Even before Paul Atkins is confirmed as the next Chair of the SEC, the agency had a busy week with the crypto task force opening up for submissions on how to regulate crypto and various investigations and lawsuits likely going by the wayside. This all happened the same week there was the biggest hack in history against foreign exchange Bybit, emphasizing the need for some regulation as to how to properly custody digital assets (although whether the SEC is in the best position to do so vs. various other federal agencies is still in question).
Here’s everything that happened last week in Web3 legal:
SEC v. Coinbase Dismissal Pending Commission Approval
The SEC staff have agreed in principle to dismiss the Agency’s case against Coinbase. Considering two of the three current Commissioners are on record as being opposed to the Agency’s actions against digital asset companies, it seems likely the Commission will approve the dismissal recommendation, and this case will go away. This will also eliminate the currently pending interlocutory appeal for the Second Circuit to weigh in on certain rulings from the Motion to Dismiss stage in the case.
Tl;dr– Odd to see this announced before there is final approval, but it might be strategic to force a vote because technically there are only 3 Commissioners right now so the likely no vote (Commissioner Crenshaw) could be “sick” and there wouldn’t be enough Commissioners for a quorum to vote. One has to imagine that the cases against Binance and Kraken are also likely to be dismissed, considering the causes of action and legal theories are largely similar with the only difference being Coinbase’s prior approval to go public from the SEC. It will be interesting to see if exchanges like Robinhood (which had its own investigation dropped) that removed tokens alleged to be securities in those lawsuits back to its trading platform.
Bybit Exchange Suffers Largest Known Exchange Hack in History
On Friday morning, Bybit (a digital asset exchange based in Dubai which is not available to U.S. users) announced it suffered unauthorized access to various ETH wallets, resulting in roughly $1.4 billion being stolen from the platform. To put into perspective, in 2024 $2.2 billion is estimated to be the combined amount stolen from all platforms for the year, meaning 2025 will likely dwarf that number. This single hack is roughly 16% the size of all previous crypto hacks combined. The hack is currently believed to be the work of North Korean hacking organization the Lazarus Group, which was also behind the similar Phemex hack earlier this year. Bybit announced it still has the funds to cover customer withdrawals, and operations remain active.
Tl;dr– While the roughly 850,000 Bitcoin stolen in the infamous Mt. Gox hack is worth more in today’s dollars, this is likely the largest cryptocurrency hack in dollars at the time of the hack. It also makes the hackers one of the largest owners of ETH, as the over 400,000 ETH stolen is more than double the amount held by the Ethereum Foundation itself. Pg. 112 of the Chainalysis report explains NK’s crypto hacking history, if interested. If there is any silver lining, it would be that this is an offshore exchange that was the victim, and it provides support on why regulation is needed for centralized digital asset exchanges, so U.S. individuals have secure places to buy and custody their digital assets.
OTHER STORIES
Echo Explores ICO Options: I have been putting off signing up for Echo because I don’t pretend to be a VC . But I guess I will go through the onboarding process with some of the teased functionalities and cool projects which have already launched raising on the platform. Are ICOs back?
LIBRA Fallout Continues: The fallout from the Argentina memecoin rug $LIBRA ran over into this past week, with the co-founder of Meteora resigning and President Milei distancing himself from it. Honestly, people needed a wakeup call so it sucks for people that lost money here but a nice reminder than the casino isn’t looking out for you.
Memecoins Over?: I think basically everybody before LIBRA knew memecoins had stopped being organic a while ago and at this point are a rigged insider game, but it is crazy just how far up the insider game went. The problem with giving people freedom is they use it, I guess.
SEC Dismisses Dealer Rule Appeal: The SEC has decided to not go forward with their appeal of two challenges to the proposed expansion of the term “dealer” under applicable securities laws. Well done by the Blockchain Association and the Crypto Freedom Alliance of Texas.
SEC Launches Cyber Fraud Unit: The SEC has formed a Cyber and Emerging Technologies Unit which will go after, in part, “Fraud involving blockchain technology and crypto assets.” While I think the FTC is the better agency for consumer protection initiatives, I do think this makes sense to focus on fraud and consumer harm vs. any digital asset business at all. There is also a list of questions which the SEC is seeking public input on answering.
SEC Drops OpenSea Investigation: It is rare that any agency announces they have dropped an investigation; usually they just let it sit. Which gives weight to the fact the SEC has apparently dropped its investigation into OpenSea. Some NFTs are securities. Most aren’t. It doesn’t make sense for a secondary marketplace to be the one responsible for making that decision.
Person Burns $1.38 Million to Send Message: Not really a legal update, but this story about somebody burning over a million dollars in ETH to send a message about Chinese brain control chips is too bizarre not to share. Like, next time just send it to me, and I will make it my life’s mission to spread that story forever? Open offer for anybody to send me millions of dollars.
$3 Million NFT Sale: With the recent $3 million purchase of an NFT titled X.Masquerade and OpenSea continuing to play with rewards for potential token drop, are NFTs back? The obvious answer is “lol, nah” but the less obvious answer is: but maybe?
Nasdaq Proposes Rule for Trading Digital Assets: The Nasdaq exchange is proposing a rule change to permit the listing and trading of digital asset-based investment interests. Baby steps, but I’ll take them.
Binance US Allows Fiat Deposits and Withdrawals: I honestly though Binance US was dead when they took away fiat deposits and withdrawals, but it looks like they weathered the storm? Honestly, phenomenal job by that leadership team righting the ship through all the chaos.
Secretary of Commerce Confirmed: Howard Lutnick, formerly of Cantor Fitzgerald, has been confirmed as the new Secretary of Commerce. He has said a ton of positive things about crypto in the past, so another ally in a high-ranking position is always good.
SEC Approves Interest Bearing Stablecoin: The SEC has preliminarily approved Figure Markets’ application for a yield-bearing stablecoin that will allow users to earn interest payments on their holdings. As well stated by their CEO “If I can hold this [stablecoin], if I can self-custody this, if it pays me interest, and I can actually use it to transact, what do I need a bank for?” While I imagine the custody/use issue isn’t quite there for the registered security product, I think it will be soon, which is hugely beneficial to everyday consumers.
Great Article About How Gensler Broke the SEC: I recently disagreed with Austin over forking ETH for the Bybit hack, but I agree with him on a vast majority of things including this take on how Gensler and his ilk destroyed confidence in public institutions/regulators.
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.
Outro/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 tl;dr overviews and insights into the biggest stories from the past two weeks. I post the weekly updates on my personal blog every Tuesday, where I also provide links to more obscure legal developments and otherwise discuss industry trends and stories. 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.
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