Stealth Talker

Habbit changer

[Stealth Talker @1StealthStalker]

@Rothmus Can someone please explain to me this hawk tuah thing. Didn't see clip

[Stealth Talker @1StealthStalker]

@ahcastor Helicopter do glide.
It's called autorotation

[Stealth Talker @1StealthStalker]

@elonmusk You shouldn't have carried that sink in

[Stealth Talker @1StealthStalker]

@CasPiancey Yeah, true, bots moved from twitter to X 😀

[Stealth Talker @1StealthStalker]

@BillAckman Looks like you were online too much

[Anonymous @YourAnonNews]

Instead of understanding the plight of the poor, you chastise them, dehumanize them and use your influence to cultivate hate. That's why people like you don't deserve the money you have, you're unwilling to use it to help those in need because you're a greedy selfish asshole.

[your #1 source for absurdist true crime 🐀 🐍👑 🌷 @davidgerard]

verge:

https://t.co/7rETa6RZY2

> At various points during Sam Bankman-Fried’s cross examination, I saw jurors shake their heads, frown so hard their lips disappeared, and make prolonged eye contact with each other.

[John Reed Stark @JohnReedStark]

It's Official: NFTs Will Go Down in History As Pet Rocks On Steroids (And Crypto Is On The Fast Track To Do The Same)

Stick a fork in the NFT marketplace, it’s dead. Remember when NFTs sold for millions of dollars? 95% of the digital collectibles are now probably worthless, less than two years after a massive bull run.

Specifically, a new study found that out of 73,257 NFT collections analyzed, 69,795 (95%) of them had a market cap of zero ether. Out of the top collections, the most common price for an NFT is now $5-$10. https://t.co/JS6s5BihkQ

This is not at all surprising. Fractionalized links to the meta data of JPEG files are an offensive, shocking and utterly ridiculous con game. The NFT marketplace is not merely inorganic, it's flat-out rigged. Market manipulation of NFTs is not only rampant and tolerated, but also encouraged. Fraud not only rewarded, but also taught.

Ironically, a small cadre of venture capitalists and Wall Street profiteers got filthy rich by pitching NFTs promising ethereal dreams of decentralization, financial inclusion and instantaneous wealth and prosperity. But for most of their duped retail buyers, what resulted was primarily investor carnage while Web3-financiers laughed all the way to the bank.

The same goes for all of crypto. It’s a modern day adaptation of The Emperor Has No Clothes meets The Pied Piper of Hamelin, and the victims are only now finally waking up, and stepping out, from the purple haze of it all:

An Investment? No. Crypto fails as an "investment” because there's no regulatory oversight, transparency, consumer protections, insurance, licensure, net capital requirements, and the crypto rug-pull bazaar is so rife with market manipulation/insider trading/fraud, investors stand no chance from the get-go. https://t.co/ftnEea4Gxt

A Currency? No. Crypto fails as a “currency” because the price is too volatile; fees too high; taxes too burdensome; and risks too infinite. How can anyone accept crypto as payment when it could be worth a lot less the next day? https://t.co/osyLFUlCQN

A Store of Value? No. Crypto fails as a “store of value” because it lacks utility and intrinsic benefit, the measure of what an asset is actually worth. Crypto has no value to store and its price is solely dependent upon the greater-fool-theory. https://t.co/7DiHBcQImq

A financial Panacea? No. Crypto fails as a “financial panacea for the unbanked” because it’s just another exemplar of “Predatory Inclusion” and affinity fraud, sadly peddled to dupe the disadvantaged and disaffected. https://t.co/VzwJgKwAlu

A “Safe Haven?” No. Crypto fails as a “safe haven” because there exists no government oversight or protections to provide any semblance of safety. I get it, there have now been several notorious bank failures and those bank failures evidence serious problems within the US financial system. But don’t let crypto promoters lure you in with their disturbing and twisted logic i.e. “See, I told you that you can’t trust banks, buy crypto next time and you will never have to trust a bank again.” This is a classic grift tactic I often saw during my tenure as Chief of the SEC Office of Internet Enforcement. In the rare instance of bank failure, there are statutory guardrails to protect/help depositors, like insurance and federal ownership/takeovers. The US government steps in swiftly and responsibly. But when a crypto platform fails (like FTX, Blockfi, Voyager, Celsius, etc.), there exist no U.S. government protections, and the customer’s access to assets is suddenly locked out or frozen. Bankruptcy becomes inevitable, and the customer most likely (depending on the user agreement and other factors) becomes an “unsecured creditor,” last in line for recovery and possibly left with zero. https://t.co/1CJ3xC5Chy In other words, crypto platforms might look like traditional brokerage apps to everyday users, but crypto apps lack the oversight and investor protections built into traditional financial services. For example, Coinbase has specifically acknowledged in SEC filings that the crypto it holds for users might not really belong to those depositors if push comes to shove, stating, “Because custodially held crypto assets may be considered to be the property of a bankruptcy estate, in the event of a bankruptcy, the crypto assets we hold in custody on behalf of our customers could be subject to bankruptcy proceedings, and such customers could be treated as our general unsecured creditors.” Coinbase has promised to remedy this danger and maybe they have or will. But these unpredictable issues are decided in bankruptcy. By contrast, securities held for customers by an SEC registered brokerage firm are legally segregated from the assets of the brokerage, meaning they can’t be touched in bankruptcy, and are protected by SIPC, a nonprofit set up by Congress in 1970, which also insures as much as $500K of customers’ securities and cash in brokerage accounts. https://t.co/WxY5cQmpcC

A Blockchain Revolution? No. The reality is that no matter how exciting and aspirational the venture capital blockchain propaganda, blockchain stubbornly remains a glorified, append-only, limited writer spreadsheet and immutable ledger -- which provides little utility for anyone. The truth is that blockchain’s technological DNA is laden with sluggishness, clunkiness, costliness, inefficiencies, security issues and a slew of other problems, which renders blockchain not just difficult to scale but also challenging to use. Hence, blockchain faces extraordinary obstacles to evolving into the magical financial and societal panacea that its promoters have been promising for over 15 years. And herein lies the stark reality: Just because some big bank or investment house seems to be using a private blockchain internally for a project that sounds exciting and forward-thinking, does not mean it is somehow worth jumping on the blockchain bandwagon. The vast, if not overwhelming, number of current blockchain projects are "private blockchain" projects which are not open to the public, not decentralized, not permission-less, not technologically transformative, not futuristic (but are instead antiquated) and cannot perform any better than a Google Docs spreadsheet. In other words, when it comes to blockchain, beware not only of the perils of ubiquitous Web3 flimflam but also beware of the trappings of misguided groupthink and crypto-sophistry. Both are patented grifter techniques and the hallmarks of just about every bigtime financial crime history. https://t.co/2Zv6tfJpWE

An Affinity fraud? Yes. This is one of the most important proclaimed benefits of crypto i.e. that crypto is a revolutionary equalizer for the unbanked and will cure historical issues of financial inclusion. And it also happens to be categorically false. The disquieting reality is that crypto is just another horrendous exemplar of affinity fraud, and orchestrated shamelessly to dupe the disadvantaged and disaffected. Crypto fails miserably as a “revolutionary equalizer for the unbanked” because, as the legendary Michelle Singletary recently explained in her award-winning Washington Post financial column, crypto does not cure historical issues of financial inclusion. https://t.co/XN5Nfn9zip In fact, when examined closely, as was done by Tonantzin Carmona for the Brookings Institution, Crypto has also evolved into a dire affinity fraud. https://t.co/HpAgBmklc1. Because “crypto’s current capabilities do not match the needs of the groups it purports to serve, it carries a host of risks and drawbacks that undermine its benefits. More alarming, we can observe parallels between crypto and other predatory products, which highlights crypto’s potential to exacerbate unequal financial services to historically excluded groups.” In other words, disadvantaged and disaffected communities get access under the auspices of inclusion, but that access only makes their situations worse. Last year, a University of Chicago study found that 44 percent of Americans who owned and were trading crypto were people of color. To make matters worse, a recent J.P. Morgan Chase study found that people with lower incomes very likely made their crypto purchases when prices were elevated when compared to higher earners and have therefore suffered disproportionately. Algernon Austin, director for Race and Economic Justice at the Center for Economic and Policy Research, said during an interview about crypto investing and building Black wealth. “As an investment, it’s closer to gambling.” Austin co-authored a report released earlier this year comparing crypto with index funds. When looking at a random sampling of 100 cryptocurrencies — all in the top 1,000 by market capitalization — Austin and his team found that the median cryptocurrency declined 46.6 percent from August 2017 to August 2022. But a total stock market index fund climbed 56.4 percent during that period, while an S&P 500 index fund surged 60.8 percent. https://t.co/qlst1Ga9Zf; https://t.co/vmnBy6wR36

A Mammoth Grift? Yes. IMHO, grift, chicanery and fraud are not just common and routine in the crypto-ecosystem — they are modus operandi and inherent criminal characteristics deeply rooted in crypto-ecosystem DNA in perpetuity. The result? Victims become victimizers, the crypto-contagion spreads, crypto-titans become fugitives, informants and defendants — and fiat vanishes. I discuss this and more at a recent Fintech Conference Held by the Philadelphia Federal Reserve, entitled, “Blockchain, Web 3.0, Digital Identity, and the Future of Finance."
https://t.co/rePsmKW7jA

[John Reed Stark @JohnReedStark]

Of All The Pro-Crypto Arguments, This One is The Weakest (and Most Disturbing)

Confront any crypto-enthusiast with statistics regarding the mammoth rise in crimes facilitated by cryptocurrencies, and the response will almost always be:  What About Fiat? Crimes Committed With Fiat are Far Worse Than Crime With Crypto.

This generic form of whataboutism is a desperate, flawed and anemic pivot. Whataboutism not only telegraphs a faulty and weak line of reasoning, but, as I always teach my students, whataboutism is also a surefire way to lose an argument, whether you are a lawyer advocating before a judge in a courtroom or you are a 7-year old whining in front of a teacher in a kindergarten class.

I get it, fiat fraud and financial chicanery is horrible and a problem. I should know, I spent almost 20 years investigating and charging securities frauds against some truly awful companies and nefarious human beings.

But crypto has evolved into the killer app for criminals, ushering in a crypto-crime wave of epic proportions. Ask any law enforcement official of any kind and the answer will be the same: The scale of crime in crypto is orders of magnitude greater than what it is in traditional finance.

A Killer App For Criminals

Blockchain's sole most prominent uses - crypto and DeFi - are not just an investor ruse and a horrific plague but even worse, crypto, DeFi and the rest of Web3 form the foundation of a criminal tool beyond imagination.

For criminals, the regulatory vacuum of blockchain applications like crypto, DeFi and NFTs, enable the committing of perilous crimes like never before.

Indeed, investor carnage is not the only fallout caused by the global societal infection of crypto and Web3. Crypto’s dire externalities are even more devastating world-wide, which is perilous for everyone everywhere.

Take for example the crypto-crime of ransomware. Perpetrators of ransomware attacks demand crypto to unlock corporate IT systems and data that the attackers have surreptitiously encrypted. Collecting crypto in extortion transactions allows ransomware attackers not only to conceal their tracks and identities, but also to conduct their schemes from anywhere in the world. But for bitcoin, ransomware would not exist.

Ever see a ransomware attack demanding $5 million in cash? No, because, for reasons too myriad and too obvious to recite, it can’t be done. But ever see a ransomware attack demanding $5 million in crypto? Every day of the week.

Crypto Traceability: Don’t Believe The Hype

So why has crypto become the currency of choice for criminals, terrorists, rogue nations and so many other evil-doers in the world? Because crypto presents extraordinary challenges for law enforcement to trace and to recover.

At least for now, most criminals who use crypto to facilitate their crimes will likely never get caught and their ill-gotten crypto will likely never be recovered. That is axiomatic -- and to state otherwise is not just irresponsible, it's just plain false. Those spreading the myth that crypto-transactions are easy to trace remain sadly mistaken. This is perhaps the most frustrating and misleading of all crypto-enthusiast retort.

First off, if crypto were so easy to track, then the tens of thousands of ransomware attackers would all get caught. But the reality is that only a minuscule few are ever even identified, let alone apprehended, charged, extradited and brought to justice. Too many crypto-related tools exist to obscure, mask, disguise, camouflage and secrete crypto-transactions.

For instance, FinCEN announced in November, 2022, that US financial institutions spent nearly $1.2B on ransomware payouts in 2021 more than double from 2020, and three quarters of the 1,251 ransomware payments pertained to ransomware were apparently paid to Russian gangs. If crypto were so easy to trace, then the identities, whereabouts and details of the ransomware payment collectors would become known -- and prosecutions would follow. But that rarely, if ever, actually happens.

Second, while crypto payments (if not obscured or properly laundered) might in some instances provide a glimpse into the chain of where crypto is going, the chain does not identify who the crypto is going to.

Finally, even in the best cases of crypto-tracking (which are rare, take a lot of effort and only work in some instances), the identity of the actual holder is typically found using subpoenas, search warrants, arrest, etc. Not an easy task when the individuals and entities reside in countries outside the U.S., who will not only fight U.S. law enforcement efforts but will go so far as to refuse to accept delivery of service. (See e.g. SEC/Terraform case, where Terraform and its founder continue to fight SEC subpoenas despite a detailed ruling compelling them to do so.) https://t.co/nIjZ1cuop9

Other Crimes

Just like with ransomware, try to raise $10 million in cash for a terrorist attack; to pay $1 million in cash for a suitcase of heroin or to transfer $5,000 in cash to the dark web to download child pornography. You can’t do it without a strong likelihood of getting caught. But crypto easily facilitates these crimes and many others, dramatically reducing any chance at all of even getting identified, let alone apprehended, prosecuted and convicted.

Along these lines, traditional crimes have also increased exponentially because of crypto, including: drug-dealing, terrorism financing; human sex trafficking; money laundering; sanction evasion by countries like Russia, North Korea and Iran, who use crypto to transfer funds outside financial systems; assassins and other killers seeking payment for murder-for-hire services; and a slew of other financial crimes.

North Korea is a particularly egregious criminal application of crypto. North Korea's crypto hackers are paving the road to nuclear Armageddon. North Korea has quietly become a cryptocurrency superpower. It has stolen billions in bitcoin and ether and is funneling profits to its nuclear weapons program.

Meanwhile, U.S. law enforcement is often helpless to investigate, let alone, prosecute, crypto-related crimes. Along these lines, U.S. DOJ recently reported that criminals use crypto internationally for their innovation, claims of decentralization and anonymizing features. The cross-border nature of digital asset technologies therefore requires collaboration with foreign law enforcement, which presents extraordinarily complex and sometimes impossible challenges for the identifying, arresting, extraditing and prosecuting crypto-criminals.

US DOJ and Crypto-Tracing Challenges

It would be somewhat naïve to conclude from the celebrated DOJ prosecutions involving lya Lichtenstein, his wife, Heather Morgan (who conspired to launder the proceeds of 119,754 bitcoin that were stolen from Bitfinex’s platform) or the seizure of over 50,676 bitcoin hidden in the home of Silk Road defendant James Zhong, that tracing and recovering crypto assets is always easy — or even always possible. Both cases are the exception, not the rule, of crypto-investigations.

In Zhong: While blockchain tracing may have allowed law enforcement to go back years to track and trace the flow of Zhong's funds, what was critical was the 10+ years of police work that followed (such as search warrants and other legal processes), together with a lot of luck, which allowed DOJ, IRS and others to piece together a decade of money laundering.

In Lichtenstein and Morgan: 1) US DOJ took six years of investigating before making any arrests; 2) The investigation required massive coordination of resources, engaging an alphabet soup of federal agencies (DHS; FBI; DOJ-Criminal Division; DOJ-CCIPs; DOJ-OIA; US Attorney’s Offices in DC, EDPa. and SDNY; and even the Ansbach Police Department in Germany); and 3) The defendants were living as crypto-celebrities in plain view in New York City splashing their activities all over social media. Had the defendants been residing outside of the United States, the outcome would likely have been very different.

Even with the latest blockchain analytics, investigations will typically take years (even a decade) to complete. As one former DOJ prosecutor, Duke Law Professor Shane Stansbury, testified so eloquently:

"Frequently, the hardest part of a cyber-related prosecution is demonstrating what investigators sometimes refer to as “hands on the keyboard.” Digital breadcrumbs left by criminals can prove invaluable to investigators. But ultimately prosecutors must demonstrate that an identifiable person is behind the criminal activity. And in a criminal case, that identity must be established beyond a reasonable doubt. That is, of course, as it should be, but in cryptocurrency-related cases prosecutors will often have the distinctive challenge of relying on a very complex series of digital patterns and transactions to meet their burden.

That crucial connection of a criminal’s identity to their criminal conduct is one of the main challenges posed by cryptocurrency. A public blockchain can be helpful, but often it can get one only so far. Prosecutors can spend years trying to penetrate the layers of obfuscation by savvy criminals. Even if they succeed, they may still face obstacles due to the current state of the cryptocurrency market."

US DOJ Executive Order Response

The difficulty for law enforcement in tracing crypto is also recently highlighted in U.S. DOJ's response to President Biden's March 9, 2022, Executive Order, which called for certain U.S. government agencies to examine the risks and benefits of cryptocurrency assets and report back.

Per DOJ's response:

"Criminals continue to use cryptocurrency and other digital assets for money laundering, facilitating tax evasion, and evading sanctions. Criminals have developed increasingly sophisticated obfuscation techniques— complex and rapid transactions, “chain- hopping” by converting funds from one cryptocurrency into another, use of AECs, and other measures—designed to make tracing difficult and to place stolen funds beyond recovery. Criminals can also use mixers and tumblers, including automated services that employ smart contracts22 to combine multiple users’ coins together before sending out unrelated coins to each user’s designated recipient, to obfuscate their transactions.

These techniques are made easier by the fact that many digital asset exchanges and platforms make little or no effort to comply with anti-money laundering regulations, such as know-your-customer (KYC) requirements, or operate in jurisdictions without anti-money- laundering and countering-the-financing- of-terrorism (AML/CFT) requirements in line with the international standards."

Along the same lines, from ransomware payments demanded in crypto to state actors using digital assets to circumvent sanctions and other restrictions, US DOJ is raising the alert that crypto is expanding into every area the agency is exploring.

Acknowledging that U.S. DOJ has seen a tremendous increase in crypto related crime over the past several years, DOJ’s director of National Cryptocurrency Enforcement Team (NCET), Eun Young Choi recently stated:

"We are seeing cryptocurrency and digital assets really touch every aspect of criminal activity we investigate . . . By its very nature the technology is built in order to not rely on intermediaries, cross-border transactions that are immutable and irreversible. Law enforcement can freeze conventional transactions, but they can’t do that with digital asset transactions."

Looking Ahead

For the most part, financial pioneers have made our lives better, by supporting transformative technologies like the Internet, mobile phones and cloud computing — and they deserve their 10x profits. But blockchain and crypto are not innovations or anything else of such dramatic importance.

Some blockchain enthusiasts distance themselves from crypto, chiding critics for conflating the two i.e. crypto is merely one application of blockchain, and blockchain should not be judged by one mere application. But given that blockchain has no uses that anyone can articulate without plunging into a vague aspirational vortex, that is a misguided deflection.

Both crypto and blockchain remain faulty solutions of commutative mathematical blather that solve no U.S. problem, but have initiated an era of digital mayhem beyond imagination, wreaking havoc and turning victims into victimizers. And for what?

Crypto has two primary beneficiaries: Grifters, who shill crypto to lure in investors, especially if those investors are the downtrodden, injecting a predatory element of affinity fraud into their schemes (just like check-cashing services and payday loans do) and Criminals, who exploit the pseudonymity of crypto to orchestrate globally a vast array of devastating crimes.

No amount of whataboutism can counter this stark reality.
https://t.co/mD72iXCS7J

[your #1 source for absurdist true crime 🐀 🐍👑 🌷 @davidgerard]

Crypto collapse: Sam Bankman-Fried goes to jail, SEC appeals Ripple ruling, Prime Trust bankrupt, the tangled tale of TrueUSD and Tron https://t.co/cBxjVCUwq1 via @ahcastor

[John Reed Stark @JohnReedStark]

More Compelling Evidence Demonstrating That the Chances for SEC Approval of a Bitcoin Spot ETF Are Slim and None (And Slim Just Left Town)

A new study offers even more proof that the crypto-marketplace is totally rigged. In fact, it seems almost axiomatic that market manipulation of crypto is not merely ubiquitous and tolerated, but also encouraged. Fraud not only rewarded, but also taught.

Per CNBC, rampant bots on Twitter helped to pump up the price of crypto, including crypto traded by insiders at FTX hedge fund Alameda Research before its collapse, according to a new study from the Network Contagion Research Institute. https://t.co/eDy1v8q6iE

A Walking Dead-Like, Anarchical Financial Marketplace

The CNBC report should come as no surprise. The cryptoverse is a cesspool of grift, fraud and chicanery.

First off, there is no bonafide method to value mathematical computational blather. No fundamentals, no balance sheets, no cash flow, no product, no management — no nothing. Crypto-analysis is like evaluating the clothing worn by a poltergeist.

Second, there is no crypto-related regulatory oversight, transparency, consumer protections, insurance, licensure, net capital requirements or any other effective customer protections.

Hence, the crypto rug-pull bazaar has become so rife with market manipulation, insider trading, conflicts of interest and thievery, that investors stand no chance from the get-go.

Victims Become Victimizers

Even worse, the cryptoverse has transformed victims into victimizers, drafting and enlisting the mammoth social media horde to serve as unwitting soldiers of fortune (without even having the decency to pay their legions any compensation or military scrip).

Meanwhile, the irony is that crypto’s “Greater Fool Theory” cultists have traded one set of chains for an even worse set of chains, and are now shackled to a more brazen cadre of grifting profiteers, even more nefarious than the bankers and regulators that libertarians so desperately seek to escape.  

Looking Ahead

Tragically, when the music stops, crypto’s “freedom” from government protection, recourse, restitution and remediation becomes a curse and not a blessing.

Just like the true believers in FTX, Celsius, BlockFi, Voyager, Genesis, Terra and the rest, crypto-customers inevitably wind up with no place to sit, languishing and wasting away as unsecured creditors with little hope of recompense and reparation.

Don't believe me? Read the victim impact statements made public in the court documents of the litany of crypto debacles, and learn first-hand, from victims, about the despairing and catastrophic investor carnage caused by crypto.

What is so disturbing to me especially is that the crypto fat cats are laughing all the way to the bank. Fail not at your peril crypto fans — wake up — you are the hunted, not the hunter.

[John Reed Stark @JohnReedStark]

Here's Why The SEC's Crypto- Regulatory Onslaught Will Never End (Ever)

Bittrex Inc. and its co-founder and former CEO, William Shihara, agreed to settle charges filed by the U.S. Securities and Exchange Commission (SEC) that they operated an unregistered national securities exchange, broker, and clearing agency. These are the same SEC charges that Beaxy, Binance and Coinbase continue to fight tooth and nail.

As part of the Bittrex/SEC settlement, which is subject to court approval, the defendants consented to entry of final judgments that permanently enjoin Bittrex and Shihara from violating Sections 5, 15(a), and 17A of the Securities Exchange Act of 1934 and enjoin Bittrex Global from violating Section 5 of the same Act. In addition, Bittrex and Bittrex Global agreed to pay, on a joint and several basis, disgorgement of $14.4M, prejudgment interest of $4M, and a civil penalty of $5.6M, for a total monetary payment of $24M.
https://t.co/ykGHD5Tyl5

What is especially unsettling is that by calling themselves “exchanges,” “brokers,” and “market-makers,” crypto trading platforms like Bittrex, Beaxy, Coinbase, Binance and others co-opt historically powerful nomenclature that implies trust, oversight and consumer protection, etc.

This powerful grift can quickly evolve into dangerous and unlawful marketing theater and is precisely why Congress enacted The Securities and Exchange Act of 1934 -- to prevent and police investment schemes orchestrated by large financial conglomerates of any ilk.

Without SEC registration of financial intermediaries, a Walking Dead-like post-apocalyptic marketplace quickly evolves – which not only poses financial risks to individual investors but also poses systemic risks to the entirety of the global capital marketplace.

This is why the SEC's crypto-enforcement sweep will never end -- because, as explained below, the SEC's threefold mission (to protect investors; to maintain fair, orderly and efficient markets; and to facilitate capital formation) is far too critical for the SEC to relent.

U.S. SEC Exchange Registration

Put simply, a securities exchange is a company that creates the opportunity for potential buyers and sellers of a security to come together for trading – and per the SEC, crypto can be securities.
https://t.co/abFYmQXm9Q

Hence, the need to register with the SEC or operate pursuant to an appropriate exemption (such as an alternative trading system that complies with Regulation ATS, which requires, among other things, registration as a broker-dealer and filing of a Form ATS with the SEC).

In enacting registration provisions for national securities exchanges, Congress found in Section 2(3) of the Exchange Act [15 U.S.C. §78b(3)] that:

"Frequently the prices of securities on such exchanges and markets are susceptible to manipulation and control, and the dissemination of such prices gives rise to excessive speculation, resulting in sudden and unreasonable fluctuations in the prices of securities which (a) cause alternately unreasonable expansion and unreasonable contraction of the volume of credit available for trade, transportation, and industry in interstate commerce, (b) hinder the proper appraisal of the value of securities and thus prevent a fair calculation of taxes owing to the United States and to the several States by owners, buyers, and sellers of securities, and (c) prevent the fair valuation of collateral for bank loans and/or obstruct the effective operation of the national banking system and Federal Reserve System."
https://t.co/4Xf5DuqfD7; https://t.co/JSrMB9j639

Thus, Section 5 of the Exchange Act requires an organization, association, or group of persons that meets the definition of “exchange” under Section 3(a)(1) of the Exchange Act, unless otherwise exempt, to register with the Commission as a national securities exchange pursuant to Section 6 of the Exchange Act. https://t.co/JSrMB9j639

Exchange Act Rule 3b-16(a) is a broad and all-encompassing statute, defining certain terms in the definition of “exchange” under Section 3(a)(1) of the Exchange Act, to include “[a]n organization, association, or group of persons,” as one that: “(1) [b]rings together the orders for securities of multiple buyers and sellers; and (2) [u]ses established, non-discretionary methods (whether by providing a trading facility or by setting rules) under which such orders interact with each other, and the buyers and sellers entering such orders agree to the terms of a trade.”https://t.co/DAAFfcgXtR

As explained emphatically by the SEC:

"Registration of a trading platform as an “exchange” under the Exchange Act is a bedrock Congressional enactment that permits the SEC to carry out its role of oversight over the national securities markets. Exchanges properly registered as such under the Exchange Act must enact a set of rules to govern their and their members’ behavior, and these rules are subject to review by the SEC under Section 19 of the Exchange Act. This review process is designed to ensure that each of these securities marketplaces continues to operate in a manner consistent with the Exchange Act as its practices and procedures evolve over time, in part to protect investors and the integrity of securities markets that affect national commerce and the economy."
https://t.co/4Xf5DuqfD7

The Defiance of Crypto Trading Firms

For years too many crypto trading platforms have been operating as unregistered exchanges, by providing a marketplace that, among other things, brings together orders of multiple buyers and sellers of crypto assets and matches and executes those orders.

Crypto trading firms have carried out these functions despite the fact that the crypto assets it has made available have included crypto asset securities. These crypto trading firms have made calculated business decisions to make assets available on their platforms in order to increase revenue, which are primarily based on trading fees from customers, while explicitly acknowledging that its conduct could invite regulatory scrutiny. The strategy, to elevate increasing its profits over complying with the regulatory framework for securities markets, is not one that the SEC can allow.

Without SEC intervention via an enforcement action, crypto trading firms can place their own financial interests ahead of the interests of the investing public, by failing to comply with the legal requirement that they participate as regulated intermediaries with concomitant obligations to their customers, including important disclosure and review obligations designed to protect investors and promote the proper functioning of our capital markets.

By bringing together the orders of multiple buyers and sellers of crypto asset securities via a trading facility programmed with non-discretionary rules for orders to interact and for buyers and sellers to agree upon the terms of trades in these securities, a platform is acting as an exchange, requiring SEC registration.

U.S. Broker-Dealer Registration

Specifically, Section 15(a) of the Exchange Act generally requires brokers and dealers to register with the SEC, and brokers and dealers must also join “self-regulatory organizations” (SROs) as members. SROs require members to adhere to rules governing their activities. Section 3(a)(4)(A) of the Exchange Act defines “broker” as “any person engaged in the business of effecting transactions in securities for the account of others.” https://t.co/JSrMB9j639

Per the SEC, broker-dealer behavior is a broad and all-encompassing area of SEC registration:

"In order to determine whether any of these individuals (or any other person or business) is a broker, we look at the activities that the person or business actually performs. You can find analyses of various activities in the decisions of federal courts and our own no-action and interpretive letters. Here are some of the questions that you should ask to determine whether you are acting as a broker:

-Do you participate in important parts of a securities transaction, including solicitation, negotiation, or execution of the transaction?

-Does your compensation for participation in the transaction depend upon, or is it related to, the outcome or size of the transaction or deal?

-Do you receive trailing commissions, such as 12b-1 fees? Do you receive any other transaction-related compensation?

-Are you otherwise engaged in the business of effecting or facilitating securities transactions?

-Do you handle the securities or funds of others in connection with securities transactions?

A "yes" answer to any of these questions indicates that you may need to register as a broker."
https://t.co/egn1rfqAMO

The ramifications for failure to register as a broker-dealer are severe, even criminal. In addition, Section 20(e) of the Exchange Act, under which the SEC may impose aiding-and-abetting liability on any person that knowingly or recklessly provides substantial assistance in a violation of the Exchange Act, creates additional potential liability.
https://t.co/FvnCK6TvPk

Finally, merely retaining and permitting an unlicensed intermediary to help facilitate or effect a securities transaction may be a violation of federal and many state laws and may subject others to possible civil and criminal penalties, including imprisonment.

By skirting broker-dealer registration requirements, crypto trading platforms peddling digital asset securities are not adhering to a safe and transparent financial services regulatory framework.

For instance, broker-dealers are required to “observe high standards of commercial honor and just and equitable principles of trade” in the conduct of its business, including determining if an investment is “suitable” for its customer and maintaining meticulous records of communications, representations, transactions and other important information. Broker-dealers also are subject to SEC and FINRA examinations together with an exhaustive laundry list of regulations and rules of conduct as well as a rigorous training, testing and certification process. https://t.co/aVASgENeJo

As explained by the SEC:

"The regulatory regime applicable to broker-dealers is a cornerstone of the U.S. federal securities laws and provides important safeguards to investors and market participants. Registered broker-dealers are subject to comprehensive regulation under the Exchange Act and under the rules of each SRO of which the broker-dealer is a member. These regulations and rules include recordkeeping and reporting obligations, Commission and SRO examination, and general and specific requirements aimed at addressing certain conflicts of interest, among other things. All of these rules and regulations are critical to the soundness of the national securities markets and to protecting public investors who interact with broker-dealers when transacting in securities on regulated exchanges. To preserve fair and orderly markets, avoid conflicts of interests, and protect investors, Section 11(a) of the Exchange Act [15 U.S.C. § 78k(a)] generally prohibits broker-dealers that are members of exchanges from effecting transactions on that exchange for their own accounts." (emphasis added) https://t.co/4Xf5DuqfD7

Conflicts of Interest

Congress enacted the Securities Exchange Act of 1934 in part to provide for the regulation of the national securities markets. And Congress charged the SEC with protecting investors, preserving fair and orderly markets, and facilitating capital formation, in part, through a series of registration, disclosure, record-keeping, inspection, and anti-conflict-of-interest provisions. As explained by the SEC:

"These regulatory provisions have led, in turn, to the separation of key functions related to securities transactions—including those carried out by brokers, exchanges, and clearing agencies—in part to better protect investors and their assets from conflicts of interest." https://t.co/4Xf5DuqfD7

In traditional national securities markets such as those for equity securities, the functions of “exchanges,” “broker-dealers,” and “clearing agencies” have been carried out by separate legal entities that are independently registered (or exempt from registration) and regulated by the SEC. Per the SEC:

"Separation of these core functions aims to minimize conflicts between the interests of securities intermediaries and investors. Registration provides the means for the SEC to understand the business of the securities intermediaries and their relationship with investors in order to protect those investors and the securities markets, and to prevent fraud or other abuses. Investors in traditional national securities markets do not generally trade directly with national securities exchanges or clearing agencies but instead are customers of broker-dealers. Only broker-dealers (or natural persons associated with a broker-dealer) may become members of a national securities exchange.

In addition, broker-dealers who have customers must become members of t . . FINRA, an SRO that imposes its own set of rules and oversight over broker-dealers, particularly with regard to protecting retail investors.
National securities exchanges and clearing agencies must be approved for registration by the SEC, become SROs, and subject all of their proposed rules and changes to those rules to review by the Commission." https://t.co/4Xf5DuqfD7

By collapsing these functions into a single platform and failing to register with the SEC as to any of the three functions (without any exemption), Crypto trading firms can defy critical regulatory structures and evade the disclosure requirements that Congress and the SEC have over the course of decades constructed for the protection of not just individual investors but also the integrity of the U.S. and global financial marketplaces.

Hence, one reason for the SEC registrant of crypto trading platforms is to manage the litany of conflicts of interests which can arise when acting as a securities trading intermediary.

For example, crypto platforms typically solicit, accept, and handle customer orders for crypto; allow for the interaction and intermediation of multiple bids and offers resulting in purchases and sales; act as an intermediary in making payments or deliveries, or both; and maintain a central securities depository for the settlement of transactions. Crypto platforms also usually settle transactions by updating investor’s positions. This all creates a chaos of conflicts of interest.

In stark contrast, SEC-registered exchanges:

-- Act through SEC-registered broker-dealer intermediaries to execute trades, to ensure the integrity of transactions;

-- Act through SEC-registered clearing firms to warehouse securities and payments, to ensure the safekeeping of securities and the integrity of settlement; and

-- Never assume possession or control of the underlying assets being traded, to ensure independent trust and verification.

Why SEC Registration Matters

U.S. SEC registration of financial firms: (1) mandates that investor funds and securities be handled appropriately without conflicts of interest; (2) ensures that investors understand the risks involved in purchasing the often illiquid and speculative securities that are traded on a cryptocurrency platform; (3) makes buyers aware of the last prices on securities traded over a cryptocurrency platform; and (4) provides adequate disclosures regarding their trading policies, practices and procedures. Overall, entities providing financial services must carefully handle access to, and control of, investor funds, and provide all users with adequate protection and fortification.

With traditional SEC-registered financial firms, the SEC has unlimited and instantaneous visibility into every aspect of operations. With crypto trading platforms, the SEC lacks any sort of oversight and access — and has scant ability to detect, investigate and deter fraudulent conduct. As a result, the crypto marketplace operates without much supervision, lacking:

-- The hallmarks of the traditional transparent surveillance program of a financial firm like an SEC-registered broker-dealer or investment adviser, so the SEC cannot analyze or verify market trading and clearing activity, customer identities and other critical data for risk and fraud;

-- SEC and/or Financial Industry Regulatory Authority licensure of individuals involved in crypto trading, operation, promotion, etc., so the SEC cannot detect individual misconduct and enforce violations; -Traditional accountability structures and fiduciaries of financial firms, so the SEC cannot ensure that every customer's interest is protected and held sacrosanct;

-- The compliance systems, personnel and infrastructure, so the SEC cannot know where crypto came from or who holds most of it; and

-- The verification and investigatory routine and for cause SEC or FINRA examinations, inspections and audits, so the SEC and FINRA cannot patrol, supervise or verify critical customer protections and compliance mechanisms.

For customers of digital asset platforms like most so-called crypto exchanges, there is not just a gap in customer protections, but a chasm.

It’s like if a drug dealer suddenly offered to perform brain surgery for their customers, yet had never gone to college or medical school, never done a hospital internship or residency and their only health training consisted of watching a few TikTok videos on how to sell heroin to elementary school kids.

Along these lines, as the SEC has stated time and again, given the lack of SEC registration of crypto market participants, the crypto market as a whole or the relevant underlying bitcoin market becomes uniquely and inherently susceptible to fraud and manipulation:

“The Commission has identified in previous orders possible sources of fraud and manipulation in the spot bitcoin market, including: (1) “wash” trading; (2) persons with a dominant position in bitcoin manipulating bitcoin pricing; (3) hacking of the bitcoin network and trading platforms; (4) malicious control of the bitcoin network; (5) trading based on material, non-public information (for example, plans of market participants to significantly increase or decrease their holdings in bitcoin, new sources of demand for bitcoin, or the decision of a bitcoin-based investment vehicle on how to respond to a “fork” in the bitcoin blockchain, which would create two different, non-interchangeable types of bitcoin) or based on the dissemination of false and misleading information; (6) manipulative activity involving purported “stablecoins,” including Tether (USDT); and (7) fraud and manipulation at bitcoin trading platforms.”https://t.co/MQx670gUfI

Looking Ahead

The stark reality is that by hijacking bona-fide regulatory labels, and shouting bogus promises of groundbreaking financial opportunities, together with a sleek website, flashy Super Bowl commercials and attractive customer-interphase, entities like Bittrex, Beaxy, Coinbase and Binance create a counterfeit veneer of assurances, integrity, expertise and regulatory supervision.

However, despite the hype and bluster of their $2,000/hour legal defense teams and self-proclaimed “fintech" lawyers, these crypto trading platforms know all too well not only that their actions violate U.S. laws but also that their operations will result in devastating investor carnage.

Financial firms like Binance, Coinbase, Beaxy, Bittrex and other crypto-trading platforms are simply playing (and winning) a short game of regulatory arbitrage, all carried out in an effort to make as much fiat as possible before their inevitable demise (or severe reduction in size).

The biggest irony is that these so-called “crypto-exchanges” claim to be champions of the future of finance and promote themselves as digital couriers of transformative innovation that is the future of money.

Don’t be fooled. Beneath their sophisticated exterior, these crypto trading platforms are masquerading a spectacularly mammoth (and effective) affinity fraud that is as old as finance itself:

-- First, their grift entices disenfranchised closet-revolutionaries who crave a more libertarian, free-wheeling and accessible financial marketplace;

-- Second, their grift appeals to those hoping for a hi-tech financial system residing amid a world of phasers, tricorders, warp drives and tractor beams; and

-- Third, their grift falsely promises hope and inclusion for the disadvantaged and unbanked who lack access to traditional financial opportunities.

Moreover, by ingeniously turning their victims into victimizers, crypto-platforms have succeeded in growing their legions of promoters and charlatans exponentially -- who, free-of-charge, tout crypto as the next big thing.

Meanwhile, Big Crypto carnival barkers are laughing all the way to the bank, paradoxically piling up mountains of fiat currency to buy mansions, Ferraris and political influence.

And when the SEC files charges, what is Big Crypto’s defense? Crypto-intermediaries do not offer hard evidence of crypto as a financial panacea or as a radical technological utility. Nope, not at all.

Instead, crypto intermediaries analogize that operating a crypto-exchange is akin to operating an online trading facility for baseball cards, American Girl dolls or Beanie Babies. Hence, their operations are not a pioneering paradise of high-tech opportunity but rather more like an innocent AM Radio broadcast of Swap Shop.
https://t.co/XcYjyl5Gpt.

Fail not at your peril crypto-customers. Big Crypto’s big claims of "futuristic" innovation are a ruse -- and about as "futuristic" as this famed Jermaine Jackson/Pia Zadora video (which I love, in my own personal OK Boomer kind of way): https://t.co/3P71PEw30W

[John Reed Stark @JohnReedStark]

Decentralized Finance Is Fatally Flawed, Smart Contracts are Neither: Separating Hype From Fact

Blockchain and crypto’s hype often relates to so-called “smart contracts.” Smart contracts are supposedly self-executing basic programs that live on blockchains and are triggered when predefined conditions are met.

In other words, a smart contract is just a fancy name for code that runs on a blockchain, and interacts with that blockchain's state. And what is the code? It's Pascal, it's Python, it's PHP. It's Java, it's Fortran, it's C++. If we're talking databases, it's stored procedures written in an extension of SQL. https://t.co/m6fnzIHSHK

By stacking smart contracts on top of one another, smart contract promoters promise to build complex automated applications to improve the carrying out of transactions where “code is law.” What a crock.

Some Background

Blockchain believers tout smart contracts as having tremendous potential to change the way capitalism works, democratizing participation and disintermediating previously rigged and governmentally imposed financial practices.

For example, in a recent podcast, U.S. Securities and Exchange Commission (SEC) Commissioner Hester Pierce (and famed “crypto-mom) spoke glowingly regarding the wonderment of, and her admiration for, smart contracts and a system where “code is law.” Peirce stated:

“There’s a lot of interesting experimentation going on in the crypto space . . . crypto is a way to remove intermediaries . . . smart contracts allow you to set up automated payments that pay out based on satisfaction of criteria embedded in code. So there’s a lot of potential and uses there . . . such as the ability to transact with someone using code as an intermediary as opposed to an institution. [When code is law] there is much greater transparency, less cost and more privacy than existing technologies.” https://t.co/9l1nJJVwgL

This dangerous position, especially from a sitting SEC official, is troublesome to say the least.

The Truth About Smart Contracts

Code is law as a mantra is ridiculous. The problem with “smart contracts” is that they are neither “smart” nor “contracts,” and instead serve as just another vacuous, mindless, grossly misleading and inherently foolish Web3 and blockchain catchphrase – ideal for spreading more blockchain groupthink.

Smart contracts are more akin to self-executing purchase orders, which can be written by anyone to do anything, including to steal, delete, purloin and pilfer. This is precisely what the U.S. Department of Justice (DOJ) alleges a company called Forsage’s founders did in yet another notorious DeFi and blockchain deception. https://t.co/2SaC8zwCo3

By writing smart contracts that not only automatically orchestrated a horrendous fraud but also moved investor funds wherever the founders wanted, Forsage’s founders were able to effortlessly steal $340M from their investors.

The four founders of Forsage — Vladimir Okhotniko, Olena Oblamska, Mikhail Sergeev and Sergey Maslakov — are each charged with conspiracy to commit wire fraud for promoting the company on social media as a legitimate investment opportunity while actually running a high-tech DeFi criminal enterprise.

Specifically, DOJ alleges that as soon as an investor paid money into Forsage by buying a "slot" in a smart contract, the contract automatically diverted the funds to other Forsage investors, and in at least one instance, to the crypto accounts of the founders themselves -- a classic Ponzi scheme.https://t.co/2SaC8zwCo3

There exists no intelligence, trust or privity in smart contracts, just code, which is not only often flawed and rife with error and vulnerabilities but can also be easily manipulated to do whatever the coders want.

Financial Intermediaries Are Critical For The Consumer

Financial intermediaries like banks, brokerages, credit card companies, financial apps, etc. play a critical beneficial role for all consumers. They offer redress and relief when there is fraud, negligence or even a mere mistake. They allow for reversal, remedy and recourse. They are policed by sophisticated regulatory oversight and intricate consumer protections such as mandatory auditing, inspections, record-keeping, net capital requirements, licensure of individuals and much more.

On the other hand, “code” is perilous and replete with incessant bugs, inestimable fork possibilities and cybersecurity and privacy vulnerabilities galore, with infinite possibilities for deceit, double-dealing and error. Code does not allow for settling conflicts or managing mistakes. In fact, code is comprised solely of what coders want, which can too easily leave customers penniless, helpless and financially decimated – and create a list of legal liabilities, questions and problems that is miles long.
https://t.co/635qiGdaqf; https://t.co/ZMMVUnpfGQ;
https://t.co/4N6vW1SEth;
https://t.co/Oluk5DPv3s

Smart Contracts Are Actually (And Ironically) Inherently Ambiguous

The truth is that smart contracts are inherently ambiguous. The programming-language terms in smart contracts can mean something entirely different than originally intended, create opposing technical effects, and causing interpretation and construction to collapse. Per one scholar:

“Every smart contract is therefore only as resilient as its underlying blockchain. Contract law depends on social institutions, particularly those that establish and limit the different ways. But it also provides a backstop on how badly natural- language contracts can fail. In many cases, the meaning of a contract is clear to a large fraction of people in the relevant linguistic community. If a contract isn’t worth the paper it’s printed on, it is because of corruption or enforcement problems, not because of ambiguity . . . But because programming languages are formal, constructed systems, when the bottom drops out, it can really drop out. The relevant community can redefine the programming language in a way that radically alters the meaning of programs written in it. Smart contracts on a blockchain are particularly vulnerable to this. The same consensus mechanism that keeps them in a local equilibrium can lock them quickly into a new and very different equilibrium — indeed, there are often powerful incentives for users to push the blockchain into a different equilibrium. Blockchain- based smart-contract programming languages don’t have continual linguistic drift; they have occasional earthquakes.” https://t.co/BF5HJqVeNL

Of course, traditional contracts have flaws, cause problems and sometimes fail miserably. But in the legal world, there is some degree of human analysis put into contract disputes where outside parties evaluate whether an interpretation is reasonable or within the bounds of existing law. For instance, in a "code is law" world, the Ethereum Virtual Machine (EVM) is a piece of software that executes smart contracts and computes the state of the Ethereum network after each new block is added to the chain.

But the EVM doesn't take a second to consider whether the action it's about to take is reasonable or not, it just executes the instructions it's given. This means that even seemingly reasonable smart contracts can end up with wild results, such as that one time someone tried to swap $5 in stablecoins and wound up with a supposed USD-denominated stablecoin balance equivalent to more than four times the current circulating US dollar supply. https://t.co/9l1nJJVwgL

Along the same lines, the code for smart contracts is sometimes auditable because the developers post it publicly, but that's an opt-in, not the default. The default state is in "bytecode," the machine-readable form that isn't readable by humans. The bytecode in smart contracts can be reversed engineered somewhat, but that begs the question — is that what your average consumer needs to do to invest in one of these protocols safely? That seems absurd.

As opposed to smart contracts, written agreements are at least somewhat understandable. What are the chances that the contracting parties are fluent in Solidity? Society could not function if everyone had to become a cybersecurity and Solidity compilation expert to invest safely.

Transparency, Really?

Smart contract advocates are quick to boast that the transactions into smart contracts are "transparent" – but that's a misfeature. No one actually wants to leak the contents of their transactions to the world.

Imagine buying someone a pint at the pub and them having access to your entire bank transaction history. Or if you're a business that would disclose material non-public information if everything in your accounts payable and receivables was disclosed to the public. That's a dystopian world where all of our financial norms would break down.

Some smart contracts are lending products, where people have to post collateral to release a loan. The collateral in these schemes is denominated in crypto assets, though, which also renders them securities that require registration. If these are stablecoins, then it's some unlicensed investment vehicle where you stake shares in a money market fund and get a yield based on the investing activities of the fund operators, which is akin to a bank but with no protections or oversight, creating multiple levels of extraordinary risk.

Code is Law Is Wildly Ineffectual

Some argue that the risk in smart contracts is somehow analogous to the risk in relying on written contracts, which can be poorly, or even fraudulently, written. Hence, written contracts have the same level of risk as smart contracts. That is a flawed and anemic argument on so many levels.

First off, we have courts and centuries of precedent to settle disputes for legal contracts. Immutability is a misfeature; we want the courts to intervene if innocent people get involved in predatory contractual arrangements. There have been cases where smart contracts have been written and self-imploded where nobody (including the developers) can access the assets because of a software bug. "Lose your keys or make a typo or fat finger, lose all your assets" is not just dangerous, it’s ludicrous.

Professor Kelvin Lowe sums up the problems with smart contracts neatly in a recent article published in The Business Times (https://t.co/4WnqXcqHyH) and more formally in an exhaustive analysis published by the prestigious International & Comparative Law Quarterly (https://t.co/n1pK4Wsd5E):

“Context likewise clarifies the supposedly revolutionary potential of smart contracts. At its heart, smart contracts are simply clever marketing for automation. In the first place, many smart contracts are, quite simply, not legal contracts. Nor is automation new either to commerce or the law. In April 1965, the Dutch Postcheque-en Girodienst (PCGD) created the first automated clearing service in the world (thereby introducing the Dutch word giro to many languages) and the English courts dealt with the first case of automated contracting in December 1970 in Thornton v Shoe Lane Parking Ltd. What is new in smart contracts is the loss of context, generating excitement over the possibility of automating ever more complex contracts. Even first-year law students quickly become acquainted with the difficulties of drafting complex agreements in natural languages. The challenges of doing so in code – where there is no arbiter such as a court to either add lines of code that go without saying (implied terms in legal contracts), or reinterpret code that must have gone awry (interpretation of legal contracts) – are orders of magnitude higher. It is thus unsurprising to see hackers target all manner of smart contracts in the cryptoverse – DAOs, bridges, etc– whether these are legal contracts or not. Worse yet, much like the amber in Jurassic Park, blockchain immutability preserves bugs in smart contracts for all and sundry to exploit for as long as the smart contract is live.” (emphasis added)

This is why blockchain can never triumph over traditional databases and why there is no crypto–killer app. Because “code is law” is not just an exploitive groupthink catchphrase and rickety, unsound ethos, it’s also wildly ineffectual. https://t.co/ZNVbafeW8x

Looking Ahead

Smart contracts are yet another example of venture capital marketing theater to dupe people into believing that crypto, DeFi and the rest will somehow release them from the evil clutches of governmental monopolies and provide a refuge for those who believe in a more libertarian ethos. It’s all one mammoth smokescreen and a dumpster fire of fraudulent technobabble.

Imagine if banks failed but had no insurance, no systems to mitigate fallout and the fails were inside jobs. That's DeFi. Per Mike Tyson, "Everyone has a plan until they get punched in the mouth." The same goes for crypto-victims, instantaneously subjugated to unsecured creditors (see, e.g. the debacles of FTX, Voyager, Celsius, BlockFi, Genesis, Terra and so many others).

DeFi is inefficient, wasteful and uneconomical; facilitates massive energy consumption; increases network congestion and bugs; is environmentally destructive; and as so many experts have stated, is cumbersome, unwieldy, bulky, burdensome, clumsy and the list goes on. https://t.co/YQ1G8EBYRR

DeFi is an illusion. Most users pay high fees to a slew of intermediaries, including self-hosted wallets (where investors store their crypto), exchanges (where investors exchange sovereign currencies and crypto) and miners (who charge fees to validate crypto transactions).

DeFi is plagued by: high network transaction fees; failed transactions; net capital issues; blockchain vulnerabilities; privacy and cybersecurity weaknesses; software forks; and blockchain patching code challenges.

DeFi's risky leverage, liquidity mismatches, built-in interconnectedness, lack of shock-absorbing capacity and poorly understood infrastructures -- all undermine financial stability, creating systemic and bank run risk while exacerbating issues of procyclicality and destabilization.

Most importantly, DeFi is not about setting up a legal entity as a nonprofit, running the apparatus via smart contracts and funding it all with tokens. It’s not whether you rely on open-source software or can use a token within some smart contract. It's not about Pokemon cards, baseball cards or beanie babies. In the end, it’s all about trading and marketing cryptocurrency which, despite their claims to the contrary, are not laundromat tokens, monopoly money or Chuckie Cheese coins.

Promoters are marketing and the investing public is buying most of these tokens, be they operating via smart contracts or otherwise, touting or anticipating profits based on the efforts of others.

You can buy a baseball card as an investment but it is not a security because it has nothing to do with the efforts of others (except the player perhaps and the baseball card marketplace) or unless you buy it as part of some sort of investment pool, limited partnership or other kind of offering.

You are betting on not just the greater fool theory with crypto but the efforts of that crypto's promoters and originators, who are often manipulating the marketplace. That triggers the '33 Act.

What is especially unsettling is that by calling themselves “exchanges,” “brokers,” and “market-makers,” crypto trading platforms co-opt historically powerful nomenclature that implies trust, oversight and consumer protection, etc. This powerful grift can quickly evolve into dangerous and unlawful marketing theater. That triggers the '34 Act.

It’s like if a drug dealer suddenly offered to perform brain surgery for their customers, yet had never gone to college or medical school, never done a hospital internship or residency and their only health training consisted of watching a few TikTok videos on how to sell heroin to elementary school kids.

The stark reality is that by hijacking bona-fide regulatory labels, and making bogus promises of revolutionary and futuristic smart contracts, together with a sleek website, flashy Super Bowl commercials and attractive customer-interphase, entities like Coinbase and Binance create a counterfeit veneer of assurances, integrity, expertise and regulatory supervision.

Don’t be fooled. These crypto trading platforms understand full well that their actions violate U.S. laws and understand all of the implications and investor carnage that their chicanery can cause -- despite what some self-proclaimed "fintech" lawyers claim.

Players like Binance, Coinbase and other crypto-trading platforms are simply playing (and winning) a short game of regulatory arbitrage, all carried out in an effort to make as much fiat as possible before their inevitable demise or severe reduction in size.

Meanwhile, the abstruse noise created about “smart contracts” and "DeFi” remains a critical part of the ruse created by unscrupulous profiteers; a ruse designed to entice the disenfranchised who crave a more libertarian, free-wheeling and accessible financial marketplace. It’s an affinity fraud that is as old as finance itself – because it turns victims into victimizers, gratuitously growing its legions of promoters and charlatans exponentially. Fail not at your peril.

[Parrot Capital 🦜 @ParrotCapital]

#Bitcoiners have a lot to learn.

#BTC priced in $USDT = IOU
#BTC priced in $TUSD = IOU
#BTC priced in $USD = IOU

The price of all #Bitcoin is based upon the ability of the criminal CEXs like FTX, Binance, Celsius etc. (and stablecoins) to pay out.

They can't pay 1-to-1. 💸

[John Reed Stark @JohnReedStark]

BlackRock, Crypto and Animal Farm: A Chaotic Imbroglio of Ironies

What's so glaring about the cryptoverse are the multiple layers of disturbing ironies that have become so ubiquitous and apparent. Below are five of the most obvious:

Irony #1: The exact kind of people who most need protection are the ones targeted with "get-rich-quick" and "beat-the-system" promises by the very same unscrupulous financial profiteers that crypto is marketed to overthrow.

Crypto is just another horrendous exemplar of “Predatory Inclusion” and affinity fraud, orchestrated shamelessly to dupe the disadvantaged and disaffected.

Crypto fails miserably as a “revolutionary equalizer for the unbanked” because, as explained by the legendary Michelle Singletary in her Washington Post financial column, crypto does not cure historical issues of financial inclusion. https://t.co/XN5Nfn9zip

In fact, crypto actually does the opposite — and is yet another exemplar of what social justice scholars and software engineers alike refer to as “Predatory Inclusion.” https://t.co/UgQJQXBbTx and https://t.co/txXKTfmYdX

In fact, when examined closely, as was done by Tonantzin Carmona for the Brookings Institution, Crypto has also evolved into a dire affinity fraud. Why?

Because “crypto’s current capabilities do not match the needs of the groups it purports to serve, and it carries a host of risks and drawbacks that undermine its benefits. More alarming, we can observe parallels between crypto and other predatory products, which highlights crypto’s potential to exacerbate unequal financial services to historically excluded groups.
https://t.co/HpAgBmklc1

In other words, disadvantaged and disaffected communities get access under the auspices of inclusion, but that access only makes their situations worse.

Clearly, exploited victims of crypto are too often those who cannot afford to lose what they have invested, or those who have been historically marginalized – and who tragically end up in financial ruin like the victims of Celsius, BlockFi, FTX, Voyager. Terra, EARN and too many others.

Hence, that crypto can expand financial inclusion is as audacious as it is preposterous, and the crypto-marketplace has evolved into an appalling affinity fraud.

Irony #2: DeFi is typically more centralized than TradeFi — except with a lot less trust and no consumer protections.

From miners and digital wallets to exchanges and trading platforms, crypto is replete with profit taking intermediaries, except with no consumer protection or regulatory oversight and no formalized accountability structures and fiduciaries.

Consider Blackrock’s proposed Bitcoin-spot ETF. By making it easier for institutional investors to trade crypto, BlackRock is shamelessly facilitating further crypto-related global financial systemic risk and investor carnage,  just to pocket hefty fees. It’s also more evidence that the libertarian notion of decentralization is yet another Big Crypto lie.

Indeed, the libertarian notions of the cryptoverse are a complete ruse. Crypto, DeFi, NFTs and the rest of Web3 generally tout the same tired and faux libertarian notions of decentralization, except with even less safeguards, even more fraud and even more unlicensed, unregulated and suspect money-sucking intermediaries.

What problem does crypto actually solve and is crypto even remotely worth the risk of its intrinsically perilous externalities? Of course not. https://t.co/nIjZ1cuop9

Blackrock wants you to believe crypto is the future but the reality is that crypto is indeed the future – except only for Blackrock, Coinbase, Binance and other big financial firms. For the rest of us, not so much.

Irony #3: Crypto is not a financial panacea, it’s actually just helping the rich get richer.

Sam Bankman Fried was right about one thing. It’s all about 10x. 

During SBFs his now infamous interview with Andrew Ross Sorkin, SBF treated listeners to his view of Wall Street financiers such as venture capitalists, “ . . . you put yourself in the eyes of an investor, of a venture capital firm. What you’re thinking about primarily is upside. Right? What you’re thinking about primarily is investing in a private company, and thinking might this 3x, might this 5x, might this even 10x on the upside cases, and, yeah, there’s some chance that will  . . .  maybe it will go down to zero. But that’s counterbalanced by the upside . . .”

It goes without saying that there are certainly professionals among Big Crypto financiers, who genuinely buy into the idea that a 2008 relic of computer code, which solves no problem; offers no consumer protections; and has no intrinsic value (except that another fool can be induced to pay more for it), is somehow a futuristic panacea for fiscal woes and financial inclusion. Some are friends of mine — entrepreneurs seeking to make the world better place or lawyers yearning for an assigned seat at the innovation table. But these true believers are few and far between.

Due diligence regarding blockchain seems to have gone askew. Drilling down into companies, pouring over financial statements and digging into the people, products and services of a possible investment opportunity too often takes a back seat to the answer to two simple questions:

1. Can this company’s blockchain pitch generate enough buzz and hype to convince investors that it is the next big thing? and

2. Can our legion of shills manipulate the company’s blockchain buzz and hype to rapidly inflate the company’s enterprise value exponentially, so we can sell it all for a quick and gargantuan profit of 10x or more?

Sadly, these high-tech robber barons and their cohorts may as well be bankrolling heroin plants or blood diamond mines. It’s all about short term profits that can boost personal cash flow.

Of course, everyone wants to get ahead, make better lives for family and friends. That’s how capitalism works. And unless there is fraud, it is all more or less lawful.

But the bulk of Big Crypto profiteers, including so many self-proclaimed “fintech” lawyers, have evolved into nothing more than high-tech carnival barkers, the likes of which we have seen before, who greedily line their own pockets at the expense of everyday investors, leaving only economic devastation in their wake. https://t.co/hidZ6ifx87

Irony #4: The very same politicians who pander to the idea of crypto as a “private currency, free from government oversight” also support anti-money laundering laws which are anathema to the libertarian notion of financial transactions outside of government surveillance.

AML is the law of the land, and most politicians are not opposed to that framework. Yet, these same politicians tout crypto as private currency to avoid the perils of a snooping and dishonest government. You can't have it both ways.

Money laundering is the process of making illegally-gained proceeds (i.e. "dirty money") appear legal (i.e. "clean"). Typically, it involves three steps: placement, layering and integration. First, the illegitimate funds are furtively introduced into the legitimate financial system. Then, the money is moved around to create confusion, sometimes by wiring or transferring through numerous accounts. Finally, it is integrated into the financial system through additional transactions until the "dirty money" appears "clean." Money laundering can facilitate crimes such as drug dealing, child sex trafficking, terrorism and sanctions evasion and can also adversely impact the global economy.

In its mission to "safeguard the financial system from the abuses of financial crime, including terrorist financing, money laundering and other illicit activity," the Financial Crimes Enforcement Network acts as the designated administrator of the Bank Secrecy Act (BSA). The BSA was established in 1970 and has become one of the most important tools in the fight against money laundering. Since then, numerous other laws have enhanced and amended the BSA to provide law enforcement and regulatory agencies with the most effective tools to combat money laundering. An index of anti-money laundering laws since 1970 with their respective requirements and goals are listed below in chronological order. https://t.co/4juZXUVHgO

Other than the staunchest of crypto’s libertarians, few politicians actually believe that the cryptoverse should be exempt from, or receive special treatment under well-established anti-money laundering laws. Along these lines, the US Congress decided it was worth sacrificing some financial privacy to make sure there’s no future 9/11. The true believers of crypto have never understood that — their very mantra is giving people a means to shield themselves from government oversight.

So for politicians like presidential candidate RFK, Jr. or US Senator Ted Cruz to celebrate the liberties of private money like bitcoin is not just misguided and exploitive, it’s also just plain hypocritical.

Irony #5: The entirety of the crypto-paradigm has become one of Animal Farm redux, highlighting the capacity for ordinary individuals to continue to believe in a revolution that has been utterly betrayed.

In Animal Farm, George Orwell attempts to reveal how those in power — Napoleon and his fellow pigs — pervert the democratic promise of the revolution.

The same goes for crypto, where the purported power of Big Banks and Big Tech has not been supplanted but has simply shifted to a new power group that’s a lot worse — populated by the likes of SBF, CZ, Do Kwon and now Black Rock.

Given the litany of devastating ironies of the ever-expanding cryptoverse, the vision of Satoshi Nakamoto has not only become blurred, but it has also been turned entirely on its head. It's time to stop the hustle.

[John Reed Stark @JohnReedStark]

Even though Coinbase, a multi-billion-dollar financial firm advised by sophisticated legal counsel, specifically disclosed in their S-1 registration statement that their business plan may violate multiple federal and state securities laws, Coinbase nonetheless argues it was somehow unaware that its conduct could be unlawful.

Even though the SEC has no authority to conduct merit-based reviews of S-1 registration statements, Coinbase nonetheless argues that by approving Coinbase’s registration statement in 2021 the SEC somehow confirmed the legality of Coinbase’s underlying business activities – at that time and for all time.

What a crock.

That’s like getting charged with Driving Under the Influence for crashing your car while smoking weed and arguing: 1) That you didn’t know that driving high was the same as driving drunk; and 2) That the DMV should have never have given you a driver’s license because you own a cannabis business.

https://t.co/RD1z3Mhz38

[John Reed Stark @JohnReedStark]

Some thoughts on the SEC/Ripple decision.

https://t.co/A94kHlGI9N

[Nassim Nicholas Taleb @nntaleb]

These people are total frauds.
"Traditional masculinity" is not about brutalizing women, but "gentlemanliness" which is the exact opposite.