This update might be a little light as I was busy last week at Consensus and not staying up on the news as much as a normal work week, but with a CLARITY markup set in Senate Banking, I imagine next week is going to be a doozy. This is also later than usual because I was slightly tied up this morning reviewing all 309 pages which I will break down in next week’s update! But in the meantime, there was an update on the continued drama surrounding the seizing of exploited assets by a security council and the fight over who has a claim over those assets, and we finally got a markup date confirmed for this Thursday!
Here’s everything that happened last week in crypto law:
Fight Over Good Arbitrum Frozen Assets Continues
I covered this last week slightly, but it has developed enough to get major story attention regarding the fight between judgement creditors and Arbitrum/AAVE over who should control the roughly $70 million that the Arbitrum Security Council was able to freeze on their chain following the KelpDAO exploit. There was a freeze order put in place two weeks ago by a judgment creditor against DPRK and last week AAVE entered the dispute to say that was improper as there was (1) no proof it was DPRK behind the exploit; (2) that stealing something doesn’t give the theft title over it such that a judgment creditor against the thief can claim the assets; and (3) the freeze was getting in the way of returning funds to the people they were actually stolen from. The Court hearing the matter split the baby, allowing Arbitrum to send the funds to AAVE such that they as Good Samaritans would not be caught in the middle, but AAVE can’t use it to make victims whole yet upon transfer.
Tl;dr– As explained in AAVE’s Letter Motion “[t]he notion that these assets are ‘North Korea’s assets” is preposterous. A thief does not acquire legal rights in stolen property.” Also hilarious that Plaintiff’s counsel tried to submit himself as an expert on DAO governance through a declaration that claimed expertise because he has sued a bunch of DAOs in (what some would call frivolous) lawsuits. Either way, I am hopeful that the Court will see through this farce of litigation and allow the actual victims of this particular theft to be made whole. While I am sympathetic to others who have been victimized by DRPK, they should go after the actual bad actors and not funds which do not (and have never) belonged to them or North Korea.
OTHER STORIES
Markup is Coming!: At long last, we have a set date for the Senate Banking Committee to markup its portion of the CLARITY Act, which has already passed in Senate Ag. but was held up in Banking due to fights over the stablecoin yield issue (great article on limited impact stablecoin yield would have on deposits from Galaxy here) and others. By the time you are reading this, there may or may not be text out with it expected on May 11th and amendments due on May 12th, but either way we are finally moving forward which is great to see. Mark it up!
Study on Support for CLARITY: Speaking of, a new study from Harris shows that there is overwhelming bipartisan support for Congress passing digital asset legislation and America being a leader in digital assets. “70% say the U.S. should have already passed crypto legislation.” Let’s make it happen!
RIP DL News: Anybody who reads these updates knows how often my cites are to DL News. They were the best and sometimes only outlet reporting on nuanced crypto legal issues and it was constantly done with accuracy and taking into account differing views on areas the law was unclear. So I am exceedingly sad to see them shutting down, and hope the reporters there continue their quality reporting at other outlets.
SEC Tech Optimist: As much as it is well and good to say regulators should be tech neutral, what this ends up becoming is regulations built for old tech refusing to change despite tech outpacing the underlying need for such regulatory protections. So this speech from Chair Atkins is a breath of fresh air in recognizing that old rules should apply to old tech but new rules may be needed for new tech.
Commissioner Pierce on Prediction Markets: In another great speech from Crypto Mom, she addressed what is primarily a CFTC issue but which the SEC should also pay attention to re: prediction markets. “What do economists, regulators, and prediction markets traders have in common and not have in common? They are all unduly confident that they can forecast truth, but only the first two get compensated for their bad forecasts.” Jokes aside, it was a great speech that was equally optimistic and cautionary. Well worth the read.
MOTHER Coin Lawsuit: I wouldn’t be mentioning this proposed class action over Iggy Azalea’s memecoin if it wasn’t for the fact that Plaintiffs’ firms are FINALLY getting that you can sue for damages without making the ludicrous claim that memecoins are securities. Securities laws aren’t the only way consumers can bring claims for fraud or consumer protection damages.
Duke Law Professor Back to Hating: It has been a while since Elizabeth Warren’s favorite testifying puppet has made crypto news, but he has back at it claiming he knows more about securities laws than the SEC and that WLFI token is a security. Really glad to see people like him and Prometheum fading from our collective consciousness. Could you imagine speaking at his conference? Couldn’t be me.
Kraken Applies for Trust Charter: Kraken is the latest digital asset firm to apply for an OCC trust charter, and would join the likes of Ripple and Coinbase if granted. Combined with its acquisitions of late, they are making a push to be alongside other crypto trading firms to be the “super app” often talked about by Chair Atkins.
Funding Stays Hot: Kalshi hit a $22 billion valuation the same week as there were announcements from a16z and Haun ventures for $2.2 billion and $1 billion respectively and it appears that venture funding in crypto has never been hotter.
Oral Arguments in 4th Circuit Prediction Market Case: I really enjoyed this thread from Winston & Strawn partner Thania Charmani breaking down the oral arguments in the Fourth Circuit over whether Maryland sports betting regulators can impose regulations on CFTC-registered trading venues. Also a great thread from Paradigm’s Stefan Schropp who has been covering all these cases.
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 