Top Stories of the Week
001 Gary Gensler to Resign
SEC Chair Gary Gensler announces he will resign on January 20. The current Securities & Exchange Commission Chair Gary Gensler announced Thursday that he will step down at noon on Inauguration Day, concurrent with when President-elect Donald J. Trump will be sworn in for his second term.
Gensler was confirmed to his post on April 17, 2021, just four days after Coinbase listed on the Nasdaq. Prior to joining the SEC, Gensler taught at MIT’s Sloan School of Management, advising MIT Media Lab’s Digital Currency initiative. Before that, he was Chair of the Commodity Futures Trading Commission (CFTC) during Barack Obama’s presidency.
Our Take
Shortly after taking over at the SEC, Gensler appeared before Congress in September 2021 and said the SEC needed significant staff and budget increases to address the crypto markets, which he called the “Wild West.” Despite saying at MIT in Fall 2018 that “three-quarters of the crypto market are commodities,” once at the SEC Gensler said that the “vast majority” of cryptocurrencies were securities. To support that view, the Commission advanced a highly restrictive view of the Howey test and deployed a new term: “crypto asset security.” Without providing space for rulemaking or earnest discussion with the industry, the SEC then embarked on an aggressive “regulation by enforcement” regime that included Wells Notices, fines, and lawsuits against token issuers, exchanges, and OTC firms – not just against allegedly fraudulent actors but also targeting market participants for technical violations of securities laws. Some of these targeted firms like Robinhood and Cumberland DRW reported that they had met repeatedly “in good faith” with the Commission, but then the SEC reportedly used their transparency and the information provided in the meetings as the basis for lawsuits. Robinhood Chief Legal Officer Dan Gallagher (also a former SEC commissioner) said the firm had attempted to “come in and register,” but instead received a Wells Notice.
American crypto firms are eagerly awaiting the announcement of who president-elect Trump will nominate as Gensler’s replacement. On a go-forward basis, the industry is interested in a more progressive regulatory approach that includes clarity and relaxation on which types of tokens constitute a security, clear and actionable guidance and rules on how broker/dealers can interact with tokens and blockchains, and a halt to several existing enforcement actions and litigation matters against market participants who are not alleged to be involved in any fraudulent activity. In addition to easing and clarity on digital assets themselves, many also hope that the public markets will again open for crypto firms. Other than Coinbase and bitcoin-specific firms like miners and Fold, no crypto firm has successfully become publicly traded in the U.S. during Gensler’s term in office.
Many names have been mentioned for Gensler’s successor, including Robinhood CLO Dan Gallagher, Paul Atkins, Brian Brooks, Bob Stebbins, Teresa Guillen, as well as existing commissioners Mark Uyeda and Hester Peirce. In any case, Peirce or Uyeda will be elevated to acting Chair after Trump’s inauguration until whoever is nominated can be confirmed by the Senate. It’s the end of an era, and crypto isn’t looking back. - Alex Thorn
002 Passive Yields Coming to USDC Holders Onchain
Coinbase introduces Onchain USDC Rewards. On Wednesday, Coinbase announced it would be introducing USDC Rewards for USDC-holders in Coinbase Wallet accounts. For the first time, Coinbase Wallet users can earn 4.7% APY simply by holding USDC onchain. USDC Rewards are paid out monthly, and directly deposited into eligible wallets on the Base network. Previously, the USDC Rewards program was only for USDC balances held in Coinbase accounts.
This feature is available in most regions globally and is rolling out to US users this week (USDC Rewards is not available in the EU or Canada at this time). Coinbase Wallet users in the US must link their Coinbase account to earn rewards.
Our Take
Coinbase is making a huge push to boost the adoption of its stablecoin (Coinbase invested in Circle in August 2023), its wallet, and its blockchain (i.e., USDC, Coinbase Wallet, and Base, respectively). Yield-bearing stablecoins have long been in demand by market participants, and many adjacent products (not necessarily "stablecoins" but tokenized MMFs or vault deposits) have seen rapid adoption over the past year such as Blackrock's BUIDL, Maker's sDAI, and Ethena's USDe. The extension of USDC Rewards to reward on-chain participants should also help onboard new users to DeFi and other crypto applications.
Once rewards are deposited into eligible Coinbase Wallet addresses on Base at the first of each month, the onchain data should give us an indication of how many Coinbase users are participating in the program, which we would expect to grow over time throughout the life of the USDC rewards program. Even though rewards are limited to eligible Coinbase Wallet users at this time, it has the potential to expand across other wallets and across holders of other stablecoins that may want to remain competitive with Coinbase and USDC. Over time, if generating yield on passive stablecoin holdings becomes the new norm onchain, then we could see the rewards rate establish a new floor for the baseline rates across DeFi. DeFi markets and the broader onchain economy may be forever changed after this pivotal moment by Coinbase. – Charles Yu
003 Tradfi Feels the FOMO
Goldman Sachs will spin out its enterprise blockchain platform designed for institutional trading. The platform, called GS DAP, will allow institutions to trade, settle, and tokenize financial instruments on distributed ledger technology. Additionally, the platform's main use case will be to facilitate secondary transactions of tokenized assets for clients. GS DAP will also partner with outside trading platforms like Tradeweb Markets and more.
Goldman's head of digital assets shared with Bloomberg that GS DAP will launch within the next 12 to 18 months. The new enterprise blockchain platform will be a standalone business independent of Goldman Sachs' digital asset business.
Our Take
The crypto train is leaving the station and traditional finance wants to make sure it’s aboard. Resurgent crypto prices, increased institutional interest, and an easing regulatory outlook are driving traditional financial firms to explore how they can get involved. On Thursday, Charles Schwab's incoming CEO Rick Wurster told Bloomberg that he has “not bought crypto, and now I feel silly,” while also saying Schwab would “get into spot crypto when the regulatory environment changes, and we do anticipate that it will change.” A range of obstacles had prevented banks like Goldman from entering the space (bank regulatory guidance, the SEC’s SAB 121, etc.), but Schwab is likely feeling the pressure from brokerage competitors Fidelity and Interactive Brokers, which both have a range of crypto offerings.
Assuming the regulatory outlook does improve and traditional financial services firms can begin handling cryptos directly, the existing crypto industry could face disruption. Defining and defending market share if the world’s biggest financial companies look to compete will be a big story over the next several years. Investors ultimately win, though, as there will be more ways and venues to express a view on Bitcoin and other digital assets. – Alex Thorn & Gabe Parker
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