Discussing the SEC’s lawsuit against Binance: Years of regulatory balance disrupted, optimistic about the final outcomeDiscussing the SEC's lawsuit against Binance: Regulatory balance disrupted, optimistic about outcome
The regulatory storm surrounding the SEC’s lawsuit against Binance is growing. Whether it’s FUD Zhao Changpeng’s misappropriation of customer funds or illegal money laundering, or criticism of Gensler’s official report and private revenge, it’s all “against people, not things.” The real “thing” is whether ETH and other tokens are securities. This definition is the responsibility of the Supreme Court. At present, the grievances between the SEC and Binance only reflect one fact: the “ambiguous” regulatory relationship in the cryptocurrency market for many years has become unbalanced.
What is the regulatory balance for many years? One word is “ambiguous”. It cannot over-regulate and stifle innovation and development, nor can it allow the industry to mess around and breed financial risks. Therefore, for many years, the interactive boundaries of authority, responsibility, and obligations between regulatory agencies and the crypto industry have been very vague. They are not opposition but not cooperation, and are in a subtle gray area. If they made a mistake, they would be fined and left to the market to naturally evolve and gradually penetrate the regulation.
In the history of the cryptocurrency industry, EOS, Kraken, Tezos, and others have all had precedents, and they have all ended with fines as a phased tradeoff. However, the SEC’s attitude towards Binance’s appeal is urgent and chaotic, and it is afraid that it will be difficult to settle with simple fines. But it’s not to say that the United States is afraid of black swans in 94. After all, the SEC’s lawsuit against Binance and the seven ministries’ ban on ICOs are not at the same administrative level, and the impact is naturally incomparable.
Personally, I believe that behind this storm reflects the anxiety of regulation’s “loss of control” over the cryptocurrency industry, manifested in:
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1) The regulator begins to feel that the compliance attitude of VASPs is hypocritical? At the beginning, the pace of FATF, Travel Rule, etc. was: first gradually issue licenses to centralized VASPs for supervision, and then use technical means to further supervise non-custodial decentralized DeFi protocols; this can borrow CEX’s “compliance” to counter DEX’s helplessness.
First, choke the throat of centralized liquidity of VASPs, and then try to bite the hard bone of decentralization. This kind of regulation is quite “politically wise”. In fact, many VASPs in the past few years have basically been actively catering to regulation, and Binance, which ranks first, is at the forefront: for example, Binance’s headquarters withdrew from the US market, launched a US sub-station, and established a compliance team of more than 750 people, all of which reflect Binance’s active compliance attitude.
However, Binance has ignored the “hegemonic” thinking that the United States is accustomed to in its political style. From refusing to cooperate with the SEC investigation in 2019, to the forced acquisition of CoinMarketCap, to the refusal to provide audit report information, and even the Strong Together public relations under the current regulatory momentum, it can be seen that the SEC has begun to feel that Binance’s accommodating attitude is “tough and not submissive”, which is suspected of being insincere and undermines the authority of regulatory agencies, prompting them to take action against Binance?
2) Binance’s “monopoly” position in the global liquidity of the cryptocurrency industry is becoming more prominent. Even in the traditional Web 2.0 field, a company with a monopolistic competitive advantage will be targeted, let alone in the radical Web 3.0 field. According to not necessarily accurate data, Biance accounts for 50-65% of the global trading volume of crypto, with over 100 million global users, a daily trading volume of over 70 billion U.S. dollars, and a monthly trading volume of 2-5 times that of other top exchanges.
In fact, over the past six months, various FUD coins such as LaunchBlockingd, Rat Warehouse, and IEO revenue decline have reflected the market community’s fear of this behemoth Binance. Not to mention the SEC, who is not a good guy? The SEC originally hoped that the decentralized world of DeFi could compete with CEX on an equal footing. Who would have thought that the liquidity of the crypto market would become more concentrated? And it’s still in the hands of a rebel who is completely out of their control. Can they stand it?
3) The FTX exchange’s explosion has taught regulatory agencies a lesson. I really don’t want to take out FTX and Sam and other top-class war criminals in the currency circle for “whipping”, but the breaking of the ambiguous relationship between the SEC and Binance and the market aftermath caused by the FTX explosion have a cut-off source of reasoning. The typical manifestation is that FTX’s practice of establishing a US subsidiary to accept supervision by setting up its headquarters in the Bahamas has been proven to be unworkable with bloody facts. Will the regulator still trust Binance, which has the same routine?
Because regulatory agencies have begun to realize that the investment skirts, asset leverage ratios, and business combinations in the crypto market are particularly complex. If most of the liquidity cannot be regulated, once the butterfly flaps its wings, it may be an irreversible death spiral, such as the sacrificed LUNA. Obviously, the FTX explosion has given regulatory agencies a good lesson, allowing subsidiary regulators to break the ambiguous magnetic field of accommodating regulatory behavior to protect parent companies.
As can be seen from the above, the SEC’s irrational regulatory measures are essentially anxiety about the out-of-control Crypto encryption environment. In the short term, it will cause the market to panic, but if we clarify the complex relationships and contradictions, we will naturally be confident in the long-term development of the market. Looking at it from another angle: Isn’t the anxiety about the regulatory requirements for VASPs liquidity too concentrated, a disguised self-boost for the decentralized DeFi world? Let’s deal with CZ!
As for how long this regulatory storm will last and how it will end, I am optimistic because the overall regulatory context has not changed: FATF, Travel Rule, CFTC, SEC, etc. first efficiently regulate centralized VASPs with high licenses, tacitly allowing DeFi’s decentralized world and CEX to compete with each other for several years, and ultimately may use innovative technologies such as ZK-SNARK to assist in regulatory compliance. If they really want to take action, they would have done it earlier!
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