October 3, 2022

The biggest crypto news and ideas of the day

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Hello and welcome to The Node. I'm Daniel Kuhn, here to take you through the latest in crypto news and why it matters. In today's newsletter: Coinbase bank withdrawals halted this weekend, Indian crypto exchange WazirX announced major layoffs and the Sushi community voted in "Head Chef" to oversee decentralized crypto exchange.

Next, I covered Ripple's latest procedural victory in an ongoing against the U.S. Securities and Exchange Commission.

If you were forwarded this newsletter and want to subscribe, sign up here. And click here to unsubscribe.

– D.K.

Today's must-reads

Top Shelf

Coinbase Fixes Technical Problem That Halted Weekend US Bank Withdrawals: Coinbase users raised concerns about the crypto exchange's solvency this weekend after they found they could not withdraw their money to U.S. bank accounts. The issue was caused by an undisclosed "technical problem" and has since been fixed, the exchange said.

The issue was not the only problem in the broader crypto ecosystem this weekend. Solana suffered what it called a "major outage" lasting more than six hours.

Indian Crypto Exchange WazirX Laid Off Roughly 40% of Its Employees: Fifty to 70 employees – or roughly 40% of the India-based exchange's workforce of 150 – were laid off on Friday. The eliminated workers will receive 45 days' pay.

WazirX daily trading volumes have been steadily declining from a one-year high of 478 million on Oct. 28, 2021, to 1.5 million on Oct. 1, 2022, shortly after India's implementation of harsh crypto tax laws in March.

Sushi Community Votes in "Head Chef" to Oversee Decentralized Crypto Exchange: Sushi community members elected Jared Grey as CEO on Monday in a majority vote. The election followed a year of organizational difficulties at Sushi, which was created as a "decentralized" fork of Uniswap and gradually built out other services.

Meanwhile, Citigroup says decentralized crypto exchanges (DEX) are gaining market share from centralized peers.

Ex-CEO of Bankrupt Crypto Lender Celsius Withdrew $10M Weeks Before Company Froze Customer Accounts: Alex Mashinsky, the founder of Celsius Network who quit last week amid ongoing legal and liquidity issues, transferred $10 million from the now-bankrupt crypto lender to himself weeks before Celsius halted customer withdrawals in June, the Financial Times reported.

Mashinsky reportedly used these funds to pay federal taxes.

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Putting the news into perspective

The Takeaway

Ripple Scores Minor Victory in Ongoing SEC Case

Last week, Ripple notched another procedural victory as part of its ongoing legal defense against the U.S. Securities and Exchange Commission, which sued the crypto firm and several of its executives in 2020 for the unregistered sale of $1.3 billion worth of XRP.

On Sept. 29, a U.S. District Court judge ruled to release emails and other correspondence written by former SEC Corporation Finance Division Director William Hinman related to a speech where he said ether (ETH) was not a security because, like bitcoin, it was "sufficiently decentralized."

These communications are a cornerstone of Ripple's legal strategy in a case that is nearing the two-year mark. Instead of settling with the agency, Ripple seeks to prove the SEC has taken an unclear, contradictory and arbitrary approach to regulating crypto. If it's successful, the case could set an important precedent for the crypto industry.

"The final version of Hinman's speech discussed a concept that is central to the Ripple founders' defense theory – whether assets that function solely as a means of exchange in a decentralized network are not a security, even if they could be packaged and sold as a security," Liz Boison of Hogan Lovells, wrote in an opinion last week.

(Linus Nylund/Unsplash)

Though Hinman's actual speech, delivered at the Yahoo Finance All Markets Summit in June 2018, is public, the SEC has repeatedly sought to hide early drafts and other documents related to it from Ripple. At the very least, the SEC's aversion to transparency here is unsportsmanlike – and the investing public at large is better off having access to them.

However, while the SEC will now have to produce Hinman's documents, it's unclear if any of this will have meaningful bearing on the case. In fact, the judge released the documents precisely because they reflect the personal opinions of one employee, not the agency at large.

The SEC filed suit against Ripple and its current and former CEOs, Brad Garlinghouse and Chris Larsen, respectively, in December 2020, claiming that Ripple's "rolling" sales of XRP represented an investment contract and securities offering. Ripple has used these sales to fund operations and, including in all likelihood, its expensive legal defense.

The lawsuit was filed shortly before Chairman Gary Gensler took charge at the SEC, presaging his more aggressive approach to reining in the crypto industry. Ripple argues that the SEC has "picked two winners" – BTC and ETH – in the digital asset industry and is unfairly targeting the payments-focused company. (XRP, which was delisted from a number of crypto exchanges after the agency filed suit in 2020, rallied 9% on the recent news.)

The SEC argued that Hinman's correspondence was protected by attorney-client privilege and was not deliberative in the case. Kik, the messaging company that was sued by, and settled with, the SEC after its initial coin offering (ICO), also sought access to these documents.

Critics have argued the SEC "regulates by enforcement" rather than by clearly communicating how cryptocurrencies and tokens should fit into existing securities rules. The situation is made more complex by who the SEC has sued, and what tokens it deems aboveboard and why.

It's unlikely there's a "smoking gun" in Hinman's correspondence that will clear all this up – for the industry or Ripple. But it's worth noting Hinman quit the SEC after his infamous speech to work for Andreessen Horowitz, a firm with ties to the Ethereum Foundation. And, notably, both the SEC and Ripple have asked the judge to make a ruling based on available evidence – without bringing the case to trial.

At stake in the Ripple case is a standard that could be applied to other token projects. If the company wins, there could be standing for continuing token sales to fund decentralized project development – though it will ultimately fall upon the legal system to determine what XRP buyers thought they were buying.

– D.K.

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Overheard on CoinDesk TV...

Sound Bites

"It's the first industry led initiative to provide training to law enforcement, regulators [and] prosecutors to tackle financial crimes using cryptocurrency."

– Matthew Price, Binance's Head of Intelligence and Investigations of the Americas, discussing how the largest cryptocurrency exchange plans to work with law enforcement officials to stop crypto-related crimes, on CoinDesk TV's "First Mover"

Starfish Finance Building Snow Forts In Crypto Winter*

As expected, the crypto market has been pretty choppy over the past few months. While we may be experiencing a crypto winter, it's important to remember that there's no such thing as a bear market in crypto. Even during the coldest days of winter, these times are more commonly known as a builder's market. Builders will harvest their crops/rewards when Spring comes. Markets are as cyclical as seasons. Good crops survive and grow stronger, it's survival of the fittest.

Without paying attention to the daily fluctuations in price, the team over at Starfish Finance have been constantly building.

Continue reading here

*This is sponsored content from Starfish.

What others are writing

Off-Chain Signals

Bored Apes' Otherside Builders Improbable Eyes Fresh Funding at $3.6 Billion Valuation: Report (Decrypt)
Crypto Goes to Washington (TIME)
Crypto Billionaires Are Disappearing: Casualties Of The Bear Market (BeInCrypto)
'Crypto paradise' Singapore stung by high-profile collapses (FT - paywalled)

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The Chaser...