Goofy Gary

In February, we saw “Operation Choke Point 2.0”, the most coordinated regulatory attack on the crypto industry to date…and it immediately backfired.

Mar 09, 2023

Back in 2013, a government initiative called “Operation Choke Point” attempted to crush a couple industries the government didn’t like without dealing with that pesky little thing our Constitution calls due process. The idea was to stamp out these perfectly legal industries by choking off their bank access and ability to use financial services.

Sectors like online gambling, cannabis, & the adult film industry were targeted. All three are now bigger than before Operation Choke Point began. A lot bigger.

In February, we saw “Operation Choke Point 2.0”, the most coordinated regulatory attack on the crypto industry to date.

…and it immediately backfired.

The crackdown on centralized staking products like Kraken’s caused decentralized liquid staking protocols like Lido (LDO) to immediately rip +36.4%
The crackdown on centralized stablecoins and their operators (Paxos & Binance) caused a mass exodus to algo stablecoins
The crackdown on centralized banks, and pressure around Silvergate, caused everyone to move assets into DeFi
The crackdown on centralized exchanges post-FTX resulted in Coinbase to launch a decentralized L2 so more activity can happen onchain
The crackdown on centralized “DINO” projects (“decentralized in name only”) is driving devs to build DeFi & Web3 dapps on Bitcoin for resiliency

Two things are hilarious to me:

1) The SEC cracking down on centralized entities actually helps the decentralized economy they’re apparently trying to attack. There are now more people using decentralized staking protocols, stablecoin, & DeFi. Thank you, Gensler.

2) Every single one of their efforts to stifle innovation & adoption has expedited innovation & adoption. There are now more BTC hodlers than ever and a record high of 67% of all BTC in existence has not moved in over a year.

Only a government entity could screw up quite this bad.

Goofy Gary

The best part was the attempted gaslighting from the head of the SEC, Gary Gensler. After slamming Kraken with a $30m fine and forcing them to shut down their staking business, the SEC chair disingenuously claimed crypto firms can “just come in & register”. It’s so simple!

Obscene. Large segments of our industry have been asking in good faith for regulatory clarity for a decade. There exist entire organizations, conferences, working groups, as well as countless articles, open letters, and even direct conversations with regulators aimed at pushing for regulatory clarity and guidance for our industry.

I know because I’ve been a part of a lot of them. And I promise entrepreneurs in our space are not spending billions of dollars on lawyers to read the tea leaves in the SEC’s comments on crypto because their position is crystal clear…

SBF’s BFF (aka: Chairman of the SEC) wants to gaslight the public into thinking it’s as simple as walking into his office or filling out a form on the SEC website. But he’s been deliberately opaque on regulation even for those asking for it, and that’s exactly how an institution loses credibility.

No one’s buying it, and Kraken’s CEO, Jesse Powell — God bless his beautiful soul — rightly ratio’d the SEC into the stratosphere:

Bad Math

Let’s get right to the facts — not only do these monetary math tools not harm consumers, they provide enormous benefit to consumers: better products, lower cost, and higher quality with more transparency and greater security.

Look at M31 Capital’s portfolio. Competitors to Goldman Sachs, AWS, AT&T, Google, Microsoft, etc. Startups using blockchain tech to give better products to you, the user:

Arweave is AWS, but less expensive
Huddle is Zoom, but higher quality video
Aave is Bank of America, but 24/7
Helium is AT&T, but anyone can participate
Audius is Spotify, but artists keep their profits

Who are these technologies harming besides AWS, Zoom, Bank of America, and AT&T? Is it the SEC’s mandate to protect consumers or corporations?

It doesn’t actually matter. The tech doesn’t care. At the end of the day, we’re talking about an organization who thinks they can ban pure math…

First, Do No Harm

I’m not saying there’s nothing the SEC can do or that there’s nothing they should do. They should do their job: Provide clear guidance and stop bad actors.

At the moment though, they’re providing no guidance, utterly failing to prevent bad actors like Madoff, Holmes, Epstein, SBF… and then harshly punishing good actors like Coinbase & Kraken.

These regulators not only fail to prevent harm, but ironically have been the principle cause of harm. Countless China bans, interest rate manipulation, the “BitLicense”, SEC insider trading scandals, Gensler’s attacks on staking, refusal to approve a spot BTC ETF, “regulation by tweet”… regulators have caused consumers far more harm than protection.

They also bear responsibility for pushing the vast amount of well-intentioned users offshore into even sketchier and less regulated platforms, exposing users to more potential harm.

The lack of regulatory clarity drove American users right into the eager arms of SBF and his Polycule’s spidery network of offshore entities: users were scared to use DeFi products and U.S. platforms because Goofy Gary refused to clarify his position and users didn’t want to break the law, so they used centralized exchanges registered outside the US… like FTX.

Well done, Gary! Thank you for protecting us.

Goofy Gary learned his lesson though, right? Nope. In fact, he’s running it back! Same playbook: noncommittal regulation and a crackdown on the good guys, pushing them offshore.

Only this time, other countries are more than happy to take our best engineers.

Losing Faith

To be honest though, this kind of thing is no longer surprising. Most people don’t trust the establishment anymore because the establishment keeps proving it can’t be trusted.

They flip 180° on every topic until they lose all credibility and we move on to a more trustworthy alternative.

The notion that institutions have a stronger grasp on truth than individuals is crumbling.

Remember President Trump’s super serious “Permanent Lifetime Ban” from Twitter? That turned out to be nothing more than a 22 month timeout because words don’t mean anything anymore and there are no consequences for anything.

And people are tired of it. We crave permanence. We’re starved for scarcity.

Trump gets replatformed, but it’s too late. The damage is already done. We’re putting our energy toward Bitcoin now, the one institution that can’t flip-flop on us, and we’ll rebuild every single one of the legacy institutions onchain if we must.

Nostr Social Media on Bitcoin
Ordinals NFTs on Bitcoin
Lightning Network Payments on Bitcoin
Stacks Smart Contracts on Bitcoin

In an era of overabundance, scarcity trades at a premium. And in an era of no consequences — like one where not a single banker is jailed post-GFC, the client list never gets released, and SBF is still tweeting from the comfort of home — we want accountability assurances.

Cryptographic this time.

Conclusion

We monetized the crypto industry from $0 to $1 Trillion without help from corporations, and with active hindrance from regulators. Virtually ALL of that value was earned by individuals, not big institutions, and unlike other industries, we’ve never once begged for a bailout or a handout when things don’t go as planned.

Our industry built tech that works better than Silicon Valley, protects consumers better than the SEC, and allows them more fair economic participation than Wall St.

You’re welcome, Goofy Gary.