If you are going to be at Consensus in Toronto next week, hit me up because I always love meeting up with people who enjoy my weekly updates and learning how to make them better! It was a busy week with Congress back in session, and Coinbase is asking the Supreme Court to check the constitutionality of mass “John Doe” subpoenas for information from private businesses about customers without the customers’ knowledge or consent. There was also a major step towards decentralization made by a popular Layer-2 network, and plenty of reading materials from various submissions to the SEC.
Here’s everything that happened last week in Web3 legal:
Senate Moves Forward with “GENIUS” Stablecoin Bill
Sponsors of the Senate’s stablecoin bill (the “GENIUS Act”) introduced an updated bill, with a Senate floor vote expected before the Memorial Day recess. The main changes include a prohibition on stablecoins offering “a payment of yield or interests on its issued payment stablecoins” as well as some robust illicit finance provisions. The new bill also prohibits selling stablecoins in the U.S. except by entities formed in the U.S. and allows for state approved issuance so long as the state’s regime “meets or exceeds the standard and requirements” of the federal act, to be determined by a review committee consisting of the Treasury Secretary, Federal Reserve Chair, and FDIC Chair. There were also changes seemingly to target DeFi which ended up losing Democrat support despite being proposed by Democrats.
Tl;dr– There is talk about stablecoin legislation being pushed until market structure can be voted on at the same time, which many in the industry have pushed back against. While there is hope market structure gets done, there is a bird-in-hand attitude that getting stablecoin legislation passed is an important step which should not wait for larger market structure legislation to be finalized. There is also seemingly a push to kill even something vanilla like stablecoin legislation so punting on it until summer seems like it would be an error. This article from Austin Campbell on why Democrats should support stablecoin legislation is worth a read.
Coinbase Files Amicus to SCOTUS Over IRS John Doe Subpoenas
Coinbase has filed an amicus in a case brought by a Coinbase customer over the IRS seeking to compel Coinbase to turn over large swath of “John Doe” customer information without any probably cause as to any particular customer breaking the law. This follows an amicus submitted by the DeFi Education Fund last month. This would be a major case should the Supreme Court agree to hear the case, and will have significant implications outside of just crypto as the Third-Party Doctrine has broad surveillance implications.
Tl;dr– In the digital age, when you share financial or location data with a third party, it is often not “voluntary” but instead required for modern life. You can’t use cash for online commerce or in a variety of other settings which require payment for day-to-day living unlike in the past when the Third-Party Doctrine and other financial surveillance case law was created. The current makeup of the Supreme Court seems more likely that prior Courts to push back on financial surveillance by federal agencies, so there is a decent chance they use this case to do so.
OTHER STORIES
Nike Sued of RTFKT: Nike got hit with a consumer protection/unfair competition class action over the wind down of NFT project RTFKT. While the lawsuit calls the jpgs unregistered securities, it doesn’t name a securities law cause of action. So, you know, progress.
Treasury Presentation on Digital Money: Buried on page 98 of the Department of Treasury’s update to the Treasury Borrowing Advisory Committee was this fairly well done background on stablecoins and their potential impact on traditional banking. Great timing with Tornado Cash getting a victory over Treasury’s attempt to moot an action over prior sanctions (although, this Miachel Mosier chat is worth a listen about how Tornado wasn’t a complete victory).
Sign Petition to Cease Roman Storm Prosecution: I highly encourage anybody reading this to sign the open letter to the Whitehouse Crypto Czar calling for the end of prosecution of software developers where the only alleged crime is development of neutral software technologies.
Trade Secret Fight: I started my career as a trade secret litigator. So this trade secret fight over crypto tax compliance company Toku’s previous GC leaving to join rival Liquifi has my interest piqued. When an executive leaves a company on bad terms to join a rival, litigation is always likely to follow, regardless of industry.
Base Works Toward Decentralization: The team behind Coinbase’s L2 Base is claiming the network has reached Stage 1 in the Vitalik Buterin designed framework for rollup decentralization. Step in the right direction, but a long way away from Stage 2 when it can stop being referred to as “Coinbase’s” L2.
ZK Privacy Chain Funding: Miden, a Polygon spin-off, has raised $25 million to build Edge, a privacy-focused blockchain using zero-knowledge-proofs. It has been crazy to see how much ZK tech has advanced in the past year or so. Will be nice when it is an accepted form of verification so you don’t have your data compromised every time any service provider is hacked.
Tuongvy Le Interview: I try to listen to all of Jacob Robinson’s Law of Code podcasts, but this interview with Tuongvy Le is especially worth listening to. Need to add The Lobster Gangs of Maine to my reading list so I can reference it like I use A Market for Lemons to explain why crypto needs some workable tailored regulations so the everyday user that can’t read etherscan can feel comfortable interacting with blockchain technologies.
Solana Policy SEC Submission: One of the first big projects from the Solana Policy Institute appears to be this recent submission to the SEC “Proposing the Open Platform for Equity Networks” which I have added to the never ending list of materials to dig deeper into.
Industry Advocacy for Staking: Also adding this industry submission to the SEC regarding staking to my list. Seeing Jito signed on (as well as seemingly everybody in blockchain policy) and having read the Jito/SOL submission, I am confident this will be worth the read.
Movement Labs Drama: To be clear, I unequivocally stand with WassiLawyer (his emails are hilarious and his breakdown on how he fixed “the worst agreement” he had ever seen should be a must read for attorneys in the space). But this Coindesk investigation is too good not to cover. Also, pro-tip, if the initial agreement you get from the other side is abject trash, 90% of the time even if the agreement is fixed, the people who wrote the initial trash are still on the other side of the deal and scorpions are going to scorpion you trying to help them cross a river.
Ripple Wants to Buy Circle: Ripple has offered (and Circle reportedly rejected) a $4-5 billion takeover bid for the stablecoin giant looking to go public later this year. Ripple is doing their darndest to take advantage of the current regulatory environment and get a leading role in the integrations between TradFi and crypto.
Stablecoin Updates: A ton of minor updates on stablecoins last week (in addition to the proposed Circle acquisition and Senate updates above), including SoFi exploring its own issuance, Tether posting $1 billion in Q1 profits (with a U.S. expansion in the works), an expected vote in the Senate on the GENIUS Act before Memorial Day, and Visa working with Bridge for a stablecoin-back payment card.
Mining Tax Letter: The Digital Power Network sent a letter to the IRS encouraging the agency to clarify that mining income is not taxed until sold. We don’t tax corn when it is picked, so it doesn’t make sense to tax bitcoin when it is mined. In reality, these are often closely together, since miners generally need to sell most of what they mined to pay for power to continue their mining.
FTC Goes After “Crypto Trading” Venture: The FTC is going after a series of multi-level-marketing businesses which sold “crypto-trading” courses. The FTC was always the right agency to fight against fraud rather than trying to classify crypto as securities so the SEC could use their anti-fraud powers. Fraud is illegal without needing to say the underlying asset involved in the fraud is a security.
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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