February 14, 2023

🥛 The SEC declares war on crypto

Gm. This is Milk Road, the crypto newsletter thaaaaEEEEaaaaaat will always loooooove yoooooooooUUUUUUUuuuuuu (happy Valentine’s Day, ya filthy animals.)

Here’s what we’ve got for you today:

  • Armstrong’s 4 reasons why staking isn’t a security

  • All eyez on BUSD

  • Coinbase’s QR code Super bowl legacy

  • Hackers go phishing for MetaMask users


The crypto staking-as-a-service saga continues! Today’s episode: Brian Armstrong is a Wee Bit Scared.

The Coinbase CEO wrote a blog post Friday laying out the reasons why staking on his exchange’s service is NOT a security.

It has big Make a powerpoint for your mom to convince her to let you have a sleepover energy.

To recap: users can stake their crypto on a blockchain in the hope of being chosen to verify transactions, keep things secure, and pocket a return. Staking is an alternative to mining, and platforms like Coinbase have staking programs for retail investors to get in on the action.

But the SEC just shut Kraken’s staking service down because it said it was offering unregistered securities. Dun dun duuuuuuun.

Here’s a rundown on why Armstrong says the the SEC’s 4-rule security template doesn’t apply to staking:

1/ Staking is not an investment of money

Users may be getting a return on their staked crypto, but they’re not losing what they’re depositing, he says.

“They own the same thing they did before” and maintain full ownership of their assets. They can also unstake their assets “consistent with the underlying protocol.”

2/ Staking doesn’t have a “common enterprise” issue

That’s a term used to describe how investors’ returns depend upon the party offering the service, which is Coinbase in this case.

But Armstrong is saying that Coinbase isn’t dictating which staker gets chosen because that’s not how blockchain protocols work. Instead, they choose a validator, or staker, at random based on how many tokens they have staked.

Kinda like how the more church raffle tickets you bought, the more likely you are to win that $50 Applebee’s gift card.

3/ There’s not a “reasonable expectation of profits” with staking

It means customers are drawn to a certain asset because they A) think they can make money from it or B) want to use or consume it in some way.

But Armstrong said it doesn’t apply to staking because users stake crypto as payment simply to be able to validate transactions on the blockchain.

4/ And staking rewards don’t depend on the “efforts of others”

Armstrong says customers’ staking rewards don’t depend on what other people do, like how someone’s dogecoin’s shares could drop or rise if, say, Elon Musk says he was chatting about it during one of the country’s largest sporting events…

Instead, staking rewards are randomly automated by blockchain protocols. It’s luck o’ the draw.

Ofc, Coinbase would also have something to lose financially if the SEC drove a stake through its staking program.

It charges customers a ~30% fee of their rewards, amounting to $62M in revenue in July to Sept. 2022.

That’s no smol cut.


Last year it took me 3 full days to file my crypto taxes, and I still think I paid the wrong amount to the IRS.

It was a nightmare.

That’s why we are introducing our friends from Awaken.

Unlike other crypto tax solutions that are 4-6 years old, Awaken was built for today’s Web3 world.

  • Awaken is 10x more accurate. They have best-in-class support for 25,000 tokens, NFTs, wallet transfers, liquidity providing, staking, bridging, and much more. It’s the only DIY software that captures all of your transactions and calculates the cost basis correctly.

  • Awaken is 10x faster. Their software learns as you file taxes. When you label 1 transaction, 10+ others are automatically labeled for you, saving you hours of time.

  • Awaken is 10x easier to use. Crypto taxes can be complicated, but Awaken’s user-friendly interface is simple and clean.

It’s a fully anonymous product. You sign up with your email and that’s it. If they ever ask you to connect a wallet or a seed phrase we’ll smack the s*** out of them.

They’re offering $100 of free credits to the first 400 users who sign up:


You thought regulators would give us a change to breathe after the Kraken staking shutdown?

Surprise mothaf*cka!!!

Yesterday, the New York Department of Financial Services (NYDFS) announced it’s cracking down on Paxos, a stablecoin issuer.

Here’s everything you need to know:

  • Paxos has been directed by the NYDFS to stop minting new BUSD tokens. BUSD = Binance USD. It’s the 3rd largest stablecoin (Note: It’s named after Binance but it’s wholly owned and managed by Paxos. Confusing, I know)

  • The existing BUSD remains fully backed and will be redeemable through February 2024. Paxos will continue to manage BUSD dollar reserves, which are always backed 1:1 with U.S dollar-denominated reserves. (So don’t worry, if you have BUSD it isn’t gone)

  • Paxos has ended its relationship with Binance. And just like that, the 5-year stablecoin marriage is officially over.

But wait! There’s more… According to a WSJ report, the SEC has issued a Wells notice to Paxos and will be suing the stablecoin issuer for selling BUSD tokens as an unregistered security.

A Wells notice is a letter that tells companies the SEC is going to take action. It’s a warning that things are [not] Well.

Why this matters: This is big because regulators are now coming after the largest crypto currencies and the SEC is claiming that a stablecoin can be categorized as a security.

You see, Gary Gensler (the head of the SEC) is a lot like that one friend that’s always too scared to go up to a girl at a bar, so his friend always does it. But instead of checking out girls, Gary checks out companies that sell assets. And instead of telling them they’re cute, he tells them whether they’re a security or not.

Now Gary’s got his eyes set on BUSD. And if this claim that it’s a security holds, it could set a big precedent & impact how the future of crypto is (or isn’t) built.

It’s going to be a long year, my milky friends.


Tubi convinced us we accidentally sat on the remote. Human-sized rabbits creepily threw people into holes in the ground. Jesus paid a cool ~$20M for ad spots.

But crypto giants like FTX and co. were, of course, nowhere to be found on Sunday given the year they’ve had.

The industry did leave its mark though: brands displayed QR codes hoping for the virality and site-crashing that Coinbase delivered last year with its floating square.

They included:

  • Avocados From Mexico

  • Michelob Ultra/Instacart

  • Limit Break, an NFT company

That last one was really the only Web3 rep in the game. And the link the QR code led to? The founder’s Twitter page, which now has a cool 1M followers.

Say what you will, but we’ve gotta h/t them for such a genius social growth campaign.


Love in the metaverse? Paris Hilton dropped a new dating metaverse called Parisland. Players will be able to hit on random strangers online, complete quests, and ultimately “choose a partner”.

PayPal presses pause. The finance giant has announced its pausing its new stablecoin project due to regulatory bodies cracking down on crypto a lot lately. PayPal was working with Paxos to issue the new stablecoin.

Top Play of the Day: Our lanky king, Vitalik Buterin, has reportedly donated $225k+ to victims of the Turkey earthquake.

Hackers go phishing. MetaMask has warned of a new phishing campaign targeting its users. Remember kids: the crypto hardware wallet will never email you asking for your personal information.



That's a wrap for today. Stay thirsty & see ya tomorrow! If you want more, be sure to follow our Twitter (@MilkRoadDaily)


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DISCLAIMER: None of this is financial advice. This newsletter is strictly educational and is not investment advice or a solicitation to buy or sell any assets or to make any financial decisions. Please be careful and do your own research.