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.
It was another slow week in digital asset law, with most activity happening in Congress despite the growing consensus that nothing of legislative note will be done this year and any real digital asset legislation will likely happen, if at all, in 2024. But there was still an update in the Terraform Labs case worth watching, a House Subcommittee hearing with minor fireworks, and a Shopify executive hinting at big things coming for the platform involving digital asset integrations.
Here’s everything that happened last week in Web3 law:
SEC Ask Judge to Rule Assets are Securities as a Matter of Law in Terraform Labs Case
The SEC has filed a letter with the Court in the SEC v. Terraform Labs case pending in the Southern District of New York asking that the judge to determine the status of the digital assets at issue as investment contracts as a matter of law, removing that determination from consideration by a jury. The SEC’s letter argues that the legal nature of digital assets at issue, particularly in the context of the Howey test, is not a matter which should be presented for jury determination in any trial on this matter.
Tl;dr: The SEC has hedged its position, stating the assets at issue are securities as a matter of law or, in the alternative, there is no genuine issue of fact precluding the Court from ruling on the issue prior to trial. Smart considering Judge Rakoff’s previous Order on the Motion to Dismiss indicated he views the issue of efforts of others to hinge on a reasonable investor standard which would be an issue for the jury. Meanwhile, Terraform Labs founder Do Kwon is facing extradition for DOJ charges related to the Terra/Luna collapse in Spring of 2022.
House Financial Services Subcommittee on Digital Assets Holds Hearing on Fostering Innovation
The House Financial Services Subcommittee on Digital Assets held a hearing titled “Fostering Financial Innovation: How Agencies Can Leverage Technology to Shape the Future of Financial Services.” The focus of the hearing was the government’s approach to new and emerging technologies like digital assets, distributed ledgers, quantum computing, and greater use of artificial intelligence. Witnesses included representatives from the SEC, FDIC, Federal Reserve, and other administrative agencies.
Tl;dr: The biggest takeaway was Representative Emmer’s questioning of the SEC representative witness, who also was a commenter on the now-infamous Hinman speech (those comments were publicly released on June 13). There was also a call from Representative Waters for a smaller session specific to the operation of digital asset companies. Despite attempts by Representative McHenry to include digital asset bills which had passed through committee in the defense authorization bill, those attempts failed to be attached to larger spending measures, making it unlikely for any substantive digital asset regulations to pass in 2024.
Other Stories
Binance’s former CEO Changpeng Zhao (“CZ”) was ordered to remain in the U.S. while he awaits sentencing on his guilty plea to one count of violation of the Bank Secrecy Act.
Love to see so many attorney friends being quoted in this CoinDesk piece about “code-is-law” and its jurisdictional/sociological impact and accuracy. But my favorite may be quoting the twitter account Gwart as “gwart of gwart.”
Crypto lobbying spend is at an all-time high. Which is completely crazy that the world we live in requires hundreds of millions of dollars to be spent over a period of years to get politicians to consider enacting laws around politically neutral technology. But here we are.
The COO over at Shopify tweeted this week “The crypto work we are doing at Shopify is some of our best work right now. In a couple of years people are going to be surprised how we move so fast, but that’s because of the work being done right now.” Probably nothing (are we still doing that?).
Trusted financial provider SoFi is exiting crypto offerings for clients because of the regulatory hassle and increased scrutiny. So much for same risk/same regulation.
With the recent price rise, El Salvador is finally in the black on its bitcoin investment play. Love to see it. MicroStrategy is also probably happy with its $2 billion paper gains. Now if my ETH would catch up that would be super nice (I say, complaining about ~100% gains on the year).
CoinDesk released their Top 50 list of most influential people in crypto and I have somehow again been snubbed despite having a blog that gets literally tens of readers of every week? Lame.
It will be great to see the SEC get smacked down in Jarkesy, but to be honest the SEC has moved away from administrative hearings after losing so many of these types of appeals/seeing the writing on the wall, so this will mostly affect other administrative agencies and result in decisions being made by judges rather than subject matter experts. Which is suboptimal if the agency subject matter experts aren’t all corrupt (which I think most aren’t and are just trying to protect citizens).
I tend not to pay attention to just proposed state legislation because trying to keep up with everything else is enough, but this New Jersey bill proposal is crazy. It defines all virtual currency sold to institutional investors as securities. Need a new token standard that prevents rich people from buying? Could be the move…
Speaking of Congress, the Deploying American Blockchains Act was unanimously voted through the House Committee on Energy and Commerce. Seems like a nothingburger bill, but pro crypto legislation getting through Congressional committees is good.
Despite Congressman McHenry’s best efforts, the digital asset related bills that passed through the House Financial Services Committee didn’t make it into the defense authorization bill, making the chances of those bills being passed this year virtually zero.
Coinbase is going to make it easier than ever to send USDC through TikTok, WhatsApp, Instagram, and email. Love to see it. Digital assets for the masses!
The Washington Post has figured out bitcoin mining in the U.S. primarily uses renewable energy because it can be turned on/off so Texas would have about half the wind/solar energy it currently does if not for bitcoin machines supporting the industry. So now it apparently uses too much water? Most server farms don’t use potable water and recirculate the water they do use, but don’t let facts get in the way of a good narrative.
JPMorgan CEO Jamie Dimon wants to “close down” bitcoin. Does he not know he has a whole team of people he employs to implement crypto into JPMorgan banking? His statements did result in this banger, though. So some good came of them.
I’ve been a big fan of what Warbler Labs has been doing, first with Goldfinch and now Heron. On-chain access to private credit markets with a team of very savvy financial professionals.
Using blockchain tech to connect the most loyal fans to artists and weed out bots which do nothing to grow the artists’ audiences/make the artists money is a huge use case.
As the self-appointed leader of Web3 gaming hype, I would be a fraud if I didn’t share this masterpiece essay on the intersection of Web3 with gaming. Just a great mix of legal analysis and background research on a topic the author is obviously passionate about. I am halfway through and can’t wait to read the rest.
Right after I make an update about how great Congressman McHenry is he announces he isn’t going to seek reelection?! He has been in Congress for almost 20 years and is about to term out of the Financial Services Committee, so I don’t blame him for moving on, but damn…
The CFTC is calling the Binance settlement a template for compliance. Which may be true for FTC/CFTC/Criminal compliance, but since most other major exchanges are already compliant in that area this doesn’t do much. The issue has, and remains, the SEC, which was not a part of that settlement.
Not going to lie, Bitzlato is such a no-name exchange that when the DOJ announced bringing charges against the founders and freezing account my update spelled the name wrong and I had to go back to find it without searching by name. Less than $700K was actually being held on Bitzlato, and it had an all-time peak of roughly $6 million held on the exchange. But as an update, the founder pled guilty and will dissolve the exchange nobody was using anyways.
Former SEC Chair Jay Clayton is pushing for the SEC and CFTC to create joint standards around digital assets. Clayton had his chance to provide clarity and went with enforcement in the Ripple case instead with his foot halfway out the door, so take this with a grain of salt.
Airdrop SZN is so back. There is a whole chart on the various ways people are staking SOL based tokens then lending staking tokens for yield on another platform which then creates separate token to be loaned to another platform? Idk. But I’ve included it below to show how convoluted it can get.
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 