Genesis and Gemini’s SEC Charges Shine a Light on the Risks of Unregulated Securities

Genesis and Gemini were charged for Unregistered Offers and Sales of Crypto Asset Securities through the Gemini Earn Lending Program

“We allege that Genesis and Gemini offered unregistered securities to the public, bypassing disclosure requirements designed to protect investors. Today’s charges build on previous actions to make clear to the marketplace and the investing public that crypto lending platforms and other intermediaries need to comply with our time-tested securities laws. Doing so best protects investors. It promotes trust in markets. It’s not optional. It’s the law.”

- SEC Chair Gary Gensler

Here’s what went down...

Upstream’s forward-thinking methodology

  1. FDIC-insured accounts. Upstream is a blockchain-powered stock and NFT market, not a cryptocurrency market. We are a cash-based system with USDC stablecoin as the only cryptocurrency currently accepted. Trading pairs are against USD and customer cash accounts are FDIC-insured up to $250k for all U.S. and non-U.S users. Pairs are traded 1 for 2. To further protect investors, funds can only be sent to and from the account verified during KYC.
  2. Upstream is a cash-based system. We give our users the unique ability to trade using digital currency in the form of USDC stablecoin, along with credit, debit, PayPal, and traditional bank payments. Trading pairs are quoted, traded, and immediately settled exclusively against the exchanges’ 100% collateralized U.S. dollar stablecoin, backed 1-for-1 with users’ deposits of U.S. Dollar fiat currency. Notably, Upstream does not sell its client order flow.
  3. Upstream is non-custodial. Traders maintain complete control of their private keys and assets. Upstream never knows a user’s private keys. Conveniently, we hide all the blockchain security and sophistication behind a simple, yet incredibly secure interface. During the KYC onboarding process, we create a “key pair” in an encrypted file that is saved to your Keystore. A Keystore is a way of storing a password-protected file that contains your public and private key, together this makes a key pair. A great way to think about your private key is like a pin code to your ATM card. To transact on Upstream, we make your private key unlockable using your verified biometrics. Every time you transact you sign in using your private key. A timestamp of this record is logged on an Ethereum layer 2 rollup blockchain to maintain a transparent and protected ecosystem.
  4. Upstream offers Web3 in the world of Web2. Upstream is a true Web3 platform. When users sign up on Upstream they use a password and are known solely by a public blockchain wallet. When KYC is required, data submissions are kept in memory in an auto-expiring cache, never saved to a disk on our servers, and never outsourced to third parties.
  5. Upstream is a blockchain-powered stock and NFT market, not a cryptocurrency market. As a blockchain-powered market, Upstream features no short selling or other market manipulations enforced by Ethereum blockchain technology. Most cryptocurrency orderbooks and trading systems behind the scenes are database-driven, not blockchain driven. Upstream features best bids and offers openly displayed on a public orderbook, with trades executed on-chain. This is a big deal. Most trading apps only offer windows into an exchange. Upstream offers traders direct access to the exchange with our trading app.
  6. Necessary Failsafes. There are varying degrees of decentralization when it comes to blockchain-powered markets. Some die-hard crypto enthusiasts are all for complete decentralization, but if the assets you own can be robbed with impunity, what’s it all for? There simply are benefits to having protections in place that leverage traditional financial guardrails. For example, Upstream’s integrated KYC technology enables investors to verify who they are and have their securities returned to them if a private key is lost, stolen, or forgotten. In short, securities are controlled on a user’s smartphone wallet app and are protected by a user's private key. The technology behind Upstream integrates with a regulated custodian engaged by the securities issuer so that a parallel record of all asset ownership can be maintained by a regulated entity. This way, in exceptional cases, assets can be lawfully restored to their rightful owner by the issuer’s custodian.

Conclusion

Sources

Disclaimers:

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Upstream

A MERJ Exchange Market. Ethereum-powered exchange for digital securities and NFTs