Off the Blockchain+, August 26-September 2, 2024

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.

Opensea, a leading NFT marketplace in the United States, received a Wells notice from the SEC. Which is mostly bad. But in a glass half full view, at least SOMEBODY thinks I have an objectively reasonable expectation of profits on the thousands of dollars I’ve spent on .jpgs! The haters are in shambles. Other than the Opensea litigation threat, it was a slow week in legal developments.

Here’s everything that happened last week in Web3 legal:

NFT Secondary Marketplace Opensea Received SEC Wells Notice

The NFT marketplace Opensea has reportedly received a Wells notice from SEC staff indicating an intent to recommend a lawsuit for securities law violations against the platform operator. At its peak in early 2022, over $6 billion of NFT sales a month occurred on its platform, but those numbers have sharply declined as competitors like Magic Eden and Blur emerged and NFT sales generally declined. There is no word yet as to the content of the Wells notice, or what NFT sales will be at issue in any action brought by the agency. Opensea has pledged $5 million in legal defense fees for any creators on the platform similarly targeted by the agency.

Tl;dr: It is easy to imagine that the transactions alleged to be unregistered securities transactions will be things like Impact Theory or Stoner Cats which the SEC has previously alleged to be securities/settled with the issuers (over dissents from Commissioners Peirce and Uyeda). I personally think it is more likely, though, that the charges will stem from trades of Uniswap liquidity pool tokens or similar ERC-1155 type of tokens which resemble financial products. I have seen some hairbrained theories about using Section 230 protection for online publishers as a defense, which is just so crazy it just might work? With outstanding Wells notices against Robinhood, Uniswap, and now Opensea, there can be expected flurry of new SEC lawsuits in the months leading up to and following the upcoming Presidential election with Chair Gensler expected to leave his position at the SEC regardless of the election’s outcome.

Other Stories

MakerDAO is moving DAI to “USDS” which will be the upgradable format of the stablecoin that has transfer and freezing functionalities that USDC/USDT have. While DAI will still exist, since all the support and liquidity will likely transfer, the last remaining major censorship resistant stablecoin is probably not long for this world.

The SEC has charged and settled with Abra over alleged unregistered securities offerings dating back to 2020. The charges are regarding Abra’s retail earn business, which has been long shuttered, and does not involve Abra Private which is a registered investment advisor service which offers access to DeFi staking and yield strategies.

Lots in the news last week about ETH Foundation’s $100 million 2024 budget. Considering it has a $1.6 billion treasury largely in ETH which will continue to grow if the foundation is successful in growing ETH, I don’t think that is a crazy number?

Former President Trump is back at it again with another NFT trading card drop while promsing to make the United States the “crypto capital of the planet.” Not sure this is the highest/best use of the technology, but I also thought digital horse racing was going to be the next big thing, so what do I know?

I very much enjoyed this interview by George Leonardo with Nic Carter discussing all things crypto and policy. If you read these updates and aren’t subscribed to George’s newsletter yet idk what you are doing.

The class action again Elon Musk alleging digital asset manipulation by tweeting about DOGE has been dismissed. The fact this is a 2-page dismissal with prejudice shows how dumb this lawsuit was to begin with.

FTX CTO Ryan Salame tried to withdraw his guilty plea and now has withdrawn the withdrawal which has caused the judge in the case to order him to appear, likely for a stern talking to about taksies backsies in criminal plea deals.

The SEC has filed a document in the FTX bankruptcy reserving the agency’s “rights to challenge transactions involving crypto assets” and specifically, payments made in stablecoins.

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.