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4️⃣ It’s been four years…

It ain’t over ‘til the fat lady sings — or until an appeals court says it’s siding with Judge Analisa Torres’ decision in the SEC’s case against Ripple.

If you haven’t a clue what I’m referencing, the SEC filed yesterday to appeal the $125 million judgment in its case against Ripple. The case, which is now as old as a human toddler (and will celebrate its fourth birthday in December if it’s still going on by then), has been a long and hard-fought battle for both the SEC and Ripple.

The two sides had until Oct. 7 to decide if they were going to pursue an appeal. An SEC spokesperson told me that it filed the appeal because it believes the decision “conflicts with decades of Supreme Court precedent and securities laws.” 

Right now, we don’t really know what the appeal will look like, though the statement gives us some clues. 

What we do know, however, is that this appeal isn’t what some others in crypto — specifically looking at Bitwise — wanted to see from the SEC. Bitwise just filed yesterday for an XRP ETF. And Galaxy Digital’s Alex Thorn warned that the likelihood of success from Bitwise “drops to near zero” with an appeal.

Ripple and the SEC both notched wins and suffered some losses throughout the years. In July of last year, Judge Torres handed the two parties the biggest decision yet: Ripple’s programmatic sales of XRP didn’t constitute investment contracts. However, the double-edged sword was that Torres ruled that the institutional sales did.

“The vast majority of individuals who purchased XRP from digital asset exchanges did not invest their money in Ripple at all. An Institutional Buyer knowingly purchased XRP directly from Ripple pursuant to a contract, but the economic reality is that a Programmatic Buyer stood in the same shoes as a secondary market purchaser who did not know to whom or what it was paying its money,” she wrote at the time. 

At the time, the SEC sought to file an interlocutory appeal on the decision but was later denied. 

And now we’re here. It’s not a huge surprise that the SEC would appeal, after all they didn’t necessarily win on the final judgment either. Though, one could also argue that Ripple didn’t either. 

Basically, the SEC sought an eye-watering sum of $2 billion in the final judgment. Ripple, on the other hand, wanted a far lower sum of $10 million. In the end, Torres announced that Ripple would pay $125 million. When looking at the wide range, it falls closer to Ripple’s ask than the SEC’s request.

Following the decision, I was told by lawyers that it wouldn’t be surprising if the SEC sought an appeal. 

Ripple’s chief legal officer Stuard Alderoty agreed with that assessment, calling the appeal filing “disappointing.” 

“The Court already rejected the SEC’s suggestion that Ripple acted recklessly, and there were no allegations of fraud and, of course, there were no victims or losses,” he added. 

CEO Brad Garlinghouse reiterated that Ripple will continue to fight and didn’t mince words about the appeal.

“If Gensler and the SEC were rational, they would have moved on from this case long ago. It certainly hasn’t protected investors and instead has damaged the credibility and reputation of the SEC,” he said. “Somehow, they still haven't gotten the message: they lost on everything that matters. Ripple, the crypto industry, and the rule of law have already prevailed.”

Now we’ll just have to see if the Court of Appeals agrees with him.

— Katherine Ross

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• XRP’s down 11% after the SEC filed its appeal Wednesday.

• Bitcoin is at $60,758 early Thursday, down slightly from yesterday, as tension in the Middle East continues to weigh on it.

• Ether, however, is down 4% to $2,351.

• Long liquidations totaled $218 million in the past 24 hours and $56 million of shorts were liquidated.

• EIGEN is down nearly 25% from an all-time high of $4.53 earlier this week to $3.42 after it unlocked. 

• PYUSD’s market cap sits at $702 million, down over 21% in the past 30 days. It’s ranked ninth on rwa.xyz’s stablecoins list.

ETFs have been a key catalyst for digital assets this year. 

BlackRock iShares manages ~$3.3T globally across their range of ETF products, and CIO Samara Cohen will be at Permissionless to share her views on the growing nexus of the digital asset class and ETFs.

😵‍💫 From riches to rags

We hope you enjoy this sampling from one of our sister newsletters, Lightspeed. Written by Jack Kubinec and Jeffrey Albus, Lightspeed is all about Solana all the time.

Roughly a month and a half after its PYUSD supply vaulted past Ethereum’s, Solana’s stash of PayPal’s stablecoin has fallen back to Earth.

The stablecoin’s supply, once more than $660 million, has fallen to around $320 million, a decline of roughly 50% in about a month. Ethereum currently has a supply of $377 million PYUSD.

The drawdown comes as Kamino and other DeFi protocols wind down once-lucrative liquidity incentive programs that boosted yields for the stablecoin’s holders. Now, those yield farmers appear to have gone in search of greener pastures, raising questions about how worthwhile those incentives investments will prove to be in hindsight.

PayPal’s PYUSD is issued by Paxos, which has tried to peel away liquidity from the USDT-USDC stablecoin duopoly by contracting with a firm called Trident Digital for liquidity programs. After PYUSD launched on Solana earlier this year, Trident Digital facilitated liquidity incentives programs on multiple Solana DeFi platforms, where it would temporarily raise yields in an attempt to capture liquidity.

To do so, Trident Digital would dole out funds for DeFi protocols to pass on to users as a fraction of the various platforms’ PYUSD supply, which were subject to caps, according to a person with knowledge of the matter. These caps gradually lifted over time, and yields also declined over time. 

At around the peak of Solana PYUSD, $350 million in the stablecoin was earning 18% yield on Kamino. Today, the APY is at 9.24%, still nothing to sneeze at but seemingly less than some investors are willing to take. It’s unclear whether those incentives ultimately came from PayPal or the Solana Foundation’s coffers, and both organizations did not return requests for comment. 

There’s a version of this story where the funds for liquidity incentives were akin to wasted funds.

“Mercenary capital sucked up the $pyUSD incentives on Solana and left,” Kilian Boshoff, chief commercial officer of Swell, wrote on X.

But at the same time, PYUSD was never meant to be primarily used for things like DeFi lending. PayPal is a payments company, and its public messaging around PYUSD has centered around the usefulness of the stablecoin for things like remittances and payments. 

So, whether the PYUSD liquidity incentives were a worthwhile or ill-advised investment is definitely an open question, particularly given the recent supply decline. But it’s also premature to judge the deployment, which still represents a big step into Solana from one of the world’s largest fintechs.

— Jack Kubinec

• Banks in Europe and North America will test live digital asset transactions on the Swift network next year, the company said Thursday.

• A US citizen has pleaded guilty to stealing some $37 million in crypto in 2022, according to a DOJ statement. 

• OpenAI raised $6.6 billion in a VC funding round led by Thrive Capital. 

• Metaplanet boosted its BTC hoard via an options sale, according to its X account.

• Gurbir Grewal, the SEC’s enforcement director, will depart next week.

Q: The SEC’s head of enforcement Gurbir Grewal announced he is leaving the agency this month. What does the departure signal?

The fish rots from the head, right? 

If we’re assuming that the SEC is taking an opposition to crypto because Gensler’s leading the charge, then the resignation of one of his top dogs is not going to rock the ship too much.

Gurbir Grewal has certainly left his mark on the SEC, but that’s not to say that his replacement won’t go after the same types of cases. 

I hesitate to read too much into his decision to resign. We don’t know the facts, for one, and while he played an important role in the agency I believe that his position is one that’s fairly replaceable. Sorry, Grewal, but it’s true.

For all we know, he’s seen so many crypto cases that he’s gone and started his own project (this is a joke) or perhaps he’s gone the way of some former SEC officials and joined companies with crypto exposure (see Robinhood’s Dan Gallagher or a16z advisor Bill Hinman). 

Bottom line is this: If Gensler’s the one paving the way forward for an anti-crypto SEC, Grewal’s departure won’t change a thing. 

— Katherine Ross

I’ll go out on a limb and call it — potentially — quite significant.

I’ve never bought the theory that the SEC is so monolithically opposed to crypto or that all decisions flow down from crypto’s favorite bugbear, Gary Gensler. 

Rather, I’ve held the view that agencies like the SEC are composed of people with different ideas, different incentives and, yes, different views on crypto. 

Yesterday’s statement made particular hay about Grewal’s crypto bonafides, including the “more than 100 enforcement actions addressing widespread noncompliance in the quickly growing crypto space” he oversaw.

Grewal’s deputy, Sanjay Wadhwa, will take over on an acting basis. But whoever is slotted into the spot more permanently could take a decidedly different tack, especially amid a shifting political climate. Gensler’s bitcoin ETF step-down earlier this year was an acknowledgment, good or bad, that the agency isn’t immune from outside forces.

So let’s wait and see, as we often do here in crypto. 

—Michael McSweeney