Can Crypto’s Value Proposition Ever Translate Into Real Value?

In crypto’s post-FTX landscape, one thing is becoming increasingly clear as the dust settles.  

Either the U.S. has a crypto problem, or the digital asset industry has a U.S. problem.

This, as the Securities and Exchange Commission (SEC) has, for the first time, provided a list of crypto firms that are registered with the agency. There are only nine names, and five of them are now defunct. None of the businesses listed registered during the tenure of current SEC Chair Gary Gensler.

The list gives no indication of how many other industry actors have tried to register and either were rejected, failed, or later abandoned the process.

“If [these organizations] are in U.S. markets, they need to come into compliance … and really use the time-tested rules of the road that are on the books,” Gensler has repeatedly said regarding crypto firms.

“The SEC needs to make a more friendly environment for people trying to adhere to the law,” said Alan Silbert, the North America CEO for crypto exchange INX, which is one of the few firms registered with the SEC that is still in operation.

Stuart Alderoty, chief legal officer at embattled blockchain payments company Ripple, has his own piece of advice for industry colleagues: get out of the U.S.

Read More: Is Regulation Friend Or Foe For Blockchain?

The blink-of-an-eye collapse of FTX’s $32 billion crypto enterprise, and the evaporation of at least $8.6 billion in misappropriated customer funds, has underscored the importance of oversight and consumer protection for both U.S. regulatory agencies and legislators, putting them at odds with the crypto sector’s entrepreneurs who generally appear to prefer the tech world ethos of moving fast and breaking things.

After all, founders get into business to succeed. If compliance were a recipe for success, they would do it — but if there is another way, and if their competitors are also taking that path, they are unlikely to take the fork in the road, according to industry observers.

Still, the crypto sector’s largest players, increasingly haunted by their past, can’t seem to get out of their own way.

As reported by PYMNTS, companies behind the Tether stablecoin (USDT) allegedly used falsified documents to access the banking system in the past. The allegations include faking invoices and contracts that an intermediary submitted along with deposits and withdrawals; hiding identities behind other businesses or people; using business executives and making slight changes to their businesses’ names; and creating shell companies.

Tether and other stablecoins serve as the backbone of the crypto ecosystem by facilitating trading on exchanges and enabling transactions between fiat currency and digital assets.

‘Increasingly disturbing allegations about the legality of its operations’

And with FTX founder Sam Bankman-Fried’s criminal indictment puncturing his image of crypto’s white knight savior, abiding by the law, rival exchange Binance is now in both the top spot and the spotlight.

If Binance’s ability to navigate the industry turmoil and deal with regulators in the U.S. is a test case for the future of crypto, it is looking more murky than rosy.  

As reported by PYMNTS Sunday (March 5), Binance allegedly created its U.S. platform as a shield from regulators, with newly revealed internal messages and interviews from company employees showing a strategy by Binance to position Binance.US as an apparently independent company to protect itself from intensifying scrutiny of the company.

A Binance spokesperson told PYMNTS when reached for comment that the agreement between Binance and its U.S. operation is common in their industry, with Binance’s founders licensing the tech stack to other organizations that weren’t affiliated with the company.

“While growing at such a rapid pace, we made some initial missteps which have now been rectified,” the spokesperson said. “Following a massive investment in compliance talent, processes, and technology over the past two years, we are a very different company today when it comes to compliance.”

“In the years since Binance’s founding, the company has faced increasingly disturbing allegations regarding the legality of its operations,” reads a bipartisan letter sent by U.S. Senators Elizabeth Warren (D-Massachusetts), Chris Van Hollen (D-Maryland), and Roger Marshall (R-Kansas) last week (March 2) to Binance.

“Recent investigations have revealed that Binance appears to be evading U.S. regulators, including the Securities and Exchange Commission; has facilitated at least $10 billion in money laundering and sanctions evasions for criminals and rogue states; and has obscured even its most basic financial information,” the letter continued.

Binance has until March 16 to reply to the lawmakers’ requests. Whether and how it does may have ramifications for the rest of the industry going forward.

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