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.
It looks like stablecoin legislation is moving forward even in an election year, with a proposal in the Senate which has support, despite key differences from the proposal in the House awaiting a full House vote after passing through committee. Additionally, the Mango Markets exploiter was convicted for his “profitable trading strategy” which is a nice way of saying “market manipulating pump and dump,” and the IRS is trying to make un-hosted wallets report transactions, which is akin to trying to make physical wallet manufacturers report when cash is spent.
Here’s everything that happened last week in Web3 law:
Lummis-Gillibrand Payment Stablecoin Act Proposed in Senate
Senators Lummis and Gillibrand have release proposed legislation titled the Lummis-Gillibrand Payment Stablecoin Act which incorporates some elements of their previously proposed omnibus crypto legislation but is focused exclusively on stablecoins. This is also distinct and has many important differences from the stablecoin legislation which has passed the House Financial Services Committee but has yet to be put up for vote for the full House. Cap Hill Crypto does a great job as always breaking down the bill.
Tl;dr: Apparently Congresswoman Maxine Waters thinks the stablecoin bill in the House is “very, very close — very close” after previously trying to kill it in committee, and noted crypto-hater Sherrod Brown has apparently said he is open to advancing a stablecoin bill under certain conditions, so it is looking increasingly likely that some version of stablecoin legislation has a chance of passing this year? I am actually fine with depository institutions like banks or certain merchants only being able to custody stablecoins that are provably backed 1-to-1 by the issuing entity (like Circle for USDC) so long as consumers have the choice to own and use other stablecoins. Generally not a fan of regulatory capture, but also avoiding another Terra/Luna and making things people treat as dollars actually be back by dollars is something I generally support. But this new bill ain’t it based on analysis from various industry groups.
Mango Markets Exploiter Convicted in Criminal Trial
Avraham “Avi” Eisenberg was convicted on one count of commodities manipulation, one count of commodities fraud, and one count of wire fraud related to his role in the $110 million exploit of the digital asset platform Mango Markets. Avi previously admitted to his actions online, referring to his actions as a “profitable trading strategy” and asking “What are you gonna do, arrest me?” Which received a resounding “yes” answer from the DOJ. There will likely be an appeal on issues such as the choice of the New York forum for this trial, and exclusion of Avi’s proposed expert testimony from being considered by the jury.
Tl;dr- Avi did not testify in the trial related to his Mango Markets exploit in 2022, but he was still convicted. While this was (likely) the correct result on the commodities manipulation count, it does bring to light how messed up the system is that three different agencies (DOJ, CFTC, and SEC) all brought cases against Avi and all define the token at issue (MNGO) as different things. It also creates potentially problematic implications if use of a smart contract governed protocol in certain ways can be “fraud” despite no deceiving statements being made and those actions not meeting the required elements under the Computer Fraud and Abuse Act.
Other Stories
This Sushi drama around its legal entity restructuring, including deleting information from its forum posted by prior counsel, Fenwick & West, and move to replacement counsel “Gresham International” is fascinating.
The IRS ignored all industry comments and released a draft crypto reporting form which includes reporting by un-hosted wallet providers. Not sure if the IRS realizes that all that is required for an un-hosted wallet is something that can record the required amount of seed phrase words, i.e., a piece of paper.
Adidas, which has previously stuck to ETH based assets, is partnering with Stepn to release a SOL based digital/physical sneaker combo. I would be very into it, if it didn’t involve cardio, which I am on record as vehemently opposing (despite having a standing desk treadmill).
Vitalik posted his support for privacy preserving technology Railgun. He said it best: “Privacy is normal.” Preventing North Korea from money laundering is important, but so is financial privacy.
Worldchain is coming to layer 2, and am I the only person who thinks we don’t need more L2’s and especially don’t need creepy eye coin to be on its own mainnet and ETH L2? But hard to fade Sam Altman.
The crypto-native lawyers got to PayPal and realized providing payment protections for NFTs which could be rugs or stolen is a bad idea? Love it when traditional entities in the space show growth in understanding the markets generally.
Kraken must have seen the Coinbase Wallet dismissal and is getting into the self-custody wallet game itself. Seems like a no brainer for every exchange to have its own wallet for people to easily choose between storing on the platform or the platform’s self-custody wallet.
There was a once in a generation earthquake an NYC during NFT/NYC, and there was a once in a generation flood in Dubai during Token2049. If Austin is hit with locusts during Consensus then it is time to sell all my crypto and pivot to AI because God is clearly sending a message.
I missed this when it happened about a month ago, but the class action lawsuit against the founders of Boneheads NFT had an injunctive freeze on assets largely upheld by a Canadian court. As stated by the court “Social media posts are representations that can have legal consequences.”
Jamie Dimon said he was done talking about Bitcoin in Davos in January, and has proceeded to talk about Bitcoin non-stop it seems. This time calling Bitcoin a fraud but saying there is value in blockchain and smart contract technologies. Old man yells at clouds stuff.
Interesting article on where capital is being allocated in latest crypto bull run. As always, I am bullish on pick and shovel providers like wallet and re-staking applications, and gaming.
The SEC is claiming jurisdiction over Justin Sun and the Tron Network because Justin Sun…travels in the U.S. a lot? Not sure which is more of a reach: this or claiming Jurisdiction over PulseChain because it is a Uniswap fork and Uniswap was developed in New York.
Conclusion
If you have any questions or would like me to write about anything else, let me know on Twitter (X?) or Warpcast. 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 