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.
Last week was NFT/NYC, and it was great catching up with other attorneys in the space and seeing all the homies. Outside of earthquake riddled NYC, it was another big week in crypto law, with Coinbase winning in a civil matter at the Second Circuit, amicus coming out in support of blockchain privacy protocol developers, and Do Kwon losing to the SEC with DOJ charges likely to follow. Also, consider this my regular push for people to get on Farcaster/Warpcast and follow me. I am giving out literally TENS of dollars in tips every day. That’s value, baby.
Here’s everything that happened last week in Web3 law:
Amicus Filed in Criminal Case Against Tornado Cash Developer
Roman Storm is currently facing charges for his role in creating the Tornado Cash protocol and front end access to that protocol, a digital asset mixing service famously used by North Korean Hackers. The DeFi Education Fund, Coincenter, and the Blockchain Association have all filed amicus briefs, arguing that criminalization of creating computer programs which can be used for legitimate and illegitimate purposes should not be a crime, and goes against prior FinCEN guidance.
Tl;dr: While I am still waiting for the Bernstein Fourth Amendment dicta argument to be raised, as stated by the DeFi education fund: “There is nothing illicit about the desire for financial privacy—it is a fundamental right deeply rooted in the history of our nation and codified in the First and Fourth Amendments to the U.S. Constitution, among many other places in federal law.” North Korea also used computers running on Microsoft operating systems, which were transported by cars with American designed engines in many of their various crimes. That shouldn’t make Bill Gates or Henry Ford criminals, as it shouldn’t make Roman Storm a criminal. If you want to donate to Storm’s defense (like I did), you can do so here.
Do Kwon and Terraform Labs Found Liable in SEC Fraud Case
A jury has found Do Kwon and Terraform Labs liable for misleading investors in a scheme which led to the collapse of the Terra/Luna algorithmic stablecoin and started the contagion which eventually resulted in the collapse of 3AC and FTX. The jury found that Do Kwon acted intentionally to defraud investors, which makes it all the more likely the criminal charges will be brought as well.
Tl;dr– Bad facts make bad law, and Do Kwon/his company did some undeniably bad and scummy things. The “your size is not size” response from Do Kwon when somebody pointed out the attack vulnerability for his stable coin will always live rent free in my head. While what Terraform labs did likely objectively constitute securities law violations, I do think there were some inconsistent rulings in this case such as the Court instructing the jury that the tokens were, in and of themselves, securities, which make the decision ripe for appeal. But I wish a case with better facts was the first to reach the Second Circuit Court of Appeals on this issue.
Other Stories
I haven’t been following the Tron litigation, but the Justin Sun backed coin issuer has moved to dismiss primarily on jurisdictional grounds. At a certain point, how are these coins supposed to prevent U.S. consumers from accessing on decentralized marketplaces?
In the Coinbase civil suit, Coinbase won at the Second Circuit Court of Appeals with the Court holding that “The repetitive, conclusory allegations that Plaintiffs “had one or more losing transactions” in various Tokens are insufficient to plausibly allege a contract that gives rise to rescission under Section 29.” This case is more about bad lawyering by the Plaintiffs’ firms than the validity of secondary market sales constituting securities transactions, but a win is a win.
Take 15 minutes and watch this smart wallet explanation. Call me crazy, but I do think Coinbase is going to be the company that brings a billion people onChain.
Hester Peirce doing boss moves yet again with her latest speech for SEC Speaks. “The stilted communication, half-hearted engagement, quick-draw of enforcement guns, and limited transparency that characterize the Commission’s current relationship with the industry we regulate should concern anyone who cares about this great institution and the amazing markets we regulate.”
Meanwhile, the Division of Enforcement head at the SEC had some fighting words for the industry. Steven Lofchie had a great response, stating “crypto firms seek regulations suited for digital assets, not exemption from all regulations. Critics, like Mr. Grewal, misunderstand, equating tailored rules w/special treatment. Crypto needs rules that are fit for purpose, which the SEC has not provided.”
I do want to read the book Hijacking Bitcoin about the developer fights in the early days of Bitcoin on the direction of the protocol. It’s obviously going to be biased, but still I am sure it is an interesting story about how Bitcoin got to where it is as more of a store of value rather than a global currency due to low block size and high transaction fees.
Google has gone on the offense, suing individuals who release applications in the Google Play store designed to steal users cryptocurrency. With Apple facing lawsuits from similarly scammed users, this makes sense to be seen as the innocent (multi-trillion-dollar company) victim.
Solana has had some tough few weeks, first being named as one of the exemplar “crypto-asset securities” in the Court’s ruling in SEC v. Coinbase, and now with network congestion leading to massive transaction failures and developers fleeing. Bad time to be a SOL bro (and I hold SOL, so I feel your pain, bros!).
Wormhole including the hacker’s wallet in its token airdrop is undeniably funny. Listen, the hacker used the protocol, so technically…
The story title “Crypto Twitter is paying a man to buy goats and name them after crypto things” is all I need to say. During the slow days of the bear market people were betting on hamster racing, so this is tame and wholesome in comparison.
This was a good post about the negative issues with pushing any particular form legal structure on the blockchain community writ large. Crypto requires nuanced and individualized legal strategies; any cookie cutter attempt will be bad for many businesses.
Conclusion
If you have any questions or would like me to write about anything else, let me know on either of my Twitter (X?) 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 