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.
In a rare development, this week’s update is more about the entities that the SEC has affirmed it will not be suing than the entities that the SEC is suing. Progress! It was also a busy week in Congress, where legislation is not expected to pass the least effective Congress is recent history but where hearings on various appointments and agency officials made waves. In an election year, most legal developments for the rest of 2024 are expected to come from the courts, not the legislator. And while it is much more enjoyable reading and breaking down lawsuit news vs. legislative news, it isn’t an effective way to regulate a nearly $3 trillion industry.
Side note: The problem with doing these updates on Tuesdays, is then when things happen on Mondays like exceedingly pro-crypto Senator J.D. Vance being announced as Trump’s VP pick and ETH Spot ETF launch dates are announced, they need to wait a week for me to cover. Alas, the system is the system. So look for those next week. Until then…
Here’s everything that happened last week in Web3 legal:
Paxos Prevails; Avoids Litigation After SEC Wells Notice Regarding BUSD
Paxos has been notified by the SEC that the agency staff will not be recommending an enforcement action be brought against the entity in connection with BUSD. This is following a ruling in the Binance case that the sales of BUSD on the Binance platform did not constitute securities transactions. Binance stopped offering BUSD in December of 2023 after Paxos was ordered by the New York Department of Financial Service to stop issuing it, but this is still seen as a win for the industry generally and a sign that perhaps the SEC is backing off its position regarding fully back stablecoins being securities.
Tl;dr: Honestly, the fact that the SEC is even issuing letters ending investigations is a step in the right direction. This comes the same week as the SEC agreed not to pursue charges against Hiro as issuers of the now-(mostly)failed Stax token which was registered through Reg-A resulting in the token’s slow death due to regulatory restrictions. This doesn’t mean all stablecoins are fine in the SEC’s eyes, especially algorithmic coins like at issue in the Terra/Luna matter, but it is better than nothing.
Amicus Briefs Come Out in Support of Declaratory Judgment Action Against SEC
Paradigm has filed an amicus brief in support of Lejilex’s action against the SEC pending in the Northern District of Texas. The Digital Chamber also filed in support of the action against the SEC, as did Coinbase, and a coalition of seven state Attorney Generals. Many of the briefings focused on the major questions doctrine issues, and if that has any chance of victory at a district court level, a Northern District of Texas judge is probably the best shot of that happening.
Tl;dr: While I often cover amicus briefs in the “Other Stories” section of these updates, this ground swell of support at the district court level for an exchange that doesn’t even operate yet warranted a fuller breakdown (the fact Paradigm cited to Commissioner Peirce’s dissent in LBRY where she quoted me helps too). The Digital Chamber’s brief where they cite to the forthcoming article The Original Public Meaning of Investment Contract by Edward Lee was an especially fascinating read. Combined with the expediting briefing in the Consensys declaratory judgment action and the Lone Star State is going to be issuing some major rulings in the (relatively) near future. I also encourage others to donate to support Lejilex’s efforts here (I gave; the swag is sweet, but the cause is sweeter).
Other Stories
CFTC Chairman Rostin Behnam testified before the Senate Agriculture Committee regarding oversight of digital commodities. Big take away was his statement that 70-80% of the crypto market are non-securities (he was referring to market cap, meaning BTC+ETH+some others are what he is saying are non-securities, but w/e). Also, as always, big congressional hearing weeks are always must reads for Cap Hill Crypto’s weekly post since I am not watching hours and hours of grandstanding for the 1-2 real nuggets of news to come out of them.
Pulled this from the phenomenal Digital Chamber amicus (discussed above) but also wanted to save this paper on The Original Public Meaning of Investment Contract as something to refer to later. Just a wealth of analysis and information.
More and more people are using self-custody for their crypto. This is how we win.
Speaking of self-custody, the Republicans have stated they “will defend the right to mine Bitcoin, and ensure every American has the right to self-custody of their Digital Assets, and transact free from Government Surveillance and Control.” As asked by Coinbase head of legal: “Why not both major American political parties?”
While his lawyers can’t be crazy happy about him speaking at a conference while Consensys is being sued, Joe Lubin called U.S. regulators “asleep at the wheel” regarding creating common sense crypto policy at ETH Brussels. Uhhh, you think?
Polygon is pivoting from trying to be the darling L2 of corporations to the darling L2 of degens. My first L2 I spent substantial time on was Polygon racing digital horses, so no matter how crowded the L2 space gets, Polygon will always have a special place in my heart (and wallets).
In the wake of the SEC’s lawsuit against Consensys, this was a great article breaking down how the swap function on the MetaMask browser wallet works. Not sure if I agree with the end finding (that this is broker activity) but enjoyed the code breakdown.
I blinked and PayPal’s stablecoin hit the $500 million market cap point. It seems like just yesterday that the payment giant announced its entry into stablecoins, so seemingly a huge success despite people like Maxine Waters trying to kill it before it ever even got started.
I missed this SEC Director of Enforcement speech over the week of the 4th, but it’s…something. I do agree with him, though, that securities laws were intended to “the many kinds of schemes where promoters seek others’ money and promise profits in return.” Where we disagree is merely providing a token for individuals to interact with a particular blockchain does not either implicitly or explicitly promise profit for that token. Also, “promise profits in return” kinda sounds like “Investment Contracts Require Contracts” standard the industry has pushed for in litigation…
We need to amplify stories like this about criminals targeting individuals and family members with large Bitcoin holdings on why mixing services and financial privacy is important. Financial privacy tools should be protected at all costs.
We also need to amplify stories like this update on a Whitehat hacker assisting a DeFi platform in preventing a massive theft. There is no way to get rid of bad people with computers, so we need to make it easier for good people with computers to do good.
Predictable but still disappointing result on the SAB 121 veto overturn vote, with Democrats failing to cross party lines to change their vote on the issue (4 prior no votes were yes votes, while 4 prior yes votes switched to no). So much for investor protection.
Crypto-native social media platform Farcaster keeps hitting new highs. If you aren’t on yet and need help or an invite, let me know and I am happy to help and get you a little $Degen tip to start things off.
While NFTs are dead right now, I still have faith in the technology and its capabilities to more directly connect entertainers and athletes with their fans. Long live .jpgs.
Oi, bruv! The Law Commission of England and Wales published a paper on DAOs which I am looking forward to reading.
After all the fighting on SAB 121, the SEC has agreed that large custody banks can be exempted from the rule. Nothing like a little back room dealing for an agency which is supposed to be about open and honest disclosures!
Hate to see it, but Coinbase got pretty thoroughly bench slapped for trying to get Gensler’s personal emails. As a potential witness in the case, I would think at minimum those emails could contain information which would impeach his credibility on multiple issues, but alas. Really enjoyed this op-ed on the use of blockchain tech to fix the broken academic peer review system.
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 