It was a calm week in digital assets, but there was a development which brought an end to five years of litigation in SEC v. Ripple, and the Senate held a sparsely attended committee hearing as it turned its eyes from stablecoins to market structure legislation. In other news, there were a few developments at the agency level as people got one step closer to using crypto holdings to qualify for home mortgages, and a couple of prediction markets had hot funding rounds as they exceed unicorn valuations.
Here’s everything that happened last week in Web3 legal:
Senate Digital Asset Subcommittee Holds Market Structure Hearing
The Senate Banking Subcommittee on Digital Assets held a hearing titled Exploring Bipartisan Legislative Frameworks for Digital Asset Market Structure. The same day, Senate Banking Committee Chair along with 3 other Republican colleagues released their proposed digital asset market structure legislation principals which seem to align with the CLARITY Act currently pending in the House. The hearing was sparsely attended, with only five of the eleven subcommittee members making an appearance and with Senator Alsobrooks (sitting in for Ranking Member Gallego) being the sole Democrat to attend.
Tl;dr– Having already passed stablecoin legislation, the Senate is turning its eye to market structure legislation. However, the sparse attendance could indicate that priorities are elsewhere while waiting to see how the House handled the CLARITY Act and GENIUS Act. However, this was the first Senate hearing on market structure which seemingly was less exploratory and more focused on actual legislative text goals, so that is a positive move. It looks like the goal is for market structure to be through both chambers of Congress by the end of September, which is ambitious and borderline undoable, but end of year has a chance?
SEC v. Ripple Settlement Agreement Nixed by Trial Court
Back in May, Judge Torres denied the parties’ joint request to rule in favor of a proposed settlement which would finally end the SEC v. Ripple matter. The parties went back to do the legwork that Judge Torres ruled was deficient in their initial attempt, and Judge Torres has once again denied the parties’ request ruling “the parties do not have the authority to agree not to be bound by a court’s final judgment that a party violated an Act of Congress in such a manner that a permanent injunction and a civil penalty were necessary to prevent that party from violating the law again.”
Tl;dr– On one hand, it is always troubling when a court gets between two parties trying to settle a matter. On the other hand, it is hard to fault Judge Torres who watched the SEC spend immense administrative and judicial resources over a half-decade period only for the SEC to do a complete about-face after the matter concluded. As Judge Torres ruled, the SEC briefed that “without an injunction, Ripple would continue to disregard the laws of Congress in a manner that would hurt investors” so hard to accept the SEC saying “disregard” those types of firm fighting words. Ripple announced it was dropping its appeal, so this appears to be the end of the matter.
OTHER STORIES
Prediction Markets/Funding Stays Hot: Kalshi, one of the leading prediction markets permitted in the U.S. after they won their dispute over the issue with the CFTC last year, is reportedly raising $185 million in a Series C at a $2 billion valuation. Polymarket also closed on a $200 million raise at a $1 billion valuation. The M&A activity has also freed up venture funds for new investments.
Tokenized Private Company Shares Coming: Republic is launching a product/service that allows individuals to trade tokenized representations of private company shares? Need to dig into how this functionally works, but cool option to create liquidity in these pools of assets.
Bitcoin Backed Mortgages: Federal Housing Finance Agency’s Director, Bill Pulte, has directed the agency to study consumer’s use of crypto holdings for mortgage qualifications and sent a letter directing Fannie Mae and Freddie Mac to consider crypto for mortgage loan risk assessments. Can’t wait to use my $FARTCOIN bags to qualify for my next house financing.
Thought Leadership on Token vs. Equity: Not anything groundbreaking, but I enjoyed this release encouraging founders to rethink their decision on splitting ownership between tokens and equity. While it is hard to advise based on expected changes to regulations instead playing the game currently on the field, it is at least something people should be aware of and considering in their business plans.
Coinbase BTC/ETH Perps Launching: Coinbase Derivatives is launching on July 21 and will offer perpetual futures on ETH and BTC to start, with more tokens to be added later. It looks like their Deribit acquisition is paying dividends in time to market.
In-Kind Redemptions Coming: Apparently, ETF purchasers are going to be given the option for in-kind redemptions in the near future. If you want the asset underlying crypto ETFs, you can just buy those assets? But I imagine there are some weird financial regulatory/tax reasons for wanting in-kind redemption as an option as well?
Fed Reputational Risk is Dead: The Federal Reserve has joined the OCC and FDIC in ending “reputational risk” examinations for banks it oversees. Reputational Risk had become “we don’t like you because of the politics of the current party in control of these agencies” so good to see it go by the wayside.
Jane Street Founder Accidently Funds Attempted Coup: Not directly crypto related, but since SBF famously started his crypto trading at Jane Street, I wanted to include this wild story about how a founder of the firm was apparently duped into funding an attempted coup is South Sudan? “Let he who hasn’t accidently funded an attempt to overthrow a developing country government cast the first stone,” is what I always say.
BSA Remains Terrible: When I see an article laying out all the ways the Bank Secrecy Act has failed to protect against crime to the detriment of American’s financial privacy, I post that article. Those are the rules. Deputy Secretary of the Treasury Michael Faulkender talked about modernizing BSA reporting recently, but it needs a complete overhaul which I don’t think either party is inclined to do at this point.
CONCLUSION
If you have any questions or would like me to write about anything else, let me know on Twitter (X?) or Farcaster. 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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