Binance
BUSD falls to fourth position among stablecoins
The dollar-pegged Binance USD (BUSD) stablecoin sits now at the fourth position in market capitalization among other stablecoins following a dip of over $1 billion in the past 30 days, data from CoinMarketCap shows.
As of writing, BUSD market cap stands at $4.30 billion, down 29% from $5.54 billion on May 18. The stablecoin has been in a downward trend since December last year, when its market cap topped $23 billion.
The decline in BUSD market cap parallels major developments surrounding Binance following FTX’s dramatic collapse in November 2022. Last December, a report indicating Binance would be targeted by the U.S. Department of Justice led to net withdrawals of $3.6 billion within seven days. The exchange saw large BUSD redemptions from market makers, including more than $245 million from Jump Finance.
A partnership between Binance and Paxos Trust created the BUSD stablecoin in September 2019. Paxos issues and owns the product, while Binance licenses its brand. For Paxos, the partnership brought new challenges. In February, the company was reportedly served a Wells Notice from the U.S. Securities and Exchange Commission alleging that Binance USD was an unregistered security.
Related: Stablecoins 101 - What are crypto stablecoins, and how do they work?
The investigation led the New York Department of Financial Services (NYDFS) to order Paxos to stop the issuance of BUSD. Together, these episodes took a significant bite out of BUSD’s market share, from $15.88 billion on February 12 to $8.38 billion on March 13.
The most recent blow came from the SEC lawsuit against Binance on June 5 for allegedly offering unregistered securities. The U.S. regulator pressed 13 charges against the exchange, including unregistered offers and sales of the BNB and BUSD tokens.
The market dominance of stablecoins pegged to the U.S. dollar has undergone some changes over the past year, with Tether (USDT) climbing back to its all-time high, while most stablecoins are declining.
Circle’s USD Coin (USDC) saw its market share decline from 34.88% in May 2022 to 23.05% in May 2023. Market participation of BUSD plunged from 11.68% to 4.18% in the same period, while Dai’s (DAI) share of the crypto market was at 3.66%, down from 4.05% in May 2022.
Tether’s USDT, on the other hand, is gaining traction. The stablecoin’s market dominance stood at 65.89% in May, up from 47.04% a year ago. Its market capitalization has risen to $83.1 billion, while USDC’s market cap has dropped from a peak of $55 billion to $29 billion.
Magazine: Crypto regulation — Does SEC Chair Gary Gensler have the final say?
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A combination of escalating interest rates and a tight regulatory environment in the United States has driven a $417 million outflow from the crypto industry in the past eight weeks, with halts in trading for many altcoins draining liquidity and prolonging the ongoing crypto winter.
This environment is forcing crypto companies to rethink and adapt their business strategies.
Crypto exchange Binance, for instance, is moving forward with efforts to diversify its sources of revenue amid legal challenges with regulators. The company is launching a new subscription-based cloud mining product dedicated to Bitcoin (BTC), allowing users without equipment to purchase Bitcoin hash rates via Binance’s cloud mining service.
Also taking a new direction is venture capital firm Andreessen Horowitz (a16z), opening its first office outside the U.S. in London, United Kingdom. Chris Dixon, a16z’s managing partner, cited a “predictable business environment” as one of the main factors behind the decision. U.K. Prime Minister Rishi Sunak attributed the expansion to having the “right regulation and guardrails” to “foster innovation” while protecting consumers.
According to the Sovereign Wealth Fund Institute, a16z is the largest venture capital firm in the world, with $35.8 billion in assets under management. With this move, the company joins many other crypto businesses setting up operations in more friendly regulatory environments outside the United States.
This week’s Crypto Biz looks at crypto markets outflows, a16z’s first branch outside the U.S., the ongoing silent ban on altcoins, and the AI models to be first deployed in the United Kingdom.
Crypto fund outflows reach $417 million over eight weeks as investor caution persists
CoinShares’ latest weekly report revealed that cryptocurrency investment products experienced outflows of $88 million last week. With the substantial drawdown, the outflow streak has reached eight weeks, totaling $417 million. CoinShares analysts attribute this ongoing trend to monetary policy considerations, prompting investors to remain cautious about digital assets. In the past week, Ether products witnessed $36 million of outflows, marking the largest weekly outflows for the asset since the Ethereum Merge in September 2022. Meanwhile, Bitcoin investment products saw outflows totaling $52 million.
A16z opening London crypto office, citing ‘predictable’ environment
Venture capital firm a16z will open its first office outside of the U.S. this year, adding to the backdrop of U.S.-based firms seeking greener pastures outside the country. The decision was finalized after a “productive dialogue” with the U.K. prime minister and “months of constructive conversations” with His Majesty’s Treasury, policymakers, and the Financial Conduct Authority. Aside from the new office, a16z has announced its plan to launch a new Crypto Startup School (CSS) program in London in the spring of 2024. The most recent CSS program received more than 8,000 applicants, with 26 companies receiving an investment from a16z.
EToro halts ALGO, MANA, MATIC and DASH purchases for U.S. customers
Trading platform eToro has halted purchases of Algorand (ALGO), Decentraland (MANA), Polygon (MATIC) and Dash (DASH) for U.S. customers in response to the tokens being labeled as securities in recent lawsuits from the Securities and Exchange Commission in the country. The move came just a few days after competitor Robinhood also halted support for MATIC, along with Cardano (ADA) and Solana (SOL), two other cryptocurrencies deemed as securities by the regulator. Although the assets are officially delisted, eToro US users can still hold and sell these tokens. The firm said it remains a “supporter” of the crypto industry and suggested that the move was purely to avoid any potential regulatory noncompliance.
eToro has a framework in place which reviews the cryptoassets we offer in light of the rapidly evolving regulatory landscape. Due to recent developments, we will be making some changes to our crypto offering for US customers. (1/5)
— eToro US (@eToroUS) June 12, 2023
UK to get “early or priority access” to AI models from Google and OpenAI
British Prime Minister Rishi Sunak recently announced that Google DeepMind, OpenAI and Anthropic — three tech outfits widely considered the global industry leaders in generative artificial intelligence (AI) technologies — have agreed to provide the U.K. with early access to their AI models. Sunak made the announcement during a speech opening London Tech Week, disclosing a three-part plan for AI systems deployment. The prime minister didn’t clarify whether the U.K. would obtain earlier access to production models than the general public or contractors, or if the commitment was simply to offer access to the government and other priority researchers.
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Guest post by Giovanni Populo
The SEC has charged two major cryptocurrency exchanges: Binance and Coinbase. A common charge between both exchanges is that they offered unregistered securities on their platforms.
1.1 Security vs. Commodity
A security is a financial asset that represents an investment and has an inherent value. It can be traded on a secondary market and its value is derived from a claim on assets or earnings. The Howey Test, established by the Supreme Court and very well-known by the market, is often used to determine whether an asset is a security. The test has four requirements:
- Investment of Money: There must be an investment of money or some form of contribution.
- Common Enterprise: The money must be invested in a common enterprise, meaning that the fortunes of the investor and the promoter are interlinked.
- Expectation of Profit: The investor must have an expectation of profit.
- Efforts of Others: The investor must enter into the investment with the expectation that they will receive a return or profit on their investment. This profit could come in the form of dividends, revenue share, price appreciation, or other financial returns. The key point is that the investor is motivated by the prospect of a financial gain from their investment.
A commodity, on the other hand, is a basic good that is used as an input in the production of other goods or services. Its value is derived from its inherent properties and usefulness. While there isn’t a specific test like the Howey Test for commodities, they generally have the following characteristics:
- Interchangeability: Commodities of the same type are identical to each other, regardless of who produced them.
- Used in Production: Commodities are often used as inputs in the production of other goods or services.
- Inherent Value: The value of a commodity comes from its inherent properties and usefulness, not from the efforts of others.
- Traded on Commodity Markets: Commodities can be bought and sold on commodity markets.
1.2 Easy-to-Understand Examples
An example of security could be a share of stock in Apple Inc. When you buy a share of Apple Stock ($A ), you are buying a piece of the company and have a claim on part of the company’s assets and earnings.
An example of a commodity could be the lithium used in the production process of the iPhone, which is later on transformed into batteries. Lithium from different sources is considered identical and interchangeable. Its price is uniform across the market, barring quality differentials.
II. Applying the Concept to Cryptocurrencies
Bitcoin and Ethereum were NOT mentioned by the SEC in any of the lawsuits, which suggests that their interpretation is more towards commodities than securities – or at least they are not sure about them. In recent hearings, SEC representatives have been inconsistent in their stance, raising concerns over its capacity to interpret digital assets.
But, what would be the technical interpretation of such assets, considering current market understanding and past rulings?
2.1 Bitcoin (BTC)
Bitcoin is a decentralized digital currency without a central bank or single administrator. It can be sent from user to user on the peer-to-peer Bitcoin network without the need for intermediaries.
Let’s see how the Howey Test looks would apply:
- Investment of Money? Check.
- Common Enterprise? Nope, Bitcoin’s value is not tied to the fortunes of a separate enterprise.
- Expectation of Profit? Check, many people buy Bitcoin with the expectation of profit.
- Efforts of Others? Nope, Bitcoin’s value does not come predominantly from the efforts of others.
What about commodities?
- Interchangeability? Check.
- Used in Production: Somewhat. Bitcoin is not used as a direct input in production, but rather energy is. However, Bitcoin is used for the production of the information registry that we usually call blockchain.
- Inherent Value: Check.
- Traded on Commodity Markets: Check.
General market interpretation tends to think of $BTC as a Commodity.
Note: This is not an official classification, but rather an opinion based on common sense and talks by SEC representatives that signal the same direction. As mentioned previously, the SEC is still debating such classifications, and as of now, there are no concrete answers by US government agencies.
2.2 Ethereum (ETH)
Ethereum is an open-source, blockchain-based platform that enables developers to build and deploy decentralized applications (dApps). Its native cryptocurrency is called Ether (ETH).
Let’s try the Howey Test again:
- Investment of Money: Check.
- Common Enterprise: Nope, Ether’s value is not tied to the fortunes of a separate enterprise.
- Expectation of Profit: Check, many people buy Ether with the expectation of profit.
- Efforts of Others: No, Ether’s value does not come predominantly from the efforts of others.
What about the commodity characteristics?
- Interchangeability? Check.
- Used in Production: Check.
- Inherent Value: Check.
- Traded on Commodity Markets: Check.
General market interpretation, in the case of $ETH, is split due to staking features, but considering just the checklists above, closer to a Commodity than Security.
Note: Same as the previous note, not a formal legal classification, but rather just market opinion.
It is important to understand that crypto assets are very new compared to traditional assets, and the classification guidelines covered above were built only for the latter – TradFi. As proposed by Gabriel Shapiro on Twitter, we should start discussing alternative classifications when dealing with digital assets, as to consider the new variables introduced by blockchain technology. As he proposes, digital assets could be a security and a commodity at the same time, depending on different requirements. His idea would work as below:
Security
- Insiders’ tokens (even if from end-user distributions)
- Tokens sold by insiders to third parties, if the relevant system is not yet functional and decentralized
Commodity
- Tokens from “end user distributions” (mining, airdrop, etc. for a functional system)
- Tokens intrinsically relating to a functional, decentralized system
- Stablecoins
In short, this would interpret tokens as security or commodity depending on how it was acquired (investors, ICOs), use case (e.g. utility vs. stablecoin), and ecosystem decentralization level.
Clearly, such a proposal makes a lot of sense to the crypto market, since it applies key features and characteristics to classify an asset as one or the other. This is just one example of an alternative approach, but that should serve as motivation for us to contribute to the discussion and create our own versions of it.
The legal drama involving the U.S. Securities and Exchange Commission (SEC) and major cryptocurrency exchanges, Binance and Coinbase, has left the crypto world speculating on the potential implications and outcomes. The charges in question pertain to the alleged offering of unregistered securities, including but not limited to ADA, SOL, MATIC, and BNB. As it is critical to understand, these are currently just allegations and the legal process is yet to run its course. The final decision on these cases could serve as a regulatory beacon, profoundly impacting the crypto industry at large. So, what could these implications look like under different scenarios?
In one scenario, the SEC emerges victorious in its lawsuits, setting a precedent for stricter regulatory oversight of crypto exchanges. This would likely mean a redefinition of what constitutes security within the crypto domain, potentially based on parallels drawn from the projects the SEC has claimed to be securities. In this scenario, it’s plausible that we’ll witness an influx of enforcement actions against other platforms that fall within similar operational characteristics. A heavier regulatory environment could stifle innovation or push it offshore, leading to a challenging environment for U.S-based exchanges and Web3 projects. This scenario seems to be unlikely given the complexity of crypto assets and the evolving dynamics of the crypto market. Moreover, as some experts suggest, imposing traditional security laws on crypto assets could create more regulatory confusion rather than clarity.
The other sees the SEC losing the lawsuits, resulting in a much broader interpretation of cryptocurrencies as commodities. This could potentially loosen the grip of regulatory oversight, providing room for the crypto industry to flourish. Yet, the downside is that without proper guidelines, there could be an increased risk for investors, which could, in turn, affect the overall market stability.
Looking ahead, we find ourselves at a crossroads. The conclusion of these legal cases will significantly influence the regulatory landscape for crypto in the U.S. and likely globally. If I were to guess, I’d suggest that the degree of decentralization within networks could become a determining factor in classifying something as a security. Brand new regulation for digital assets also seems to be a likely outcome.
Looking beyond the immediate challenges, we need to continue fostering open discussions around digital asset classifications and encouraging innovation within the regulatory frameworks. We should support efforts that aim to find a balance between facilitating crypto’s immense potential and safeguarding the interests of all participants. After all, the goal is to ensure that the crypto industry thrives, regardless of the legal and regulatory environment it operates in.
Always forward-looking, always ahead of the game. Let’s keep the conversation going.
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United States Judge Amy Berman Jackson approved on June 17 an agreement between Binance.US, Binance, and the Securities and Exchange Commission (SEC), dismissing a previous temporary restraining order (TRO) that would freeze all Binance.US assets.
Judge Jackson said on June 14 she would prefer the parties reach an agreement on their own rather than have her rule. The sides reportedly reached an agreement on June 16.
“We are pleased to inform you that the Court did not grant the SEC’s request for a TRO and freeze of assets on our platform which was clearly unjustified by both the facts and the law,” Binance.US said on Twitter.
As per the approved agreement, only Binance.US employees will have access to client funds until the litigation is resolved. U.S.-based customers will retain the ability to withdraw funds throughout this period.
We want to provide an update on the current battle https://t.co/AZwoBOh0gq finds itself in with the SEC. We are pleased to inform you that the Court did not grant the SEC’s request for a TRO and freeze of assets on our platform which was clearly unjustified by both the facts and…
— Binance.US (@BinanceUS) June 17, 2023
The deal between the crypto exchange and the U.S. regulator also prevents any access by Binance global officials to private keys of wallets, hardware wallets, or root access to Binance.US’s Amazon Web Services tools.
“There has never been any evidence presented by the SEC concerning mis-use of customer assets. In fact, the SEC lawyers conceded in Court earlier this week, when asked by the Judge, that they had no evidence suggesting that any such thing had occurred,” wrote Binance.US regarding allegations of funds mismanagement.
In a Twitter comment on the case, former chief of the SEC’s Office of Internet Enforcement John Reed Stark noted that the agreement includes a “particularly interesting provision” about the repatriation of certain assets to the U.S.
“Defendants shall repatriate to the United States, transfer to BAM Trading, and confirm that BAM Trading maintains possession, custody and control in the United States of all fiat currency and crypto assets that are deposited, held, traded, or accrued by customers […],” reads the agreement.
Additionally, the deal asserts that Binance.US must take immediate action to ensure “a verified written accounting” of accounts related to BAM entities valued greater than $1,000.
The SEC filed an emergency motion for a temporary restraining order on Binance.US on June 6, after accusing Binance CEO Changpeng “CZ” Zhao of having access to Binance.US customer funds in a lawsuit. The regulator alleged Zhao moved $12 billion of Binance’s funds through an entity he controlled called Merit Peak.
Ahead of the hearing on the restraining order, Binance.US and Zhao submitted a joint memorandum denying that funds were ever mishandled. According to them, the SEC has been unable to identify a single instance where Binance.US customer funds have been misused.
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