Binance Executive Released from Nigerian Custody; FDTA Comment Letter; Update in DEF's Case Against the SEC; Federal Reserve Governor on DeFi
Binance Executive Released from Nigerian Custody
We are relieved to hear that Nigerian authorities have dropped the charges against Tigran Gambrayan after months of detainment. We look forward to him rejoining his family in the U.S. soon.
DEF and Blockchain Association File FDTA Comment Letter
What happened?
Last week, DEF and Blockchain Association (BA) filed a comment letter to nine federal agencies, including the SEC, CFTC, and FDIC, regarding their proposed rule to establish data standards for collections of information reported to the Agencies under Section 124 of the Financial Stability Act of 2010 (FSA), which was added pursuant to Section 5811 of the Financial Data Transparency Act of 2022 (FDTA). The proposed rule seeks to establish data standards to promote transparency, quality, and interoperability of financial regulatory data across federal financial agencies.
DEF and BA focused their comments on Section 124(c)(1)(A) of the FSA, which requires the joint standards to include a common nonproprietary legal entity identifier (LEI) that is available under an open license for all entities required to report to the Agencies. DEF and BA argue that the Agencies should reconsider using the LEI as the joint standard because of the costs imposed and certain features of the LEI system. While LEIs are available to legal entities responsible for financial transactions or those with the legal right to enter contracts, the system does not allow for all legal entity forms in the United States, such as sole proprietorships in many states. We also argue that it will be overly burdensome for legal entities to obtain LEIs to comply with the reporting requirements to federal agencies.
What does this mean?
While not a top issue, it was important to provide commentary to the agencies putting them on notice that the rule as proposed was not narrowly tailored and could have unintended consequences for entities across the digital asset industry.
DEF Submits Opposition to SEC’s Motion to Dismiss in Beba v. SEC
On Monday, October 21st, the DeFi Education Fund (DEF) and Beba filed our opposition to the Securities and Exchange Commission's (SEC) motion to dismiss our lawsuit, which seeks declaratory and injunctive relief under the Declaratory Judgment Act (DJA) and Administrative Procedure Act (APA).
As a reminder, Beba’s DJA claim seeks a ruling that tokens airdropped for free are not “investment contracts” and the airdrop itself is not a securities offering. Additionally, Beba and DEF's APA claim argues that the digital asset policy adopted by the SEC exceeds its statutory authority and has the effect of a final rule without going through the notice and comment required by the APA.
The SEC’s motion to dismiss argued the amended complaint should be dismissed on procedural and jurisdictional grounds, and did not substantively address the merits of the claims. The plaintiffs responded to each of the SEC’s arguments on standing, ripeness, and sovereign immunity in the opposition.
The SEC’s reply brief is due on November 11, 2024. In the meantime, amici will file their briefs in support of Beba and DEF’s opposition to the motion to dismiss. We are grateful to our friends at Coin Center, who filed their amicus brief last week, and look forward to reading briefs from other amici.
What does this mean?
We are optimistic that the SEC’s motion will be denied and the case will proceed to discovery, allowing us to gather crucial evidence regarding the SEC’s digital asset policy. We will continue to keep you updated as the case moves forward.
Federal Reserve Governor on DeFi
What happened?
On October 18th, Christopher Waller, a member of the Board of Governors of the Federal Reserve, delivered a speech at the Vienna Macroeconomics Workshop discussing the complementary role of DeFi in relation to traditional finance. After providing a history of traditional financial systems and financial intermediaries, Waller acknowledged that centralized finance “obviously also comes with some costs,” such as higher transaction costs, the need to relinquish control of one’s assets, and the stringent recordkeeping which requires deep wells of trust to properly function.
According to Waller, “While there are certain services emerging through DeFi that cannot be provided by centralized finance, the technological innovations stemming from DeFi are largely complementary to centralized finance.” Chief among these innovations are distributed ledger technology, tokenization, and smart contracts, all of which Waller sees as tools for improving efficiency in traditional financial institutions.
Waller also views stablecoins as a key DeFi innovation that has true potential to stay within the realm of DeFi while “[reducing] the need for payment intermediaries and thereby [reducing] costs of payments globally.” Waller posited that, “If appropriate guardrails can be erected to minimize run risk and mitigate other risks, such as their potential use in illicit finance, then stablecoins may have benefits in payments and by serving as a safe asset on a variety of new trading platforms.”
Ultimately, Waller believes that centralized finance will remain essential, but that traditional financial intermediaries will adapt technologies and innovations that arise from DeFi. Waller remarked, “When it comes to our financial plumbing, which affects every person or business in one way or another, I think a balanced view of expeditious disruption and long-term sustainability is merited.” If DeFi technologies continue to prove useful to traditional financial institutions, it will remain in everyone’s best interest to continue implementing these technologies when possible.
What does this mean?
Waller’s speech offers an optimistic approach to the expansion and broader implementation of DeFi technologies. Although Waller’s speech reflects only his own views and not those of the Federal Reserve, hearing tepid yet hopeful views from a member of the Board of Governors is a welcome sign. DEF applauds Waller for acknowledging the increasing influence of DeFi in the financial world and its opportunities for global financial systems.
