Empire Newsletter: Why SOL, MATIC and others could still be under SEC threat

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Steady, lads

It looks like the SEC just backed down in its case against Binance.

The regulatory agency, in a court filing, said that it planned to amend its filing to remove part of its original complaint against Binance. Specifically, that the exchange allegedly broke securities laws by listing third-party tokens the SEC deemed to be securities. 

While this obviously impacts the Binance case, it’s important to keep in mind that this is only about the Binance case. The SEC is still holding on to similar claims in its case against Coinbase and there’s nothing yet that indicates the SEC will be changing course anytime soon. 

Let’s look at the wording the SEC used here. It said it would be removing the claims so that the court didn’t need to “issue a ruling as to the sufficiency of the allegations as to those tokens at this time.” 

Here’s a little refresher for your memory since we’re over a year into this legal battle now. Part of the SEC’s suit against Binance claimed that the following tokens were unregistered securities: SOL, MATIC, ADA, FIL, ATOM, SAND, MANA, ALGO, AXS and COTI.

Binance has since filed a motion to dismiss. The judge then held a hearing on that earlier this year, where the motion was dismissed alongside a ruling that a few pieces of the original suit wouldn’t move forward.

That included the SEC’s claim against Binance-branded stablecoin BUSD (and the SEC would later shutter its investigation into Paxos without seeking any legal ramifications) and part of the claims focused on BNB (specifically concerning secondary sales) was also dismissed. 

The regulatory agency’s move to amend the complaint yesterday definitely helps to narrow the case, an industry source familiar with the matter told me. 

However, the SEC could amend its complaint further and take out more from the original suit, despite only saying it plans to remove the third-party token claims. We won’t know until we see it, which is why Binance doesn’t seem so keen to move forward with the discovery portion of the case until they have an idea of what the SEC plans to pursue.

The Binance case may not be any closer to ending, and we could still be looking at a year to a year and a half to go, I’m told.

Now that’s a little too into the weeds on this complaint. Let’s refocus on why the SEC would undergo what seems like an about-face on the tokens in question.

Judge Amy Berman-Jackson, a senior district judge based in DC, didn’t seem so amenable to the agency’s token claims through both the hearing and in her opinion, a source said. 

Looking back at Berman-Jackson’s opinion from late June on the motion to dismiss, there are a few quotes that give away her thinking.

“The agency’s decision to oversee this billion dollar industry through litigation – case by case, coin by coin, court after court – is probably not an efficient way to proceed, and it risks inconsistent results that may leave the relevant parties and their potential customers without clear guidance,” she wrote.

She added that her court would take other rulings on crypto assets into account, and “will assess the offerings identified in the complaint individually, resisting the government’s implication that this ruling could go so far as to answer the definitional question that officials in the other branches of government appear to have been assiduously avoiding.”

Berman-Jackson, it seems, wasn’t going to be as agreeable to rule specifically on whether or not they count as securities. She said that it “wasn’t the question presented.”

And this is what the SEC probably mulled before deciding to nix the claims. It does show that the agency is backing down, in a way, but there aren’t necessarily any tea leaves for the broader industry to read here. 

It’s all specific to Binance.

— Katherine Ross

Data Center

• BNB and SOL have been jostling for fourth position by market cap all year, with BNB re-flipping SOL on Tuesday ($85.38 billion to $84.64 billion right now).
• Any BTC and ETH rallies are on hold for now, with both down slightly less than 1% in the past day (BTC: $66,100; ETH: $3,300). 
• Latest Polymarket odds for the US election: Donald Trump 60%; Kamala Harris 38%. Harris’ odds topped out at 40% on Saturday.
• Ether’s supply is on track to increase by $3 billion over the next year, based on the past 30 days of activity (0.61% inflation).
• Solana TVL has reached $5.5 billion, its highest point since January 2022. Restaking app Jito is responsible for 40% of the network’s total.

Robinhood rich

We’d all be happy if the bull market kept going. None more so than Robinhood.

Crypto is increasingly important for the stock. In the first quarter, the Menlo Park firm reported its highest revenues — $618 million, of which crypto contributed 20% — since at least Q2 2020 (before it went public).

The segment was only 9% of Robinhood’s quarterly revenue in Q4 2023: $43 million out of $471 million. Had crypto revenues been flat in Q1, Robinhood would’ve posted 13.5% revenue growth instead of 31%.

Robinhood doesn’t have the widest selection of cryptocurrencies in the US — only 14, and USDC is its sole stablecoin. Most are older cryptocurrencies: bitcoin, ether, bitcoin cash, litecoin, stellar lumens, tezos and ethereum classic. There are two memecoins, dogecoin and shiba inu.

Solana, matic and cardano are noticeably absent — Robinhood got rid of the three after the SEC name-dropped them in crypto exchange lawsuits last year. 

As Katherine unpacked above, the SEC has since stopped pursuing securities definitions for that particular trio of cryptocurrencies, and others, at least in the context of its Binance suit.

Over in the EU, Robinhood lists 34 cryptocurrencies — and more memecoins. Specifically, the apex zeitgeist memecoins for this cycle: bonk, pepe and dogwifhat, all of which have seen enormous price rallies over the past year and a half.

Robinhood, unfortunately, doesn’t delineate revenue from crypto trading in the EU and US in its quarterly reports. So, we don’t know how much of its crypto revenue is tied to those memecoins of the moment.

Still, what’s good for Robinhood’s revenues is good for its stock. But its crypto exposure as it stands has only taken it so far.

Take Coinbase: It also went public in the very buzzy 2021, less than four months before Robinhood.

Like Coinbase, Robinhood stock suffered from relatively poor timing in hindsight. Markets were definitely hot in 2021 – that was the mania that brought us Roaring Kitty and Hertz. Going public made some sense.

But when all the craziness subsided, so did the price of bitcoin and other cryptocurrencies, dragging down the price of crypto-exposed stocks like Coinbase, Robinhood and bitcoin miners.

Coinbase briefly saw above zero returns as bitcoin hit its 2021 peak, but COIN is currently down 33% over its public trading history. Meanwhile, Robinhood is 62% in the red. 

The difference could imply that Coinbase has benefitted from its complete exposure to crypto, not to mention its revenue streams are slightly more diversified, even if entirely within the realm of digital asset infrastructure.

The irony is that the volatility of crypto may be to blame for the situation with its share price, but it could also be its savior.

For what it’s worth, data aggregator CoinGecko recently reported that volumes for top 10 CEXs overall were down 12.2% quarter-on-quarter in Q2. If Robinhood saw similar trends, the market response to its upcoming earnings on August 7 could really hurt. 

Unless, memecoin traders in the European Union were really busy last quarter. Stranger things have happened.

— David Canellis

The Works

• WorldCoin’s World ID launched in Austria, the project announced.
• Former President Donald Trump raised $25 million during the Bitcoin 2024 conference, Fox Business reporter Eleanor Terrett said.
• Senator Cynthia Lummis teased the bitcoin reserve bill at Bitcoin 2024 but it’s yet to make it to the Senate floor, Blockworks’ Casey Wagner reported.
• Bitcoin from Mt. Gox was on the move again Tuesday, per Arkham Intelligence data.
• The SEC and DOJ announced charges against BitClout/DeSo founder Nader Al-Naji. 

The Riff

Q: Is crypto different now than in 2021?

Of course there has been progress. But perhaps the better question is: Have humans changed since 2021?

At the time, crypto felt like it had grown up since it shed the bad actors like Bitconnect, OneCoin and the litany of exit scams from the Ethereum ICO era. Turns out that wasn’t the case.

Undoubtedly there were insiders who knew, or at least suspected, just how bad things were inside Terra, FTX, Celsius and Three Arrows Capital before they all blew up. Same with BitClout.

There were also critics and skeptics who believed things weren’t as they seemed, but may not have had conclusive proof.

The fix could be increased due diligence in venture capital. Or an incentive system for whistleblowers. 

Pragmatically, it’s the realization that crypto may have evolved — different protocols, primitives and narratives — but it hasn’t changed. It’s still being built by people, for better or worse. Operate accordingly.

— David Canellis 

It feels like it is in some ways. But in others, nothing’s changed.

David’s got a great point, the guilty verdict for former FTX CEO Sam Bankman-Fried and the subsequent Binance deal with the DOJ and various Alphabet Soup agencies made it feel like crypto started a new chapter. 

In a lot of ways, crypto was forced to change and, looking back, maybe that’s not such a bad thing, even though it’s a shame that it came at such a cost to innocent bystanders. 

But crypto, at its core, is meant to be more transparent than a lot of systems currently in place. I think, at the end of the day, that’s one of its biggest advantages and perhaps its saving grace so long as it leans into that incredibly useful trait. 

So yeah, it’s changed a lot since 2021. But I’ve also changed a lot since my pre-teen days. It’s part of growing up. Now we just need to grow out of the scams, rugpulls and vaporware.

— Katherine Ross

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