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According to a Vogue Business, the collectibles are being sold as soulbound tokens, meaning they are non-transferable once purchased.

The U.S. Securities and Exchange Commission’s lawsuit against Coinbase has raised fresh questions about the legal status of a wide angle of cryptocurrencies.

More broadly, it has also called out the overall market structure of the industry. In U.S. equity trading, exchanges operate more narrow businesses compared to their crypto market counterparts, which — in the case of Coinbase — serve as custodians, retail brokers, and over-the-counter traders as well as exchanges.

“The Coinbase Platform merges three functions that are typically separated in traditional securities markets—those of brokers, exchanges, and clearing agencies,” the SEC said in its complaint. “Yet, Coinbase has never registered with the SEC as a broker, national securities exchange, or clearing agency, thus evading the disclosure regime that Congress has established for our securities markets.”

This structural approach underpins most venues in crypto. Kraken, for instance, operates a retail brokerage in addition to its exchange, as well as an over-the-counter trading desk that allows larger trading firms to execute orders.

Gemini, founded by Cameron and Tyler Winklevoss, shares this model. It offers Gemini eOTC, a service similar to Kraken’s OTC desk. That service is integrated with its settlement service, Gemini Settlement. Kraken, like Coinbase, also operates a custodial service. 

Traditional equities exchanges, like Nasdaq and the New York Stock Exchange, don’t operate custodians, a job left to firms like BNYMellon or State Street. Nor do they operate trading desks.

The perceived benefits of the integrated crypto model are tied to the space’s operating ethos: a smaller amount of middlemen is more cost-efficient and less expensive to run. 

The drawbacks, however, can lead to conflicts of interest between different business lines. That’s also been an issue in equities; when high-frequency trading firm Virtu announced its deal to purchase ITG, a client-facing agency trading firm, it had to quell market anxieties about potential conflicts. 

CoinRoutes’ Dave Weisberger has called for separating the crypto exchange business from over-the-counter trading since he entered the space six years ago. 

On custody, Weisberger said the separation would be good because “the information in knowing the identity of wallet movements is potentially market impacting.”

“OTC separation is even more important as having the ability to trade against client orders is a clear conflict,” he told The  Block. “It also creates risk and, since funds are comingled, could impact clients if the desk loses money.”

© 2023 The Block Crypto, Inc. All Rights Reserved. This article is provided for informational purposes only. It is not offered or intended to be used as legal, tax, investment, financial, or other advice.

Crypto isn’t going anywhere — though Coinbase might — so what the market needs is a fresh start: new exchanges that can avoid the ever-present threat of SEC enforcement by being structured correctly in the first place, writes Preston Byrne.

Meanwhile, a digital asset-denominated life insurance provider, today announced $19 million in fundraising across two rounds.

The Bermuda-based business said it had closed two seed-stage rounds. The first was led by OpenAI CEO and Worldcoin founder Sam Altman, alongside former head of Stripe issuing Lachy Groom. Gradient Ventures, Google’s AI fund, led the second round.

Meanwhile claims to be the first and only life insurer to offer products entirely denominated in crypto.

The fresh funding paves the way for it to be licensed and regulated as a life insurance firm by the Bermuda Monetary Authority. It will also be used for hiring as the startup gears up to launch its first product — bitcoin-denominated whole life insurance.  

“As one of the few innovations in money in the last century, Bitcoin is on track to become a global store of value and functional currency,” said Zac Townsend, co-founder and CEO of Meanwhile, in a written statement.

“When you combine that with artificial intelligence, we see the potential to build a full-stack life insurance company with the aim to reach over a billion people globally. To start, it makes perfect sense for long-term holders of BTC to invest in life insurance denominated in that asset and to enable a percentage of their BTC holdings to become active.”

© 2023 The Block Crypto, Inc. All Rights Reserved. This article is provided for informational purposes only. It is not offered or intended to be used as legal, tax, investment, financial, or other advice.

Haun Ventures today announced that it led a $10 million seed round for San Francisco-based Argus Labs, a crypto game developer and publisher.

Concurrently, Argus launched its World Engine, a new blockchain-based software development kit designed to help other developers build and customize interoperable game worlds.

In a blog post published today, Argus Labs founder Scott Sunarto, who previously created the game Dark Forest as a teenager, said that while “online games were born from the internet, they are siloed, cut off from the vast potential of a connected universe.” He views World Engine — an “open-source, connected layer 2 of sharded blockchains that will serve as the backbone for the Internet of Games” — as a solution, according to today’s announcement.

Haun Ventures, the venture capital firm founded by former Andreessen Horowitz general partner Katie Haun, raised $1.5 billion for two crypto investment funds in early 2022 — much of which it is yet to deploy.

Other angel investors in tech and gaming — including Elad Gil, Balaji Srinivasan and Siqi Chen, Kevin Aluwi, Sunny Agarwal, Calvin Liu and Scott Moore — also participated in the round, alongside Robot Ventures, Anagram and Dispersion Capital. 

© 2023 The Block Crypto, Inc. All Rights Reserved. This article is provided for informational purposes only. It is not offered or intended to be used as legal, tax, investment, financial, or other advice.

The company says the new index dubbed Lightning Network Rate (Liner) could be like Bitcoin’s version of the London Interbank Offered Rate (Libor), a global reference rate for loans. Liner complements Magma, the Lightning liquidity marketplace launched by Amboss last year.

Argus also announced the World Engine, an SDK that helps developers build their own blockchain-based gaming ecosystems.

Even if Congress passes new legislation to create a clearer pathway for digital assets to transition from security to commodity status, don’t expect new U.S. crypto rules to be implemented overnight. 

Commodity Futures Trading Commission Chair Rostin Behnam told the House Agriculture Committee that the new rules around digital assets would take time to implement, even if Congress gives the agency more money for crypto-specific resources. 

“It would take at least one to two years to implement rules,” with additional funding, Behnam said. “I would estimate that this could take three to four years,” without additional funding to match the agency’s potential added responsibility for crypto spot markets; the CFTC currently only has authority to regulate derivatives of digital assets like bitcoin and ether. 

“There is a gap for digital tokens that are not securities,” said Behnam, repeating a message he’s delivered to Congress and anyone else who will listen over the last year: that the CFTC needs more authority to regulate digital asset spot markets. 

“It is very important that we make sure that we provide you with sufficient funding to do this very much needed job,” said Rep. David Scott, D-Ga., the top Democrat on the committee that Behnam testified before. The Agriculture Committees in the House and Senate hold jurisdiction over the CFTC, since the majority of commodities futures are crop-related. 

The CFTC has asked for an approximately 10% increase to its annual funding, from $365 million to $411.14 million, but the agency has long fought for more money with limited receptiveness from Congress. Legislation that would create a pathway for digital assets to become commodities would also give the CFTC more authority than it currently has to regulate them directly.

Crypto failures in focus

Last year’s collapses of FTX, Celsius, Voyager, and Terra-Luna hastened the urgency felt by regulators and policymakers to increase guardrails around digital assets in case the market grew to a size where it could affect the rest of the U.S. and global financial sectors.

To that end, House Agriculture Committee Chair Glenn ‘GT’ Thompson, R-Pa., and House Financial Services Committee Chair Patrick McHenry, R-N.C., introduced new legislation last week.

If passed into law, the legislation would grant more authority to the CFTC as well as direct the SEC and CFTC to create a more defined pathway for digital assets to become commodities. 

“We need the policing authority to proactively go after these individuals,” said Behnam, emphasizing that digital asset markets could grow again after a post-FTX pullback. “If it starts to peak and move into a direction of growing you could potentially have financial stability risks and other concerns for financial markets.”

© 2023 The Block Crypto, Inc. All Rights Reserved. This article is provided for informational purposes only. It is not offered or intended to be used as legal, tax, investment, financial, or other advice.

Wall Street analysts were unsurprised by the big legal action by the Securities and Exchange Commission against Coinbase that was announced Tuesday.

“The SEC’s suit against Coinbase was well telegraphed and should not have been surprising,” noted Mark Palmer, equity research analyst at Berenberg Capital Markets.

John Todero, a crypto researcher at Needham & Company, also expected the news. “After the Wells Notice and Kraken shutting down their US staking business earlier this [year], this was a high probability,” Todaro said in a message to The Block. 

Despite anticipating legal action against Coinbase, analysts were becoming increasingly bullish on the stock throughout this year. COIN has an average price target on the Street of $69.17 — an increase from $61.72 in January, according to data compiled by The Block Research. Furthermore, 37% of research analysts have a “buy” rating for the stock as of June 5. That’s up from 33% in January. 

As for what happens next for the stock, Palmer told The Block the firm’s rating for the stock, which is currently a hold, is under review. He added that upside will be tied to Coinbase’s push outside the U.S.

“We believe the lawsuit will cause investors to focus on the company’s ability to execute a pivot to overseas markets, which will not be easy,” Palmer said. 

Needham’s Todaro said that the market should be on the look out for potential delistings by COIN or “ending certain business lines.” Moves he described as “more unexpected.”

COIN has outperformed the S&P 500 since the beginning of the year, as noted by The Block Research. The exchange has picked up 65% this year compared to the benchmark index’s gain of 11%. 

© 2023 The Block Crypto, Inc. All Rights Reserved. This article is provided for informational purposes only. It is not offered or intended to be used as legal, tax, investment, financial, or other advice.

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