Kiffmeister’s #Fintech Daily Digest (12/17/2020)

Robinhood pays $65m to settle SEC claims it mishandled trades

Robinhood has agreed to pay $65m to settle U.S. Securities and Exchange Commission (SEC) charges that it failed to provide its customers with the best prices for trades on its platform. While Robinhood promoted its services as “commission free”, its customers’ orders were processed at prices “inferior” to other brokers. They also failed to disclose payments received from high-speed trading houses that process its orders. The SEC found that Robinhood had deprived customers of $34.1m because of those payments. 

Crypto firm Paxos raises $142 million in latest funding round

Paxos raised about $142 million from its series C round of funding from investors including Paypal. The New York-based company, which provides blockchain-based services to financial institutions and operates a cryptocurrency exchange, has raised more than $240 million in funding so far. Paxos has also submitted an application to the U.S. Office of the Comptroller of the Currency to become a federally regulated bank. It already has a trust charter and a number of other regulatory certifications. 

The Unintended(?) Consequences of the STABLE Act

The recently introduced STABLE Act aims to ban any stablecoin that is not issued by a federal bank, whether it is issued by a state-regulated trust company, like Gemini Dollars, a consortium of state-licensed money transmitters like USDC, or by an Ethereum-based smart contract like Dai. This article claims that the logical consequence is that if any person is running software that validates Dai or other stablecoin smart contracts (the Ethereum network client) they will, themselves, be violating the law unless they are a chartered bank.  Hence, this bill would have the effect of also destroying the larger Ethereum network and any other smart-contract-enabled public blockchain as necessary collateral damage. However, according to Rohan Grey, one of the authors of the bill

It is “quite clear that only *stablecoin issuers* are required to get a banking license. The question about node operator liability came up in the context of a hypothetical open network in which there were no identifiable actors above nodes. My point in that conversation, which was subsequently distorted for sensationalist fundraising purposes, was that *if* such a network existed, then yes, the obvious response would be that the node operators that comprise the network would be liable for the behavior of the network. But in practice, this was vanishingly unlikely because in any actual network there are a range of systemically important actors above the node-layer that can and would be held responsible first. So the veil of decentralization is ultimately just that, a veil.

[Also,] regulators have the capacity to establish a safe-harbor for node operators (with appropriate caveats for the defi network scenario where such liability would be appropriate). Requiring regulators to give ongoing written approval of the scope of allowed activity is not an uncommon regulatory approach and doesn’t necessarily imply all action within that space will be banned forever. There are also clear exemptions for non-commercial activity, which would be a strong prima facie defense for any individual running a raspberry pi at home. 

Circle Confirmed Freezing USDC at Law Enforcement’s Requests

In the past, the Centre Consortium has blacklisted USDC addresses in response to law enforcement requests. Centre said it complies with all binding court orders that have appropriate jurisdiction over the organization. USDC runs on the Ethereum network, and a transaction on Etherscan indicates that, in the past, Centre has called “blacklist(address investor)” functions on addresses, essentially freezing all coins on them. When an address is blacklisted, it can no longer receive USDC and all of the USDC controlled by that address is blocked and cannot be transferred on-chain.