Intro/Disclaimer: In late 2022 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. The firm has started turning these into 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. But for more comprehensive and unfiltered thoughts, I have been 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.
It appears we have reached the calm before the storm. Lots of developments which expand on major stories from the past two weeks like the SEC lawsuits against Coinbase and Binance, but with Congress getting ready to go on break and the deadlines to answer or otherwise respond in those blockbuster lawsuits over a month away, it seems like there is a lull in the legal developments. Rather than doing major stories, this week I just expanded a little on the bigger Other Stories. My prior posts should give further details on most these if you need additional background.
Here’s everything that happened last week in Web3 law:
Other Stories
First it was a BlackRock Bitcoin ETF, now a crypto exchange backed by Citadel/Fidelity/Schwab has started operating in the US listing Bitcoin, Bitcoin Cash, Litecoin, and Ethereum. Also, Deutsche Bank has applied in Germany to provide crypto custody services. While industry participants like Coinbase are being attacked, I expect lots of traditional financial companies to start trying to take market share. Considering more than 80% of fortune 500 companies have some sort of crypto initiative, it appears Wall Street is finally moving from behind the scenes into actual industry participants.
In the days after BitGo announced it would not be acquiring Prime Trust, Nevada ordered Prime Trust to cease operations after the cryptocurrency custodian was unable to satisfy customer withdrawal requests. Predictable outcome after the BitGo life raft didn’t appear.
Binance has come out swinging against the SEC, filing a motion taking issue with the SEC’s press release following entering of the agreed Consent Order by the parties. “Defendants… respectfully request that the Court issue an order directing counsel for the SEC to comply with all applicable rules of conduct concerning extrajudicial statements, including Rule 3.6 of the D.C. Rules of Professional Conduct, which provides that counsel cannot make misleading extrajudicial statements that may materially impact court proceedings.” Dems fighting words in legal speak.
I’ve previously covered what Nike is doing with their .SWOOSH metaverse play, but they are making splashes first pairing up with EA and now Fortnite’s 240 million users will experience the digital asset world and be encouraged to onboard to get a free NFT. I’m generally a stripes over checks guy, but if Nike can pull this off it could be the biggest win for the company in terms of market share since Jordans.
In an update to the Coinbase mandamus story from last week, the Court has granted the SEC’s request for 120 day extension for its staff to consider the rulemaking proposal, while also granting Coinbase’s request to retain jurisdiction over the matter during that process. Not entirely unexpected, but it would have been nice to see some more finger wagging from the Court at the SEC dragging its feet here.
While I didn’t get the bench slap I was hoping for in Coinbase, I did get that schadenfreude itch scratched from the permanent injunction in the Hermes case. I scrolled to the end for a tl;dr, and saw “Rothschild’s final motion is perhaps his most frivolous” and knew I was in for a treat.
FTX’s bankruptcy fees have already surpassed $200 million with no real end in sight. To be fair, they have managed to find $7.3 billion in liquid assets when they originally could only locate about a billion when they first took control, so they are earning their keep.
Do Kwon, the former Terra/Luna executive, was sentence in his first of potentially many criminal trials, this time for using forged passports in Montenegro. In his defense, surely there are tons of definitely not guilty criminals who carry around a ton of fake passports.
UK stablecoin/crypto legislation has been approved by its Parliament’s upper house. To think the US could be in the same position if regulators/legislators weren’t too busy cleaning egg off their face after being duped by FTX is kind of sad.
It is expected that up to 2% of the global money supply could be tokenized in CBDCs and stablecoins by 2028. Seems like a lot.
Last week, I highlighted an interview from an industry attorney which was less-than-favorable on the industry. But I also want to make sure I am highlighting when one of our industry attorney colleagues has a great interview, like Rebecca Rettig’s recent interview for DLNews.
In my 1/30 update, I covered the LBRY remedies hearing and the reported SEC concession that it could not seek injunctive relief on secondary sales under their Complaint. The transcript from that hearing is now out, and the Court says “unless the SEC changes its position and argues that some of the relief I order should affect secondary sales. If they stick to their current position, which is, I’m not asking you to do anything with respect to secondary sales, I’m going to make it very clear that nothing in my order has anything to do with secondary sales.” So, again, it seems like the only thing admitted by the SEC is that secondary sales are beyond the scope of this particular action, and not some major victory or precedent changing event it was made up to be.
All the federal agencies are now looking for their piece of the regulatory pie, with the most recent being Federal Reserve chair Jerome Powell elbowing for a seat at the table over the regulation of stablecoins. It’s amazing to watch the narrative over cryptocurrencies change once the TradFi players decided to get on board.
If you are a tax nerd, this comment to the IRS from Jason Schwartz on behalf of Paradigm Operations LP is a must read for when an NFT is a “collectable” under section 408(m). Or be lazy like me and read his Twitter thread breakdown instead.
I saw this interesting case potentially worth following this past week. The Plaintiff spent $1.4 million purchasing tokens on Binance from a project that was shut down by the SEC. The Complaint alleges “Upon information and belief, Zyskind and Kisagun abandoned Enigma because of the SEC cease-and-desist action and resultant Order to effectively re-start the same company as SCRT Labs while leaving Enigma investors holding the bag of worthless ENG Tokens.” Plaintiff is represented by Nelson Mullions and Defendants hired Willkie Farr so certainly some briefing I will need to pull if it gets to the MTD/MSJ stage.
Polygon launched its ChatGPT plugin which they call the Polygon Copilot. They claim that it “levels the playing field, empowering both beginners and experienced users to make the most of the tools and services available on the Polygon ecosystem.” It makes sense to try to provide a tailored AI experience for people to build on their platform. This comes the same week as Kaito raised $5.5 million in a Series A funding round at a $87.5 million valuation, to build an artificial intelligence (AI) search engine tailored to the crypto industry and Hedera launched their own ChatGPT plugin.
NFT digital card battler game Gods Unchained is now in the Epic Games store and about to launch on mobile. Once a few of these games get a decent sized player base its over for traditional gaming and walled garden assets.
Not really crypto other than the suit involving Coinbase, but they won their Supreme Court case regarding forced arbitration provisions. Yay for them I guess?
The International Monetary Fund has reached the conclusion that Bitcoin bans are not effective, after previously recommending countries consider it. To be fair, how could the IMF possibly know before that the thing literally designed for censorship resistance would be so resistant to censorship?
SBF was blocked from subpoenaing FTX and Alameda’s former law firm Fenwick & West. Honestly, what Fenwick did getting the keys out of the hands of SBF and his crew in those final days may have saved hundreds of millions of dollars from being desperation flushed down the drain, so it would suck for them to be dragging into this criminal matter.
Alleged complete and utter scumbags Kyle Davies and Su Zhu, the founders of Three Arrows Capital who may or may not be accused of being insanely reckless and losing hundreds of millions of other people’s money (allegedly) are now trying to tokenize defamation claims from all the people who called theses alleged scam artists scam artists. Allegedly. Is that enough allegedly’s for me not to be sued? Just in case, one more time, everything I have ever said about them being terrible people, scumbags, and scammers, is allegedly.
A cryptocurrency company is suing an NFT company over theft of trade secrets regarding use of AI integrations into the platform. This is basically a Mad Lib for specifically my legal practice/background in both the best and worst way possible.
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 