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DeFi Thirsty SEC Blocks TradFi Crypto IPOs


The Securities and Exchanges Commission (SEC) wants our defi smart contracts, flashloans, and kids in Thailand forking dapps through token migration, to sign up with the agency.

But SEC has failed to approve even traditional crypto companies to go public, let alone these bleeding edge tech startups that it wants to oversee.

WSJ reports SEC has blocked Bullish Global, Circle Internet Financial, eToro Group and Galaxy Digital from going public.

They point out that Coinbase received only three letters from SEC with questions prior to its Initial Public Offer (IPO) in April 2021.

In contrast Bullish Global, a crypto exchange that handled close to $1 billion in trading volumes in the past 24 hours, received ten letters.

They announced their intent to go public through a special purpose acquisition company (“SPAC”) in July 2021, but SEC has still not deemed their company disclosures “effective,” allowing them to IPO.

Circle, which manages the USDc stablecoin with $43 billion in assets under management, saw their SPAC deal fall through because SEC did not approve within the time period required by the SPAC, which had a time limit of December 2022.

Circle had to deal with more than 100 questions by SEC, and they were almost ready, but another 16 questions followed in November, so the deal was called off last month.

“Unfortunately it was a longer process than we had hoped,” Circle’s CEO Jeremy Allaire said at the time.

Mike Novogratz, the CEO of Galaxy Digital asset management, was more direct last year when stating that it has “been frustrating that it’s taken as long as it has.”

Galaxy had to answer 90 questions since filing for an IPO in October 2021 with it already trading in Canada, but still has not received approval in US.

“Anyone bringing a crypto deal to the SEC should realize there is going to be a lot of friction,” said Scott Kimpel, a partner at law firm Hunton Andrews Kurth LLP.

SEC however is meant to only check whether a prospectus is published in line with requirements, not pass judgment on whether it is a bull or a bear market and therefore whether it should be three letters or ten letters.

They probably don’t intend to stop these IPOs however and may eventually approve, but the repeated round of questioning has led to some of these IPOs falling through.

This sort of delay applied to the defi space would bring the neck-breaking innovation there come to a standstill, 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.

That sort of innovation benefits the public and fundamentally. Making SEC judge, jury and executioner of it, when they can’t even handle their own tradefi companies, may well leave the public with only the FTX sorts.

FTX claimed and rightly so that they were the most regulated crypto exchange. Such regulation however did not prevent the abuse of trust that led to their bankruptcy.

Innovations like smart contracts and defi have prevented such abuses because they have turned the custodian into the code.

That makes them fundamentally different, and therefore many dispute whether SEC has jurisdiction at all because a smart contract is not an entity as traditionally defined.

SEC therefore should focus on doing its actual job, which is regulating the stock market, preferably without years of delays to bring innovation to it, rather than thirsting over what it can’t have: regulating our code.


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