ShapeShift Offers SEC Settlement over Alleged Irregularities: Continues Operations as DAO
Summary:
Cryptocurrency exchange ShapeShift has presented a settlement proposal to the US Securities and Exchange Commission (SEC), agreeing to pay a penalty and halt operations. The SEC has alleged that ShapeShift, which transitioned into a decentralized autonomous organization (DAO) in 2021, functioned as a crypto "vending machine" from 2014 to 2021. ShapeShift has now agreed to pay a $275,000 penalty for its operations. The ShapeShift DAO continues to use the same web address as the old exchange, and its FOX token is still actively traded. Observers note this case underscores the ongoing regulatory ambiguity in the cryptocurrency market.
The U.S.-based cryptocurrency exchange, ShapeShift, has presented a settlement proposal to the United States Securities and Exchange Commission (SEC), in which it agrees to the agency's order to halt operations and pay a financial penalty. The exchange ceased the implicated activities last year, which was when it transitioned to a decentralized autonomous organization (DAO). The SEC had alleged that from 2014 until early 2021, ShapeShift operated an online platform that functioned like a crypto "vending machine". The platform acted as a "market maker" and counterparty for trades, enabling the generation of profits from price spreads. The SEC summarised the process as ShapeShift buying and selling crypto assets based on customer demand.
For several years, ShapeShift had kept its offices in Colorado, while maintaining its incorporation in Switzerland. At its height, it offered up to 79 different assets. According to SEC's statement, some of these were considered securities as per the Securities Exchange Act of 1934 and the Howey test. For its part, ShapeShift agreed to pay a penalty of $275,000.
As it stands today, ShapeShift no longer has any full-time employees or a consistent income source. It announced the termination of its corporate structure in July 2021 and moved to become decentralized and open-sourced. In 2019, ShapeShift introduced the FOX token and allowed its holders to trade without fees. It gave the FOX token a governance role in 2021, and announced plans for the largest airdrop in history.
Regarding its regulatory pressures, ShapeShift founder Erik Voorhees noted that they transitioned the regulated functions to an "immutable decentralized protocol" in response to the evolving regulatory environment. As of now, the ShapeShift DAO operates using the same web address as the previously defunct exchange, and the FOX token is still actively traded. As of March 2021, the highest recorded price of the FOX token was $1.68, but it currently trades at $0.09, with a market valuation of $38.9 million.
Upon the SEC-ShapeShift settlement, SEC commissioners Hester Peirce and Mark Uyeda, both proponents of cryptocurrencies, issued a joint statement. They commented that no harm was done by ShapeShift, as all transactions were voluntarily performed by its customers, and no fraudulent actions on the part of ShapeShift were alleged. In their statement, Peirce and Uyeda illustrated a conversation between a future version of ShapeShift and the SEC, pointing out the regulatory ambiguity that the SEC enforces, terming it as untenable.
Published At
3/6/2024 9:12:41 PM
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