As With Many Greek Myths, It’s All Guts, Glory, Gods, Grifters, and Gensler
A few weeks ago, those with an interest in the state of play for crypto in the U.S. watched in bewilderment as Aaron Kaplan, founder and co-CEO of an unknown company called Prometheum, sat before the United States House Financial Services Committee and testified that the path is clear and well-lit for crypto companies that seek to set up digital asset exchanges compliant with U.S regulations.
That such a path exists would be news to Coinbase, a publicly traded company under the regulatory purview of the Securities and Exchange Commission (SEC), which for years has failed to make meaningful progress in its quest for clarity about how to comply with applicable laws when listing digital assets for trading on a centralized exchange. In fact, you probably know the SEC recently sued Coinbase for operating an unregistered securities exchange.
How did Prometheum, a company founded in 2017 by a former lawyer from a now unaccredited U.S. law school, make its way to the U.S. Capitol to recite talking points from the U.S. government’s current vision for crypto compliance? It’s a story made for Hollywood — firmly rooted in Greek mythology — and in news that is sure to please die-hard Crypto Twitter, this story involves eternal suffering.
In Greek mythology (popping up twice in one week!), Prometheus was a pre-Olympian god, a Titan. He was the god of fire, forethought, and craft, and famous for stealing fire from the post-Titan Olympic mega-god Zeus. For bringing civilizing technology to humans, Prometheus was chained to a rock, where his regenerating liver was to be eaten daily by an eagle for eternity (fortunately, he was later saved by Heracles, better known as his Roman-equivalent Hercules).
Prometheum is a clever portmanteau of Prometheus (presumably the foresight and civilizing tech and not the eternal suffering) and Ethereum. Prometheum states on its website that it “provides a solution for digital asset securities investing — bringing together a blockchain-powered platform with the benefits of a securities-regulated marketplace”, and on Twitter that it’s “building the world’s first SEC And FINRA registered, full-service market for digital asset securities — issuance, trading, clearing, settlement and custody”. Nonetheless, Crypto Twitter has a different take:
What Foresight Did Prometheum Have?
In October 2022, a Prometheum subsidiary debuted an SEC-registered alternative trading system, which Prometheum claimed would enable “institutions to trade digital asset securities under Federal Law.” Then in May 2023, Prometheum announced that its subsidiary had been granted a Special Purpose Broker-Dealer license for digital-asset securities by the Financial Industry Regulatory Authority (FINRA). This license enables Prometheum to become a digital-asset custodian and, subject to SEC regulations, the first business ever to have been granted such a license, a compliance route attempted by Coinbase and others.
WTF is Prometheum and what makes them so special? Thanks to the sleuthing abilities of Crypto Twitter, I didn’t have to track down the info myself. In well-researched threads by both Matt Walsh, who is Nic Carter’s co-founder in Castle Island Ventures; and Adam Cochran, who runs a venture capital firm called Cinneamhain Ventures; the entrails of Prometheum are laid bare for all to feast upon.
Prometheum was founded by two generations of lawyers from New York.
Underreported here is that the man we can reasonably assume to be Aaron and Benjamin Kaplan’s father — Martin Kaplan — seems to be a legit securities attorney who co-founded the law firm in 1975. Although it’s pretty clear from their bios that Aaron and Benjamin aren’t the securities experts they are touted to be, it’s possible that Martin is.
If you’re a well-connected securities lawyer who wants (or at least his kids want) to build a crypto exchange, what do you do next? Naturally, you hire a bunch of folks who used to work for FINRA, the SEC, and the Chicago Board of Options Exchange, the largest options exchange in the country!
This sounds interesting so far, a company hiring away government employees to come and work for an industry they used to regulate — that’s the classic ‘Washington to Wall Street’ hyperloop, where regulators get 10x pay raises to take their former colleagues to lunch (and much more!) on the company dime.
Sure, this type of patronage doesn’t pass most sniff tests, but it’s the way the world works, so…what’s the other problem here…?
It turns out their ATS/SPBD scheme won’t work.
ATS/SPBD Is DOA
Prometheum had the foresight to use their government ties to hire former regulators, but the problem seems to be that the automated trading system route cannot work. Why? The tokens traded on the system must first be registered with the SEC. But they can’t be, because the regulations aren’t clear enough to enable tokens to be registered!
Not only that, but the fact the proposed platform doesn’t list bitcoin or ether is proof of the need for regulatory clarity. If you prefer your takedowns more visual in nature:
Taken together, the TL;DR is that there is no consistent definition of what a digital-asset security is under Federal law, which means that tokens can’t register with the SEC, and therefore can’t be traded on an ATS system. In other words:
For a more learned legal perspective, check out this thread by Rodrigo, who is part of the legal and policy team at Paradigm, one of the premier crypto VCs. Be sure to also listen to his amazing conversation with Aaron Kaplan on Unchained.
Feasting on a Narrative
For the Greeks, the liver symbolizes humans’ capacity for renewal and rebirth, the power to overcome in the face of adversity. Paradoxically, Prometheum’s efforts to bow before the establishment are completely at odds with the founding ethos upon which decentralized financial technologies were built.
The cryptoverse has been rightly outraged by the Prometheum stunt, and most commentators fear they are acting as — in the words of Adam Cochran — plants (stooges of the U.S. government), patsies (using connections to gain market share), or opportunists (grifters) because:
Is this all just a blatant political ploy by the Biden Administration to drop FUD on the new crypto bill working its way through Congress? Almost certainly, at least in part.
Stay tuned, frens, as we don’t know how this will play out. We do know that even though Prometheus brought the fire to humans, it doesn’t mean we can’t use it to turn up the heat and drive these false crypto gods far away from the actual work of building the future.
Hiro Kennelly is a writer, editor, and coordinator at BanklessDAO, an Associate at Bankless Consulting, and is still a DAOpunk.
Trewkat is a writer and editor at BanklessDAO. She’s interested in learning about applications for blockchain and NFTs, with a particular focus on how best to communicate this knowledge to others.
Tonytad is a graphic designer who has worked locally and internationally with organisations and firms on over 200 projects, which includes branding, logos, flyers, cards, and covers.
BanklessDAO is an education and media engine dedicated to helping individuals achieve financial independence.
This post does not contain financial advice, only educational information. By reading this article, you agree and affirm the above, as well as that you are not being solicited to make a financial decision, and that you in no way are receiving any fiduciary projection, promise, or tacit inference of your ability to achieve financial gains.
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