Intro/Disclaimer: Since late 2022, I’ve prepared weekly updates for attorneys at my firm to stay abreast of the latest Web3 legal developments. The biggest stories are included in Bi-Weekly posts on the firm’s BitBlog, where we provide concise tl;dr overviews and insights into how these developments might ripple through the industry. In pursuit of a more thorough and personal discourse, I also share expanded versions of these updates on my personal blog every Tuesday. Here, you’ll find my unvarnished perspectives, offering a deeper dive into the nuances of these legal narratives. Please note, the views and opinions I express, both on BitBlog and my personal blog, are solely my own. They do not reflect the official stance or endorsement of my firm.
The SEC was put on the defensive side of litigation last week, with Kraken moving to dismiss the SEC’s lawsuit, including allegations that the lawsuit was an effort by the agency to stifle political speech. There was also a declaratory judgment action filed against the SEC in Texas where the agency got a tough draw on its district court judge and will face an uphill battle if eventually appealed in an administratively unfriendly 5th Circuit. The Department of Energy also put a pause on its Bitcoin mining energy survey, and $USDC issuer Circle is cleaning up its house to prepare for IPO.
Here’s everything that happened last week in Web3 law:
Kraken Responds to SEC Lawsuit; Claims Suit is an Attempt to Stifle Political Speech
The digital asset exchange Payward, Inc. (aka, “Kraken”) has moved to dismiss the lawsuit filed against it by the SEC related to the facilitation of sales of certain digital assets. Namely, ADA, ALGO, ATOM, FIL, FLOW, ICP, MANA, MATIC, NEAR, OMG, and SOL. In a separate blog post explaining the Motion to Dismiss, Kraken states that the day after a Kraken representative testified to the House Financial Services Committee regarding the need to limit the SEC’s authority, an SEC official called Kraken stating the agency’s intent to sue.
Tl;dr: This Motion to Dismiss largely follows the framework of the Coinbase Motion for Judgment on the Pleadings and the Binance Motion to Dismiss. All raise similar arguments regarding the token sales at issue not being “investment contracts” and the SEC’s regulatory overreach being contrary to previous agency positions and violating certain separation of powers principles. What is interesting about the Kraken suit is the blog post and motion outright stating that the SEC’s lawsuit is retaliation for Kraken’s Congressional testimony. “Crypto innovators in the United States should not have to fear retaliation for their political speech. They should be free to earnestly advocate for better law and more efficient markets. They should be free from intimidation by a politically compromised agency.”
Exchange Hopeful and Texas Advocacy Group Sues SEC
The Crypto Freedom Alliance of Texas and hopeful exchange platform LEJILEX have sued the SEC for a declaratory judgment, seeking a ruling that LEJILEX’s planned actions to act as a centralized platform (named Legit.Exchange) for peer-to-peer and blind bid/ask trading of certain digital assets does not require registration with the SEC as a securities exchange, broker, or clearing agency.
Tl;dr: Former Solicitor General of the United States, Paul Clement, is a listed attorney against the SEC, as are various other highly accomplished appellate litigators. Combined with a favorable 5th Circuit forum/District Court Judge draw and this is certainly a case to pay attention to. The name of “Legit.Exchange” is a pretty solid name for a platform. Great work by Mike Wawszczak and others involved in bringing this matter, and I am looking forward to seeing how this case progresses.
Other Stories
The Texas Blockchain Council has filed a lawsuit challenging the Department of Energy’s recent “emergency” survey requiring bitcoin miners to provide ongoing reporting to the agency. House Majority Whip Tom Emmer has also sent a letter to the agency challenging its actions. These efforts apparently worked, as the Department of Energy agreed to temporarily suspend their survey of miner energy use.
The lead of the SEC’s crypto and cyber litigation unit has gone to private practice saying on her way out “Crypto is here to stay—that’s become very clear…” uhhh, you think? She was counsel of record on the Coinbase lawsuit.
Greg Solano is taking over again as CEO of Yuga Labs. Daniel Alegre, the former president and COO of Activision/Blizzard, has been the active CEO for a bit now, so slightly surprising move by the team. The fact that people view this as largely a positive step is an “only in crypto” type of moment.
The Cayman Islands Monetary Authority is seeking comments on their proposed changes to their Virtual Asset Service Provider (VASP) laws on GitHub. While I think there are some issues (which far smarter Caymans counsel like Jonathan Turnham can explain better than me), simply recognizing the value of getting input from the tech community in the forum that community is familiar with is pretty awesome to see.
This letter from Coinbase urging the SEC to approve the Grayscale spot ETH ETF application is very interesting for the nerd securities lawyers. Also, why doesn’t the SEC show its math on how it reaches its numbers for correlation between spot and futures prices?
You almost have to respect to audacity of Craig Wright still claiming to be Satoshi Nakamoto, despite all evidence to the contrary. Including having his sister testify as a character witness, offering irrefutable evidence such as seeing him pretend to be a ninja in a park as an 18 year old? Case closed, I guess.
These recently unveiled Satoshi emails discussing Bitcoin design are fascinating. Just an insane amount of new lore if the emails are legitimate, which they appear to be as Martti Malmi testifies in the Craig Wright trial.
John Deaton, amicus counsel in the Ripple litigation, has announced his intent to run against Elizabeth Warren for Senate in Massachusetts. I personally donated to his campaign, and I encourage others to as well. Even if he doesn’t win, if he runs a well-funded and serious campaign, it will certainly make certain legislators question the wisdom of running on an anti-crypto policy.
Circle is clearly getting ready to go public, after dropping support for their stablecoin on Tron Network. It will be interesting to see how they handle support on networks like SOL, the tokens for which are named in various SEC lawsuits as crypto asset securities as well.
Ten Autoglyphs NFTs were sold for 5,000 ETH (~$14.5 million) to a private collector via NFT brokerage platform Fountain. It was the first generative art NFT project on the Ethereum blockchain, so it has a special historical relevance. The seller then swept $100K worth of Meebits, which was all the nudging I needed to get exposure to Meebits.
The leading ETH wallet software, MetaMask, neared all-time highs of daily active users. Probably a combination of it being airdrop season and ETH pumping (finally!).
Mastercard is expanding into emerging markets using crypto rewards as a way to onboard users. Love to see it.
The people buying Moonbirds before the Yuga acquisition was public know that they sent Nate to jail over that, right?
Speaking of pumping NFTs, the Pudgy Penguin explosion has been impressive to watch. This is a project which was bought from the influencers who had zero business ability to deliver on their promises, and is now one of the biggest NFT projects in Web3. Impressive work from that team.
DL News is reporting that the Trade Joe’s trademark lawsuit against a DeFi exchange with a similar name has been dismissed? I am not spending the pacer fees to look it up, but it seems odd there was a dismissal on the same day the Motion to Dismiss was filed.
OFAC named two Russians and 10 BTC/ETH wallet addresses on a recent sanction list update. It is unclear how treasury intends to keep up these sanctions with the ability to spin up a new wallet with relative ease.
The Chamber of Digital Commerce sent a letter to Senate Banking Chair Sherrod Brown urging him to not bring Elizabeth Warren’s crypto-killing bill forward for consideration. It looks like the effort worked, as it was recently reported the bill is not expected to be put before the committee anytime soon. I have hope for common sense regulation in the House, but the Senate remains an uphill battle for the industry.
In what should be news to nobody, an empirical study was recently released which shows that trading digital assets pumped by influencers is a generally losing proposition. But in a personal win, I don’t think I follow any of the account listed on page 45 of the report of the “Top 25 Crypto-Influencers by Number of Mentions” so good on me. But negative points for the article describing them as “crypto securities” which even the SEC does not agree with on certain assets mentioned like Bitcoin.
It’s tax szn. I’m actually not upset this year having locked in quite a few losses during the bear (as much as it pained me to sell all those NFTs for a loss which I’m otherwise certain are coming back! (not really)).
More individuals are moving roles ahead of the next wave of crypto’s integration into TradFi such as through tokenization of Real World Assets (RWA). RWAs tokenization is not new, but it was probably ahead of its time when it first was a thing and struggled to gain network effects needed. When you have the CEO of Franklin Templeton talking about smart contracts, you know the demand is building to support the efforts.
Conclusion
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The NFTtorney 