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 was another busy week in the regulatory/litigation side of the industry, as a leading DeFi provider settles with the CFTC, a separate prediction market won in its battle against that agency, and Coinbase appears to have won an early victory in a discovery dispute against the SEC. With Congress back in session, there may be some hearings impacting the industry (one of which discussed below) but the chances of legislation either before the election or during a lame duck session is unlikely, so most the legal developments will continue to occur in courtrooms until that changes.
Here’s everything that happened last week in Web3 legal:
Uniswap Settles With CFTC
The CFTC issued an Order filing and settled charges against Uniswap for an agreed to fine of $175,000. Commissioners Mersinger and Pham issued separate dissenting statements. The Order does not accuse Uniswap of actually creating the futures products at issue, but instead states that “by operating a front-end user interface (the Interface) that facilitated and provide[d] a purchaser with the ability to source financing or leverage from other users or third parties” Uniswap meets the definition of an “offeror” of the futures products under the applicable statute.
Tl;dr: To be clear, anybody can still buy and sell the futures products the CFTC takes issue with by interacting directly with the application on-chain or through a block explorer. The CFTC’s issue is merely the interface, i.e., making it easier to do. Which begs the question of exactly how user friendly does a website need to be to make it an “offeror” according to the CFTC? Commissioner Mersinger had an especially strong dissent, stating “This case has all the hallmarks of what we have come to know as regulation through enforcement: A settlement with a de minimis penalty that bears little relationship to the conduct alleged, sweeping statements about the broader industry that are not germane to the case at hand, and legal theories that have not been tested in court.”
Other Stories
Kalshi predictive markets won its lawsuit against the CFTC after the agency sought to block the company from offering prediction markets on U.S. election outcomes. Due to the proximity to the upcoming election, the CFTC has filed an emergency motion to stay the ruling pending an expedited appeal. Could be a massive win if upheld considering the CFTC’s recent efforts to oversee prediction markets despite those historically being left to the states under state gaming laws.
SEC Commissioner Uyeda said in a recent fireside chat that the SEC needs a custom S-1 registration form for digital asset securities. “I hope at some point, whether it’s Gensler or any of his successors, will think about, we’ve now had a fair amount of regulatory uncertainty on digital assets, maybe we ought to move forward with some legislation or rulemaking,” Uyeda said.
The SEC hit Galois Capital Management LLC with a $225,000 fine for “failing to comply with requirements related to the safeguarding of client assets, including crypto assets being offered and sold as securities.” The Order/press release does not state which of the tokens were “crypto assets that were offered and sold as securities” and thus improperly stored on FTX (or Fireblocks?), so that’s fun!
I have a feeling this paper on MiCA rules and regulations on DeFi will be a must-read for any practitioner with EU clients in the space. Easy to get a U.S.-centric focus and lose track of the various other jurisdictions trying to figure out how to handle crypto.
We are getting more details on the Trump DeFi project, which appears to be some kind of non-custodial front end to Aave? If it makes it easier for everyday users to self-custody assets and interact with DeFi, I am all for it.
Polygon has officially transitioned from MATIC to POL. Now does the SEC amend its Complaints against exchanges where the agency alleges MATIC is the security?
Looks like Operation Chokepoint 2.0 is still alive and well. Which is immensely disappointing. Meanwhile, foreign banks are providing safe custody options to users with ease.
Robinhood settled with the California DOJ over old (2018-2022) cryptocurrency trading restrictions. The good thing about self-custody options is that you aren’t limited by the platform you buy digital assets on for where they can be used/sold. Glad Robinhood got this behind them.
Coinbase apparently partially won its fight to compel some discovery documents form the SEC. Having read the transcript, it seems like this is in fact as big of a win as Coinbase’s head of legal seemed to think it was. Judge Failla essentially said that the SEC made the determination to plead in the way it did, so now the agency has to deal with document requests tied to that pleading, even if burdensome.
Adding this interview of former SEC Chair Clayton (who brought the Ripple case under his leadership, but has been critical of regulation by enforcement by the current Commission) to my listen to later list.
Tokenization is coming (I keep telling myself as I watch my ETH bags slowly bleed out).
I actually will want to watch these debates between Senator Warren and challenger John Deaton. Warren has one of the most staunch opponents of digital assets in the United States, so while I don’t think Deaton is going to be the betting favorite to win, it would be a massive win for the industry if he does.
The House Financial Services Sub-Committee on Digital Assets is scheduled to have a hearing on September 19th titled Decoding DeFi: Breaking Down the Future of Decentralized Finance. Timely considering the Uniswap settlement discussed above.
The team behind friend.tech appears to be taking their ball and going home, riding off into the sunset with millions of dollars made before the memecoin trend came to an end. Others have taken issue with this and called it a “rug” but I don’t think these developers had a moral obligation to the public at large (their VC backers might have a different view) to continue developing after it is clear PMF will not be there long-term.
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 