SEC Investigating Uniswap Labs

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Sept. 3, 2021

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Today's must-reads

Top Shelf

CHINA CRACKDOWN: The People’s Bank of China has again warned banks and payment services providers to stay away from virtual currencies. In its 2021 Financial Stability Report, the central bank said crypto, peer-to-peer lending, online asset management and crowdfunding have been “rectified” and will once again come under normal supervision. The PBOC and other authorities have been cracking down on crypto and related industries since mid-May, enforcing its anti-crypto stance from 2013 and 2017.

UNISWAP INVESTIGATED: The U.S. Securities and Exchange Commission is investigating the developer of decentralized exchange Uniswap, seeking information about how investors use the exchange and how it is marketed, according to a Wall Street Journal report citing people familiar with the matter. While detail is still scant regarding what the SEC wants to know, the news is a sign of the regulator showing intent to wield greater oversight of DeFi, something Chairman Gary Gensler has hinted at in recent comments.

SALVADORAN SKEPTICS: The majority of Salvadorans disagree with their government over adopting bitcoin as legal tender, according to a Central American University poll. Nearly 70% of the 1,281 people surveyed either disagreed or strongly disagreed with using bitcoin as legal tender, though about 90% also did not have a clear understanding of bitcoin. The bitcoin law will take effect on Tuesday.

SBI HODLIN’: Japanese financial services group SBI Holdings intends to launch a cryptocurrency fund targeted toward long term retail buyers before the end of November. The fund could total several hundred million dollars in bitcoin, ether, XRP, bitcoin cash, litecoin and other cryptocurrencies and require a $9,00 to $27,000 minimum investment, according to Tomoya Asakura, president of SBI affiliate Morningstar Japan K.K.

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Putting the news in perspective

The Takeaway

Bitcoin Won’t Save the Afghan People

Over the past few years, the residents of countries in financial distress have increasingly turned to cryptocurrency. In Venezuela, the Philippines, Kenya and Nigeria, crypto adoption has been bottom-up. In El Salvador and Cuba, governments are moving to formalize the role of crypto in ways that could make it easier for citizens to use.

But even as a Taliban takeover seems poised to cut Afghans off from the global financial system and desperately needed international aid, the crypto option is unworkable for most residents of the central Asian nation.

“I want there to be a use case for [using crypto for] humanitarian relief in Afghanistan,” said Alex Zerden, a former U.S. Treasury Department attache to the American embassy in Kabul. “But there are so many structural problems – 90% of the country lives on less than $2 a day. A lot of people don’t have cell phones, much less smartphones. Most people can’t read and they’re innumerate.”

Zerden, who served at the embassy from 2018-2019, is now an Adjunct Senior Fellow at the Center for a New American Security, and runs a consulting firm focused on cryptocurrency.

The gap between Afghanistan and the likes of Venezuela may seem small from a distance, but it’s not. With a GDP of about USD$14,000 per capita as of 2014, Venezuela was formerly a high-income country as classified by the World Bank, with a highly educated populace and fairly robust infrastructure.

Afghanistan’s GDP per capita in 2020 – even after two decades of a U.S. occupation that made gestures towards development – was just over US$500.

Much of even that tiny amount came from foreign aid, which will now be severely constrained. Outside of major cities, necessities like water and food have remained hard to come by, to say nothing of the hardware and know-how needed to use crypto networks.

How, then, did Afghanistan manage to rank 20th in the world for cryptocurrency adoption in an August Chainalysis report?

According to Zerden, that volume was likely driven by the Afghan elites, mostly in Kabul, who have enriched themselves through U.S. spending and rampant U.S.-enabled corruption.

Afghani crypto flows are “likely capital flight for some wealthier Afghans to get money out,” Zerden says. “I don’t think it’s money coming in.” Urban Afghan elites have also used conventional banking to move money to places like the UAE, Turkey and even the U.S. itself.

The impracticality of crypto usage by average Afghans points to a bleak future. The country’s currency is collapsing amid skepticism the Taliban can run an economy, leaving conventional banking in the country on the brink of collapse. Afghanistan’s new Taliban rulers are among those sanctioned by the U.S. Office of Foreign Assets Controls (OFAC), also including the new head of the Afghan central bank. Nearly $10 billion worth of Afghan central bank reserves held abroad have been seized to keep them out of Taliban hands.

Meanwhile, the foreign aid from U.S. and other governments that has made up 40% of Afghanistan’s GDP is largely drying up, meaning Afghans will be even poorer, and soon. The banking blacklist means non-government organizations (NGO) hoping to fill that gap will face serious challenges getting money into the country and into the hands of Afghans.

The bleak situation is a harsh reminder that crypto and technology can’t fix everything. But neither, it seems, do war and occupation.

–David Z. Morris

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