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The Securities and Exchange Commission (SEC) wants our defi smart contracts, flashloans, and the kids in Thailand who are forking dapps through token migration, to register with the agency.
But the SEC has failed to approve even traditional crypto companies to go public, let alone the cutting-edge tech startups it wants to oversee.
The WSJ reports the SEC has blocked Bullish Global, Circle Internet Financial, eToro Group, and Galaxy Digital from going public.
They point out that Coinbase only received three letters from the SEC with questions prior to its Initial Public Offering (IPO) in April 2021.
By contrast Bullish Global, a crypto exchange that handled nearly $1 billion in trading volume in the last 24 hours, received ten letters.
They announced their intention to go public through a special purpose acquisition company (“SPAC”) in July 2021, but the SEC still has not deemed their corporate disclosures “effective,” which would have allowed them to IPO.
Circle, which manages the USDc stablecoin with $43 billion in assets under management, saw their SPAC deal fail because the SEC did not approve it within the time period required by the SPAC, which had a December 2022 deadline.
Circle had to address more than 100 inquiries by the SEC, and they were nearly ready, but another 16 followed in November, resulting in the deal being dropped last month.
Unfortunately, the process took longer than we expected, said Circle CEO Jeremy Allaire at the time.
Mike Novogratz, CEO of asset management Galaxy Digital, was more direct last year when he stated that it was “frustrating to have taken this long.”
Galaxy has had to answer 90 questions since filing for an IPO in October 2021 and is already trading in Canada, but still has no approval in the US.
“Anyone taking crypto deals to the SEC should be aware there will be a lot of friction,” said Scott Kimpel, partner at law firm Hunton Andrews Kurth LLP.
The SEC however is intended to only check whether a published prospectus complies with requirements, making no judgment as to whether it is a bull or bear market and therefore whether it should be three letters or ten letters.
They may not have intended to stop these IPOs and may have eventually agreed, but the repeated rounds of questions have caused some of these IPOs to fail.
This kind of delay applied to the defi space will bring there stagnation of innovation, the same defi space that continues to provide the same services as FTX or Genesis, but without going bankrupt and without stealing anyone’s funds.
Such innovations benefit the public and fundamentally. Making SEC judges, juries and executors, when they can’t even handle their own trading company, will probably leave the public with just the FTX kind.
FTX claims and it is true that they are the most regulated crypto exchange. But those regulations did not prevent the abuse of trust that led to their bankruptcy.
Innovations such as smart contracts and defi have prevented such breaches because they have turned guards into code.
That makes them fundamentally different, and hence many debate whether the SEC has jurisdiction at all because smart contracts are not entities as they have been traditionally defined.
The SEC should therefore focus on doing its true job, namely regulating the stock market, preferably without years of delay to bring innovation to light, rather than thirsting for what it cannot have: governing our code.
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