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.
With the government narrowly avoiding a shutdown, there was also focus on digital asset legislation in Congress with Gensler facing fire over his agency’s treatment of the industry and multiple bill proposals focused on digital asset issues. We also saw amicus filed in the SEC v. Binance case, and a law firm giving rewards in the form of digital tokens. With all eyes turning to the SBF trial starting today, I expect that to overshadow the industry legal headlines even if it is more of a case of fraud than anything crypto-specific.
Here’s everything that happened last week in Web3 law:
SEC Chair Gary Gensler Testifies to House Financial Services Committee
SEC Chair Gary Gensler testified in front of the House Financial Services Committee after testifying to the Senate’s Banking Committee a few weeks ago. His opening statement was largely similar, with the section on digital assets a word-for-word copy. While both the House and Senate committees focused primarily on other areas of the SEC’s agenda, with the House committee passing multiple digital asset bills through committee, there was much more focus on the industry as opposed to the Senate committee which has been quiet on the subject.
Tl;dr: The GOP House Financial Services Committee’s X (Twitter) account pinned this April post to the top of their page ahead of the hearing, which demonstrates where that side of the aisle spent a good amount of their time to question the SEC head. He took heat from both sides of the aisle over the SEC’s current approach to digital assets. The star of the show was Representative Ritchie Torres (D-NY) who grilled the Chair over his dissimilar treatment of like products simply due to tokenization. The 5 minute questioning is worth a watch.
Bipartisan Uniform Treatment of Custodial Assets Act Proposed
Mike Flood (R-NE), along with French Hill (R-AR), Ritchie Torres (D-NY), and Wiley Nickel (D-NC) have introduced legislation titled the Uniform Treatment of Custodial Assets Act to the House of Representatives. The bill would prohibit certain federal agencies from requiring certain institutions to include assets held in custody as a liability. This is in response to the SEC’s Staff Accounting Bulletin 121 (SAB 121) which would require banks list digital assets they held in custodial services to be kept on the banks’ balance sheets as liabilities.
Tl;dr: SAB 121 effectively bans banking providers from providing secure custody of digital assets. If the goal is investor protection, it makes zero sense to make it prohibitively difficult for investors to deposit their assets in a trusted institution. There is no surprise as to the sponsors, as Representatives Flood and Hill have long been digital asset proponents and Representatives Nickel and Torres were two of the six Democrats who crossed party lines to vote for the FIT For 21st Century Act.
Other Stories
Circle has requested the Court in Binance reject the SEC’s attempts to regulate stablecoins as securities, filing an amicus brief on the issue in support of Binance. Circle, as the issuer of popular stablecoin USDC, has a vested interest in the outcome of that issue. Investor Choice Advocates Network and Paradigm filed their own briefs as well.
This UK law firm is issuing tokenized rewards to its lawyers and requiring the attorneys download and use a self-custodial digital wallet for access. Reminder: if anybody needs help with self-custody, I am always happy to talk through the basics.
The SEC has objected to using Coinbase as a service provider in the distribution of Celsius bankruptcy assets. Just to be clear, the SEC is saying this needs to be done by a registered broker/dealer, but there cannot be any registered broker dealers for the assets, because the issuers of the assets cannot comply with reporting obligations, sooooo? Not sure what the SEC expects; the Court to throw up its hands and just let these funds sit in limbo indefinitely?
A bipartisan house financial services committee group has sent a letter to SEC Chair Gensler asking about the inconsistent treatment for Bitcoin futures vs. spot ETFs. This came the same day as the SEC came out early in delaying pending spot Bitcoin ETF applications. Later in the week, the SEC also delayed the other similar applications, so at least everybody is in the same boat.
Bernstein analysts are estimating that the crypto fund management industry has the ability to be worth over $650 billion of assets in the next five years largely centered around registered financial products like Bitcoin and ETH ETFS.
Funding continues to be slow and steady in the digital asset industry, with $115 million raised so far in Q3, primarily focusing on gaming and custody services.
Basically the only good to come from a government shutdown for crypto will be giving the industry a short break from playing administrative whack-a-mole to shore up defenses and contingencies.
Paradigm has announced the formation of a Policy Lab to blend industry policy advocacy with empirical and technical support. The team involved in top notch, so it is great to see.
As Visa and Mastercard try to figure out how they can get more exposure to digital assets, JPMorgan Chase UK has banned use of their bank accounts or credit cards to purchase digital assets. They cite concerns with scams, but considering scammers still use stolen credentials to purchase gift cards far more than crypto (most fiat on/off ramps have KYC at this point while gift card purchases do not but are equally fungible), it seems like shaky reasoning.
Knowing the cast of characters involved along with the community of NFT owners of this particular collection, the Milady lawsuit is going to be wild.
The DAO Research Collective has relaunched as the Decentralization Research Center. This organization puts out great thought leadership, and I’m happy to see it expand its mission beyond DAOs.
While ETH has long led the way in developer activity, hence the reason for its smart-contract dominance, BNB Chain has taken the lead in Europe and Asia with ETH still dominating in the U.S.
Fireblocks continues its expansion, after expanding its non-custodial wallet offerings a few weeks ago, to acquire BlockFold and expand tokenization capabilities this week. Big fan of what they are doing over there as the pick and shovel providers to many blockchain goldrush companies.
In AI/Metaverse news, this Zuckerberg interview on the Lex Fridman podcast is wild. They are both weirdos so it is hard to watch, but these advances in technology are legit. A far cry from his cartoon avatar which got meme’ed into oblivion.
This bill to require off-chain transfers of digital assets be recorded at a central entity is laughable and has a below zero chance of going anywhere, but it is newsworthy.
NFT Project Pudgy Penguins made its sales debut at Walmart. For anybody who doesn’t know the background, the project was bought out form the influencers who pumped it but spent the entire treasury on their own salaries instead of marketing or building anything of substance form the brand.
Su Zhu of Three Arrows Capital was arrested and charged in Singapore this week. Considering they are still going strong with the grift, these guys need to go to jail or risk causing another collapse of other peoples’ money. (allegedly).
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 