Zachary Coburn founder of Etherdelta has been prosecuted by the US financial regulatory authority the SEC for running an unregistered securities exchange.   Coburn has agreed to pay $300,000 in disgorgement (repayment of illegal gains) in order to prevent an aggressive punitive prosecution. He also paid another $88,000 in the form of penalties and interest. This is all despite the fact that Etherdelta was just another ERC20 contract on the Ethereum chain, is decentralized and Coburn left Etherdelta in late 2017.

EtherDelta had both the user interface and underlying functionality of an online national securities exchange and was required to register with the SEC or qualify for an exemption,

Stephanie Avakian, Co-Director of the SEC’s Enforcement Division.


This has serious implications for crypto –

  • Decentralization do not protect entities from prosecution by individual hostile states
  • Decentralization does not protect individuals, or potentially even users, from prosecution from individual hostile states.
  • The door is now open for other hostile states to prosecute Coburn.
  • Decentralization potentially allows every hostile state to attack that entity and persons operating within it. Instead of being a merit decentralization becomes a liability.

If the SEC starts going after more decentralized exchanges, and it is suggested that they will, then no decentralized exchange is safe and the model will be dead. The only option will be to do what non-decentralised exchanges like Bittrex is doing and separate US accounts from others. If other states start behaving aggressively it is going to get more and more complicated with all exchanges insisting on KYC. Idex has recently introduced KYC and that has alienated itself against crypto uses and caused a huge backlash. Even so it is still open to being prosecuted for historical trading.

Although this judgement might just sit in many people’s peripheral vision it is potentially one of the most significant developments in crypto to date. I’d love to hear other people’s opinions on this.

Source: https://www.sec.gov/news/press-release/2018-258

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Responses

  1. Luke Phoenix

    You wrote: “The door is now open for other hostile states to prosecute Coburn.” Etherdelta Company Location‎: ‎Chicago, IL USA. The SEC easily prosecuted him because he was incorporated in the US and operating outside their laws. This in no way opens the door for other nations to prosecute Coburn.
    You wrote: “Decentralization potentially allows every hostile state to attack that entity and persons operating within it. Instead of being a merit decentralization becomes a liability.” When did you ever see another country go after a crypto company for securities when incorporated in a different location? Also, the article includes nothing to believe that the SEC is going after the co-founders or ‘persons operating within’, You mentioned no attack of them in any way and yet it is a threat?

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    1. SugarFix Post author

      If you read the administrative proceeding https://www.sec.gov/litigation/admin/2018/34-84553.pdf you can clearly see that this action is taken against an individual and NOT a corporation. If Etherdelta had been incorporated in the US he would be protected as an individual by corporate law and the corporation would have been prosecuted. Chicago is merely Coburn’s place of residence.

      “When did you ever see another country go after a crypto company for securities when incorporated in a different location?” If a case is groundbreaking and a first then there will, by definition be no other cases in existence. Again let me state that this a case against an individual not any corporation so your point is moot.

      “Also, the article includes nothing to believe that the SEC is going after the co-founders or ‘persons operating within’,” what part of my post or the SEC statement are you referring to here? The SEC statement DOES say the case is ongoing ie. it is not resolved.

      As a site administrator don’t you think you should be setting an example and not giving 1 star to posts you object to? You grade on quality of the post not on content. This is especially true when you do attack things that the post does not cover. Abusive behavior by site administrators/editors only serves to damage the reputation of Trybe and alienate the community.

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  2. Miguel A. Cabanes

    Hi there!
    Sooner or later regulations and attacks from the States have to come; I even think that is a positive sign: that means they’re affraid of how big is becoming the cryptoworld and want to make things difficult.
    I guess we’re the future and the cryptoworld will finally gobble up the current economic model!
    Regards!

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  3. Beautifulbullies

    I am far from an expert, in fact I know next to nothing lol But I was under the impression that all the exchanges used KYC anyway? And if not the exchanges, then the front end services like coinbase where we can actually access and use out crypto? Am I wrong in thinking this?
    BB 🙂

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