CWC Newsletter #51 (September 29, 2021)

By Taylor Ryker, Partner

Regulations, Securities & EOS

Welcome back, this newsletter will be a free-flow of thoughts on the current regulatory climate in the cryptocurrency space with a speculative reading on the EOS public blockchain and its EOSIO private chain iterations. Friendly disclaimer that this does not constitute financial or legal advice.

This past 2021 year has seen the increased presence of regulators in the cryptocurrency space, from specific cryptocurrencies to exchanges. With the SEC filing a lawsuit against Ripple in late 2020 by charging the executive team with the selling of unregistered securities, the on-going lawsuit is still very active. With no settlement in sight, the battle between the SEC and Ripple only magnifies the issue that the regulators are not backing down and are committed to regulating the space.

Binance, the largest exchange in the world, is pushing for crypto regulation. Ironically, the rapid success of Binance was due largely by skirting regulators around the world and profit from a largely, unregulated market. However, CZ, the CEO of Binance, is now incentivized to work with regulators because many national regulatory agencies around the world have outlawed the Binance platform in their countries, like Singapore, the United Kingdom, and others.

In this blog post below, CZ outlines his commitment, future actions, and plans to work with regulators so that Binance may re-open or still operate in jurisdictions that are scrutinizing Binance's trading platform.

You may ask yourself, why are these regulators so important in terms of public blockchains?

Because Binance may be offering their users the ability to trade cryptocurrencies that are deemed unregistered securities. And the buying/selling of unregistered securities is committing a financial crime.

So where does that lead EOS? Take a look at Blumer's response about how Block.one took the necessary steps, including a SEC settlement in 2019, that provided some guidance to how to treat EOS as not a security.

Due to the fact that Block.one did not have to register EOS as a security per the SEC settlement indicates that EOS is not a security.

The SEC settlement with Block.one penalized the ICO (initial coin offering) on Ethereum, which were designated as EOS ERC-2o tokens. Block.one in their ICO advertised the EOS ERC-20 tokens as not constituting an investment contract. Block.one only supplied the EOSIO software to create the EOS public blockchain. The community of startups booted up the EOS public blockchain without the leadership of Block.one, which reveals its decentralized foundation.

The EOS tokens on the EOS public blockchain are different from the EOS ERC-20 tokens. Therefore, there was no ICO for the EOS public blockchain. Lastly, there is no central promoter, even though disgruntled investors lament that Block.one should be that promoter, but making Block.one pump the price would constitute EOS as a security (!!).

In short, EOS is not a security because there was no ICO, there is no central issuer/promoter, decentralized in terms of creating the public blockchain and securing it, & the sale did not constitute an investment contract.

So with all the fears of regulators and regulations by federal agencies, what should we begin to expect in terms of how the US government and other national governments will respond to cryptocurrencies and blockchain technologies?

Well, one avenue that is heating up is the issue of a US digital dollar or central bank digital currencies (CBDC). And why is that important? Well, it would certainly disrupt the crypto space of decentralized finance and stablecoins, both that are currently pumping the cryptocurrency markets.

Just today, it was reported that Senator Lummis believes that a US digital dollar and non-government stablecoins could possibly co-exist together.

To counter the hype surrounding stablecoins, R. Martin Chavez, in this interview below, speaks about the growing need for the issuance of the US digital dollar but with a technology-safe approach.

R. Martin Chavez has been advocating for a US digital dollar while highlighting the risks involved with stablecoins or currency-pegged tokens. I will discuss more in-detail about Chavez's desires for a US digital dollar in future newsletters for it is too long to include in this current post. If you are interested, take a look at his media page.

So where does EOS possibly come into the equation? The next part, will be pure speculation based on some facts that I have noticed recently.

I think that a US digital dollar or CBDC would work well on a private EOSIO chain that is controlled by the Federal Governors (in a decentralized manner). R. Martin Chavez is the Senior Advisor at Block.one, the creator of the EOSIO software.

And how would this EOSIO chain be secured? Perhaps, Google Cloud could be contracted by the US government to secure the network. The same Google Cloud that joined the EOS community last year; are Block Producers on the EOS public blockchain; co-hosted an EOSIO hackathon earlier this year; created a platform to easily deploy EOSIO chains; & held a workshop on creating and deploying EOSIO blockchains.

In a now deleted Twitter post, Devin Lee speculated that Google Cloud has plans to build something on the EOS public blockchain. This tweet below was a follow-up to the deleted Tweet about its veracity. I do not know why the Tweet was deleted but perhaps it revealed too much.

Lastly, what is the connection between a non-security cryptocurrency and CBDCs? I think the most important thing is that you do not want to create a CBDC and have its settlements on a cryptocurrency that will get into future regulatory trouble because it had an unregistered ICO (or did not receive a SEC settlement like Block.one).

With EOS as not a security, perhaps Bullish, Block.one's cryptocurrency exchange, would be the regulated platform to assist the Federal Reserve in issuing US digital dollars or US CBDCs. Only time will tell.

That's it for this week, I look forward to seeing you all next week for the CWC Newsletter. Go EOS!

Disclaimer: The above comments were all unsolicited responses and were given without compensation. Taylor Ryker is neither a financial nor legal advisor and holds the digital tokens or cryptocurrencies represented in the content above. This content is for informational purposes only, you should not construe any such information or other material as legal, tax, investment, financial, or other advice. Nothing contained in this post constitutes a solicitation, recommendation, endorsement, or offer by myself to buy or sell any securities or other financial instruments in this or in any other jurisdiction in which such solicitation or offer would be unlawful under the securities laws of such jurisdiction. The opinions expressed in this publication are those of the author. They do not purport to reflect the opinions or views of any of the author’s employers.