Paradigm

SEC’s ‘brute force’ crypto regulation attempt is ‘bad policy’ — Paradigm

The venture capital firm pointed out the fundamental differences between crypto assets and securities.

Criticisms of the United States Securities and Exchange Commission are mounting as the agency remains unrelenting in its war on crypto.

On April 21, Web3 venture capital firm Paradigm published a policy piece on the problems with SEC registration.

It claimed that SEC Chair Gary Gensler’s “attempt to brute force crypto assets that may not even constitute ‘securities’ into an ill-fitting disclosure framework is bad policy.”

The firm, which invests hundreds of millions into crypto and Web3 startups, said thythe SEC fails to provide crypto asset users and investors with the information they need.

It also denied the SEC’s claims it offers crypto entrepreneurs a viable path to compliance.

Paradigm points out the current disclosure policy was developed in the 1930s, long before the internet. It claims current policies are “tailor-made for centralized companies issuing securities” and that crypto markets are fundamentally different.

The firm noted that securities provide the holder legal rights against a centralized entity, however, there are no “legal rights” with most cryptocurrencies but “technological abilities in a protocol.”

Additionally, crypto assets can be completely independent of their issuer and maintain full functionality without their input.

Crypto assets can also be traded peer-to-peer and on a fundamentally different technology stack, unlike traditional securities and stocks, which trade on an “archaic system full of intermediaries.”

The venture firm concluded that the financial regulator needs to modify its current disclosure regime to incorporate new technologies and asset classes.

“Unsurprisingly, without major changes to the SEC’s current disclosure regime, the SEC is unable to effectively regulate crypto asset markets.”

Paradigm is not the only crypto industry representative that has been critical of the SEC and its policies.

Related: Gary Gensler’s SEC is playing a game, but not the one you think

Congressman Warren Davidson has also been vocal about the agency and its chief “cop on the beat.”

On April 16, the pro-crypto politician introduced legislation “to correct a long series of abuses” aiming at replacing Gensler with an executive director that reports to the board.

In an April 18 hearing on oversight of the SEC, Gensler was grilled by the chair of the House Financial Services Committee, Patrick McHenry. “Clearly, an asset cannot be both a commodity and a security,” said McHenry as Gensler refused to say what he considers the classification of Ether (ETH).

Magazine: Crypto regulation: Does SEC Chair Gary Gensler have the final say?

Silicon Valley Bank’s UK branch shut down by Bank of England

Several U.K. venture capital firms have shown support for SVB UK stating it is a “trusted” partner and plays a “pivotal” role in supporting startups.

The Bank of England (BoE) has halted the operations of Silicon Valley Bank’s U.K. branch (SVB UK), stating that it has a “limited presence” in the United Kingdom (UK) and no “critical functions” supporting the financial system.

BoE issued a statement on Mar. 10, declaring that SVB UK will “stop making payments or accepting deposits,” as BoE intends to apply to the court to place SVB UK into a “Bank Insolvency Procedure.”

This follows news on the same day that the California Department of Financial Protection and Innovation ordered the closure of Silicon Valley Bank (SVB) in the United States.

BoE explained that a bank insolvency procedure would mean that “eligible depositors” are paid out by the Financial Services Compensation Scheme (FSCS) up to the “protected limit” of £85,000 (approximately $102,288 USD) or up to £170,000 (approximately $204,577 USD) for joint accounts, as “quickly” as possible.

It added that the bank liquidators would be responsible for managing the remaining SVB UK assets and liabilities during its insolvency proceedings, with any recoveries “distributed” to its creditors.

Several U.K. venture capitalists (VCs), including Index Ventures and Atomico, issued a joint statement on Mar. 12 endorsing SVB UK. The statement expressed support for SVB UK stating that it is a “trusted” and “valued partner” that plays a “pivotal” role in supporting startups in the U.K.

Related: Banks down? That is why Bitcoin was created, crypto community says

The Coalition for a Digital Economy, a U.K. non-profit that campaigns for policies to support digital startups, stated on Mar. 11 that there are a “large number” of startups and investors in the ecosystem who have “significant exposure” to SVB UK, adding that they will be “very concerned.”

Meanwhile, a Mar. 11 Castle Hill report revealed that prominent blockchain VCs have over $6 billion worth of assets held by the now-defunct financial entity.

These include $2.85 billion from Andreessen Horowitz (a16z), $1.72 billion from Paradigm, and $560 million from Pantera Capital.

Silicon Valley Bank’s UK branch shut down by Bank of England

Several U.K. venture capital firms have supported SVB UK, stating it is a “trusted” partner and plays a “pivotal” role in supporting startups.

The Bank of England (BoE) has halted the operations of Silicon Valley Bank’s United Kingdom branch (SVB U.K.), stating that it has a “limited presence” in the U.K. and no “critical functions” supporting the financial system.

BoE stated on March 10, declaring that SVB U.K. will “stop making payments or accepting deposits,” as BoE intends to apply to the court to place SVB U.K. into a “Bank Insolvency Procedure.”

This follows the closure of SVB by the California Department of Financial Protection and Innovation.

The BoE explained that a bank insolvency procedure would mean that “eligible depositors” are paid out by the Financial Services Compensation Scheme up to the “protected limit” of £85,000 (approximately $102,288) or up to £170,000 (approximately $204,577) for joint accounts, as “quickly” as possible.

It added that the bank liquidators would manage the remaining SVB U.K. assets and liabilities during its insolvency proceedings, with any recoveries “distributed” to its creditors.

Several U.K. venture capitalists (VCs), including Index Ventures and Atomico, issued a joint statement on March 12 endorsing SVB U.K. The statement expressed support for SVB U.K., stating that it is a “trusted” and “valued partner” that plays a “pivotal” role in supporting startups in the U.K.

Related: Banks down? That is why Bitcoin was created, crypto community says

The Coalition for a Digital Economy, a U.K. nonprofit that campaigns for policies to support digital startups, stated on March 11 that there are a “large number” of startups and investors in the ecosystem who have “significant exposure” to SVB U.K., adding that they will be “very concerned.”

Meanwhile, a March 11 Castle Hill report revealed that prominent blockchain VCs have over $6 billion in assets at the now-defunct bank.

These include $2.85 billion from Andreessen Horowitz, $1.72 billion from Paradigm and $560 million from Pantera Capital.

Sequoia Capital, Paradigm among VCs facing ‘tricky’ FTX investor lawsuit

It’s a “tricky case,” as it is unknown what obligation these firms had to “completely separate investors,” suggests a crypto lawyer.

Users of bankrupt crypto exchange FTX have reportedly taken aim at financiers who promoted the platform, suggesting their efforts added an “air of legitimacy” to the now-defunct exchange in a case labeled as “tricky” by a crypto lawyer.

A Feb. 15 Bloomberg report revealed a class-action suit filed Feb. 14 by FTX investors against venture capital firm Sequoia Capital and private equity firms Thoma Bravo and Paradigm.

The investors accused the firms of touting “their own investments” of hundreds of millions of dollars in FTX.

It was alleged the firms were involved in a promotional marketing campaign in 2021, which the investors alleged added an “air of legitimacy” to the disgraced crypto exchange.

The three firms were all investors in FTX’s $900 million Series B round in July 2021, the largest raise in crypto history, in which various partners of the firms spoke highly of former FTX CEO Sam Bankman-Fried.

In a statement following the funding announcement in July 2021, Paradigm’s co-founder Matt Huang called Bankman-Fried a “special” founder who is “stunningly ambitious.”

Speaking to Cointelegraph, crypto lawyer Liam Hennessy, partner at Australian law firm Gadens, stated that it is a “tricky case,” and he questions “what obligation Sequoia and others” have to “completely separate investors.”

He added that despite the fact Sequoia’s due diligence wasn’t great, it doesn’t make it “liable to others.”

Hennessy believed it could be a case of “buyer beware,” as there is no suggestion that Sequoia wasn’t “playing within the regulatory rules.”

Cointelegraph contacted Sequoia Capital, Thoma Bravo and Paradigm for comment but did not receive an immediate response.

Related: Charity tied to former FTX exec made $150M from insider deal on FTT tokens: Report

A separate Feb. 15 Bloomberg report revealed that in the same court filing, Sam Bankman-Fried and his father, along with former FTX and Alameda Research executives Caroline Ellison, Nishad Singh and Gary Wang, were all issued with a subpoena — an order for a person to attend court — to provide further evidence.

It was stated that Joseph Bankman, Ellison, Wang and Singh are due to attend court on Feb. 16, while Sam Bankman-Fried is expected to attend on Feb. 17.

Getting rid of crypto staking would be a ‘terrible path’ for the US — Coinbase CEO

Banning retail crypto staking in the United States would result in even more businesses moving offshore, argues Coinbase co-founder Brian Armstrong.

The CEO and co-founder of cryptocurrency exchange Coinbase, Brian Armstrong, believes that banning retail crypto staking in the United States would be a “terrible” move by the country’s regulators. 

Armstrong made the comments in a Feb. 9 Twitter thread which has already been viewed over 2.2 million times, after noting they’ve heard “rumors” that the U.S. Securities and Exchange Commission “would like to get rid of crypto staking” for retail customers.

“I hope that’s not the case as I believe it would be a terrible path for the U.S. if that was allowed to happen.”

Armstrong did not share where the rumors originated but noted that staking was “a really important innovation in crypto.”

“Staking brings many positive improvements to the space, including scalability, increased security, and reduced carbon footprints,” he added.

Armstrong also referenced an Oct. 5 blog post from crypto investment firm Paradigm, which argued that Ethereum’s transition to proof-of-stake and its subsequent “staking” model does not make it a security.

The Paradigm post came just a few weeks after SEC Chairman Gary Gensler suggested that proof-of-stake (PoS) cryptocurrencies could trigger securities laws. He made the remarks Sept. 15, while speaking to reporters after a Senate Banking Committee meeting.

Armstrong also lambasted the current lack of regulatory clarity in the U.S. and subsequent “regulation by enforcement” that he says is driving companies offshore, such as crypto exchange FTX.

He has reiterated calls for regulation that provides clear rules for the industry while preserving innovation.

Related: Crypto exchange Kraken faces probe over possible securities violations: Report

According to Staking Rewards, the top four staked cryptocurrencies by market cap account for over $55 billion in staked assets, suggesting a country-wide ban would be a huge hit to the country’s crypto industry, which has already seen an exodus of crypto-related businesses.

Top crypto assets by staking market cap. Source: Staking Rewards

Some industry commentators have suggested that the SEC might go after centralized parties that offer staking services rather than the technology itself, arguing that the agency attacking the latter would be a losing battle that would “crush them in precedent.”

The general counsel for Delphi Digital’s research and development arm, Gabriel Shapiro, suggested there is a strong argument that staking services provided by centralized exchanges like Coinbase constitute a security, drawing parallels between them and other “Earn” products.

Coinbase is currently subject to an ongoing SEC probe, which Coinbase revealed in an Aug. 9 SEC filing was in relation to its staking rewards among other offerings.

Paradigm co-founder feels ‘deep regret’ investing in SBF and FTX

Some challenged whether the multi-billion dollar venture capital firm did enough due diligence on FTX prior to investment.

The co-founder of asset management firm Paradigm says they feel “deep regret” for having invested in FTX amid recent revelations involving FTX, Alameda Research, and Sam Bankman-Fried. 

In a Twitter post on Nov. 15, Matt Huang, co-founder and managing partner of Paradigm said the firm is “shocked” by the revelations surrounding the two companies and their founder, adding:

“We feel deep regret for having invested in a founder and company who ultimately did not align with crypto’s values and who have done enormous damage to the ecosystem.”

Matt Huang, Managing Partner and Co-Founder of Paradigm Source: Paradigm

Paradigm is a crypto and Web3-focused venture capital firm based in San Francisco. In April reports suggested the firm’s assets under management totaled approximately $13.2 billion. 

In Nov. 2021, the firm announced a $2.5 billion New Venture Fund, which dethroned Andreesen Horowitz’s (a16z) as the largest venture fund in crypto.

The firm’s website currently lists FTX and FTX.US in its portfolio. Reports suggest its investment in the exchange is around the $278 million mark.

Huang said that Paradigm’s equity investment in FTX only constituted “a small part of our total assets,” adding that it has now written its FTX investment down to $0.

He also assured that the firm has never traded on FTX or has ever invested in tokens linked to the exchange, including FTX Token (FTT), Serum token (SRM), Maps.ME Token (MAPS), or the Oxygen Protocol token (OXY).

“We never traded on FTX and did not have any assets on the exchange. We have never been investors in related tokens such as FTT, SRM, MAPS, or OXY.”

Related: FTX bankruptcy freezes millions worth of crypto company funds

Since posting the tweet, a number of Twitter users challenged whether the firm did enough due diligence prior to investing in FTX.

Speaking to Cointelegraph, CK Zheng, co-founder of digital assets hedge fund ZX Squared Capital reflected that in hindsight, many venture capital firms may not have done the proper due diligence on FTX and its executive team, commenting:

“They don’t have a very good governance process, don’t have a board. It’s basically a one-man show.”

“I’m sure when a young company starts to build the company with sophisticated technology […] I can see how things can go bad quickly if they don’t have a good understanding of the technology married with finance.”

“Obviously, they’re smart in one aspect, but they’re running a $32 billion company is very different than, you know, when you manage a small company,” he added.

Investors to have recently marked down their FTX investments include Sequoia Capital, which wrote off its roughly $210 million investment on Nov. 10, Ontario Teachers’ Pension Plan, which invested $95 million in the crypto exchange, and SoftBank Group Corp., which is expected to write down a nearly $100 million investment.

Paradigm co-founder feels ‘deep regret’ investing in SBF and FTX

Some challenged whether the multi-billion dollar venture capital firm did enough due diligence on FTX prior to investment.

The co-founder of asset management firm Paradigm says they feel “deep regret” for having invested in FTX amid recent revelations involving FTX, Alameda Research and Sam Bankman-Fried. 

In a Twitter post on Nov. 15, Matt Huang, co-founder and managing partner of Paradigm, said the firm is “shocked” by the revelations surrounding the two companies and their founder, adding:

“We feel deep regret for having invested in a founder and company who ultimately did not align with crypto’s values and who have done enormous damage to the ecosystem.”

Matt Huang, Managing Partner and Co-Founder, Paradigm. Source: Paradigm

Paradigm is a crypto and Web3-focused venture capital firm based in San Francisco. In April reports suggested the firm’s assets under management totaled approximately $13.2 billion. 

In Nov. 2021, the firm announced a $2.5 billion New Venture Fund, which dethroned Andreesen Horowitz’s (a16z) as the largest venture fund in crypto.

The firm’s website currently lists FTX and FTX.US in its portfolio. Reports suggest its investment in the exchange is around the $278 million mark.

Huang said that Paradigm’s equity investment in FTX only constituted “a small part of our total assets,” adding that it has now written its FTX investment down to $0.

He also assured that the firm has never traded on FTX or has ever invested in tokens linked to the exchange, including FTX Token (FTT), Serum token (SRM), Maps.ME Token (MAPS) or the Oxygen Protocol token (OXY).

“We never traded on FTX and did not have any assets on the exchange. We have never been investors in related tokens such as FTT, SRM, MAPS, or OXY.”

Related: FTX bankruptcy freezes millions worth of crypto company funds

Since posting the tweet, a number of Twitter users challenged whether the firm did enough due diligence prior to investing in FTX.

Speaking to Cointelegraph, CK Zheng, co-founder of digital assets hedge fund ZX Squared Capital, reflected that in hindsight, many venture capital firms may not have done the proper due diligence on FTX and its executive team, commenting:

“They don’t have a very good governance process, don’t have a board. It’s basically a one-man show.”

“I’m sure when a young company starts to build the company with sophisticated technology […] I can see how things can go bad quickly if they don’t have a good understanding of the technology married with finance.”

“Obviously, they’re smart in one aspect, but they’re running a $32 billion company is very different than, you know, when you manage a small company,” he added.

Investors to have recently marked down their FTX investments include Sequoia Capital, which wrote off its roughly $210 million investment on Nov. 10, Ontario Teachers’ Pension Plan, which invested $95 million in the crypto exchange, and SoftBank Group Corp., which is expected to write down a nearly $100 million investment.

FTX partners with Paradigm for ‘one-click’ futures spread trading

The global exchange will provide “guaranteed atomic execution and clearing of both legs” for the futures trades on eight cryptocurrencies.

Paradigm has announced the launch of spreads trading in partnership with crypto exchange FTX.

In a Friday blog post, Paradigm said under the FTX partnership users would be able to utilize “one-click” trading with “no leg risk” for the spread between spot, perpetuals and fixed maturity futures on Bitcoin (BTC), Ether (ETH), Solana (SOL), Avalanche (AVAX), ApeCoin (APE), Dogecoin (DOGE), Chainlink (LINK) and Litecoin (LTC). FTX will provide “guaranteed atomic execution and clearing of both legs” for the trades.

According to Paradigm CEO Anand Gomes, the arrangement was aimed at drawing in new crypto investors interested in cash and carry trades — leveraging crypto spot purchases and futures instruments on FTX. Gomes added that the rollout could lead to new product offerings “further down the road.”

Related: Reddit partners with FTX to enable ETH gas fees for community points

The firm said using atomic execution for both legs of the spreads trading was “structurally less risky” than those executed on a traditional exchange, allowing market makers to “quote much tighter prices and in significantly larger sizes.” According to Paradigm, the fees will be 50% less than that when executing two individual outright trades.

In 2019, Paradigm partnered with crypto derivatives exchange Deribit to launch a block trading solution.