The events involving Elon Musk and Daniel Larimer can be used as an indicator for future industry regulations
From Silicon Valley to Wall Street, where is the border for currency regulations?
The intention of this article is not to discuss Tesla or the future of EOS, our goal is to use these two recent events to discuss pertinent industry regulations.
On August 7, 2018, around 12:48 pm, during the stock market trading hours, Elon Musk sent a tweet to more than 22 million “fans” on Twitter.
In the next three hours, Musk made a series of comments behind the Twitter, including:
“I hope that even if we privatize the company, all investors will continue to support Tesla. We will create special-purpose funds so that anyone can continue with Tesla. .”
“Shareholders could either sell at $420 or hold shares & go private ”
“Investor support has been confirmed. The only uncertainty is the shareholder’s vote on the move.”
Investors responded immediately after Musk’s tweets. From the first tweet released by Musk on August 7th until the stock closed on that day, Tesla’s share price rose by more than 6%. The closing price also increased by 10.98% compared with the previous day, and the transaction volume also increased significantly.
Now, let us change our focus from Musk to Daniel Larimer to see the difference and connection between Musk’s Twitter event and the butterfly effect that occurred.
On November 29, 2018, EOS founder Daniel Larimer (BM) claimed in the Telegram group that he intended to break his original design and abandon DPOS. He claimed that he had found a way to solve privacy and expansion issues. Instead of using zk-SNARK, he claimed his company could reach 10 million TPS, with no transaction costs.
In addition, BM claimed that the project will have no RAM or DISK problems, everyone can run all nodes, voting or equity pledges will be unnecessary, and the currency will be completely resistant to all forms of economic inflation. He made it clear that he was not joking, and that the plan would be implemented in 2019, claiming that the new token has better security than EOS, and there is no decentralization.
When the news came out, it caused an uproar. Although the BM side has already been clarified, people are not listening. The reason is that BM has a pullback history, as the only technical geek in the history of cryptocurrency that has completed three blockchain projects, first BitShares, then Steemit, and now EOS, the incident caused the EOS price, which had already begun a downward trend, to decline even more rapidly.
BM is the core for EOS, synonymous with Vitalik to Ethereum. Because of the company’s huge influence, BM, Block.One, and other major nodes felt it necessary to make public statements after the event to clarify their position.
The frenzy surrounding Dan Larimer’s remarks gradually subsided after a few days of intense discussions in the community; however, the EOS price has continued on a constant decline. Undoubtedly, his reckless comments harmed the majority of EOS holders. Due to decentralization, there is no third-party to regulate this market; therefore, there is no recourse.
Now let’s review the results of Elon Musk’s Tweets.
The US Securities and Exchange Commission said: “Musk’s tweet on August 7, 2018, claimed he wanted to privatize Tesla for $420 per share, and that funds had been secured. The only uncertainty is the shareholders’ votes. The premium of $420 per share was quite high relative to the transaction price at the time.”
“In fact, Musk knew that privatization deals were uncertain and would be affected by many unexpected events.” Musk did not discuss specific trading terms, including prices, with any potential financing partners regarding his trading statements. In fact, the comments were made with an evident lack of sufficient factual basis. On the day that Musk announced the news, Tesla’s share price soared by more than 6%, which made investors who were shorting Tesla’s stock unprepared.
Musk frequently uses Twitter to make statements that create trouble for both himself and Tesla. In the process of reaching a settlement, the US Securities and Exchange Commission condemned Tesla’s failure to control the personal Twitter of its CEO Musk.
According to the terms of the final deal with the SEC, Musk was forced to pay a fine of 20 million USD and resign as Chairman of Tesla within 45 days, a position which cannot be reinstated within the next three years. Tesla must also establish a system to monitor Musk’s public statements regarding the company, whether it’s on Twitter, blog posts, or any other media.
Tesla cannot refuse the $20 million fine and is required to appoint two additional directors to the board. Tesla may appoint one of the two newly appointed independent directors to replace the Musk’s chairman seat, provided that the person is employed by Tesla or one of its affiliate companies.
Steven Peikin from US Securities and Exchange Commission’s executive division, added in a statement: “This resolution is intended to prevent market disruption and damage to Tesla’s shareholders.”
Whether it is in Silicon Valley or in the blockchain world, Elon Musk and Daniel Larimer are both highly innovative and influential geniuses; however, because they have so much influence, it is imperative that they maintain increased caution with regard to their words and actions. Even slight miscalculations may result in huge market turmoil.
From this perspective, Bitcoin founder Nakamoto Satoshi’s decision to remain silent and even disappear has inherent wisdom, sparing the market all the devastation associated with his verbal missteps. Since the market can be altered by the words of influential players, it is necessary to discuss mechanisms that limit the ability of external factors to influence market prices.
The Crypto World is inseparable from the Financial World. Once the Token is listed on the secondary market, the core of the technology will have a financial cover. When it comes to the Financial World, you have to mention Wall Street. In the book “The Great Game”, we can see the history of the entire US financial market. Looking back at the history of the evolution of Wall Street, from chaos to order, we can visualize the shadow of the Crypto World today. There is nothing new under the sun.
Gordon, the author of The Great Game, wrote at the end of one of the chapters. “In the long process of development, the history of Wall Street is a history of countless disasters, and it is also constantly learning from those disasters to prevent future disasters. From its inception, Wall Street experienced panic, war, fire, riots, terrorism, and countless other tribulations; however, Wall Street survived. It was through these disasters that Wall Street gradually established an efficient, fair-game environment for both large and small players alike. The so-called mature market is the result of the knowledge gained from constant setbacks.”
1911 — The State of Kansas passed a comprehensive law governing the issuance of securities, known as the Blue Sky Act. The bill required listed companies to disclose detailed histories of stock transactions and required each company to obtain permission before being permitted to open to the public. In addition, broker-dealers had to be licensed, and the securities business qualification certificate was necessary. Since then, other States have followed suite and enacted laws similar to the Blue Sky Act, collectively known as the “Blue Sky Laws”. After that, the regulation of the US securities market gradually shifted from industry self-discipline to a law enforcement model in which state governments investigate and deal with securities violations in accordance with company law and state legislations.
1933, 1934 — President Roosevelt believed that the securities market should be more effectively regulated while still allowing civil self-regulatory groups to function. In the words of Louis Brandeis, “Sunlight is said to be the best of disinfectants; electric light the most efficient policeman.” The United States successively introduced the Securities Exchange Act of 1933 and the Securities Exchange Act of 1944 and established a special federal securities authority, the Securities and Exchange Commission (SEC) used to protect the interests of investors and maintain a fair, orderly, and efficient market. These two acts can be viewed as the classics, and to this day, many of the regulations within these bills are still applicable.
2002 — After Enron, WorldCom and Tyco International used accounting treatments that damaged their portfolio, the US Securities and Exchange Commission developed the Sarbanes-Oxley Act to prevent any repeat of this tragedy. The first sentence of the bill states, “To comply with securities laws to improve the accuracy and reliability of company disclosures, thereby protecting investors and other purposes.” The bill provided stricter compliance requirements and broader considerations regarding the various IT risk faced by companies listed in the US.
2010 — Due to the 2008 financial crisis, on July 21, 2010, Obama signed the Dodd-Frank Wall Street Reform and Consumer Protection Act to protect investor’s interests, authorize the stock exchange to specify the exchange information disclosure principles, reform the asset-backed securitization process, and reform the executive’s salary system. The bill adopted a series of measures to change the existing regulatory structure, such as merging and revoking one part of the regulatory body while setting up a new regulatory body. After the financial crisis, the United States increased its enforcement of financial institutions and handled a large number of cases with fines exceeding $10 million.
Although the US Securities and Exchange Commission has always been an extremely important institution for protecting investors, there is concern that its power and pursuit of stricter regulation will cause damage to the market. Critics often claim that increased regulations will curb economic development and hinder innovation. In his new book Thank you for being late, Thomas Friedman states.
“Now, it takes 10–15 years to understand a new technology and develop regulatory measures, but the new technology will be updated every 5–7 years. What should we do? This is a problem currently faced in many areas of the market.”
The SEC, which has been behind the market for a few months, recently added a few new regulatory actions:
Innovation is always ahead and regulation will follow. The two are not necessarily opposites. Instead, they should have a facilitating relationship. Wall Street experienced numerous crises such as the Great Depression, the Oil crisis, 9/11 incident, the Internet bubble, Corporate Scandals, etc.; however, we find that over time, the impact of new crises on the market is getting smaller and smaller. Mature market regulators have dealt with new problems using more effective means and regulations. There are still winners, losers, speculators, and violators, but the cost of failure is becoming increasingly reduced, and the negative impact caused by fluctuations in large financial market is too becoming smaller.
Today, we are experiencing a bear market in the Crypto world. This is an excellent opportunity to consider if the role of market regulators can be replaced by a decentralized organization? Is the industry able to form a series of self-regulatory systems to reflect the value of good tokens and expel bad tokens from the market? Every participant in the Crypto field should think about these questions, and true decentralized believers should be ready to answer these questions.
There are many legends in the Crypto World, but often legends can become beautiful stories. The cost involved in the process is often huge and more discussion about what the new future world looks like is required.
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