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 Holidays! Hopefully everybody had some much-needed family time this past weekend and if you are reading this there is a good chance you are making that final work push into the New Year so congratulations or condolences on that, whichever is more appropriate. In the Web3 world, things haven’t slowed down with the end of year approaching. There was a big decision in a criminal matter the space is watching and even though nothing of note is expected to pass in 2023 or even early 2024, digital asset legislation continues to be a hot topic in Congress.
Here’s everything that happened last week in Web3 law:
Mango Markets “Profitable Trading” Strategist Loses Early Dismissal Bid
Avraham (“Avi”) Eisenberg lost on his Motion to Dismiss the criminal Complaint against him regarding his October 2022 exploit of the Mango Markets trading protocol. The Order is available here. Avi is facing criminal charges of commodities fraud, commodities manipulation, and wire fraud. The Court specifically rejected Avi’s Major Question defense, stating “Eisenberg cites no authority for applying the major-questions doctrine in the context of a single criminal case.” It went on to hold, though, that “this denial is without prejudice to Eisenberg raising his arguments by way of a Rule 29 motion for judgment of acquittal after the close of the government’s evidence…”
Tl;dr: As you may remember, in October of 2022, Avi used was he referred to on Twitter as a “highly profitable trading strategy” using a combination of leveraged trades which resulted in the protocol (Mango Markets) becoming insolvent. This case will determine important issues going forward on what level of human interaction is needed for “wire fraud” in a protocol exploit like this, where the main fraud is being perpetuated against an algorithm. While the Court denied dismissal at the Motion to Dismiss stage, it also demonstrated in its Order the need to see additional facts to resolve disputed issues which isn’t proper at this stage in litigation but may be proper later.
Elizabeth Warren Sends Letter to Trade Associations Who Oppose Her Bill
Elizabeth Warren sent a letter to the Blockchain Association, Coin Center, and various and advocacy groups “regarding a troubling new report that your association and other crypto interests are ‘flexing a not-so secret weapon: a small army of former defense, national security and law enforcement officials.’” Sen. Warren’s letter requests further information on the employment of former government officials by digital asset advocacy groups and industry participants.
Tl;dr: It is shocking that a sitting Senator would send a threatening letter demanding information she has no legal right to regarding former government officials working at advocacy organizations after leaving government. Especially considering her own former staffer just left the Whitehouse to go to work directly to an advocacy group that previously lobbied him while in his official capacity. Coin Center’s official response was well put: “Engaging like-minded experts to advocate against legislative proposals that one sincerely believes are unconstitutional and detrimental to the nation’s welfare does not constitute ‘undermining bipartisan efforts in Congress.’ Rather, it is the exercise of the fundamental right to freely associate and petition the government. It’s everyone’s right and no one should apologize for doing it. Resorting to questioning motives often reflects an inability to prevail on the merits of an argument itself.”
Other Stories
BarnBridge DAO, which you may remember had an attorney purporting to represent the DAO post in their Discord about the SEC investigation and had a DAO vote on how to respond to the investigation, settled with the SEC last week. Honestly, this is something I need to dig into more as a case study for these types of investigations.
This was a nice little article on the ethical rules surrounding accepting legal fees in digital assets. Chief Legal Officer for Fortune 500 company Coinbase previously said this: “Free advice to law firms and others doing business with me: tell me you are willing and eager to take payment in USDC. Your competitors already are.”
A proposed class action lawsuit was filed against Lido DAO regarding the LDO token which is given to people who participate in the Lido liquid staking program. The lawsuit also names various venture firms accused of effectively controlling the entity through their ownership percentages.
Bitwise tapped the most interesting man in the world for its latest ad campaign, and between this ad, the Coinbase ad, and the massive election funding war chest being built up it’s looking like the biggest players in crypto are going full court press on the lobbying efforts.
In the weekly digital asset gaming rundown, metaverse startup Improbable sold off gaming unit for almost $100 million, Gods Unchained made its Amazon Prime Gaming debut, Epic Games allows blockchain games back in store, after previously being listed as “adults only” due to restrictions on transfers of digital assets to people under 18, and interoperability through blockchain assets was a hot topic of discussion among gaming CEOs.
The Court in the CFTC v. Binance lawsuit entered the consent judgment as expected, but this Order should be looked at closely by attorneys in the space regarding the level of KYC/VPN blocking that is required to avoid U.S. persons going forward.
I previously covered that the Coinbase funded challenge to the Tornado.cash sanctions were being appealed in its case in Texas, and now the Coin Center appeal has been filed in its case in Florida. Neither raise my Fourth Amendment challenge, but both are worth reading and following.
No so fast! Looks like Do Kwon isn’t being extradited to the U.S….yet.
Work smarter not harder and follow incredibly intelligent attorneys like @BrandonFerrick to break down the IOSCO DeFi policy recommendations in an easy-to-follow thread. In what should be a surprise to nobody, the policy which was primarily written by the SEC is suboptimal.
The Court in the British Virgin Islands overseeing the Three Arrows Capital (“3AC”) bankruptcy/liquidation has ordered the freeze of $1 billion in assets, raising the question: how on Earth did the 3AC guys last this long with even potential access to $1 billion in assets still?
Am I upset how much I trash talked SOL publicly and privately with my bags in ETH? Maybe. I don’t know. Shut up. It’s great to see the chain gaining so much success recently though, and in my defense my problem was always with SOL NFT bros being insufferable TikTokers, not the chain itself.
Digital wallets adding support for Bitcoin and BRC-20 tokens is a huge step for the OG digital asset. It shows the demand for real usage of the asset other than simply a store of value.
Prometheum got final approval to operate as a special-purpose crypto broker dealer licensed under SEC rules. Really great to see people will be able to trade…well…no specific assets have been disclosed as available for trading on the platform. But it will be LEGAL for people to not be able to trade assets there. So that’s cool for them, I guess.
What are “points” people are farming on various DeFi and other platforms? Glad you asked! Nobody knows. But it’s provocative—it gets the people going.
This was a nice breakdown of the current status of various 2022-era crypto bankruptcies. I also saw that attorneys’ fees have officially passed amount owed by account holders at FTX, so huzzah! Lawyers, for the win!
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 