SEC chair Gensler testified before the Senate Banking Committee this week. Though the legislators’ attention was more focused on AI and ESG, Mr. Gensler’s crypto comments echoed his familiar refrain about rampant fraud and manipulation in the sector. He’ll face another round of scrutiny from the House Finance Committee at the end of the month, where he may face more pointed questions about his approach to crypto. Gensler has faced severe criticism, with some suggesting an intent to kill startups such as Coinbase and Ripple and to allow the trusted old guard such as Blackrock, Goldman, and JPMorgan to take over the digital assets market.
Yet outside the walls of the courtroom and legislature, there are increasing signs of collaboration, not competition, between the old and the new. For example, Deutsche Bank, the largest and traditional German bank, has partnered with Swiss crypto firm Taurus to explore digital asset custody and tokenization. Franklin Templeton, the giant asset manager that made waves earlier this year with a tokenized money market fund, joined the spot Bitcoin ETF crowd with its own application this week. PayPal has teamed up with Paxos on its stablecoin initiative. And the London Stock Exchange Group is exploring blockchain enhancements to traditional asset trading capabilities, though whether an internal or collaborative effort is unclear. These are but a few of many examples, and we expect to learn more before the year is out.
In the midst of this collaborative current, Coinbase has introduced a Web3 wallet through its Prime unit, intended as a tool enabling institutions to interact with on-chain applications and gain access to NFTs and other aspects of the DeFi world. Opportunities for institutional integration are exciting on their own, but the move also highlights the impressive scope of activity at Coinbase. Their new Layer 2 blockchain, Base, hit record daily transaction volumes this week after bringing the breadth of Coinbase’s reach to startups such as the social app Friend.tech. Coinbase kicked off an institutional crypto lending platform earlier this month, with the intent to fill the void left by numerous beleaguered or defunct lenders. And on Wednesday, Mr. Armstrong announced their decision to integrate the Bitcoin Lightning network, adding their muscular endorsement to numerous other prominent exchanges that support Lightning as a scalable and cost-efficient solution for Bitcoin transactions.
Back in the courtroom, Coinbase is of course leading the industry’s battle with the SEC, and yesterday Mr. Armstrong entered another fray by endorsing DeFi protocols and cautioning the CFTC against a regulation-by-enforcement approach in its recent actions against Opyn, ZeroEx, and Deridex. This combination of commercial collaboration and regulatory confrontation is certainly a lot to take on, yet it may be just what our industry needs as this eventful year nears its final quarter.
