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The SEC certainly thinks gemini is running an illegal exchange, and said so quite clearly when charging them of that earlier this year: https://www.sec.gov/news

The SEC certainly thinks gemini is running an illegal exchange, and said so quite clearly when charging them of that earlier this year: https://www.sec.gov/news/press-release/2023-7 https://www.sec.gov/news/press-release/2023-7 The case has not been dropped, and I think pretty clearly states the SEC's opinion, which is quite consistent with what I said above. It is not legal to run a crypto exchange in the US (under current security laws I should add).

colatkinson 3y ago
That case appears to be specific to Gemini Earn, a "staking" product where users would loan Gemini money and in exchange would get returns on that money through Gemini/Genesis's investment of those funds. Under the Howey test (a security is "a contract, transaction or scheme whereby a person invests his money in a common enterprise and is led to expect profits solely from the efforts of the promoter or a third party") this is pretty clearly an unregistered security IMO. Whereas e.g. using Gemini solely to exchange N USD for M BTC with the customer retaining ownership the whole time is probably not. So had the Winklevi stuck to being a traditional exchange, they could have avoided this specific issue. Of course, the SEC seems to believe that many shitcoins are also securities ("Buy this token for a % share in our company! Totally not equity!" is... not a convincing argument). But that's not what the complaint you linked is actually about.
- Animats 3y ago
  > That case appears to be specific to Gemini Earn, a "staking" product where users would loan Gemini money and in exchange would get returns on that money through Gemini/Genesis's investment of those funds. Yes. You put money with them, they invest it, you get some return, maybe. That's unquestionably a security. Note that there's real staking, as with Etherium validators, where you lock up some Etherium in exchange for a cut of the gas fees. You're still exposed to Etherium going down, but the risk to the principal is low. Then there's fake staking, where you lend someone assets which they then control and invest. That's not "staking", it's an investment deal. A bad deal, because it has a capped upside and an unlimited downside. Someone else thinks that they can get a higher return than you can, but you take the risk if they fail. See Terra/Luna, BlockFi, etc.
Tuna-Fish 3y ago
This is only true if you trade in crypto that is a security. Notably, Bitcoin is not a security. But every stablecoin, or any other more complex system that is in some way related to something that exists in the real world is. So you could run a Bitcoin exchange, but if you add any of the new, complex stuff you will end up getting shut down by SEC.
- alexb_ 3y ago
  If Bitcoin looks like a security, acts like a security, trades like a security, is used by almost everyone as a security, then why are we pretending that it shouldn't be regulated like a security?
  - Tuna-Fish 3y ago
    See my reply to your sibling comment. Bitcoin is not a security, because there is a legally well established definition of security and bitcoin does not meet it.
- prottog 3y ago
  > Bitcoin is not a security What makes you say that?
  - Tuna-Fish 3y ago
    Security in the US is defined by the Howey test, and other jurisprudence. Bitcoin does not meet the definition any more than collectible trading cards do. Any crypto that imply some kind of stake or ownership of something that exists outside of that instrument are securities. This includes all stablecoins, all defi, and probably plenty of other things I don't even know about. But pure currencies that are backed by nothing other than scarcity and other people's expectation about their value are not securities. They are either commodities or currencies. Which of the two they are is still unclear and will probably have to be litigated at some point, as this distinction has other tax and regulatory significance, but neither option gets SEC on your ass the way unregistered securities does. This is in fact an argument against the usefulness of crypto/blockchains in general -- unlike some proponents claim, you really can't actually use tradable crypto to do anything interesting, like name resolution or whatever, because if you can freely buy and sell the tokens, as soon as you can do anything more interesting with them they probably become securities.

colatkinson 3y ago

That case appears to be specific to Gemini Earn, a "staking" product where users would loan Gemini money and in exchange would get returns on that money through Gemini/Genesis's investment of those funds. Under the Howey test (a security is "a contract, transaction or scheme whereby a person invests his money in a common enterprise and is led to expect profits solely from the efforts of the promoter or a third party") this is pretty clearly an unregistered security IMO. Whereas e.g. using Gemini solely to exchange N USD for M BTC with the customer retaining ownership the whole time is probably not. So had the Winklevi stuck to being a traditional exchange, they could have avoided this specific issue. Of course, the SEC seems to believe that many shitcoins are also securities ("Buy this token for a % share in our company! Totally not equity!" is... not a convincing argument). But that's not what the complaint you linked is actually about.

Animats 3y ago
> That case appears to be specific to Gemini Earn, a "staking" product where users would loan Gemini money and in exchange would get returns on that money through Gemini/Genesis's investment of those funds. Yes. You put money with them, they invest it, you get some return, maybe. That's unquestionably a security. Note that there's real staking, as with Etherium validators, where you lock up some Etherium in exchange for a cut of the gas fees. You're still exposed to Etherium going down, but the risk to the principal is low. Then there's fake staking, where you lend someone assets which they then control and invest. That's not "staking", it's an investment deal. A bad deal, because it has a capped upside and an unlimited downside. Someone else thinks that they can get a higher return than you can, but you take the risk if they fail. See Terra/Luna, BlockFi, etc.

Tuna-Fish 3y ago

This is only true if you trade in crypto that is a security. Notably, Bitcoin is not a security. But every stablecoin, or any other more complex system that is in some way related to something that exists in the real world is. So you could run a Bitcoin exchange, but if you add any of the new, complex stuff you will end up getting shut down by SEC.

alexb_ 3y ago
If Bitcoin looks like a security, acts like a security, trades like a security, is used by almost everyone as a security, then why are we pretending that it shouldn't be regulated like a security?
- Tuna-Fish 3y ago
  See my reply to your sibling comment. Bitcoin is not a security, because there is a legally well established definition of security and bitcoin does not meet it.
prottog 3y ago
> Bitcoin is not a security What makes you say that?
- Tuna-Fish 3y ago
  Security in the US is defined by the Howey test, and other jurisprudence. Bitcoin does not meet the definition any more than collectible trading cards do. Any crypto that imply some kind of stake or ownership of something that exists outside of that instrument are securities. This includes all stablecoins, all defi, and probably plenty of other things I don't even know about. But pure currencies that are backed by nothing other than scarcity and other people's expectation about their value are not securities. They are either commodities or currencies. Which of the two they are is still unclear and will probably have to be litigated at some point, as this distinction has other tax and regulatory significance, but neither option gets SEC on your ass the way unregistered securities does. This is in fact an argument against the usefulness of crypto/blockchains in general -- unlike some proponents claim, you really can't actually use tradable crypto to do anything interesting, like name resolution or whatever, because if you can freely buy and sell the tokens, as soon as you can do anything more interesting with them they probably become securities.