The US is going after Binance. Should the industry worry?

In Token Issue this week, we look at the CFTC lawsuit against Binance and what it means for the crypto industry. Despite reports, this is not the end. [Read from your browser]( Token Issue Welcome to Token Issue! Delivered every Friday, this free newsletter breaks down the biggest stories in Asia’s crypto scene and beyond. View past issues [here]( or [sign up here]( to receive future newsletters. Written by Scott Shuey Crypto journalist Hi {NAME} It’s not been a good week for the once-mighty leaders of the cryptoverse. The US government has filed a civil suit against Binance CEO Changpeng Zhao, better known as CZ; European officials arrested Terraform Labs’ disgraced CEO Do Kwon in Montenegro; and prosecutors added another charge against FTX’s Sam Bankman-Fried, this time for allegedly paying a US$40 million bribe to Chinese officials. It’s the announcement of the civil lawsuit against Binance that has the crypto community on edge. As the largest centralized exchange, there is a growing fear that if it falls, it’s game over for most of the industry. But let's not get ahead of ourselves. I’ve spent the last few days talking to crypto founders and lawyers, and everyone tells me there is a lot that can still happen. So let’s get into it. -- Scott  ---------------------------------------------------------------  🤿 THE DEEP DIVE   [US civil suit against Binance.com: What's the real motivation?]( Just a few weeks ago, I wrote about [Binance.com’s growing dominance]( during the crypto winter. It was very clear when writing that story that Binance’s primary goal over the past three years has been to extend its already dominant market share using every trick in its books, from enabling trades without fees to [cutting their competitors]( off at the knees. As a result, Binance was only one of two exchanges to exit the crypto winter better off than how it was when the downturn began. But questions surrounding the crypto major's success have raised concerns. An investigation into its business practices by the US Commodity Futures Trading Commission (CFTC) resulted in a civil lawsuit this week. The agency alleges, repeatedly, that Binance’s guiding principle was “profits over compliance.” Of course, CZ responded, just about eight hours after the complaint was made public, calling it an “[incomplete recitation of facts.]( He promised that a complete response was in the works. We hope that includes telling us just how the CFTC got his Signal chats. Not everyone believes what the US is selling, though. Suing crypto’s largest centralized exchange just a week after three American banks collapsed has drawn some criticism. One local entrepreneur told me he suspects that the timing of this lawsuit has more to do with optics than illegal option trading. Other executives and lawyers suspect this case may never even make it in front of a judge. You can check out the industry vibe in this week’s Deep Dive.  --------------------------------------------------------------- 👀 ALL EYES ON... What everyone’s talking about. 1️⃣ [Montenegrin court ponders whether to extradite Do Kwon to South Korea or US]( We mentioned in last week’s newsletter that Do Kwon, the former CEO of Terraform Labs, was arrested in Montenegro. He is wanted in the US and South Korea on criminal charges relating to the collapse of the US$40 billion UST/Luna algorithmic stablecoin project. His arrest ends months of speculation that he was hiding in the Balkan region. He and another companion were allegedly caught trying to use Costa Rican passports to fly to Dubai. According to reports, the two were also carrying Belgian and South Korean passports. Kwon denied the passports were fake. Both the US and South Korea have said they want Kwon extradited. Montenegro usually only allows suspects to be held for 72 hours but a local court has extended Kwon’s detention for 30 days. He is appealing the extension. Montenegro’s justice minister said a judge would decide how to proceed. “Consideration will be given to the gravity of crimes, location of committed offenses, sequence of requests, as well as citizenship,” he said. However, if the suspects are convicted in Montenegro, they will have to serve time there first. 2️⃣ [SBF gets new charge: attempting to bribe Chinese officials]( FTX’s Sam Bankman-Fried was charged by US federal prosecutors with paying a US$40 million bribe to “one or more” Chinese officials to unfreeze Alameda Research accounts that collectively held about US$1 billion in crypto. This raises the total number of charges against the disgraced crypto frontman to 13. A bail hearing happened last night. A spokesperson for China's foreign ministry said she was not aware of the incident. The judge in SBF’s trial also seems to have reached the end of his rope with the 31 year-old. Judge Lewis A. Kaplan agreed to prosecutors' request to further limit his internet access, banning him from using a smartphone and restricting the websites he can visit. Prosecutors have previously accused him of trying to contact witnesses. And finally, Forbes has reported that SBF paid for his attorneys out of funds that he gifted, tax-free, in 2021 to his father Joseph Bankman, a Stanford University law professor. The US$11.7 million gift allegedly came from Alameda Research.  --------------------------------------------------------------- ⭐ TO THE STARS Impactful developments and projects in Web3. [Coinbase looking to make coins that are flat instead of stable]( Coinbase is promoting the use of inflation-linked “flatcoins” as a way to stabilize purchasing power and fight “economic uncertainty caused by the legacy financial system," according to a press release. Just how the flatcoins work is unclear and still somewhat controversial. The tokens are supposed to gain value over time to hedge the effects of inflation, but some crypto commentators have [blasted the idea]( as unworkable. The push for flatcoins has increased as confidence in stablecoins deteriorates. USD Coin’s market cap dropped 23% over the past three weeks from US$43.4 billion on March 10 to US$33 billion on Thursday. Meanwhile, BUSD is down 52% since February 13. Coinbase called the tokens one of its four main priorities for Base, a Layer 2 blockchain it launched last month for building decentralized apps. “With the recent challenges in our global banking system, we believe these explorations are more important than ever,” said the company. --------------------------------------------------------------- MORE TO CHEW ON Stuff that’s good to know. 1️⃣ [North Korean hackers are using new tricks to launder coins]( According to cybersecurity firm Mandiant, North Korean state-sponsored hacker group APT43 appears to be trying out a new method to cash out the funds it steals. It uses the stolen cryptocurrency to buy “hashing services,” which allow the group to rent time on devices used for crypto mining. Coins derived from these services have no apparent ties to criminal activity. 2️⃣ [EU mandate for kill switches in smart contracts raises concerns]( A revision of the European Union’s Data Act, published by the bloc’s member states on Monday, will require smart contracts to contain a kill switch. The proposed legislation has raised concerns from Web3 developers who say it defeats the purpose of smart contracts being automated and unalterable. 3️⃣ [HK regulators to host meeting to help crypto firms with banking]( Hong Kong regulators have scheduled a meeting on April 28 between crypto firms and bankers “to facilitate direct dialog” and “share practical experiences and perspectives in opening and maintaining bank accounts.” The move follows a plan announced by the city last year to make itself a digital assets hub. The session will be held jointly by the Hong Kong Monetary Authority and the Securities and Futures Commission. 4️⃣ [Alibaba launches blockchain lab in Japan]( Alibaba Cloud will launch a blockchain laboratory in Shibuya, Japan in April to help local game developers. The firm previously announced that it will launch blockchain node services in the country.  --------------------------------------------------------------- That’s all for this issue - we hope you liked it. WAGMI! P.S. Don't miss out on the biggest tech news and analysis. Add newsletter@techinasia.com to your address book, contacts, or safe sender list. Or simply move us into your inbox. Too many emails? Switch to a different frequency or get new content through our [preference center]( or [unsubscribe](. You can also break our hearts and remove yourself from all Tech in Asia emails over [here](  Copyright © 2023 Tech in Asia, All rights reserved. 63 Robinson Road, Singapore 068894