I’ve done it. I have finally fled America. Albeit, I’m in Canada on an annual fishing trip; so not exactly seeking crypto asylum. I will be working while I am up here between outings on the lake, because for some reason the world doesn’t go on pause for my convenience (very rude!), so I’ll still be doing my usual weekly rundowns. But the updates this week and next week might not be as thorough as usual. This week, we had the CFTC taking the role as villain from the SEC, filing enforcement actions against 3 DeFi entities, and LBRY is appealing despite being broke.
Here’s everything that happened last week in Web3 law:
CFTC Goes After DeFi
ZeroEx (the developer of 0x Procotol), Opyn, and Deridex all entered into consent judgments with the CFTC after being charged with failing to register as a swap execution facilities and other similar charges. The charges were brought against the U.S. DevCos for these DeFi protocols, and all agreed to fines and to implement changes to block access to U.S. users. This seems to indicate a renewed push by the CFTC to target DeFi after first taking action against OokiDAO.
Tl;dr– The Dissenting Statement of Commissioner Mersinger sums up what many in the industry think. “[T]hese cases give no indication that customer funds have been misappropriated or that any market participants have been victimized by the DeFi protocols on which the Commission has unleashed its enforcement powers.” I was surprised to see Commissioner Pham not joined in dissent, as she is usually seen as a friend to the industry (even if only surface level). Additionally, just like any regulation by enforcement these actions do nothing to help others obey what the CFTC believe the law is, as at least one of the protocols did GeoFence against U.S. users and it goes directly against the holding in UniSwap that developers are not responsible for third-party usage of their protocols. The crazy people screaming about DeFi being illegal after Ooki are looking less and less crazy.
Other Stories
Ethereum founder Vitalik Buterin released a paper with others titled Blockchain Privacy and Regulatory Compliance: Towards a Practical Equilibrium. It essentially argues for use of a permissioned mixing service, using zero knowledge proofs to only allow participants who confirm their funds were acquired legally to use the service. I honestly do not know what U.S. regulators will view as compliant short of allowing full back-end government monitoring, but it is worth reading.
I did not see this coming, but LBRY is appealing the judgment against them in their case against the SEC. I wonder who is funding this appeal, as LBRY is broke after spending all of its funds fighting the agency in the underlying case.
This international organization for securities commissions piece on DeFi policy recommendations reads like it was written by an agency as hostile to digital assets as the SEC. Probably because this was written by the SEC. The hits keep coming and they don’t stop coming.
It looks like the U.S. isn’t alone in struggling to pass through common sense digital asset regulations, with the Australian Senate digital asset market structure bill dying in committee. Legislators need to understand this is a bipartisan issue and get on board or risk getting left behind.
The Wall Street Blockchain Alliance submitted the following letter to the Senate in response to its request for the appropriate treatment of digital assets under federal tax law. Certainly worth a read for anybody interested in the tax issues surrounding digital asset ownership, use, and transfer.
This was a nice little summary of the discourse over the Cravath Tornado Cash marketing piece. Like I said, it is nice to see a major legal player enter the fray, but we need to keep the discourse academically honest.
After the PayPal stablecoin news, people are waiting to see what financial institution will enter the fray next. It looks like it is going to be Visa, but Mastercard isn’t far behind. Eventually I think merchants will list the stablecoins they support in the same way they list the credit cards they support.
The digital asset accounting rules are expected to be published by year end and require reporting companies to account for dips and bumps in digital asset values for companies that hold those assets on their balance sheets. My understanding is that most companies already do this, but it will be nice to have a uniform accounting standard on this issue.
FTX Co-CEO is 100% confirmed to testify against SBF in his recent plea deal. Wonder what hurts more, his potential 10 years in jail or the $1.5 billion asset forfeiture.
SBF got a sweetheart bond deal but the Tornado Cash developer gets hit with $2 million bond and gets drug tested and other bond conditions in no way related to what he is charged with (creating computer code). Just a reminder that the U.S. justice system is the worst system except for all the others.
The Spot ETH ETF will be the next battle ground it looks like, with ARK filing for such a product last week along with others. Sharks are sensing blood in the water after the SEC got bench slapped in Grayscale.
It looks like Gensler might not get as friendly of a crowd in the Senate as he hopes in his upcoming hearings this week in both the Senate and House.
The CEO of Turkey’s version of FTX got sentenced to 11,196 years in jail. Prosecutors were going for 20,000+ years, so really good of his defense team to knock that down…
It’s sad to see NounsDAO getting ready to split as members “ragequit” to take their share of treasury and leave. NFT bear market is hitting hard.
CFTC was busy this week, also settling for $2.5 million payment from a 28-year-old from Utah over a commodities fraud scheme. When I was 28, I was a second-year associate doing document reviews, so this guy sounds like he has a bright future! Minus, you know, all the fraud.
Linus Financial, a Nashville-based firm, settled with the SEC for failing to register its crypto lending product. Every SEC announcement, I am just wondering if that is the bomb shell that Gensler is getting ready to drop before his upcoming Congressional hearings.
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 