The most hated firm in crypto | Invesloan.com

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

Like Heathcliff in Wuthering Heights, its mere presence stirs up a great deal of anger and resentment among those around it. Aaron Kaplan, chief executive of Prometheum, even admits that his is “the most hated company in crypto”.

The umbrage stems from last year, when the Securities and Exchange Commission’s assault on the crypto market was in full throttle. Prometheum, which had been scratching around the industry since the 2017 boom in initial coin offerings, became the first and still only company to secure an SEC licence to trade and custody digital asset securities.

To the rest of the market, that was a surprise. The regulator was busy firing out lawsuits accusing companies and individuals of violating federal laws by selling unregistered securities. Many of those in the SEC’s crosshairs, such as Coinbase, complained that it was impossible to register with the SEC if the agency had not defined which assets were securities. Others had tried and failed to secure the permit, known as a “special purpose broker deal” licence. Prometheum appeared to have found the magic pathway that eluded everyone else.

Prometheum says it was been successful in its application because it is willing to comply with the SEC’s rules. Others, such as Robinhood, have in the past disputed the answer is so straightforward.

While most of the industry thinks crypto needs new laws tailored to its requirements, Prometheum says it can trade crypto tokens as securities. Gary Gensler, SEC chair, has cited the company as an example of the way crypto companies can dovetail with existing federal laws.

This week Prometheum reinflamed industry tensions when it announced that it would be adding Uniswap and Arbitrum — tokens linked to two decentralised finance networks — to its platform for its planned launch in September. Both tokens are relatively low down the list of most actively traded securities.

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

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

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

But what is a security is a grey area, as Uniswap illustrates. In May the developers behind it disclosed that the SEC was considering whether its decentralised exchange and token were unregistered, and looking to take action. Uniswap says it is not a security and more like a PDF file, and intends to fight the case.

“[Uniswap] could say they’re not a security but their own determination is irrelevant . . . that’s for the regulators to make it, for the regulators 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 make things so clear. The other token Prometheum plans to trade and custody from September is Ethereum. Earlier this year the SEC also investigated it as a potential security masquerading as a crypto coin before deciding to take no further action. It was widely taken to mean that the agency saw Ethereum as a commodity too but the agency didn’t clarify its status outright. Ethereum has not been removed from Prometheum’s slate as a digital security.

When asked why Ethereum remained, Ben Kaplan said Prometheum’s view was that federal securities laws were the highest standards and “the best means to allow the general public to participate when it comes to financial instruments”.

The company’s view is so akin to the SEC’s own language that lawmakers have also stepped up scrutiny of both Prometheum and the SEC. Senior Washington politicians have been seeking more clarification from the SEC on what the special broker-dealer licence permitted, worrying about the “precedent that the SEC and Prometheum are setting”.

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

Given the wariness from many sides, Prometheum’s launch next month will be watched closely to see who uses it. It also underlines how difficult it is to be legally compliant in the US. Even if the regulator thinks you are, the rest of the industry is full of suspicion.

Weekly highlights

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

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

Soundbite of the week: Sliced Salame

The FTX story keeps on giving. Ryan Salame, the former executive sentenced to seven years for his role in the collapse of the exchange, on Wednesday asked a court to vacate his conviction or block any indictment of his girlfriend Michelle Bond, alleging prosecutors reneged on a deal to stop investigating her if he entered into a plea agreement.

The US fired back that the court should “reject Ryan Salame’s shameless and self-serving attempt to renege on his guilty plea” and also took aim at Salame’s frequent messages on X as he waits to go to prison.

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

Salame’s public pleading didn’t work. The next day Bond was indicted on federal charges of illegally accepting FTX money as a donation to her 2022 campaign running for Congress.

And finally…

It’s a long holiday weekend in the UK and it 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 in Britain it has become a rite of passage to go to the Reading Festival. To get the long weekend off to a bang, here’s The 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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