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The worst company in crypto

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Hello and welcome to what will be the final Cryptofinance newsletter. Thank you so much, loyal subscribers, for tuning in each week and providing your comments and feedback to improve our understanding. I hope you had as much fun reading it as I had writing it. The FT will continue to cover crypto on the main site. We have too many other newsletters covering everything from economics to finance. I’d particularly recommend the award-winning Unhedged, which appears every weekday morning (you can sign up Here) and tells you everything you need to know about Wall Street and Due Diligence, our must-see briefing on corporate finance, M&A and private equity (sign up Here).”

In an industry where much activity crosses the lines of legality, US-based Prometheum has become controversial by virtue of its apparent respectability.

Like Heathcliff in Wuthering Heights, his mere presence stirs up much anger and resentment among those around him. Aaron Kaplan, CEO of Prometheum, even admits that his is “the worst company in crypto.”

Umbria stems from last year, when the Securities and Exchange Commission’s assault on the crypto market was in full swing. Prometheum, which has swept the industry since the 2017 boom in initial coin offerings, became the first and still only company to obtain an SEC license to trade and hold digital asset securities.

To the rest of the market, this was a surprise. The regulator was busy launching lawsuits accusing companies and individuals of violating federal laws by selling unregistered securities. Many insiders to the SEC’s view, such as Coinbase, complained that it was impossible to register with the SEC if the agency didn’t define what assets are securities. Others have tried and failed to obtain the permit, known as a “special purpose broker business” license. Prometheum seemed to have found the magic path that eluded everyone else.

Prometheum says it has been successful in its application because it is willing to comply with SEC rules. Others, like Robinhood, have contested in the past that the answer is that simple.

While most of the industry believes that crypto needs new laws tailored to its requirements, Prometheum says it can trade crypto tokens as securities. SEC Chairman Gary Gensler cited the company as an example of how crypto companies can integrate with existing federal laws.

This week, Prometheum reignited industry tensions when it announced it would add Uniswap and Arbitrum — tokens linked to two decentralized financial networks — to its platform for a planned September launch. Both tokens are relatively low in the list of most actively traded securities.

“Our goal is to integrate or include the top 50 digital assets on our platform, and Uniswap and Arbitrum are in about 50,” said Ben Kaplan, chief executive of Prometheum Capital, the subsidiary that holds the broker-dealer license.

Prometheum’s choice of tokens to list depends in part on which crypto assets it has decided it can reasonably trust to be securities, legally speaking.

Crypto finance

Critical intelligence on the digital asset industry. Explore the FT’s coverage here.

But what a security is is a gray area, as Uniswap illustrates. In May, the developers behind it revealed that the SEC is considering whether its decentralized exchange and token are unregistered and looking to take action. Uniswap says it’s not a security and more like a PDF file and plans to fight the case.

“(Uniswap) might say they’re not a security, but their own determination is irrelevant. . . that’s for the regulators to do, for the authorities to decide, and for the law to decide,” said Ben Kaplan.

If regulators later decide that something Prometheum has listed is not a security, Prometheum says it “will take appropriate action.”

But the SEC may not clear things up. The other token Prometheum plans to trade and hold from September is Ethereum. Earlier this year, the SEC also investigated it as a potential security masquerading as a cryptocurrency before deciding not to take any further action. It was widely taken to mean that the agency also saw Ethereum as a commodity, but the agency did not definitively clarify its status. Ethereum has not been removed from Prometheum’s list as a digital security.

Asked why Ethereum remained, Ben Kaplan said Prometheum’s view is that federal securities laws are the highest standards and “the best means of allowing the general public to participate when it comes to financial instruments.”

The company’s vision is so similar to the SEC’s language that lawmakers have also stepped up scrutiny of both Prometheum and the SEC. Senior Washington politicians sought more clarification from the SEC about what the special broker-dealer license allowed, worried about “the precedent the SEC and Prometheum are setting.”

And market skepticism about Prometheum remains as high as ever. Since Aaron Kaplan’s appearance before Congress, lawmakers have raised questions about the early financial backing of a Chinese crypto company and its profitability. And Prometheum needs the launch to go well. In SEC filings in January, Prometheum said it had “suffered significant losses” and had not started generating revenue.

With caution on many sides, the release of Prometheum next month will be closely watched to see who uses it. It also highlights how difficult it is to be in compliance with the law in the US. Even if the regulator thinks you are, the rest of the industry is full of suspicion.

Weekly highlights

  • Members of the Mango DAO, the token holders that run the Mango Markets decentralized finance network, have voted in favor of a proposal to dissolve and pay a $223,000 fine to settle charges from US regulators. In 2022, Mango was hacked for more than $110 million and drained of its liquidity by trader Avraham Eisenberg, who has since been convicted of fraud and market manipulation.

  • Bitwise Asset Management has bought London-based ETC Group for an undisclosed sum as the American companies expand their crypto operations in Europe.

Sound of the week: Sliced ​​salami

The FTX story just keeps on giving. Ryan Salame, the former executive sentenced to seven years in prison for his role in the exchange’s collapse, asked a court on Wednesday to overturn the conviction or block any indictment of his girlfriend Michelle Bond, claiming prosecutors reneged on a deal not to further investigate whether he entered into a plea agreement.

The US argued that the court should “reject Ryan Salame’s shameless and self-serving attempt to withdraw his guilty plea” and also took issue with Salame’s frequent texting of X while he is waiting to go to prison .

“Such behavior is consistent with Salame’s other post-conviction behavior, which has demonstrated a complete lack of remorse and utter contempt for the justice system.”

Salame’s public plea did not work. The next day, Bond was indicted on federal charges of illegally accepting FTX money as a donation to her 2022 campaign for Congress.

And finally…

It’s a long holiday weekend in the UK and traditionally marks the end of the outdoor summer music season. London celebrates it with the annual Notting Hill Carnival. To capture the mood, here’s the original Police and Thieves by Junior Murvin, later covered by The Clash.

And for thousands of 16 and 17-year-olds across the UK it has become a rite of passage to go to the Reading Festival. To get a long weekend off, here it is Island by Pendulum, who were outstanding in London in March and play late Sunday afternoon.


Cryptofinance is edited by Tommy Stubbington. To view previous editions of the newsletter, click Here.

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