That was suboptimal. Despite pushes from industry proponents, traditional finance powerhouses, and Senate leadership, the Clarity Act was not brought up for even a procedural vote before the August recess. With the Senate now out until the third week of September, the chances of market structure legislation just dropped to the single digits. But in the words of the poet Young Thug, “fuck it, we ball!” We got another district court loss for prediction market vs. state regulator disputes, a bunch of crypto lawyers on the move, and an ETH inflation proposal which has people talking.
Here’s everything that happened last week in crypto law:
Senate Recesses Without Voting on Clarity Act
Despite the best efforts from many including Senators Lummis, Scott, Thune, and countless others, there wasn’t enough momentum to get even the procedural vote that was promised before the August recess sending Senators back to their home states until mid-September. While there are now promises that Clarity Act will be first on the slate once the Senate returns, the realistic chances of this remaining a priority or gaining the additional support needed to pass in that time is slim-to-none. While the fight will be ongoing until the full Senate votes on this (currently scheduled for the first day they are back) or until the end of this Congress, priorities likely shift to the administrative agencies to do what they can within their existing authorities.
Tl;dr– Obviously, not the result anybody in crypto wanted. While the bill as a whole was far from optimal for crypto with increased regulatory burdens on a vast majority of the digital asset ecosystem, it was still a vast improvement on the status quo and would have allowed companies to build in the United States with legal certainty vs. relying on rulemaking alone which can easily be undone leaving companies who invested resources into building products and services scrambling. There is still the vote scheduled for September, so there is a chance this still passes once the Senate returns, but realistically it is hard to see what changes in the next month when the bills have been near final since January without reaching a deal.
OTHER STORIES
Crypto Lawyers On the Move: Lots of big movements this past week, with Coinbase’s former GC announcing he has pivoted to AI, former Treasury official Tyler Williams rounding out his public service to go to Hogan Lovells, and the princess of perps herself Katherine Kirkpatrick taking on the head of legal role for Chainlink. Big moves and congrats all around!
Prediction Market Advertising: The CFTC seems tired of certain prediction market operators making the job of defending CFTC jurisdiction harder by displaying market prices with betting odds numbers. Every DCM knew (or should have known) it was coming so honestly kind of surprised to see people were still doing it even after less formal warnings for anybody paying attention.
Prediction Market Loss in Michigan: A district court in Michigan refused to enjoin the state from enforcing its state gaming regulations against CFTC-registered exchanges. These need to work their way to appeals courts, since fractionalizing liquidity among the states make it impossible for prediction markets to provide accurate data.
Russia Passes Market Structure: While digital asset market structure laws failed in the U.S. so far, Russia has gone forward with their own regulatory regime for the asset class. It’s honestly pretty close to what Senator Warren and others have advocated for, severely limiting access to digital assets since digital assets can enabled people to act outside of government control. Which obviously Russia (and certain crypto detractors here in the states) aren’t fans of.
Coldcard Exploit Continues: The Coldcard seed phrase generation exploit is continuing with over $100 million in Bitcoin believed to be stolen. Victims are left with very little recourse, which is a strength and weakness of custodial assets. But some of the best and brightest are tracking this through the public and immutable blockchain so hopefully at least some victims are made whole.
ETH Inflation Proposal: There is a proposal which has made waves which would limit the rewards given for proof of work validators with less rewards issues the more people validate. I don’t get it? I would think more people locking their ETH in staking arrangements making it less liquid and providing economic security to the network is good? Not sure why we would want to disincentivize that…
POAP Winddown: I hate to see that Proof of Attendence Protocol (“POAP”) is winding down. This is one of those things where, if Gary Ginsler wasn’t suing people for restaurant club membership NFTs, I could have seen major brands onboarding people to because it is the best solution for bots gaming online queue systems. RIP in peace.
ByBit Sues North Korea: ByBit is suing over the $1.5 billion hack from February of last year perpetuated by a hacking group tied to the North Korean government. This honestly isn’t super interesting to me because it appears just a way to get a court ordered asset freeze and into the claims lines whenever things are actually recovered from North Korea in unrelated activities, but it is something worth mentioning as having happened.
ElizaOS Winds Down Token: ElizaOS (formerly ai16z) has settled with class action plaintiffs which results in the law firm and named plaintiffs taking what was left of the project’s treasury. The founder’s post about it is worth a read for sure.
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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