The recent departure of former Securities and Exchange Commission (SEC) Chair Gary Gensler has not put an end to the agency’s enforcement-focused approach towards the crypto industry. Justin Slaughter, Paradigm’s vice president of regulatory affairs and a former advisor to the SEC and Commodity Futures Trading Commission (CFTC), has highlighted that regulatory pressure has now shifted to the state level with the new federal leadership in place.
Slaughter emphasized that the ongoing state-level lawsuits against crypto exchanges, particularly Coinbase, are a clear indication that enforcement efforts have not ceased but rather shifted. He mentioned that during US political transitions, outgoing federal officials often encourage state actors to continue pursuing unresolved agendas. This has led to states like Oregon filing separate lawsuits against Coinbase based on state law, mirroring the SEC’s earlier case but with some key distinctions.
The Oregon Attorney General’s office made targeted edits to its complaint, including reducing references to “crypto asset securities,” a term criticized by the crypto industry as imprecise. This shift to state-level enforcement demonstrates the challenges faced by the crypto industry in the absence of comprehensive federal legislation. Slaughter warned that without a unified regulatory framework at the federal level, crypto firms will continue to grapple with a patchwork of differing state rules and court rulings.
The lack of federal legislation has allowed for the proliferation of state-level cases, each operating under different legal standards and procedures. This can result in inconsistent legal outcomes across jurisdictions, making it harder for crypto firms to defend themselves and seek uniform treatment under federal law. Slaughter stressed the urgent need for Congress to craft legislative solutions for the digital asset sector to address regulatory uncertainty effectively.
In conclusion, the persistence of enforcement actions, whether at the federal or state level, underscores the importance of legislative solutions for the crypto industry. As Slaughter aptly put it, “this issue won’t go away or go back in the bottle.” It is imperative for regulators to work towards creating a clear and coherent regulatory framework that provides certainty and stability for the digital asset sector.