My Crypto Lawyer
- “OFAC does not deserve respect. It deserves repeal,” Voorhees said
- Several crypto observers are combating Bankman-Fried’s DeFi proposals
Sam Bankman-Fried asked for critiques on his proposed crypto regulatory framework this week. The FTX head is certainly getting what he asked for.
Bankman-Fried’s outline on Wednesday included a disclaimer, saying the potential set of standards is not “exactly correct” and is “just a draft.”
In the blueprint, he laid out how he believes hacks can be limited and how FTX plans to decide which cryptoassets are securities. He also proposed customer protection standards and a mechanism for audits to confirm stablecoins are appropriately backed by fiat.
He also proposes regulation using “blocklists,” a move that would ban blockchain transfers between sanctioned parties.
“Maintaining a blocklist is a good balance: prohibiting illegal transfers and freezing funds associated with financial crimes while otherwise allowing commerce,” he said.
Added: Bankman-Fried: “Everyone should respect OFAC’s sanctions lists (which, by the way, is already the law).”
A US Treasury subsidiary, OFAC, or the Office of Foreign Asset Control, enforces sanctions against foreign nation-states, blacklisted individuals and red-flagged corporate entities. The aim is to prevent any and all US trade with those slapped with sanctions — a measure that is particularly in play at the moment regarding Russian oligarchs, following the country’s invasion of Ukraine.
A spokesperson for FTX declined to comment.
Concerns over ‘respect’ for OFAC in SBF’s regulatory framework
On the face, Bankman-Fried appears to be suggesting mostly logical rules that would safeguard consumers, especially vulnerable retail investors.
But Erik Voorhees, ShapeShift co-founder, took up a number of concerns with the crypto billionaire. Voorhees, an early Bitcoin adopter, is one of several high-profile industry participants to speak out against some of Bankman-Fried’s proposals.
Although Voorhees agreed on the need for transparency and scam prevention, he did have opposing views on two key proposals: respecting OFAC and licensure for DeFi-related activities.
He said OFAC’s list includes entire countries and took the example of sanctioned Iran, pointing out that it’s illegal for an American to do business with an Iranian.
“You know those insanely brave Iranian women standing up against oppression in Iran right now? Those women espousing the greatest American virtue of individual liberty and doing so while literally facing torture and death?” he said, referring to the women protesting against the “morality police” in Iran over the death of 22-year-old Mahsa Amini.
“If you’re an American, it is illegal for you to interact economically with those women, because of OFAC.”
Bankman-Fried suggesting that the crypto industry should respect OFAC is “unbecoming,” he added.
SBF advocates licensure for DeFi activities
Bankman-Fried’s latest thoughts on DeFi are the “most problematic” of his new blueprint, according to Voorhees.
The crypto entrepreneur said the likes of hosting websites on platforms such as Amazon Web Services, which provide a US retail front-end for decentralized protocols, should require some license or registration.
Such a move would require know-your-customer [KYC] checks to use a platform such as Uniswap.
“It would mean 80 million Iranians would be prohibited from accessing functions on Etherscan,” he said. “It would even mean a non-custodial Bitcoin wallet interface would be required to spy on its users and report suspicious activities to FinCEN [Financial Crimes Enforcement Network].”
Crypto exchanges such as FTX, Kraken and Coinbase already fall subject to those obligations, he said.
“With Sam’s above suggestion, the burdens would be expanded to every front end access point to the world of DeFi,” Voorhees said.
Bankman-Fried admits he could be wrong about some of his suggested policies — and clarified he didn’t mean DeFi should be censored.
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