Hope everybody had a relaxing Labor Day weekend! Here in D.C., we have a week until the Senate returns which we expect to include a procedural vote on market structure, and there is a big stablecoin conference this week in town which many in both the traditional banking and crypto-native spaces are expected to attend. But last week there for a few major developments which included a dismissal of most claims in a memecoin class action, and some SEC rulemaking proposals which are expected to make big waves as the agency moves towards on-chain and 24/7 trading.
Here’s everything that happened in Crypto Law last week:
Memecoins Aren’t Securities Ruling
One of the various class actions against memecoin launchpads and creators, this time regarding the COPE memecoin, had a vast majority of its claims dismissed particularly around claims that purchases of this memecoin were securities transactions. While the Court used a facts and circumstances analysis to reach its conclusion, it is hard to see most (if any) memecoins launched through launchpad mechanics constituting securities transactions or constitute illegal gambling. The case will now move forward into discovery with its remaining claims against Pump Fun and its founders on wire fraud and money licensing violation claims.
Tl;dr– Suing Solana Labs and Pump Fun because people used their permissionless blockchain infrastructure to launch memecoins was always stupid and I am glad the Court here saw through that. The remaining claims should also be dismissed but the Court had limited discretion there since all facts need to be construed in the Plaintiffs’ favor here. This case was always a money grab from some less the reputable Plaintiffs’ attorneys so would have been nice to see the entire thing thrown out but hopefully that complete dismissal result for this and the various similar cases these Plaintiffs’ firms brought isn’t far behind.
OTHER STORIES
SEC Updated Transfer Agent Rules: The SEC proposed a series of rule changes which would modernize how securities transfer agents are regulated. Although the proposal applies broadly to registered transfer agents, digital assets and tokenized securities are clearly a central motivation for the rulemaking which is great to see. If put into final rules, this should make it substantially easier to design a compliant onchain transfer-agent architecture without attempting to map blockchain records onto rules written for paper certificates.
New Jersey Ask SCOTUS to Hear Prediction Market Case: New Jersey has filed a request for the Supreme Court of the United States to hear its appeal of the Third Circuit ruling against the state in its case against prediction market operators. As much as I would like the Supreme Court to hear the issue sooner rather than later, I don’t know if the limited 9th Circuit split largely based on CFTC rules which are expected to change in the near future is going to be enough for SCOTUS to take up the issue this upcoming term.
Bug Bounty Controversy: A Bitcoin sidechain, Liquid, was exploited for roughly 4,000 Bitcoin this past week, in what was later discovered to be a bug found by whitehats who drained the protocol to protect funds until the bug was patched. A vast majority of the Bitcoin was returned, but the hackers kept 15% as a “bug bounty” raising questions about ethical hacking in blockchain protocols.
TradFi Stablecoins: It seems like every week there is a new consortium of traditional banking entities grouping up to issue a dollar-backed stablecoin. End of the day, I think there will be 4-5 different “winners” similar to the current split of credit card market shares with everybody else having niche uses.
CFTC Seeks Dismissal of CME Lawsuit: The CFTC filed its initial Motion to Dismiss in the case brought by the CME stating “This lawsuit is much ado about nothing.” I do think most the standing issues are solvable by CME through an amended Complaint so would be interesting to see if they answer or just seek leave to amend to correct the procedural defects.
Tokenized Stock Developments: A few interesting developments this past week included Coinbase seeking approval for single stock perpetual futures contracts, and the fight over issuer tokenized vs. third party tokenized stocks hitting Twitter with a back and forth between the CEO of Robinhood and the CEO of AMC unhappy with Robinhood tokenizing AMC shares for offshore DeFi trading. This is going to be a huge fight I would guess, regardless of which model the SEC decides to allow for.
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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