking about web three, go check out MetaMask Learn and that will, they will help you out. Learning about crypto is hard until now. Introducing MetaMask Learn, an open educational platform about crypto, web three, self custody, wallet management, and all the other topics needed to onboard people into this crazy world of crypto.

• 45:26David Hoffman?

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• 46:07David Hoffman?

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• 46:51David Hoffman?

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• 47:36David Hoffman?

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• 48:21David Hoffman?

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• 48:52Ryan Sean Adams?

  Okay, so guys, the question Gary Gensler has now foisted upon us is, is everything a security now? It seems like Gensler and the SEC think that everything is a security, except maybe, for now, Bitcoin. David, how do we even begin talking about this? Should we maybe start with price?

• 49:11David Hoffman?

  Yeah, it's interesting that Ether, we started this episode of Ether was at the same price it was right before the Binance news dropped. It's now higher. Bitcoin is basically back up to where it was. So it's interesting that Ether also was not named, although everyone is kind of waiting with bated breath because like, all right, is there one more shoe to drop that Gary Gensler goes after Ether?

• 49:32Ryan Sean Adams?

  Can I ask you, if it was named, do you think it would completely tank the markets? Or do you think there'd be some sort of like a, you know, a quick tank and then a V-shaped recovery as we're seeing here?

• 49:43David Hoffman?

  I think that. Barely a tank at all.

• 49:47Ryan Sean Adams?

  Does this mean the market thinks all this is smoke?

• 49:50David Hoffman?

  I think so. Also, we're just tired of selling. Like, we're at the depths of the bear, like, for other reasons. Like, we're kind of done just being bearish. Let's see what the sole price is doing right now. So Solana, I think, is like, it's recovering like a little bit. Like, people are tired of selling that one. What else is there out there? ADA? Let's look at Cardano. Cardano, yeah, so like the ones that got listed as securities are kind of hammered. Matic, let's see what's Matic's like.

• 50:16Ryan Sean Adams?

  When you say hammered, though, it's like we're talking down like, you know, 5%, 10% kind of thing?

• 50:21David Hoffman?

  Yeah, uh-huh, exactly.

• 50:22Ryan Sean Adams?

  Okay.

• 50:24David Hoffman?

  Well, hammered by comparison. I need to log into Kraken Pro. So, yeah, like between negative 5% and negative 10% are for all the ones that are named as securities. And so, interestingly, both the Binance and the Coinbase suit has like 30 to 40 pages each dedicated to naming certain tokens and saying why they are securities. They both start with Solana.

• 50:51Ryan Sean Adams?

  And some of these were like, they were like copy pasted between both complaints, right?

• 50:56David Hoffman?

  Exactly. So, yeah, they go through, like, so here's Solana, created, Solana was created by Solana Labs, founded in 2018 by Anatola Yakovenko and Raj Gork, how you pronounce Raj's last name, Gokal? And then they go through like the sale details, all that stuff, and then some claims about the Solana blockchain. Like, here's Cardano. Cardano blockchain was created in 2015 by Ethereum co-founder Charles Hoskinson. And then, like, here's like the roadmap. These three entities have used proceeds from ADA sales to fund a development.

• 51:28Ryan Sean Adams?

  Screenshot of the roadmap from the website.

• 51:30David Hoffman?

  Yeah, right. Then there's Matic, right?

• 51:34David Hoffman?

  Polygon Network, originally called Matic, rebranded in 2021, named the founders, sold at the .26 cents per one Matic. And so I thought this was funny. In line number 159, Polygon has explicitly encouraged Matic purchasers to view Matic as an investment in other ways. For example, in a February 5, 2021 tweet, 14 months after Matic's biggest single price drop, Sandeep compared the token to a prizefighter that came back from defeat to become a champion.

• 52:06Ryan Sean Adams?

  Oh my god.

• 52:08David Hoffman?

  So if I, to me, this is what just gives crypto Twitter culture and, and fun. And like, yeah, we, this is what happens when you give us the ability.

• 52:16Ryan Sean Adams?

  Stupid, man.

• 52:17David Hoffman?

  You give us, when we discover the ability to have a printing press for financial assets, like, this is what happens, like, for better or for worse.

• 52:23Ryan Sean Adams?

  You could take, like, I mean, Pokemon, you could, you could, Pokemon cards, you could take, like, baseball collectibles, you could, you could take just about any asset. And, like, people are excited when, when price goes up, of course. It just because price goes up does not make it a security. And the SEC is not given any clear guidelines with respect, and nor do they have a kind of a leg to, to, to stand on. This is why I think they're doing these in, in these types of filings. And, I mean, David, they, they haven't even told us in Congress, they were asked the question, Gensler was, before Congress, is ETH a security? And Gensler stands.

• 53:02David Hoffman?

  Well, that question is still unanswered. Yeah. So Filecoin and the Protocol Labs and Juan Benet are named. This is in the Coinbase suit, I believe. Let's see what else. Oh, man, that was a long one. Sand tokens, that's like one of the metaverse tokens out there, Axie Infinity. So these are also some of the tokens that have some of the most trading volume on these platforms. Both of that Sandeep quote that I read out is in both the Binance and the Coinbase suit. So like, I'm, because there's so much overlap between both of these complaints between Binance and Coinbase, like, a lot of this work is just like copied and pasted and included in both. Here's Zach Emanian, who tweets out, "The SEC's facts on Adam are pretty..."

• 53:44David Hoffman?

  poorly researched. The SEC claims the atoms were sold in 2017. No one received an atom until April of 2019 when the network voted to enable transfers. So he's just saying like, hey, the SEC labeling Adam as a security is dumb and bad. Interestingly, here's a somebody who tweets out a part of the Solana suit in either the Coinbase or the Binance. I think they're relatively interchangeable. Further, Solana Labs markets that the burn or destroys of the soul tokens as part of a deflationary model. As Yakovenko explained in April 14th, 2021 article entitled Solana Scaling Crypto to the Masses posted on Gemini.com.

• 54:22David Hoffman?

  Solana transaction fees are paid in soul and burnt as a deflationary mechanism to reduce the total supply and thereby maintain a healthy soul price. As explained on the Solana website, since the Solana network launched, the total current supply of soul has been reduced by burning transaction fees and a planned token reduction event. This marketed burning of soul as part of the Solana's network deflationary mechanism has led investors to reasonably view their purchase of soul as having the potential for profit to the extent that there is a built in mechanism to decrease the supply and therefore increase the price of soul. Does that sound familiar, Ryan? Do these words, do these words sounds like something that, I don't know, perhaps your favorite crypto podcast talks about?

• 55:03Ryan Sean Adams?

  I guess, where's the Wells notice, huh? This is so depressing, man. So everything, everything's a security just because it has a price attached to it and it's a digital token. And according to Gensler, you know, in his CNBC interview that we, that we opened with, nothing else needs to be created other than the

• 55:23David Hoffman?

  We already have digital finance. We already have the digital dollars.

• 55:27Ryan Sean Adams?

  And the dollar.

• 55:28David Hoffman?

  We have digital brokerages. Everything's already digital.

• 55:31Ryan Sean Adams?

  And how come this thing is worth a trillion dollars? Like, how come the market values it differently? It's just, this is just gatekeeping. By the way, one, one point I want to make is like, this is uniquely an American problem here. This debate as whether every, all these assets are security, like the, the MICA legislation.

• 55:51David Hoffman?

  Yeah.

• 55:51Ryan Sean Adams?

  Has this already figured out? I mean, the, the Europeans have already figured this out. Like, no, no other jurisdiction is.

• 56:01Ryan Sean Adams?

  Talking about securities in the way that the US regulatory apparatus is. And like, there's a, there's a clear understanding of the difference between a commodity and a security and any other type, and like a stablecoin for that matter. And we don't have any legislative clarity in the US. So this gives a hole for Gensler to, you know, a security shaped hole that Gensler can go fill. And he can indiscriminately, he feels like he can just name whatever token he wants a security. And then suddenly it's his, this is mine now, this is under my jurisdiction. It's so ridiculous.

• 56:35David Hoffman?

  So I want to go back to put on our 2018 to 2019 caps on when you and I were like pounding the table like, hey, ETH is money. ETH is valuable. ETH and Ethereum are inherently intertwined and we need Ethereum needs Ether to be valuable in order for Ethereum to be secure. And so I want to reread the same sentence about Solana with the framing of not sole price, but Solana security. Let's see, Solana transaction fees are paid in Sol and burnt as a deflationary mechanism to reduce the total supply and therefore maintain a healthy Solana security level is a synonymous statement with healthy sole price.

• 57:15David Hoffman?

  And so to Gary Gensler in the SEC that says, hey, Solana is a security because of a deflationary mechanism. You are basically saying, hey, you cannot make your crypto system secure. You are not allowed to create secure and healthy ecosystems in your crypto networks because that makes them securities. Which goes against like, it's basically saying you cannot have crypto at large. It goes back down to the very roots of why we are here. In order to have secure blockchains, we need to have healthy, healthily valued crypto assets, which in the eyes of Gary Gensler makes them securities. So we cannot have, neither, we cannot have our cake and neither can we eat it. Like we can have, have neither of them. And so this goes just straight to the heart of why we're here in crypto.

• 57:59David Hoffman?

  And Gary Gensler just doesn't care for that. So this is

• 58:02Ryan Sean Adams?

  The big elephant in the room, why didn't Gensler in the SEC name ETH, David, as one of their, you know, you know, 10 or 15 or so tokens that they named in these complaints?

• 58:13David Hoffman?

  And that is a fantastic question because like, I would like

• 58:16Ryan Sean Adams?

  To answer that question, that Gary Gensler doesn't want to bite off more than he can chew.

• 58:22David Hoffman?

  But that's

• 58:23Ryan Sean Adams?

  It's fine with it.

• 58:24David Hoffman?

  It seems to be fine. He seems to be fine with that. So Pete Kim tweets out, "The SEC will come for ETH next. The SEC lawsuit mentions the burning fee mechanism of Solana and Polygon, stating that the deflationary fact has led investors to view their purchase of the tokens that have potential for profit. Polygon's fee burning mechanism is particularly literally brought over from Ethereum. This is a moment for us in crypto community to lay aside the petty differences in tribalism, to unite and take a stand to protect our economic and technological freedom."

• 58:52Ryan Sean Adams?

  Yeah.

• 58:52David Hoffman?

  This is the right point. The Gary Gensler doesn't, is not allowing for these crypto networks to exist because there is an inherent, like I said, an inherent relationship between the healthy price of a crypto asset and the security and sustainability of the network that it runs on. And so his whole like, um, we already have digital finance. We already have the digital dollar. I want to, I want to skip forward in a conversation to a tweet from a Jake, uh, Jake Trivinsky.

• 59:22David Hoffman?

  Let me see if I can find it. Uh, is it this one?

• 59:27David Hoffman?

  Yes, I often think of a line, this is Jake Trivinsky. We've had him on the podcast. I often think of a line Matt Levine wrote last September about SEC Chair Gensler. His message is basically, "I should be the main regulator of crypto and as the main regulator, my plan is to mostly ban it." Or get regulation by enforcement. The SEC wants banned by enforcement.

• 59:46Ryan Sean Adams?

  Wow.

• 59:47David Hoffman?

  He's coming, he's coming to ban crypto. This is not, this is not Coinbase. This is not Binance. This is crypto. This is the whole thing.

• 59:54Ryan Sean Adams?

  Exactly what it is. His message is basically, "I should be the main regulator of crypto and as the main regulator, my plan is mostly to ban it." Because as he says, it's pointless. There's no need for it.

• 1:00:07David Hoffman?

  There's no need. We already have digital finance.

• 1:00:08Ryan Sean Adams?

  We already have the dollar. We already have digital finance. You don't need any capital assets outside of what the S and P 500 and the NASDAQ provide. We already have full transparency. Like I've solved it. It's done. It's called the SEC and the US government. How absolutely ridiculous. Okay, so is everything a security? I guess the question, the answer to that question is certainly the SEC thinks so. And so they want everything under their control at this point in time and they, they don't see any use case for crypto. So they want to ban it.

• 1:00:46Ryan Sean Adams?

  I, I guess this, this brings in the last question that we are hoping to answer in this episode, David, which is, why are they doing this?

• 1:00:54David Hoffman?

  Why are they doing this?

• 1:00:56Ryan Sean Adams?

  Why is Gensler fighting this fight? Like, what's the point? Is it, is it really all about, you know, control about him kind of enlarging his regulatory apparatus, him scoring political points? Is this part of, you know, some shadowy group of Elizabeth Warren's anti crypto army? Like what is going on here? Does any of this make sense to you?

• 1:01:18David Hoffman?

  I, I tried to take a moment and just like reflect on this question and really think about, think about this answer. And like, the only thing I can really do is look at the actions, of course, don't, don't bother with what Gary Gensler is saying. Nothing coming out of his mouth is worthwhile. Look at his actions. So here's a, here's another tweet from Jake Stravinsky. The SEC's, our mission is to protect investors. Also, the SEC reviews Coinbase's business model, approves Coinbase to go public, allows Coinbase to sell stocks to retail investors. Then the SEC alleges Coinbase's business model is illegal, tanks the stock by 20%, causes losses to investors. And these are not crypto investors. These are TradFi equity investors who bought their Coinbase security on all the legal brokerages that coin, that Gary Gensler is saying are so great.

• 1:02:03David Hoffman?

  And he's, he's willing to trash 20% of those investors' money even under when the guise of the SEC is to protect investors. And so he's on a rampage and will stop at nothing. And there's, there's not, he won't, he'll, he'll bite off as big as a cookie as he can chew. He'll, he'll destroy capital in the traditional securities market, which he is also the regulator of. He's just on a rampage to end crypto. And my big question is, why is he so confident that he can do this? It's the same question I asked a while ago. It's like, why does he feel like he can actually get away with this? Like, who is supporting him in the background?

• 1:02:41Ryan Sean Adams?

  Well, that's, that's kind of what I want to know is like, who actually wants this?

• 1:02:46David Hoffman?

  Right.

• 1:02:46Ryan Sean Adams?

  What is the, like, you would think that if he was doing something to protect investors, right? The crypto community, we are the investors in this asset class. Mainstream doesn't care about crypto, like especially during a bear market, they're gone. All the tourists have left. It's just the crypto community. It's the settlers. It's the true believers. Which of us as retail investors are asking him to do this? None of us. So who wants this? Who, who is, what, like, what is the hidden force pushing him towards doing this? Because I can't think of any investors. Like, Mainstreet doesn't care about this. Somebody who doesn't have any crypto assets doesn't care about this

• 1:03:27Ryan Sean Adams?

  at all. It's just the 1 in 10 Americans that hold crypto assets that are affected by this. And from what I can tell, none of them want this. None of them want Gary Gensler to interfere in the ways and like get crypto assets banned. Like, who is he protecting? Where's this coming from?

• 1:03:43David Hoffman?

  So we said this on before, and this will be just reiteration, because this theme of the last year has been the SEC versus crypto. So this is another tweet that I thought was useful. Let's be clear. The SEC GOV complaint does not mention this, but there's no, currently no way for a platform like Coinbase to register as a securities exchange broker or clearing agent. That's why they've been begging the SEC for years to give them a path to compliance. Instead of working constructively with US market participants to come up with a working model and knowing that Congress is actively considering legislation to do the same, the SEC sues. No allegations of fraud, just accusing Coinbase of failing to do the impossible. Failing to do the impossible. And so like we've, like previously, the crypto industry is like, hey Coinbase, or hey SEC, like,

• 1:04:26David Hoffman?

  You're doing, you're, you're doing this wrong. Like you need to provide more guidance. You need to provide more rules. And I think Gary Gensler is like, yeah, that's the point. It's supposed to be impossible. You don't get to exist. It is impossible by design and I want you to die. Like, like, that is the logical conclusion. If you judge Gary Gensler and the SEC by their actions, there's no other, other incentive or no other outcome for the crypto industry to die. They want to kill the biggest crypto exchange inside of the United States. They want to kill the biggest crypto exchange in general. They want all of the tokens other than after Ether. And like, I'm holding my breath or breath on Ether at this point to be securities.

• 1:05:07David Hoffman?

  Like, they just want the whole industry to go away. So like, is Gary Gensler, like, once upon a time, we thought he was just trying to ladder climb his way into a bigger and bigger position of power. And man, is that pretty sociopathic? Like, what other industries are out there that really benefit from this stance by the SEC? And also the Biden administration?

• 1:05:28Ryan Sean Adams?

  So he just wants to kill it. We don't know why, but we could tell by his actions. He just wants to kill the SEC, wants to kill it. And if that's the case, David, I gotta say, that is some bleak authoritarian shit right there. And what else can we do but resist this? I mean, I think that's what we have to do at this point. Oh, my God, is this a?

• 1:05:47David Hoffman?

  You remember this meme?

• 1:05:48Ryan Sean Adams?

  Yeah, yeah, yeah.

• 1:05:49David Hoffman?

  Uh, somebody with a chippy. Oh, it's Perchi, Perchi, the creative chippies tweeted this out. Uh, this is how today feels. And this is like the, the Star Wars meme of Gary Gensler as the Sith Lord. Elizabeth Warren is Darth Vader. Uh, uh, Brian Armstrong is Han Solo. Um, yeah.

• 1:06:06Ryan Sean Adams?

  I, I still do, by the way, I think that this is kind of episode one of, um, kind of the war with, uh, with the nation state. And he is just like the first boss of many, but, um, he's certainly, uh, proving to be a, a pretty big boss here, uh, in our boss fights. All right. We, we, we have some takes here too, David. Where should we get to next?

• 1:06:24David Hoffman?

  Uh, so Jake Travinsky again. I sense two reactions to the SEC's case against finance and Coinbase. One, outrage at the SEC's underhanded tactics and open hostility and a flagrant disregard for its own mission. And two, relief that the SEC finally took its shot and it's not really that bad. Life and business goes on. And I will pull back up the charts. Uh, I've loaded up too many charts. Um, but last time we looked at the charts, uh, they were pretty good.

• 1:06:51Ryan Sean Adams?

  So Jake is saying that this is the SEC shot. This is the worst that they can do.

• 1:06:56David Hoffman?

  Right. Crypto crypto assets Bitcoin and Ether are higher than they were when the Binance suit dropped.

• 1:07:03Ryan Sean Adams?

  Interesting.

• 1:07:04David Hoffman?

  I mean, this is why I'm like, man, like that the SEC is suing Coinbase and crypto assets went down 10% and now are higher.

• 1:07:13Ryan Sean Adams?

  And you know, if they could find anything else.

• 1:07:16David Hoffman?

  Yeah.

• 1:07:16Ryan Sean Adams?

  In the Coinbase lawsuit, they would, they would cram it all in that 140 page report.

• 1:07:22David Hoffman?

  Yeah. If there was any skeleton in a closet Coinbase, it would be there. Uh, here's another, another take. Um, June 1st, Hong Kong government approves trading for the following tokens. Sand, Cardano, Polygon, Solana, Axis, Atom, Dot, Uni, Link, Litecoin, AVAX, ETH. June 5th, SEC sues Binance for having the markets for it. Sand, Cardano, Maddox. This is like a tale of two, two hemispheres at this point.

• 1:07:47Ryan Sean Adams?

  The land of the free, huh? I mean, how is America falling behind Hong Kong with respect to financial freedom? That's incredibly disappointing here.

• 1:07:54David Hoffman?

  Yeah. This was a longer take from Charles Hoskinson, but they'll be the, the first legit take that I accept from Charles Hoskinson. With respect to Binance, I'm reading through the SEC complaint. It's over 130 pages, but seems to be like the next series of steps to implement choke point 2.0 in the United States. The end goal is an agenda based CBDC partnership with a handful of massive banks and end to end control over every aspect of your financial life. A regulatory event in where you have a debate about compliance with a law or guidance.

• 1:08:24David Hoffman?

  The event seems to be a political philosophical disagreement with the very existence of cryptocurrencies.

• 1:08:29Ryan Sean Adams?

  Yeah.

• 1:08:29David Hoffman?

  And what they represent. An unelected group of people have decided that concepts like self sovereign identity, owning your own wallet, the freedom to control your economic agency. Should be removed from the masses and given to an enlightened few. However, what is happening isn't anything new. It's always the same fight between freedom and authoritarianism, just like with different players, technologies and words. And it does seem like this event is a perfect opportunity for the entire industry to set aside its fragmented nature. And to unite for a common sense set of rules and guidelines that can prevent the United States from slipping into a dystopia that would make 1984 look like a vacation. Charles Hoskinson giving me shivers.

• 1:09:07Ryan Sean Adams?

  That good job, Charles.

• 1:09:09David Hoffman?

  Nice job, Charles.

• 1:09:10Ryan Sean Adams?

  This is a time to kind of unite and fight the common enemy here. And maybe we should have Charles on the podcast. Maybe we should re-extend that invite.

• 1:09:17David Hoffman?

  I think that's right.

• 1:09:17Ryan Sean Adams?

  And have him on the podcast to talk more about this. What else we got, David?

• 1:09:22David Hoffman?

  This guy, Ryan Sean Adams, says, I think we might have already talked about this. We did talk about this, where you say, you're not sure if Binance is clean here, but man, I'll take CZ over Gary Gensler any day of the week.

• 1:09:32Ryan Sean Adams?

  I mean, if I had, if we had to pick, right? It seems like they're making us pick here. One other question I have, David, is if you think this is the top of Gary Gensler's personal stock, has he outstretched his hand too far? Is this his Icarus moment? Is he doing the Do Kwan Suzu thing of like just dropping lawsuits? And again, who is this for? And will, I mean, instead of just going after Binance and the scams, he's just decided to take on the entire crypto industry. And let me remind listeners in the United States, that's one in 10 Americans who own crypto assets. I mean, I feel pretty determined at this point. The market is kind of shrugging this off too.

• 1:10:13Ryan Sean Adams?

  Like, I'm not going anywhere. So maybe this is his Icarus moment. Maybe he will no longer be here in the near future. And the settlers and the crypto investors will remain when he's out of a job. What do you think about that? Do you think we could be rid of him through the events? Maybe not now, but like.

• 1:10:35David Hoffman?

  But because of these events?

• 1:10:36Ryan Sean Adams?

  Because of these events.

• 1:10:38David Hoffman?

  Yeah. I, it, I hope the best for humanity. And so therefore I think that that is inevitably true. There was a time where we didn't think SPF was going to jail and then he went to jail. There is a time where Gary Gensler seems invincible and immune, but eventually due process, court of law will get him. And I'm going to hold my breath and assume that that just happens over, over time. The courts take time. This will take time. Coin, the Coinbase will take time. Props to Coinbase for sticking up and fighting this fight because if they didn't, there would literally be no one left.

• 1:11:19David Hoffman?

  I do think that this is like the inverse of SBF. So SBF was once at his peak and now he's in jail or house arrest. Gary Gensler is at his peak. It's gotta be down only from here. It's gotta be down only. There's nothing left.

• 1:11:36Ryan Sean Adams?

  Well, let's wrap this up. Any other concluding thoughts? That was really the episode I think we needed to do just to update everybody. I want to maybe echo Charles Hoskinson's thoughts. I didn't think I'd be saying this, but he ends his tweet, his tweet with this, "Everything's all right and the future is bright for this industry." I feel like that too. Like I feel like Jake said it too. Gary Gensler has shot his shot. The SEC has fired all its missiles. What more can they do? And we're still here and the markets haven't reacted that poorly. And what else he got? I mean, go next week, you're gonna call ETH's security and try to cancel, ban the Bankless podcast? I don't know, man. Bring it is what I have to say.

• 1:12:18Ryan Sean Adams?

  So I feel like doubling down. And on that note, David, I also feel like it's time for us to take action and fight back. I feel like we've been on the defensive too much. I think we have to file the lawsuits. I think we have to call the senators. I think we have to send money to organizations that will push this in DC. I think we have to ask our legislators to do their job and actually legislate so that rogue regulators can't get away with this. I think we have to coordinate. And so I put out a tweet asking, "What's the best way for US citizens to push back?" A bunch of people are giving their suggestions. We have Ryan Selkis on the podcast tomorrow and he is in the midst of launching a new

• 1:13:00Ryan Sean Adams?

  organization, a nonprofit that is going to help education and marketing in crypto. I think that's an exciting opportunity as well. And I think what we need to do, you and I and the rest of the Bankless community is wrangle together all of these legitimate ways to push back and fight back against Gary Gensler and the SEC. If you're in the United States, that's important. Of course, if you're in another jurisdiction, it's important for you to do what you can outside of your jurisdiction. So maybe we need to rally And organize in the US and then outside of the US as well and publish this information so that people can take an active hand in their future and can actively push back. That's where I am right now in conclusion, like I'm, I'm ready to fight.

• 1:13:44Ryan Sean Adams?

  Like, let's go. I mean, that's, that I think is, is where we are. But do you have any final takeaways for us?

• 1:13:51David Hoffman?

  Yeah, for the 700 people that are watching us live on the YouTube, thanks for, for tuning in. Appreciate y'all, y'all being here. We are in talks with Paul Graywall, the chief legal officer of Coinbase to be on the show at five, a little bit after 5:00 PM Eastern. That's not totally confirmed, but we're talking with the Coinbase team so we can hear from Coinbase. So if you want some more SEC versus Coinbase commentary, straight from the stories of Coinbase, that'll be happening around, around 5:00 PM Eastern time here on the YouTube. So thanks everyone for tuning in. Make sure to, to subscribe to the, the channel for that. I don't have any further thoughts for you, Ryan, but I do have a meme. You ready?

• 1:14:30Ryan Sean Adams?

  I'm ready. Yeah. Show it to us.

• 1:14:32David Hoffman?

  I think this is the right man. And this is the, the South Park. I didn't hear no bell meme. We're not going anywhere.

• 1:14:40Ryan Sean Adams?

  That's a good way to end it. Guys, risks and disclaimers. Gotta let you know, none of this has been financial advice. It's not even regulatory advice, but we know not, what not to do, and that is whatever Gary Gensler is doing, do the opposite. Gotta remind you that crypto is risky. You could always lose what you put in, but we are headed west. This is the frontier. It's not for everyone, but we're glad you're with us on the bankless journey. Thanks a lot.