On Sept. 8, Coinbase announced it was bankrolling a lawsuit against the United States Treasury Department. The cryptocurrency exchange is funding a lawsuit brought by six people that challenges the sanctions on Tornado Cash. And on Sept. 9, Securities and Exchange Commission (SEC) Chair Gary Gensler announced he was working hard with Congress to create legislation to increase cryptocurrency regulations.
But these two stories are not mutually exclusive. The sequence of events proves that governments are purely reactive rather than proactive when it comes to decentralized finance (DeFi).
Tornado Cash was sanctioned by the Office of Foreign Assets Control (OFAC) back in August. OFAC claimed the smart contract mixer has helped to launder more than $7 billion worth of cryptocurrency since its creation in 2019, including over $455 million stolen by the North Korean-linked hackers Lazarus Group.
Coinbase CEO Brian Armstrong said in a statement that Treasury went too far, taking “the unprecedented step of sanctioning an entire technology instead of specific individuals.” In addition to claiming the sanctions exceeded the department’s authority, Coinbase argued the measures:
- Remove privacy and security for crypto users;
- Harm innocent people; and
- Stifle innovation.
The next day, Gensler doubled down on his push for tougher regulation of the DeFi market, claiming crypto companies wouldn’t prosper without it. “Nothing about the crypto markets is incompatible with the securities laws. Investor protection is just as relevant, regardless of underlying technologies.”
Related: US Treasury clarifies publishing Tornado Cash’s code does not violate sanctions
Not only does his choice of words such as “regardless of underlying technologies” betray his lack of understanding of crypto and blockchain technology, but his speech prompted an outcry from the Web3 community, with many claiming government regulation is a wolf in sheep’s clothing.
Jake Chervinksy, a lawyer and head of policy at the Blockchain Association, tweeted in response, “Crypto is a novel & unique technology: how it should be regulated is a major question for Congress (not the SEC Chair) to decide.”
Chair Gensler says most digital assets are securities. Decades of legal precedent say otherwise.
Regardless, crypto is a novel & unique technology: how it should be regulated is a major question for Congress (not the SEC Chair) to decide.
My take in WSJ:https://t.co/E7kql6Vohb
— Jake Chervinsky…
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