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Binance, the world’s largest crypto exchange by volume, its CEO Changpeng Zhao and Chief Compliance Officer Samuel Lim are being sued by the U.S. Commodity Futures and Trading Commission (CFTC), according to a filing on Monday.
The company, Zhao and Lim are being sued for allegedly breaking trading and derivatives rules.
The CFTC filing alleges the exchange never registered with it in any capacity and has “disregarded federal laws” for U.S. financial markets, including laws that implement controls to prevent and detect money laundering and terrorism financing, among other elements.
After launching in June 2017, the exchange became the largest crypto exchange globally within 180 days and has held that ranking since. Binance has spent $80 million on external partners like KYC vendors, transaction monitoring, market surveillance and investigative tools to support its compliance programs, a spokesperson for the company shared with TechCrunch.
“This filing is unexpected and disappointing as we have been working collaboratively with the CFTC for more than two years,” the spokesperson added. “Nevertheless, we intend to continue to collaborate with regulators in the U.S. and around the world. The best path forward is to protect our users and to collaborate with regulators to develop a clear, thoughtful regulatory regime.”
The CFTC probably doesn’t agree with that stance, as its filing stated Zhao and other involved parties in Binance’s senior management have “failed to properly supervise Binance’s activities” and those actions have “actively facilitated violations of U.S. law.”
In response to the CFTC announcement, Zhao tweeted “4,” which refers to a previous tweet of his from January that uses the number to tell others to “ignore FUD, fake news, attacks, etc.” FUD is an acronym for fear, uncertainty and doubt and usually references when a company feels they’re being put at a disadvantage.
This action comes at a time when the crypto industry — especially big players — is facing a lot of U.S. regulatory action, which some view as a good thing for clarity purposes, but others see as unfair or stifling for innovation. Whether this action will have a positive impact on the U.S. crypto ecosystem will be determined in the long run.
But even after a number of regulatory enforcements, the cryptocurrency market seems unaffected. The total crypto market cap slightly increased from $1.15 trillion to $1.18 trillion on the week, according to CoinMarketCap data. At the time of writing, bitcoin and ether were up about 4% and 3%, respectively, within the same time frame.
This week in web3
Keeping with the theme from above, TechCrunch dove into what the Binance lawsuit from the CFTC means for the greater crypto industry — and the impact could be far-reaching. “Crypto is under attack,” Yankun Guo, partner at Chicago-based law firm Ice Miller, told TechCrunch+. “The past six months has seen a wave of complaints and enforcement actions against blue-chip names including Coinbase, Kraken and KuCoin, and it was only a matter of time until Binance had their turn.” The ultimate impact on Binance could send shockwaves through the global digital asset market, another market player noted.
Another crypto exchange’s (former) exec also was in the news this week, but for different reasons. U.S. prosecutors filed a superseding indictment against former FTX CEO Sam Bankman-Fried alleging he bribed Chinese officials. According to court filings from the U.S. District Court for the Southern District of New York, “in or about 2021,” Bankman-Fried “authorized and directed a bribe of at least $40 million to one or more Chinese government officials.”
It’s a confusing time to be a crypto company. The markets are volatile and trading activity is shaky right now, but the biggest problem for crypto firms seems to be that there’s no clarity at the moment around the laws they’re supposed to be in alignment with. In CFTC’s latest lawsuit against Binance it alleged that some cryptocurrencies were commodities — a viewpoint that diverges from another major U.S. government agency, the Securities and Exchange Commission (SEC), which views most crypto assets (aside from Bitcoin) as securities.
Do Kwon, the founder of Terraform Labs, which operated the TerraUSD stablecoin and its sister token LUNA, was arrested in Montenegro last week while trying to board a flight to flee to Dubai with falsified documents. What’s next? We don’t know which country Kwon will be sent to, as he now faces criminal charges in the U.S. as well as his native country, South Korea. And both countries appear to be seeking Kwon’s extradition.
Coinbase was issued a Wells notice from the U.S. Securities and Exchange Commission last week, and executives from the company took to Twitter Spaces to discuss the decision and what Coinbase’s next steps will be to make legal frameworks for the crypto world. “Regulators should come up with the rules, tell everybody the rules and we follow them,” CEO Brian Armstrong said during the conversation. “The current laws are not clear and we would like to get more clarity.”
The latest pod
For last week’s episode, Jacquelyn interviewed Emin Gün Sirer, founder and CEO of Ava Labs.
Ava Labs has raised a total of about $640 million, according to Crunchbase, and is backed by firms like a16z and Polychain Capital. In recent months, Ava Labs has announced a number of partnerships with major brands and companies, like Amazon Web Services, which TechCrunch covered exclusively.
Ava Labs created the layer-1 blockchain Avalanche, a platform that lets developers build multifunctional blockchains and decentralized applications with a focus on speed and low transaction costs.
We talked about Gün Sirer’s background; why he launched the layer-1 blockchain, Avalanche, in 2020; whether the space has too many L1s; and how blockchains can scale more efficiently.
We also discussed:
- How the layer-2 vision is broken
- U.S. regulatory crackdown on crypto
- Ava Labs’ growth in Asian markets
- The blockchain’s partnerships and business development
- Ava Labs’ focal point for 2023 and beyond
Follow the money
- Crypto wallet company Ledger raises another $108 million
- Web3 protocol Polytrade raises $3.8 million to improve global trade
- Blockchain startup Fetch.ai grabs $40 million to provide monetization and other tooling for AI-generated information
- Aptos-based protocol Econia Labs raises $6.5 million to build decentralized order books
- Eigen Labs closes $50 million Series A round led by Blockchain Capital
This list was compiled with information from Messari as well as TechCrunch’s own reporting.