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Welcome to The Node! This is Marc Hochstein to take you through the latest crypto news.

In today's news: Binance's Tigran Gambrayan may soon be freed from a Nigerian prison; Bitcoin mining difficulty hits an all-time high; the director of a custodian for wrapped bitcoin says Justin Sun's involvement might be good for the token; DRW's Don Wilson is ready for round two with Gary Gensler.

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The Takeaway: Whoever ends up regulating stablecoins in the U.S., it shouldn't be the Fed, write Jennifer J. Schulp and Jack Solowey of the Cato Institute.👇

Binance Exec Free to Leave Nigeria: Reports

Nigeria's government has withdrawn the money laundering charges against Binance executive Tigran Gambaryan days after a court denied him bail, local news outlet Punch reported first on Wednesday.

"People are on the way to give the order" to the Kuje prison and then he should be released "immediately," Gambaryan's lawyer Mark Mordi told CoinDesk by phone. He did not share any other details about when Gambaryan is expected to leave the country.

Reuters reported that the government dropped the charge to allow Gambaryan to seek medical treatment abroad, citing the "government's lawyer" who also said Nigeria would continue the money laundering case against Binance without Gambaryan.

Binance is facing a tax-evasion trial with Nigeria demanding $10 billion in penalties for allegedly enabling some $26 billion of untraceable funds which purportedly led to the Nigerian naira weakening to record lows against the dollar.

Gambaryan, Binance's head of financial crime compliance, has been detained in Nigeria since February. He had come with Nadeem Anjarwalla, Binance's regional manager for Africa, who escaped detention in March.

Bitcoin Mining Difficulty Hits All-Time High

Bitcoin's (BTC) mining difficulty hit an all-time high of 95.67 terahashes (T), rising by 3.9%, on Tuesday, Glassnode data shows.

Mining difficulty measures how hard it is to mine a new block on Bitcoin. So far, in 2024, there have been 22 difficulty adjustments, with 13 being positive. As a result, the difficulty has jumped from 72T to 92T, a 27% increase, year-to-date.

The network automatically adjusts every 2,016 blocks, which is approximately every two weeks, to ensure that blocks on average are mined every 10 minutes.

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Claim: Justin Sun Might Be Good for WBTC

In August, the mere disclosure that Tron founder Justin Sun was involved in the custody operations related to wrapped bitcoin (WBTC) – a popular token in decentralized finance – was enough to rattle the crypto industry.

But what if Sun's involvement is a strength rather than a liability?

This argument was made to CoinDesk this week by BiT Global director Robert Liu in an exclusive interview. BiT Global was recently added by BitGo as an additional custodian to the bitcoin-on-Ethereum token.

Liu defended Sun's role as an advisor to the project, arguing that the blockchain Sun founded is trusted by holders of tens of billions of Tether's stablecoin, USDT.

Sun has come to the aid of customers in the past, Liu noted, citing the compensation of HTX (formerly Huobi) users following a hack of that exchange last year. "He basically is the reason why the users still feel safe and comfortable," Liu said.

Who's Afraid of Gary Gensler? Not This Guy

Don Wilson is feeling déjà vu.

This month, the U.S. Securities and Exchange Commission sued Cumberland DRW, a division of DRW, the Chicago-based trading giant Wilson founded and runs. The regulator accused the company of trading at least $2 billion of cryptocurrencies without authorization. The case hinges on the SEC deeming those assets securities.

It's not DRW's first tangle with a regulator. It's not even DRW's first tangle with Gary Gensler, the SEC's chairman. In 2013, when Gensler ran the U.S. Commodity Futures Trading Commission, the agency filed suit against DRW and Wilson, claiming they manipulated the market for an obscure interest-rate swap. Wilson and his firm denied any wrongdoing. They fought the CFTC and won – big time.

Gensler had long since left the CFTC by the time the judge smacked down the regulator's case. But he was there to launch it.

In an interview with CoinDesk, Wilson said he and his company are ready for another fight against a Gensler-led regulatory agency. To Wilson, there are many similarities between the SEC's enforcement actions under Gensler and the enforcement action DRW faced from the Gensler-led CFTC.

In Wilson's view, the lack of regulatory clarity from the SEC is a feature, not a bug, of Gensler's leadership at both agencies. Without establishing clear rules or guidance, and demurring when asked whether a given token might be a security, the SEC preserves its ability to selectively prosecute, Wilson said.

"This dynamic put the SEC in a position where they could say everyone is breaking the rule, and we're just going to go after whoever we want to," Wilson said. "[If] everybody is breaking the law, they get to selectively harass whoever they want to."

The Takeaway: Fed Is Wrong Stablecoin Cop

By Jennifer J. Schulp and Jack Solowey

Stablecoin legislation has been on the cusp of enactment for what seems like ages. The latest effort is Ranking Member of the House Financial Services Committee Maxine Waters’ (D-CA) renewed desire to reach a “grand bargain” with Committee Chair Patrick McHenry (R-NC) to get a bill over the finish line before year end.

It’s an open question whether the Senate would take up the issue, but Sen. Bill Hagerty (R-TN) recently floated a bill that could serve as the Senate companion to a House effort, or at least provide a starting point for new discussions.

The exact contours of a regulatory framework that could garner sufficient legislative support remain to be seen, but proposed approaches have coalesced around giving the Board of Governors of the Federal Reserve System a significant role in regulating stablecoin issuers. Unfortunately, that’s the wrong approach.

There is widespread agreement that legislation is necessary to address stablecoins—crypto tokens that are pegged to the value of another asset, like the U.S. dollar. The general idea behind these tokens is that their stable value will promote their use as a digital medium of exchange. Indeed, stablecoin use has been growing globally, with uses including cross-border payments and remittances, as well as facilitating crypto trading. Because transactions with stablecoins can settle nearly instantaneously, some view them as improvements to existing payment rails (which are slower and more costly).

This innovation—particularly in an uncertain, and sometimes downright hostile, regulatory environment—would benefit from a clear framework that addresses the limited risks stablecoins pose. For stablecoins backed by assets, the biggest risk is that the token is not, in fact, stable. In other words, the risk is that the issuer does not have the assets it claims to have backing the token. The Fed is poorly suited to overseeing a regulatory regime designed to address this risk.

First, and perhaps foremost, the Fed would be conflicted. As an alternative payment service, stablecoins compete with the Fed’s own payment infrastructure, including FedNow, the central bank's instant payment service. The Fed’s consideration of a central bank digital currency would leave it further conflicted when regulating privately issued stablecoins, as those two digital representations of the dollar can be seen as substitutes. Any government body, the Fed included, would struggle to objectively analyze private payment innovations that compete with its own services. Giving the Fed the authority to regulate stablecoins unfairly stacks the deck against payment alternatives. Simply put, the fox shouldn’t be allowed to guard the henhouse.

Further, the Fed shouldn’t be tasked with stablecoin regulation because it isn’t well-suited to the task. The Fed is a monetary policy specialist that already struggles with its regulatory responsibilities for bank regulation. Giving the Fed regulatory authority over stablecoin issuers doubles down on this failing framework, potentially resulting in subpar regulation of the sector and running the risk of distracting the Fed from its already (overly) ambitious statutory responsibilities.

Moreover, the bank regulatory framework that the Fed is most familiar with is not right for stablecoin regulation. Issuers of fully backed stablecoins should not be treated as if they were fractional reserve banks. The ”financial stability” concerns that lead regulators to consider bank-like regulations for stablecoins are misplaced.

Stablecoin issuers provide a payment tool, not banking services. The main risk for a stablecoin is that it will lose 1:1 redeemability with the asset it’s pegged to, such as the U.S. dollar, because the issuer doesn’t have the reserves it claims to. Basic requirements around collateral and disclosures subject to anti-fraud authority would directly address this. Other regulators are better suited to oversee such a regime, including those more familiar with disclosure-based regulation.

Congress should be applauded for engaging on stablecoin regulation. But such a framework should not give substantial regulatory authority to the Fed, which would lay the groundwork for regulatory decision-making that could decrease competition. If the Fed must remain involved, Congress can mitigate—but not eliminate—the risks by reducing any discretion granted to the Fed and by narrowly focusing any regulatory regime on disclosures regarding reserves and restrictions on appropriate collateral.

Stablecoins offer the promise of faster, cheaper digital payments. But a Fed-heavy regulatory regime would place private stablecoins at a disadvantage, hindering this innovative technology's potential.

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