Early in the week, it was blood in the streets with crypto reaching lows unheard of since (checks notes) November. Then President Trump announced a surprise U.S. crypto reserve over the weekend of not just BTC/ETH, but also SOL/XRP/ADA, which sent prices of those assets pumping again (only to crash again Monday). The other legal developments didn’t slow down, either. It was a huge week at the SEC with more activity than I could possibly summarize in this opening paragraph alone, and it was a big week for DeFi as Uniswap and MetaMask both had legal wins regarding their DeFi swapping functionalities. There were also a ton of developments in Congress, and the blowback over the ByBit hack continues.
Here’s everything that happened last week in Web3 legal:
Uniswap Gets Wins at SEC and Second Circuit
The Enforcement Division of the SEC issued a Wells notice in April of last year informing Uniswap of the staff’s intention to recommend enforcement against the decentralized exchange. Last week, Uniswap announced that it has been informed that the SEC has officially closed its investigation with no further action. The same week, the Second Circuit upheld a previous dismissal of a civil securities class action filed against the DeFi provider.
Tl;dr– The SEC investigation end comes shortly after it was announced the SEC has also closed its investigations against NFT platform OpenSea and online exchange Robinhood. The ruling in the Second Circuit meanwhile is seen as a win for DeFi at large, holding that social media posts about the safety of the platform and funds passing through the platform’s smart contracts do not make the developers of the platform statutory sellers or solicitors of securities transactions. Combined with the SEC dropping its case against Consensys regarding the Metamask wallet swapping and staking functionalities (which is interfaced with third-party DeFi providers), and (other than token prices) Defi had a solid week.
SEC Stays Busy with Flurry of Developments
In addition to the Uniswap and Consensys closures noted above, the SEC also has called off its investigation into the Winklevoss-backed platform Gemini. It also acknowledged 4 crypto ETFs, released a Staff Statement on Memecoins, has six Crypto Task Force meetings, released Commissioner Peirce’s statement on litigation by enforcement, and two statements from Commissioner Crenshaw decrying recent Agency actions.
Tl;dr– I can’t imagine all of this would be happening so quickly if there wasn’t unofficial buy-in from the likely future Chair of the SEC, Paul Atkins. The biggest development by far was the statement on memecoins which is seemingly an official shift in the SEC’s interpretation of the Howey test as well as an official statement that the tokens themselves aren’t securities in certain situations and need a separate investment contract, which is basically the exact opposite position the SEC took in LBRY and Kik. My firm covered that announcement on the BitBlog this week so check that out for a larger update on the implications of the SEC’s change in stance.
President Trump Announces U.S. Crypto Reserve Assets
President Trump posted on social media over the weekend that his Executive Order in February which promised to “evaluate the potential creation and maintenance of a national digital asset stockpile” was taking shape and that any such stockpile would include layer-1 tokens for blockchains created in the U.S. such as Solana, XRP, and Cardano. This comes as the Whitehouse announced the first crypto summit would happen this upcoming week.
Tl;dr– I have been on record that the digital asset stockpile by the federal government is like, number 75 on my list of priorities for the federal government when it comes to crypto. So as much as I like seeing my SOL bags pump, this doesn’t really move the needle for me. It probably makes sense for the U.S. to hold onto lots of its seized assets to not pull a Germany and sell the bottom. But I would far rather policies be changed to allow federal government employees to own de minimis amounts of crypto so they can actually use the technology they are regulating over the federal government buying up a bag of XRP.
OTHER STORIES
OKX Exchange Settles with DOJ: OKX has agreed to pay over $500 million for serving as an unregistered money transmitter for U.S. customers from 2018 until 2024. Turns out you can’t advise customers how to get around KYC laws? Who knew?
Citadel Looking to Provide Crypto Market Making: Citadel CEO Ken Griffin said it is looking to be a crypto market maker like they currently serve as a market maker on the NYSE, but the firm is just waiting for regulatory clarity to do so. The last time he made similar statements there was the tera/luna collapse, so is Ken Griffin the Jim Cramer of crypto?
Richard Heart Beats SEC: It looks like the Court overseeing the Richard Heart/Hex/PulseChain case has agreed that his interactions with the U.S. were not sufficient to create specific jurisdiction or satisfy what is required for application of U.S. securities laws to his (alleged) conduct. While I might not be fond of the guy personally, this is seemingly the right ruling based on what I have seen.
Ethena Conducts $100 Million Raise: Synthetic dollar developer raised $100 million recently via a private sale of ENA tokens. It looks like the plan is to further develop and market iUSDe which has wrapping and transfer restriction functionalities that are required for traditional financial entities subject to regulatory oversight? I am adding it to something to look into as a place to park dry powder.
3AC Founder Accused of More Theft: OX.FUN, the crypto derivatives exchange backed by 3AC co-founder Su Zhu, has been accused of ransoming a $1 million deposit by certain members of JefeDAO? Not to victim blame, but if you put $1 million anywhere near a 3AC founder I am not going to feel sorry for you when the scorpion acts like a scorpion.
Think Pieces Worth Reading: In addition to reading the submissions to the SEC’s Crypto Task Force (hilarious that Better Markets, which advocates against crypto, is the only meeting so far that didn’t put anything in writing), there was also this DeFi Education Fund article about the BSA’s total abject failure, and a Miles Jennings/Sarah Brennan/Thomas Chow article on using control criteria for defining decentralization in policy. Finally, there was this paper about a proposed crypto regulatory structure from Teresa Goody Guillen, who was at one point in consideration for the SEC Chair. Things to print for any upcoming travel reading.
ByBit Hack Developments: There appears to be conflicting information on if Bybit had its own systems compromised, or if everything was done through a hack of its SAFE multi-sig provider. Either way, probably should double check approvals before executing a $1 billion+ transaction? Just a thought. Still, props to the founder who gave a full 1-hour interview in the days after it happened. That’s pretty radical transparency.
Stablecoin Updates: Bank of America is looking to get into the stablecoin game, meanwhile Circle and Tether are fighting over some back office regulatory capture fighting. Honestly, if the rumors are true, it’s a bad look for U.S. stablecoin issuers to try to back-end some prohibitions against foreign issuers backing those coins with U.S. Treasuries. Bad for the ecosystem, bad for the U.S., and generally bad if the moment you gain political power you use it for self-enrichment vs. improving for everybody.
Aave Halts Support for Polygon Lending: In ongoing blowback over the Polygon proposal to lend bridged assets on Morpho to give yield to users (which failed), it looks like AAVE has approved a proposal to cease offering support for polygon asset lending. Seems short sighted of AAVE, but certainly going to be a blow to Polygon as well.
Senate Banking Hearing on Digital Asset Legal Framework: The Senate Banking Subcommittee on Digital Assets held a hearing titled Exploring Bipartisan Legislative Frameworks for Digital Assets so it looks like legislators are making good on commitments to try to fast track digital asset regulations in the coming months.
Anti-Memecoin Bill Introduced: There was a bill introduced which is designed to prevent government employees/elected officials from releasing memecoins? Honestly, combined with the ban on actively trading stocks I support this. Politicians don’t need memecoins.
Lawyer Suing Memecoin Platform Likely Created Memecoin: In a “no duh” development, it looks like in additional to the public court filing information, there is onChain data linking the wallet used to create the memecoin “DOGSHIT2” on the PumpFun platform to the lawyer suing the PumpFun platform. Combined with the unambiguous statement from the SEC that “neither meme coin purchasers nor holders are protected by the federal securities laws” and that lawyer is having a bad week.
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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