Merry Crypto Week to those who celebrate! Bitcoin hit an all-time high last week, which was the week before Crypto Week in the House and the week the Senate got serious on market structure drafting. So that’s fun! In less fun news, the Tornado Cash developer criminal trial starts this week, which will call into question the level of criminal liability there can be for publishing neutral software code which is later used by criminals. M&A activity also stayed hot, as platforms look to consolidate to become one-stop shops.
Here’s everything that happened last week in Web3 legal:
Amicus Filed in Right-to-Code Case
Back in January, a Plaintiff with the backing of Coincenter sued the DOJ seeking a declaratory judgment that developing and publishing non‑custodial software does not require a money-transmitter license (the case is Lewellen v. Bondi in the Northern District of Texas). The DOJ moved to dismiss, claiming there is no credible threat of enforcement, that the lawsuit fails to allege a plausible constitutional claim, and that the lawsuit seeks an impermissible advisory opinion about hypothetical future conduct. Plaintiff opposed, and now a large group of amicus have also filed a brief opposing the DOJ’s motion to dismiss and encouraging the Court to grant the relief requested.
Tl;dr– The parties joining this amicus is a who’s-who of the most active litigation advocacy organizations in crypto including venture capital firm Paradigm, crypto advocacy organization the DeFi Education Fund, the Digital Chamber, the Solana Institute, and others. Considering the DOJ is actively prosecuting multiple software developers currently under the theory of criminal liability at issue in this case, it is hard to say there is “no credible risk” of further prosecution of software developers. As the amicus states “[t]he developers are analogous to the manufacturers of USB drives and frying pans. Since they merely make the tools that other people use to make transfers, they are not involved in the transfers themselves.” While the current administration has signaled it is friendly to crypto, this is a fight that still needs to be fought at won or software developers in this and other spaces will remain at risk of criminal prosecution for publishing code.
Senate Moves Forward on Market Structure
The Senate Banking Committee held a full committee hearing titled From Wall Street to Web3: Building Tomorrow’s Digital Asset Markets. Witnesses included Summer Mersinger from the Blockchain Association, Ripple CEO Brad Garlinghouse, Chainalysis CEO Jonathan Levin, and others. The Agriculture Committee has scheduled its own hearing this week. It is expected that the Banking Committee will release a discussion draft of legislation along with a request for information from the industry later this week.
Tl;dr– These actions follow Senate Banking Committee leadership releasing their Principles for Market Structure Legislation last month. The hearing as a whole was productive, and even opponents seem to have abandoned the thought that crypto can be regulated or ignored away (but aren’t sure how to get their handle on something they tried to ignore away for years). The Senate is still far behind the House, which is expected to vote on their CLARITY Act market structure bill during Crypto Week this week. Unlike the House’s quick passage of the GENIUS Act without revisions (also expected this week), market structure can be expected to go back and forth between the House and Senate, with Senators like Senator Warren and members of the House like Congresswoman Waters expected to gum up the process as much as possible.
OTHER STORIES
DOJ v. Storm Trial Updates: There were a few updates in the Storm criminal matter last week heading into this week’s trial (good catch-up on how were got here available here). Including the fact that the DOJ apparently misrepresented a text from a reporter as coming from another Tornado Cash developer during the Grand Jury, and some spicy pre-trial exchanges. This will likely go to appeal either way, so I am once again encouraging people to donate to Roman Storm’s defense.
OpenSea Acquires Rally: NFT marketplace OpenSea has acquired Rally to enhance its mobile and token trading capabilities? The OpenSea app has always been trash, so hopefully this fixes that. Coinbase also acquired Opyn’s leadership team as crypto company consolidation continues.
Vitalik Wants Copyleft Licenses: Vitalik Buterin put out a blog advocating for use of restrictive “copy-left” licensing for digital asset codebases. There isn’t a one size fits all solution for code licensing, but I have seen some projects open-sourcing their base code so others can integrate the project into their own software, but then either copy-left or BUSL restricting their apps to protect against vampire attacks which I like. (I personally like the rarely used WTFPL as far as opensource licenses go, which I just learned existed).
Twitter Founder Releases Bitcoin App: Jack Dorsey has released an app which allows users to transfer bitcoin even without an internet connection via Bluetooth. Pretty cool, but the name is laughable.
Perps Through Wallet: Phantom digital wallet is giving front-end interface access to perpetuals trading platform Hyperliquid (which geofences against U.S. and other users based on IP address). I have mixed feelings about making complicated trading products this widely available (especially to largely SOL users), but it’s a major development no matter your own personal feelings on the subject.
BNY Mellon/Ripple Partnership Announced: BNY Mellon was announced to be the custody provider for the dollar reserves backing the Ripple issued stablecoin. The week before Ripple said it was applying for its own banking charter, so this is an odd move, but worth covering.
Memecoin Platform Pump Gives ICO Details: Pump.fun has released its token details and ICO date and it’s…something. It looks like something out of a Black Mirror episode which is certainly a choice in what to lean into, but not inaccurate I guess. They also acquired a wallet-tracking tool called Kolscan which appeared to be leaked to insiders beforehand, which is fitting for a platform called KOLscan.
Tokenized Securities Stay Hot Topic: After all the kerfuffle around the Robinhood/Republic/et al. tokenized securities announcements, Commissioner Peirce has released a well-timed statement “Enchanting, but Not Magical: A Statement on the Tokenization of Securities.” The tl;dr is that securities need to follow securities laws and regulations, tokenized or otherwise. “While blockchain-based tokenization is new, the process of issuing an instrument representing a security is not. The same legal requirements apply to on- and off-chain versions of these instruments.” Tokenized stocks should be seen as ways to make securities trading more efficient, not as an end-around to securities laws.
DeFi Broker Rule Is Done: The IRS rule issued right before the change in administrations is now officially dead, after being directed to be retracted by Congress. Big win for the industry and big loss for the remaining soldiers in the anti-crypto army.
Coinbase Sues Oregon: I haven’t been following the Oregon state securities lawsuit that was a copycat of the SEC’s now dropped lawsuit against the exchange, but Coinbase is apparently going on offense after having their public records request on the subject denied. Not sure who told the Oregon AG that going at it alone and suing a company with a massive war chest and army of attorneys to push back was a good use of taxpayer funds, but they are in the heat of it now.
ETH Zero Knowledge Upgrade: Not going to lie, I understand about a third of the technical details in this announcement, but it looks like the ETH Foundation is continuing to ship updates, this time in the form of enhanced compatibilities for privacy preserving zero knowledge proof technologies. I am an ETH bag holder, but is it hard for me to see any other L1 catching up to ETH for institutional level security and resilience.
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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