FTX's $12+ billion payment contributed a lot to this total, alongside settlements from Genesis and Terraform Labs. Regulatory scrutiny intensified after several major collapses in the crypto market, which led to more and higher settlements. Meanwhile, Fairdesk, a Singapore-based crypto exchange, announced that it will be closing its doors due to compliance issues. On the legislative side, new stablecoin regulation drafts were recently introduced, but some lawmakers warn that overregulation could stifle innovation in the crypto industry.
US Crypto Settlements Surge
In 2024 so far, United States regulators collected more than $19 billion in lawsuit settlements from crypto companies. This accounts for almost two-thirds of all settlement amounts to date.
According to an Oct. 9 report by CoinGecko, the bankrupt exchange FTX and its affiliate, Alameda Research, contributed the largest portion, with a $12.7 billion payment made to the Commodity and Futures Trading Commission (CFTC) in August. This year’s settlement total across eight cases is a 78% increase compared to 2023, when $10.87 billion was paid. The growth is even more striking compared to 2022.
Crypto settlements (Source: CoinGecko)
The total settlements include forfeiture, disgorgement, civil penalties, settlement and prejudgment interest, but do not factor in individual lawsuits against executives. CoinGecko research analyst Lim Yu Qian shared that the collapses of Celsius and Terraform Labs in mid-2022 was a huge turning point in the crypto market as it shifted from a bull run to a bear market. As a result, this led to heightened regulatory scrutiny. FTX's downfall also amplified this trend.
Aside from FTX, Terraform Labs’ $4.47 billion settlement with the Securities and Exchange Commission (SEC) over the collapse of its algorithmic stablecoin TerraUSD (UST) in 2022 ranks as the second-highest settlement of the year. Genesis, which filed for Chapter 11 bankruptcy in January of 2023, also made headlines with a $2 billion settlement reached with the Office of the Attorney General (OAG) in August.
Number of settlements (Source: CoinGecko)
Regulator activity increased a lot over the last two years, and Qian believes 2024 could see even more settlements before the year ends. She also noticed that the current year already recorded a 79% increase in settlement value compared to 2023, and 2024 could set new records for lawsuit settlements.
One major case from 2023 involved Binance, which is the only still-operating crypto company to have reached a billion-dollar settlement. In November of 2023, Binance and its former CEO, Changpeng “CZ” Zhao, agreed to plead guilty to multiple charges to resolve lawsuits with various US regulators.
Since 2019, US regulators have gathered almost $31.92 billion in settlements from crypto companies.
Fairdesk Announces Closure
Despite the sheer amount of legal battles between the crypto industry and regulators, there is still no real regulatory clarity. This is not just the case in the US, but all around the globe.
Fairdesk, a Singapore-based crypto exchange, announced that it will permanently shut down all services on Nov. 30, 2024. The announcement was first made through a social media post on X, and was followed by an official press release.
Fairdesk was launched in 2021, and was a major player when it came to providing trading services to users in the United States and Canada. Despite its outwardly normal operations, the company pointed towards evolving policies and times as reasons for its decision to close. However, some users are still a bit confused as Fairdesk's X account still shows that the company is “hiring.”
Fairdesk earned many good reviews from analysts for its security features and competitive fees, but concerns over compliance issues surfaced in the past, which now seem to have been validated. The company stated that customers have until Oct. 17 to close their accounts, and futures and spot positions will be closed on that date. Afterwards, only the withdrawal function will remain operational until Nov. 30 to make it possible for users to remove their funds.
Although exchange shutdowns are not uncommon in the crypto space, they mostly happen on a geographical basis rather than as complete closures. Unfortunately, Fairdesk's is not the only exchange that recently faced some regulatory challenges. Gemini announced on Sept. 30 that it will close its services in Canada due to new federal regulations surrounding stablecoin trading.
New Stablecoin Regulation Draft Introduced
On the bright side, there are still lawmakers for whom clearer crypto regulation is a priority. United States Senator Bill Hagerty introduced a discussion draft of the Clarity for Payment Stablecoins Act of 2024, building on previous legislation from House member Patrick McHenry, who is set to retire at the end of his term.
Hagerty is a member of the Senate Banking Committee, and acknowledged the similarities between his bill and McHenry’s 2023 version but highlighted several key differences, particularly regarding the role of state regulators.
Hagerty’s bill introduces a provision that allows stablecoin issuers with less than $10 billion in market cap to be regulated at the state level, with an option for larger issuers to seek waivers to remain under state jurisdiction. This state-level regulatory regime is a major departure from McHenry’s bill, which did not address this aspect at all.
The legislation also modifies which federal agencies oversee certain stablecoin issuers. Hagerty believes that these adjustments could create a regulatory framework that encourages innovation while still protecting consumers.
The 2023 stablecoin bill that was introduced by McHenry passed through the House Financial Services Committee with bipartisan support but is still under negotiation. Ranking committee member Maxine Waters expressed her support for the bill in September. She also believes it is crucial to reach an agreement on stablecoin regulations before the end of the year.
Hagerty is no stranger to stablecoin legislation as he introduced the Stablecoin Transparency Act in 2022, which defined stablecoins as securities. The 2024 bill, however, does not categorize stablecoins in this way.
Meanwhile, Senators Cynthia Lummis and Kirsten Gillibrand also proposed their own stablecoin bill, the Lummis-Gillibrand Payment Stablecoin Act, which is still under review by the Senate Banking Committee. Hagerty’s draft is open for public comment until Nov. 1.
Senators Warn Against Overregulation
The upcoming presidential election will also have a massive impact on the future of crypto regulation in the US. At the Permissionless III event, Utah Representative John Curtis and Senator Mike Lee discussed the future of digital asset regulation in the United States.
Curtis shared that he is cautiously optimistic about the potential for bipartisan cooperation on crypto-related policies, specifically the repeal of Staff Accounting Bulletin-121 (SAB-121), which has made it difficult for banks to custody cryptocurrency. He placed a lot of emphasis on the fragility of this cooperation, and also warned that if crypto regulation becomes a partisan issue, it will face many challenges. Curtis urged industry professionals to help educate lawmakers about the complexities of cryptos as he believes many struggle to really grasp the technology behind it.
Senator Mike Lee pointed out the three biggest risks he believes could harm the crypto industry: the creation of a central bank digital currency (CBDC) by the Federal Reserve, overregulation by the federal government, and inconsistent state-by-state regulations. Lee described state-led crypto policies as "Death by 50 cuts" and argued that digital assets require unique regulations as they represent an entirely new type of asset class.
He added that cryptos should not be classified as securities or commodities and even suggested that capital gains on crypto transactions should not be taxed.
