In this week’s edition of The Context, Vitalik and friends try to weed out bad actors while the Stoner Cats agree to stop with the toking, er, tokens. Here are the top stories and how they were covered, along with YAP Global’s take:
[Privacy Poolboys 🏖️]
Ethereum co-founder Vitalik Buterin and four others released a white paper presenting a protocol designed to strike an “equilibrium” between privacy and compliance. Privacy Pools would theoretically let people prove their funds aren’t associated with illegal activity—while keeping their personal details private. 🔐
What Journalists Said 🧑💻:
“Privacy Pools could be considered a compliant successor to Tornado Cash,” wrote Owen Fernau (The Defiant). The latter mixes users’ crypto to obfuscate the original source of the assets. The U.S. recently charged Tornado Cash’s creators with money laundering and violating sanctions.
Like Tornado Cash, Privacy Pools would incorporate zero-knowledge proofs (ZKPs), a cryptographic method for proving something is correct without revealing details about the transaction,” said Ana Paula Pereira (Cointelegraph). Privacy Pools go further so “users can exclude themselves from anonymity sets that include addresses related to illegal activities.”
There’s a “big if,” added Tim Craig (DLNews) after speaking to a Tornado Cash developer. Proving the cash you’re withdrawing is clean “might be more complex than the paper suggests.” Now the question is: “Will these ideas work at scale?” 🤷♀️
PR Perspective 📢:
It would be optimistic to suggest this product will introduce significant change soon. The conversation around the regulatory implications of this technology is speculative at this point; its privacy-preserving aspects won’t guarantee it meets regulators’ standards for data accessibility. ZKPs are great for trustless data sharing and verification but not so good at providing information or itemized datasets.
[CFTC Joins the Enforcement Party 🎉]
The U.S. Commodities and Futures Trading Commission (CFTC) settled charges with three decentralized exchanges—Opyn, ZeroEx, and Deridex—for not properly identifying customers or registering with the regulator, and “illegally offering leveraged and margined retail commodity transactions in digital assets.”
What Journalists Said 🧑💻:
This enforcement action “primarily revolved around their failure to obtain the appropriate licenses for operating in the U.S.,” wrote Nivesh Rustgi (Decrypt).
It’s still an alarming 🚨 decision, suggested Casey Wagner (Blockworks). ZeroEx “facilitated spot trading, a section of the market the CFTC currently does not have the power to regulate.” One CFTC commissioner, Summer Mersinger, publicly dissented.
Blockchain Association Chief Policy Officer Jake Chervinsky agreed with Commissioner Mersinger, noted Tarang Khaitan (The Defiant). Chervinsky tweeted: “Perhaps we should lay to rest 🪦 the idea that the CFTC is ‘a better regulator’ for crypto than the SEC.”
Why It Matters⁉️:
The Securities and Exchange Commission and CFTC have been playing tug of war on the issue of who should be the primary US regulator for crypto. While the CFTC has been less active on the enforcement front, crypto-watchers will be looking to see whether it continues striking an aggressive posture.
[SEC Says ‘Scat’ to Stoner Cats 🐱 🚫 ]
The SEC charged the Stoner Cats NFT cartoon project with selling unregistered securities. The series, backed by Mila Kunis’ Orchard Farm Production and starring her and her husband Ashton Kutcher, must pay a $1 million penalty and establish a fund to repay investors.
What Journalists Said🧑💻:
“Stoner Cats was one of the first television shows to be fully funded by NFTs,” 📺 explained Sarah Wynn (The Block). The project minted 10,420 unique NFTs based on characters like Lord Catsington (voiced by Vitalik Buterin), with the initial episodes only viewable by NFT holders.
The SEC alleges the project crossed the line into an unregistered securities offering because Kunis and co “led NFT purchasers to believe that their investment in a Stoner Cats NFT would lead to a profitable resale via a secondary market,” said Ben Weiss (Fortune).
Though the SEC didn’t name Kunis and Kutcher, it sure looks like regulators are going after “celebrities and notable influencers who offered NFTs for sale,” wrote Andrew Hayward and Pedro Solimano (Decrypt). Last month, they settled with podcast company Impact Theory for $6 million.
Why It Matters⁉️:
The SEC has recently ramped up enforcement actions against NFT projects. This isn’t the last we’ll hear about this as the SEC is split. Commissioners Hester Peirce and Mark Uyeda argued Stoner Cats NFTs were practically the same as 1970s Star Wars collectibles that used IOU certificates. “Using the analysis of today’s enforcement action,” they wrote, “the SEC should have parachuted in to save those kids from Star Wars mania.”
[Tweet of the week]
Credit: @jacqmelinek
[DeFi Definitions]
A segment exploring one particular aspect of DeFi.
This week: “ICO” by Vasundhara Singh.
An Initial Coin Offering (ICO) is a fundraising process undertaken by cryptocurrency projects to raise capital publicly. It involves the issuance of a new cryptocurrency token or coin to early investors and supporters in exchange for more established cryptocurrencies, such as Bitcoin or Ethereum, or even traditional fiat currency. ICOs are conducted on blockchain platforms to ensure transparency and decentralized transactions.
During an ICO, the issuing company or project outlines its objectives, roadmap, and the utility of the new cryptocurrency. These tokens usually serve a specific purpose within the project's ecosystem, such as granting access to services, products, or special privileges.
ICOs gained significant popularity during the cryptocurrency boom of the late 2010s as a way for startups to bypass traditional venture capital fundraising and democratize investment opportunities. However, due to the lack of regulations and the potential for fraud and scams, ICOs have faced scrutiny from regulatory authorities in various countries. As a result, many projects have shifted towards more regulated fundraising methods, such as Security Token Offerings (STOs) or Initial Exchange Offerings (IEOs).
The usual disclaimer: This newsletter collates the main themes and headlines of the week in DeFi/crypto/metaverse/Web3/NFT land and tries to provide unbiased context. It's aimed at anyone who wants to keep an eye on the space. It's put together by a team at YAP and doesn't contain any promotion of our clients (if one is mentioned, we'll flag that).
The team: Founder Samantha Yap and consulting editor Jeff Benson, Sam O'Donohoe, Ewan Brewster, Damian Alvarez, Andrew Wickerson, Tiffany Mac Sherry, Becky Corbel and Delon Chan. Your feedback is, as always, welcome. Ping us at thecontext@yapglobal.com. Old newsletters can be found here.
This newsletter is prepared by YAP Global, an international P.R. Consultancy focusing on helping cryptocurrency, Decentralised Finance (DeFi) and Web3 brands through impactful storytelling. Find out more about us here.