Hello Whales and welcome to the little newcomers who have just joined us in the Premium edition! There are more of you every week. Thank you so much 😍

To devour this week

🖊️ Editorial

🗣 Our exclusive news

⚡ The future of Exchanges

🇬🇧 a16z in Europe

THE BIG SPLASH

The world turned upside down 🙃

What a symbol! While the US stock market watchdog (SEC) is firing on all cylinders against the two biggest exchange platforms on the planet, several Wall Street giants have just announced plans to get into... crypto. Yes, in crypto, and we're not talking about just anyone since we're talking about players like BlackRock 👀.

The biggest asset manager on the planet ($9 trillion 🤑 ) has filed for a Bitcoin Spot ETF, i.e. a product based on hard and soft bitcoins, which would be an historic first (read our article).

For its part, Germany's leading bank, Deutsche Bank, has applied for a licence to hold digital assets, and Fidelity, none other than one of BlackRock's biggest rivals, has launched its Crypto Exchange with two other US giants.

Of course, BlackRock, Deutsche Bank and Fidelity didn't just wake up to cryptos a few days ago. Their plans go back well before the SEC's offensive, but there's nothing innocuous about the concomitance of the announcements: while the crypto industry is struggling, the champions of finance 2.0 are advancing their pawns and want to occupy the terrain of finance 3.0.

Will they succeed? That's the question 🧐.

What's certain is that the regulator, especially in the United States, will never look unfavourably on the arrival of players like BlackRock with whom it is used to working. It will allow them both to show that they are in favour of innovation - by authorising BlackRock's Bitcoin ETF? -

Faced with this "topsy-turvy world", there are no 36 solutions for the crypto industry. It has the choice of entering into open conflict with the regulator, with all the risks that entails, or it can try to adapt to the framework that is being built, hoping to make the most of it. This is what some players in the sector have begun to do, as our survey (Big Report) shows, not without some success.

THE BIG NEWS

Our exclusive news 🔥

👉 Adan: towards a new governance?

Will there be a match for the presidency of Adan (Association for the Development of Digital Assets)? With just a few days to go before the renewal of the board of directors, which will then have to elect the chairman, there are not many candidates. The current chairman, Faustine Fleuret, is standing for re-election, and according to our information, only entrepreneur Frédéric Montagnon* is also a candidate.

The chairman of Arianee, who is responsible for the NFTs committee within Adan, made his candidacy official yesterday.

The new members of the board (10 people) will have to decide between the two candidates in an election due to be held in early July. However, according to our information, Frédéric Montagnon is not expected to go all the way and will leave the current chairman, Faustine Fleuret, alone in the running. "There was no campaign, so he doesn't stand a chance," slips in one Adan member.

Beyond the question of the presidency, the idea would be to evolve Adan's governance with the rise in power of committee heads who would occupy more strategic roles. One of the preferred options is for them to become vice-presidents. "The question is how many vice-presidents there will be," slips in one Adan member.

There are currently four committees: one on NFTs chaired by Frédéric Montagnon, one on decentralised finance chaired by Marc Zeller (Aave Chan Initiative), another on PSANs chaired by Nicolas Louvet (Coinhouse) and the last on the legal side which is chaired by lawyer William O'Rorke.

* Frédéric Montagnon is an individual minority investor in The Big Whale.

The Big Whale launches its breakfasts 🔥

When we talk about Web3, we often talk about the theory, but not enough about the practice and the real impact of cryptocurrency-related technologies. That's why we've decided to launch our monthly themed breakfasts.

For this first edition, we've chosen to look at the luxury industry. 💎 Several major brands such as Christian Louboutin, Le Bristol Paris and Hennessy will be coming to speak.

See you on 27 June at WeAre in Paris. There are only 50 places available! Don't hesitate to take yours. 😎

THE BIG REPORT

Investigations, regulation... What future for crypto Exchanges?

By Grégory Raymond (in Paris)

The regulatory battle that is starting in the United States could shatter the historical trading platform model. While European players appear to be better equipped to deal with the new environment, their derivatives are nevertheless likely to require additional licences.

👉 US exchanges soon to be stock exchange operators?

The complaints filed against Coinbase and Binance by the US financial watchdog (SEC) at the beginning of June triggered shock among most exchange platforms.

Beyond the details of each case - there is a potentially criminal component at Binance - the fact that the SEC considers most cryptos to be securities has a huge impact on the Exchanges model. The situation is simple: if they want to continue operating, US platforms are going to have to apply for the appropriate licences and move closer to the... traditional stock exchange model.

"Unlike in Europe, there is no dedicated status for companies providing services on digital assets in the US," points out Morgane Fournel-Reicher, a specialist in US banking and financial markets law for Kramer Levin.

📌 Across the Atlantic, the concept of crypto has no legal status.

"For years, there has been vagueness about the status that companies providing such services were required to obtain, and most only hold state money transmitter licences that mainly only relate to anti-money laundering and anti-terrorist financing obligations," she points out.

To comply, US platforms such as Coinbase and Kraken will therefore need to comply with obligations under the Securities Exchange Act of 1934, which regulates providers offering services in financial instruments on the secondary market.

The problem is that this involves a Copernican revolution for platforms that have never operated on the principle of a traditional stock exchange 🙃.

"This requires companies like Coinbase to structure themselves in a completely different way, including the separation of digital asset custody and registrar activities, and potentially even close access to retail investors!", says Morgane Fournel-Reicher.

"The Exchanges are now centralising all activities within a single structure", continues the lawyer.

The SEC is not the only player to call for the separation of the activities of exchange platforms. After the collapse of FTX, some voices in the web3 ecosystem had also stressed the need.

"Platforms should be used to buy and sell cryptos, not to hold them," said in November in The Big Whale Ledger CEO Pascal Gauthier.

As it stands, Coinbase doesn't see it that way and has decided to take its fight with the SEC to court, arguing that digital assets are not "financial securities".

This decision paves the way for several years of proceedings. "Probably between three and five years", blows a player operating on US soil.

👉 Why are Coinbase and Binance the only ones to be worried?

It is interesting to note that only Coinbase and Binance have - for now - been attacked (as well as Kraken, but only on its staking service). This could be explained by the fact that these platforms are the largest on the market and offer several hundred crypto currencies.

Coinbase adopted a very aggressive listing approach in 2021, just a few months after its IPO was authorised by... the SEC.

"Since 2021, Coinbase has gone from 130 to more than 400 cryptos available," explains Clara Medalie, director of research at Kaiko in New York. "Binance US accelerated at the end of 2021 from 120 cryptos to 300 in March 2023," she adds.

(Note: Bittrex filed for bankruptcy at the beginning of May 2023)

The other Exchanges such as Kraken, itBit (the Paxos platform) or Gemini, meanwhile, have been very cautious in their listing strategy, which could explain the SEC's relative benevolence towards them.

A sentiment corroborated by Jean-Baptiste Graftieux, CEO of Bitstamp, the world's seventh largest platform (read his interview).

"We only offer around 20 cryptos in the US, because we anticipated that some tokens might just be reclassified as financial securities," says the French boss of the Luxembourg-based company.

"To authorise the listing of a token, we follow a very strict process that contains around 400 questions and that we have supervised by independent players", he insists.

According to the teams at the Luxembourg platform, this stage is quite meticulous and the listing is not approved without being convinced that a crypto project is not at risk of being requalified as a financial security. So many precautions that must please the regulator.

The listing of cryptos by Exchanges has often been very opaque. Some have not hesitated to ask - under the table - for up to a million dollars to add tokens. It is not known whether this practice, which was very common between 2016 and 2018, still takes place today.

👉 Which cryptos officially qualify as financial securities?‍

Theoretically, only Bitcoin (BTC) is officially considered in the United States not to be a financial security. The first cryptocurrency is seen more as a commodity or raw material in the eyes of regulators.

For ether (ETH), it's more complicated: the second-largest market capitalisation was once considered by the SEC to be a kind of commodity, but the change in its consensus algorithm in September 2022, to Proof-of-Stake (read our feature), is said to have changed the regulator's perception. We should know more soon 👀.

According to the SEC's various grievances, around sixty tokens have officially been classified as unregistered financial securities to date.

Among the most capitalised are: Binance Coin (BNB), Ripple (XRP), Cardano (ADA), Solana (SOL), Polygon (MATIC), Binance USD (BUSD), Cosmos (ATOM), Internet Computer (ICP), Filecoin (FIL), Near (NEAR), Algorand (ALGO), The Sandbox (SAND), Decentraland (MANA), Axie Infinity (AXS), Chiliz (CHZ), Flow (FLOW), Nexo (NEXO).

"Even if the US exchange platforms were to become traditional stock exchanges, there are also doubts about the ability of the holders of crypto projects to legally register with the SEC in order to offer them to the Exchanges," warns Arnaud Touati, partner at Hashtag Avocats.

"Compliance costs are enormous, there are a lot of barriers that favour traditional finance", he laments.

👉 What consequences in Europe?

Thanks to the MiCA regulation, which will be applied from mid-2024, platforms operating in Europe should not experience the same problems with the nature of digital assets.

"Financial instruments and crypto-assets are precisely defined and distinguished in Europe," explains William O'Rorke, partner for disruptive technology law firm ORWL Avocats.

As a result, PSAN registration is sufficient to offer the purchase/sale of cryptos, and most of them should not be requalified as financial securities in Europe.

There remains some uncertainty, however, for platforms wishing to offer derivatives such as futures. In particular, Binance has suspended access to futures for its European customers during 2022.

"Companies registered as PSANs (and tomorrow CASPs under MiCA) can only provide services on digital assets, but the latter are a subsidiary qualification that cannot be retained if the asset in question contains elements that allow it to be classified as a financial instrument," insists Morgane Fournel-Reicher.

In the United States, platforms have all been aware of this risk for several years. No individual user of Coinbase or Binance has access to futures contracts. This type of product is only offered to institutional investors on the Chicago Mercantile Exchange (CME).

👉 What framework for crypto derivatives in Europe?

This case has not yet been fully decided and is the subject of much discussion.

According to experts involved in several ongoing cases, the regulations are not appropriate, because they were designed for traditional financial contracts, but also because they were not designed for platforms aimed directly at retail customers.

At present, it seems fairly likely that Exchanges offering futures contracts in Europe will have to apply the rules relating to investment firms under the European MiFID 2 (Markets in Financial Instruments Directive).

According to our information, at least one platform operating in Europe is giving this very serious thought. This would enable it to broaden its scope of products available for trading, and in particular security tokens.

"Even if crypto Exchanges claim that they do not deal in traditional financial securities, as soon as they offer derivatives, they fall within the scope of financial regulation with standardised rules," blows a banking source.

A crypto platform wishing to list financial instruments would therefore have to apply for investment firm status operating a multilateral trading facility or an organised trading facility (an unregulated market).

The conditions for obtaining this status are similar to those required for PSAN authorisation (guarantees in terms of governance and shareholding, equity and prudential capital, internal procedures for preventing conflicts of interest, internal controls in terms of LCB-FT, supervision of outsourcing, obtaining the regulator's approval of its market rules, etc.).

The conditions for obtaining this status are similar to those required for PSAN authorisation (guarantees in terms of governance and shareholding, equity and prudential capital, internal procedures for preventing conflicts of interest, internal controls in terms of LCB-FT, supervision of outsourcing, obtaining the regulator's approval of its market rules, etc.).).

The only difference, and it's a big one, is that the level of requirements is... much higher 😅. And certain points are likely to complicate the organisation of crypto platforms, as these markets must not be accessible to private individuals. Only intermediaries with regulated status are allowed on this kind of market.

"Unlike crypto companies, trading platforms are not in direct contact with their investors, but with companies subject to supervision by regulators, who are themselves in contact with retail investors," points out Morgane Fournel-Reicher of Kramer Levin. Quite a system!

Not to mention the fact that custody, registrar and clearing activities must be operated by separate companies, each subject to its own authorisation. However, in the case of crypto companies, these activities are concentrated within a single entity and under the same authorisation.

Listen to this week's Big Talk replay to find out all about Uniswap V4 🎙️

THE BIG FOCUS

Europe : a16z arrival sparks excitement

By Raphaël Bloch (in Paris)

The world's largest Web3 fund announced 10 days ago that it was setting up an office in London, at a time when the SEC is waging a major offensive against cryptos in the United States. In Europe, many welcome the move.

The rest is available on The Big Whale website 🐳.

This edition was prepared with ❤️ by Raphaël Bloch and Grégory Raymond. The Big Whale is a free and independent media. By supporting us, you are contributing to its development.