The SEC has been setting its sights on the crypto industry for over a decade, but its recent lawsuits have upped the ante. While Coinbase and Binance have weighed in on behalf of exchanges, Ethereum Co-Founder Vitalik Buterin has always been the “voice of the people,” and recently offered his take on the lawsuit’s impact on blockchains and tokens.
Before diving into Vitalik’s comments, we’ll take a look at the story behind the SEC’s enforcement actions. And we’ll also discuss why his comments matter so much and what’s next for the industry, especially following the outcome of Ripple’s lawsuit.
What Happened?
The SEC has been actively policing the crypto industry since 2013. Between 2013 and 2022, the agency brought 127 enforcement actions, including 82 litigation actions and 45 administrative proceedings. Over the same timeframe, it imposed about $2.61 billion in monetary penalties, including $242 million in settlements.
In June 2023, the SEC escalated these efforts by suing Coinbase and Binance, two of the world’s largest crypto exchanges, for allegedly breaching its rules. The agency alleges these exchanges traded unregistered crypto securities while accusing Binance of commingling customer assets or diverting them as they pleased.
While the accusations against Coinbase and Binance are concerning, the SEC’s assertion that Solana, Polygon, Cardano, and other tokens fall under the definition of a “security” is more concerning. The agency’s next step could be to attempt to regulate these tokens by forcing them to register and adhere to stricter rules surrounding “securities” offerings.
Ultimately, these revelations shook the crypto markets in June and early July. While many tokens have recovered ground, others remain well below their pre-lawsuit levels. And there’s little doubt that crypto’s future is on much shakier ground than before as the SEC moves to clamp down on what it views as brokers, custodians, and securities.
What Was Vitalik’s Response?
The SEC’s lawsuits stopped short of calling Bitcoin or Ethereum securities. However, the agency hinted that Ethereum’s recent move into staking could change that fact. But the CFTC has argued that Ethereum is a commodity and should be regulated under its rules, and documents from the Ripple lawsuit boost that probability.
Nevertheless, Ethereum Co-Founder Vitalik Buterin rushed to defend Solana and other projects mentioned by the SEC after Paradigm Co-Founder Matt Huang asked about his thoughts on the issue.
On Twitter, Vitalik Buterin responded by saying:
“I feel bad that Solana and other projects are getting hit this way. They don’t deserve it, and if ethereum ends up ‘winning’ through all other blockchains getting kicked off exchanges, that’s not an honorable way to win, and in the long term probably isn’t even a victory.
This is especially true since the real competition is not other chains, it’s the rapidly expanding centralized world that is imposing itself on us as we speak.
I wish all honorable projects a fair outcome in this whole situation.”
Why Vitalik’s Opinion Matters
Vitalik Buterin is one of the leading voices in the crypto space, as the prodigy behind the world’s second-largest cryptocurrency – Ethereum. In addition to being a technical mastermind, he’s a visionary helping shape the blockchain landscape through innovative new ideas and concepts, meaning he appeals to developers and regulators alike.
Regulators have also leaned on Vitalk’s expertise behind the scenes. For example, the SEC v. Ripple case’s Hinman documents revealed that the SEC consulted with Vitalik in the process leading up to Hinman’s speech, which specifically noted that Ethereum is not a security and that, over time, sufficiently decentralized networks wouldn’t fall under the definition.
That said, Vitalik isn’t without his controversies in crypto circles. In 2015, he formed a relationship with Wanxiang Blockchain Labs, becoming its Chief Scientist. And Wanxiang Blockchain Labs is part owner of Prometheum – the SEC’s poster child for regulatory compliance. Not surprisingly, this has led to tension with some crypto enthusiasts.
And finally, from a technical standpoint, Vitalik could be instrumental in helping the future crypto industry navigate regulatory hurdles through clever technical implementations or concepts. He is also heavily involved in setting the stage for future crypto concepts, such as Soulbound Tokens or highly technical ways to improve blockchain performance.
What’s Next?
The SEC’s lawsuits could take years to work through the court system, but the result could have a massive impact on the industry. If successful, the industry could face the same strict oversight as exchanges like the New York Stock Exchange, brokerages like Charles Schwab, and public companies like Apple or Microsoft.
That said, the crypto market appears unphased after a brief price dip. Many crypto tokens named in the SEC’s lawsuit have recovered from their drops, while Binance has avoided a rush to the exits like FTX. And while Coinbase’s stock has a significant short interest, prices have stabilized in recent weeks, suggesting strong supporters.
Moreover, a judge in the Southern District of New York ruled in the SEC v. Ripple case that Ripple’s XRP token was “not necessarily a security on its face,” delivering a critical win to the industry and a big setback for the regulatory agency. The news sent XRP sharply higher and bolstered the prices of many other crypto tokens.
The Bottom Line
The SEC’s increasingly aggressive actions against the crypto industry have alarmed many crypto exchanges, blockchains, and other participants. While Ripple’s recent victory provided some reassurance, Coinbase, Binance, and other crypto tokens remain vulnerable to ongoing enforcement actions and lawsuits by the regulatory agency.
In his comments on Twitter, Ethereum Co-Founder Vitalik Buterin made it clear that the SEC’s reference to Solana and other blockchains as “securities” is problematic for the industry. And even if Ethereum escapes unharmed, these designations would be very detrimental to the broader industry and undermine decentralization efforts.
While the SEC’s lawsuits don’t impact crypto users (other than by the price impact), the IRS has its own crackdown on those under-reporting crypto transactions. Fortunately, ZenLedger can help you aggregate your transactions across wallets and exchanges and automatically calculate your capital gain or loss to avoid mistakes.
