Proof of State is the Wednesday edition of Fortune Crypto where Leo Schwartz delivers insider insights on policy and regulation.
Decentralization is a spectrum. Developers can talk all they want about their projects being governed by code, but not all blockchains and protocols are made equally.
I say all this because, as no one should be surprised, Coinbase’s new blockchain, a Ethereum called Base, is filled with scam tokens. That was the case before Base’s official launch last week, when it was still in beta mode—look no further than the infamous Bitcoin. Still, maybe you buy the argument and believe the old adage that “code is law.” There is a third candidate, however: regulators. State and federal agencies certainly don’t care about decentralization, at least to the same degree as the crypto crowd. Just look at the Ooki DAO case, where the CFTC successfully targeted both the founders of and participants in a “decentralized” project for operating an unregistered trading platform.
While much of crypto regulation has been reactive, through enforcement actions, litigating against scams and other illegal schemes, the public and transparent nature of blockchain would allow for a more proactive approach. What’s stopping the SEC or CFTC from using Token Sniffer to shut down tokens that are hard-coded with scams? If they decided to employ that strategy, would they go to the token issuers—or directly to Coinbase?
“We welcome clear regulation that balances consumer protection while also supporting innovation,” a Coinbase spokesperson told me in a statement.
The frequent refrain with crypto oversight is that lawmakers are dragging their feet. In the meantime, however, regulators are wising up to the fact that blockchains are creating a new frontier for policing. In that inevitable future, nothing can be truly decentralized.
Leo Schwartz
leo.schwartz@fortune.com
@leomschwartz
