Gary Gensler, the regulator who knows Crypto best from Circle and Uniswap

Gary Gensler, this is a name that shakes the crypto world. Since he took office as the chairman of the SEC in April this year, the control measures he imposed on Crypto have caused the Crypto market to fluctuate frequently.

In early September, news broke that the SEC was investigating Uniswap Labs. Since then, the SEC threatened with litigation and demanded Coinbase cancel the launch of its lending products. On October 5th, Circle , the issuer of Stablecoin USDC , stated that it had received an investigation subpoena from the US SEC law enforcement agency in July 2021. The SEC requires Circle to provide “documents and information about certain assets, customer plans, and operations.” Uniswap, Coinbase, Circle, these familiar names, have all been influenced by Gary to varying degrees.

In April of this year, when Gensler assumed the new SEC, many crypto investors felt a little gratified. Compared with many bureaucrats who have little knowledge of the crypto world, Gensler is known as “the person who understands Crypto best in the regulatory system.” This supervisor, who is a professor of global economics and management practice at MIT, once set up “Blockchain and Money” at MIT. “Course, this course has been viewed more than 4.1 million times on Youtube.

Gary Gensler, the regulator who knows Crypto best from Circle and Uniswap

But the subsequent regulatory sticks have made investors give up this unrealistic idea. “The Economist” issued an article saying that US SEC Chairman Gary Gensler hopes to carry out a “taming finance” operation to strengthen the supervision of the encryption industry, but a lot of funds are needed to achieve this goal.

Gensler’s regulatory policy may be more stringent than any previous SEC chairman. “History tells you that it won’t last long outside (regulation). In the final analysis, finance is about trust.” He once commented on encrypted finance. In his eyes, the regulation of the entire crypto world seems inevitable.” (Crypto) At the level and nature of the global value of about 2 trillion US dollars, if there is any relevance in 5 or 10 years from now, That is within the framework of a public policy. “

Frustrated crypto upstart

As the first crypto trading platform to be listed on US stocks, Coinbase’s position in the industry is very important. The financial report shows that Coinbase made a profit of 1.6 billion US dollars in the second quarter. Looking back at the supervision of Coinbase, it is not difficult to find that the dispute between crypto upstarts and traditional finance has intensified.

In mid-August, Coinbase stated in its blog that the platform will soon provide cash loans secured by BTC in 17 states in the United States . A Coinbase spokesperson said that the new “borrowing” feature will be launched in the fall. In addition, Coinbase is also planning to explore more Crypto and will support more states. “We are actively seeking permits in more states in the United States.”

In the field of crypto trading, lending is a very common product. In compliance trading platforms, investors can find similar features on platforms like Gemini, which allows users to borrow their Crypto back to the exchange to gain far Higher than the interest rate of a traditional savings account. Coinbase plans to launch the Lend product, whose function is to allow users to hold a stable USDC position and get 4% APY (as the starting interest rate).

But things are not going well. In early September, the SEC warned that the product was a security, and Coinbase should stop the product, and pointed out that if it insists on launching it, it will face SEC prosecution. Although Gensler has taught blockchain courses, he himself stated that he has never purchased BTC or any other Crypto. Almost all of his net assets are in the stock market, which makes the increase in the value of the stock market in his immediate interest. There is a voice from outside that the SEC’s plan to stop Coinbase is probably because the company’s products threaten the interests of the bank.

In response to this regulatory action, Coinbase did not give in at first. Its CEO Brian Armstrong tweeted 21 consecutive tweets, complaining to the public that the SEC refused to communicate with Coinbase on the matter: “We are committed to complying with the law, and sometimes the law is not clear. If the SEC wants to issue guidance, we are also happy to Follow. But in this case, they refused to provide written opinions to the industry and closed the door and implemented a policy of intimidation. No matter what their theory is, it feels like they are fighting for territory and power with other regulators.”

It is worth noting that, so far, the SEC has not yet announced the detailed rules for Coinbase’s lending services to be recognized as securities. Coinbase’s chief legal officer, Paul Grewal, said in a blog that he found it difficult to understand the SEC’s identification of borrowing as a security. “The (SEC) did not point out how this conclusion was reached.”

The argument of “grabbing for territory” is groundless. In August this year, Gensle publicly stated that the top supervisory authority on Wall Street needs Congress to grant it additional powers to supervise the huge and growing Crypto market. Speaking on the Aspen Security Forum (Aspen Security Forum), he said that the SEC “has taken and will continue to take action to allow the authorities to go as far as possible. Certain rules related to Crypto have been properly resolved. “At the same time, he also pointed out, “We need more congressional authorities to prevent transactions, products and platforms from falling into regulatory loopholes. We also need more resources to protect investments in this growing and turbulent industry. By.”

The game between Coinbase and the SEC is well known in the crypto world, and many regulatory officials are shocked by the SEC’s attitude. “For a long time, the SEC’s attitude has not been so tough.” said James Cox, a professor at Duke University School of Law.

On September 20th, according to Bloomberg News, Coinbase has terminated its plan to launch lending functions.

Supervisor Gensler

Gensler has worked at Goldman Sachs for 18 years, and his knowledge of financial markets far exceeds most supervisors. After entering the regulatory system, his employment history includes the Ministry of Finance, CFTC, and SEC. After the collapse of Enron, he participated in the drafting of the Sarbanes-Oxley Act. The law tightened accounting standards and imposed stricter supervision on listed companies in order to reduce the occurrence of major risks such as Enron.

During the Obama administration, Gensler entered the CFTC work. He saw the huge risks of the over-the-counter market, forcing him to enter a stricter regulatory framework. Gensler believes that “only through strong and wise supervision, coupled with active enforcement mechanisms, can we fully protect the American people and keep our economy strong.” Under his leadership, the SEC carried out the 2008 financial crisis. A series of regulatory measures.

The game between crypto upstarts and traditional finance is unfolding, and Coinbase is not the first product to be suppressed in the crypto industry. In early September, the Wall Street Journal stated that the SEC is investigating Uniswap and that SEC officials are trying to understand how Uniswap is marketed. They said that the DeFi platform is not immune to legal scrutiny. In addition, they also want to know information about crypto lending.

“Code is law.” Although this sentence is widely circulated in the encryption community. But as Dr. Craig Wright has repeatedly emphasized, “Code is not the law, and the government will not tolerate someone trying to circumvent their law for a long time.” Behind all code projects, there are people writing code. The financial supervision department obviously does not stand on the position of the crypto community. The current situation seems to indicate that the supervision of DeFi is being carried out with great fanfare. Before the DeFi Summer in 2020, this field was not noticed by the regulation.

The regulation of DeFi is already on the line. The impact of this on the crypto community is still unknown. An investment banker once said that “technology that affects generations of people has already appeared, and this may part ways with public policy for a while.” This attitude of alienation from supervision has caused him to worry, “I want to point out, Historically, financial innovation outside the framework of public policy will not prosper for a long time.”

Gensler is not opposed to Crypto investment, “Although I am neutral about this technology, and even interested in it-I spent three years (in university) teaching related courses and gradually integrated into it-but I am concerned about the protection of The position of investors is not neutral.” But he also warned investors in the crypto market, “In many cases, investors cannot obtain strict, balanced, and complete information.”

“If someone wants to speculate, it is their choice, but as a country, we have a responsibility to protect these investors from fraud.” But he warned that investor protection is not strong enough. “Frankly, this time is more like Westfall,” he explained.

Supervising the helmsman, can he steer the encryption industry?

During his studies at the University of Pennsylvania, Gensler joined the sailing team and served as a helmsman. In order to be competent in this role, he has successfully lost weight and controlled his weight in order to allow the boat to obtain a better weight ratio. Now that the wave of Crypto hits, as the chairman of the SEC, he seems to have once again returned to the identity of the helmsman.

Compared with BTC, which has been in operation for more than ten years, the financial innovation of stablecoin is undoubtedly more elusive to the supervisory authorities. In just a few years, stablecoin has become a huge market of more than 120 billion U.S. dollars, and most of its growth has been completed in the past year.

The regulatory policy for stablecoin is also the most complicated and elusive. In June of this year, Randal K. Quarles, Vice Chairman of Fed Regulation, spoke highly of USD stablecoin and recognized the innovation of stablecoin. “I think we must fully consider the potential benefits of stablecoin, including the role that the US dollar stablecoin may support the US dollar in the global economy.” The SEC’s attitude towards stablecoin is different, and it has not given positive affirmation to this innovation. , And require strong supervision of stablecoin.

Gensler believes that the current stablecoin market is like the old Wildcat Bank era. Due to the wide variety of currencies, he cannot see the long-term sustainability of Crypto. At a hearing in September, Gensler assured members of Congress that the top regulator on Wall Street is working overtime to formulate a set of rules to regulate the volatile Crypto market while balancing the interests of American innovators.

From 1836 to 1865, Wildcat Bank co-existed with the State Bank, and the bank issued private U.S. dollars that could be exchanged for circulating gold and silver coins, and the reserves of these deposits were backed by government bonds or real estate bills. During this period, a large number of wildcat banks went bankrupt, leaving a worthless “dollar” for depositors.

Gary Gensler, the regulator who knows Crypto best from Circle and Uniswap

(Private dollars in the era of Wildcat Bank)

But this does not represent the unanimous views of the political circles on Crypto, and there are also different voices within it. US Senator Pat Toomey once criticized the SEC’s regulatory policies. In his letter to Gary Gensler, Pat Toomey stated that investors in new fields need clear rules and guidance, not strict enforcement and fines. “My concern about the SEC’s lack of regulatory clarity has been recognized by others, including the SEC Commissioner. In a recent enforcement action, SEC Commissioners Hester Peirce and Elad Roisman stated that they had failed to explain which digital assets to the SEC. It is the securities that are disappointed.” He pressured Gensler to clarify whether stablecoin meets the definition of securities.

Finance has been disrupted by the explosion of innovation, and Gensler must figure out how and to what extent it will be regulated. Although the market may not be large enough to be considered as a systemic risk, regulators still need to come up with a plan to deal with the risk. “I don’t think I will do that.” Gensler believes that if investors want to understand the risks, the SEC has the responsibility to release some information for their attention and comments, conduct economic analysis, and truly understand what investors are talking about.

Since Gensler took office, the dispute between the crypto world and traditional finance has become more public. Perhaps in the short term, regulation will have a negative impact on market sentiment to a certain extent, but in the long run, establishing a sound regulatory framework may enable the Crypto world to become more mature and healthy.

Posted by:CoinYuppie,Reprinted with attribution to:
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