Off the Blockchain+, April 3-10, 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.

Not-so-hopeful DeFi guidance from the US Department of Treasury was the talk of this week, but other news (such as a reported $739 million being invested in blockchain based games in Q1 2023) shows that people are still building and investing despite regulatory uncertainty. I’ll be in New York this week for NFT/NYC, so hopefully there is something good to report coming out of that conference. Here’s everything people in Web3 law were talking about last week:

US Treasury Issues Warning Against Use of DeFi

U.S. Department of the Treasury published the 2023 DeFi Illicit Finance Risk Assessment on Thursday of last week. The full report is available here. The report points to the use of decentralized finance by threat actors such as North Korea to justify their recommendations for strengthening U.S. AML/CFT regulatory supervision and adding regulations to cover DeFi activities which currently fall outside the Bank Secrecy Act.

Tl;dr– Despite the negative coverage, the report wasn’t all bad, acknowledging “money laundering, proliferation financing, and terrorist financing most commonly occur using fiat currency or other traditional assets as opposed to virtual assets.” It also acknowledges at least some subsets of DeFi services fall outside the regulatory requirements under the Bank Secrecy Act. But the report still telegraphs an intent for pursuing criminal charges against DeFi front end providers. It also falls into the trap of trying to make square pegged CeFi rules fit into round holed DeFi realities.

Other Stories

The parties in the SEC v. Wahi case have requested a delay in further briefing citing settlement agreements/discussions. I wonder what settlement looks like after the united and well-funded opposition by both the Wahis and amicus which we blogged about in the BitBlog. The GC of Coinbase certainly took notice, with this not-so-subtle subtweet. Relatedly, this week Coinbase requested to be reimbursed for costs it incurred in complying with the DOJ’s investigation into its former employee.

Blockchain powered digital bonds are coming to French investment banks. With upcoming regulatory certainty provided under MiCA you can expect more traditional European financial entities dipping their toes into the crypto waters. Tokenization of real world assets is all the rage in TradFi.

Elon put crypto-twitter into a tizzy replacing the bird logo with the DogeCoin logo on the site for a few days last week. It became a cliché to say “probably nothing” after a major crypto-adoption announcement, but this is “probably nothing” in the traditional understanding of that phrase. 

In crypto-gaming, LayerZero got $120m in fresh funding (bringing valuation up to $3b) for their cross chain messaging protocol based in large part on its use case for NFT gaming integrations and cross-chain functionality. Cardano also launched its Lay 2 onchain gaming integration function. RACA (formerly known as Radio Caca) got a $16 million investment to support their efforts to build a Web3 version of Steam for gaming. Blockworks published this piece on trends which are needed to grow Web3 gaming. Bitkraft, the gaming focused venture firm, has also raised $220.6 million for its second token fund. According to DappRadar, investments in blockchain games and metaverse projects totaled $434 million in March alone and $739 million for the quarter.

The Coinbase supported challenge against the OFAC sanctions/designation against Tornado Cash filed a motion for partial summary judgment this week. It brings up some novel arguments about sanctions against code as a “entity” and first amendment arguments as well. Certainly worth reading, even if they didn’t use my Fourth Amendment challenge theory.

Some Apple developer back in the day apparently hid the Bitcoin white paper in old system files. But no, Steve Jobs was not Satoshi Nakamoto.

I previously covered Ben “BitBoy” Armstrong harassing the attorneys who filed a class action lawsuit against him, but in an update apparently the harassment has continued with “daily violent threats” even after that previous filing. Can’t imagine his first appearance in front of the judge is going to be fun for him with these antics.  

In Asia, Singapore is apparently working with their banking regulators to provide guidance to crypto businesses, and Japan has issued a white paper on their plans to promote Web3 industry growth in their country. MUST BE NICE.

OpenSea, the leading NFT marketplace, announced its rebrand of acquired company Gem into OpenSea Pro. Seems suboptimal for claiming NFTs aren’t securities when all these secondary marketplaces are being optimized for “professional traders” of NFTs. ViaDAO, the Pfizer-backed community-owned medical research funding collective, is considering creation of a for-profit entity to accelerate research assets. I think DOAs, like LLCs, are going to be used as jumping off points for both larger corporations trying to spin off a subset of its business into a separate entity, and as gathering points before creation of larger (primarily for-profit) entities.

Conclusion

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.