With the GENIUS Act (stablecoins) now signed into law, and the CLARITY Act (market structure) having passed the House and entering active discussion in the Senate, the U.S. federal government’s embrace of digital asset policy appears to have embarked on what may, in time, be remembered as its most significant step forward. In the past few weeks, SEC Chair Paul Atkins unveiled “Project Crypto,” a sweeping Commission-wide initiative to re-engineer the federal securities framework and enable a blockchain-embracing financial system. The announcement came the same week as the President’s digital asset working group released its own 166-page legislative and regulatory roadmap. While both efforts remain in their formative stages, they signal a potentially historic shift: a coordinated move away from legacy intermediated finance toward a more open, programmable, blockchain-embracing financial structure. Detailed breakdowns on these major policy proposals, what they mean for businesses going forward and a few other updates on crypto-law topics are discussed below. Also, the Polsinelli Blockchain+ team is proud to be a sponsor, speaker and participant at the Heartland Digital Asset Exchange in Kansas City on September 9, 2025. We’re excited to help bring digital innovation and the blockchain revolution to the American heartland. Please join us—and let your Kansas City friends and colleagues know. SEC Chair Announces “Project Crypto” in Speech: July 31, 2025 Background: In a recent speech SEC Chair Paul Atkins, announced that the SEC would be launching an effort titled “Project Crypto” which he described as “a Commission-wide initiative to modernize securities rules and regulations to enable America’s financial markets to move on-chain.” The major Project Crypto initiatives include: Efforts to onshore crypto through a regulatory framework for the distribution of crypto assets in the U.S.; Creation of a framework for tokenized stocks, bonds, partnership interests and other securities; Modernization of custody rules for SEC registered intermediaries; Allowing broker-dealers with alternative trading systems to offer trading of non-security assets alongside securities, and to provide additional services like staking and lending (potentially dubbed “Reg Super-App”); Integration of decentralized finance (DeFi) and other onchain software systems into U.S. securities markets; and Creation of an “innovation exemption” regime to allow projects to go to market without being required to comply with “incompatible or burdensome prescriptive regulatory requirements,” so long as they adhere to certain principles-based conditions “designed to achieve the core policy aims of the federal securities laws.” Analysis: It would be hard to overstate how groundbreaking this development could be. Not since the 1960s “paperwork crisis” and the clearing and settlement reforms that followed has the SEC proposed such sweeping structural changes. It’s notable that the statement begins by stating the “SEC must holistically consider the potential benefits and risks of moving our markets from an off-chain environment to an on-chain one” (emphasis added), which suggests that none of the six goals are set in stone. Still, even partial modernization of the financial system using blockchain technology would represent a monumental shift—one that could reduce reliance on traditional intermediaries and reshape longstanding market structures. That said, while most financial institutions are exploring or piloting blockchain systems internally, widespread adoption in core market infrastructure has yet to materialize and will take time. Regulatory clarity will undoubtedly help accelerate progress, but it is likely just one piece of a broader puzzle that includes operational, technological and cultural hurdles. OpenSea “Insider Trading” Conviction Overturned on Appeal: July 31, 2025 Background: The former employee (Nate Chastain) of NFT marketplace OpenSea had his conviction overturned on appeal in what was dubbed at the time the “first ever ‘Digital Asset Insider Trading’ Scheme.” The Second Circuit ruled that the district court improperly instructed the jury that Mr. Chastain could be convicted if his actions were unethical alone, even if his employer did not treat the information he traded on as confidential and it did not represent a property interest of his employer. “[W]e cannot say that the jury would have reached the same verdict if it had been properly instructed that fraud requires appropriation of a property interest rather than unprofessional business conduct.” Analysis: This early conviction was seemingly more about “sending a message” in what was seen as a lawless area of NFT platforms than about actual harm to others, so it is not surprising to see it overturned. What Mr. Chastain did was widely seen as unethical at the time and he lost his job (and likely millions of dollars in equity as an early employee in the unicorn that OpenSea would become) because of those actions. But at the end of the day, this was a guy in his 20’s buying NFTs, featuring them on an NFT marketplace and then selling them at a higher price based on increased demand that his featuring decisions created. This behavior is not something many would view worthy of jail time, particularly compared to far worse actors who caused real harm. Hopefully this will be the end of the matter, though the DOJ could choose to retry the case. The President’s Working Group on Digital Assets Releases Initial Report: July 30, 2025 Background: When President Trump took office, one of his initial actions was releasing an Executive Order titled Strengthening American Leadership in Digital Financial Technology. That Executive Order established the President’s Working Group on Digital Asset Markets (“Working Group”) which was directed to submit a report recommending regulatory and legislative proposals that advance the policies set forth in the Order within 180 days. The Working Group’s 166 page report was released last week, and is available here along with a fact sheet summary here. Analysis: All areas of the Executive branch appear to be marching in unison to position the U.S. as the crypto capital of the world. The Polsinelli Blockchain+ team intends to publish a more detailed breakdown of the Working Group report based on areas of expertise, but some initial highlights are as follows: A preference for building on the CLARITY Act rather than the Senate Banking Committee’s discussion draft; A substantive discussion (pages 104–112) on the challenges and policy options for applying BSA-style reporting obligations to DeFi protocols; and Recognition of ongoing tax reporting issues, with a directive for the IRS to develop clearer, more tailored guidance to help taxpayers understand and track digital asset tax obligations. The report is comprehensive and appears to be written by individuals with a strong understanding of the underlying technology. It includes a helpful chart mapping out which policy items are being directed to federal agencies and which will require Congressional action.   The Senate Banking Committee Releases Market Structure Discussion Draft: July 22, 2025 Background: The Senate Banking Committee has now released a discussion draft of its proposed market structure legislation, following the overwhelming 294-134  House vote passing the House’s digital asset market structure bill, the CLARITY Act. At just 35 pages, the Senate’s Discussion Draft is far shorter than the 536 page CLARITY Act, but it also only addresses SEC-related topics while the Senate Agriculture Committee is expected to release a separate discussion focused on CFTC-related topics soon. The Banking Committee also released a set of 35 questions for industry input as they continue to evaluate how to regulate digital assets. Analysis: Prior to the CLARITY Act vote and the President’s Working Group report, most believed the Senate would use that bill as a starting point and then  prepare their own legislation on market structure issues. It is unclear whether the unexpectedly wide bipartisan support for the CLARITY ACT changed that plan. It now appears that the Senate will have two separate bills, one through Senate Banking and one through Senate Agriculture, which will be combined on the Senate floor for a final vote. The expectation is that the Senate Agriculture bill addressing the CFTC elements of market structure will be far longer and closer aligned with the CLARITY Act, while the discussion draft from Senate Banking indicates potentially major changes from CLARITY on SEC-related provisions. Notably it replaces the control test in the CLARITY Act with an “ancillary asset” framework under which as long as certain disclosures are made certain types of assets may be sold as part of an investment contract without the asset itself being considered a security. Even with an expedited timeline, there is still a lot to work to be done for critical market structure legislation to work its way through the system. Briefly Noted: Digital Chamber Submits Final SEC Crypto Task Force Comment Letters: The Digital Chamber recently completed its project responding to the SEC’s Crypto Task Force’s public request for information. The Chamber coordinated and submitted a series of industry comment letters addressing key regulatory issues raised by the SEC. The Polsinelli Blockchain+ group was actively involved in several of these responses, including serving as lead drafters on one of the submissions. We recognize Annemarie Tierney of the Digital Chamber, along with the Chamber’s staff and the many industry-leading outside counsel and in-house practitioners, for their leadership on this extraordinary project and the impressive results it produced. Viewed together, the letters offer a detailed overview of the legal and structural challenges facing the digital asset space—along with a range of practical solutions. The Chamber is expected to package these responses into a broader public policy push aimed at shaping forthcoming SEC guidance and rulemaking. Traditional Finance Integration of Crypto: This piece in American Banker from some of the Franklin Templeton team warns that “legacy institutions that fail to embrace [blockchain-driven innovation] risk losing out on immense opportunities for their customers” feels particularly apt in light of the recent statements from the SEC Chair. While it’s still early, this is a good time for professionals in traditional finance to learn how crypto functions even if only to stay ahead of where the trend is heading. SEC Greenlights In-Kind Redemptions: The SEC has approved in-kind redemptions for crypto ETFs, meaning authorized participants can redeem ETF shares by receiving the underlying crypto assets rather than cash. This is standard practice in many traditional ETFs (such as those for bonds or equities) and is considered tax- and cost-efficient. For crypto ETFs, it reduces the need to liquidate assets on secondary markets and helps institutions retain direct custody of the underlying tokens. Samurai Wallet Developers Plead Guilty: Samurai Wallet developers Keonne Rodriguez and William Hill pled guilty to unlicensed money transmission conspiracy charges, in exchange for dismissing  the money laundering conspiracy charges. They entered their plea just a day before the jury deliberations began in the Tornado Cash case, with both sides seemingly recognizing the outcome of that case would impact this related but separate case. Bored Ape Trademark Appeal Finalized: Yuga Labs won on a vast majority of the appeals in its case against Ryder Ripps and others for trademark law and related violations, but the case is heading back to the District Court for determination on likelihood of confusion. Crypto Policy Resource: The Crypto Policy Under Trump: H1 2025 Report put out by Galaxy Research is a great resource for its  collection of legislative and administrative primary sources, organized by topic and agency Tornado Trial Witness Under Scrutiny: This research from blockchain analysts has revealed that the government’s first witness in the Tornado Cash case—presented as a scam victim—never actually had their stolen funds mixed through the Tornado protocol. Instead, the witness appears to have relied on claims from a so-called “recovery firm,” which is itself reportedly under investigation, to link Tornado Cash to the theft. Despite this, the court permitted the witness to testify, raising serious questions about evidentiary standards and the role of hearsay in a high-profile crypto trial. This issue is likely to receive continued scrutiny in the weeks ahead, and we intend to cover it in more depth in our next update where we cover the verdict in this case (issued prior to publication but subsequent to finalization of this update). SEC Statement on Liquid Staking: As this Bi-Weekly was being finalized, the SEC released a statement, providing guidance that in the Commissions view, the creation and redemption of certain forms of liquid staking tokens falls outside the scope of U.S. securities laws. We will provide a full update on the guidance and its implications in our next Bi-Weekly update. Conclusion: Together, Project Crypto, the Senate’s legislative proposals, the Second Circuit’s reversal of the OpenSea “insider trading” conviction and the release of the President’s Working Group report signal a synchronized push across all three branches of government to move past ad hoc enforcement and toward coherent policy for digital assets. While regulatory change will not happen overnight, the tone and coordination suggest that U.S. regulators increasingly see blockchain technology not as a threat, but as a foundation for future market infrastructure. As these developments continue to unfold, we expect both rapid innovation and complex legal debates over how best to balance market integrity, investor protection and technological progress. If you have any questions about how the above developments affect your blockchain plans or any other questions regarding the legalities around various aspects of this rapidly developing industry, contact any member of the Polsinelli Blockchain+ team to set up a time to talk and see how we can be of assistance. Also, please subscribe to the BitBlog for alerts when new stories or updates are posted by our attorneys.

The most important development of the last two weeks is likely the release of a revised bipartisan digital asset market structure bill in Congress, which now gives real momentum to the possibility of comprehensive legislation. At the same time, the SEC is continuing to reposition its posture, pulling back from aggressive litigation, acknowledging areas outside its jurisdiction such as staking, and signaling a more measured approach as we await the first report from its new Crypto Task Force. Meanwhile, the courts continue to shape the legal boundaries of decentralized finance, as seen in the closely watched ruling overturning fraud charges in the Mango Markets case. These developments and a few other brief notes are discussed below. Bipartisan Market Structure (“CLARITY Act”) Bill Text Released: May 29, 2025 Background: After releasing draft language of an unnamed market structure bill a few weeks ago, a revised and now titled version, the CLARITY Act, dropped last week. Sponsored by House Financial Services Committee Chair French Hill, the bill has five Republican and three Democratic co-sponsors, all members of either the House Financial Services or House Agriculture Committees. It is expected to be fast-tracked for markup in the Financial Services Committee, as early as June 10th, so this could move quickly through committees. Broader House timing remains unclear, however, as Congressional attention is divided among numerous competing priorities beyond digital asset regulation. Analysis: The sponsors appear to have seriously considered industry feedback, and several technology-specific issues flagged in the prior version were meaningfully addressed. For example, many pointed to the definition of “Decentralized Finance Trading Protocol,” previously criticized as overly broad, has been revised and now more closely tracks the drafters’ likely intent. There was a hearing earlier this week in the House Financial Services Committee (which we will cover in the next Bi-Weekly update), which was designed to discuss digital asset regulation more broadly but focused heavily on this bill as well.  SEC Releases Guidance That Certain Proof of Stake Staking Activities Do Not Implicate Securities Laws: May 29, 2025 Background: The SEC Division of Corporate Finance put out a “Statement on Certain Protocol Staking Activities” clarifying its view that certain proof-of-stake blockchain protocol “staking” activities are not securities transactions within the scope of the federal securities laws. This follows related guidance on Proof-of-Work mining which was put out in March. “Accordingly, it is the Division’s view that participants in Protocol Staking Activities do not need to register with the Commission transactions under the Securities Act or fall within one of the Securities Act’s exemptions from registration in connection with these Protocol Staking Activities.” Analysis: This likely clears the way for staking in ETH ETFs or other ETFs linked to proof-of-stake blockchain assets, which may be approved in the near future (although there are still tax and other securities law issues that could make this complicated). It is unclear how this might affect the prior Kraken consent order, as many of the staking services offered by Kraken now appear to be “Ancillary Services” under this guidance. It is great to see all this guidance coming out, but until the guidance is formalized into rulemaking or until there is action from Congress in this area, then the industry is left with few, if any, assurances those viewpoints will continue under different leadership. SEC Moves to Dismiss Binance Case with Prejudice: May 29, 2025 Background: The SEC has asked the Court to dismiss the agency’s case against the various Binance entities and its founder, Changpeng Zhao (“CZ”), with prejudice, which would bring an end to the cases brought under the prior administration against the biggest U.S. digital asset exchanges, which we have been covering on the BiBlog. This follows previously dismissing cases against Coinbase and Kraken and closing investigations into OpenSea, Circle, and others shortly after the change in administration and resignation of prior SEC Chair Gary Gensler. Analysis: As we noted in our 2024 year-end digital asset rundown, the cases against various exchanges were bet-the-company litigation for all the exchanges sued. If it was ruled that sales on the platforms of exceedingly common tokens like SOL were securities transactions, that would have made it difficult for most individuals to transact in digital assets in the United States, particularly those lacking experience interacting with decentralized finance. With these lawsuits behind the exchanges, all eyes turn to formal guidance and rulemaking from the SEC/CFTC and whether there will be comprehensive digital asset legislation out of Congress, which is currently being considered by both chambers. Conviction Overturned in Mango Markets Exploit: May 23, 2025 Background: District Court Judge Arun Subramanian has overturned the fraud convictions against Mango Markets exploiter Avraham (“Avi”) Eisenberg, ruling that venue was improper since there was no evidence that the routing engine for Avi’s trades were in New York. The more interesting ruling, though, was finding there was insufficient evidence of falsity to support a wire-fraud charge (see ruling starting at pg. 26). The Court ruled that because the user terms and conditions didn’t make intent to repay a condition upon borrowing, and because Avi didn’t make any false representations about the value of his assets (he just exploited an oracle into making those false representations for him), the government could not support a fraud conviction, ruling “[o]n a platform with no rules, instructions, or prohibitions about borrowing, the government needed more to show that Eisenberg made an implicit misrepresentation by allowing the algorithm to measure the actual value of his collateral.” Analysis: This case raises broader questions about what level of human interaction is needed for “wire fraud,” where the alleged fraud is primarily being perpetrated against an algorithm and not a person. There remains the issue that Avi sued Numeris, Ltd. before the Mango Markets trading activities, claiming it was fraud for others to artificially increase the price of tokens to borrow against knowingly inflated values, similar to what Avi did in his exploit. It seems disingenuous to claim “code is law” for his actions while he previously asked the government to save his funds when a protocol that he was using had a similar exploit. Avi is still going to jail on other charges to which he pled guilty. It will be interesting to see how the case law regarding the extent “code-is-law” holds up in the use of permissionless protocols. Briefly Noted: 401K and Bitcoin Reserve Updates: The Department of Labor has retracted guidance discouraging retirement managers from considering cryptocurrency as an investment option in 401(k) plans. This came as Whitehouse Crypto Czar David Sacks was at a major Bitcoin conference in Vegas where he talked about how the announced Bitcoin strategic reserve is progressing. Reputational Risk Ban Passes House Committee: The House Financial Services Committee advanced on a 33-19 bipartisan vote a bill that would prohibit federal banking agencies from considering “reputational risk” when supervising, examining, or regulating depository institutions. SEC Crypto Task Force Updates: The SEC is set to release its first Crypto Task Force Report in the upcoming months; meanwhile Commissioner Peirce delivered a great speech about the importance of the SEC setting clear rules of the road for the space (including noting where the SEC doesn’t have jurisdiction). Emmer and Torres Reintroduce Right to Code Law: Tom Emmer (R-MN) and Ritchie Torres (D-NY) have reintroduced legislation that would protect the developers of non-custodial blockchain software developers and providers from being classified as money transmitters. This would be huge in convincing developers to stay in the United States when developing blockchain-enabled technologies. CFTC U.S. Persons Guidance: The CFTC put out some helpful guidance on what they consider to be U.S. persons subject to CFTC jurisdiction in an internet age. This guidance provides that where the company’s high-level officers primarily direct, control, and coordinate the company’s activities is most important for determining whether the company is considered a domestic entity for CFTC jurisdictional purposes. SafeMoon CEO Found Guilty of Fraud: Braden Karony, the former CEO of SafeMoon, was convicted on three counts of fraud after he was ruled to have diverted millions of tokens, which he said were “locked,” and sold those tokens for personal gain. Investment Company Act Status of ETFs Questioned: The SEC Division of Investment Management, in a letter to a crypto ETF operator, stated that, in light of recent developments, it is unsure that the ETFs are investment companies that can register under the Investment Company Act of 1940. Generally, a company wouldn’t be an investment company if, among other things, less than 40% of its assets constituted investment securities. Registration statements, application requirements, and ongoing reporting requirements are different for investment companies and other issuers, and certain crypto ETFs (including Bitcoin ETFs) already register as non-investment companies. This calls into question whether the SEC might be exploring rule changes more tailored towards this type of entity.    Conclusion: These developments mark a potential turning point in the digital asset regulatory landscape. With Congress moving forward on bipartisan legislation like the CLARITY Act and federal agencies such as the SEC and CFTC issuing meaningful (if still preliminary) guidance, the pieces of a more coherent framework are starting to take shape. However, the regulatory environment remains fragmented and uncertain, especially absent formal rulemaking or statutory clarity. As agencies shift direction and courts weigh in on key enforcement matters, market participants should remain vigilant, engage with regulators, and prepare for a fast-evolving legal landscape where the line between code and law continues to be tested. The Polsinelli Blockchain+ team will continue monitoring these rapid developments and provide updates as the situation unfolds. If you have any questions about how the above developments affect your blockchain plans or any other questions regarding the legalities around various aspects of this rapidly developing industry, contact any member of the Polsinelli Blockchain+ team to set up a time to talk and see how we can be of assistance. Also, please subscribe to the BitBlog for alerts when new stories or updates are posted by our attorneys.

The Polsinelli Blockchain+ team attended Consensus last week in Toronto, where a key takeaway was the increasing engagement by major traditional financial players with the blockchain industry, both through integrating the technology into their products and services and through broader involvement with the ecosystem. Much of this activity seems tied to the growing perception that meaningful legislative and administrative progress is on the horizon, which would offer the regulatory clarity these institutions have been waiting for. Congress has been active over the past few weeks, with much of the focus on the Senate stablecoin bill, which recently cleared the cloture hurdle—a critical procedural step and arguably the closest Congress has come to enacting meaningful crypto legislation. The House also saw developments, including the release of a market structure proposal and the last-minute cancellation of a planned joint committee hearing due to concerns raised by some representatives about the President’s business ties to the digital asset space. In parallel, several administrative agencies issued updates on federally regulated banks’ permitted involvement in digital assets, and there were notable developments in ongoing litigation. These developments and a few other brief notes are discussed below. Senate “GENIUS” Stablecoin Bill Passes Cloture: May 19, 2025 Background: After weeks of political jockeying, the GENIUS Act received more than the 60 votes needed for cloture (with 16 Democrats voting in favor) and now proceeds to limited floor debate in the Senate. The Senate Banking Committee released a fact sheet outlining what the bill does and does not do with respect to stablecoin issuance and use in the United States. Senate Democrats also circulated their own summary highlighting what they saw as wins from negotiations between the bill’s committee passage and the recent vote. Analysis: Senator Warner (D-VA) issued a statement supporting the bill, saying: “Many senators, myself included, have very real concerns about the Trump family’s use of crypto technologies… But we cannot allow that corruption to blind us to the broader reality: blockchain technology is here to stay. If American lawmakers don’t shape it, others will – and not in ways that serve our interests or democratic values.” It is refreshing to see a senior member of Congress prioritize the importance of this technology and the need for the U.S. to take a leadership role, even while holding legitimate concerns about other aspects of the industry. As such, this bill marks a major milestone for digital asset regulation in America. Several amendments were added during the negotiation process. Notably, the bill prohibits stablecoin issuers from paying interest directly to holders, and from most public companies that are not otherwise in the banking business from issuing stablecoins without clearing certain additional requirements. Joint House Agriculture and Financial Services Committee Roundtable for Market Structure: May 6, 2025 Background: The day after the Market Structure 2.0 draft was released (discussed below), a joint House Agriculture and Financial Services Committee meeting was scheduled to occur. Witnesses included industry representatives and former CFTC Chair Rostin Behnam. However, the proceeding did not become an official “hearing” because unanimous consent was required, and Ranking Member Maxine Waters objected. Instead, it continued as a “roundtable” discussion with the witnesses who had traveled to D.C. to testify. Meanwhile, those opposing the hearing held their own separate “roundtable” down the hall, focused largely on concerns regarding President Trump’s family’s involvement in digital assets. Analysis: While it was disappointing that a full and balanced committee meeting did not take place, we can find some encouraging data in that members chose to walk out. One way to interpret the walkout is that opposition to crypto legislation is shifting from a partisan divide to a generational one. The average age of those who boycotted the hearing was 70.4, highlighting a potential age gap in attitudes toward the technology. Many of the opponents are at least framing their objections not as concerns about the technology itself, but as a way of expressing their discomfort with the President’s family’s involvement in space. It remains to be seen whether these concerns will stall broader legislation that would provide consumer protection regulation to the industry as a whole, including the President’s affiliated businesses, given that this same controversy already slowed, though did not appear to stop, the passage of the comparatively less controversial stablecoin bill discussed above. Market Structure 2.0 Initial Draft Released: May 5, 2025 Background: The currently unnamed bill that replaces FIT21 as the next attempt at comprehensive market structure regulation for digital assets was released last week. It largely follows the same format as FIT21 but includes important changes that are generally seen as improvements by the digital asset community. One major revision replaces the term “decentralized systems” with “mature blockchain systems,” shifting the threshold for when a blockchain is considered decentralized to whether it is—or could be—controlled by a single entity or affiliated group. Another key change creates a baseline that digital assets are commodities, but then reiterates that they are only commodities if they are not securities (which was already the case under current law). The draft also clarifies that digital assets themselves are not securities, but rather can be sold in securities transactions. Analysis: Gabe Shapiro, a thoughtful legal commentator and frequent critic of regulatory overreach in crypto, posted a detailed breakdown of the bill that is worth reviewing. Justin Slaughter, a former SEC and Hill staffer who often highlights the political dynamics behind crypto legislation, also shared a thread noting, among other things, that Japan passed a market structure bill before the FTX collapse—likely one reason why FTX Japan was among the few subsidiaries where customers didn’t lose funds. Given that the U.S. divides financial regulatory authority between the CFTC and SEC, it’s likely that any legislation will continue to reflect that split, which could lead to substantial compliance and legal costs for market participants, especially exchanges. Still, this draft appears well-intentioned and is a meaningful improvement over FIT21. Briefly Noted: DOJ Disclosure Issues in Samourai: According to recent filings in the criminal case against the Samourai Wallet privacy-preserving software creators, the DOJ failed to disclose evidence that  FinCEN representatives told DOJ staff that “under FinCEN’s guidance, the Samourai Wallet app would not qualify as a ‘Money Services Business’ requiring a FinCEN license.” Stocks On Chain: There were several updates related to on-chain stock trading. Commissioner Peirce gave a speech about allowing stocks to be issued, traded and settled on blockchains, and Compound founder’s project Superstate announced plans for bringing stocks on-chain and tradable in DeFi. Tuongvy Le and Austin Campbell released this awesome article (and Twitter threads giving summaries along with useful infographics) on how cryptographically secured addendum-only ledger technology can offer a fundamentally better way to own and trade stocks. Good timing with the SEC roundtable on this issue, the same week as well, with the new SEC Chair delivering opening remarks. SEC FAQ Guidance: The SEC released a set of frequently asked questions (“FAQs”) relating to the application of certain broker-dealer rules to crypto activities. While the SEC said these “simply reiterate what our rules already say or do not say,” many broker-dealers were waiting for this type of guidance to go through with various crypto brokering activities. SEC v. Ripple Deal Rejected: Judge Torres denied the parties’ joint request to rule in favor of a proposed settlement, which would finally end the SEC v. Ripple matter. It appears that the judge is just looking for the parties to do more of the required legwork to obtain the relief requested, but the ongoing delays are unlikely to please either side. Bill to Ban Federal Officials in Crypto: Various Democrats have proposed a bill that would ban the creation and promotion of cryptocurrencies by the President, Vice President, Congress, and Senate-confirmed Cabinet members.   Yuga Sells Punks IP: It appears like the Infinite Node Foundation (NODE) has acquired the CryptoPunks IP, which was purchased by Yuga Labs a few years ago from the creators, Matt Hall and John Watkinson (who are the highest selling living artists due to $3.07B in CryptoPunk sales volume). Handing off this historic intellectual property to a full-time, non-profit steward makes sense. CFTC Commissioner to Lead Blockchain Association: Commissioner Mersinger of the CFTC will be taking the role of Blockchain Association CEO after she steps down from her role at the CFTC at the end of this month. There were still three years left on her term, so her leaving to join one of the leading industry groups in the space is interesting timing, with market structure bills expected to get heavy congressional attention in the upcoming months. Office of Comptroller Update: OCC-regulated banks are now permitted to provide custody services for customers as well as other services, such as record keeping and buying/selling those assets at the direction of the customer. This is long overdue. Combined with promising statements for the Treasury Secretary,  we are starting to see a path for traditional financial institutions to interface with DeFi on behalf of clients. Quoted in GlobeSt.com “Blockchain in Real Estate Moves Beyond Hype, But True Transformation Remains Elusive”: BitBlog editor Stephen Rutenberg was recently quoted in GlobeSt.com on the evolving use of blockchain in real estate. The article explores how the technology is gradually addressing longstanding inefficiencies while raising deeper questions about automation, fairness, and legal design. Conclusion: The last two weeks have offered a compelling snapshot of how digital asset regulation is evolving from theoretical frameworks to real-world implementation, with significant activity across all three branches of government. From the Senate’s forward momentum on the GENIUS stablecoin bill, to the House’s increasingly detailed market structure proposals, to administrative updates from the SEC, DOJ, OCC, and others, the regulatory landscape is rapidly taking shape. Meanwhile, traditional financial institutions are moving beyond the exploratory phase and actively engaging with blockchain technologies, underscoring the urgency for regulatory clarity. While political entanglements, especially those involving high-profile figures, continue to create friction, the overall trend suggests a maturing ecosystem where bipartisan and intergenerational engagement will be essential. The coming months are likely to be pivotal, and the Polsinelli Blockchain+ team will continue to monitor and analyze developments to help clients navigate this dynamic legal and regulatory environment. If you have any questions about how the above developments affect your blockchain plans or any other questions regarding the legalities around various aspects of this rapidly developing industry, contact any member of the Polsinelli Blockchain+ team to set up a time to talk and see how we can be of assistance. Also, please subscribe to the BitBlog for alerts when new stories or updates are posted by our attorneys.

As the Polsinelli Blockchain+ team gears up for Consensus 2025 next week in Toronto — where Stephen Rutenberg, Daniel McAvoy and Jonathan Schmalfeld will be attending — the regulatory momentum in Washington appears to be accelerating, particularly in Congress, where there is active movement on both stablecoin and market structure legislation. These developments, along with a Supreme Court petition that could have major implications for financial privacy, are among the key updates summarized below. Senate Moves Forward with “GENIUS” Stablecoin Bill: May 2, 2025 Background: A revised version of the Senate’s bipartisan stablecoin bill — the “GENIUS Act” — has been introduced, with a floor vote expected before the Memorial Day recess. Key changes include a prohibition on stablecoin issuers offering “a payment of yield or interest” on their issued payment stablecoins, along with enhanced illicit finance provisions. The bill also bars the sale of stablecoins in the U.S. by non-U.S. entities and allows for issuance under state regimes, provided the regime “meets or exceeds” federal standards, as determined by a three-member review panel consisting of the Treasury Secretary, Federal Reserve Chair and FDIC Chair. Changes aimed at addressing concerns about DeFi were also included, though they appeared only in an unpublished draft. Possibly in response to those revisions or other outstanding concerns, a group of nine Democrats — generally considered supportive of crypto — sent a letter indicating they could not support the bill in its current form. Analysis: The GENIUS Act represents the closest Congress has come to passing meaningful legislation on crypto in the U.S. However, challenges remain. One potential obstacle is the push by some lawmakers to link the stablecoin bill to broader market structure legislation, which is advancing in Congress but is not as far along. Industry advocates have pushed back on this proposed combination, warning that tying the two together could stall momentum — and, given the limited window for congressional action this session, could result in no bill being passed at all. Another hurdle is the apparent erosion of support among key Democrats. With 60 votes needed in the Senate to overcome procedural hurdles, bipartisan support is essential. A delay — or worse, the failure — of even this relatively “vanilla” legislation risks letting political dysfunction once again derail progress in the digital asset space. Coinbase Files Amicus to SCOTUS Over IRS John Doe Subpoenas: April 30, 2025 Background: Coinbase has filed an amicus brief in support of a petition challenging the IRS’s use of John Doe summonses — which compel platforms to disclose user data without individualized suspicion. The case was brought by a Coinbase customer over the IRS seeking to compel Coinbase to turn over a broad swath of “John Doe” customer information without any probable cause that any particular user broke the law. This follows a similar brief filed earlier by the DeFi Education Fund. If the Court agrees to hear the case, it could have broad implications for financial privacy — not just in digital assets — and may lead the Court to revisit the scope of the Third-Party Doctrine. Analysis: In the digital age, sharing financial or location data with a third party is often not voluntary, but required for basic participation in modern life. The Third-Party Doctrine, a legal rule that allows the government to access data you’ve shared with third parties without a warrant, was developed in an era before modern financial technology and many argue it no longer fits how people transact today. With a more privacy-sensitive court, this case presents a real opportunity to revisit the boundaries of government surveillance over financial data. Briefly Noted: Richard Heart SEC Matter Over: The SEC has announced it will not be amending its complaint against Hex founder, Richard Heart, after the case was previously dismissed on jurisdictional grounds. Regardless of views on project, there should be broad agreement that giving a podcast interview in the U.S. and using open-source code developed here are not sufficient grounds for asserting global regulatory jurisdiction. Federal Reserve Retracts Supervisory Guidance: The Federal Reserve Board has retracted guidance that required banks to obtain their approval before implementing any activity that involved crypto, including basic or low-risk use cases. If stablecoin legislation passes, banks are expected to become more active in digital asset custody, providing safer options for customers, which should be in everyone’s best interest. FTC Goes After “Crypto Trading” Venture: The FTC is going after a series of multi-level-marketing businesses that sold “crypto-trading” courses. Fraud of this type has always been more appropriate within the FTC’s domain, rather than what we’ve seen over the last few years with the SEC attempting to broaden its jurisdiction by classifying crypto assets as securities simply to bring them under the purview of the SEC’s anti-fraud powers. Stablecoin Updates: A number of relatively minor stablecoin-related developments surfaced last week in addition to the Senate updates discussed above, including SoFi exploring its own issuance, Tether posting $1 billion in Q1 profits (with a U.S. expansion in the works), an expected vote in the Senate on the GENIUS Act before Memorial Day, and Visa working with Bridge for a stablecoin-backed payment card. Although each of these updates may seem incremental on their own, collectively they underscore the central role stablecoins now play in the digital asset ecosystem and the growing attention they’re receiving from both industry and regulators. Treasury Presentation on Digital Money: Buried on page 98 of the Department of Treasury’s update to the Treasury Borrowing Advisory Committee was a surprisingly thoughtful primer on stablecoins and their potential impact on traditional banking. The timing is notable, as this update comes on the heels of Tornado Cash securing at least a partial victory with a federal court rejecting Treasury’s attempt to dismiss the Tornado Cash lawsuit on the grounds that the case was moot following revisions to the sanctions made after the lawsuit was filed. On this topic it’s worth listening to this Miachel Mosier chat about how Tornado wasn’t a complete victory. Solana Policy SEC Submission: One of the first big published projects from the Solana Policy Institute is its recent submission to the SEC, “Proposing the Open Platform for Equity Networks”  which is worth a read. Also recommended is this industry submission to the SEC regarding staking. SEC Chair’s First Public Remarks on Crypto: In his first public comments since taking over, Chair Atkins emphasized the need for “practical, durable” rules and a more constructive relationship with the digital asset industry. While delivered at a roundtable hosted by the SEC’s Crypto Task Force, the remarks mark a notable shift in tone from the agency’s prior enforcement-first approach. Galaxy Digital Moves for Public Listing: Galaxy Digital has confirmed plans to go public on Nasdaq, marking a major step for the firm, which originally filed an S-1 back in 2022. The move signals renewed confidence in both the regulatory environment for digital assets and broader public market conditions. Digital Chamber Initial SEC Submission in Response to Request for Information: As previously discussed, the SEC’s Crypto Task Force has requested industry feedback on a wide range of questions related to the regulation of digital assets. The Digital Chamber of Commerce is coordinating a major response effort in partnership with leading law firms to provide detailed answers to each question. Polsinelli Blockchain+ attorneys are involved in several of these responses. The first response, led by Sidley Austin, was published last week. Updated FIT21 Market Structure Bill Released: House Financial Services and Agriculture Committees have published an updated discussion draft of the crypto market structure bill, previously known as the Financial Innovation and Technology for the 21st Century Act (FIT21). We will have a larger update on the proposed legislation and a failed attempt at a joint hearing on digital assets in the House in our next Bi-Weekly update.   Law360 Publishes Polsinelli Guidance on Crypto Customer Risk: Jason Noto, a member of the Polsinelli Blockchain+ team, recently authored an article for Law360 titled “Risk Control Tips For Banks With Cryptocurrency Customers,” offering practical guidance for financial institutions navigating crypto-related compliance and risk management challenges. Conclusion: The last two weeks suggest that while momentum is building toward a more structured regulatory environment for digital assets, there’s still a real risk that this historic opportunity could be squandered. We’ll be watching closely as these developments unfold and continuing to engage where it matters. We look forward to seeing many of you at Consensus. If you have any questions about how the above developments affect your blockchain plans or any other questions regarding the legalities around various aspects of this rapidly developing industry, contact any member of the Polsinelli Blockchain+ team to set up a time to talk and see how we can be of assistance. Also, please subscribe to the BitBlog for alerts when new stories or updates are posted by our attorneys.

The Polsinelli Blockchain+ team took a break from the usual Bi-Weekly updates for the Thanksgiving holiday, but the Web3 legal developments did not. There was a significant ruling out of the 5th Circuit, which has major implications on the legal treatment of immutable software code and agency actions after Loper Bright generally. There was also an action brought against the SEC by eighteen states regarding the agency’s handling of digital asset matters, a federal district court ruling overturning the SEC’s recently enacted Dealer Rule, and a host of other legal developments that are sure to have ramifications across the industry. These developments and a few other brief notes are discussed below. 18 States File Lawsuit Against SEC Over Handling of Crypto: November 15, 2024 Background: Eighteen states have filed a lawsuit against the SEC and its Commissioners, accusing them of unconstitutional overreach and unfair persecution of the digital asset industry. The lawsuit was jointly filed in Kentucky federal court by Kentucky, Nebraska, Tennessee, West Virginia, Iowa, Texas, Mississippi, Montana, Arkansas, Ohio, Kansas, Missouri, Indiana, Utah, Louisiana, South Carolina, Oklahoma, and Florida. The lawsuit alleges that the agency’s actions focusing on U.S. crypto companies “defy basic principles of federalism and separation of powers.” Analysis: The DeFi Education Fund assisted with this effort, which is clear from the pleadings. With Chair Gensler’s impending resignation, to be soon replaced with a more digital asset-friendly head of the SEC, this may just be litigation theater. On the other hand, if any case is going to make it to the Supreme Court on an expedited basis regarding the appropriateness of applying Howey to digital assets, it would be a matter brought by a large number of states against the SEC to be heard by a current group of Supreme Court Justices that have shown their predilections to limiting perceived agency overreach. Judge Rules Lido DAO Might Be a General Partnership: November 18, 2024 Background: The Court in Samuels v. Lido DAO has rejected motions to dismiss filed by various investors, holding that Lido DAO is adequately alleged to be a general partnership under California law and that the investors are adequately alleged as general partners, which would make them jointly and severally liable for the actions of the DAO. This means the named parties will need to defend themselves in court or risk being held jointly/severally liable if the challenged DAO actions are deemed illegal. Analysis: The reason for arguments for either corporate wrappers or BORGs is to avoid situations like this where participation in a DAO makes an individual or entity on the hook for everything it does. It seems like judges are easily convinced that the reason for working through DAOs is avoiding liability, as opposed to why many choose the DAO structure to mitigate other risks such as opaque governance and centralized risks. As it stands, it seems like DAOs will need to avoid the U.S. entirely or implement corporate wrappers of some kind to have a target for courts to point a finger to in lawsuits. Texas Court Strikes Down SEC Dealer Rules: November 21, 2024 Background: A Northern District of Texas district court has ruled in favor of the Blockchain Association’s challenge to the SEC’s promulgated the “Dealer Rule,” which expanded the definition of “Dealer” under the SEC’s interpretation of the Securities Exchange Act. The Court’s ruling states, “The SEC exceeded its statutory authority by enacting such a broad definition of dealer untethered from the text, history, and structure of the Exchange Act.” It also incorporated by reference its analysis in the related case, Nat’l Ass’n of Priv. Fund Managers v. SEC, No. 4:24-cv-00250 (N.D. Tex), where the Court noted, “[under the Dealer Rule], many of the world’s largest, most prominent market participants, including the Federal Reserve, may have been operating unlawfully as unregistered securities ‘dealers’ for 90 years without anyone—including the Commission—having previously noticed.” Analysis: The Court didn’t even have to reach the arguments regarding whether the rule was arbitrary and capricious or exceeded the SEC’s authority under Loper Bright to overturn the Dealer Rule. This means that SEC rules enacted under Chair Gensler and challenged in court are now 1-and-5 in surviving those legal challenges. That is more rules overturned by courts than the previous 3 SEC Chairs combined. Chair Gensler has announced his planned resignation but elected to stay on as Chair until January 20th, indicating Chair Gensler believes there are additional matters he wants to finalize that may not get done without him there to break a 2-2 tie, so still more to come. Consumer Financial Protection Bureau Issues Digital Wallet Rule: November 21, 2024 Background: The Consumer Financial Protection Bureau (“CFPB”) finalized its rules to supervise digital funds transfer and payment wallet apps. In announcing the final rule, the CFPB stated it “made several significant changes from its initial proposal. The transaction threshold determining which companies require supervision is now substantially higher, at 50 million annual transactions. Given the evolving market for digital currencies, the CFPB also limited the rule's scope to count only transactions conducted in U.S. dollars.” Analysis: While Coinbase, the DeFi Education Fund, the Blockchain Association, and others all sent staunch opposition to the proposed rule encompassing self-custody digital asset wallets, most expected the agency formed by Elizabeth Warren would still go through with the rules as written. So the CFPB expressly limiting the rule to wallets for U.S. dollars was a pleasant surprise. Either way, this saves a ton of industry time and effort in not having to file lawsuits to challenge the rule if it had been enacted as previously written. Fifth Circuit Overturns OFAC Sanctions of Tornado Cash Smart Contracts: November 26, 2024 Background: The Treasury Department’s Office of Foreign Assets Control (“OFAC”) sanctions of the open-source digital asset software protocol known as “Tornado Cash,” which forbid any dealings with the Tornado Cash smart contracts, were overturned by the 5th Circuit. This case was brought by various users of Tornado Cash, claiming the open-source, self-executing software is not sanctionable under the International Emergency Economic Powers Act (as opposed to the rogue persons and entities who abuse that software, who are sanctionable). The Court agreed, holding OFAC only had the power to sanction the “property” of a foreign national or entity, and since Tornado Cash’s immutable smart contracts are not the “property,” they are outside of OFAC's statutory powers to sanction. Analysis: The Court’s use of diagrams and plain speak to explain how Tornado Cash works was (other than some minor technical misspeaks on pg. 5) surprisingly well done. Hats off to the lawyers that had to effectively teach 76, 65, and 59-year-old judges the fairly complex technical aspects of the mixing platform enough for those judges to recite it back (mostly) accurately and reach the right result. This case may get attention outside of crypto law, as it turned primarily on Loper Bright grounds, which redefined the level of deference (previously known as Chevron deference) given to federal agencies in interpreting statutory text. Now we await the outcome of the various Tornado Cash developer cases. There is also the case pending in the 11th Circuit, which had oral arguments heard recently and is available here. Briefly Noted: SEC Chair Gensler Announces Planned Resignation: This was likely going to happen regardless of who won the Presidential election, but Gary Gensler announced he will resign from the SEC effective on inauguration day. With Commissioner Lizárraga also announcing his resignation, that will leave only Commissioners Peirce (pro-crypto), Uyeda (pro-crypto), and Crenshaw (anti-crypto, but on an expired term) left until new Commissioners are appointed by the President and approved by Congress. Kraken Request for Early Appeal Denied: The judge in SEC v. Payward Ventures (aka Kraken) has denied the exchange’s request for an interlocutory appeal of the dismissal denial ruling. So the case marches on. Frozen Staking Rewards Still Income: This was released the first week of November, but that was a busy week in crypto legal updates, so our update neglected to include this letter memo where the IRS clarified that their position is staking rewards are taxable the year earned, even if inaccessible due to being frozen on a platform or otherwise locked in a protocol. Various Articles Published on BSA and Sanction Authorities: The Blockchain Association published this deep dive into the history of the Bank Secrecy Act and argues that the Bank Secrecy Act (“BSA”) is neither fit nor constitutional when applied to digital asset transactions. There was also this recent publication worth reading on the attempted criminalization of the development of open-source cryptocurrency mixing software. Report on Dollar Dominance Through Stablecoins: Another publication worth reading is this work from the Digital Chamber on how stablecoins are supporting the continuation of U.S. Dollar dominance. Also, be sure to check out this letter from the Digital Chamber calling for the end of the policy forbidding crypto regulators from owning even a de minimis amount of crypto. Forbidding regulators from using the products/services they regulate is simply not sound policy. Southern District of New York Toning Down Crypto Cases: The co-chief of the SDNY U.S. Attorney’s Office securities and commodities task force said not to expect more crypto cases from the office any time soon with Jay Clayton expected to take over the office. Conclusion: In a dynamic and rapidly evolving legal landscape, the past few weeks have highlighted the interplay between innovation, regulation, and judicial oversight within the Web3 ecosystem. From challenges to agency overreach, such as the 18-state lawsuit against the SEC and the Fifth Circuit’s groundbreaking Tornado Cash decision, to rulings that reshape industry practices like the Lido DAO partnership liability and the Dealer Rule’s invalidation, the implications are profound. These developments emphasize the critical need for clarity and balance in how laws and regulations intersect with emerging technologies. While the legal battles are far from over, the outcomes will undoubtedly shape the future of digital assets, decentralized platforms, and blockchain innovation. As always, staying informed and engaged is key as we navigate this complex yet promising frontier. If you have any questions about how the above developments affect your blockchain plans or any other questions regarding the legalities around various aspects of this rapidly developing industry, contact any member of the Polsinelli Blockchain+ team to set up a time to talk and see how we can be of assistance. Also, please subscribe to the BitBlog for alerts when new stories or updates are posted by our attorneys.

As Congress is on its August recess, litigation over digital asset issues continued with major developments in the Yuga Labs trademark case and the SEC cases against Kraken and Consensys. While these matters all involve factual underpinnings specific to blockchain technology, the resulting rulings will have implications far surpassing the specific facts of those cases, including how courts rule on certain trademark and venue disputes going forward. With the matchup for the November 2024 U.S. Presidential election now set, campaign donations from blockchain and cryptocurrency companies are significant, with estimates suggesting that nearly 50% of all corporate campaign donations come from this sector. This election is shaping up to be one of the most interesting and exciting in history, with another ~70 days to go. The blockchain community is benefiting from increased support across both parties, a marked shift from just a year ago when such backing seemed unlikely. These developments and a few other brief notes are discussed below. Oral Arguments Conclude in NFT Trademark Ruling Appeal: August 15, 2024 Background: Oral arguments occurred in the Yuga Labs v. Rider Ripps appeal (starts around the 39-minute mark). Yuga was awarded $1,575,362.92 in damages at the district court level and another roughly $7 million in fees and costs following a Special Master’s assessment. A prior appeal of the same case over Rogers test issues was decided in Yuga’s favor back in October of 2023. Much of the oral arguments focused on the effects of the Jack Daniel's Properties v. VIP Products decision on the case, and buyers of NFTs which the judges questioned as having “a different understanding and are coming at this from a different place” from consumers of more ordinary goods, like sneakers. Analysis: This case highlights the need to have counsel who understands the technology at issue in litigation over these matters, as judges questioned “[w]hat are we even talking about? What is an NFT?” during oral arguments. As this is a trademark case, much of the underlying decision rests on what a “reasonable consumer” of NFTs would know. The explanation as to how an NFT can have verifiable provenance while still also being potentially confusing as to source or origin to consumers requires a level of combined practical and technical understanding of NFTs which very few attorneys possess. Consensys Continues Fight with SEC Over Venue for Securities Law Battle: August 16, 2024 Background: Back in April, Consensys Software Inc. (developer and provider of leading self-custody digital wallet MetaMask) sued the SEC for declaratory and injunctive relief in the Northern District of Texas. Complaint is available here. The SEC, in part, mooted that lawsuit through a letter stating the staff was not recommending charges be brought related to the company’s role in “Ethereum 2.0” (i.e., the protocol switch from proof of work to proof of stake). The SEC also brought a separate lawsuit against Consensys in the Eastern District of New York, alleging the digital wallet’s staking and swapping functionalities violate federal securities laws. The SEC moved to dismiss the Texas action, and Consensys responded in opposition. Analysis: Consensys argues that under applicable Fifth Circuit precedent, the district court that first receives the lawsuit over the controversy at issue should retain jurisdiction (i.e., the “first to file” rule). Generally, federal courts will often side with the government on venue issues and allow the government’s proposed venue to adjudicate matters when another valid venue is offered. But this is the same district that just struck down the Federal Trade Commission’s noncompete ban and gave nationwide application to the ruling, so it is possible due to the expedited briefing schedule in place that this Texas federal court will want to retain jurisdiction if it feels like the SEC is trying to run from the court’s authority. Motion To Dismiss Fully Briefed in Private Class Action Against Lido DAO: August 22, 2024 Background: Back in December of 2023, a putative class action was filed against Lido DAO, amongst others, regarding the sale of LDO tokens and alleging such sales were unregistered securities transactions. In response, Lido DAO’s token holders voted to create a legal entity, “Dolphin CL, LLC,” for the purpose of hiring counsel and representing Lido DAO’s interests in the litigation. That entity filed a Motion to Dismiss, which was opposed by Plaintiffs, and has been fully briefed now with the latest Reply in Support. Analysis: The arguments raised by Dolphin’s Motion to Dismiss are sound, in that the plaintiffs allege the DAO is a partnership with joint/several liability for members without meeting certain required elements (namely, the alleged partners having the ability to approve or disapprove additional parties from joining the partnership). However, the interesting part of this case is not the partnership law arguments, but rather how Lido DAO went about forming their defense. Creating a legal entity for purpose of defense rather than trying to wrap a DAO beforehand is a seemingly solid strategy in avoiding what the Dolphin Motion refers to as a “Hobson’s choice” of having a default judgment levied against them or supporting the claim that the software at issue is in fact a legal entity capable of being sued. Certainly, a case worth following. Kraken Loses Attempt at Early Dismissal of SEC Lawsuit: August 22, 2024 Background: During oral arguments in the SEC v. Payward, Inc. et al. (“Kraken”) case’s hearing on Kraken’s Motion to Dismiss, the Court forecasted its intent to deny Kraken’s motion. So it comes as no surprise that the written Order released on August 23rd did exactly that, allowing the SEC’s lawsuit against the digital asset exchange to move forward into further litigation. The Court rejected the SEC’s “misstatements” about the tokens at issue themselves being securities, stating “[t]o the extent it tries to argue that the individual tokens that form the basis of transactions on Kraken are investment contracts, or are themselves securities, its argument cannot proceed.” However, the Court distinguished the reasoning for dismissal of certain secondary sales in Binance and also refused to apply the major questions doctrine to the SEC’s actions. Analysis: This brings the win rate for the “Investment Contract Require Contracts” argument to exactly zero after that argument was rejected in Ripple, Binance, Coinbase, and now Kraken. It remains to be seen if that argument will ever win, since it makes sense as a limiting factor. Is it reasonable to expect the efforts of others based on your payment if there is no agreement or promise for those efforts? Additionally, the article from Edward Lee on The Original Public Meaning of Investment Contract also supports the view that the argument has legal merit. But eventually, if the losses keep stacking up, it will be hard for attorneys to keep advancing that argument in court. Briefly Noted: FinCEN Withdrawals Proposed Self-Hosted Wallet Rules: The 2020 FinCEN unhosted wallet proposal, which would require having KYC information for every unhosted wallet to which individuals transfer certain amounts of digital assets, has been formally repealed. As the identity of the owner(s) of any particular digital wallet is often unknowable for the individuals interacting with those digital wallets, the repeal of this rulemaking proposal is good news for the industry at large. Arrest of Telegram CEO in France: On Sunday, April 25, Pavel Durov, the CEO of Telegram, was arrested in France as he was disembarking from his private jet. The arrest stems from allegations of criminal activities involving the Telegram messaging platform. Details on the specific charges and Telegram's role are still emerging. This case could have significant implications for the accountability of digital platforms in hosting content. Additionally, the French prosecutors' actions may serve as a warning to those developing extraterritorial blockchain networks. Abra Settles With SEC: On August 26, the Securities and Exchange Commission announced a settlement with Plutus Lending LLC (operating as “Abra”) for failing to register its retail crypto asset lending product, Abra Earn. The SEC also settled charges against Abra for operating as an unregistered investment company. This settlement follows Abra's June 2024 agreement with the Conference of State Bank Supervisors on behalf of 25 state regulators for conducting digital currency transactions without proper licenses. We hope that with these settlements behind it, Abra will be well-positioned to continue as a leading company and drive innovation in the industry. Industry Advocacy Groups Submit Amicus in Various Cases: The Digital Chamber filed an amicus brief in the SCOTUS case regarding a derivative action against NVIDIA for failing to disclose in SEC filings the chip maker’s dependence on cryptocurrency mining to drive ongoing sales. Additionally, the Blockchain Association and DeFi Education Fund have joined the amicus in a case challenging the SEC’s consolidated audit trail (“CAT”) database. SEC Fights for Jurisdiction Over Creator of Pulse Chain: The SEC pushed back against Richard Heart’s jurisdictional defenses, claiming his in-person podcast appearance in Miami and virtual appearances in the United States subject him to United States securities laws and give the Court jurisdiction over him in those disputes. The case is currently pending in the Eastern District of New York. Fifth Circuit Ruling on Geofence Warrants Has Digital Asset Implications: While not directly crypto related, this recent ruling in the 5th Circuit struck down the use of “geofence” warrants, which are warrants to access location information for users who have opted into having internet providers retain location history. This could have massive implications for the use of the John Doe subpoenas against centralized exchanges and other cryptocurrency platforms like SFOX and Circle and was fairly universally upheld prior to this recent case law. Shaq NFT Lawsuit Avoids Dismissal: The Court hearing the lawsuit against Shaq related to his Astrals NFTs has allowed most the claim to advance, ruling against The Big Aristotle’s motion to dismiss and holding that his NFTs could be plausibly alleged as securities. Digital Chamber Appoints President: The Digital Chamber has announced the former Chief Policy Officer Cody Carbone has been promoted to President of the organization. Cody has led the Digital Chamber’s policy and legal efforts since 2022, and the editors of the Blitblog have worked closely with Cody in his previous role, including on preparing the Chamber’s amicus brief in the Hermès case. We congratulate Cody and look forward to continuing our collaboration with him. Conclusion: As the blockchain and digital asset landscape continues to evolve, the ongoing legal battles and regulatory developments underscore the growing importance of understanding the intersection between technology and law. The recent cases involving Yuga Labs, Kraken, Consensys, and others highlight how pivotal the outcomes of these disputes will be—not just for the parties involved, but for the broader implications they hold for the digital asset industry. As we approach the November 2024 U.S. Presidential election, the increased involvement and influence of the blockchain community signal a new era of political engagement for the sector. With the industry's support becoming increasingly bipartisan, the coming months promise to be both challenging and transformative for those navigating the complex legal and regulatory landscape of digital assets. If you have any questions about how the above developments affect your blockchain plans or any other questions regarding the legalities around various aspects of this rapidly developing industry, contact any member of the Polsinelli Blockchain+ team to set up a time to talk and see how we can be of assistance. Also, please subscribe to the BitBlog for alerts when new stories or updates are posted by our attorneys.

Our last update included a whirlwind of activities, with the surprisingly bipartisan House of Representatives vote on FIT 21 and the SEC’s approval of certain Ether spot ETF rule change proposals coming in quick succession. This update is back to business as usual: pending industry litigation continues to move toward a final resolution, and the President made good on his promise to veto a bill that would have reopened the door for most banks to be able to take custody of digital assets. These developments and a few other brief notes are discussed below. President Biden Vetoes Bill to Overturn Staff Accounting Bulletin 121 (“SAB 121”): May 31, 2024 Background: President Biden went through with his threat and vetoed the bipartisan bill that passed the House and Senate to overturn Staff Accounting Bulletin 121. The bill would have repealed the SEC’s accounting guidance requiring SEC-registered companies to treat digital assets held on behalf of customers as liabilities, effectively making it infeasible for most banks to meet other regulatory requirements if they custody digital assets. This veto came after a bipartisan group of lawmakers urged President Biden not to go through with his threat to veto the measure. Analysis: President Biden’s statement that “[m]y Administration is eager to work with Congress to ensure a comprehensive and balanced regulatory framework for digital assets” seemingly rings hollow in a statement where he is vetoing a bill that had bipartisan sponsorship and passed with 60 votes (including Chuck Schumer) in a Democrat-controlled Senate. SAB 121 is internal SEC guidance that the Government Accountability Office has already determined failed to abide by the Administrative Procedures Act. It is also unclear how taking away trusted custodial options protects consumers. After a few weeks where it looked like the Administration may have started to reverse course on crypto policies, which are increasingly becoming a wedge issue for the upcoming election, it was disappointing to see the veto of a bill that had the backing of traditional banks and digital asset industry participants alike. Coinbase Finalizing Briefing in Rulemaking Appeal: May 31, 2024 Background: Coinbase has now completed its briefing in its appeal of the SEC’s denial of rulemaking, filing the Reply in Support of its Petition. The head of legal at Coinbase summarized their filing on Twitter, claiming “[t]he SEC is bent on choking the digital asset industry and is refusing to provide the necessary rules the industry has requested in order to tighten the squeeze.” Analysis: Coinbase faces an uphill battle on this, as Congress has not mandated that the SEC pass any such rulemaking. Best case scenario for the industry would be the Court forcing the agency’s hand, but it would still be a massive win if this results in dicta regarding the inability of digital asset participants to abide by existing rules. For those who missed it, it is worth reading the Paradigm three-part series on why “come in and register” is not possible, with citations to specific rules and reasoning. Dapper Labs Settled NBA Top Shot Securities Class Action Background: Dapper has agreed to a tentative settlement of $4 million in the class action alleging the sale of NBA Top Shot NFTs were securities transactions. While the settlement still needs to be approved by the Court, if this stands, it seems like a good result for the company after losing its Motion to Dismiss largely due to the Court finding the centralized flow blockchain makes certain securities arguments issues of fact for trial. Dapper would have likely spent more than $4 million in litigation and discovery if taken to trial, so this is an easy out for them. Analysis: Dapper gets liability protection for all sales from when it was the only market in town to buy and sell their NFTs and can now use the existence of additional marketplaces as a defense for lawsuits going forward. It seems like a win for Dapper, as $4 million should barely make a dent in the company’s bottom line. Dapper CEO Roham released a tweet claiming the settlement affirms that it was agreed that Flow blockchain was a decentralized public network and Top Shot NFTs are not securities. Briefly Noted: SEC Private Funds Rule Overturned by 5th Circuit: The Fifth Circuit vacated the private fund adviser rules that would have greatly increased compliance burdens and overhead for many fund managers. These would have applied to registered investment advisers to private funds and may have disproportionately affected crypto venture managers, most of whom cannot rely on the venture capital fund adviser exemption from registration. Our detailed alert is available here. Industry Players Back Super PAC: Coinbase has also now donated $25 million to crypto super PAC Fairshake, bringing its funding up to $75 million from Coinbase, Ripple, and a16z alone. Fairshake is a PAC that supports crypto-friendly candidates through funding, research, and advertisements. In the latest Harris poll, 33% of respondents said they take into consideration a candidate’s stance on crypto, and 77% believe a U.S. presidential candidate should have an informed perspective on crypto. House Subcommittee Hold Hearing on Tokenization of Assets: The House Financial Services Subcommittee on Digital Assets held a hearing regarding the tokenization of real-world assets. While the hearing had notable detractors, most of the focus was on the various benefits for cheaper and faster settlements and improved transparency that the integration of blockchain technologies into transactions can offer. SEC Faces Lawsuit on Document Request Responses: The American Securities Association has filed a lawsuit against the SEC in the Middle District of Florida alleging the agency has failed to comply with certain Freedom of Information Act requests regarding the agency’s enforcement actions of off-channel broker/dealer communications during COVID when those individuals were unexpectedly shifted to work from home. This is added to the list of declaratory judgment actions taken against the agency. Robinhood Purchases Crypto Exchange Bitstamp: Robinhood is buying crypto exchange Bitstamp to expand crypto operations outside of the United States. It appears companies are shifting focus and funding outside of the United States, with American industry regulation still in flux, unlike in other countries. DOJ Bring Charges Against Alleged NFT Rug Pull Founders: The DOJ is prosecuting the guys behind the alleged 2021 NFT rug pull “Evolved Apes.” While there were plenty of similar projects around that time, these guys likely got a target on their backs after Vice covered the alleged scam. Treasury Releases Findings on Study of NFTs and Illicit Finance: Treasury released their study on the use of NFTs in illicit finance, and the findings are essentially that criminals launder money with anything of value, including NFTs, but that NFTs are not a primary means of illicit financing. Members of Congress Call for Action in Matter of Jailed Binance Executive: Fifteen members of Congress have signed a letter urging executive action to bring home detained U.S. citizen/Binance executive Tigran Gambaryan. This came the same week as former Binance CEO Changpeng Zhao (“CZ”) began serving his sentence in the United States for certain anti-money laundering violations. Conclusion: As the whirlwind of recent legislative and regulatory activity settles, the cryptocurrency industry braces for continued challenges and opportunities. President Biden's veto of the bill to overturn Staff Accounting Bulletin 121 underscores the complexities facing digital asset regulation, while Coinbase's ongoing battle with the SEC and Dapper Labs' settlement in the NBA Top Shot securities class action highlight the legal landscape's evolving nature. Meanwhile, industry players rally behind initiatives like the Fairshake super PAC, signaling a growing influence in political spheres. As Congressional hearings delve into the tokenization of assets and lawsuits challenge regulatory actions, the path forward remains uncertain yet ripe with potential for innovation and growth. If you have any questions about how the above developments affect your blockchain plans or any other questions regarding the legalities around various aspects of this rapidly developing industry, contact any member of the Polsinelli Blockchain+ team to set up a time to talk and see how we can be of assistance. Also, please subscribe to the BitBlog for alerts when new stories or updates are posted by our attorneys.

Big news dropped in the past few weeks, which sent shockwaves across the industry: according to a recently filed lawsuit, the SEC has classified the second largest cryptocurrency, Ether, as a security in certain ongoing investigations for over a year now. While many expected such a revelation to come out eventually with the looming Ether spot ETF approval deadlines approaching, the scope and duration of the SEC’s investigation was news that the industry is still trying to come to terms with. There were also multiple developments related to criminal cases against digital asset privacy-preserving protocol developers worth noting, and the SEC is likely to bring enforcement action against the popular trading platform, Robinhood, related to its digital asset trading platform.  These developments and a few other brief notes are discussed below. MetaMask Wallet Developer Sues SEC: April 25, 2024 Background: Consensys, developer and provider of leading self-custody digital wallet MetaMask, has sued the SEC for declaratory and injunctive relief in the Northern District of Texas. The complaint is available here. The suit alleges that the SEC issued a Wells notice which warns of a very likely lawsuit against Consensys. The Consensys lawsuit seeks a declaration that (1) the purchase and sale of Ether are not securities transactions subject to the SEC’s jurisdiction; (2) the MetaMask wallet’s swapping functionalities are not subject to the agency’s broker-dealer registration requirements; and (3) the MetaMask wallet’s staking functionalities are not securities transactions. Summary: Consensys appears to expect the SEC’s Wells notice process would not result in lack of prosecution, suing the SEC in a favorable 5th Circuit instead of allowing the SEC to bring a lawsuit first. Similar to the Coinbase lawsuit, this lawsuit appears to be part of a larger play to create a potential circuit split if the rulings differ from the Coinbase case in S.D.N.Y. (2nd Cir.), Binance case in D.D.C. (Fed. Cir.), or Kraken case in N.D.Cal. (9th Cir.). The SEC must be running into a resource allocation issue at this point, as it is unclear whether the agency will have the resources in the crypto enforcement unit to litigate lawsuits against the above entities plus Uniswap plus the other outstanding litigation the agency has going on simultaneously. Various Developments in Blockchain Privacy Protocols Raise Questions on Permitted Levels of Privacy Preservation: April 24-27, 2024 Background: Samourai Wallet and associated Bitcoin mixing protocol developers were arrested and charged with conspiracy to commit money laundering and conspiracy to operate an unlicensed money-transmitting business. Relatedly, after those charges were filed, the FBI issued a warning that “[u]sing a service that does not comply with its legal obligations may put you at risk of losing access to funds after law enforcement operations target those businesses.” Also related, the DOJ has responded to Roman Storm's motion to dismiss regarding his involvement with Tornado Cash. Summary: Developments in the above cases will set legal precedent on when individuals can create privacy-preserving technologies that can be used for legal and illegal purposes alike. In Tornado Cash, for example, the DOJ takes issue with the defendants’ failure to program a backdoor for law enforcement into the protocol’s code. The most frustrating part of this response is the government (potentially intentionally) linking together the actions of disparate actors (developers, validators, relayers, and TORN token holders) into a single entity. It is also interesting that the DOJ seems to be taking the position that lack of control over funds at issue is not relevant to the “accepting value that substitutes for currency” aspect of the rules and regulations. All of the above could lead to U.S. citizens having fewer privacy tools available, putting their safety and funds at risk. Robinhood Served Wells Notice for Crypto Trading Services: May 6, 2024 Background: Robinhood Crypto has received a Wells notice from the SEC indicating the agency staff will recommend that the SEC file an enforcement action related to Robinhood’s crypto trading platform. You can read the Robinhood response here and the 8-K filing update here. Robinhood is the latest major operator in the space to receive such a notice, with the notice to Consensys discussed above and the Uniswap notice discussed in our previous update. Robinhood Crypto also lists less than two dozen digital assets and is far more selective with its listings than exchanges like Coinbase, Kraken, and Binance which were previously sued by the SEC. Summary: The combined actions indicate that offering retail participants access to any digital assets, other than Bitcoin, is viewed by the agency as a violation of applicable securities laws. The fact that the SEC seems to be keen to bring an action against Robinhood even after Robinhood removed some of the tokens alleged to be securities in the Coinbase/Binance suit from the Robinhood crypto trading platform shows that merely delisting assets which the SEC claims to be securities is not sufficient. It also is troubling if Robinhood’s CTO’s Congressional testimony on this subject is part of what led to this action. The Digital Chamber of Commerce and other industry groups have condemned this latest action by the agency. Robinhood’s founder has indicated he plans to fight the allegations if a lawsuit is brought by the agency. Briefly Noted: Custodia Appeals Master Account Loss: Custodia has appealed the decision to uphold the Federal Reserve Banks’ denial of access to a Master Account. Custodia’s novel business plan of charging customers for keeping 100% reserves instead of lending amounts deposited to third parties, along with their willingness to custody digital asset,** appear to be the primary reasons for the denial of Master Account access. Industry Groups Challenge Dealer Rule: The Blockchain Association and Crypto Freedom Alliance of Texas filed a lawsuit against the SEC challenging the new dealer rule which would have a huge impact on DeFi. It looks like the crypto bar has chosen Texas as its fighting ground for challenges to potential administrative overreach.  Binance Founder Sentenced to Four Months in Prison: Binance founder gets 4-month sentence after earlier pleading guilty to anti-money laundering violations. This timeline of legal issues that Binance and CZ have run into is phenomenal. Also a good article about the effect of the SEC case here which quotes Polsinelli attorneys Stephen Rutenberg and Jonathan Schmalfeld. Exodus Movement, Inc. Listed on New York Stock Exchange: Self-custodial digital wallet provider Exodus announced that its common stock has been approved for trading on the New York Stock Exchange. Available for desktop, mobile, and browser, the Exodus wallet allows users to secure, manage, and swap cryptocurrencies like Bitcoin, Ether, and others. It became the first company to have its common stock tokenized for blockchain-based trading. Conclusion: As the landscape of cryptocurrency regulation continues to evolve, recent actions by the SEC, including its classification of Ether as security and the issuance of a Wells notice to major platforms like Robinhood, underscore the complex interplay between innovation and regulation. These developments, coupled with ongoing legal challenges and enforcement actions, highlight a period of significant uncertainty and adjustment for the industry. As stakeholders navigate these turbulent waters, the outcomes of these legal battles will likely shape the future of digital asset regulation and the broader financial ecosystem. The industry's response, as well as the legal precedents set, will be critical in determining how technologies that preserve privacy and enhance user autonomy can coexist with regulatory frameworks designed to ensure market integrity and protect investors. **CORRECTION: An earlier version of this post incorrectly stated that Custodia accepts customers’ digital asset deposits. This has been corrected to clarify that Custodia offers digital assets custody services for customers but those assets are not accounted for as deposits on Custodia’s balance sheets. If you have any questions about how the above developments affect your blockchain plans or any other questions regarding the legalities around various aspects of this rapidly developing industry, contact any member of the Polsinelli Blockchain+ team to set up a time to talk and see how we can be of assistance. Also, please subscribe to the BitBlog for alerts when new stories or updates are posted by our attorneys.

The focus in Web3 law the past few weeks has been on jurisdictional issues when litigating matters involving borderless digital asset transactions. This is expected to be an ongoing issue, as courts work through these challenges in both civil and criminal claims. Digital asset developers and users often have very little control over limiting transactions to certain jurisdictions without requiring the counterparty to perform identity verification (which raises a whole host of other issues), so these are not going to be easy determinations to make. There were also developments in pending stablecoin legislation, and the IRS is looking to finalize its digital asset reporting form for upcoming tax years. These developments and a few other brief notes are discussed below. Richard Heart Moves to Dismiss SEC Lawsuit Related to HEX/PulseChain: April 8, 2024 Background: Richard Heart has filed a Motion to Dismiss in the SEC’s case against him related to the $HEX cryptocurrency and PulseChain blockchain. Heart, the founder of PulseChain, is known for flashy displays of wealth which even industry participants have criticized. However, as a U.S. citizen who is a resident of Helsinki, Finland, the case raises interesting issues as to the extraterritorial reach of the SEC in borderless digital asset cases. Summary: While Richard Heart is a controversial figure on social media, the legal arguments around Heart’s jurisdictional defenses are something to watch. In this case, the SEC is trying to use the fact that PulseX is a Uniswap fork (i.e., took the same Uniswap opensource code with slight changes) as an E.D.N.Y. forum hook. It is a case worth following on that aspect alone, as it will have massive implications on what is required to create jurisdiction over international digital asset transactions. SEC Investigating Decentralized Finance Platform Uniswap: April 10, 2024 Background: The SEC issued a Wells notice to the Uniswap Foundation, signaling the agency’s intent to bring a suit against the DeFi giant. While the contents of the notice have not been made public, Uniswap’s Founder and Chief Legal Officer both had strong words against the agency. Taking the dispute public before any charges have been filed has been criticized by some and applauded by others. Summary: When FTX/3AC/Terra/Celsius failed, platforms like Uniswap, Coinbase, Kraken, and others were designed and run well enough to honor billions in user withdrawals at a rate that would bankrupt any bank with fractional reserves. If anything, the ability of Uniswap to handle such dramatic outflows showed the resiliency that DeFi is capable of. Also, interesting points from Gabe Shapiro and the Uniswap civil case on how the market maker smart contracts potentially at issue are not run by Uniswap. But since this is just a threat of a lawsuit at this point, the legal community will need to wait to see what the lawsuit itself looks like, and if it has anything to do with the recent fee switch proposal by Uniswap. Lummis-Gillibrand Payment Stablecoin Act Proposed in Senate: April 17, 2024 Background: Senators Lummis and Gillibrand have released proposed legislation titled the Lummis-Gillibrand Payment Stablecoin Act which incorporates some elements of their previously proposed omnibus crypto legislation but is focused exclusively on stablecoins. This is also distinct and has many important differences from the stablecoin legislation which has passed the House Financial Services Committee but has yet to be put up for vote for the full House. Cap Hill Crypto does a great job as always breaking down the bill. Summary: Apparently, Congresswoman Maxine Waters thinks the stablecoin bill in the House is “very, very close — very close” after previously trying to kill it in committee, and noted crypto-critic Sherrod Brown has reportedly said he is open to advancing a stablecoin bill under certain conditions, so it is looking increasingly likely that some version of stablecoin legislation has a (slim) chance of passing this year. It seems reasonable for depository institutions like banks or certain merchants to only be permitted to custody stablecoins that are provably backed 1-to-1 by the issuing entity (like Circle for USDC) so long as consumers have the choice to own and use other stablecoins. Avoiding another Terra/Luna and making dollar substitutes actually be back by dollars is something that should be generally supported. But this new bill faces criticism from various industry groups. Mango Markets Exploiter Convicted in Criminal Trial: April 18, 2024 Background: Avraham “Avi” Eisenberg was convicted on one count of commodities manipulation, one count of commodities fraud, and one count of wire fraud related to his role in the $110 million exploit of the digital asset platform Mango Markets. Avi previously admitted to his actions online, referring to his actions as a “profitable trading strategy” and asking “What are you gonna do, arrest me?” There will likely be an appeal on issues such as the choice of the New York forum for this trial, and the exclusion of Avi’s proposed expert testimony from being considered by the jury. Summary: Avi did not testify in the trial related to his Mango Markets exploit in 2022, but he was still convicted. While this was (likely) the correct result on the commodities manipulation count, it does bring to light flaws in a system where three different agencies (DOJ, CFTC, and SEC) all brought cases against Avi and all define the token at issue (MNGO) as different things. It also creates potentially problematic implications going forward if the use of a smart contract governed protocol in certain ways can be “fraud” despite no deceiving statements being made and those actions not meeting the required elements under the Computer Fraud and Abuse Act. You can read more about the conviction including quotes from Jonathan Schmalfeld in the Bloomberg Law article Crypto Trader’s Fraud Conviction Undercuts Exchange Code Defense. Briefly Noted: IRS Releases Draft Crypto Reporting Form: The IRS released a draft crypto reporting form which includes reporting by un-hosted wallet providers. Not sure if the IRS realizes that all that is required for an un-hosted wallet is something that can record the required amount of seed phrase words, i.e., a piece of paper. Coinbase Requested Interlocutory Appeal on Investment Contract Issues: Coinbase is seeking an interlocutory appeal of its Motion for Judgment loss regarding investment contract issues. Seemingly with a smart strategic move of not seeking review of the staking determination and limiting it to an issue which the SEC itself has stated is important enough for interlocutory appeal in its Ripple litigation. Generally, interlocutory appeal requests are denied, but with a case of this importance, it is possible that Judge Failla does want input from the Court of Appeals for these issues of law. Senate Republicans Release Counter to Senator Warren Bill: Senate Republicans have released a counter to the Senator Warren bill, which they titled the "Ensuring Necessary Financial Oversight and Reporting of Cryptocurrency Ecosystems Act" ("ENFORCE Act"). This has very little chance of passing but is instead a counter proposal to potentially make Senate Democrats back off certain aspects of their currently pending legislation. Conclusion: In recent weeks, the complex web of jurisdictional issues surrounding digital asset transactions has brought new challenges and developments to the forefront of Web3 law. From Richard Heart's jurisdictional defense against the SEC to the resilience of DeFi platforms like Uniswap, these cases highlight the evolving legal landscape in which digital assets operate—transcending traditional boundaries and questioning established regulatory frameworks. The proposed Lummis-Gillibrand Payment Stablecoin Act and the SEC's scrutiny suggest a shift towards greater regulation and oversight, while the conviction of Mango Markets' exploiter underscores the judicial system's effort to adapt to new forms of financial manipulation. As these developments unfold, they not only shape the immediate legal strategies of involved parties but also set precedents that will influence the future of digital asset regulation. The ongoing legal and legislative efforts signal a critical phase in defining the balance between innovation and regulation in the ever-evolving domain of cryptocurrencies. If you have any questions about how the above developments affect your blockchain plans or any other questions regarding the legalities around various aspects of this rapidly developing industry, contact any member of the Polsinelli Blockchain+ team to set up a time to talk and see how we can be of assistance. Also, please subscribe to the BitBlog for alerts when new stories or updates are posted by our attorneys.

It was a busy two weeks in Web3 law, as Binance lost in an appeal that could have wide-ranging jurisdictional implications outside of just digital assets. Coinbase also went on the offensive against the SEC in appealing the SEC’s denial of rulemaking, and Coinbase was supported by many industry stakeholders as amicus a week later. This all came around the same time as the House of Representatives held a hearing titled “SEC Overreach: Examining the Need for Reform” and the administrative agencies overseeing U.S. intellectual property registration released their long-awaited study on non-fungible tokens (“NFTs”). These developments and a few other brief notes are discussed below. Binance Loses Appeal With Far Ranging Jurisdictional Implications: March 8, 2024 Background: Binance lost on an appeal that previously dismissed the cryptocurrency exchange from a class action lawsuit on jurisdictional grounds. While Binance has requested a rehearing en banc in front of the Second Circuit, this was a blow to an exchange that recently settled with the DOJ/CFTC and is still facing a lawsuit against the SEC. The case was previously dismissed at the district court level under the presumption against extraterritorial application of U.S. securities laws to foreign entities. Summary: Binance denied having a principal place of business in any jurisdiction, which was the basis for the appellate court overruling the prior dismissal. The Second Circuit determined that because plaintiffs’ alleged (1) Binance’s use of Amazon Web Services for much of its infrastructure made that U.S. centric; and (2) Binance’s U.S. infrastructure made it more likely to be used by U.S. individuals, that Binance’s lack of physical offices made that the best thing to look to when looking at where a transaction was completed. This was a Motion to Dismiss, so the Court was required to accept the infrastructure claims as true, and it’s very possible that these claims will be rebutted through evidence on discovery. But this is still a blow, which makes it more likely for decentralized companies to be subject to U.S. securities laws based on their web services infrastructure even if they put into place attempts to weed out U.S. buyers. Coinbase Appeals SEC’s Denial of Rulemaking for Digital Assets: March 11, 2024 Background: In July of 2022, Coinbase petitioned the SEC for rulemaking regarding digital assets, requesting sufficient rules to create market certainty on whether the Commission would view a particular digital asset to be an “investment contract” subject to registration and oversight by the SEC. After challenging the SEC’s lack of action on the exchange’s petition, the SEC formally denied the request, clearing the way for judicial review of that denial. Coinbase has now filed a 78-page brief seeking such a judicial review. Summary: You can look at the chart on page 12 of the brief (document page 16) to get the gist of the argument. The primary author is Eugene Scalia, who has played a part in overturning numerous recent laws and regulations and gets more leeway on stylistic decisions. Pages 40-46 explaining the unworkable nature of existing securities laws with blockchain functionalities was probably the best part of the briefing (and reads like a summary of the Paradigm 3-part series on the subject). As expected, Coinbase continues to avail itself to all avenues of judicial review of the SEC’s actions (and inactions). The wheels of justice turn slowly but grind exceedingly fine. Copyright, Patent, and Trademark Offices Release Study on NFTs: March 12, 2024 Background: The U.S. Copyright and U.S. Patent and Trademark Offices released their collaborative study on the impact of NFTs on IP law and policy. The big takeaways were (1) the recognition of the value NFTs can bring to artists and brands and (2) the insistence that existing law is sufficient to address infringement concerns related to NFT applications. Summary: This study was the result of the President’s Executive Order on Digital Assets from September 2022. The study determined that incorporating NFTs into existing intellectual property registration and recordation practices is not necessary or advisable at this time, as these technologies can be registered under existing laws without the need for specialized carve-outs. The main takeaway from the study was the executive agencies’ willingness to interact and receive feedback from interested stakeholders through various roundtable discussions and open-door meetings. It will be interesting to see if existing doctrines, such as the first sale doctrine, will continue to apply to digital works when the change of ownership of those digital works does not require the creation of a “copy” of that digital work. Amici Support Coinbase Appeals SEC’s Denial of Rulemaking for Digital Assets: March 18, 2024 Background: The industry continues to show up in filing amicus briefs on important cases, this time with amicus briefing filed in support of Coinbase’s appeal of the SEC’s denial of digital asset rulemaking. Briefs were filed by Paradigm, LEJILEX, the Texas Blockchain Council, the Crypto Council for Innovation, and the U.S. Chamber of Commerce. This level of legal activism is not something often seen in commercial endeavors, but is becoming commonplace in the digital asset industry, where collaboration of unaffiliated stakeholders and decentralization are part of the industry’s fabric. Summary: As we previously stated in our breakdown of the Coinbase briefing, the key to many of these briefings is demonstrating the illogical nature of the SEC’s “come in and register” talking points while failing to provide a route to registration that is possible based on the technology at issue. Paradigm’s brief especially weighed in and crystalized this point with specific cites to applicable Code of Federal Regulations sections. The Chamber of Commerce’s support was also strong. “The SEC’s belated, conclusory denial is a textbook example of agency action that is arbitrary, capricious, and an abuse of discretion—in other words, action that must be set aside under the APA. Whatever discretion agencies ordinarily possess, a refusal to undertake rulemaking cannot stand if it is ‘plainly misguided.’ House Subcommittee Holds Hearing on SEC Oversight: March 20, 2024 Background: The House Subcommittee on Capital Markets held a hearing titled “SEC Overreach: Examining the Need for Reform,” which included witnesses from the Cato Institute, the Heritage Foundation, the Center for American Progress, and the Committee on Capital Markets Regulation. While the hearing did not focus specifically on digital assets, the topic was hit on at various points throughout the hearing. Summary: The witness from the Heritage Foundation had especially strong words against the agency, stating, “Perhaps the leading area in which the Commission has been irresponsible is the area of digital assets, or crypto assets… If you were to write a book on how not to regulate, the Commission’s modus operandi in this area would be the first chapter.” There were also remarks from Congressman French Hill, the potential next head of the Financial Services Committee, regarding the SEC’s approach to digital assets and recent court decisions involving digital assets. KuCoin Charged With Violating BSA and Commodity Exchange Act: March 26, 2024 Background: The CFTC and Department of Justice filed parallel civil and criminal actions against the companies operating the KuCoin exchange. In the civil complaint, the CFTC alleges that KuCoin illegally dealt in off-exchange commodity futures transactions and leveraged, margined, or financed retail commodity transactions, operating in the US without registering as a futures commission merchant, swap execution facility, or designated contract market.  The criminal complaint reportedly is charging them with violating the Bank Secrecy Act, operating an unlicensed money transmitter business, and conspiracy to violate the Bank Secrecy Act and operate as an unlicensed money transmitter business. Summary: This isn’t the first time KuCoin has landed in hot water, as it was recently barred from operating in New York and was effectively kicked out of Canada. It shouldn’t be a huge surprise that an exchange offering otherwise regulated products without either geofencing US IP addresses or requiring basic KYC verification would get in trouble. Interestingly, the CFTC press release provides that they “failed to impose any IP address restrictions during the relevant period to prevent U.S. customers from trading commodity interests or account for commonly used technology such as virtual private networks (VPNs) that could potentially circumvent IP address restrictions.” It is unclear how one would prevent VPN users from accessing the exchange short of blocking all VPNs (which is untenable for many reasons, not the least of which is that about 30% of all internet users are using a VPN, usually for completely legitimate reasons), or why someone would need to block VPNs when they’re not geofencing to begin with. The CFTC also made it a point to clarify that Ether is a commodity subject to CFTC jurisdiction, perhaps to prevent the SEC from asserting regulatory jurisdiction over the asset. Briefly Noted: Ethereum Foundation Reportedly Under Investigation: While not independently confirmed, numerous sources have reported that the Ethereum Foundation may be under investigation by the SEC, purportedly relating to Ethereum’s shift from a proof of work validation mechanism to a proof of stake mechanic. This could also involve an effort for the SEC to classify ETH as a security since earnings from staking are easier to analogize to some traditional securities products than earnings from work. This may also be an effort for the SEC to distance itself from the Hinman Speech, where the then-head of the Division of Corporate Finance declared that “current offers and sales of Ether are not securities transactions,” particularly given the looming May deadline for the SEC to approve or deny a potential Ethereum exchange traded fund.  Bitcoin Fog Developer Convicted: Roman Sterlingov was convicted on all four counts of money laundering for his involvement with crypto-mixer BitcoinFog. This conviction is likely to be appealed, particularly over some claimed logical leaps taken by the DOJ’s cryo-tracing experts. Court Determines Craig Wright is not Bitcoin Creator: A Court determined Craig Wright is not Satoshi, despite his sister’s testimony that he pretended to be a ninja well into his adulthood. This is the result of a multi-year litigation battle over Mr. Wright’s claims of being the primary author of the Bitcoin Whitepaper, attributed to the pseudonymous “Satoshi Nakamoto.” SEC Issued Sanctions in Digital Asset Case: While we will not comment on the contents of the Court’s Order, it is a development worth noting that the Court in SEC v. Debt Box issued an Order requiring the SEC to pay certain costs and fees as a sanction in that case. Conclusion: The past two weeks have marked a pivotal period for Web3 law, characterized by significant legal developments that highlight the ongoing tension between regulatory bodies and the rapidly evolving digital asset industry. The appeal loss by Binance not only sets a precedent for jurisdictional reach over decentralized entities but also emphasizes the complexities of applying traditional securities law to the unique nature of digital assets. Coinbase's bold move to challenge the SEC’s stance on rulemaking, backed by considerable industry support, underscores the sector's call for clear, applicable regulations that foster innovation while ensuring market integrity. Moreover, the House of Representatives' hearing on "SEC Overreach" and the release of the study on NFTs by U.S. IP agencies collectively signal a growing recognition of the need to adapt legal frameworks to the realities of the digital age. As the legal landscape continues to evolve, these developments serve as a reminder of the delicate balance that must be struck between regulation and innovation in the digital asset ecosystem. The industry’s resilience and willingness to engage in legal battles reflect its commitment to establishing a regulatory environment that is both fair and conducive to growth. This period may well be looked back upon as a watershed moment in the journey towards achieving a harmonious coexistence between digital asset innovations and regulatory oversight. In addition, SDNY denied Coinbase summary judgment on most of its claims in their case against the SEC, though they did succeed in getting the claim regarding self-custodial wallets dismissed.  We’ll have more on this decision soon.  If you have any questions about how the above developments affect your blockchain plans or any other questions regarding the legalities around various aspects of this rapidly developing industry, contact any member of the Polsinelli Blockchain+ team to set up a time to talk and see how we can be of assistance. Also, please subscribe to the BitBlog for alerts when new stories or updates are posted by our attorneys.

Amidst the recent excitement surrounding bitcoin’s price rally, the past two weeks have been unusually quiet for industry legal updates. Which is a welcome relief, after a very busy few weeks leading up to Thanksgiving. But there were still developments in multiple criminal cases in the space, Congress was busy despite the growing consensus that digital asset regulation won’t get past the House until 2024, and the SEC has asked for a ruling as a matter of law regarding the assets in the Terraform Labs case. These developments and a few other brief notes are discussed below. Finance Founder Ordered to Remain in U.S. Pending Sentencing: November 27, 2023 Background: Binance’s former CEO Changpeng Zhao (“CZ”) was ordered to remain in the U.S. while he awaits sentencing on his guilty plea to one count of violation of the Bank Secrecy Act. The Order was temporarily entered by the magistrate judge overseeing his criminal case and associated plea agreement before being affirmed as the correct determination by District Court Judge Richard Anthony Jones. CZ’s sentencing is set for February 23. Summary: It seemed odd that the DOJ would enter the plea agreement with CZ if they did not trust him to return for his sentencing. But the fact that CZ’s domicile country the United Arab Emirates does not have an extradition treaty with the United States and his large amount of resources weighed in favor of keeping him in the United States until sentencing. We covered the CZ plea agreement and its associated impact on the industry in our previous BitBlog Bi-Weekly post available here. SEC Ask Judge to Rule Assets are Securities as a Matter of Law in Terraform Labs Case: December 4, 2023 Background: The SEC has filed a letter with the Court in the SEC v. Terraform Labs case pending in the Southern District of New York that asks the judge determine that the digital assets in question are investment contracts as a matter of law. If successful, this would remove that determination from consideration by a jury. The SEC’s letter argues that the legal nature of digital assets at issue, particularly in the context of the Howey test, is not a matter which should be presented for jury determination in any trial on this issue. Summary: The SEC has hedged its position, stating the assets at issue are securities as a matter of law or, in the alternative, there is no genuine issue of fact precluding the Court from ruling on the issue prior to trial. Smart considering Judge Rakoff’s previous Order on the Motion to Dismiss indicated he views the issue of efforts of others to hinge on a reasonable investor standard which would be an issue for the jury. Meanwhile, Terraform Labs founder Do Kwon is facing extradition for DOJ charges related to the Terra/Luna collapse in the Spring of 2022, although he may be extradited to Korea instead. House Financial Services Subcommittee on Digital Assets Holds Hearing on Fostering Innovation: December 5, 2023 Background: The House Financial Services Subcommittee on Digital Assets held a hearing titled “Fostering Financial Innovation: How Agencies Can Leverage Technology to Shape the Future of Financial Services.” The focus of the hearing was the government’s approach to new and emerging technologies like digital assets, distributed ledgers, quantum computing, and greater use of artificial intelligence. Witnesses included representatives from the SEC, FDIC, the Federal Reserve, and other administrative agencies. Summary: The biggest takeaway was Representative Emmer’s questioning of the SEC representative witness, who also was a commentator on the now-infamous Hinman speech (those comments were publicly released on June 13). There was also a call from Representative Waters for a smaller session specific to the operation of digital asset companies. Despite attempts by Representative McHenry to include digital asset bills which had passed through committee in the omnibus defense authorization bill, those attempts failed to be attached to larger spending measures, making it unlikely for any substantive digital asset regulations to pass in 2024. Notably, Representative McHenry also recently announced that he will not run for re-election at the end of this term. Briefly Noted: House Committee Unanimously Passes Digital Asset Bill: the Deploying American Blockchains Act was unanimously voted through the House Committee on Energy and Commerce. The bill’s substantive provisions are not expected to have a large impact on the industry, but it shows a growing consensus that these assets are something the government needs to gain a better understanding of. Report on Web3 Gaming Released: Colleen Sullivan of Brevan Howard Digital has released an over 150-page essay on the impact of Web3 digital ownership principles on the rising gaming economy. Well worth the read for anybody wishing to gain better insight into this growing industry sector. Bitzlato Founder Plead Guilty: The Founder of Bitzlato has pled guilty and agreed to not participate in any digital asset exchange venture as a part of the deal. The DOJ brought charges against the founder in January, and despite only having an all-time peak of $6 million held on the exchange at any given time, it was accused of being used in laundering over $700 million over its business lifetime. Department of Treasury Seeks Expanded Powers from Congress: The Department of Treasury sent a letter in response to the Senate’s request for information regarding Treasury’s existing powers and what powers the agency needed to fight illicit use of digital assets. Interestingly, the original draft in which the agency stated it did not have the power to designate smart contracts or protocols under existing powers was replaced with a less comprehensive letter which was released to the public. Federal Reserve Manuel Includes Section on Crypto Activities: The Federal Reserve’s recently released updated bank examination manual includes a new section (Section 5330) focused on crypto-related activities. The section also highlights key Federal Reserve guidance on crypto-asset related risks to banking organizations and supervisory considerations in assessing banks engaged in crypto-asset-related activities. Conclusion: In wrapping up this edition of the Blockchain+ Bi-Weekly, even in a relatively calm period for legal developments it's clear that the blockchain and crypto landscapes are rapidly evolving under the watchful eye of U.S. regulators and lawmakers. From the courtroom drama involving Binance's ex-CEO to the SEC's strategic moves in the Terraform Labs case, these developments paint a vivid picture of the intricate dance between legal structures and the ever-advancing world of digital assets. As we observe the unanimous support for the Deploying American Blockchains Act and other regulatory strides, it's evident that the journey towards a more regulated and understood digital asset sphere is well underway. Stay tuned for more insights as we continue to navigate these exciting and uncharted waters of blockchain and crypto regulation. If you have any questions about how the above developments affect your blockchain plans or any other questions regarding the legalities around various aspects of this rapidly developing industry, contact any member of the Polsinelli Blockchain+ team to set up a time to talk and see how we can be of assistance. Also, please subscribe to the BitBlog for alerts when new stories or updates are posted by our attorneys.

On July 21, 2022, the Department of Justice (DOJ) and the US Securities and Exchange Commission (SEC) each alleged insider trading violations against a former Coinbase employee, his brother, and another alleged acquaintance of his. Coinbase is one of the leading exchanges in the United States for the trading of cryptocurrencies. The DOJ brought charges of wire fraud against the three defendants in the Southern District of New York without any allegations of securities law violations, while the SEC brought a civil claim for insider trading in violation of Section 10(b) of the Securities Exchange Act of 1934 [15 U.S.C. § 78j(b)] and Rule 10b-5 thereunder in the Western District of Washington against the same three defendants. The SEC action raises questions about the state of digital asset regulation in the United States and could hamper digital asset development in the United States if there are not changes to this “regulation by enforcement” strategy by the SEC. The Case as Presented by the SEC/DOJ and the DOJ Indictment: The factual allegations by both the SEC and DOJ cases are largely the same. According to the DOJ Indictment and SEC Complaint (available here and here), Ishan Wahi (“Ishan”), is a former Coinbase product manager assigned in the asset listing team. In that role, Ishan “was involved in the highly confidential process of listing crypto assets on Coinbase’s exchange” DOJ Indictment, ¶2. Coinbase has numerous requirements before it will allow a digital asset to be listed for trading, including that it does not list tokens which it considers to be securities under US federal securities laws. Due to the rigorous criteria for listing a digital token on Coinbase, typically the market price of the token increases once there has been a public announcement that the token will be listed. As such, advance knowledge that Coinbase will approve a token for listing could be used to purchase the token at a potentially unfair discount. Id. Ishan allegedly took his advance knowledge of Coinbase’s asset listings and informed his brother Nikhil Wahi (“Nikhil”) and former college roommate Sameer Ramani (“Sameer”) of those upcoming listings. This allowed Nikhil and Sameer to buy those assets ahead of the listings and realize at least $1.5 million in combined gains after those assets had predictable bumps in value after being announced for listing on one of the largest cryptocurrency exchanges in the world. DOJ Indictment, ¶3. The scheme appears to have been detected by Coinbase. On May 11, 2022, Coinbase’s director of security operations reached out to Ishan to schedule a meeting regarding a suspected breach in confidentiality which resulted in assets being heavily traded ahead of Coinbase’s listing announcements. This increase in trading was also deduced in the market and discussed on Twitter, in large part due to Twitter influencer @Cobie tweeting about suspicious trading activity. The Cobie tweet is cited in the DOJ’s indictment. DOJ Indictment, ¶15. Possibly to avoid appearing for the interview with Coinbase’s director of security, Ishan purchased a one-way plane ticket to India and sent emails to his friends and colleagues explaining he had to go home for a family issue. DOJ Indictment, ¶18. However, this attempt to flee was thwarted when Ishan was apprehended by authorities and prevented from leaving the United States. According to the indictment, when apprehended Ishan had in his possession “an extensive array of belongings, including, among other items, three large suitcases, seven electronic devices, two passports, multiple other forms of identification, hundreds of dollars in U.S. currency, financial documents, and other personal effects and items.” DOJ Indictment, ¶20. While Ishan and Nikhil were arrested and will face charges with a possible penalty of 20 years of incarceration, Sameer is still at large and believed to be in India, having departed the US shortly after being informed by Ishan of the internal Coinbase investigation. SEC Complaint, ¶16. The DOJ charges alone are certainly newsworthy with similarities to the DOJ allegations against former OpenSea executive Nate Chastain (which we covered on the BitBlog here). Viewed in a bubble, the DOJ action appears to demonstrate effective compliance, enforcement, and collaboration among government, industry leaders, and social media activists as the combined investigative efforts of all three parties led to the perpetrators being brought to justice. Indeed, it was the public nature of the blockchain which allowed individuals on social media to bring these suspicious transactions to light.  Coinbase also cooperated with the DOJ’s investigation. The DOJ action shows how fraudsters can be apprehended under existing laws without an expansion of the securities laws. While the DOJ uses “insider trading” language in its press release, the charges are brought under the federal wire fraud act (18 U.S.C. § 1343) for Ishan’s alleged breach of his confidentiality agreement with Coinbase and Nikhil/Sameer’s use of that confidential information. Charges in the SEC Civil Action: When the DOJ indicts defendants on criminal charges of insider trading, it is not uncommon for the SEC to also bring a parallel civil action which typically gets stayed during the pendency of the criminal action.  This matter is unusual, however, because the DOJ alleged insider trading under traditional wire fraud laws rather than under securities laws.  Still, the SEC decided to file a civil complaint for securities insider trading against the same parties.  Because the charges being brought by the SEC are not identical, and there are major questions of law (such as whether the tokens are securities) that are unlikely to be addressed in the DOJ matter, it is unclear whether these proceedings will stay during the DOJ prosecution. Coinbase has repeatedly taken the position that none of the coins it lists are securities. For example, in Coinbase’s written testimony for the Congressional Subcommittee on Capital Markets, Securities, and Investment, they stated: “To help potential market participants, we published our Digital Asset Framework to provide transparency about how we consider listing new assets. A key factor in our framework analysis is a determination that the potential new asset is not a security under U.S. law. The absence of regulatory clarity has slowed our willingness and ability to list new assets.” (Full written testimony available here). However, the SEC has affirmatively alleged that at least nine of the 25 tokens traded by the defendants ahead of their Coinbase listings are “crypto asset securities,” the trading of which on non-public information constitutes a violation of Section 10(b) of the Exchange Act [15 U.S.C. § 78j(b)] and Rule 10b-5 thereunder. The nine assets alleged to be crypto asset securities by the SEC are $AMP, $RLY, $DDX, $XYO, $RGT, $LCX, $POWR, $DFX, and $KROM. SEC Complaint, ¶¶ 39, 45, 50, 57, 71, 78, and 82.  While neither the SEC nor DOJ has released the full list of assets traded by Ishan, Nikhil, and Sameer, we do know by comparing the DOJ’s indictment to the SEC’s Complaint that $TRIBE, $ALCX, $GALA, and $ENS are all coins traded by the indicted individuals but not alleged to be securities in the SEC Complaint. Following the filing of the SEC Complaint, Coinbase continued to state that these tokens are not securities by issuing a statement from their Chief Legal Officer (and former Magistrate Judge for the Northern District of California) Paul Grewal titled “Coinbase does not list securities. End of story.” (available here). The SEC did not charge Coinbase with trading in securities which Coinbase would not be allowed to do without becoming an SEC registered exchange. The SEC failed to charge any of the 9 token issuers that it alleges are securities with violations of the securities laws. Implications and Ramifications: Bringing this action was an interesting strategic decision by the SEC.  Rather than bringing an action against Coinbase, a large public company with nearly unlimited resources to defend a regulatory action, or even against the token issuers, the SEC is bringing this claim against three individuals who are facing criminal charges, one of whom likely won’t defend himself at all because he is still on the lam.  Because these defendants have limited resources and probably are more interested in staying out of prison than being punished by the SEC, it is unlikely that they would challenge the SEC’s characterization of the tokens as securities.  While Coinbase could try to join the case by interpleader, it is unlikely that they could have much influence on the civil action. Many, including Coinbase, feel that the SEC would be fulfilling its duty of protecting consumers by setting up a framework for what is and is not considered a security in the digital asset space. On July 21, Coinbase issued an additional statement which “calls on the SEC to develop a workable regulatory framework for digital asset securities guided by formal procedures and a public notice-and-comment process, rather than through arbitrary enforcement or guidance developed behind closed doors.” (Full statement available here).  Coinbase has stated that the timing of this statement was incidental and that they had planned on making this statement even when they had no knowledge that the SEC would bring a civil claim in the case. The SEC action here has even raised a rare public rebuke from another government regulatory body.  CFTC Commissioner Caroline Pham issued a statement on the SEC case, describing it as “a striking example of regulation by enforcement.” (Full statement available here).  Separately, according to Bloomberg, it has been leaked that Coinbase is also the subject of an SEC investigation on whether it has been improperly listing unregistered securities.  In the wake of the XRP action that has dragged on since late 2020 in which the SEC has lost a number of prominent motions, this action could be used to create a “precedent” where there is no meaningful voice opposing the SEC’s theories. The crypto industry needs meaningful regulatory guidance. As these cases indicate, fraud is a real problem, but this particular action does not appear to have any meaningful deterrent effect, given the DOJ’s case which does not involve allegations regarding securities.  The stated mission of the SEC is to protect investors; maintain fair, orderly, and efficient markets; and facilitate capital formation.  This can only be accomplished in the crypto space once the market understands what is or is not a security and there is a workable path to compliance.