Better late than never (I really need to get back into the habit of scheduling these posts to go out in the morning vs. just posting when/if I remember to on Tuesdays)!
It’s the last week before the Senate goes on break the rest of August, so final push for Market Structure. It appears there is going to be procedural votes this week either way, so we will see where the bill is at and if it can get to 60. Meanwhile, there was oral arguments in the 6th Circuit prediction market cases out of Ohio and Tennessee, and a hardware wallet exploit which has people questioning the security of their own self-custody arrangements. Oh, and the Secretary of Treasury quoted Satoshi for good measure.
Here’s everything that happened last week in crypto law:
Oral Arguments in 6th Circuit Prediction Market Appeals
The oral arguments for the appeal of two cases, one out of Ohio (where the state won on a preliminary ruling) and Tennessee (where the state lost on a preliminary ruling, was heard last week. The Digital Chamber submitted an amicus in the Tennessee case’s appeal. Lots of focus on markets like “number of corner kicks” or mention markets which the judges seemed skeptical about. The judges are having issues with line drawing preemption, and seemingly didn’t accept “on exchange = CFTC, off exchange=states” as sufficient.
Tl;dr– Not a panel that was great for prediction markets based on questioning. While not as directly hostile as the 9th Circuit seemed from its questions, this is almost worse with the judges seemingly grappling with even basic concepts/issues in the text of the CEA. No way to tell from oral arguments alone, but this is the first case I could see being kicked back to the district courts for a better record on specifically what gaming contracts the lower courts did not consider “swaps” since it seemed like the judges mostly agreed that “swaps” are in the purview of the CFTC but didn’t believe all (or maybe any?) of the sports markets or mention markets should be properly classified as “swaps” and potentially ruling only things which are properly “swaps” get the protection of preemption which I think is legally incorrect but probably the biggest issue the judges were grappling with.
OTHER STORIES
Uniswap and Morpho: Love this integration of Morpho yield directly into the Uniswap interface. It’s the year of vaults!
New York Sues Kalshi: Any time the New York attorney general sees an opportunity to make headlines by pursuing baseless claims or claims against largely defunct crypto platforms for giant judgements she can never recover, she does it. So it’s not surprising, while still being disappointing, it is the latest state to sue a federally regulated commodities exchange for what is allowed to be traded on that exchange.
CFTC “Gaming” Rulemaking Comments Close: While the issue is being actively litigated in courts, the proposed rulemaking on what constitutes “gaming” and the “public interest” determination process for such contracts came to a close with over 1,300 comments submitted. I am obviously partial to The Digital Chamber’s submission but also some great submissions from a16z, Paradigm, and a host of others which I have printed and am working my way through every break I get from Market Structure stuff.
Bitcoin Wallet Hack: A popular hardware wallet provider was exploited last week due to an exploitable flaw in their private key randomization. Still a developing story, but a reminder that the best software wallet + decent OpSec beats the best hardware wallet 9 times out of 10.
New Ethics Proposal: There was a new bipartisan proposal on revised ethics language sent to the President over the weekend. Not clear as of writing this if the proposal was accepted by the President or if the bill will go forward with existing language, but probably the biggest gating factor on if market structure passes or not is the Presidential ethics issue.
Coinbase Broker Win: Coinbase got a huge win in a case which had the potential to change how a “statutory seller” is determined for purposes of securities laws. While the case is ongoing on a separate issue, this was a massive win not just for Coinbase but for the industry as a whole and The Digital Chamber’s amicus may have been a determining factor in this great outcome.
Skinny Master Account Response Deadline Closes: The Fed’s proposal for a skinny master account closed with The Digital Chamber, Anchorage Digital, and others weighing in. With the expected expansion of specialty state-depository institutions in response to the state path for GENIUS Act, this is something that ig bigger than most people are realizing.
Perps Fight Continues: Great breakdown from Coindesk on the ongoing dispute between the CFTC and CME regarding classifying perpetual futures products as “futures” as opposed to swaps. The products are called perpetual futures not perpetual swaps, but the fact that CME is suing its regulator and that its initial attorneys withdrew are both exceedingly interesting issues.
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 