The Node: Sam Bankman-Fried Officially Appeals Verdict

Apr. 11, 2024

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Welcome to The Node! This is Daniel Kuhn here to take you through the latest in crypto news and why it matters.

In today's news: Sam Bankman-Fried officially files to appeal his conviction and 25-year sentence. GBTC outflows drop to record low on Wednesday. Craig Wright drops his case against Hodlonaut. And Bitcoin Sign Guy auctions off the infamous bitcoin sign.

The takeaway: The SEC's apparent legal case against Uniswap could be the open shot taken against DeFi.

SBF Files

FTX founder Sam Bankman-Fried officially filed to appeal his conviction and 25-year sentence for fraud and conspiracy charges on Thursday mere hours before the deadline. He was convicted last November after a month-long trial on seven different charges, including fraud against FTX customers and Alameda Research investors, and also faces $11 billion in forfeiture. SBF initially sought a sentence of no more than 6.5 years, while federal prosecutors argued he should be locked up for upwards of 40 years.

Inflows Slow

Grayscale's spot bitcoin exchange-traded fund logged a record low $18 million in outflows on Wednesday. The figures come a day after Grayscale CEO Michael Sonnenshein said outflows from the Grayscale Bitcoin Trust would reach "equilibrium" as selling activity from bankrupt crypto companies including FTX is "largely behind us." The GBTC product has lost nearly $15 billion in bitcoin outflows since going live months ago, in part because of its unusually high maintenance fee of 1.5% (compared the industry low of 0.19% for Franklin Templeton's EZBC).

Appeal Dropped

Craig Wright has dropped his appeal against Hodlonaut in Norway, ending a nearly five-year-long legal battle after Hodlonaut called Wright a "fraud" for claiming to be the inventor of Bitcoin. The decision to drop the case comes a month after a U.K. judge definitively ruled that Wright is not the inventor of Bitcoin. A Norwegian judge sided with Hodlonaut after a 2022 trial in Oslo, concluding that he had "sufficient factual grounds to claim that Wright had lied and cheated in his attempt to prove that he is Satoshi Nakamoto."

BTC Memoribilia

Bitcoin Sign Guy, a.k.a. Christian Langalis, is auctioning off a piece of bitcoin history: the sign he photobombed then-Federal Reserve Chair Janet Yellen with during a July 2017 meeting. The piece of yellow loose leaf paper, which simply read "Buy Bitcoin" and became in instant classic meme, will be listed Thursday on the online collectibles marketplace Scarce City. Langalis said the proceeds will fund his company, Tirrel Corp, a pre-seed-stage startup building an implementation and wallet for Bitcoin's layer-2 Lightning network on top of social network Urbit.

SEC Commissioner Hester Peirce will speak at Consensus 2024 this May. Grab your pass here.

What are your fundamental political or philosophical differences?

So, in terms of philosophy — I have the view that I don't necessarily know what's best for other people. We have our statutory mandates that we have to implement. But within those mandates, we're often given discretion. And if we have discretion, my preference is to say, well, let's let market participants make a decision about what they want to do. Now, sometimes there's a reason that we have to step into the middle of a transaction, and say "No, you can't do that" or "Yes, you can do it, but you have to do it in this particular way." But we better have a really good reason for stepping into the middle of that transaction.

It's a fundamental American principle that people are free to make choices. The government is not there to protect people from their own choices. It's there to protect people if someone else harms them, but not to make their life decisions for them.

How closely do you or the other four commissioners work with the Enforcement Division. Do you suggest cases to litigate?

So, just to give you a sense of how things work on the enforcement side. As with the rulemaking side, it's the staff that does the bulk of the work. They consider a rule and will propose it for us and we'll consider it. Often the vote happens at a public, open meeting. With enforcement actions, we also get recommendations. Typically, the staff will recommend authorizing an enforcement action and settling it at the same time. So we often don't see the case until the end, and are not involved in the guts of the matter. So we're either going to authorize the division to sue or authorize you to sue and settle with them on the same day. Most of our cases settle like that right away. The voting happens in a process called seriatim, where we're just voting on the papers, or we vote at a meeting where we have a discussion, but those meetings are, as you might guess, not open to the public.

The Takeaway: Opening Shot?

(Unsplash, modified by CoinDesk)

Uniswap Labs, the Brooklyn-based outfit primarily responsible for developing the protocol of the same name, reportedly received a Wells Notice indicating the U.S. Securities and Exchange Commission intends to sue. While the decentralized finance (DeFi) behemoth said it is "ready to fight" the SEC, indicating willingness to go to court, the move does represent the latest front in the SEC's yearslong battle with the crypto industry.

And to some extent, it is entirely predictable. Before this, the SEC has filed suit against U.S.-based exchanges Coinbase and Kraken. In fact, the reason the industry is so familiar with the term "Wells Notice" is because Coinbase received one in the months before the SEC's lawsuit dropped. But the move is also a serious escalation in the SEC's anti-crypto legal barrage.

"Taking into account the SEC's ongoing lawsuits against Coinbase and others as well as their complete unwillingness to provide clarity or a path to registration to those operating lawfully within the US, we can only conclude that this is the latest political effort to target even the best actors building technology on blockchains," Uniswap said on a blog announcing the Wells Notice.

The SEC's biggest crypto cases so far have been after centralized institutions — the aforementioned centralized exchanges Coinbase and Kraken and the company behind the XRP cryptocurrency, Ripple. Suing the organization behind a decentralized protocol like Uniswap is uncharted territory.

Perhaps the closest example on the books would be the SEC's case against LBRY, which built a decentralized alternative to YouTube that was forced to shut down after a lengthy appeals process with the U.S. securities watchdog. The SEC alleges LBRY sold unregistered securities via a utility token launch, and initially sought $22 million in fines but lowered that to $111,000 after acknowledging the company's financial struggles.

The ongoing, international cases against the developers of Tornado Cash might also be instructive, considering those cases in the U.S. and the Netherlands have become symbols of whether or not individuals are responsible for how their self-executing code is used after releasing it to the public.

"The SEC is very imaginative in the ways that you can be violating their rules," Bill Hughes, senior counsel and director of global regulatory matters at Consensys, told CoinDesk. Part of the issue, conceivably, is that Uniswap Labs runs the biggest portal onto the Uniswap protocol via uniswap.org. Another potential concern is the UNI governance token, launched to give users some control over protocol governance but could be twisted to look like a securities offering.

Whatever the case, Hughes suggested this is likely just the biggest shot the SEC will take against the DeFi industry. The SEC's move "has been to sue somebody in some category and move on to another category … like suing Coinbase and then Kraken. We'll see if they sue other DEXes."

Read the full interview online...

– D.K.

@danielgkuhn

daniel@coindesk.com

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