Forgot to schedule this before I went to Consensus events, but now you get an aftenroon edition of the weekly blog!
It was another big week of prediction market developments with the comment period closing on the CFTC’s advance notice of proposed rulemaking related to event-contracts, and a new bipartisan bill dropping in the Senate. Elsewhere, we finally got the stablecoin yield negotiated language revealed publicly meaning the larger market structure efforts can now move forward, and a lawsuit over frozen funds has people discussing the legal implications of freeze and seize functionalities of security councils.
Here’s everything that happened last week in crypto law:
Stablecoin Yield Portions of Market Structure Text Released
The long-awaited text related to stablecoin rewards/yield that has been holding up market structure legislation has finally been released to the public. As previously reported, the language removed the yield prohibition carve outs for memberships/promotions from prior market structure drafts, but largely kept the intact the overall intent that rewards tied to merely holding stablecoins in an account/wallet that resemble bank deposit interest payments are prohibited, but rewards tied to use of stablecoins (including use in DeFi/lending) are permitted. This release signals that larger text must be done or close to done and can be expected for release as well in the near future.
Tl;dr– The yield issue was always just a distraction away from the important issues regarding token disclosures and DeFi/developer protections which is the real meat and potatoes of the bill, which we haven’t seen updated text on since January. See below for a recent podcast on the importance of developer protections to ensure these products and services are built in the United States. Now we can hopefully move on to those issues, but time is short. I am guessing there will be at least one day of Consensus in my future where I am analyzing market structure text updates, but that is a future me problem and champagne problems at that because that means we likely have a banking markup scheduled. I am very ready to get back into a market structure sprint so that administrative agencies have guidance one way or the other as to if they should move on with rulemaking or wait for legislative progress.
CFTC Prediction Market Advanced Notice of Proposed Rulemaking Comments Close
The comment period for the CFTC’s Advanced Notice of Proposed Rulemaking related to potential Prediction Market regulations have closed. I will focus on The Digital Chamber’s comments below, but this was heavily commented on. Some notable comments include from Solidus Labs, Hyperliquid, a16z, Coinbase, Polymarket, the MLB, the NBA, the PGA Tour, Chainalysis, Paradigm, various agriculture trade associations, Dragonfly, Draftkings, Robinhood,Consensys, the Coalition for Prediction Markets, Galaxy Digital, SIFMA, Solana Policy Institute, and a plethora of others. In total, there were over 1,500 submissions, many of which from the public at the direction of Kalshi, which again shows the power of making advocacy easy for people.
Tl;dr– Only slightly related, but honestly it was a masterclass move by the CFTC in its New York litigation to cite to the fact that the state gaming regulators didn’t comment on the proposed rulemaking despite their alleged concern over how the CFTC is regulating its markets. Having gone through most of the submissions at this point, I saw a few submissions from state gaming regulators but far less than one would expect based on ongoing litigation. TDC’s submission focused on creating workable rules to ensure liquidity centers on regulated U.S. markets, and creating clear distinction between market-priced prediction markets under CFTC jurisdiction and gaming book priced gambling under state jurisdiction. With Kalshi set for arguments in Massachusetts Supreme Court Monday of this week and cases going on across the country, this is something that will end up at SCOTUS but which the CFTC can provide guidance on in the meantime.
OTHER STORIES
Bipartisan Prediction Market Bill Drops: The Senate was busy this week, first unanimously prohibiting members from using prediction markets for ethical reasons, and now bipartisan legislation which would increase consumer protections in the markets while keeping them under exclusive CFTC jurisdiction. This is the first of the prediction market bills that wasn’t just messaging, so I’ll be interested to see if this can go anywhere through the legislative process.
Debanking By Non-Profit: This reporting about how the SLPC used a combination of reputational risk and their own “threat” reports to unbank any entity they deemed counter to their interests is super interesting. So glad that examination basis is on the way out.
Lawsuit over Security Council Freeze: There was a freeze order entered regarding the $70+ million frozen by the Arbitrum Security Council connected to the KelpDAO attack. This law firm is a troll, but this is the give a mouse a cookie situation attorneys were warning about re: security councils with ability to update protocol code outside of confirmed code errors.
OCC Responses Out: The Digital Chamber provided four responses to the OCC proposed GENIUS Act implementation rulemaking. But some others likely worth reading are the Blackrock submission which focused on tokenized reserve issues and Anchorage who focused on whitelisting issues. Really excited to see these rulemakings move forward (even though a slight extension would have been nice here) so that stablecoins can be better integrated into U.S. finance.
Must Listen Law of Code Podcast: Law of Code is a podcast I listen to every week, but this recent episode which is a deep dive into the potential criminal liability for software development is one that everybody should listen to. People can get lost in the weeds in market structure, but this is one of the huge issues which market structure could solve.
Visa Stablecoin Settlement: Visa’s pilot program providing global stablecoin settlement services through dedicated Visa cards is expected to hit $7 billion this year as it expands to additional blockchains supported. Good on them for recognizing the opportunity and jumping on it early.
CONCLUSION
If you have any questions or would like me to write about anything else, let me know on Twitter (X?) or Farcaster. Any typos or errors are intentional to prove I am not AI. 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: In late 2022, while I was at Polsinelli, I started preparing weekly updates for attorneys at the firm to stay abreast of the latest Web3 legal developments. I now 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 are solely my own. They do not reflect the official stance or endorsement of the Digital Chamber or any of its members.
The NFTtorney 