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.
Happy Turkey Day week! As everybody tries to get stuff done ahead of the long weekend with family (I had to promise not to talk crypto at my gatherings after I talked it up Thanksgiving of 2021 directly before the subsequent market crash), there was a busy week last week to catch up on. Most the action occurred in Congress as it addresses the use of crypto in illicit finance and as members of Congress voice oppositions to IRS and SEC proposed rules or guidance on crypto. There was also the whole Sam Altman ousting at OpenAI which, while not directly digital asset related, certainly overlaps with his stake in WorldCoin. I’m on team e/acc but anti SpyCoin, for what it’s worth.
Here’s everything that happened last week in Web3 law:
House Financial Services Subcommittee on Digital Assets Debated Crypto’s Use in Illicit Finance
The House Financial Services Subcommittee on Digital Assets met on Wednesday to ask questions from industry experts on the scale and use of digital assets in terror and other illegal financing. This was largely due to a wave of false or misleading reporting which is described well in this Forbes article, How Misinformation On Hamas And Crypto Fooled Nearly 20% Of Congress. As stated by Senator Lummis, “Crypto is not the problem, bad actors that exist in every industry are.” This hearing followed a letter which was sent from a bi-partisan group of lawmakers asking for an executive study on the use of digital asset in Hamas financing.
Tl;dr: I write about the testimony from Gregory Lisa below which I think it must read for a fair analysis on the issue. Jane Khodarkovsky’s testimony was really great as well. At the end of the day, anything of value—be it art, land, fiat currency, gold, crypto, or anything similar— is going to be used in some parts by people we don’t like to fund things we don’t want funded. However, of all the forms of illicit finance, only the movement of digital assets on a public blockchain can be traced in real time by anyone with access to the internet. There is no means of exchange that is more anonymous than cash, which truly leaves no footprint, and there is no blockchain for cash. We certainly need to do what we can to limit the use of any asset in terror financing, but we also need to do it in a way that doesn’t abridge the rights of Americans to privacy and financial inclusion.
Other Stories
I have no idea what the state of affairs at OpenAI will be by the time I post this. I loved the comparison to the Steve Jobs departure/return to Apple just hyper accelerated for the TikTok generation. But in the meantime, he is still the head of the creepy eye scanning cryptocurrency WoldCoin. So he always has that. “OpenAI is nothing without its people.” Also a good reminder that a tech start-up’s most valuable assets are its people.
Gregory Lisa’s written testimony for the House Financial Services Subcommittee on Digital Assets hearing from November 15th is a must read. It doesn’t claim the sky or falling or that digital asset companies are completely free of criminal activities, but gives a realistic view of the current environment. “[L]et me respectfully submit that Congress consider the issues posed by cryptocurrency – open and transparent ledgers, new business models, pseudonymous actors, and permissionless transactions – not just as a challenge, but as an opportunity.” Well said.
The Bank Secrecy Act’s $10,000 threshold from 1970 hasn’t changed. Adjusted for inflation, this should be ~$80,000 in 2023 dollars. I’m apparently not the only one wondering if California Bankers Ass’n would have had the same ruling if the reporting threshold was $1,200 (what $10,000 in 2023 dollars was worth in 1970). If the Chevron doctrine is gutted by the current SCOTUS (which many believe it will be) then fresh challenges to broad grants of administrative authority from legacy laws (like the BSA) are sure to follow.
Uniswap made over $1 million in a month from front end fees. Meanwhile, $UNI token holders are looking on wondering why their proposal for fee distribution to token holders didn’t pass.
The decision in the Coinbase funded challenge to the Tornado.cash sanctions has been appealed. As you may recall, back in August the lower court hearing that matter ruled in favor of the Treasury Department and issued summary judgment. While the appeal was always in the works, I am once again asking why nobody took a note from the dicta in Bernstein to bring a Fourth Amendment challenge as well?
This was a very good op-ed written by Consensys attorney Bill Hughes on the IRS’s proposed digital asset broker requirements and the risk of “unduly burdensome and often unachievable requirements on many entities.” With testimony held this past week to hear the opinions of commentators, it will be interesting to see how the IRS responds.
No, there is no planned spot XRP ETF on the horizon. While the SEC has no real choice but to throw up their hands that massive and (arguably) decentralized tokens like ETH/BTC are no more subject to market manipulation than any other commodity, you better believe they would fight tooth and nail over an XRP proposal and BlackRock isn’t spending hundreds of thousands of dollars fighting that fight until it’s nearly certain they will win. Same is true for SOL, which the SEC has named as a security in the Coinbase litigation.
Speaking of, the Blackrock Spot Ether ETF application has officially been filed along with a matching filing from Fidelity. I get a vast majority of my opinions on the nuances which go into these filings, approvals, denials, etc. from @SGJohnsson so I will just +1 everything he says in this subject to save time and character space.
The Bitcoin Spot ETF approval was also delayed, because of course it was.
In crypto gaming corner, this Avalon trailer is exciting, there were over a million daily active users across crypto games in September, and SOL games on Epic are getting hot right now.
Disney is teaming up with the makers of NBA TopShot to tokenize the amusement park’s popular collectable pins. Not going to lie, I almost didn’t include this in the update because I just don’t get Disney adults, but it made big enough waves that it was worth mentioning.
Blockchain.com raised $110 million in a down round Series E, lowering its valuation to $7 billion after a $14 billion valuation last year. Which is still a lot of money for something which I have never heard of or interacted with, despite its solid domain ownership. Crypto funding is dead; long live crypto funding.
The Mutant Apes Planet developer has plead guilty to conspiracy to commit wire fraud and faces up to five years in jail. I have a feeling this won’t be the last conviction for the 2021 NFT bull run people who took advantage of the crazy market and printed money by releasing an NFT mint with no plan to make good on promises attached to that mint.
The closure of the Basis algorithmic stable coin project is a part of crypto history that I learned this week so wanted to include it in this update (even though it was from 2018). Tl;dr- the U.S. company which was a precursor to Terra/Luna ended up not launching after they were unable to find a way to exist in the regulatory environment. So instead, we got Terra/Luna which was offshore, and we know how that turned out. Just a solid example of regulation killing responsible actors, resulting in irresponsible actors offshore filling the gap and harming Americans.
Three men were arrested in New York for allegedly stealing and laundering more than $10 million dollars by scamming multiple financial institutions and using foreign cryptocurrency exchanges. Another reminder on how using easily traceable cryptocurrency in crime is not smart.
Patrick McHenry, Richie Torres, and other lawmakers sent multiple letters this week including this letter expressing concerns with the proposed IRS digital asset broker reporting rules and this letter urging agencies not to enforce SAB 121 after the Government Accountability Office’s finding that the SAB violated the Administrative Procedures Act.
Presidential candidate Vivek Ramaswamy is trying to become the pro-crypto candidate in this election. I still don’t understand how freedom of finance, access to finance, and ownership of one’s online footprint has become a largely partisan issue, but here we are.
I am upset I have been missing/not covering the Hermes v. Rothschild appeal, but glad this article about a recent amicus filed in the case hit my desk. I intuitively think the result was correct, but also think it was a close enough call that it was right to go to a jury (which also makes the appeal harder).
The Ethereum Name Service (ENS) is in a fight with Unstoppable Domains over the aggressive patent application approach taken by the latter. It’s possible I don’t have a full picture on the dispute, but from what I see I very much side with ENS against the patenting of pre-existing technology to stifle the opensource innovation it was built on and for.
Aave is rebranding to Avara and developing its own digital asset wallet? I don’t like change so I will keep referring to as Aave until forever probably, but I like to see these moves as they expand their development company activities.
Republic has tapped Avalanche blockchain for its security token. With low transaction costs and large adoption numbers Avalanche makes sense, but still slightly surprising it didn’t go with a larger layer 2 simply for developer availability.
Javier Milei is the new President of Argentina, the news of which caused Bitcoin to surge as he has publicly positioned himself as a pro-crypto candidate that wants to get rid of the Argentinian central bank.
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 