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Memecoins outperformed the broader crypto markets in recent days, but there may be cause for caution ahead as some warn of imminent profit-taking.

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Australia and New Zealand Banking Group Limited (ANZ) has completed the first use-case of carbon credit trading as part of Australia’s central bank digital currency (CBDC) pilot.

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While U.S. lawmakers are grappling with how, or whether, to move forward on legislation to create new rules in the country around digital assets, the Securities and Exchange Commission has filled the vacuum “regulatory gaps” identified by President Joe Biden’s administration.

Though senior U.S. regulators, including Treasury Secretary Janet Yellen, have called for new laws to govern digital assets, one of the top regulators for the industry, SEC Chair Gary Gensler, reiterated to reporters last week that he doesn’t see the need for new laws to regulate the space.

“If Congress were to act, though I don’t think we need these authorities, not to undermine inadvertently through definitions of what’s in or out, or in essence allowing for conflicts that we don’t allow,” Gensler said following testimony before a House Appropriations subcommittee.

Last fall, the Financial Stability Oversight Council, which is a super committee of U.S. financial regulators that Gensler also sits on, recommended legislation in three areas for digital assets — stablecoins, trading firms that integrate different financial activities that go beyond what a traditional financial exchange does, and direct oversight of spot market trading in bitcoin and other crypto commodities.

The lack of new laws has kept the SEC’s lane clear to proactively regulate in new areas that it hadn’t previously focused on including stablecoins and firms that combine a number of traditionally separate financial activities.  

Behind-the-scenes maneuvering, finger pointing

Stablecoins have driven much of the recent instability in the digital asset industry. The collapse of Terra last year led to multiple bankruptcies, as did the collapse of FTX’s FTT token in the fall.

A new law to create standards for stablecoins has been top of the agenda in Congress since the Terra collapse last spring, and bipartisan talks in the House of Representatives ran for months last year as now-House Financial Services Committee Chair Patrick McHenry, R-N.C., and then-House Financial Services Chair Maxine Waters, D-Calif., who remains the top Democrat on the committee, negotiated on legislation for a comprehensive framework.

Despite cooperation from those key policymakers, talks stalled over reluctance from the Treasury Department. Support from the department was seen as helpful to gain support of several fence-sitting Democrats on the House Financial Services Committee and in the Senate, as well as necessary for a bill to receive a presidential signature to become law. 

Multiple people familiar with those deliberations say the SEC drove Treasury’s reluctance through constant objections and last-minute revision requests. 

“The stablecoins legislation was coming together over the summer, and the SEC was known to oppose it,” said a former government official familiar with the matter. A major objection was that legislation should only touch “payment stablecoins,” the person said. But the SEC demanded a definition so narrow that it would not apply to existing tokens, the person argued. 

“I think the true aim was to stop any stablecoin legislation, which interestingly was at odds with the position that they took with the President’s working group report” on digital assets published last year, said the former official. “It tracked with their activities now, which is essentially claiming through enforcement action that these stablecoins are securities.”

A current industry advocate with previous government experience agreed. “The SEC was fighting every bill in Congress, period,” they said.

A third person familiar with those talks, who also asked for anonymity to speak freely, disputed the claim that the SEC actively sought to sink the bill.

The SEC provided technical assistance that “dealt a lot with definitions of issues,” the person said. “Sometimes the technical assistance is discordant,” the person added. “It’s the job of the authors to take what they want and leave with the rest.” 

SEC Empowered

Though any new legislation is unlikely to completely cut the SEC out of regulating digital assets, the lack of new laws in the areas identified as “regulatory gaps” by the U.S. government has kept an open vacuum for the SEC to fill. 

In February, the agency sent a letter to Paxos informing the crypto infrastructure company of an investigation into its joint stablecoin project with Binance, BUSD. Paxos says it has since stopped minting the token.

And last week the SEC took action against Beaxy due to the way the platform combined several traditionally separate financial activities under one company, another area where the FSOC recommended new laws to create guardrails. 

“To protect investors, there are separate registration requirements for exchanges, brokers, and clearing agencies, with each essentially acting as a check on the other,” Gurbir Grewal, Director of the SEC’s Division of Enforcement, said in a statement connected to the action. “When a crypto intermediary combines all of these functions under one roof—as we allege that Beaxy did—investors are at serious risk. The blurring of functions and the lack of registrations meant that regulations designed to protect investors were not followed or even recognized by Beaxy.”

The move highlights a longstanding criticism of the digital asset space, that ‘exchanges’ combine functions in ways that traditional stock or commodities exchanges don’t by offering investment accounts, market-making in a way that leads to trading against their own customers and providing loans. Laws and ethical considerations prevent the commingling of those activities.

But a Commodity Futures Trading Commission complaint against crypto behemoth Binance last week also showcased how exchanges may be engaged in activities that concern regulators. The company allegedly operated approximately three hundred undisclosed trading accounts on its own platform, in addition to owner Changpeng ‘CZ’ Zhao owning two investment firms that traded through the company’s platform, and two of his own personal trading accounts. That fact raises questions about possible market manipulation, as the company traded against its own customers with advantages in speed of execution and internal data.

The SEC has yet to publicly announce an investigation into Binance, though the charges levied by the CFTC last week could likely be applied in a securities law context. The commodities regulator claims that Binance knowingly violates U.S law by not enforcing its own geofencing for U.S. customers, allowing it to operate illegally in the U.S. The SEC could claim similar illegal securities-related activity if the agency agrees with the CFTC that Binance is illegally doing business in the U.S. market, in addition to other possible violations over combining various activities on the same platform.

Though the SEC does not comment on ongoing investigations, it acknowledged in court that agency staff sees Binance as an unregistered securities exchange as part of an effort to block Binance.US’ acquisition of Voyager Digital Holdings, a bankrupt digital asset firm.

© 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.

Liquid staking tokens also rise on Wednesday. Bitcoin holds steady above $28,000.

Decentraland recently wrapped its four-day virtual fashion week. It would be hard to argue it was a success.

While the metaverse platform attracted 108,000 “unique attendees” last year, the company said only 26,000 attended this year, a dramatic decline of 76% for the event that ran from March 28 through March 31. Despite top brands like Dolce & Gabbana, Tommy Hilfiger and Adidas all sponsoring shows, a Decentraland spokesperson said the most people signed in at one time barely eclipsed 1,000 people. 

Decentraland has been valued at $1 billion, and its native token, mana, once had a market capitalization of more than $6 billion. Event planners tried to look for a bright side.

“Although attendee numbers were down, we had tens of thousands of new visitors to the metaverse,” said Dr. Giovana Graziosi Casimiro, head of Metaverse Fashion Week.  “For the second ever Metaverse Fashion Week, we believe that we improved upon the experience from last year.”

Decentraland winter

The crypto winter is real and Decentraland’s struggles are not unique. Exchanges have collapsed, non-fungible token trading is a sliver of what it was during the bull run, and companies have been forced to lay off large numbers of employees. Blockchain-powered games and platforms like Decentraland, The Sandbox, Alien Worlds, and even Axie Infinity — which enjoyed a brief moment in the sun — are all failing to attract and retain mainstream consumers.

As a matter of comparison, popular gaming platforms like Roblox and Fortnite boast tens of millions of users daily. Roblox reported it had more than 58 million daily users during the last quarter of 2022. Fortnite’s daily active users surpassed 34 million last year.

Decentraland’s gameplay, design and reliability have all been criticized and may be why the platform is a disappointment for many.

“In practice it’s a bad video game made up of smaller, worse video games wrapped in real-estate scheme cosplaying as The Matrix,” said Dan Olson, an influencer who discusses a variety of issues on his YouTube channel called “Folding Ideas” that has more than 800,000 subscribers.

The platform, originally founded by Argentinian coders Esteban Ordano and Ari Meilich, officially opened to the public in early 2020.

Metaverse architect Hunter Swihart said he enjoys creating digital spaces for Decentraland but added that he has been disappointed by how many people are using the platform. “I thought because of how much people were talking about it that it would be popular,” he said.

Weekly trading volumes

Near the end of 2021, when metaverse, crypto and NFT hype was at its frothiest, one Decentraland plot of land sold to Metaverse Group for $2.43 million. Metaverse Group didn’t immediately respond to a request for comment.

Now weekly trading volumes hover around a dismal $50,000 a week, a far cry from trading volumes that consistently exceeded $1 million per week through the end of 2021 and beginning of 2022, according to The Block research.

“Everybody saw prices skyrocketing with big businesses buying land for millions of dollars, which now in retrospect was a terrible mistake,” said Swihart. He also said he would not be surprised if the platform ceases to exist in the near future. “The real platforms will come in the next 5 years,” he said.

Only between 20 and 30 people weekly are buying and selling Decentraland land NFTs — the digital certificates which act as proof of ownership —  according to The Block research analyst Brad Kay. “It’s definitely worrisome … the number of traders has been decreasing since the beginning of 2022,” he said.

Decentraland landowners

The total number of Decentraland landowners is also low, according to Kay, who said most NFT projects have a minimum of 30% unique holders (individual wallets that own the non-fungible tokens). In the case of Decentraland, of the 98,000 land NFTs in existence, only 8% are unique holders. That means about 7,800 people own all land on the platform.

This is “likely a result of big whales, insiders, or others hoarding supply,” said Kay, who pointed out it appears Decentraland still owns about 67,000 plots of land.

Decentraland’s native token, called mana, has also suffered to a large degree amid the prolonged bearish market which is casting a shadow of the entire crypto industry. After briefly surpassing $5.00 in late 2021, it now trades at about $0.60. Mana’s market cap has fallen from about $6.8 billion to about $1.1 billion.

© 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.

Sam Bankman-Fried has a few more days to use a smartphone and play video games before the government locks him in what experts are calling the legal equivalent of a “Faraday box.” 

A judge granted Bankman-Fried’s request to delay implementing his new bail terms until next week, which include strict conditions on his internet and electronic use. 

Once the new rules are in place, Bankman-Fried will have to hand over his smartphone to his lawyers in exchange for a new phone that can’t access the internet. He’ll trade in his laptop for a new, heavily monitored model that’s been customized to only allow access to certain websites. Approved sites include his lawyers’ website, Uber Eats and Spotify. 

An avid gamer before his arrest, Bankman-Fried will also be banned from using video games that permit chat or voice communication.

“He’s under an electronic microscope at full magnification,” said Anthony Sabino, a law professor at St. John’s University. “That is in essence the government constructing a Faraday box around SBF to cut off all electronic means of communication.”

A “Faraday cage” is an enclosure that doesn’t allow the entry or exit of electromagnetic fields. The bail conditions are a significant shift for the disgraced crypto boss, who was extremely active online before — and even after — his crypto exchange collapsed. 

Bankman-Fried’s lawyers asked a judge to delay the new rules until Tuesday because they are waiting for his new devices to arrive. A Bankman-Fried spokesperson did not comment on whether the former billionaire is still using the wider internet, a smartphone or video games in the days before his new bail conditions are put in place. 

‘The leash is very short’

Although Bankmkan-Fried’s new bail restrictions are still pending, experts doubt he is taking much advantage of the delay. Bankman-Fried’s soon-to-be-implemented bail terms are certainly stricter, but the government has already been tracking his every move. 

“The leash is very short. Any further breaches of bail conditions likely will land Bankman-Fried in jail pending trial,” said Jacob Frenkel, an attorney at the law firm Dickinson Wright.

Bankman-Fried pleaded not guilty to a litany of criminal charges in the U.S. District Court for the Southern District of New York, including bank fraud. He’s awaiting an October trial. The former crypto mogul has been under house arrest at his parents’ California home on a $250 million bond since December.

Prosecutors sought tighter bail conditions after Bankman-Fried contacted a potential witness in his criminal case using an encrypted messaging app, and used a virtual private network to access the internet. A federal judge approved stricter bail terms in a 10-page court order last month. 

Charlie Shrem, who was sentenced to two years in prison for his involvement in the black-market trading of bitcoin, called being under house arrest “devastating.” Shrem pleaded guilty to transmitting nearly $1 million in bitcoins intended to facilitate drug trafficking on the “Silk Road” black market in 2014, and serve a year in prison.

“House arrest is devastating, it’s almost worse than prison. Like Sam, I had an ankle bracelet and was confined to my parents’ house. When you are that young and facing decades behind bars, you stop caring about things,” said Shrem, who is now a general partner at the venture fund Druid Ventures.

Mom and dad, too

As part of the new rules, Bankman-Fried’s parents, Joseph Bankman and Barbara Fried, will also be subject to strict device monitoring. Their electronic devices must be password protected and outfitted with monitoring software that will photograph the device’s user every five minutes, according to the bail order. 

Bankman-Fried will also be required to notify his lawyers before anyone visits him. His home security system must preserve video footage of everyone who enters the residence. Plus, a security guard will screen visitors with a metal detector and take any electronic devices for the duration of the visit. Sabino compared the new protocol to getting on an airplane. 

“You might as well farm this out to TSA,” Sabino said. “They’re on red alert in terms of watching everything this guy is doing.”

© 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.