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.
The big stories this week were surrounding PayPal jumping into the stablecoin issuer game, and Coinbase’s layer 2 “Base” launching with a month of NFT mints from Coca-Cola and others in an effort to onboard more people in what they are calling #OnChainSummer. Also, the amicus in the SEC’s case against Coinbase provides 100+ pages of scholarly arguments on the status of digital assets in U.S. securities law jurisprudence if you are looking for some light beach reading materials.
Here’s everything that happened last week in Web3 law:
Senator Lummis and Others File Amicus in Coinbase Litigation
There was an expected bevy of amicus filings in Coinbase’s litigation against the SEC, with filings in support of Coinbase coming from Senator Cynthia Lummis, the Blockchain Association, a16z/Paradigm, the Chamber of Digital Commerce, the DeFi Education Fund, and a group of securities law professors. The SEC has until October 3 to file its opposition.
Tl;dr– The arguments raised were largely known beforehand, and all well done from a blocking and tackling perspective. Of the amicus, the most interesting was Senator Lummis’ filing which was prepared by Kayvan Sadeghi of Jenner & Block who is one of the more respected litigators in the space. It gives strong arguments for the separation of powers issue necessary for a Major Questions Doctrine ruling by the Court. The professors’ filing was also seemingly well done and gives some nice color to the “investment contracts require investment and contracts” argument in a typical academic exercise which a federal judge might appreciate. They are all certainly worth reading.
Other Stories
PayPal announced this week it would be launching a fully backed stablecoin (PYUSD) and integrating it into its payments platform. It’s an ERC-20 token, which means it can be transferred to self-custodial wallets, but similar to USDC and USDT, it does have freezing functionality and can be seized. This was met with a renewed push from Congressional leaders for stablecoin legislation. Reportedly this is just the first shoe to drop, and Paxos is working on other white labeled stablecoins as well. Representative Maxine Waters (the same Maxine Waters who was friends with SBF and tried to kill the stablecoin bill a few weeks ago) is reportedly “deeply concerned” about the PayPal stablecoin.
Speak of SBF, it looks like he will be waiting out his trial date from jail now after the Court heard evidence of alleged witness tampering by the disgraced former FTX CEO. Witness tampering is one thing, but I have to disagree with the judge citing evidence of SBF using a VPN to watch football from his house. A person’s God given right to watch football shouldn’t be abridged.
While the House moves forward with crypto regulation aimed to assist developers by providing clarity as to the legal status of digital assets, the Senate wants to make self-custody of digital assets as burdensome as possible. Fun!
I love this effort of white hat hackers to get together to provide support in instances of protocol exploits and hacks. This is the type of self-policing the industry needs if we want to avoid overly restrictive regulations.
Apparently the IRS wrote crypto tax rules months ago but hasn’t released them for…reasons? Love delaying release of information for political reasons. Totally how government should work.
Meanwhile, in TradFi, the SEC issued $549 million in fines for failure to abide by record keeping requirements and use of messaging apps like Signal and WhatsApp to avoid record preservation requirements. This brings total amount of fines for the year on this issue to over $1.5 billion across 30 enforcement actions. “Shouldn’t we take seriously the possibility that algorithms and open-source software that take a measure of human error, greed, negligence, fraud and bias out of the system might actually make the system better, on net, even if there are some new risks being presented that need to be understood and regulated?” -Brian Brooks.
The SEC filed its intent to file an interlocutory appeal of the Ripple ruling. It needs to be accepted by the District Court and Second Circuit to be heard, so it’s still an uphill battle. But an aggressive move out of the SEC for sure. The trial in the matter for the remaining issues is currently set for Spring of 2024.
People are predicting the first Bitcoin ETF to be granted in Q4 2023 or Q1 2024. I’ll wait until we have a ruing in Grayscale before doing a victory lap on this one. Especially with others forecasting a rejection.
Very much looking forward to reading this deep dive into bridging the gap between freedom of DeFi with regulatory protections for consumers.
Great article on how sports betting may integrate blockchain technology. Makes total sense in an area like sports where results can be determined through use of an oracle and payment automated on the blockchain along with easy line movement integrations based on where the money is going.
The Federal Reserve has announced a new program to “novel activities” for banks related to crypto-assets, distributed ledger technology, and complex, technology-driven partnerships with nonbanks. It is interesting the Fed passed these rules knowing the pending stablecoin bill would largely moot them. Gives perspective on their perceived chance of that stablecoin bill being signed into law anytime soon.
Aptos blockchain has teamed up with Microsoft to combine the Microsoft AI chatbot with asset tokenization elements.
#OnChainSummer is full steam ahead as Coinbase launches its Layer 2 scaling solution Base. For anybody reading this who hasn’t jumped into self-custody, I highly suggest you take advantage of this opportunity. Get a Coinbase wallet, do the walk through on bridging ETH to Base, claim an NFT during the many events going on the rest of the summer.
Digital Currency Group (“DSG”) has moved to dismiss the Gemini lawsuit against it claiming the Winklevoss twins “began an effort to deflect blame by contriving a public, Twitter-based character assassination campaign against Defendants DCG (Genesis’s indirect parent) and Silbert (DCG’s founder)—neither of whom operated or oversaw the Gemini Earn program.” Cameron Winklevoss has shrugged off the filing.
Somebody is digitally burning millions of dollars in assets and nobody knows why. It’s the scene from Batman where the Joker burns a giant pile of cash. Except less exciting.
Bittrex settled with the SEC and agreed to pay a $25 million fine. The release points out the fact that Bittrex told token issuers to scrub statements regarding promises of future returns and such prior to listing the asset. So if an issuer makes a problematic token statement then that token is forever a security regardless of who saw it, and if an issuer tries to distance itself from prior statements that is evidence of a security. It’s the old “if she floats, she’s a witch” trick.
Web3 gaming is hot again. After startups saw lots of private investor interest flood into AI projects, Web3 gaming tokens saw a late summer resurgence. When Web3 gaming assets start selling like CSGO items I will be the first to say “I told you so” and point to these months of me shouting from the rooftop that ticketing and gaming are going to be the early NFT winners.
Visa is trying to make it easier to pay gas fees with fiat. Honestly, even for crypto natives gas fees (especially is cross-chain transactions) can be confusing and a pain. Lessoning this pain point is a major move towards mainstream accessibility.
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 