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.
I was at NFT/NYC this past week, and it was great to catch up with so many clients and colleagues to see what people are building in the space. The event was much less euphoric hype than in years past, with more focus on actual builders. My main takeaways were: (1) many developers are focusing on blockchain gaming, which seems to now have the infrastructure built from years of development to actually produce mainstream games; (2) coupling real world assets to digital tokens is gaining mainstream traction; and (3) major brands (especially in gaming/fashion) are putting serious resources in their Web3 strategies.
Between Gensler testifying in front of Congress today and the various other news that has already hit my desk as of Monday afternoon/this morning (hence why this weekly post is later than usual), I have a feeling next week is going to be a big week in crypto.
But for now, here is what happened last week:
The SEC Reopens Comment Period for Amendments to Exchange Act Rule 3b-16
The SEC has reopened its comments period for its proposed amendments to Exchange Act Rule 3b-16 regarding the definition of “Exchange” under the rule. The proposal seeks to expand the definition of “Exchange” to include “communications protocol systems,” which many believe would wrap defi protocols into the SEC’s regulatory gambit. SEC Commissioner Hester Peirce wrote an uncharacteristically blunt and fiery dissent to what appears to be an effort by the SEC to limit challenges based on comment period duration rather than actually seeking advice from commenters.
Tl;dr– Commissioner Peirce said it best: “Rather than responding to commenters’ serious concerns about the breadth, ambiguity, unworkability, and potential disruption of the proposal, the reopener, with few exceptions, doubles down on the defects identified by commenters.” The SEC, in seeking to regulate software systems, seems to be trying to expand its authority in ways unsupported by law. With the decision in SEC v. Cochran on Friday, the SEC has now only won one of the last 6 cases it has brought which has reached the Supreme Court. Unfortunately, that doesn’t seem to be slowing them down.
Other Stories
A16z put out their “State of Crypto 2023” report last week. It is a mixed bag, with active blockchain addresses and verified smart contracts hitting all-time highs while the number of active developers has stagnated. The report seems to be bullish on the growth of Layer 2 solutions and zero knowledge proof innovations.
Technically this happened last week, but it was released on Easter Sunday, so I didn’t see it until Monday afternoon, but the team in charge of FTX trying to sort through the wreckage released a new report detailing just how badly the company was run. Highlights include using QuickBooks accounts titled “Ask My Accountant” for any transaction they didn’t have time to appropriately designate, and firing anybody who put a hand up to say “hey, guys, maybe we should NOT have an “Ask My Accountant” QuickBooks account this at a multi-billion dollar company?”
A US Government issuing Central Bank Digital Currency (“CBDC”) is a hot topic right now in politics. Privacy advocates are justifiably concerned with the federal government having control of all federal dollars without the need to involve an intermediary (such as a bank) to freeze funds. On the other sides, supporters say this is a necessary step to maintain dollar dominance in an increasingly digital world. Seeing the evidence of Chokepoint 2.0 right as the Executive Branch seems to be rolling out their plans for a CBDC, I tend to lean towards the former.
Relatedly, the House Financial Services Committee released a Discussion Draft stable coin bill on Saturday. Prior to the CBDC controversies, I thought that stablecoin legislation was one of the few crypto laws which had a chance of passing this year. Now, it’s a public vs. private issuer debate rather than a purely financial safety debate, which complicates things.
Hong Kong’s finance chief further signaled for support of Web3 adoption with a recent blog post. Now if only leadership in the US would get the memo.
The OpenSea former employee insider trading case is gearing up for trial with pretrial conference on April 20th (this upcoming week). We wrote a post on the Bitblog about the case when the charges were first released almost a year ago. Carlo D’Angelo broke down the dueling motions to exclude expert witnesses filed last week.
ETH’s long awaited “Shanghai upgrade” went live this week, which allows users to gradually unstake ETH which had been previously locked in staking contracts. Some were concerned this would create a rush of liquidity and sell pressure, but that hasn’t seemed to happen yet.
Adidas launched the next phase of their Web3 expansion during NFT/NYC with its ALTS Dynamic collection. NFTs make sense for any company which seeks to connect with its early and loyal supporters in a provable away not subject to botting. I think we see more style and fashion brands expand into the metaverse this year.
Last week I covered the Coinbase supported MSJ in the Tornado Cash sanctions challenge. This week, the Blockchain Association and DeFi Education Fund filed an amicus in support of that MSJ. While the amicus also focused on the First and Fifth Amendment issues with the sanctions (rather than my proposed Fourth Amendment challenges), it still shows more well-reasoned and well-funded challenges to the OFAC sanctions against a software protocol.
Justin Sun was served with a summons in the SEC case against him, which he appears poised to defend. Again, without more funding, the SEC is going to have a hard time litigating against so many well-funded defendants at once.
Ahead of his April 18th hearing date with the House Financial Services Committee, Republican lawmakers have questioned Gensler’s failure to produce information regarding his meetings with SBF, and “failed” rulemaking agenda. I have heard from multiple attorneys in the space of staffers asking for pointed questions regarding the inability of blockchain companies to “come in and register”, so I expect there to be some pointed and educated questions on those issues coming his way.
Despite last week’s Treasury shot-across-the-bow at DeFi, the Uniswap wallet is now available through the Apple App Store. This makes it easier for mainstream use of Uniswap, but also hard to claim DeFi with these centralized features. It was a big week for Uniswap, as the Uniswap DAO also voted to approve deploying on Polygon’s Zero Knowledge rollup solution.
The lawyers in the FTX class action have been trying (and failing) to serve Shaq for his alleged involvement with promoting the exchange in what has turned into a comical game of cat and mouse. However, it looks like the long national nightmare ended Sunday night.
Chia Network has submitted a confidential draft registration to the U.S. Securities and Exchange Commission for a proposed initial public offering (IPO). Bold move.
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.
The NFTtorney 