Intro/Disclaimer: A few months ago I started preparing updates for the attorneys at my firm practicing in the Web3 space regarding what legal stories people were talking about the prior week. I believe eventually we are going to do monthly or bi-weekly posts on the award winning BitBlog summarizing the top stories with tl;dr breakdowns on the stories’ importance and general thoughts on their ripple effects on the industry. In the meantime, I thought I would start putting the weekly updates on my personal blog as well on Tuesdays. Note, any opinions from these (or any of my other) blogs are mine alone, and are not adopted or endorsed by my firm.
Staking is dead! Long live staking! Some big news from the SEC this week as David punched back against Goliath in the SEC vs. former Coinbase employee insider trading case, and the news of cryptocurrency’s US staking death is greatly exaggerated as the SEC shuts down Kraken’s staking-as-a-service product which gives one less safe option for US users to gain those sweet sweet validator rewards. Read below for my breakdown of those major stories and some other legal blockchain developments which crossed my desk this week.
Ishan Wahi Files Motion to Dismiss in Coinbase Employee Insider Trading Case
Back in July of 2022 a Coinbase employee, his brother, and friend were charged by the SEC for insider trading regarding their use of insider knowledge at Coinbase on what cryptocurrencies would be offered next on the platform. That Complaint is available here. This past week, that former employee and his brother filed a Motion to Dismiss the SEC’s Amended Complaint. That MTD is available here.
Tl;dr– We wrote an article on the Bitblog when the SEC case was first announced (available here) and I wrote a summary of this MTD which is available here. Shocked would be an understatement when I saw Ishan Wahi plead guilty to wire fraud charges (and faces jail time for same) only to turn around and fight the good fight against the SEC’s classification of the digital assets he sold as securities. As I stated in my longer article, if the Wahi Defendants are successful in dismissing the SEC’s claims against them, that case law does little to support blockchain network developers, but is a huge win for retail crypto purchasers and companies that build on those blockchain networks as their critical infrastructure. It is unclear who is funding this MTD.
SEC Fines Kraken $30 Million For Staking-As-A-Service Product
The SEC issued a $30 million fine against Kraken cryptocurrency exchange and ordered the company permanently shut down its staking-as-a-service product. The product allowed people to “stake” their cryptocurrency for a regular interest payment and no minimums with the ability to “unstake” the currency at any time.
Tl;dr– Gabe Shaprio had a pretty solid thread explaining an opposition to the SEC’s position while back-tracking when the Complaint was revealed and it was determined rewards were not based on pro rata distribution of node earnings among other issues. This appears to be another example of “consumer protections” where the consumers are driven away from seemingly good actors like Kraken to less secure options. It should be noted that this is not a ban on staking, but instead appears to be a case where a company was providing an investment vehicle which used “staking” to pay back investment interest but which was not a purely “staking-as-a-service” type of software/hardware service provider arrangement. Crypto mom (SEC Commissioner Hester Pierce) and house majority whip Tom Emmer have come out in stout opposition to this latest SEC action.
As regulatory pressure continues to mount, lawyers specializing in blockchain technologies are expected to be in high demand.
Yuga Labs got a contributor to the RR/BAYC NFT project to admit the project infringed on Yuga’s Trademarks. While the case against the main developers of the project is ongoing after those developers lost their Motion to Dismiss under Rogers, this is certainly an additional blow to that case as Yuga appears to have gained a cooperating insider.
In other trademark litigation news, Hermès won its trial against MetaBirkins creator Mason Rothschild. Read a Polsinelli update on the verdict here. There were some damning messages from Mason shown to the jury in which he bragged MetaBirkins were a “digital brand” like BAYC and Doodles. It appears the jury was swayed by those, and sided with Hermès in deciding Rothschild’s motivations were financial and not artistic.
It looks like 3AC founder Kyle Davies was too busy pitching his next boondoggle, err, I mean, “venture”, to comply with federal subpoena for him to hand over certain books and records from the now defunct 3AC firm.
A UK court ruled this week that the guy who everybody with a brain knows isn’t Satoshi (allegedly) has no copyright claim over Bitcoin’s code. Honestly, almost have to respect the hustle of this guy losing over and over in court and just keeps on claiming he invented Bitcoin despite all the evidence to the contrary.
Apparently, Gemini and Genesis reached an agreement which gets Earn customers one step closer to recovering their assets deposited in the program? I’ll wait until customers actually start getting their crypto back before I drop the confetti on this one.
Dubai issued some regulatory guidance on advertising and promoting digital assets to people in Dubai. Hand up, I did a “I ain’t reading all that. I’m happy for you though. Or sad it happened.” on articles about this over the past week. But it got some pretty big traction with the international legal folks so thought I would include it here.
The Congressional Research Service issued a Crypto and Banking Policy Issue report this past week. Nothing groundbreaking, but gives a good background on upcoming banking policy agenda issues involving blockchain assets.
Speaking of banking, as I have mentioned in prior articles it appears one of the strategies the fed has taken for slowing the growth of the blockchain industry in the US is through limiting their banking options, which some Senators are now taking umbrage with.
While not strictly “legal” news, I did think it was important to share Yuga Labs founder Wylie Aronow’s letter regarding his heart failure diagnosis and rebuttal to claims his company was founded on racist imagery.
If you have any questions or would like me to write about anything else, let me know on either of my twitter pages! As always, I am an attorney, I am not your attorney. For legal advice, you should always consult (and pay for) an attorney.