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.
As expected, with Congress still on break, the news cycle was dominated with litigation updates from the Tornado Cash sanctions decision and the SEC’s fight to appeal the agency’s Ripple litigation loss. It was also a big week in funding, with 9 companies in the industry raising a collective $158 million in fresh cash injections.
Here’s everything that happened last week in Web3 law:
Coinbase Funded Tornado Cash Sections Challenge Loses on Summary Judgment
In September of 2022, Coinbase funded a lawsuit brought by six individuals challenging the U.S. Treasury Department’s sanctions of digital wallets linked to the Tornado Cash smart contracts. On August 17, the Court hearing that matter ruled in favor of the Treasury Department and issued summary judgment against the six individuals.
Tl;dr– As I previously wrote, I wish either Coincenter or Coinbase had raised the 4th Amendment issue in their challenge to the Treasury Department sanctions of the Tornado Cash mixing service protocol. This decision makes it clear that we as attorneys need to be better at educating courts about how the technology functions. A smart contract can memorialize legally binding promises, facilitate the performance of legally binding promises, or may just be executable code having nothing to do with promises (legally binding or otherwise). Clearly the Court did not understand this distinction. The Court ruled that the smart contract controlled by a DAO was an “association” and the smart contract itself was a “contract” capable of being designated as property under sanctioning law. Everybody knew this would head to the 5th Circuit no matter who won, so this simply speeds up that process.
SEC Files Official Motion to Appeal Ripple Decision
On August 9, the SEC filed a letter request to file a motion for leave to file an interlocutory appeal of the Court’s July 13, 2023 Summary Judgment ruling. On August 16, Ripple responding with its own letter of intent to opposing the SEC’s request. The SEC was given until August 18 to actually file its motion for leave to appeal with all briefing on the subject to be completed by September 8. The SEC’s arguments largely followed its letter, claiming the Court erred in its ruling regarding programmatic sales and “other” distributions to employees and charitable organizations as securities offerings.
Tl;dr– Seeking this interlocutory appeal is an aggressive move from the agency. Many thought the current leadership would be inclined to ride the issue out until trial, knowing that uncertainty would be better than a potential sped up major loss on appeal. It may be that due to this decision being cited widely in other litigation against the SEC, they believed this was the only avenue to stop the bleeding. Either way, the SEC is facing an uphill battle as it still needs the Court to certify its issues for appeal and the 2nd Circuit to agree to hear it.
Other Stories
Coinbase was approved by the CFTC to offer leveraged BTC and ETH futures to U.S. users. Just another step on the Coinbase goal of being the one stop shop for all things digital assets.
Ripple has predictably opposed the SEC’s request for interlocutory appeal. Ripple argues that despite the Motion to Dismiss decision in Terraform Labs, there isn’t a substantial enough ground for differences of opinion to justify a pre-trial appeal on this issue.
The SEC is expected to greenlight an ETH futures ETF. They are in a tough spot there, as it’s a futures ETF which the SEC doesn’t have much power to stop if they don’t have the support of the CFTC, but this also opens the way for a spot ETF like the Grayscale Bitcoin spot ETF challenge. Ain’t no fun when the rabbit has the gun.
Opensea has finished their test program and is going back to optional creator royalty fees for users. This led to backlash from many who feel the secondary platform should support creators who wish to impose secondary royalties on buyers and sellers. There is an argument to be made from the HiQ v. LinkedIn decisions regarding the use of technology to code around website crawling blockers as applied to NFT secondary platforms which code around collection blacklists.
Genesis reached a deal with the FTX bankruptcy estate where Genesis will pay $175 million to Alameda Research and waive any claims in the FTX bankruptcy.
This was a great article explaining why digital asset legislation should be politically neutral and how the crypto values are in-line with progressive values despite political progressives fighting against crypto and taking the sides of TradFi/big banks on the correct future for finance.
As people gear up for the SBF trial in October, pre-trial filings are coming out with information on how that trial will work. While former FTX executive Ryan Salame isn’t anticipated to testify and plans to plead the fifth, Caroline Ellison and others are listed as witnesses. I’ll probably do a catch-up round up on the case as it gets closer to trial.
Jeffrey ‘Machi Big Brother’ Huang has called off his defamation lawsuit against crypto forensics sleuth ZachXBT. Looks like somebody found out how discovery in a defamation lawsuit work.
Binance is asking for a protective over against the SEC’s discovery in its litigation against the agency. To an extent I get it, but claiming the CEO/CFO don’t have firsthand knowledge relevant to the lawsuit is laughable.
Looks like the dispute between DeFiance Capital and the 3AC liquidators is heading to Singapore after a drawn-out jurisdictional battle. Singapore courts probably have some of the more advanced understandings of crypto, so seems silly to fight this battle.
I got the CFA Level 1 question on digital assets right. Meaning I could get precisely one question right on that test.
I found this article about Goldfinch’s recent issues with a defaulting African motorbike finance company called Tugende Kenya fascinating. No pun intended, but combining the worlds of blockchain finance and traditional businesses such as automobile financing will always have a bumpy road while it works out the kinks.
Not Web3, but this Caselaw Access Project is awesome. It’s an open-source API giving anyone free access to millions of state and federal U.S. court decisions.
Delphi Digital’s Kevin Kelly is calling a crypto bull run on the horizon based on certain indicators. Perhaps a controversial take, but I wouldn’t mind being paper rich again even if I know I’m going to hold to zero like I always do.
Members of the House Financial Services Committee have sent a letter and a raised eyebrow to the SEC regarding its approval of Prometheum as a special purpose broker-dealer. Considering Democrats like Riche Torres also questioned this decision, it seems like both the SEC and its mouthpiece, I mean, approved broker-dealer, have some explaining to do.
Collectors purchased almost a half million dollars’ worth of Coca-Cola NFTs in their launch on Coinbase’s layer-2, Base. Will they actually be worth anything? Probably not. Did I buy a few? Absolutely.
So, a documentary about Richard Heart apparently dropped last week. Interesting move in the middle of an SEC investigation, but the footage was coming out in discovery anyways so might as well get the edits you want to the public rather than the raw footage which is assuredly going to be a part of the SEC’s case.
Crypto forensics leader Chainalysis is being sued for $80 million in stock options allegedly owed to a fired former employee. This and the MetaMask lawsuit from a former employee are to be expected as big money is at stake for early stakeholders in these Unicorn businesses.
Crypto-custodian provider BitGo raised $100 million in a Series C round on a $1.75 billion valuation. With a massive market hole left by Prime Trust, the demand is likely there for trusted custodian service providers.
Mastercard saw all the shine Visa got last week at allowing for fiat gas fee payments, and had EVP Raj Dhamodharan go on a podcast to explain Mastercard’s own blockchain and digital asset strategy including a test CBDC program with Ripple. Worth a listen.
Ledger also added PayPal as an onramp which allows users to convert fiat into digital currencies like Bitcoin and ETH. After PayPal’s stablecoin made waves last week in D.C., it looks like they are full steam ahead in making their payments platform compatible with digital assets.
Whenever the New York Times is saying digital assets are here to stay, you know hearts and minds are being changed.
Gemini filed its Reply in Support of its Motion to Dismiss this week which should wrap up briefing for now on that case against the SEC. Gemini argues that the SEC has not plausibly alleged a sale of securities occurred. “A child running a lemonade stand knows that when something is sold, ownership of the thing at issue—the lemonade—transfers from the seller to the buyer, in exchange for value. So too here: even if MDALAs are securities, the SEC has not made plausible non-conclusory allegations that they were ever sold or offered for sale.”
Even though Congress is on break, I enjoyed this article discussing the Binance/Coinbase lobbying spend and strategies going into the back half of 2023. Great infographic of Coinbase CEO Brian Armstrong strengths and weaknesses against SEC Chair Gary Gensler’s.
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 