Off the Blockchain+, February 27-March 6, 2023

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.

Technically ETH Denver started two weeks ago, but the first week is primarily coding nerds while this past week was for the less technically proficient money and law nerds. Looking forward to covering the innovations the come out of that gathering of minds in the next few months. We have already seen the announcement for ERC-4337 which will allow for account abstraction and Polygon’s zero knowledge proof ID feature on the tech side. Here’s what happened last week in blockchain law:

Utah Passes Corporate Framework for DAOs

This past week, Utah passed its Decentralized Autonomous Organization Act which provides a legal framework for DAOs to register as legal entities in the state of Utah. A co-worker of mine Rob Lamb was integral to getting the bill passed in his role on the Utah Blockchain and Digital Innovation Task Force. It is expected to be signed into law, and has a 2024 implementation date.

Tl;dr–  It is AMAZING to see my firm have such a leadership position in this Utah legislation. While other states such as Wyoming have passed DAO corporate formation legislation, those have primarily been LLCs with additional requirements which make them impractical for many DAOs to actually implement. The Utah bill took a comprehensive approach, based on the COALA DAO Model Law. Adding a state actor to what is largely intended to be free of intermediaries will always have pain points, but this is the first corporate structure law to truly try to tailor itself to actual DAO operations while also providing necessary protections for both DAO participants and counter-parties.

Other Stories

Really great Law Review piece from @JoshuaLDurham about the first sale doctrine and how its general carve out for digital sales shouldn’t include NFTs. Good thing to consider when trying to figure out where NFT licensing fits within traditional contracting principles.  CoinDesk had a nice article this week analyzing the first sale issue.

The new House Financial Services subcommittee on Digital Assets has scheduled its first hearing for March 9 titled “Coincidence or Coordinated? The Administration’s Attack on the Digital Asset Ecosystem.” Gotta imagine the actions in the past month of the Kraken staking fines, warning banking providers against serving crypto businesses, the SEC’s pending stable coin issuer actions, the revised custody rules surrounding cryptocurrencies, and the flurry of regulatory activities across multiple agencies is just a coinkydink.

While it seems exceedingly unlikely the Illinois bill I talked about a few weeks ago goes anywhere, it does appear that Illinois is looking to set up a crypto regulatory regime like they saw the government agencies in New York do. Have I mentioned I am licensed to practice in Illinois? Because I am. Just saying.

After rumors of SEC and New York regulatory actions against Binance stablecoin issuer Paxos, Coinbase has decided to de-list the token. As I previously covered, Paxos isn’t issuing new coins so this isn’t a surprising move from Coinbase considering expected limited liquidity as the token slowly dies, but it doesn’t go unnoticed that the stable coin named after Coinbase’s biggest competitor is the first to get the axe.

The person who scored the highest score in Yuga’s “Dookey Dash” game sold his prize for $1.6 million this week. Remind me of my “Blockchain Gaming is going to flourish in 2023” call in December.

I don’t always agree with Brian Frye’s legal takes as he can fall into the typical academic traps of not letting actual practice realities get in the way of legal arguments, but when he writes a longer form piece like his proposal to donate dead NFT wallets to museums, I will at least share that scholarship.

The SEC and CFTC have charged former CTO of FTX with various civil violations following his criminal plea he entered a while back. No notes. Bad facts make bad law, but I have no sympathy for the FTX gang.

Robinhood revealed in recent 10K filing that it received a SEC subpoena over its crypto custody and listings. These types of inquires potentially explains why companies like Kraken and Cash App are looking to fill crypto regulatory counsel positions.

A new report claims Binance played a user asset shell game with $1.8 billion similar to what brought down FTX late last year. In response, Binance…released a shiny AI/NFT generator. Pay no attention to the man behind the curtain.

Coinbase has launched a grassroots public policy campaign ahead of what is expected to be a busy legislative session at both state and federal levels for blockchain assets. Considering they also lead the way in lobbying spend, it’s not surprising they are looking for more public support on that front. 

Welp, this isn’t good. Silvergate claims it is unlikely to file its required 10-K disclosure on time citing need to further evaluate “its ability to continue as a going concern for the twelve months following issuance of its financial statements.”  Coinbase has already jumped ship from Silvergate to Signature Bank. This is a big blow to the industry if Silvergate goes under. Due to recent financial regulator statements, blockchain companies looking for a banking partner for fiat on/off ramps may be left with limited options.

I enjoyed reading the Voyager bankruptcy judge’s minor bench slap of the SEC’s objection to the Binance.US purchase of the now defunct crypto lender’s assets.

I have the honor of calling Carlo D’Angelo a friend, and he gave a great interview to CoinTelegraph about integration of the metaverse into the US court system which I think is worth a read.

Senators Lummis and McHenry sent a letter to various federal agencies calling into question the SEC Staff Accounting Bulletin 121 regarding the account treatment of digital assets held by financial institutions for customers. It says what everybody was thinking: why is the SEC making ownership of digital assets less safe as opposed to more?

It’s crazy to think that in an alternate timeline, Gary Gensler could have had a leadership position at Binance instead of being crypto’s #1 enemy.