It finally happened! After delays dating back to mid-January, we finally got updated Senate Banking market structure text which passed the Senate Banking Committee on a bipartisan vote the same week! It is hard to focus on much else with all that going on, since market structure legislation passing would dwarf any other digital asset legal development to-date. But even with that going on, the world continued to move forward and we get a development in the appeal of an Ohio Court’s ruling against a prediction market operator, and some harsh reality for all the tokenized equities that jumped the gun for pre-public companies.
Here’s everything that happened last week in crypto law:
Revised Market Structure Bill Text Dropped in Senate Banking
On Tuesday morning (at around 1:00 AM), the Senate Banking committee dropped revised market structure legislation and a section by section breakdown of the new text which contained a ton of small but important changes from the old text, and one big change with the addition to a housing bill rider at the end. The new text contains many of the changes which were expected alongside significant cross-cutting definitional changes, including changes to the stablecoin yield restrictions (Sec. 404) as previously released and some changes to the Blockchain Regulatory Certainty Act (Sec. 604). The big news was, despite expecting a partisan markup, two of the more junior Democrats on Senate Banking broke ranks and voted in favor of the bill creating a 15-9 bipartisan vote out of committee and significantly increasing the chances of a combined bill passing the full Senate vote later this summer.
Tl;dr– The new text expands procedural coordination between the SEC and CFTC, increases the potential role of intermediaries in certifications and disclosures by permitting a digital asset intermediary to satisfy disclosure requirements in lieu of the asset originator, and adds new provisions relating insider trading and insolvency. In addition, the tokenization section has been narrowed from broader real-world assets to focusing specifically on securities. By and large, the changes were mostly positives with exceptions to a few sections which were the result of reasonable compromises that the industry won’t love but are acceptable outcomes (crypto ATM companies were especially hard-hit from the bill changes). The biggest news wasn’t from the textual changes, but the fact that the bill passed committee on a bipartisan vote after some last-minute negotiations. There is still a LONG way to go before being passed into law (including negotiations over ethics provisions and appointment of bipartisan Commissioners at both the SEC and CFTC), and not a lot of time to do it in a midterms year, but this was an exceedingly positive step in the right direction.
OTHER STORIES
CFTC 6th Circuit Amicus: The CFTC has continued its litigation turf war over prediction markets, filing an amicus in the Ohio case which is on appeal to the 6th Circuit. This is an interesting one to watch, as a Tennessee case which had the opposite result to the Ohio case is also pending appeal in the 6th Circuit, so a lower court split that the appeals Court will need to work out.
Event-Contract No Action Relief: Additionally, the CFTC issued a no-action position regarding swap data reporting and recordkeeping regulations which allows operators to utilize simpler reporting formats designed for futures rather than complex swap documentation. Greate move and shows a willingness to right-size regulations to the actual risks instead of creating a check the box regulatory standard which increases costs without consumer benefit.
Anthropic Secondary Update: Anthropic warned against purchasing tokenized versions of equity in one of the hottest AI companies around, noting the questionable legalities of special purpose vehicles (“SPVs”) which were spun up to give people access to pre-public equity in the company. All the more reason we need tokenized equity rules so people can buy and sell these types of products with full investor protections and disclosures.
Wallstreet Wakes Up to Hyperliquid: Two major commodities intermediaries, Intercontinental Exchange and CME Group, have asked the CFTC to address market risks of the increasing importance of Hyperliquid, especially in after-hours trading and price discovery. This type of pushback was a primary reason Hyperliquid Policy Center was created as a U.S. advocacy arm, so this is a fight between entrenched intermediaries vs. plucky DeFi startup which is expected.
Coinbase Teams Up With Hyperliquid: While Wallstreet is pushing against Hyperliquid, Coinbase and solidifying a partnership between the entities whereby Coinbase will manage USDC liquidity on Hyperliquid. A solid move for both, as Coinbase is never going to compete on DeFi perps with Hyperliquid and USDC is a far superior product to Hyperliquid’s proposed stablecoin.
Kevin Warsh Fed Chair Confirmation: Kevin Warsh was confirmed as Federal Reserve Chair with former Chair Powell staying on as a board member. Any issues related to crypto monetary policy can be expected to take a backseat as he enters the role during complex market conditions which will be difficult for anybody to navigate.
Bitcoin Fog Appeal: The appealed conviction of alleged Bitcoin Fog operator Roman Sterlingov is one to pay attention to. Will raise interesting issues on venue and use of VPNs by the public at large and resulting evidentiary issue.
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.
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