Paradigm, a venture capital firm, has issued a statement arguing against the U.S. Securities and Exchange Commission’s regulatory standards on cryptocurrency exchanges. While Paradigm stated that its view is not in defense of any of the three crypto exchanges under SEC lawsuits, the amicus brief is directed at the SEC’s lawsuit against Binance.
The venture capital firm noted that the SEC Chair, Gary Gensler, acknowledged in Congressional testimony that the SEC is not in the rightful position to regulate these secondary markets. Specifically, Gary Gensler mentioned before Congress that “the exchanges trading in these crypto-assets do not have a regulatory framework.”
To establish a clear point, Paradigm maintains that a crypto asset sale on a secondary market does not guarantee the delivery of future value in relation to the requirements of an investment contract. Additionally, an “investment contract” does not necessitate a “contract,” therefore, “the SEC cannot create a formal contract where none exists through clever lawyering,” Paradigm said.
Furthermore, Paradigm presented two more arguments to support their position, stating that mere asset appreciation does not classify a sale as an investment contract and an asset sale does not inherently establish a common enterprise, which is a crucial element for an investment contract.
Finally, Paradigm sees that the SEC shouldn’t regulate crypto assets based on its interpretation without clear congressional authorization. “A 77-year-old interpretation (Howey) of a 90-year-old statute (the Securities Act) hardly delivers such clarity,” Paradigm said.
In response to the SEC’s case against Binance Circle, the USDC stablecoin issuer opposed that stablecoins are not securities. This claim is partly based on the fact that users do not expect any profits from acquiring stablecoins. “Payment stablecoins do not have the ‘features of an investment contract’ on their own,” Circle said.
However, the sued exchange, Binance, and its CEO Changpeng Zhao, in response to the SEC’s filing, claimed that the regulator had overstepped its boundary. Hence, the court should dismiss the suit.