This episode is sponsored by NYDIG.

Today on “The Breakdown,” NLW looks at reports from Messari’s Mainnet conference that the Securities and Exchange Commission served one of the speakers with a subpoena right before a panel. He discusses:

  • The growing tension between securities regulators and crypto lending and interest programs
  • Why Coinbase backed down from its fight with the SEC about its upcoming Lend product
  • The non-news from today’s Gary Gensler webinar
  • OFAC’s first sanctions against a crypto exchange.

“The Breakdown” is written, produced by and features NLW, with editing by Rob Mitchell and additional production support by Eleanor Pahl. Adam B. Levine is our executive producer and our theme music is “Countdown” by Neon Beach. The music you heard today behind our sponsor is “Only in Time” by Abloom. Image credit: Lyubchik Prokopchuk/iStock/Getty Images Plus, modified by CoinDesk.


What’s going on guys, it is Tuesday, September 21 and today we’re talking about an SEC shakedown at... Mainnet? I’ve been in crypto full time for a long time now, but this one was even surprising for me. To get into this, I want to go back to some of the things I’ve mentioned in the last few weeks. And let’s discuss first the issue that securities regulators are clearly having with interest-bearing crypto accounts. A couple months ago, BlockFi came into regulatory prominence when Texas, New Jersey, Alabama and a number of others basically said that they were operating unregistered securities in their states and they needed to stop that. At first, BlockFi struck a tone that was, if not conciliatory, in the sense that they made clear that they believe their products were not, in fact, securities, then at least the tone was that they were willing to work with these regulators. New Jersey suspended their order a number of times, it seemed like there were productive conversations happening. But then at last week’s Salt conference, BlockFi CEO Zac Prince effectively said, “Look, the SEC is going to need to come in and say whether these things are securities or not, because we’re not going to make our policy based on the policies of individual states.”

At the end of last week, this story got more complex as some of those same state regulators, Texas, New Jersey, Alabama, went after Celsius for its similar interest-bearing products. Obviously, however, those things being as big as they are, the real big moment in this whole securities regulators, interest accounts, crypto yield product conversation came with Brian Armstrong, the CEO of Coinbase’s thread from September 7. He wrote: “Some really sketchy behavior coming out of the SEC recently. Story time… Millions of crypto holders have been earning yield on their assets over the last few years. It makes sense, if you want to lend out your funds, you can earn a return. Everyone seems happy. A bunch of great companies in crypto have been offering versions of this for years. Coinbase came out recently and said we would be launching our own version. We were planning to go live in a few weeks, so we reached out to the SEC to give them a friendly heads up and briefing. They responded by telling us this lend feature is a security. Ok - seems strange, how can lending be a security? So we ask the SEC to help us understand and share their view. We always make an effort to work proactively with regulators, and keep an open mind. They refuse to tell us why they think it’s a security, and instead subpoena a bunch of records from us (we comply), demand testimony from our employees (we comply), and then tell us they will be suing us if we proceed to launch, with zero explanation as to why.”

The thread goes on. And in addition to this thread, Coinbase also published a blog post from their general counsel further explaining the Wells notice they got, which is basically a threat to sue, if Coinbase didn’t cease and desist its plans to launch this Lend product. This, of course, created a huge amount of discussion in the crypto sphere, and it was a pretty big move from Coinbase to go so public with this set of statements, accusations and tone.

Now, holding aside questions of the actual legal status or the security status of land products, Jerry Brito, the executive director of Coin Center, had what I thought was a pretty cogent argument. He retweeted the piece from Coinbase’s chief legal officer and said, “If true, this is pretty underhanded. I know it’s easy for me to say, but Coinbase should go ahead and launch its product, let the SEC sue and go to court. Let the SEC make its case and let a judge decide what the law is. Coinbase should go to court because the alternative is that the SEC will enforce against a small provider, settle with them out of court and hold up the scalp as guidance. Enough with guidance, Howey-Reves or judge-made law. We need court decisions to get clarity here.”

Unfortunately, that’s not what happened. Yesterday, the wires broke with the story that Coinbase would not be announcing its program and it turned out that the update had come at 5pm on Friday. Coinbase had added a new title to the June 29 blog post where they had initially announced their Lend program that said: “Update: as of 5 p.m. Eastern Time Friday, September 17. We are not launching the USDC APY program announced below.” The sub header reads: “Our goal is to create great products for our customers and to advance our mission to increase economic freedom in the world. As we continue our work to seek regulatory clarity for the crypto industry as a whole, we’ve made the difficult decision not to launch the USDC APY program announced below. We have also discontinued the waitlist for this program as we turn our work to what comes next. We had hundreds of thousands of customers from across the country sign up and we wanted to thank you all for your interest. We will not stop looking for ways to bring innovative, trusted programs and products to our customers.”

Crypto Twitter responded about how you’d imagine. Jason Yanowitz writes: “This is infuriating. Banks yield a measly 0.07%. Inflation is at least 2 to 3%. The SEC is forcing wealth erosion on Americans.” Ryan Adams of Bankless wrote: “The SEC just scared Coinbase into not launching its Lend product. Enjoy your point 01 APY, bank account America. Our regulators are protecting us from higher rates.” Not everyone was outraged, at least with this specific example. Gabriel Shapiro wrote: “Lend: a product where you give a corporation money and it can do pretty much whatever it wants with it, and even adjust the interest rate at its discretion, was never really the hill to die on. DeFi presents much closer and more debatable issues.”

Still, the question is what is going on behind the scenes and for that, let’s get some insight from Frankie Scoops himself, Frank Chaparro from The Block. I read this yesterday, but I think it’s particularly relevant in today’s context. He wrote: “TLDR: SEC is pissed. They’re way behind in understanding and overseeing the space because Clayton didn’t take crypto seriously. I think the SEC will create a pathway for citizenship like a route for crypto projects and firms offering securities. Crackdown coming unless lobbying ramps up. Coinbase’s thread most certainly antagonizes them though. Gensler, as far as I know, is someone who doesn’t mind making someone’s life miserable. Everyone and their mother is getting subpoenaed. Wouldn’t be surprised if we see a lot of these lending efforts shut or walk back on.” When news of Coinbase dropping Lend broke, he quote-tweeted it with a caption: “See, I told you they were pissed.”

That fact, by the way, seemed to be confirmed yesterday at Messari’s Mainnet, for those of you who’ve never been to a Messari event, they are always great. Ryan has been putting on events in crypto, thinking about content in crypto, for basically as long as anyone has been doing content in crypto. He, in fact, ran CoinDesk for a while before it came into its sort of modern form. He was the bridge between the founding and its modern era. Anyway, the event looks great. I wish I was there. But that, unfortunately, became not the real focus of everyone on Crypto Twitter who wasn’t there, even those who were, because this happened around 11am yesterday morning.

Slava Rubin an attendee tweeted: “lol I just witnessed a guy get served by the SEC at the top of the escalator at #mainnet2021 right before going on stage for his panel.” Now, this isn’t some random account, Slava Rubin is the former founder of Indiegogo, he’s the founder of a new platform called Vincent that helps people find alternative investments. For what it’s worth, I’ve known him for a decade and a half now and he wouldn’t make this s**t up and he’s not looking for Twitter clout. So, I was inclined to believe him right away. And of course, this information set the crypto world on fire. All of my Telegram channels were lit up speculating on who it might have been. And that is one piece I’m not going to comment on now because at the time, it’s all speculative and unconfirmed. The people that folks most thought it was have said that it wasn’t. So, I don’t want to participate in the rumor mill. Now, it is an important question to ask, did it actually happen? And at 4:12pm yesterday, Messari CEO Ryan Selkis wrote: “If you’re wondering when I actually decided to run for Senate, it was when these f**kers came to my event, didn’t buy a ticket and served one of the speakers a subpoena. Enough talk. more war on our out-of-control regulatory state. Selkis 2024, time to activate the crypto political machine. And for the record, we offered to cop a ton of passes for regulators and congressional staff that wanted to learn more about crypto. My comment about not buying a ticket was in jest. They don’t want to learn, they want to shut crypto down in the U.S., full stop.”

Jake Chervinsky gave an interpretation of why this happened. He wrote: “Two reasons why SEC might do this: 1) the target lives outside the US & is hard to serve at home, but SEC knew they’d be in NYC & took advantage of the chance for personal service 2) SEC wanted everyone to see this happen live, to send a message and/or intimidate the industry” Net net,what it suggests to me is that Frank Chaparro’s thesis that the SEC is pissed seems more, rather than less, likely. In general, it feels pretty clear to me that a reckoning is coming. There’s just too much swirling to not feel like U.S. regulatory issues are coming to a head. For example, the much-reported Treasury stablecoin report is supposedly coming soon. What’s more, Gary Gensler did a live stream today with the Washington Post called “The Path Forward: All About Cryptocurrencies.” I didn’t have a chance to watch it but from everything that I’ve read from all the quotes, it just seems Like Gensler cementing his lines.

Gensler said pedantically that the value of cryptocurrencies could go down dramatically, they could go up dramatically. He discussed that it’s important to not,” undermine the stability of the system. " He said: “I think it’s better to bring it inside the public policy framework to ensure that we address these important public policy goals.” He said that the SEC has a “great deal of authority on when it comes to crypto tokens.” He repeated his assertion that crypto platforms have thousands of tokens on them and so it’s very unlikely that they don’t have securities. He criticized all forms of private past money, which of course, George Selgin, venerated historian that he is, had something to say about on Twitter, but my favorite interpretation of what he actually said came from Brian Ramos in my comments. I asked what was the best summary of what Gensler said and he said: “In an interview titled ‘The Path Forward,’ I refuse to outline a clear path forward.” I think what is notable about this speech is that nothing was notable. This is an example of lines being drawn and people getting entrenched in their positions.

There’s one more piece of news from today that I wanted to discuss that relates to this larger story of the U.S. government’s involvement in crypto. It’s not about the SEC or securities designation. It’s about a different side of this, but it’s still relevant. The Treasury Department’s Office of Foreign Assets Control, OFAC, has labeled, a “specially designated national.” Now, OFAC is the office that sanctions people and while they’ve sanctioned individual crypto addresses before, this is the first time a crypto exchange as a whole has been sanctioned. is a Russia based exchange that was blacklisted for its alleged role in supporting crypto transactions for ransomware attackers. What that means is that U.S. citizens and residents are forbidden to do business with, on penalty of fines or even prison. Not that I think a lot of U.S. citizens were out there smashing by on

Here’s a little color from CoinDesk. “Deputy Treasury Secretary Adewale Adeyemo said in a press call ahead of the announcement that Suex facilitated transactions from at least eight ransomware variants, and as much as 40% of Suex’s transaction volume was associated with addresses linked to known malicious actors. While the Treasury Department did not identify any specific attacks Suex abetted, Chainalysis said in a blog post that cryptocurrencies paid by victims of the Ryuk, Conti and Maze ransomware attacks sent payments that ultimately went through the exchange. Chainalysis identified some $13 million in bitcoin transactions sent through Suex directly tied to ransomware attacks. Scammers sent another $24 million in bitcoin, while another $20 million in bitcoin were tied to Hydra and other darknet markets. Adeyemo said: ‘Exchanges like Suex are critical to attackers’ ability to extract profits from ransomware attacks. Today’s action is a signal of our intention to expose and disrupt the illicit infrastructure used in these attacks.’ However, he concluded his speech with: ‘We recognize that the vast majority of activity that’s happening in the virtual currencies is legitimate activity, but we also do know that these criminals are using some of these exchanges and mixers and peer-to-peer services to conduct illicit activity that is not in our national interests.’”

Here’s the bright spot part of the podcast. It’s very clear that the U.S. government is ramping up its engagement with crypto, it’s very clear that Gensler has set out on this mission and will not be deterred from his “regulation by enforcement” approach. It’s very clear that we’re going to have to avail ourselves of the tools of law, judges, courts, lawsuits, etc. to try to get rulings on things that we think differently about then do groups like the SEC and probably the Treasury as well. But as I’ve said before, this was inevitable, this is inevitable. I don’t think we have anything to be scared by, for example, OFAC going after an exchange that seems pretty clearly to be in the wrong here, and perhaps even just a front for exactly this type of activity. That doesn’t diminish or delegitimize any of the real activity happening in crypto. In fact, it just draws the contrast between that activity and the real, above-board stuff. It’s entirely possible to me that we see some of these moments happening right now this fall, like the SEC coming to Mainnet and serving someone right before they got on a panel as a key inflection point that drove the ultimate confrontation that allows us to figure out what the true regulatory regime for crypto and digital assets in the U.S. is going to be. This is the point in the battle where not having the fight anymore is way worse than just getting it done with Anyways guys, I appreciate you listening and until tomorrow, be safe and take care of each other, peace!