The Block: US regulators may spell Armageddon for crypto, but they’re not wrong: Compound’s Leshner

Recent crackdowns by U.S. regulators in the crypto industry are a “planned set of product takedowns” and risk annihilating the young market, Compound Labs founder Robert Leshner said. They’re not wrong, either.

“They’re opening up in a lot of ways a new front in the war against crypto,” Leshner told The Scoop’s Frank Chaparro in a podcast. “The argument that they’re making in both cases is that Kraken and Paxos are not following investor protection guidelines. Namely, there are risks that are not being disclosed. And what’s interesting about this is this is a somewhat valid argument.”

“Genuinely, people don’t actually know what’s happening under the hood of Kraken or where their assets are going and how it works,” he said. “This is the problem at FTX. It was a problem in Celsius, and it was the problem that made all of the dominoes that fell. You didn’t actually know what was happening within their black box.”

The New York Department of Financial Services this week ordered Paxos to stop issuing BUSD, and last week Kraken agreed to end its staking operations after settling with the Securities and Exchange Commission. In early January, the Federal Reserve, the Office of the Comptroller of the Currency and the Federal Deposit Insurance Corp. put out a joint statement that reminded banks of their safety and soundness obligations and outlined risks they see in the cryptocurrency sector.

“If there’s an argument that USD coin and tether are securities and this winds up being contested over months and years, if it doesn’t go the right way in a lot of ways, I think it’s an Armageddon scenario for a lot of crypto,” said Leshner, whose Compound Labs is an open-source autonomous protocol for developers. “The majority of online activity is stablecoins and for the U.S. government or a U.S. agency to start to put a tight leash around stablecoins, it jeopardizes a lot of the foundations of DeFi and crypto and what makes these networks exciting in the first place.”