Even as Congress remains preoccupied with debates over federal funding and digital asset market structure legislation looks increasingly uncertain in this session, there has still been much to report, as administrative agencies and private sector efforts dominated recent crypto law headlines. The SEC issued what may be its most significant no-action relief for token projects to date, while Senate Democrats advanced their own initiatives on digital asset market structure. At the same time, the SEC and CFTC continued to roll out new initiatives, despite the CFTC operating with only an acting commissioner and no permanent Chair, including SEC Chair Atkins promising a new initiative called Project Crypto aimed at modernizing securities regulation for digital assets. Rounding out the developments, several crypto companies pushed forward with IPOs, further integrating into the traditional financial sector. Detailed breakdowns of these developments, their implications for businesses going forward, and a few other updates on crypto-law topics are discussed below. SEC and CFTC Hold Joint Roundtable Discussions on Regulatory Harmonization Efforts: Sept. 29, 2025 Background: The SEC and CFTC held a series of roundtable discussions between various financial industry representatives to discuss how to encourage coordination between the agencies, especially regarding innovative products and services like those enabled through blockchain technologies. The Commissioners’ various statements (including by SEC Chair Atkins, CFTC Acting-Chair Pham, SEC Commissioner Peirce, and SEC Commissioner Uyeda) all emphasized a need to put regulatory missions over regulatory turf wars to ease compliance obligations on market participants and better serve the public. Despite the lack of permanent leadership at the CFTC and market structure legislation, these agencies are moving forward, consistent with the advice of the President’s Working Group Report from July of this year. Analysis: This was one of the more productive conversations from these roundtables, as the old guard and new guard were often on panels together to discuss possible approaches for the agencies to address new technologies without building regulatory barricades. Views on exemptions and regulatory sandboxes seemed largely dictated by whether the speaker represented an old-guard institution (largely anti-exemptions) or a new entry (largely pro-exemptions). Also, it is worth noting the humor of Commissioner Peirce’s speech, including the line: “[f]or sports-related complaints, please call the CFTC.” The line was both hilarious and apt for the crowd, which included predictive market CEOs who are currently fighting with regulators on whether sports prediction markets should be governed by the CFTC, state gaming regulators or both. SEC Issues DePIN Token No-Action Relief: Sept. 29, 2025 Background: The SEC has issued No-Action relief to decentralized physical infrastructure (DePIN) developer DoubleZero regarding the planned distribution and use cases for a planned “2Z” token. This is the first formal No-Action relief given to a digital asset project since the IMVU No-Action Letter from late 2020. While not binding for any other project, this gives a framework for what the SEC currently considers to be outside of the scope of federal securities laws with respect to the distribution of tokens in a DePIN project. Importantly, it was noted that “2Z is specifically designed to exclude any passive value accrual mechanisms—it does not incorporate dividends, a deflationary token supply, programmatic buybacks, or any similar functionality.”   Analysis: The requested/granted relief is limited to “Programmatic Transfers” of 2Z to “Network Providers” and “Resource Providers” as compensation for their own services, not prior transactions or speculative sales (which did occur, but under securities laws exemptions). So, this isn’t a far leap, as it is seemingly affirming other informal guidance that the mere existence of transferability or a secondary/speculative market doesn’t make a token itself a security. But the inbound letter does partially rely on a consumptive use/utility argument a la United Housing v. Forman, which had largely been rejected by courts in prior token cases like LBRY. This was a huge effort by both agency staff and the project’s team and lawyers to get this done, and shows a real willingness at the current SEC to understand the underlying technology and provide guidance consistent with that technology, which is great to see. Senate Democrats Release Market Structure Framework: Sept. 19, 2025 Background: Senate Democrats have responded to the Senate Banking Committee majority’s revised market structure bill with their own set of policies and framework that the minority will seek to have addressed in any eventual final legislation. There is a plan to have a market structure legislation markup in Senate Banking by the end of October or early November, so that leaves very little time for Senate Democrats to vet language proposals with industry participants before seeking changes to the existing market structure draft. That said, the Senate Agriculture Committee (which has oversight authority over the CFTC) still hasn’t released their companion bill, and nothing will be finalized until that is done as well. Analysis: It appears that Senate Democrats are not far away from Senate Republicans on most issues, making passage of a market structure bill in the Senate more likely, although some sticking points remain. These include whether there should be state law preemption; the level of government oversight over decentralized finance software; and adding additional prohibitions against stablecoin treasury yields being passed to consumers. Even if the Senate ultimately can pass a market structure bill, it appears there will still be huge differences between the Senate’s vision of market structure and the CLARITY Act market structure bill that already passed in the House.     SEC Approves Rule Proposal for Generic Listing Standards for ETFs: Sept. 17, 2025 Background: The SEC has granted requests for accelerated approval of certain proposed rule changes that would make it easier to list Commodity-Based Trust Shares without needing to apply for proposed rule changes with the SEC each time. This approval is significant for crypto, as there are dozens of crypto ETFs awaiting the SEC’s sign-off, and this approval will accelerate that process both for pending applications and similar applications going forward. There is expected to be a wave of spot crypto ETF launches in the coming weeks and months as a result of this move from the SEC. Analysis: This topic was one of the various topics included in Commissioner Peirce’s Feb. 21, 2025, statement soliciting public input on regulatory issues related to blockchain technology and crypto assets. The Digital Chamber (including follow-up comments specific to the proposal) and many others submitted comments on those ETF topics, so it’s great to see that advocacy work in action and getting results. The SEC also approved trading for a fund that holds five cryptocurrencies last week. Next up would be allowing staking in those products or allowing ETFs to hold liquid staking tokens, which would effectively do the same thing. Briefly Noted: Strategic Bitcoin Reserve Bill: The BITCOIN Act, which would enable budget-neutral ways for the U.S. government to buy Bitcoin, got some momentum, as industry leaders went to D.C. to advocate for it. If this is an important issue to you, the Digital Chamber has set up an easy way to contact your representatives and let them know. Request for Comment on GENIUS Act: Department of Treasury has issued an advance notice of proposed rulemaking, seeking comments on the implementation of the GENIUS Act. Good to see them moving forward here, but there is a lot of work to be done on getting the GENIUS Act fully implemented. CFTC Chair Kerfuffle: Brian Quintenz, who was initially nominated by President Trump to be the next chair of the CFTC, but who has had his confirmation hearing continuously postponed, publicly released a series of messages of why he believes his confirmation has been so delayed. His nomination has since been formally retracted. There is still not a confirmed CFTC Chair, or even a quorum of commissioners, and this power void is not expected to be filled soon. With initiatives like allowing stablecoin collateral for derivatives traders moving forward, eventually, this power vacuum will reach a breaking point. Commissioner Peirce Statement: Commissioner Peirce gave a statement titled, “Bees, Ts, and NFTs: Remarks at the Coin Center Dinner,” which is a must-read if only for its uniqueness. I personally took to heart the ending, though: “I especially appreciate the members of the crypto community who put their noses to the grindstone to serve other people—even when doing so requires them to take career, financial, legal, and reputational risk.” SEC Chair Speech Further Advocates “Super-App”: SEC Chair Atkins gave a keynote address in which he further stated his intention to drive the agency to remove barriers from onchain trading of securities, stating: “We must allow for ‘super-app’ trading platform innovation that increases choice for market participants. Platforms should be able to offer trading, lending, and staking under a single regulatory umbrella.” Great stuff to make it a less fractured system for financial products. Prediction Markets Article: This article, Unanswered Questions Surrounding Prediction Markets, is something worth reading for everybody in the space. Kalshi and Polymarket have a combined $17.5 billion of volume in 2025 so far, and they haven’t even hit the mainstream yet. Crypto Companies Go Public: Both Gemini and Figure had seemingly successful IPOs recently, with the price of shares for both companies exceeding prior estimates. Additionally, nine crypto startups raised over $869 million in just one week in September, and companies are on pace to reach $25 billion in venture funding before end of year. So, both the private and public markets remain hot in crypto. Conclusion: Taken together, these developments underscore how quickly the digital-asset landscape can shift even when Congress is consumed by unrelated fiscal debates. Senate Democrats’ market-structure proposals, the SEC’s fast-tracked ETF standards, and the ongoing CFTC leadership gap each introduce new opportunities and risks that market participants will need to monitor closely. With agency initiatives advancing in tandem with legislative efforts and crypto companies successfully entering the public markets, the coming months will likely define how the next phase of U.S. crypto regulation and market integration unfolds.

As expected, September started with what has been dubbed a “crypto sprint,” as various branches of government look to quickly put into place digital asset regulations and legislation before the end of the year. In the Senate, the Senate Banking Committee has released its updated market structure legislative draft — maintaining key differences from the House’s market structure bill — the CLARITY Act, which passed by an overwhelming bipartisan vote earlier this year. At the SEC, the agency is hard at work coordinating with the CFTC on multiple crypto-related issues, and it released its rulemaking agenda for the upcoming year. Detailed breakdowns of these developments, their implications for businesses going forward, and a few other updates on crypto-law topics are discussed below. Senate Releases Market Structure Draft Bill: September 5, 2025 Background: Before the August recess, the Senate Banking Committee released a discussion draft market structure bill with an accompanying request for comments. Polsinelli assisted with the Digital Chamber’s response to those comment requests. Back from break, the Senate has now taken in those comments and released an updated draft titled the Responsible Financial Innovation Act. Senate Banking Chair Tim Scott will try to advance this draft through committee this month to stay on the fast-paced schedule that congressional and executive branch leadership is aiming for. While still waiting for the Senate Agriculture Committee’s companion draft to address many CFTC-related issues, Senate Banking will need to schedule a hearing in the near future on this revised draft for any chance of passing in 2025. Analysis: The big question was whether the Senate’s bill would revert to the CLARITY Act’s control-based/decentralization test (which passed the House in an overwhelming vote of 294-134) to determine if sales of certain digital assets would be considered securities transactions, versus the Senate’s bill, which created an “ancillary asset” concept to determine when a transaction involving digital assets constitutes a securities transaction. That question was answered, as the current draft maintains the ancillary asset framework with some fairly important changes. The biggest industry win in the revised draft has to be the increased protection for developers of noncustodial software tech, which was advocated for by more than 100 industry participants and spearheaded by the DeFi Education Fund. From an initial review, it appears that the draft implemented many of the modifications requested by industry comments — but at 182 pages, it is expected to have areas that still need improvement. SEC and CFTC Release Joint Statements on Crypto Issues: September 2-5, 2025 Background: The SEC and CFTC released a joint statement clarifying the views of both agencies’ staff that “SEC- and CFTC- registered exchanges are not prohibited from facilitating the trading of certain spot commodity products.” One large hold-up in facilitating the sale of tokenized securities through existing digital asset exchanges (or facilitating the sale of non-securities crypto assets through alternative trading systems and securities exchanges) is how the exchanges would be permitted to sell, or accept as payments, non-securities like $USDC or $BTC alongside tokenized securities. This appears to be the first step in overcoming that hurdle. A few days later, CFTC Acting Chair Pham and SEC Chair Atkins released a joint statement with the subtitle, “Next Steps – Bringing Novel and Innovative Products Back to America,” which relates to planned convergences of securities and commodities laws that might facilitate the development of “everything exchanges.” Analysis: While the statements don’t create any new actionable law, they do signal the direction in which the agencies will be heading. The follow-up statements on bringing novel financial products back onshore were also important. All the listed areas of focus — 24/7 markets, perps, event contracts, DeFi and portfolio composition requirements — directly implicate crypto or benefit from blockchain ledger technology rails, so it seems like good things are on the horizon. It also means the policy work done in the next 12-18 months could shape U.S. financial markets for decades to come. SEC Releases Regulatory Agenda: September 4, 2025 Background: The SEC’s Office of Information and Regulatory Affairs released the Spring 2025 Unified Agenda of Regulatory and Deregulatory Actions, which Chair Atkins described as covering “rule proposals related to the offer and sale of crypto assets to help clarify the regulatory framework for crypto assets and provide greater certainty to the market,” as well as “withdrawal of a host of items from the last Administration that do not align with the goal that regulation should be smart, effective and appropriately tailored within the confines of our statutory authority.” Analysis: While the market structure legislation efforts are ongoing in the Senate, the SEC has clearly signaled that it intends to move forward with crypto-related rulemaking efforts without waiting on the outcomes of those legislative efforts. The proposed rule changes include many areas that can be expected to impact crypto (such as revised definition of “Dealer” and Rule 144 Safe Harbor changes) and five agenda items that directly mention crypto: (1) Crypto Assets; (2) Amendments to the Custody Rules; (3) Transfer Agents; (4) Amendments to Broker-Dealer Financial Responsibility and Recordkeeping and Reporting Rules; and (5) Crypto Market Structure Amendments. There is very little detail at this point, but it is a step in the right direction and a forecast of what is to come in the next 6-12 months. It is also interesting that, for the first time, this is being framed as a deregulatory agenda — not just a regulatory one. Briefly Noted: NASDAQ Submits Crypto Rule Change Proposal: The NASDAQ Exchange has submitted a proposed rule to the SEC regarding the tokenization of stock for trading on-chain. While the current proposal doesn’t include T+0 settlement, trading stocks through blockchain ledger technology could allow for faster settlement and easier books and records-keeping compliance, alleviating the need for burdensome consolidated audit trail rules. Fed Conference on Payments Innovation: The Federal Reserve is hosting a conference on “payments innovation.” Less than a year ago, we were in the throes of Operation ChokePoint 2.0, and now the Fed is actively bringing together crypto leaders to figure out how to integrate blockchain into the financial system.   Polymarket No-Action: Polymarket will be available to U.S. consumers after the CFTC issued a no-action letter that allows Polymarket to offer event contracts without reporting the data required under U.S. financial regulations (which wouldn’t have added much, given the level of transparency). This comes as prediction markets start to influence sports wagering markets with their rise in popularity. Crypto Funding Stays Hot: Crypto companies have raised over $16 billion this year from venture, which is on pace to beat the funding record from 2021, when companies in the space raised over $29 billion. This comes as Figure and Gemini both are looking to go public in the near term and M&A in the space is hotter than ever. 100+ Industry Participants Push for Developer Protections: DeFi Education Fund organized a huge coalition of industry advocacy groups and participants to sign a letter advocating for protecting the software developers and non-custodial service providers. The Digital Chamber’s Consumer Innovation working group came up with draft legislative text for self-custodial wallet developers and consumers — which is a good start — and which was highlighted on pg. 30 of the Digital Chamber’s letter to the Senate Banking Committee on market structure legislation. As noted above, these efforts were seemingly successful in getting developer protections added to the Senate market structure bill efforts. Why Stablecoins: Similar to the effort spearheaded by Polygon a few years ago of compiling real world uses cases for blockchain technologies, this recent effort to compile what makes stablecoins so useful is a nice addition to the zeitgeist. Economic Data on the Blockchain: Commerce Secretary Lutnick went semi-viral recently when he said his department will start issuing economic data on blockchain (official release here). This will allow pricing oracles to rely on blockchain data versus publicized data, which can lag and have errors in reporting. This could have a large effect on how economic indicators get priced into the market. White Hat Safe Harbors: In addition to the crypto privateer law proposals, more and more DeFi protocols are providing safe harbors to white-hat hackers in event of a breach or exploit. By the time authorities get involved, it is often too late, so giving private actors — who have the ability to stop these exploits while they are occurring — the power to do so is a good idea. Conclusion: The pace of developments underscores that the “crypto sprint” is more than just a slogan; lawmakers, regulators and industry participants are all moving quickly to shape the rules that will govern digital assets for years to come. With the Senate Banking Committee pressing forward on its market structure bill, the SEC and CFTC aligning on joint statements and rulemaking agendas and agencies across the government opening the door to blockchain-based innovation, the next several months will be decisive. Whether the result is greater clarity, better protections for developers and consumers or a framework that helps keep innovation onshore, what happens in 2025 will set the trajectory for the U.S. digital asset ecosystem well into the next decade. 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.

Congress may be in its August recess, but the crypto legal developments have not slowed. The SEC’s Division of Corporation Finance released long-awaited guidance on Proof-of-Stake liquid staking tokens, clarifying when such activities may fall outside the scope of securities laws. The very next day, a jury returned a split verdict in the Department of Justice’s criminal case against Tornado Cash developer Roman Storm, a case that leaves unanswered fundamental questions about individual liability in creating neutral privacy-preserving software. This all comes while Wall Street and public/soon-to-be-public companies have been looking for legally compliant ways to integrate crypto into their business strategies. Together, these updates capture the evolving legal landscape for crypto, as regulators and courts wrestle with how to apply traditional frameworks while embracing developing technologies. Detailed breakdowns of these developments, their implications for businesses going forward and a few other updates on crypto-law topics are discussed below. SEC Issues Guidance on Proof of Stake Liquid Staking Tokens: Aug. 5, 2025 Background: For the less crypto savvy, liquid staking tokens (LSTs) are tradable tokens received in exchange for staking cryptocurrency with a Proof-of-Stake (PoS) protocol. These tokens serve as receipts — representing staked assets plus accrued rewards — while allowing the holder of the tokens to use them in decentralized finance activities. This enables investors to earn staking rewards without fully locking up liquidity since the LST can be sold, lent or otherwise used while the original underlying staked asset remains locked in the network. The SEC’s Division of Corporation Finance has now released guidance on when it views “Liquid Staking Activities” as not involving the offer or sale of securities. Importantly, this guidance is limited and does not mean that all configurations of LST issuance and redemptions fall outside of the activities regulated by the SEC and state securities regulators. Analysis: This statement follows prior guidance on Covered Stablecoins, Memecoins and Staking, and it continues the current SEC’s approach of issuing targeted regulatory guidance for digital asset activities, where previously Commissioners advocated for (and some continue to advocate for) ambiguity. Polsinelli specifically called for the Commission to address liquid staking tokens in our written submission to the SEC on behalf of the Digital Chamber (see, pg. 20), making this exactly the type of guidance that leading industry advocacy groups are actively seeking. One big takeaway is that the guidance only addresses “the staking of crypto assets that are intrinsically linked to the programmatic functioning of a public, permissionless network and are used to participate in and/or earned for participating in such network’s consensus mechanism or otherwise used to maintain and/or earned for maintaining the technological operation and security of such network.” Further, while the latest guidance specifically referenced the SEC’s prior staking guidance, this statement appears to have been carefully crafted to avoid explicitly limiting the guidance to only apply to PoS protocols. Given the already substantial LST market, this guidance is particularly important as crypto treasury companies expand and look for ways to earn yield on their token holdings. DOJ v. Storm Privacy Preserving Technology Criminal Trial Ends: Aug. 6, 2025 Background: The trial in the DOJ’s criminal prosecution of Roman Storm, a developer of privacy preserving technology, lasted about three weeks. The DOJ’s case alleged Storm’s knowledge of criminals using the privacy tool he created (alongside noncriminal use) placed put him in a conspiracy with the criminals who used the technology. The case concluded with a verdict of guilty on the charge of conspiracy to operate an unlicensed money-transmitting business, but the jury deadlocked on the charges of conspiracy to commit money laundering and conspiracy to violate sanctions. The verdict came a week after closing statements — as jurors needed additional time to deliberate — but they were still ultimately  unable to reach a unanimous verdict in two of the three charges. This means the DOJ must now decide whether or not to request a new trial on those counts. The case echoes Bernstein v. United States, which was critical in articulating that the right to free speech includes the right to create and publish cryptographic technology, the backbone of online privacy today. Storm’s case could prove equally significant in defining individual rights to create “neutral” privacy-preserving software. Analysis: The government’s case featured questionable evidence and witness complications. The first witness testified that a “recovery firm” told her that crypto that was stolen from her was sent through the Tornado Cash protocol. It was reported, however, that the “recovery firm” was actually under investigation by the FBI for fraud, and her stolen crypto likely never actually touched the protocol. There were also issues around witness availability: after it was reported that prosecutors were still considering charges against certain defense witnesses, those witnesses to pled the Fifth instead of testifying for the defense. The fact that the only charge for which Roman Storm was convicted — regarding failing to obtain a license — was for something FinCEN, which issues such licenses, directly told the DOJ a person doesn’t require a license for makes the issue seem ripe for appeal. This is far from over, as the sole conviction was also the most centered on legal vs. factual issues, and post-trial motions are expected, but the verdict itself was a mixed result with uncertain implications for the creation of non-custodial software generally. This also comes as the Department of Treasury is looking for comments on how to address illicit finance issues in digital assets. Briefly Noted: Public Markets Booming: While it may be ambivalent about the adoption of stablecoins and other cryptocurrencies, Wall Street seems to be clamoring for more public company activity in the space. In addition to the dozens of crypto treasury companies that have launched or are rumored to be launching and the successful IPO of stablecoin issuer Circle, Gemini publicly filed Form S-1 in advance of an IPO, and Bullish — the owner of an exchange that doesn’t even permit U.S. investors, along with other related businesses, including CoinDesk — significantly upsized its IPO, ultimately raising about $1.1 billion dollars. There has been great flexibility in the transaction structures of these vehicles, from traditional IPO to moving existing listings to the U.S., to de-SPAC transactions, to mergers into existing listed companies, to simply shifting the business strategy of an existing public company. Polsinelli has been advising investors and other stakeholders in all flavors of these transactions.  Digital Chamber Releases Comments to Senate Working Draft: The Digital Chamber has submitted its response to the Senate Banking Committee’s digital asset market structure working draft questions. The Senate will have much to consider when they return from the August Congressional Recess. Crypto Executive Orders: The President issued two Executive Orders related to crypto recently. The first mandates that the Secretary of Labor issue guidance for 401ks  that includes “alternative assets,” including crypto. The other is related: preventing a recurrence of Operation ChokePoint 2.0, which under the prior administration severely limited the banking opportunities of crypto industry participants by requiring federal banking regulators to create policies preventing de-banking based on political or industry affiliations. White House Crypto Head Steps Down: Bo Hines is stepping down as the executive director of the White House crypto council to return to  the private sector. With the President’s Working Group on Digital Asset Markets having completed its report, this was likely a good time to hand off the reigns to others to continue these efforts. Crypto Privacy Updates: In light of the Tornado Cash verdict, this article from Coinbase on privacy preserving technologies like zero-knowledge proofs, and this speech from SEC Commissioner Peirce on the importance of financial privacy preservation, provide compelling reasoning for the importance of preserving financial privacy in an increasingly digital world, as well as the struggles of doing so. Uniswap DUNA Proposal: Uniswap proposed adopting a DUNA corporate wrapper for its existing token governance structure. The DUNA structure was introduced by Wyoming and created last year to attract crypto businesses. Seeing an extremely sophisticated team like Uniswap make this proposal and become one of the first major DAOs to contemplate a DUNA corporate structure is certainly something worth monitoring. That said, the structure is just one of many in the decentralization toolbox and still may not be appropriate for many DAOs and other protocols looking to decentralize, particularly in light of potential tax consequences and significant ambiguity within the DUNA law itself. Do Kwon Pleads Guilty: Three years after the Terra/Luna collapse that contributed to the downfall a crash of 3AC and FTX, founder Do Kwon plead guilty to two counts of federal fraud. He faces up to 25 years in U.S. prison, after which he still may face extradition to South Korea — which engaged in a tug-of-war with U.S. authorities regarding his release from prison in Montenegro. Conclusion: Both the SEC’s liquid staking guidance and the mixed verdict in Storm’s trial reflect an inflection point for U.S. crypto regulation. Industry stakeholders now have greater clarity on certain staking activities, yet the line between permissible software development and unlawful facilitation of financial crime remains contested. With additional executive action from the White House, new market structure proposals from Congress and industry-led governance experiments such as Uniswap’s DUNA initiative, the legal and policy environment for digital assets is changing at an unprecedented pace. How regulators, courts and industry participants navigate these developments in the coming months will shape not just compliance obligations, but also the broader trajectory of innovation in blockchain-based finance. 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.

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.

In a historic week for digital assets, the United States has officially enacted its first federal crypto legislation with the GENIUS Act signed into law on July 18, 2025. Passed after the longest House vote in history, this bipartisan milestone establishes a comprehensive framework for the issuance, sale and redemption of fiat-backed digital assets and bringing long-awaited regulatory clarity to stablecoins, and opening the door for their use in faster, cheaper and more secure payment systems. This update breaks down what the GENIUS Act means for businesses and financial institutions, tracks the parallel developments of the CLARITY Act in the House and Senate market structure efforts, and recaps other major legal and regulatory developments from what lawmakers dubbed “Crypto Week” on Capitol Hill. We paused our usual biweekly schedule so we could deliver the legislative updates while they were fresh, and in hindsight, that was the right call. There’s a lot to cover. Read on for analysis, updates and a few additional developments briefly noted below. GENIUS Act Passes House, Signed Into Law: July 17, 2025 Background: It took the longest vote in House history, nearly 10 hours just to clear the procedural threshold for a floor vote, but the GENIUS Act ultimately passed on a striking 307–122 bipartisan vote. This rare show of consensus in today’s deeply divided Congress is an important signal of national momentum behind digital asset legislation. The President signed it into law  the following day, making it the first federal crypto legislation ever enacted in the U.S. making America one of the first countries to develop a formal legal framework for issuance, sale and redemption of digital assets pegged to a sovereign currency. The law’s regulatory framework gives businesses and financial institutions long-sought-after legal certainty around stablecoin use in payments and financial infrastructure. Analysis: It wouldn’t be a Crypto Week without some last-minute drama. The GENIUS Act almost fell apart when a group of House Republicans demanded the addition of the Anti-CBDC Surveillance State Act language to the bill. That move would have forced the bill back to the Senate, where it likely would have died. Fortunately, cooler heads prevailed—and likely some pressure from President Trump, who publicly urged Republicans to get behind crypto legislation—and the GENIUS Act made it through cleanly. Now law, it marks a historic turning point in U.S. crypto legislation and provides opportunity for stablecoins to be integrated into faster, more secure and cost-effective payment systems. CLARITY Act Passes House, Heads to the Senate: July 17, 2025 Background: The House also passed the CLARITY Act, its long-anticipated digital asset market structure bill with broad bipartisan support on a vote of 294-134. All House Republicans voted in favor of the legislation or abstained and 78 Democrats joined them—an improvement over FIT21, the prior House market structure bill, which drew 71 Democratic votes before dying in the Senate. The CLARITY Act now heads to the Senate, where it will meet competing frameworks already in development by the Agriculture and Banking Committees. This sets up the next phase of negotiations over what a final market structure bill might look like. Analysis: As with the GENIUS Act, the CLARITY vote nearly went sideways, due to last minute efforts of the House Freedom Caucus to attach the Anti-CBDC Surveillance State Act language to the bill. That move would have undermined the wide bipartisan support it eventually obtained. Instead a deal was struck to attach the CBDC provision to a separate defense spending authorization package, allowing for broad bipartisan support for the passage CLARITY. It remains to be seen whether the Senate will advance the CLARITY Act itself or use it as a base for new legislation. Either way, the level of bipartisan backing in the House is a promising signal. With parallel efforts already underway in Senate committees, the prospect of comprehensive digital asset market structure legislation becoming law is more real than at any time before. Senate Moves Forward on Market Structure: July 9, 2025 Background: The Senate Banking Committee held a hearing of the full committee titled From Wall Street to Web3: Building Tomorrow’s Digital Asset Markets. Witnesses included Summer Mersinger from the Blockchain Association, Ripple CEO Brad Garlinghouse, Chainalysis CEO Jonathan Levin and others. The Senate Agriculture Committee has also scheduled its own hearing this week. The Senate Banking Committee has since then released a discussion draft of legislation along with a formal request for industry input. Analysis: The hearing marked another step in the Senate’s increasingly engaged posture on crypto regulation. Last month, the Senate Banking Committee leadership released its Principles for Market Structure Legislation. The hearing felt productive, reflected growing consensus that digital assets can no longer be ignored or simply litigated out of existence. Even skeptical voices are now focused on how to regulate crypto; not whether to do so (though many still appear unsure how to get their handle on something they tried to ignore away for years). That said the Senate remains well behind the House, which has already passed the CLARITY Act. And unlike the GENIUS Act’s fairly clean path to enactment, market legislation is expected to undergo extended negotiations between the chambers. Lawmakers, like  Senator Warren and Congresswoman Waters  are expected to oppose most market structure efforts, which could complicate the path to bipartisan consensus. Time is also running out: Congress is fast approaching its pre-election recess, and the window to finalize legislation this year is narrowing. And with the current state of dysfunction in Washington, anything is possible—including, as recent reports suggest, Congress going into early recess over political drama and rising fears of a government shutdown later this fall. The mere fact that crypto legislation is receiving this level of sustained attention in Congress is remarkable—and a sign of how far the industry has come in just a few years. Important Amicus Filed in Right-to-Code Case: July 7, 2025 Background: Back in January, a plaintiff backed by Coin Center filed a lawsuit  seeking a declaratory judgment that developing and publishing non‑custodial digital asset software does not require a money-transmitter license (the case is Lewellen v. Bondi in the Northern District of Texas). The Department of Justice (DOJ) moved to dismiss arguing that the plaintiff failed to show a credible threat of enforcement, failed to state a plausible constitutional claim and was seeking an improper advisory opinion. Now, a coalition of prominent digital asset stakeholders have filed an amicus brief opposing the DOJ’s motion and urging the court to allow the case to proceed. The amici include the venture firm Paradigm, the DeFi Education Fund, the Digital Chamber, the Solana Foundation and others—forming  a who’s-whoof crypto litigation advocates. Analysis: The DOJ argues there’s no credible risk of prosecution, but that position is hard to square with its ongoing criminal cases against crypto software developers. As the amicus brief states, “[t]he developers are analogous to the manufacturers of USB drives and frying pans. Since they merely make the tools that other people use to make transfers, they are not involved in the transfers themselves.” Despite signals from the current administration that it is taking a more constructive approach to crypto, this case highlights the persistent legal uncertainty facing developers. If the DOJ prevails, open-source software creators across the crypto ecosystem could remain exposed to prosecution simply for publishing code. Whether or not this court grants relief, the issue is unlikely to go away without either a legislative fix or clear, binding precedent. This is a fight that still needs to be fought at won or software developers in this and other spaces will remain at risk of criminal prosecution for public Briefly Noted: Paradigm Crypto User Research: Paradigm is a leader in crypto market research, and its latest mapping of crypto users is no exception. One of the more striking findings: 59% of respondents said the crypto assets someone owns—or previously owned—can reveal a lot about them. This suggests a growing belief that wallet history signals personal values, risk appetite or even political alignment. As crypto use becomes more mainstream, these behavioral cues may shape how users are profiled, marketed to or even evaluated for platform access. Research like this is especially valuable as more traditional businesses begin to explore the space under a more welcoming regulatory regime. Anti-CBDC Surveillance State Act Update: Also during Crypto Week, in line with expectations Representative Emmer’s Anti-CBDC bill passed the House on a largely partly-line 219-210 vote with only 2 Democrats voting in favor. While the bill is unlikely to gain traction in the Senate, it shows concerns over digital asset financial surveillance which are worth considering. DeFi Broker Rule Is Done: The IRS rule regarding digital asset “broker” reporting requirements issued just before the last administration ended is now officially dead, after being directed to be retracted by Congress. A quite but meaningful  win for the industry and another loss for the dwindling anti-crypto holdouts in Washington who not too long ago openly talked of building an anti-crypto army.   Important Message from Commissioner Hester Peirce on Tokenization: In response to various tokenized securities announcements, Commissioner Peirce has released a well-timed statement “Enchanting, but Not Magical: A Statement on the Tokenization of Securities.” Her key message: tokenized or not, securities need to follow securities laws. “While blockchain-based tokenization is new, the process of issuing an instrument representing a security is not. The same legal requirements apply to on- and off-chain versions of these instruments.” This message is what Polsinelli advocated for on behalf of the Digital Chamber in a recently submitted letter to the SEC which we covered in our last update and was submitted a week before Commissioner Peirce’s statement. DOJ v. Storm Trial Updates: A few pre-trial developments surfaced in the DOJ’s criminal case against Roman Storm (this is a good background on the case available here). Among them: the DOJ reportedly misrepresented a text from a reporter as coming from another Tornado Cash developer during the Grand Jury proceedings, and there were some other spicy pre-trial exchanges. The trial is underway and expected to last for a few more weeks, so we will keep covering those developments as they occur. Banking Regulators Give Guidance on Crypto Custody: The FDIC, the Office of Comptroller of Currency and the Federal Reserve issued joint guidance stating that banks can custody crypto assets for customers but need to be aware of risks and take appropriate steps to manage risk.  A long overdue and welcomed step toward normalizing digital asset custody in the traditional banking system Crypto Tax Changes: Though announced a while ago, it made the news again that the President supports  a de minimis tax exemption on appreciation related to crypto used to purchase everyday goods and services. Any such changes are likely need to come from Congress as it considers appropriate ways to tax crypto. Crypto-specific tax change proposals were not included in the recently passed “big beautiful bill” despite a last minute push. John Doe Summons Live On: SCOTUS will not be hearing a case challenging the broad use of warrantless summons, called “John Doe” summons, against third parties including digital asset exchanges. Combined with the anti-CBDC legislative efforts and the prosecution of Roman Storm discussed above, the financial surveillance of digital assets and legality of privacy preserving technologies will continue to be hot topics to follow. Conclusion: The passage of the GENIUS Act marks a turning point in U.S. digital asset regulation, signaling that stablecoins are no longer operating in a legal gray space but within a defined and enforceable framework. Combined with bipartisan momentum behind the CLARITY Act and ongoing Senate efforts on broader market structure legislation, the U.S. is finally laying the groundwork for a cohesive digital asset regulatory regime. While challenges remain, including constitutional litigation over software development to unresolved questions around CBDCs and financial surveillance, the last few weeks which included “Crypto Week” have demonstrated that meaningful, bipartisan progress is not only possible but actively underway. 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’s been an eventful stretch in crypto law and regulation. The Senate passed the GENIUS Act — the first major federal crypto bill to clear the chamber’s 60-vote threshold needed to overcome a filibuster — which would establish clear federal guidelines for stablecoin issuance, governance, and custody. Legislative activity continues to accelerate in Congress, with the Senate also holding its first hearing focused squarely on crypto market structure. Meanwhile, the long-running SEC v. Ripple case appears to finally be drawing to a close — albeit without the court’s blessing on the parties’ proposed settlement. The Blockchain+ team at Polsinelli is also proud to have served as lead authors of a submission to the SEC’s Crypto Task Force on behalf of The Digital Chamber. The letter addresses the status of consumer NFTs and other digital assets that should not fall under the SEC’s purview, discusses how the SEC should develop a digital assets taxonomy, and makes certain suggestions regarding SEC processes on a going-forward basis. You can read the full letter here. These developments and a few other brief notes are discussed below. SEC v. Ripple Settlement Agreement Nixed by Trial Court; Appeals Still Dropped: June 26, 2025 Background: Back in May, Judge Torres denied the parties’ joint request to approve a final proposed settlement of the SEC v. Ripple matter. The parties went back to do the legwork that Judge Torres found lacking in their initial attempt, and Judge Torres has once again denied request, ruling that “the parties do not have the authority to agree not to be bound by a court’s final judgment that a party violated an Act of Congress in such a manner that a permanent injunction and a civil penalty were necessary to prevent that party from violating the law again.” Analysis: On one hand, it’s always troubling when a court gets between two parties trying to settle a matter. On the other hand, it is hard to fault Judge Torres, who watched the SEC spend immense administrative and judicial resources over a half-decade period only for the SEC to do a complete about-face after the matter concluded. As Judge Torres ruled, the SEC briefed that “without an injunction, Ripple would continue to disregard the laws of Congress in a manner that would hurt investors,” so hard to accept the SEC effectively asking the court to ‘disregard’ its own prior statements. Ripple announced it was dropping its appeal, so this appears to be the end of the matter. Senate Digital Asset Subcommittee Holds Market Structure Hearing: June 24, 2025 Background: The Senate Banking Subcommittee on Digital Assets held a hearing titled Exploring Bipartisan Legislative Frameworks for Digital Asset Market Structure. The same day, Senate Banking Committee Chair, along with 3 other Republican colleagues, released their proposed digital asset market structure legislation principles, which appear to align with the CLARITY Act currently pending in the House. The hearing was sparsely attended, with only five of the eleven subcommittee members making an appearance and Senator Alsobrooks (sitting in for Ranking Member Gallego) being the sole Democrat to attend. Analysis: Having already passed stablecoin legislation, the Senate is turning its eye to market structure legislation. However, the sparse attendance could indicate that priorities lie elsewhere while the Senate waits to see how the House handles the CLARITY Act and GENIUS Act. That said, this was the first Senate hearing on market structure that seemed less exploratory and more focused on actual legislative text goals — a positive step. It looks like the goal is for market structure to be through both chambers of Congress by the end of September, which is ambitious to say the least, but an aggressive timeline gives market structure a chance of passing this year. Stablecoin Bill Passes in Senate on 68-30 Bipartisan Vote: June 17, 2025 Background: As expected after clearing cloture, the GENIUS Act (as amended) has passed the Senate and now moves on to the House for its consideration. The bill requires most stablecoin issuers to be approved and overseen by federal financial regulators such as the FDIC, OCC, and Federal Reserve, while allowing states to approve issuance under $10 billion, as long as the entities are regulated at the state level under similar frameworks. The bill was amended to win over pro-crypto Democrats seeking stricter rules for nonfinancial and foreign stablecoin issuers. The scope of payment stablecoins is limited to centralized tokens, meaning they are issued and managed by a single entity that maintains full control over the reserves, with real world 1:1 backing, such as stablecoins backed by treasury instruments or the U.S. dollar. This is the first crypto bill to pass the Senate’s 60-vote majority needed to overcome Senate filibuster rules, unlike the Senate’s 2024 disapproval resolution for the SEC’s Staff Accounting Bulletin, which only required a simple majority under the Congressional Review Act and was ultimately vetoed by President Biden. Analysis: There are currently enough votes in the House to get this passed and onto the President’s desk, where he has said he would sign the bill into law in its current form.  However, there are ongoing talks in the House to try to link the GENIUS Act’s passage with the CLARITY Act market structure legislation, which will face a much steeper path to passage. Hopefully, the GENIUS Act doesn’t get tripped up right before the finish line by efforts to tie it to broader legislation efforts. Effective market structure legislation could be truly transformative for the industry,  but there is a “bird in hand” argument for locking in a stablecoin win now instead of trying to do everything at once and ending nothing. Even if the GENIUS Act is signed into law, products such as Euro-pegged stablecoins, algorithmic stablecoins, and yield-bearing stablecoins have yet to be addressed. Briefly Noted: Payments Article: “How Stablecoins Could Transform Merchant Payments” by the Coinbase-led Payments Innovation Council is a great reference on how stablecoin payments can be implemented by businesses. The full protocol described in the article outlines a model compliant with existing payment processing laws (including smart-contract-enabled escrow for chargebacks) while potentially saving companies significant fees. DAO Governance Study: Practitioners in the space should read this recent study on governance centralization in decentralized autonomous organizations (DAOs) and its drivers and economic implications. “Our findings suggest that DAOs thus far fall short of delivering the promise of decentralized governance.” Fed Reputational Risk Examinations Over: The Federal Reserve has joined the OCC and FDIC in ending “reputational risk” examinations for banks it oversees. This is part of a wider effort across agencies and Congress to require firm metrics for banking examinations rather than basing examinations on industries a bank services. Bitcoin Backed Mortgages: Federal Housing Finance Agency’s Director, Bill Pulte, has directed the agency to study consumers’ use of crypto holdings for mortgage qualifications and a letter directing Fannie Mae and Freddie Mac to consider crypto for mortgage loan risk assessments. Prediction Markets/Funding Stays Hot: Kalshi, one of the leading prediction markets permitted in the U.S. after winning their dispute with the CFTC last year, is reportedly raising $185 million in a Series C at a $2 billion valuation. Polymarket also reportedly closed on a $200 million raise at a $1 billion valuation. The M&A activity is also starting to provide venture funds with liquidity for new investments. In-Kind Redemptions Coming: ETF purchasers are going to be given the option for in-kind redemptions in the near future. So people can buy in or sell ETF positions without exiting the underlying asset. There are still tax compliance issues to work through before this becomes a reality, though. FTX Creditor Distributions Begin: FTX’s bankruptcy estate started its first wave of creditor distributions on June 24, 2025, with some customers reportedly seeing higher-than-expected recoveries thanks to crypto market gains. Additional payouts are expected to continue into 2026. Supreme Court to Hear ’40 Act Matter: The U.S. Supreme Court has agreed to hear a case that would settle a split between the Circuits as to whether there is a private right of action under the Investment Company Act of 1940, or the ’40 Act.  Courts had long held that there is no such right of action until SDNY, and then the 2nd Circuit found that the ’40 Act contains "rights-creating language" that a court can't deny a rescission claim for violation of the statute.  While this doesn’t directly implicate crypto, many crypto and DAO structures potentially implicate the registration provisions of the Investment Company Act.  If there is a private right of action, there may be another fairly broad avenue for class action plaintiffs to bring new claims.  Conclusion: From stalled settlements in federal court to ambitious timelines for market structure legislation, digital asset law in the United States remains in flux. While the GENIUS Act’s bipartisan support offers a rare moment of legislative clarity, efforts to tie it to broader market reforms could still jeopardize its path forward. At the same time, regulatory agencies continue to refine how they treat crypto-related activities, from stablecoin payments to mortgage underwriting. As always, the space moves fast, and legal practitioners will need to keep pace with a landscape that is being rewritten in real time. 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 Congress, as key pieces of digital asset legislation move forward in both the House and Senate. While the stablecoin bill in the Senate looks like it may pass quickly, the overarching market structure bill in the House has been hotly debated and appears to lack bipartisan consensus. In other news, various crypto companies are looking to go public after a major stablecoin issuer went public with great success recently, and the SEC is clearing the way for expected upcoming formal rulemaking on the application of securities laws to digital assets. These developments and a few other brief notes are discussed below. GENIUS Act Vote in Senate: June 11, 2025 Background: In the Senate, there was a 68-30 vote to invoke cloture on the GENIUS Act, setting the stablecoin bill up for final passage this week. President Trump has put out a statement saying he would sign the bill into law in its current form if it hits his desk. It is expected that by the time of publication of this latest Bi-Weekly update, the GENIUS Act will have  passed the Senate, but the bill will still need to go to the House, and then the Senate again if the House makes any changes, before it can reach the President’s desk. The current House stablecoin legislation differs from the GENIUS Act in various ways, including issuers being regulated at both the state and federal levels and how foreign issuers are regulated. Analysis: The end of week vote to invoke cloture was a move by Senate Majority Leader Thune to end the effort to pass the bill via “regular order” which opens floor proceedings for submission and debate on various amendment proposals. This means the bill is now moving forward with just the changes negotiated with Democrats which lead to 16 Democrats supporting the GENIUS Act in a procedural vote on the Senate floor last month. The list of Senators who voted in favor of cloture is worth monitoring, with Senate Minority Leader Schumer voting against. This stablecoin bill cloture vote came the same week as Treasury Secretary Bessent testified to the Senate Appropriations committee that the Treasury Department is estimating the U.S. Dollar denominated stablecoin market to grow to $2 trillion by the end of 2028. House Financial Services and Agriculture Committees Markup CLARITY Act : June 10, 2025 Background: The House Financial Services and Agriculture committees held separate hearings to mark up the CLARITY Act with the Financial Services committee focused on the SEC related-elements, while the Agriculture committee worked through the CFTC-related provisions. The biggest change was the protection for crypto developers, wallet makers, and infrastructure providers (previously a separate bill dubbed the Blockchain Regulatory Certainty Act introduced by Representatives Emmer and Torres). The bill passed through the Agriculture committee on an overwhelming 47-6 vote. The vote in the Financial Services committee was a closer 32-19. Analysis: The Agriculture committee’s overwhelmingly bipartisan vote came right around the start of the Financial Services committee markup, and this fact was harped on regularly by bill proponents as a reflection of bipartisan bill support. The Financial Services markup process was choppier, going well into the night with roughly 40 amendments offered without any expectation of being approved. The current draft would give the CFTC spot market authority over most digital assets, but there is seemingly a push by opponents to give the SEC more power in this area. House Financial Services Committee Holds Crypto Hearing: June 4, 2025 Background: The House Financial Services Committee held a hearing entitled American Innovation and the Future of Digital Assets: From Blueprint to a Functional Framework to discuss issues related to digital asset regulation. Witnesses included the Chief Legal Officer for Uniswap Labs, Katherine Minarik, and former CFTC Chair Rostin Behnam. Proponents of passing digital asset legislation aimed at encouraging its development in the United States emphasized in the hearing the need for legislative certainty to protect consumers and ensure companies are not leaving the United States to pursue building products and services with blockchain technologies. Opponents cited concerns with the President’s  conflicts of interest and argued digital assets should change to meet existing laws rather than making new laws for digital assets. Analysis: This was just a warmup to the CLARITY Act markup. This hearing started with Ranking Member Waters stating in reference to the CLARITY Act “the only thing clear about this bill is we need to start over.” Republicans pulled a surprise attendance at minority day as well, where typically only the minority party members would attend. The House Agriculture Committee also held a digital asset hearing, but that was less dramatic. There is still much to be done in the regulatory environment, and further changes can be expected including whether what has been dubbed the “DeFi Purity Test” provisions by some is included in whatever the final bill is. Briefly Noted: 401K Updates: Our last Bi-Weekly update highlighted recent changes from the Department of Labor related to inclusion of crypto in 401(k) plans. Our employment law colleagues here at Polsinelli wrote a larger update on this and how it affects plan managers worth reading here. Joint Statement on Validator and Developer Protections: The largest advocacy organizations in the digital asset industry put out a joint statement encouraging the Blockchain Regulatory Certainty Act (a bipartisan bill introduced by Representatives Emmer and Torres) be added to the CLARITY Act. It looks like it worked as it was added to the new bill language, so good work all around on this. SEC Roundtable on DeFi: The SEC roundtable discussion on the agency’s potential role in decentralized finance is worth going back and watching if you did not catch it live. The intro from Chair Atkins was great, as were the additions from Michael Mosier on privacy and data communications systems. CFTC Chair Nomination Hearing: Brian Quintenz had his confirmation hearing on June 10. It is widely expected he will be confirmed, but the fact that he will likely be the sole CFTC Commissioner shortly after confirmation (if he is confirmed) is an interesting wrinkle. Samurai Motion to Dismiss: The developers behind bitcoin privacy tool Samourai Wallet moved to dismiss the DOJ’s unlicensed money transmitter related charges last week. “[The DOJ’s legal theory is] akin to charging an encrypted messaging app developer with conspiracy because it may know that some customers use the app to communicate about financial crimes. Or charging a burner phone manufacturer because it may know some customers use the phones to facilitate drug crimes.” DeFi Education Fund and Blockchain Association also wrote an amicus advocating for dismissal (even though the judge took a rare route and denied requests for amicus submissions). Crypto Company IPOs: Circle’s shares opened at $69.50 on the New York Stock Exchange after its IPO priced at $31. It joins Coinbase as one of the limited publicly traded crypto companies. Gemini has also apparently has confidentially filed for an IPO with the SEC as did digital asset exchange Bullish. There are also expectations for other businesses in the space to explore going public in the near future. SOL Spot ETF Filings: All the major players filed their S-1 prospectuses with the SEC to try to be in the first batch of SOL ETFs which everybody expects to happen. The big issue remains staking, which these vehicles need to be able to do to be competitive with spot buying on the open market. SEC Withdraws Rule Proposals: The SEC has formally withdrawn most of the rule proposals issued under the prior administration, including several proposed rules which would have had significant implications on DeFi and crypto custody. It is a rare move to see rule proposals formally retracted rather than fading silently into the background, so this signifies an attempt to create a “clean slate” for upcoming expected rule proposals under Chair Atkins. Coinbase State of Crypto Report: The Coinbase yearly State of Crypto research is out. Biggest findings are in the cover photo, including that 60% of Fortune 500 executives surveyed said their companies are currently working on blockchain initiatives. They also did a livestream with various big names in crypto and policy going through the results and plans for the upcoming year. Conclusion: As the first half of 2025 wraps up, the digital asset policy landscape is entering a critical phase. Stablecoin legislation appears poised for Senate passage, while the broader market structure bill continues to spark heated debate in the House. Meanwhile, key regulatory and enforcement developments—including the SEC’s rule withdrawals, the DOJ’s evolving theories on developer liability, and growing IPO activity—suggest a transitional moment for Web3 in the United States. With bipartisan momentum behind certain reforms and a growing chorus pushing for clarity, the next few months will be essential in shaping the legal infrastructure for blockchain and digital asset innovation. 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 last two weeks have seen federal agencies continue refining their approach to the digital asset industry, while state regulators are beginning to play a more prominent role—even as the overall pace of development appears to be slowed. With the SEC stepping back from non-fraud enforcement, Oregon’s lawsuit against Coinbase highlights a potential shift toward increased state-level activity. At the federal level, the SEC issued new guidance on registering crypto-related securities, the House held hearings on digital asset market structure, and the DOJ released a memo calling on prosecutors to “end regulation by prosecution”—underscoring a growing federal priority to focus enforcement on fraud and consumer protection rather than taking a broad adversarial stance toward the industry. Other notable developments include Illinois advancing a BitLicense 2.0 proposal, OpenSea seeking SEC guidance on NFT regulations, and Ripple moving to acquire global credit network Hidden Road. These developments and a few other brief notes are discussed below. Oregon Sues Coinbase Over Alleged State Securities Laws Violations: April 17, 2025 Background: Oregon’s state attorney general has brought a lawsuit against Coinbase, alleging the exchange has violated Oregon state securities laws through listings of certain assets alleged to be securities under Oregon law. Coinbase has released a statement claiming, “Oregon’s holdout campaign is obstruction for the sake of obstruction. It is a desperate scheme that does nothing to move the crypto conversation forward, and in fact takes us a giant leap backwards from hard-won progress.” Analysis: As anticipated, states and private litigants are beginning to fill the securities litigation gap left by the SEC’s decision to drop its pending and threatened cases against digital asset participants in favor of pursuing a statutory and rulemaking-based framework. Oregon’s lawsuit, which names 31 assets as “unregistered securities,” is notable—especially as other states withdrew similar actions following the SEC’s retreat in the Coinbase matter. This latest development underscores that, despite federal de-escalation, litigation against exchanges remains an ongoing issue for the industry. SEC Issues Guidance on How to Register Securities that Involve Crypto: April 10, 2025 Background: Much of the focus at the SEC post-Gensler has been on releasing guidance on what crypto offerings are not securities (memecoins, stablecoins, etc.). The SEC Division of Corporation Finance has now put out guidance for issuers whose securities involve crypto assets on how federal securities law disclosure requirements apply. It recognizes that issuers may offer equity or debt securities as part of operations related to networks, applications, and crypto assets, and highlights the need for tailored, clear, and consistent disclosure aligned with existing rules (e.g., Regulation S-K, Forms S-1, 10, 20-F, and 1-A). Key disclosure elements include a focused description of the issuer’s business and developmental milestones, potential risks (such as technological, regulatory, and liquidity risks), a complete description of the securities (including any unique features and technical specs), and information on directors, executive officers, and significant employees (or third parties) performing policy-making functions. Analysis: Tokenized securities are coming to traditional finance. Major actors in the traditional financial world are already preparing for that eventuality. Most digital assets are not securities, but many securities could be better handled through addendum only ledger technology rather than a seemingly endless number of middlemen all getting their cut to make sure none of the other middlemen are cheating the consumer. So, while the SEC and Congress work through determining which digital assets are securities and which are something else, this is a good step to allow innovative companies to start registering tokenized products. Market Structure Hearings Held in House of Representatives: April 9, 2025 Background: The House Financial Services Committee’s Digital Asset Subcommittee and the House Agriculture Committee’s Digital Asset Subcommittee both held hearings on how to approach an overarching market structure for digital assets now that stablecoins seem to be on the fast track to regulatory standards. There is a broad consensus that digital assets that are securities need to be provided a way to register with the SEC and abide by SEC rules that aren’t so onerous that the registration process kills any value of the product. Analysis: You can probably read the statements from witnesses Bill Hughes, Chris Brummer, and Rodrigo Seira to get the gist of where the focus should be for digital asset regulation. Both hearings had a noticeable focus on use cases for digital assets. We are still waiting for what the market structure bill will look like. It will be close to FIT21, previously passed through the House Financial Services Committee, but we don’t know how close it will be yet, as there were noticeable weaknesses in the bill. Draft language is expected to be public soon, though, and all expectations are for the determining factor between securities offerings and non-securities offerings to focus on “control” as opposed to “decentralization,” which was the focus of last year’s bill. DOJ Releases Memo “Ending Regulation by Prosecution”: April 7, 2025 Background: Deputy Attorney General Todd Blanche has issued a memorandum to Department of Justice employees with the subject reading “Ending Regulation by Prosecution,” where he states, “Consistent with President Trump’s directives and the Justice Department’s priorities, the Department’s investigations and prosecutions involving digital assets shall focus on prosecuting individuals who victimize digital asset investors or those who use digital assets in furtherance of criminal offenses…” The memo clarifies that the DOJ is not going to focus efforts on exchanges or wallets for the actions of third-parties, and is not the regulator of alleged unregistered money transmission laws. It also disbands the National Cryptocurrency Enforcement Team, which was responsible for most current investigations and prosecutions in the space over the last few years. Analysis: Note that this memorandum does not include guidance not to prosecute alleged violations of 18 U.S.C. 1960(b)(1)(C), which involves allegations of transmitting funds that are “knowingly” the product of criminal offenses and is the heart of the Roman Storm and Samuri Wallet developer cases. Interestingly, the memo calls out the issue of how digital asset losses are calculated when trying to compensate victims (a not-so-subtle reference to FTX depositors getting ~$20,000 per Bitcoin lost when Bitcoin was worth quadruple that by the time repayments happened). Not sure if there is a solution to this other than making people choose early in the process if they want in-kind or value of asset at time of theft. Unfortunately for Do Kwon, even with this DOJ pivot, his suit will remain ongoing. Briefly Noted: Paul Atkins Sworn in as SEC Chair: Paul Atkins has finally been sworn in as SEC Chair, marking the formal start of a new era for the Commission. The agency remained active in redefining its priorities throughout his confirmation process, and Atkins was widely understood to be in alignment with the key decisions made during that period. With his swearing-in now complete, he is positioned to implement a full regulatory agenda and set the tone for the post-Gensler SEC—potentially accelerating shifts in enforcement priorities, rulemaking, and digital asset policy. Illinois Looking to Pass BitLicense 2.0: An Illinois bill is gaining traction and is expected to pass, which would enact similar onerous reporting and registration requirements as the New York BitLicense. With the combination of the Oregon lawsuit discussed above, this further emphasizes the need for comprehensive regulations at a federal level to prevent fractionalized and contradictory rules. OpenSea Open Letter: OpenSea has submitted a public letter to the SEC advocating for NFT marketplaces to be carved out of broker/dealer registration requirements with the SEC. It is clear that even with NFTs decline, they are still a crucial part of the ecosystems that need regulatory guidance.  Nova Labs Lawsuit Dismissed: Nova Labs (the developer behind Helium Network) was sued in the last days before Gensler resigned, and that lawsuit has now been dismissed with prejudice. So this ordeal actually ended up good for them since the lawsuit being brought and then dismissed in this way prevents any future lawsuit over the same allegations from the agency. Hinman Cleared by Office of Inspector General: Former Corporation Finance Director Bill Hinman has been cleared of allegations that his infamous speech was the result of insider dealings. $1.2 Billion M&A Deal: Ripple is reportedly acquiring global credit network Hidden Road for $1.25 billion. This is reportedly an effort to give functionality to Ripple’s stablecoin, RLUSD, in traditional finance for cross-border settlements. MEV Submission: Really great work from the team at Paradigm explaining how MEV works and what the SEC should consider in regulation in light of those technical realities. Good stuff. DOJ Memo Confirmed Not Applicable for Fraud: As stated above, the DOJ memo regarding cutting down on criminal actions for crypto actors is not a get out of jail free card for past (alleged) frauds. SEC Roundtable on Crypto Custody: The SEC has announced the time and speakers in its next crypto roundtable on custody. It remains great to see as many of these conversations as possible happen in public. Phantom Wallet Lawsuit: It looks like an attorney is suing the wallet developer where he held certain memecoins he created, but which were stolen through his computer being compromised. This will be something worth following, especially if wallet developers are regulated under a market structure bill or similar legislation. Conclusion: The last two weeks have been relatively quiet in terms of crypto legal development. With the SEC pivoting away from prosecuting non-fraud crypto cases, state regulators have begun stepping into that role, most notably with Oregon suing Coinbase over alleged violations of state securities laws. At the federal level, the SEC provided guidance on registering securities that include crypto assets, the House of Representatives held market structure hearings, while the DOJ aimed to “end regulation by prosecution.” As always, we’ll continue monitoring these developments and provide updates as the evolving regulatory landscape for digital assets continues to take shape across federal and state levels. 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 past two weeks have been relatively quiet, with stablecoins being the most prominent focus on the regulatory front. Stablecoin legislation now appears likely this year, with a bill to regulate stablecoins advancing out of the key House Financial Services Committee — a step toward what would be the first crypto-specific federal legislation enacted in the United States. The SEC also issued guidance clarifying that certain “covered stablecoins” are not securities under existing law. Unresolved are several key questions — including whether regulatory authority over stablecoins will lie solely with the federal government or continue to be shared with the states and whether interest-bearing stablecoins should be treated as stablecoins at all. These developments and a few other brief notes are discussed below. SEC Clarifies That Certain Stablecoins Are Not Securities: April 4, 2025 Background: While Congress moves toward a legislative framework for stablecoins (discussed below), the SEC has issued limited guidance addressing how existing securities laws apply to certain types of stablecoins. The SEC’s Division of Corporation Finance’s Statement on Stablecoins provides that the offer and sale of certain “covered stablecoins” do not consist of the offer and sale of securities and issuers of the same “do not need to register . . . with the Commission under the Securities Act or fall within one of the Securities Act’s exemptions from registration.” Analysis: Under the guidance, “covered stablecoins” are defined as stablecoins that are marketed for the purposes of making payments, are exchangeable for the reference currency on a one-for-one basis and are backed by a reserve of low-risk, liquid assets. There are at least two big takeaways from this guidance. First, interest-bearing stablecoins could turn a consumer product into an investment product under the Howey and Reves tests. Second, while not explicitly addressed, the statement implies that stablecoin issuers might not need to register as investment companies under the Investment Company Act of 1940 as long as the assets backing the stablecoin are USD and other assets that are “considered low risk and readily liquid.” This view is consistent with pending legislation that would prohibit interest payments on stablecoins to distinguish them from investment products. Notably, the guidance does not address stablecoins pegged to anything other than the U.S. dollar. Stablecoin Bill Passes House Financial Services Committee: April 2, 2025 Background: The House Financial Services Committee included H.R. 2392, the Stablecoin Transparency and Accountability for a Better Ledger Economy (STABLE) Act of 2025, in a recent markup session. Committee Chair French Hill stated he expected “our discussion today will be passionate,” and his expectations were met during a marathon 10-hour debate, particularly regarding various proposed amendments to prohibit federal officials from "sponsoring, issuing, promoting or licensing" stablecoins in response to World Liberty Financial stating its intent to issue a stablecoin for its platform. The bill ultimately ended up passing through committee on a 32-17 vote, demonstrating a fairly strong bipartisan vote, though further changes can be expected before the bill reaches the House floor. Analysis: Stablecoin legislation in 2025 now appears likely, but the two major questions remain: whether authority will be split between state and federal authorities, and whether stablecoins should be permitted to bear interest. Some argue that allowing interest bearing stablecoins will enhance utility, while others argue that it could undermine the existing banking system. An anti-central bank digital currency (CBDC) bill also advanced through the Committee, along party lines, though that bill is of limited practical importance, as any CBDC would likely require express Congressional approval. SEC v. Ripple Settlement Progresses: March 25, 2025 Background: In our last Bi-Weekly update, we noted the then-available details regarding developments in the SEC v. Ripple case. Since then, further news was released that Ripple will also not be appealing the decision in its case against the SEC. The SEC will also ask the district court to lift the standard SEC injunction, but there is no guarantee that it will be approved. Analysis: The settlement was finalized as both parties agreed to drop their respective appeals in the case, which dates back to 2020. Ripple agreed to pay a fine of $50 million, reduced from the original $125 million, in exchange for the SEC requesting the lifting of injunction requiring Ripple to register any future securities. The settlement signals the conclusion of one of the most anticipated crypto litigations. As discussed in the previous update, the settlement aligns with the general outlook of the SEC dropping non-fraud related crypto cases. On the other hand, Ripple remaining liable for a $50 million fine related to its institutional token sales leaves a door open for the SEC to argue that sales of tokens for the purpose of raising capital purposes might still be treated as securities offerings. While the settlement is a welcome resolution, the absence of a final judicial opinion leaves no precedent or legal guidance for future token offerings. With this litigation soon behind us, the industry can now focus on securing clearer regulatory guidance on digital assets. Briefly Noted: Digital Chamber Conference: Remarks by Commissioner Peirce: The Digital Chamber of Commerce held its annual Blockchain Summit on March 26th, with the Polsinelli BitBlog team actively participating. We were encouraged by the strong demonstration of bipartisan support for the industry — even in these highly partisan times — due in no small part to the efforts of the Chamber under Perianne Boring and now under the energetic new leadership of Coby Carbone, whom we had the pleasure of congratulating in person. Of particular note at the conference was SEC Commissioner Hester Peirce’s important address on the path ahead for building common-sense digital asset regulations. SEC Chair Confirmation Hearing: Paul Atkins had his Senate confirmation hearing last week, but there wasn’t anything unexpected discussed. He has a lot of work ahead of him and will get plenty of help from the industry in the various upcoming roundtables. That said, it appears he may have already gotten a head start, with two of the three remaining SEC commissioners (Uyeda and Peirce) being former staffers of his.  Securities Clarity Act Reintroduced: House Majority Whip Tom Emmer has reintroduced his Securities Clarity Act, which specifies that any asset sold as the object of an investment contract is distinct from the securities offering it was originally a part of. This definition is technology-neutral and applies to all assets sold or offered that would only be considered a “security” because of their inclusion in an investment contract. With the unclear status of the market structure bill, this would be a solid alternative along with SEC rulemaking and no-action letters. FDIC Removes Crypto Limits: The FDIC has released a statement that it will no longer require supervised institutions that “engage in permissible crypto-related activities” to receive prior agency approval. Another big win for getting digital asset companies access to traditional banking. Kentucky Self-Custody Law: Kentucky recently enacted a law that passed unanimously on a bipartisan vote and guarantees individuals the right to hold and manage their crypto in self-hosted wallets. Hopefully, we see similar protections at the federal level soon. State Staking-as-a-Service Lawsuits Dropped: Fresh off the SEC clarifying its view that pooled PoW mining operations are not generally securities offerings, South Carolina, Kentucky and Vermont have all dropped their lawsuits against Coinbase alleging that its staking services qualified as securities.  Circle Files to Go Public: USDC stablecoin issuer Circle has filed their S-1 to go public, aiming for a $5 billion valuation. Considering they had $1.68 billion in revenue and reserve income in 2024, that seems reasonable, even in less than optimal market conditions. Interestingly, the IPO filings also revealed Coinbase’s acquisition of a stake in Circle. This is just the first of the crypto companies going public in the upcoming months/years, if tariffs don’t derail those plans. Defending the Fourth Amendment: It is worth reading this amicus brief from the DeFi Education Fund in a case regarding the Constitution’s Fourth Amendment protection against illegal search and seizure, specifically challenging the government’s subpoena powers over digital asset transaction records held by centralized exchanges. Acting SEC Chair Asks for Guidance Assessment: Acting SEC Chair Uyeda has asked the staff to reassess certain guidance, which includes the Framework for “Investment Contract” Analysis of Digital Assets. This document was based on a 2018 speech by former SEC Bill Hinman. It appears the goal would be to clean the slate of past guidance muddying the waters in areas the current administration wants to change, including the prior approach to regulating digital assets. Conclusion: With the SEC announcing that certain “covered stablecoins” are not securities and a stablecoin bill advancing through the House Financial Services Committee, stablecoins were the most active area of regulatory development over the past two weeks. Ripple’s settlement with the SEC marks the close of one of the most closely watched crypto litigations to date — though it leaves much work ahead in the pursuit of clearer legal frameworks for digital assets. Other notable updates include the SEC Chair’s confirmation hearing, the reintroduction of the Securities Clarity Act, the FDIC’s removal of prior approval requirements for crypto-related activities, Kentucky’s new self-custody law, and Circle going public. 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 past two weeks brought some notable progress for the industry, though it still often feels like “regulation by lack of enforcement” rather than a truly proactive approach. The SEC clarified that most proof-of-work mining activities do not amount to securities transactions—a welcomed statement for miners but limited in scope. Meanwhile, Ripple announced a potential settlement that would end the SEC’s appeal, continuing a trend of non-fraud crypto cases winding down without generating long-term clarity. On Capitol Hill, the Senate’s markup of its own stablecoin act signals a significant step forward yet also highlights a lack of consensus necessary for any final bill. Finally, in a notable display of bipartisan alignment, both chambers of Congress overwhelmingly passed legislation overturning the IRS’s crypto broker reporting rules, demonstrating the possibility of constructive actions in areas where consensus can be reached. These developments and a few other brief notes are discussed below. SEC Clarifies That Most Proof-of-Work Mining Activities Are Not Securities Transactions: March 20, 2025 Background: The SEC’s Division of Corporation Finance released a statement clarifying its view that most proof-of-work (“PoW”) mining activities do not qualify as securities transactions under federal securities laws. The statement applies specifically to “Protocol Mining” activities involving “Covered Crypto Assets”, which are defined as crypto assets tied to the functioning of a public, permissionless PoW network. According to the release, whether through self-mining or pooled mining, miners perform the essential “work” themselves. Under the Howey test, one crucial element for a transaction to be deemed a security is that profits must flow primarily from the “managerial or entrepreneurial efforts of others.” Because PoW miners generate rewards by contributing their own computational power, the SEC concluded that these returns are not derived from someone else’s management. Thus, PoW mining generally fails this aspect of the Howey test, placing it outside the scope of federal securities laws. Analysis: It’s important to note that releases like these do not create binding law and each set of facts can differ and may yield different legal results, which may make certain PoW mining fall outside of this safe-harbor-like guidance. Still, the statement signals that, under typical PoW mining arrangements, participants who merely contribute computational power to validate transactions and receive rewards likely do not cross into securities territory, including through pooling arrangements. This may allow more risk-averse entities to contribute compute to mining or provide services to mining pools, which only serves to strengthen network resilience and efficiency. Ripple CEO Announces Pending Settlement With SEC: March 19, 2025 Background: Ripple has announced that the SEC will drop its appeal of the portion of the ruling against it in Ripple. This will bring an end to at least part of the case originally brought in 2020 during Jay Clayton’s term as Chairman of the SEC. This will still need to be approved at the next meeting of the commissioners, and it is unclear what this dismissal will entail. Representatives of Ripple have stated that they are evaluating what to do with their own cross-appeal relating to institutional investor sales. Still, there wouldn’t be an announcement like this if a deal was not in place, so now it is just a waiting game to see the details. Analysis: Ripple was one of the few digital asset issuers from the ICO boom that had the resources to fully litigate against the SEC, and it has been doing so for half a decade. And litigate they did, with over 25 filings related to the “Hinman Speech” documents alone. Combined with the dismissal of the Coinbase matter and its pending appeal, there is still no binding precedent from higher courts on the applicability of the Howey test to digital assets. Stablecoin Senate Markup Developments: March 13, 2025 Background: The Senate Banking Committee had a markup of the GENIUS Act, which is the Senate’s version of a stablecoin bill. Even before the markup and vote, there were some changes made due to bipartisan efforts to reach an agreement on how stablecoins should be registered and monitored in the U.S. The bill passed through committee on an 18-6 vote, with five Democrats (Warner-VA, Kim-NJ, Gallego-AZ, Rochester-DE and Alsobrooks-MD) voting in favor, meaning the 4 most junior Democrats on the committee (along with Warner) crossed party lines to vote in favor of the GENIUS Act. Analysis: Senator Warren predictably tried to propose amendments that would have killed the viability of the bill (to the delight of traditional banks), but all those proposals failed. It can be expected there will be closed door work on the bill to address the concerns of Democrats who want some changes to the bill to help it receive as much bipartisan support as possible. The House is also working on its own bill, holding a hearing on stablecoins and CBDCs this week, and the Senate Banking Committee also passed a bill regarding debanking that went along party lines. House Votes to Overturn IRS Crypto Broker Reporting Rules: March 11, 2025 Background: The House voted overwhelmingly in favor of repealing the IRS broker rule change, which was adopted in the final months of President Biden’s term, which would have made all self-custodial wallet providers, DeFi protocols and even arguably internet service providers themselves reporting entities for any digital asset transaction. The vote was 292-132 in the House and 70-28 in the Senate. It will go to the Senate again before being signed by President Trump, who has stated he intends to sign as soon as it hits his desk. Analysis: The IRS broker rule, as finalized, was overly broad and aggressive, potentially capturing industry participants like self-hosted wallet providers, automated market makers, validators and possibly even ISPs. This might be a “played yourself” moment because some classes of entities in the digital asset space could logically be included as reporting entities under broker reporting rules. If the bill goes into law as expected, any such rule will need to come from Congress now. Briefly Noted: SEC Likely to Abandon Reg ATS Rule Changes for Crypto: Acting Sec Chair Mark Uyeda gave a speech saying he directed staff to kick the tires on (i.e., abandon) a proposed rule change that would expand the definition of an "exchange" in a way that might have looped in certain DeFi protocols and service providers. Geofenced Airdrop Costs to Americans: Dragonfly released its State of Airdrops report for 2025, which shows that Americans missed out on as much as $2.6 billion in potential revenue (and the U.S. missed out on taxing that revenue) by policies that resulted in Americans being disqualified from those airdrops. Leadership Changes at Crypto Policy Leaders: Amanda Tuminelli is taking over as CEO of industry advocacy group DeFi Education Fund. Meanwhile, Cody Carbone deserves congratulations on his recent promotion to CEO of the Digital Chamber. Those organizations are in great hands under their leadership. Come in and Register: Now that crypto firms can actually have a dialog with the SEC without fear that opening the dialog will lead to investigations and hostile actions, a record number are filing for various approvals at the agency. Crazy how that works. CFTC Withdraws Swap Exchange Letter: The CFTC withdrew its prior Staff Advisory Swap Execution Facility Registration Requirement which arguably required DeFi participants to register with the agency and which 3 DeFi platforms were charged with disobeying in 2023. This may signal an intent to ease the prosecution of decentralized platforms for failing to register as swap execution facilities. OFAC Removes Tornado Cash Designations: In another huge industry development, OFAC has finally removed protocol addresses from its sanctions list, which is a huge win for software developers and privacy advocates everywhere. SEC Hosts First Crypto Roundtable: The SEC’s first crypto roundtable is available to view. Not many major takeaways, but it's good to see these conversations occurring in public forums. This is ahead of the expected SEC Chair Atkins’ hearing before the Senate. Stablecoin Legislation Update: Ro Khanna (D-CA) said he believes stablecoin and market structure legislation gets done this year at the Digital Assets Summit on March 18, 2025, stating there are 70 to 80 Democrats in the House who view this as an important issue to maintain American dollar dominance and influence. Bo Hines also stated stablecoin legislation will get done in the next few months. SEC Permits Some Rule 506(c) Self-Certification: Rule 506(c), which allows for sales of securities to accredited investors while using general advertising and solicitation, historically has required independent verification of accredited investor status, such as through getting broker letters or tax returns. In a new no-action letter, the SEC clarified that issuers can rely on self-certifications of accredited investor status as long as the minimum purchase price is high enough and certain other qualifications are met. Conclusion: Although not legally binding, the SEC’s acknowledgment that most proof-of-work mining activities are not securities transactions remains a welcomed development for the industry. Meanwhile, the potential conclusion of the SEC’s appeal against Ripple carries both positive and negative implications. On one hand, it suggests that the SEC may follow through on ending non-fraud crypto litigations; on the other, it underscores the ongoing uncertainty in crypto rulemaking absent further regulatory clarity. As the Senate and House each work through their own crypto bills and rules, legislative activity around digital assets is likely to remain robust in the near future. 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.

Three of the SEC’s key enforcement actions—all extensively covered in BitBlog and widely seen as emblematic of the agency’s adversarial stance toward the industry—are reportedly being halted or dismissed. The SEC has agreed in principle to drop its case against Coinbase without any penalties or required changes in business. The SEC also agreed in principle to drop its case against Uniswap for operating an unlicensed securities exchange. Both parties in SEC v. Binance have jointly requested a 60-day litigation stay. Meanwhile, highlighting that the challenges facing this emerging industry are not confined to the United States and its regulation, an international digital asset exchange suffered the largest known hack of its ETH wallets, reigniting concerns over the security of digital asset platforms. Additionally, there are ongoing and potential personnel changes within the U.S. government, particularly in the CFTC and Department of Commerce, with new leadership thus far demonstrating and advocating for positions that are supportive of the industry. These developments and a few other brief notes are discussed below. SEC v. Coinbase Dismissal Pending Commission Approval: February 21, 2025 Background: The SEC staff have agreed in principle to dismiss its action against Coinbase where the SEC had alleged that it was operating as an unregistered securities exchange, broker and clearing agency, along with unregistered offering charges against its staking-as-a-service program. Given that two of the three current commissioners have publicly opposed the agency’s actions against digital asset companies, the commission is likely to approve the dismissal recommendation, effectively bringing the matter to an end. This decision would also eliminate the pending interlocutory appeal before the Second Circuit, which was set to review certain rulings from the Motion to Dismiss stage. Analysis: It is unusual to see a dismissal such as this one announced before final approval, but the timing may be strategic. With only three commissioners currently in place, the likely dissenting vote, Commissioner Crenshaw, could effectively block commission action to formally dismiss the case. One has to imagine that the portions of the cases against Binance and Kraken that have similar causes of action with similar legal theories are also likely to be dismissed. Another key question is whether other exchanges that delisted tokens alleged to be securities in response to these lawsuits, will reconsider and reintroduce them to their trading platforms. The outcome of these cases could significantly impact how digital asset exchanges approach compliance and token offerings moving forward. Bybit Exchange Suffers Largest Known Exchange Hack in History: February 21, 2025 Background: Bybit (a digital asset exchange based in Dubai that is not available to U.S. users) announced it suffered unauthorized access to various ETH wallets, resulting in roughly $1.4 billion being stolen from the platform. To put into perspective, in 2024 $2.2 billion is estimated to be the combined amount stolen from all platforms for the year, meaning 2025 will likely dwarf that number. The hack is currently believed to be the work of the North Korean hacking organization the Lazarus Group, which was also behind the similar Phemex hack earlier this year. Bybit announced it still has the funds to cover customer withdrawals, and operations remain active. Analysis: While the roughly 850,000 Bitcoin stolen in the infamous Mt. Gox hack is worth more in today’s dollars, this is likely the largest cryptocurrency hack in dollars at the time of the hack and one of the largest, if not the largest, heists of all time. It also makes the hackers one of the largest owners of ETH, as the over 400,000 ETH stolen is more than double the amount held by the Ethereum Foundation itself. Brian Quintenz Tapped to Lead CFTC: February 11, 2025 Background: It is being fairly widely reported that President Trump plans to nominate a16z’s Brian Quintenz to lead the CFTC. Quintenz previously served as a commissioner at the CFTC from 2017 to 2021. He is currently the Global Head of Policy at venture firm a16z’s crypto investment arm, and if he is confirmed, he will replace the current acting Chair, Pham. He is the first potential CFTC chair to announce his nomination on Farcaster, the digital asset native social network. Analysis: If you read his prior statements on digital assets and DeFi, it is clear why the digital asset legal community is largely supportive of this pick. He is also no stranger to prediction markets, which are likely to be a hot topic for regulation in the upcoming years. He recently wrote about being excited about governments putting bonds onChain. SEC v. Binance Joint Stay of Litigation Requested: February 11, 2025 Background: The parties in SEC v. Binance are requesting a 60-day pause in the litigation, citing the reason as “new SEC Acting Chairman Mark T. Uyeda launched a crypto task force dedicated to helping the SEC develop a regulatory framework for crypto assets. The work of this task force may impact and facilitate the potential resolution of this case.” Since the Court in Binance agreed to the stay request and with SEC v. Coinbase currently stayed pending an interlocutory appeal decision from the Second Circuit (and likely soon to be dismissed, as discussed below), that just leaves SEC v. Payward (i.e., Kraken) in the exchange cases ongoing post-election. Analysis: The stay request is document 296 in the case’s court file if that is any indication of how fiercely litigated the SEC v. Binance case has been over the past roughly 1.5 years. Considering on the same day, the SEC asked the Court to ignore certain allegations from their Amended Complaint in reaching a determination on the pending Motion to Dismiss indicates there was possibly an order from on-high to enter a holding pattern in all digital asset litigation with approaching deadlines. But no way to know until the dust settles if that was the case. Briefly Noted: Uniswap Labs Says SEC Probe Has Been Closed: Consistent with the Coinbase dismissal but different due to Uniswap’s decentralized nature, Uniswap Labs, the tech company behind the decentralized Uniswap protocol, announced that the SEC has also dropped its investigation for purportedly running an unregistered securities exchange, among other things. There is still the open question of whether decentralization really matters for bringing this type of claim and, if so, how much it matters.  SEC Dismisses Dealer Rule Appeal: The SEC has decided to not go forward with their appeal of two challenges to the proposed expansion of the term “dealer” under applicable securities laws. Well done by the Blockchain Association and the Crypto Freedom Alliance of Texas, among others. The expanded definition had the potential to capture all kinds of traditional finance activities that historically had never been regulated, such as proprietary high frequency trading. SEC Launches Cyber Fraud Unit: The SEC has formed a Cyber and Emerging Technologies Unit, which will go after, in part, “fraud involving blockchain technology and crypto assets.” This makes sense to focus on fraud and consumer harm vs. trying to fight digital asset businesses that are trying to be good actors in an unclear regulatory environment. SEC Crypto Task Force Meeting Logs: The SEC is posting meeting logs of its crypto task force meetings, which is really cool. So much of crypto has been built on open source and community development that making these task force submissions and meetings transparent just fits. There is also a list of questions that the SEC is seeking public input on answering. Please reach out to any of the listed authors if you are a company that wishes assistance in submitting such responses. Nasdaq Proposes Rule for Trading Digital Assets: The Nasdaq exchange is proposing a rule change to permit the listing and trading of digital asset-based investment interests. Secretary of Commerce Confirmed: Howard Lutnick, formerly of Cantor Fitzgerald, has been confirmed as the new Secretary of Commerce. He has said a ton of positive things about crypto in the past, so another ally in a high-ranking position is always good. Nation-State Rug: The President of Argentina tweeted out about a memecoin, $LIBRA, which reached a market cap of almost $4 billion before insiders cashed out, making over a hundred million in the process and tanking the price of the token. Great thread explaining it all here. The fallout from the Argentina memecoin rug $LIBRA is ongoing, and it can be expected this will have significant repercussions down the line depending on the role of seemingly trusted service providers in the schemes. SEC Commissioner Says Memecoins Not the SEC’s Concern: The very term “memecoin” implies that investors are not relying on the efforts of others to generate profits—a key factor in determining whether an asset qualifies as a security under U.S. law. If that weren’t already clear, SEC Commissioner Hester Peirce, who also heads the Crypto Task Force, recently reinforced this point, stating that the SEC’s jurisdiction is limited to securities. She emphasized that the regulation of many memecoins likely falls under other federal agencies, such as the CFTC, FTC, and others that oversee financial instruments that are not stock-like securities. This statement, while not actionable precedent, reflects an ongoing debate over the appropriate regulatory framework for digital assets and highlights the need for greater clarity in interagency enforcement efforts. House Financial Services Subcommittee Holds Digital Asset Hearing: The House Financial Services Subcommittee recently held a hearing titled A Golden Age of Digital Assets: Charting a Path Forward. With legislators pushing an aggressive schedule to advance various digital asset bills, a rapid succession of hearings on these issues is expected. This hearing signals continued momentum in shaping the regulatory framework for digital assets and highlights the urgency among lawmakers to address key policy questions surrounding the industry. With the aggressive schedule put forward by many legislators to get various digital asset bills done, there is going to be an equally fast paced group of hearings on these issues. Conclusion: As personnel changes continue within the U.S. government and crypto-related industries, we can expect ongoing developments on the litigation front, further shaping the regulatory landscape for digital assets. The SEC’s decision to dismiss its case against Coinbase, along with other high-profile enforcement actions, signals a potential shift in regulatory strategy. Meanwhile, the recent Bybit Exchange hack, though not directly affecting U.S. users, underscores the urgent need for safe exchanges to ensure the secure access and custody of digital assets, as well as the need for more clarity involving self-custodial solutions. Alongside anti-money laundering and fraud detection and prevention, these issues will remain central to regulatory efforts in the evolving crypto ecosystem. 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.

With Bitcoin hitting record highs and breaking a barrier long seen as aspirational, and with a new administration making key appointments, the year is ending with much excitement and momentum for the digital assets industry. A surge in M&A activity among Web3 companies is setting the stage for 2024, as these companies seek to solidify their business strategies and position themselves for growth in 2025. However, not all year-end developments are positive. Litigation remains a significant challenge for the industry, with the SEC opposing Binance’s most recent dismissal efforts and Coinbase facing lawsuits over its delisting of competitive assets. As 2024 comes to a close with digital assets seemingly gaining traction in the U.S., the industry remains optimistic that 2025 could be the year crypto breaks into mainstream consumer applications and sees broader public adoption across various use cases. We’re also proud to share that the Blockchain+ practice at Polsinelli, which the BitBlog is a part of, has been recognized by Chambers and Partners as a leading firm in blockchain and cryptocurrency. These developments and a few other brief notes are discussed below. House Financial Services Committee Holds Hearing on FinTech: December 4, 2024 Background: The final meeting of this congress for the House Financial Services Committee was entitled Innovation Revolution: How Technology is Shaping the Future of Finance and was dedicated to discussing developments in financial technologies, including blockchain-enabled technologies. The Digital Chamber sent a letter ahead of the hearing to request certain digital asset-focused efforts be made a priority in the next Congress. There was also testimony from the CEO of the Stellar Foundation and the CEO/Co-Founder of Anchorage Digital. This was Chair McHenry’s last hearing as he is set to retire, so he asked it to be dedicated to an issue he is passionate about regarding improving the financial sector through technological innovation. Many in attendance on both sides of the aisle wore his trademark bowtie in recognition of his Congressional leadership over the years. Analysis: The hearing had a few interesting moments, like French Hill’s questioning of the digital asset representatives about how both had been debanked. Or Brad Sherman bringing out a poster board of President-elect Trump’s prior tweets disparaging crypto. The general theme from Republicans was building on Chair McHenry’s groundwork in trying to encourage American FinTech. The Democrats’ theme was bipartisan collaboration on things already in the works, like the stablecoin bill that passed Committee. Rep. Hill will be taking the gavel from current Chair Patrick McHenry when McHenry retires from public office in January. Rep. Hill was the head of the digital asset subcommittee, so he will be especially focused on that during his time leading the House Financial Services Committee. SEC Files Response in Opposition to Binance Motion to Dismiss: December 4, 2024 Background: The SEC has filed its memorandum in opposition to the latest attempts for early dismissal by the Binance entities in the case where the SEC accuses those entities of being unregistered securities brokers/dealers. As we previously covered, the Binance entities focused their dismissal efforts on the seemingly arbitrary nature of the SEC classifying ETH/BTC as commodities. Binance argued there was a lack of pooling of funds by the issuers of the tokens at issue, claiming the SEC’s allegations are an “investment of money and a common enterprise” instead of the required “investment of money in a common enterprise.” The SEC’s response argues the issuers of the tokens at issue “are targeting secondary market investors with widespread promotions touting purchases of the assets as investments in an enterprise whereby the issuers’ ongoing efforts to increase demand for the assets may lead to an increase in their value.” Analysis: The outstanding question remains: what facts apply to the tokens at issue in this case that don’t also apply to Ether, making Ether a commodity but the tokens at issue securities? The SEC also claims, “Secondary market sales, by definition, mean an investor does not put funds ‘in the hands of the issuer’” (pg. 15), which seemingly ignores that the vast majority of investment contract law is regarding the sale of goods bundled with some sort of service agreement, which could be sold in a secondary market transaction and would still result in the issuer (who also provides the services) getting money. Of the exchange cases, this judge seems to be the one most willing to push back on the SEC’s positions at the motion to dismiss stage, so we will wait to see how this pans out. New Proposed SEC Chair Announced: December 4, 2024 Background: President-elect Trump has officially announced he plans to nominate Paul Atkins for SEC Chair to replace current Chair Gary Gensler. Atkins is a former SEC Commissioner, advisor to the Digital Chamber, and the co-chair of the Digital Chamber’s Token Alliance. He also was on a podcast entitled “Keep Your Government Hands Off My Crypto,” if that gives any sense of how he personally feels digital asset regulation should be handled. He also has firm roots in TradFi, having served as the chair of a stock exchange and founding the compliance firm Patomak Global Partners, which primarily caters to financial services companies. Analysis: It is impossible to overstate what a change this is expected to be at the SEC. Already, there is an expectation that the Ethereum ETF products will be permitted to participate in staking and share those staking rewards with holders, along with a host of other changes to existing policies. While it is fair to be cautiously optimistic, after the industry was burned by Chair Gensler despite his experience as a professor at MIT teaching a course on digital assets, it appears that there will be a workable path to clear compliance with U.S. law for digital asset participants in the near future. The official mission statement of the SEC is to (1) protect investors; (2) maintain fair, orderly, and efficient markets; and (3) facilitate capital formation. Atkins’ history is firmly grounded in all three and will hopefully provide more balance to an agency that has prioritized perceived investor protection over the other two. Coinbase Sued Over Wrapped Bitcoin Delisting: December 13, 2024 Background: Coinbase has been sued over its decision to delist wrapped Bitcoin (“wBTC”) while at the same time releasing Coinbase’s own competitive wrapped Bitcoin product (“cbBTC”). For those unfamiliar, Bitcoin can be “wrapped” by exchanging one Bitcoin on the Bitcoin network for a token on a different network, which can serve as a proxy for the deposited Bitcoin and be exchanged at any time for that same Bitcoin back. This allows users to use their digital asset on different networks. The providers of the wrapped proxy token charge fees on the exchanges, and in return for those fees, promise to keep the Bitcoin exchanged for the wrapped version of that Bitcoin safe. The lawsuit accuses Coinbase of violating various antitrust laws by delisting a competitor product over feigned security concerns. Analysis: This is certainly an interesting case that will be worth following. The Complaint itself is worth reading, if nothing more than for the paragraphs mocking memecoins, including paragraph 67, which reads: “[t]he webpage for Dogwifhat announces proudly that the cryptocurrency is ‘LITERALLY JUST A DOG WIF A HAT,’ with a parody of promotional language crossed out in red. A scrolling ticker across the top of the website repeatedly informs purchases that ‘I mean bro, it’s literally a dog wif a hat.’ The dog does, indeed, have a hat—and Coinbase chose to list this coin six days before delisting wBTC.” While there are certainly different risks (and possibly regulatory treatment) involved with a wrapped token, which requires trusting the custody of the underlying asset, versus a memecoin, the lawsuit does seem to raise issues worth considering on the centralization of on and off ramps to digital assets. Briefly Noted: Polsinelli Blockchain Team Ranked by Chambers and Associates: Chambers and Partners, a leading legal industry ranking organization, has recognized Polsinelli in its recently released Chambers FinTech Guide 2025, with Polsinelli earning a ranking in the FinTech Legal: Blockchain and Cryptocurrencies category. It is an honor to have our commitment to navigating the unique financial technology landscape and the complex field of Web3 recognized. Avalanches Raises with $250 Million Private Token Sale: Avalanche has sold $250 million of locked tokens. Avalanche has gained attention as one of the front runners to be the primary layer-1 blockchain in Web3 gaming. Japanese Crypto Exchange Goes Public: Japanese crypto exchange Coincheck went public on the Nasdaq through a $1.3 billion SPAC merger. This is the first shoe to drop, as more crypto companies will be looking to go public after the turnover at the SEC, reportedly including stablecoin giant Circle and others. Corporate Transparency Act on Pause: While not directly crypto related, the injunction issued against enforcement of the Corporate Transparency Act is certainly important for crypto companies, especially those who do not have the identifying information for their participants that could be deemed control persons under the Act. We’ll need to wait to see if this is a temporary respite or if something more permanent is on the horizon. Heavily Redacted FDIC “Pause Letters” Revealed: The court overseeing the Coinbase FOIA action against the FDIC has released the heavily redacted responsive letters. There was also a subsequent order regarding these heavy redactions, ordering the FDIC “cannot simply blanket redact everything that is not an article or preposition.” Compound Plaintiffs Seek Service Via Community Proposal: The Plaintiffs in the Compound class action are seeking to serve the DAO via proposal on the DAO’s governance page, which anybody with the necessary tokens can make. We have seen service via NFT, but this is a new one. Conclusion: Looking ahead, as the dust settles around these regulatory disputes, market shifts, and industry realignments, the broader Web3 ecosystem is gearing up for its next phase. With Congress poised to reassess policy priorities, a new SEC Chair in the wings, and industry participants seeking more transparent pathways to compliance, the stage is set for meaningful progress. If 2025 indeed proves to be the year digital assets permeate everyday consumer applications, it will have been forged in the crucible of a rapidly evolving legal, financial, and technological environment. The emerging patterns of thoughtful engagement with lawmakers, refining of product offerings, and increased public awareness—fueled by both controversy and innovation—suggest the next chapter may well see crypto moving from the fringes toward more mainstream acceptance and utility. 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.

After a relatively quiet October for Web3 legal developments, November has kicked off with significant activity, primarily centered around ongoing lawsuits and regulatory enforcement actions. In addition to these legal developments, the recent election results indicate a shift in the U.S. administration, with incoming leadership signaling a strong focus on crypto and digital assets. Coupled with a new Congress that appears to be more pro-crypto than its predecessor, we can expect rapid developments in Web3 law through the end of 2024 and into 2025. That said, the new administration may also pose unintended challenges for the industry. Increased focus on national security concerns could lead to restrictions on certain projects or activities in the U.S., along with potential disruptions in trade and strained alliances, all of which will require careful navigation. The potential implications of this shift are significant. While many uncertainties remain, there are growing reasons for both optimism and caution. This could be a once-in-a-lifetime opportunity to shape legal frameworks and protections for digital assets. From updates to the IRS tax code to potential changes in securities laws, the regulatory landscape could evolve to better reflect the reality of digital assets. As we move forward, it’s essential for legal professionals and industry experts to remain informed and engaged. By advocating for thoughtful regulation, the U.S. can maintain its leadership in fostering a safe, secure, and innovative environment for digital assets. These developments and a few other brief notes are discussed below. SEC Seeks to Dismiss Declaratory Judgment Action by NFT Creators: October 28, 2024 Background: The SEC has filed a Motion to Dismiss in a declaratory judgment action brought by various NFT creators seeking clarity that the digital artworks they sold were not unregistered securities transactions under federal securities laws. The SEC’s motion, made under Fed. R. Civ. P. 12(b)(1), argues that the agency is protected by sovereign immunity from having its enforcement discretion challenged and that the claims are not ripe because the SEC has not yet brought charges against the particular plaintiffs who are bringing the action against the SEC. Analysis: As stated by one Plaintiff: “Respectfully, I’m asking the SEC to explain why I can’t do exactly what Stoner Cats did,” referring to the action by the agency against the creators of the online comic series Stoner Cats, which was fined $1 million by the SEC and ordered to destroy all remaining digital art in the creator’s possession. It seems like the agency has been backed in the corner, on one hand stating that the action is not ripe, while at the same time arguing that the rules for digital assets based on 1940’s “investment contract” case law are clear despite multiple courts disagreeing with the agency on that point. Amicus Support Action for Token Airdrop Clarity: October 28, 2024 Background: Coinbase, a16z/Paradigm, and Coin Center have filed amicus briefs in support of an action brought by a Texas apparel company seeking a declaratory judgment that its potential token airdrop to merchandise purchasers does not violate federal securities laws. The SEC had previously moved to dismiss on procedural grounds stating that the SEC is immune from being required to answer the action and that the action’s claims under the Administrative Procedure Act are not ripe. Analysis: The a16z/Paradigm brief says it well at pg. 16, stating, “Given the similarity between the allegations against [Justin Sun] and other companies and the facts presented by Beba, it is unsurprising that the SEC has offered no explanation why the threat of enforcement is not credible.” In reality, it seems that the main thing that has prevented the SEC from bringing lawsuits against virtually all digital asset participants to date is seemingly a lack of resources. The amicus all strike a similar tone—after years of attempting to get guidance from the SEC and Congress on how to operate legally compliant digital asset companies, the only recourse left is either the courts or abandoning the U.S. entirely. Oral Arguments on SEC v. Heart Motion to Dismiss Occur: October 31, 2024 Background: On Halloween, there were oral arguments heard in the SEC v. Heart case on the Defendants’ Motion to Dismiss. The SEC has alleged that Hex founder Richard Heart and three unincorporated entities that he allegedly controls conducted unregistered offerings of crypto assets that allegedly raised more than $1 billion from investors. The dismissal arguments mostly centered around the extra-territorial approach the SEC has applied to the case, but also included discussions of the allegations of fraud and the propriety (or lack thereof) of naming software as named entities in a lawsuit. Analysis: The Blockchain+ team has been following this case, and we were quoted in a Bloomberg law article about it earlier this spring, so it feels appropriate to continue to follow as the case raises important issues applicable for many companies seeking to avoid U.S. jurisdictional laws regarding digital assets. It appears that the SEC has abandoned the argument that it can name software as a defendant in a lawsuit. It also appears the SEC may be claiming that the actions that allegedly give rise to jurisdictional claims (fall of 2022) occurred after the alleged securities offering occurred (spring of 2022). It remains unclear if or how one can retroactively make an offering a “U.S. offering” based on actions that occurred after the alleged sales. Blockchain Gaming Developer Receives SEC Wells Notice: November 1, 2024 Background: Blockchain-based gaming infrastructure developer Immutable Pty Ltd. has reportedly received a Wells notice from the SEC informing the company of anticipated agency action related to certain sales of IMX tokens in 2021. According to the SEC Enforcement Manual, a Wells notice is generally only issued after SEC staff have completed their investigation but before making a formal recommendation to the Commission. Here, Immutable claims the Wells notice was issued mere hours after first being contacted by the SEC informing the company of the investigation. Analysis: The IMX token is listed on Binance, Kraken, and Coinbase, so it is surprising the SEC is targeting Immutable instead of the plethora of token issuers of the tokens named in the SEC’s lawsuits against those exchanges. It is possible the SEC is seeking to have active litigation against a wide range of actors (such as the recent market maker targeted actions) from exchanges to issuers to developers—so this is the “gaming” developer the agency has its eyes set on. FOIA Requests Reveal Banks Blocked from Accepting Digital Asset Customers: November 2, 2024 Background: Coinbase has revealed that it has unearthed at least 20 documents from its successful FOIA requests to the FDIC where the agency tells banks to “pause” or “refrain from providing” or “not proceed” with offering crypto-banking services. This is an ongoing request, and Coinbase recently served additional requests on the FDIC so more documents can be expected. The Coinbase head of legal stated: “We’ll keep pushing to get clarity from our regulators through FOIA requests and any other means necessary.” Analysis: The “shadow cap” of not allowing banks to have more than a certain percent of their customer deposits be from digital asset companies is something that was suspected to be a part of Chokepoint 2.0 and which a Silvergate executive Declaration seemed to support. It will be interesting if further documents are made public or if anything will come of these efforts, as it is expected the incoming administration will replace current banking regulatory heads with individuals who are more open to digital asset companies obtaining traditional U.S. banking services. Binance Entities Move to Dismiss SEC’s Amended Complaint: November 4, 2024 Background: Back in September, the SEC filed an Amended Complaint against Binance, and the redline revealed the primary changes were adding facts to try to avoid there being a ruling as a matter of law on certain third party token sales (also, an added footnote about how the SEC didn’t mean “crypto asset security” when the SEC said, “crypto asset security.”). Binance U.S. has now moved to dismiss the over 800-paragraph Amended Complaint. Binance’s foreign entity also moved to dismiss, available here. Binance U.S.’s main argument is that the SEC cannot articulate any distinguishing factors as to why the tokens the agency named were sold in securities transactions, while Ether and Bitcoin were not, stating “the legal requirements of Howey do not shift based on the SEC’s enforcement whims.” Binance U.S. is also focusing on the lack of pooling and classifying the SEC’s allegations as an “investment of money and a common enterprise” instead of the required “investment of money in a common enterprise.” Analysis: The Motion to Dismiss filed by Binance U.S. included 19 exhibits, which is unusual, as such motions typically cannot rely on external evidence or facts. However, the SEC’s heightened fact pleading also means the agency incorporated documents by reference into the Amended Complaint, which the Court can consider in reaching its determination. Binance U.S.’s exhibits primarily point to listing pages for Bitcoin and Ether, stating if those listing pages do not convert BTC/ETH into securities, then listing pages from other assets with identical information cannot support security law violation allegations. Binance U.S. also (probably smartly) stayed away from the “investment contracts require contracts” arguments, which it previously lost on, instead leaning into the lack of pooling in a common enterprise. Briefly Noted: Regulation by Enforcement Tracker Launched: The Blockchain Association has launched a great website showing data behind the SEC’s “regulation by enforcement” approach against America’s leading crypto companies. This and the awesome effort spearheaded by Polygon Labs to start preparing a list of real world positive use cases are great resources. SEC Commissioner Rebukes Approach to Crypto (Again): Commissioner Peirce recently gave a speech titled Hobs and Hobbes: Wharton FinTech Lecture where she reiterated her negative view on how the SEC has approached digital asset regulation. “Rather than working with crypto market intermediaries and token issuers to facilitate registration, we have brought enforcement actions for failure to do the impossible: register with a Commission that has failed willfully to articulate a viable path to registration.” SEC Moves to Dismiss Some Kraken Defenses: The SEC has moved for judgment on the pleadings on Kraken’s Major Question, Lack of Fair Notice, and Due Process affirmative defenses, claiming these were decided on Motion to Dismiss as being inapplicable. The Court is unlikely to dismiss any of these affirmative defenses, which would cut off discovery into these issues by Kraken and be an appealable issue the Court has no reason to create, but it is something worth monitoring. Fairshake PAC Performance: According to Stand with Crypto, a bipartisan group of 257 candidates rated “pro crypto” won their House elections along with 16 in the Senate (as opposed to “anti-crypto” rated candidates, which only won 115 and 12 seats in the House and Senate, respectively). The biggest wins were Yadira Caraveo (D-CO), Sarah McBride (D-DE), and Bernie Moreno (R-OH) winning over their anti-crypto opponents in part on the backs of crypto-PAC spending in their favor. Also Richie Torres (D-NY), who was expected to win but has been a staunch advocate for sensible digital asset laws and will continue to be a force in the House. Combined with some massive wins in the primaries, the industry’s lobbying efforts are something that politicians will certainly factor into ongoing policy decisions. FTX Sues Various Platform Users: FTX filed ~25 lawsuits recently seeking to claw back funds from various individuals that received funds from FTX, including Anthony Scaramucci, the alleged Compound governance attacker, Deltec Bank, Binance founder CZ, and others. That said, this is seemingly an aggressive approach to clawbacks and such, which may or may not have merit, so whether these lawsuits go anyway is yet to be seen. Hong Kong Moving Forward in Crypto: The Hong Kong Stock Exchange is introducing bitcoin and ether index prices in November and looking into tax issues and trading platform licensing. Conclusion: November marks an inflection point in the ongoing regulatory and legal battles shaping the future of digital assets in the U.S. and beyond. With a pro-crypto Congress set to take office, pressure is mounting on regulatory bodies to provide clearer guidelines, yet agencies like the SEC remain steadfast in their enforcement-first approach. As illustrated by Binance's legal defenses and the increasing amicus support from industry advocates, the crypto sector is actively pushing back on the lack of clear regulatory frameworks, fighting for operational clarity and fair treatment under the law. At the same time, global developments, like Hong Kong's proactive stance, highlight the competitive pressures facing U.S. regulators and lawmakers. The combination of ongoing legal battles, shifting political priorities, and the potential for new policies presents both opportunities and challenges for the industry. The only thing certain is that we are in for an interesting ride. 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 last two weeks have seen a flurry of Congressional hearings addressing key digital asset issues, alongside several noteworthy consent judgments against industry participants from the SEC. These fast-paced developments are expected to continue through the end of September, when both the CFTC and SEC conclude their fiscal years, as they strive to optimize their results for 2024. While there almost certainly won’t be crypto legislation passed this year, Congress looks to set the stage for potential digital asset legislation in the upcoming lame duck session after the November elections and beyond. These developments and a few other brief notes are discussed below. Congress Holds Hearing on Decentralized Finance (“DeFi”): September 10, 2024 Background: The House Financial Services Subcommittee on Digital Assets, Financial Technology and Inclusion held a hearing entitled Decoding DeFi: Breaking Down the Future of Decentralized Finance. It featured testimony from Rebecca Rettig (Chief Legal and Policy Officer at Polygon Labs), Peter Van Valkenburgh (Coin Center’s Director of Research), and others. The Committee Memorandum is available here. The Digital Chamber provided a nice summary of the hearing, available here. Analysis: The fact that DeFi has even reached the level of importance to warrant a Congressional hearing is a big step for this burgeoning subset of the digital asset industry. This does not mean that the hearing was totally supportive of DeFi, with Representative Sherman and others using the hearing as a platform to make unsubstantiated claims that DeFi’s primary use is for tax evasion. These assertions were effectively countered by Van Valkenburgh stating that “Tax evasion is a crime. It should be aggressively policed…I do not, however, think that tax evasion and its existence warrant a 100% surveilled and controlled financial system.” The fact that subsets of digital assets remain a partisan issue is somewhat disheartening, but not entirely unexpected. eToro Settles with SEC and Delists Virtually All Crypto Assets: September 12, 2024 Background: Trading platform eToro USA LLC has agreed to pay $1.5 million to settle charges that it operated an unregistered broker and unregistered clearing agency in connection with its trading platform that facilitated buying and selling certain crypto assets as “securities.” While the platform will continue to permit trading of BTC, ETH, and BCH (Bitcoin Cash), all other digital assets such as LTC (Litecoin), DOGE, and others will be removed. The Order curiously mandates that eToro immediately stop selling those assets while simultaneously requiring the company to sell those assets or otherwise refund customers within 180 days. Analysis: It is unclear why BCH will be permitted to continue being traded on the platform despite not being meaningfully different from Litecoin. Could it have something to do with BCH having “Bitcoin” in its name? The requirements of the settlement do not appear to give eToro a feasible path forward to operate its U.S. business. This is disappointing considering that prior to the settlement, eToro seemingly tried to follow SEC guidance in that it de-listed assets that the SEC named in other lawsuits as securities, obtained a BitLicense and other state regulatory licenses, and otherwise acted cautiously in an attempt to remain in compliance. It looks like the only way for eToro to comply with the forced sell aspect of Order will be to sell overseas (likely at deep discounts), which will then be passed on to customers. As mentioned above, we expect more of these settlements/actions to flow in leading up to SEC’s September 30 fiscal year end.  Flyfish Club Settles with SEC over NFT Restaurant Membership Sales: September 16, 2024 Background: The SEC issued an Order against Flyfish Club, the creators of restaurant club passes in the form of NFTs. Flyfish Club NFTs represented membership in the private dining club, for which holders of the NFT could digitally verify such membership and make reservations at the restaurant, but the Staff took the position that the NFTs were marketed as securities because they could be resold for a profit. As usual, Commissioners Peirce and Uyeda dissented. As a part of the agreement, Flyfish Club agreed to destroy any NFTs in the company’s possession that it hasn’t sold, not take royalties on any ongoing secondary sales, and pay a $750,000 fine, among other things. This order was issued only a few days before the opening of the restaurant and did not prevent its opening or help the token holders obtain their membership benefits. Analysis: The fact pattern in FlyClub closely resembles that of Silver Hills Country Club v. Sobieski, a California state court case from 1960. That court found that the country club memberships at issue were being sold as securities and did so through the creation of the “risk capital” test. That test almost exclusively looks at whether a seller is seeking risk capital to develop a business venture. The fact that the memberships were transferable led that court to determine that they represented “risk capital.” In the FlyClub order, while the SEC tries to connect the violations to the Howey test, this could be seen as a move towards the SEC adopting the risk capital test. It’s important to note that the risk capital test has never been recognized by any federal court in the United States. It is also interesting that the SEC has now entered two settlements with two consumptive NFTs and did not require the project to cease and desist, nor did it require a repurchase offer. This contrasts with most SEC settlements with and lawsuits against issuers of utility tokens, in which the SEC demanded that the project shut down. At least the people who want to eat can be fed. House Financial Services Committee Holds Hearing on SEC Approach to Digital Assets: September 18, 2024 Background: Following up on the DeFi hearing the week before, the House Financial Services Subcommittee on Digital Assets, Financial Technology and Inclusion held a hearing entitled Dazed and Confused: Breaking Down the SEC’s Politicized Approach to Digital Assets. It featured testimony from Dan Gallagher (former SEC Commissioner), Michael Liftik (former Deputy Chief of Staff to SEC Chair White), and others. The Committee Memorandum started with the following Introduction: “The Securities and Exchange Commission (SEC) has long struggled with the application of the United States’ securities laws to the digital asset ecosystem. Under Chair Gensler, the SEC has prioritized and pursued an enforcement and regulatory agenda to the detriment of the digital asset ecosystem.” Analysis: The battle lines of crypto supporters (led by Ritchie Torres (D-NY) and French Hill (R-AR)) vs. detractors (led by Stephen Lynch (D-MA) and Brad Sherman (D-CA)) stayed consistent in this hearing. The detractors echoed SEC Chair Gensler’s position that 1940's-era court cases on securities laws are fit for purpose in regulating the digital asset industry. On the other side, industry participants and Congressional supporters argued that updated rules would ultimately better protect consumers while keeping innovation in America. Even Maxine Waters (D-CA) responded, “That’s odd,” when learning established FinTech Robinhood attempted to follow SEC registration procedures but was denied registration without further explanation. SEC Charges DeFi Platform with Securities Law Violations: September 18, 2024 Background: The SEC has charged the creators of the Rari DeFi platform with acting as unregistered brokers. MATIC, LINK, FTM, UST, and RGT were listed as “crypto assets offered and sold as securities” in the Complaint. The Complaint and Order are vague as to whether the Agency is alleging that only the Rari-operated liquidity pools (which the Rari team would algorithmically rebalance) are what caused the violations, or if any pool (including user-created pools that Rari had no contact with other than providing a front end to access those pools) were also violations of securities laws. Analysis: Rari was literally created by high schoolers. So it shouldn’t be shocking that it suffered a protocol hack and lost $80 million. This also very likely led to upset individuals reporting them to the SEC, which started the investigation leading to these charges. The hack exposed that the protocol was DeFi in name only, as it exhibited significant centralized control beyond just the interface. DAO votes were either ignored or delayed, along with other questionable practices. Interestingly, unlike nearly all previous settlements, this one went to great lengths to avoid labeling the tokens as “digital asset securities.” This is significant, as the SEC has consistently struggled to win this argument in courts across the country. That said, this isn’t great precedent, particularly with the looming Uniswap Wells notice still outstanding. Briefly Noted: Members of Congress Ask for SEC Stance on Airdrops: Representatives Emmer and McHenry have sent a letter to SEC Chair Gensler regarding the agency’s official stance on airdropped tokens. The letter stated, “The ethos of crypto and blockchain technology is premised on decentralization. The SEC’s regulatory approach seems to make the goal of decentralization impossible to obtain. Details Emerge Regarding Collapse of Silvergate Bank: The recently filed Declaration of the then Chief Administrative Officer of Silvergate Bank (Elaine Hetric) reveals that the bank was solvent at the time of its closure, and it was only closed due to actions from financial regulators (the Federal Reserve, FDIC, and OCC), which hampered its ability to be an ongoing business. This raises troubling questions about due process and other related issues. Details Emerge Regarding Former President Trump’s Proposed DeFi Platform: It appears the proposed DeFi platform backed by former President Trump will include a Reg D/S token sale with locked tokens and no venture or presale allotment. The platform appears to primarily just be providing an attractive interface on top of existing technology with an intention to provide easy access to DeFi. The platform may find it challenging to comply with the transfer restrictions imposed under the securities law exemptions from registration that they are relying on. NFT Bill Gets Attention in House: In light of the Flyfish settlement, the Digital Chamber-backed NFT bill becomes even more critical. The bill seeks to provide clarity that digital versions of real-world assets that are not typically deemed securities do not become securities merely through tokenization. SEC Files Proposed Amended Complaint in Binance: The SEC v. Binance Amended Complaint dropped, and looking at the redline, it appears that the SEC is prepared to go forward with claims against many tokens despite early statements that its proposed amended compliant would alleviate the Court’s need to reach a determination on those issues. Also of note, the SEC complaint included a footnote about how the SEC didn’t mean that a crypto asset is necessarily a security when they previously used the phrase “crypto asset security.” Kraken Files Answer in SEC Lawsuit: The Kraken Answer in SEC v. Kraken also dropped, in which Kraken denies everything, like most answers do. The affirmative defenses are worth a close reading, especially the free speech affirmative defense claiming that the SEC is retaliating against Kraken for being critical of the SEC in certain Congressional testimony. Conclusion: As the flurry of regulatory and legislative activity surrounding digital assets continues, the upcoming weeks could be critical in shaping the future of the industry. The Congressional hearings and SEC actions discussed here illustrate the growing importance of decentralized finance, the increasing scrutiny on platforms dealing with digital assets, and the persistent friction between regulators and industry participants. With the CFTC and SEC looking to finalize their fiscal year and Congress preparing for potential action in the lame duck session, the digital asset space is poised for further developments. As always, the industry remains in a state of flux, with major legal, regulatory, and technological shifts on the horizon. 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 end of summer approaches, litigation in the digital asset industry has remained hot. In the SEC’s cases against various exchanges, ongoing discovery fights are starting to play out in court filings, and one can expect these fights to remain contentious throughout the various lawsuits. Meanwhile, the case against Ripple Labs has finally reached its conclusion (for now), and California has taken the step of being the first state to begin moving car titles to the blockchain. These developments and a few other brief notes are discussed below. Coinbase files Motion to Compel Production of Documents in Case Against SEC: July 27, 2024 Background: Coinbase has filed a Motion to Compel the SEC to produce certain documents in the agency’s case against the exchange. This comes after oral arguments on a related issue occurred, with the judge warning Coinbase against overreaching in its document requests. Coinbase is looking to compel the production of, among other things, (1) documents related to SEC meetings with Coinbase and others prior to the litigation; (2) documents related to tokens named in dispute/staking functionalities at issue; and (3) documents related to speeches Chair Gensler gave on digital assets in his personal capacity. Analysis: This is seemingly a part of a two-part strategy by Coinbase, which also has requested documents through a FOIA action in a separate court. The Hinman speech documents saw the light of day thanks to the Ripple litigation, and one can expect more documents that are unfavorable to both parties will be eventually forced to be disclosed in this action as they are in most litigation matters. The SEC has opposed the motion, and a ruling on the issue can be expected shortly with the judge fully briefed on the dispute. Artists Sue SEC Over Agency’s Position Regarding NFTs: July 29, 2024 Background: Kentucky Law professor Brian Frye and Song a Day creator Jonathan Mann have sued the SEC in a declaratory judgment action regarding determinations by the agency that NFTs can be investment contracts that require registration with the SEC prior to sale. Professor Frye had previously released a contemporary art project where he sold NFT copies of his no-action letter to the SEC regarding this topic, which the SEC did not respond to. Analysis: It is slightly disappointing that the Plaintiffs in this case did not bring up the prior restraint on free speech or other arguments from the Original Public Meaning of Investment Contract article by Edward Lee, but still an interesting Complaint to read, complete with pictures. The Taylor Swift tickets are a great example of how entitlement to future benefits does not equal investment contract, even if they can be sold for profits based on efforts of the artist. Also highlighting the damages in the SEC’s cases thus far have included burning the art at issue was a nice touch. SEC Plans to Seek Leave to Amend Complaint Against Binance Regarding Certain Token Sales: July 30, 2024 Background: The SEC filed a document in the case against Binance stating the agency’s intent to seek leave to amend its Complaint against various Binance entities “including with respect to the ‘Third Party Crypto Asset Securities’” which the SEC originally named as SOL, ADA, MATIC, FIL, ATOM, SAND, MANA, ALGO, AXS and COTI. It is unclear what those amendments will be, but the SEC claims it will “obviate[e] the need for the Court to issue a ruling as to the sufficiency of the allegations as to those tokens at this time.” Analysis: On July 11, the Court held a hearing on whether the claims regarding third-party tokens other than BNB survived after the Court dismissed allegations regarding secondary trading of the Binance-issued token. At least one of the tokens named (MATIC) has a migration in the works, which could hamper the SEC’s claims for injunctive relief as to that token as currently pled. We will need to wait until there is an actual proposed Amended Complaint to determine how the SEC is planning to address the secondary sales ruling regarding BNB in its strategy regarding the currently remaining tokens at issue. This seemingly strategic retreat by the SEC very likely has something to do with the ongoing discovery fight in Coinbase discussed above over documents regarding secondary tokens named. Damages Ruling Issued in Ripple Labs Lawsuit: July 30, 2024 Background: Ripple Labs was issued a civil penalty of $125,035,150 for illegal sales of securities in the form of $XRP tokens and other contractual arrangements (a total of 1,278 transactions) with institutional investors, falling short of the roughly $2 billion that the SEC was seeking in the action. This comes after the same Court ruled that blind bid/ask sales of the digital asset $XRP were not securities transactions. This is now a final judgment in the action, so it can be expected both sides will appeal certain aspects of the various rulings in the case. Analysis: While it’s hard to look at a 9-figure damage number and call it a win, this was objectively a win for Ripple. This is the first time the SEC litigated to a final judgment against a digital asset industry participant without the end result being a complete shutdown of the development company. While there will be appeals and the litigation will continue, Ripple was one of the most aggressive with their initial coin offering (ICO) and has one of the more centralized validator sets out of most current major blockchain projects with a token, so seemingly a win for the industry as a whole as well. Briefly Noted: IRS Updates Crypto Brokerage Form: The IRS has updated its crypto brokerage tax form 1099-DA. Form 1099-DA, which monitors "digital asset proceeds from broker transactions," is slated to go at least partially into effect in 2025. Prior drafts of the form required individuals to submit a digital wallet address and to note whether assets are a "non-covered security,” both of which appear to be removed in the current draft form. Senate Bill to Form Bitcoin Strategic Reserve Published: Senator Lummis has submitted a bill to have the United States buy Bitcoin as a strategic reserve. As explained by the Senator, “[t]he BITCOIN Act establishes a strategic Bitcoin reserve to serve as an additional store of value to bolster America’s balance sheet and ensure the transparent management of Bitcoin holdings of the federal government.” BitClout Founder Charged With Criminal and Civil Fraud: The once pseudonymous BitClout founder “Diamondhands” (AKA, Nader Al-Naji) has been charged with civil and criminal fraud by the SEC and DOJ. The former Thirty-Under-Thirty award winner will face charges related to capital formation efforts and statements he made regarding the functionalities of the platform he was building. California Moves Car Titling to the Blockchain: California is moving car title tracking to the blockchain. California's Department of Motor Vehicles has digitized 42 million car titles and will allow the transfer of those titles to occur on the Avalanche blockchain. Industry Actors Oppose CFTC Proposed Prediction Market Rules: Coinbase has commented to the CFTC’s proposal regarding the CFTC’s propose to regulate prediction markets, something that has traditionally been left to the states to regulate. Others in the space have also joined in the opposition to the CFTC’s proposed expansion of authority. Mango Markets Alleged Exploiter Seeks New Trial: Avraham 'Avi' Eisenberg has requested a new trial and for his conviction to be overturned in the case against him regarding his alleged exploit of decentralized finance platform, Mango Markets. The issues on venue shopping and how there can be “fraud” against automated computer code are worth watching and likely will be raised on appeal regardless of which side wins on those issues. Conclusion: As we move toward the end of summer, the digital asset industry continues to be a focal point of intense litigation and regulatory scrutiny. The recent developments in the SEC’s ongoing cases against major exchanges, the conclusion of the Ripple Labs lawsuit, and California’s innovative step to move car titles to the blockchain all highlight the dynamic and rapidly evolving nature of this space. With discovery disputes heating up in the courts and new legislative initiatives emerging, the intersection of law, technology, and digital assets remains a critical area to watch. As these cases progress, they will likely shape the regulatory landscape and influence the future of digital assets in profound ways. The outcomes will not only impact the entities involved but also set precedents that could define the industry’s legal framework for years to come. 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.

While the nation was preoccupied with the significant developments in the Presidential race, advocates and promoters of the blockchain ecosystem were particularly attentive to the news, given the perception that the current administration is unfriendly to many within the industry. This upheaval comes during a period of relative optimism in the industry, given the current period of rising prices for digital assets, the addition of more digital asset exchange traded products available to the public, and certain high-profile investigations by the SEC coming to a close without litigation. While Web3 legal developments seem to be looking up, there are still roadblocks, such as the ongoing litigation against various digital asset exchanges, which the Polsinelli Blockchain+ team analyzed in detail in our recent article here. As we enter the heart of summer and what is certainly an historic presidential campaign, the last few weeks have left many in the industry with a sustained sense of hopeful optimism in the potential for meaningful legal acceptance of digital assets in the United States. These developments and a few other brief notes are discussed below. Amicus Briefs Come Out in Support of Declaratory Judgment Action Against SEC: July 10, 2024 Background: Paradigm has filed an amicus brief in support of Lejilex’s action against the SEC pending in the Northern District of Texas. The Digital Chamber also filed in support of the action against the SEC, as did Coinbase and a coalition of seven state Attorney Generals. Many of the briefings focused on the major questions and doctrine issues, and if that has any chance of victory at a district court level, a Northern District of Texas judge is probably the best shot of that happening. Analysis: While we often cover amicus briefs in the “Briefly Notes” section of these updates, this ground swell of support at the district court level for an exchange that doesn’t even operate yet warranted a fuller breakdown (the fact Paradigm cited to Commissioner Pierce’s Dissent in LBRY, where she quoted BitBlog author Jonathan Schmalfeld, helps too). The Digital Chamber’s brief, where they cite the forthcoming article The Original Public Meaning of Investment Contract by Edward Lee, was an especially fascinating read. Combined with the expediting briefing in the Consensys declaratory judgment action, the Lone Star State is going to be issuing some major rulings in the (relatively) near future. People can donate to support Lejilex’s efforts here. Paxos Prevails; Avoids Litigation After SEC Wells Notice Regarding BUSD: July 11, 2024 Background: Paxos has been notified by the SEC that the agency staff will not be recommending an enforcement action be brought against the entity in connection with BUSD. This is following a ruling in the Binance case that the sales of BUSD on the Binance platform did not constitute securities transactions. Binance stopped offering BUSD in December of 2023 after Paxos was ordered by the New York Department of Financial Service to stop issuing it, but this is still seen as a win for the industry generally and a sign that perhaps the SEC is backing off its position regarding fully back stablecoins being securities. Analysis: Honestly, the fact that the SEC is even issuing letters ending investigations is a step in the right direction. This comes the same week as the SEC agreed not to pursue charges against Hiro as issuers of the now-(mostly)failed Stax token, which was registered through Reg-A, resulting in the token’s slow death due to regulatory restrictions. This doesn’t mean all stablecoins are fine in the SEC’s eyes, especially algorithmic coins like those at issue in the Terra/Luna matter, but it is better than nothing. Presidential Election Shakeups Seen as Advantageous for Crypto: July 15, 2024 Background: Former President Trump has announced that Ohio Senator J.D. Vance will be his Vice-Presidential running mate in the upcoming presidential election. Senator Vance is a well-known proponent of the digital asset industry who, prior to being announced as the potential VP, was working on his own legislation in the Senate similar to FIT21 in the House. Now that Biden has dropped out and endorsed Kamala to be the Presidential nominee, it appears regardless of who wins there will be an administration change and a potential associated change in policy on digital assets. Analysis: An increasingly pivotal aspect of the presidential election is the prominence of cryptocurrencies as a significant issue, influenced by several digital asset factors. One is the role that prediction markets are playing in the election, with these markets again being the earliest and most reliable source of Trump’s pick. Another is that Vance is a Bitcoin owner who has preached the value of self-custody and pushed back at the SEC’s regulation by enforcement in the industry. However, industry participants may want to temper expectations at this point, as politicians and policy makers are hard to predict. For example, many thought Gensler, a former MIT professor who taught courses on blockchain technologies, would be pro-crypto, which turned out to be incorrect. However, the selection of Vance certainly signals that a change of administration could result in a historic opportunity for the industry to flourish in the U.S. While Kamala Harris has yet to take a firm position on crypto, the hope is that she will not be as firmly anti-crypto as the current administration. Topping all of this off, Donald Trump is expected to attend and speak at the upcoming Bitcoin conference in Nashville this weekend, and as of publication, event organizers extended an invitation for Kamala Harris to speak as well. Spot Ether ETF Launches: July 23, 2024 Background: In our May 29, 2024 Bi-Weekly update, we covered the SEC rule changes that all but guaranteed certain spot Ether exchange-traded funds would be available to trade in the near future. The first of those products began trading on July 23, 2024. Some analysts are expecting spot Ether ETFs to reach over $4 billion by the end of the year, following the spot Bitcoin ETFs, which have been an objective success for the issuers of those products. Analysis: This has been inevitable since the SEC did a surprise aboutface and approved certain rule changes that implicitly acknowledged Ether as a commodity and not a security. Of the issuers approved for trading, none include Ether staking, meaning the blockchain fees required for trading of spot Ether will be purely deflationary, without any offsetting staking rewards. This is something that could change if the next leadership structure is more open to digital assets being made available to traditional investors. Briefly Noted: Polsinelli Publishes Update in Exchange Litigation: As mentioned in the introduction, the Polsinelli Blockchain+ team published an article analyzing where the various SEC lawsuits against digital asset exchanges currently stand and what to expect from those lawsuits in the upcoming year. Important Article Examining Technical Functionalities of MetaMask Wallet in Light of SEC v. Consensys: Daniel Barabander, the Deputy General Counsel at Variant venture capital, published an exceptional article breaking down the SEC’s lawsuit against Consensys and comparing the allegations in the Complaint to the technical functionalities of the swap feature in the MetaMask digital wallet. The article goes into great detail, including explaining how “setting slippage” is different than “setting a limit order” in transactions on DeFi protocols. Attorneys in the space are highly encouraged to read this article to better understand where DeFi and software integrates or conflicts with existing broker/dealer laws. CFTC Chair Testifies on Digital Assets in Senate: CFTC Chairman Rostin Behnam testified before the Senate Agriculture Committee regarding oversight of digital commodities. One big takeaway was his statement that 70-80% of the crypto marketise non-securities, which stands in stark contrast with his counterpart at the SEC, who has gone on record saying a vast majority of digital assets are securities. Republicans Add Crypto Policy to 2024 Official Policy: Republicans have stated they “will defend the right to mine Bitcoin and ensure every American has the right to self-custody of their Digital Assets, and transact free from Government Surveillance and Control.” They have also stood firm in opposition to the creation of a central bank digital currency. This marks the first time that digital assets have been included in an official party platform for either major U.S. political party. SAB 121 Repeat Effort Fails to Obtain Enough Votes to Override Veto: As many expected, the efforts to repeal Senate Accounting Bulletin 121 (which requires banks to list crypto safeguarded for customers to be listed as liabilities on their balance sheets) failed to garner sufficient votes in the House of Representatives to overcome President Biden’s veto. This limits the ability of individuals to have their digital assets safeguarded by trusted bank providers, even if it has been reported that the SEC has exempted certain banks from required compliance with this accounting rule. United Kingdom DAO Study Released: The Law Commission of England and Wales published a paper on DAOs to assist their legislative bodies with identifying areas of potential legal reform. The paper recommends further analysis be done on whether existing law should be reformed to facilitate the increased use of technology at a governance level where appropriate. Conclusion: The interplay between the ongoing political shifts and the blockchain industry's evolving landscape presents a pivotal moment for digital assets in the United States. While the current administration's stance has often been perceived as adversarial, recent developments such as the launch of spot Ether ETFs, successful resolutions to high-profile SEC investigations, and the growing support for pro-crypto legislation signal a potential turning point. The upcoming presidential election further adds to this dynamic, with candidates’ varying perspectives on digital assets offering a glimpse of potential policy changes ahead. As we navigate these transformative times, the blend of optimism and caution within the industry underscores the anticipation of a more legally recognized and integrated future for 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.

The last week of June saw a flurry of legal developments in quick succession. The SEC sued Consensys, the developers of the largest self-custodial digital wallet (MetaMask). The IRS released its digital asset tax rules. The Court in SEC v. Binance ruled on Binance’s Motion to Dismiss. And that was just on June 28. While the first week of July had a welcome slowdown in legal news, we expect a busy summer with the anticipated incremental developments in ongoing digital asset cases and new cases being filed frequently. These developments and a few other brief notes are discussed below. Coinbase Sues SEC and FDIC over FOIA Requests: June 27, 2024 Background: Coinbase has filed lawsuits against the SEC and the FDIC regarding those agencies’ alleged failure to comply with Coinbase’s Freedom of Information Act (“FOIA”) requests. In a Twitter thread, Coinbase’s head of legal said, “@SECGov has claimed sweeping authority but refuses to provide any rules, let alone consistent or coherent ones. While @FDICgov pressured financial institutions to cut off the industry from the banking system, today we filed lawsuits under the Freedom of Information Act for requests we made over a year ago seeking important information to which we, and the public, are entitled.” Analysis: Due to the various carveouts and end-arounds, it is very hard to get anything of substance through a FOIA request unless the requesting party is willing to file a lawsuit to enforce it. Even then, it takes a sophisticated legal team and a war chest to successfully pursue these matters. Even if documents are ultimately produced, it will probably be a while before those documents see the light of day. This is likely a part of Coinbase’s litigation strategy to have multiple bites at the apple in seeking documents from the SEC through both this action and Coinbase’s litigation against the agency. Court Rules on Binance Motion to Dismiss in Suit Against the SEC: June 28, 2024 Background: The Court in SEC v. Binance ruled on the Binance Motion to Dismiss, allowing a majority of the SEC’s claims to advance to discovery but dismissing some major portions of the lawsuit, most notably those related to secondary trading. The nearly 90-page Order gave a strong rebuke of the “investment contracts require contracts” argument but an equally strong rebuke of the SEC’s “embodiment” theory that digital assets can “embody” an investment contract scheme. Judge Jackson dismissed the SEC’s allegations regarding the secondary sales of BNB being plausibly alleged to be securities transactions, as well as the SEC’s claims surrounding the Binance “Simple Earn” program and the Binance dollar-pegged stablecoin BUSD. Analysis: Polsinelli will be publishing a separate article shortly breaking down the various developments in the SEC’s cases against digital asset exchanges Coinbase, Binance, and Kraken. In the Binance ruling, Judge Jackson did not mince her words, stating “the SEC seemed to speak out of both sides of its mouth” at the hearing on the Motions to Dismiss and “the agency’s decision to oversee this billion-dollar industry through litigation—case by case, coin by coin, court after court—is probably not an efficient way to proceed, and it risks inconsistent results that may leave the relevant parties and their potential customers without clear guidance.” But just as in Coinbase, any major questions doctrine or “investment contracts require contracts” defenses will need to wait for appellate courts to have any chance of success. Coinbase has alerted Judge Failla of the Binance ruling, claiming it “further supports Coinbase’s motion for certification” for appeal. SEC Sues MetaMask Wallet Developers, Consensys: June 28, 2024 Background: The SEC has filed a lawsuit against the creators of the MetaMask digital wallet, Consensys Software Inc., alleging the digital wallet’s staking and swapping functionalities violate federal securities laws. The SEC’s lawsuit was brought in the Eastern District of New York, while developers’ declaratory judgment action is pending in the Northern District of Texas over those wallet functionalities, so there is a jurisdictional fight underway to start the matter off. That separate matter was recently scheduled for expedited briefing, so it appears on track to go forward despite the SEC’s new lawsuit in a separate court. Analysis: This comes shortly after the SEC declined to pursue an action against Consensys with respect to ETH possibly being a security, so this isn’t all bad news. Judge Fallia ruled against the SEC on its similar wallet-swapping claims brought against Coinbase, so the SEC’s choice of jurisdiction (bringing the lawsuit to New York court instead of Texas, the venue of the currently pending Consensys action) could be controversial. This Complaint contains some troubling arguments regarding the “efforts of others,” while the SEC is seemingly discouraging developers from having their smart contracts audited (paragraph 279 of the Complaint). The SEC’s mission statement is to protect investors, maintain fair, orderly, and efficient markets, and facilitate capital formation. This seems like an example of mission drift, which the SEC has been more than happy to charge investment advisers with in the past. The SEC also named the staking services offered by Lido and Rocket Pool as securities offerings without naming the corporate entities behind those projects themselves. Briefly Noted: SCOTUS Opens Floodgates for Regulatory Challenges: The Supreme Court gave the SEC and other regulatory agencies a triple whammy in the past couple of weeks. While not directly crypto-related, these developments weaken the SEC’s ability to enforce questionable positions, may affect some of the ongoing lawsuits the SEC has brought into the space, and give plaintiffs greater ability to challenge regulations and interpretations. First, they ruled that the SEC can’t bring certain civil claims in administrative courts because it violates the right to trial by jury. The next day, they formally overturned Chevron, which generally required that courts give deference to regulators’ interpretations of the laws they were created to administer. And the next week, they basically eliminated the statute of limitations to bring claims under the Administrative Procedures Act. SAB 121. IRS Releases Digital Asset Broker Reporting Rules: The IRS dropped its final digital asset broker reporting rules. While the agency punted on how to deal with DeFi or self-custodial wallet applications, the rules appear to require operational compliance starting in 2025. You can read a more detailed breakdown of the rules here. VanEck Files for SOL Spot ETF: VanEck is the first to take the plunge, filing an S-1 with the SEC to offer spot SOL ETF. It is unlikely this application will move forward or be formally denied until after the upcoming Presidential election. SEC Battles Exchange Hopeful in Texas Court: LEJILEX has filed a Motion for Summary Judgment in its case against the SEC, requesting a declaration that its planned exchange operations do not violate federal securities laws. The same day, the SEC filed their Second Motion to Dismiss, which is an odd procedural posture for a case to have summary judgment motions (typically brought at the end of a case) overlapping with motions to dismiss (typically brought at the beginning of a case). MiCA Stablecoin Rules Go into Effect: After the European Union’s MiCA stablecoin rules went into effect, it appears that Circle is the only qualified stablecoin issuer, with all other stablecoins blocked from EU exchanges. EU platforms are also offering alternatives to stablecoins like gold NFT as they wait for more EU-qualified stablecoin issuers to emerge. Amicus Filed in Support of Custodia Bank: Various amicus briefings were filed in support of Custodia Bank’s appeal of its master account rejection, including briefs filed by the Wyoming Secretary of State and Attorney General, members of the House and Senate Banking Committees, the Digital Chamber, former Senator Toomy, and the Blockchain Association. Conclusion: The recent flurry of legal actions in late June, including the SEC's lawsuit against Consensys and the court ruling on Binance's Motion to Dismiss, highlights the rapidly evolving regulatory landscape for digital assets. With Coinbase suing the SEC and FDIC over FOIA requests, and the IRS releasing new digital asset tax rules, it is evident that this summer will be pivotal for the industry. As stakeholders navigate these complexities, staying informed and seeking expert legal advice will be crucial to effectively manage the ongoing and forthcoming legal challenges. 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.

It was a busy week for digital assets with the Securities and Exchange Commission, as the agency was sued by a digital asset exchange hopeful and faces responses in its pending litigation against existing digital asset exchange Payward, Inc. d/b/a Kraken. Elsewhere in Web3 law, as the Department of Energy retracted its plan to survey Bitcoin mining operations, and Wyoming passed a law which creates a corporate structure for decentralized autonomous organizations (“DAOs”) modeled off the state’s existing structure for unincorporated non-profit associations (“UNAs”). All of this took place with Bitcoin and Ether reaching all-time highs in trading values, bringing back positive news and additional funding to the ecosystem.  These developments and a few other brief notes are discussed below. Exchange Hopeful and Texas Advocacy Group Sue SEC: February 21, 2024 Background: The Crypto Freedom Alliance of Texas and hopeful exchange platform LEJILEX have sued the SEC in a declaratory judgment action, seeking a ruling that LEJILEX’s planned actions to act as a centralized platform (named Legit.Exchange) for peer-to-peer and blind bid/ask trading of certain digital assets does not require registration with the SEC as a securities exchange, broker, or clearing agency. Summary: Former Solicitor General of the United States, Paul Clement, is a listed attorney against the SEC, as are various other highly accomplished appellate litigators. Combined with a favorable 5th Circuit forum and District Court Judge draw and this is certainly a case to pay attention to. It raises very similar issues to the defenses raised by exchanges currently litigating against the agency (as explained below) but lacks any potential bad factual baggage which those exchanges may have. The SEC can be expected to seek an early dismissal on standing or other jurisdictional grounds. Kraken Responds to SEC Lawsuit; Alleging the Lawsuit is an Attempt to Stifle Free Speech: February 22, 2024 Background: The digital asset exchange Payward, Inc. (aka, “Kraken”) has moved to dismiss the lawsuit filed against it by the SEC related to the facilitation of sales of certain digital assets.  Namely, ADA, ALGO, ATOM, FIL, FLOW, ICP, MANA, MATIC, NEAR, OMG, and SOL. In a separate blog post explaining the Motion to Dismiss, Kraken claims that the day after Kraken testified to the House Financial Services Committee regarding the need to limit the SEC’s authority over regulation of digital assets, an SEC official called Kraken stating the agency’s intent to sue. Summary: This Motion to Dismiss largely follows the framework of the Coinbase Motion for Judgment on the Pleadings and the Binance Motion to Dismiss. All raise similar arguments regarding the token sales at issue not being “investment contracts” and the SEC’s alleged regulatory overreach which is argued by the defendants to be contrary to previous agency positions and violates certain separation of powers principles. What is interesting about the Kraken suit is the blog post and motion outright stating that the SEC’s lawsuit is retaliation for Kraken’s Congressional testimony. “Crypto innovators in the United States should not have to fear retaliation for their political speech. They should be free to earnestly advocate for better law and more efficient markets. They should be free from intimidation by a politically compromised agency.” Multiple Amici Come Out in Support of Kraken and Opposition to SEC: February 27, 2024 Various amicus briefs were filed in the SEC vs. Kraken lawsuit, including briefs filed by the Chamber of Digital Commerce, the Blockchain Association/DeFi Education Fund, Paradigm, and a group of State Attorney Generals. All of the amicus briefs call into question the seemingly shifting stance of the SEC on what is a “digital asset security” or an associated “ecosystem” which the SEC has argued turns a particular blockchain’s token into something which satisfies the commonality element under Howey. Tl;dr: With this being an election year, any real change in law or administrative policies is likely going to come from the courts, if at all. The amount of amicus support at the district court level for all the exchange cases has been an impressive showing from industry advocacy organizations, businesses, and political actors. The State Attorney General briefing is especially interesting, claiming the SEC is overstepping into the realm of general consumer protection and money transmission which are typically issues reserved for the states. SEC Commissioner Uyeda Warns About Unbound Administrative Authority SEC Commissioner Mark Uyeda gave a speech to the Council of Institutional Investors titled Dangers of the Unbounded Administrative State which included a section regarding the current regulation of digital assets by the SEC. In it, he warned the Commission’s “broad reading of Howey would appear to scope in many common transactions in the non-digital world, including pre-purchase commitments, collectibles, art, and land.” Tl;dr: This is the strongest statement by an SEC Commissioner without the last name Peirce to come out in opposition to regulation by enforcement by the current SEC.  “When a regulator can, without practical limitation, promulgate, interpret, and enforce rules and guidance, including retroactively, the temptation to be arbitrary in the exercise of administrative power and enforcement can be great.” Combined with his dissent to the ShapeShift settlement, and it appears politicians are getting more emboldened to publicly object to regulatory enforcements against digital asset industry participants. Briefly Noted: SEC Settles With ShapeShift: The SEC settled with Erik Voorhees’ long-inactive exchange entity ShapeShift for a $275,000 fine and an agreement that the company would no longer violate the Securities Exchange Act. Shapeshift handed off operations to a DAO in 2021, which continues to operate unaffected. As stated by SEC Commissioners Peirce and Uyeda “[t]he Commission’s enforcement action against ShapeShift is the latest installment in the serial drama of the Commission’s poorly conceived crypto policy.” SEC Seeks to Use Default Judgment in Coinbase Case: Predictably, the SEC is trying to use a default judgment in the Wahi case against Coinbase and predictably Coinbase pushed back. “The Wahi order was procured against an empty chair and its reasoning reflects as much. Coinbase respectfully submits that the default judgment against Mr. Ramani should be afforded no weight.” Wyoming Creates New Corporate Structure for DAOs: Wyoming passed a law creating a new corporate structure: the “Decentralized Unincorporated Nonprofit Association” or “DUNA” (terrible name; unless it involves sandworms). This was a structure advocated by various industry participants as a DAO corporate wrapper, and is seemingly designed primarily to avoid triggering Corporate Transparency Act reporting requirements. Advocacy Groups Block Department of Energy Survey of Bitcoin Miners: The Texas Blockchain Council filed a lawsuit challenging the Department of Energy’s recent “emergency” survey requiring bitcoin miners to provide ongoing reporting to the agency. House Majority Whip Tom Emmer has also sent a letter to the agency challenging its actions. These efforts apparently worked, as the Department of Energy retracted it survey. Blockchain Association Advocates Against Sen. Warren Proposal: The Blockchain Association wrote a letter, signed by many members who are former or current law enforcement or military, advocating against Senator Elizabeth Warren’s proposed anti-money laundering law. Digital assets aren’t going away, so laws which are impossible to comply with based on technological limitations won’t kill it. It will just drive it overseas away from the reach of U.S. regulators. Polsinelli Blockchain+ News and Speaking: Bitblog Blockchain+ Bi-Weekly key author Jonathan Schmalfeld will be speaking on May 15th at the D.C. Blockchain Summit together with key members of Congress and senior regulators and Commissioners. He will also be speaking at NFT/NYC on April 3rd. Conclusion: The landscape of digital assets and Web3 law is currently marked by a series of legal and regulatory challenges, as well as legislative attention and increased values that underscore the ongoing tension between innovation and regulation. The lawsuit by the Crypto Freedom Alliance and LEJILEX against the SEC, alongside Kraken's defense against the SEC's lawsuit, highlights the digital asset industry's resistance to what it perceives as regulatory overreach as well as its maturation in being able to assertively self-advocate. Moreover, Wyoming's pioneering legal framework for DAOs and the backlash against regulatory actions by various advocacy groups and political figures, including SEC Commissioner Uyeda's critique, reflect a broader debate on the balance between fostering innovation in the digital asset space and ensuring regulatory compliance. These developments suggest that the resolution of these tensions will significantly shape the future of digital assets and their 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.

As the new year is in full swing, digital asset legal developments have picked up as well. In a surprising turn of events, it was revealed that the theft of $400 million in assets as FTX was going through their change in leadership prior to bankruptcy was allegedly the result of a sim swap, with three American charged in the theft. The Department of Energy is also looking into the energy usage if cryptocurrency mining, and there appears to be bipartisan support to overrule the SEC’s proposed digital asset custody rule. These developments and a few other brief notes are discussed below. Alleged FTX Hackers Indicted Over $400 Million Hack: January 24, 2024 Background: Three Americans have been charged with a series of sim-swap hacks which included the hack of certain FTX accounts during the disorganized period around the time that control of the exchange was handed over to attorneys. While the victims are not listed in the indictment, media outlets are reporting that Victim Company-1 is FTX, and access was obtained through a sim swap of an FTX employee’s phone who had access to various FTX digital wallets. Summary: In the days after FTX's collapse, hundreds of millions of dollars in cryptocurrencies were moved out of FTX's accounts. Many believed at the time this was an inside job, with a high-level employee moving those funds as a nest egg to preserve against government seizure. After not hearing many updates on this in the years following, it is interesting to find out it was three Americans behind the heist. SIM swapping is not an especially sophisticated form of hacking, so to hear these three allegedly got over $400 million through relatively unsophisticated forms of fraud shows how lax the security and compliance was at FTX around the time of its collapse. Energy Department Issues “Emergency” Collection of Information Regarding Bitcoin Mining Energy Consumption: January 26, 2024 Background: The U.S. Energy Information Administration (“EIA”) “authorized the survey on January 26, 2024, as an emergency collection” for commercial cryptocurrency miners to respond to. The agency stated in a press release. “We will specifically focus on how the energy demand for cryptocurrency mining is evolving, identify geographic areas of high growth, and quantify the sources of electricity used to meet cryptocurrency mining demand.” Summary: The science is fairly well established that Bitcoin and other cryptocurrency mining is a net positive for stabilizing electrical grids, especially for renewable energy sources which often have high outputs that need consumption because factories and other energy consumers (unlike mining) cannot be turned on and off when the wind is high/low or the sun is bright/covered. Despite these benefits, this is just the latest step taken by the current administration with the intent of curbing crypto mining activity, along with the proposed Digital Asset Mining Energy (DAME) 30% excess tax on crypto miners.  That said, while this was an “emergency” order that sidestepped normal regulatory agency due process it still is little more than an information-gathering measure, albeit one the EIA intends to use to develop a new standard collection. Bipartisan Joint Resolution Issued to Repeal SEC Crypto Custody Guidance: February 1, 2024 Background: Senator Lummis (R-WY) along with Congressman Nickel (D-NC) and Flood (R-NE) introduced S.J.Res.59 under the Congressional Review Act which authorizes Congress to rescind agency rules through joint resolutions. The Joint Resolution would repeal the SEC’s Staff Accounting Bulletin (“SAB”) 121 which requires listed companies that custody digital assets to list those assets as liabilities on balance sheets unlike cash and other assets custodied by those custodians. The Government Accountability Office has previously ruled that SAB 121 failed to abide by the Congressional Review Act. Summary: Senator Lummis seems to believe she has the votes to pass this through the Senate because Joint Resolutions only require a simple majority and not the 60 votes required to end debate on other bills. This will almost certainly pass the House if it gets there. It is an accounting rule that makes no sense and results in there being fewer trusted fiduciaries who can protect customer’s digital assets from theft. It will be interesting to see if the President’s current digital asset stance is important enough to him to use his veto power on this Joint Resolution if it passes the House and Senate.  The SEC’s passage of SAB 121 was always odd as the purpose of SEC staff bulletins is to establish internal policies on how to implement already existing rules (and inform the general public about those internal policies), while SAB 121 goes well beyond the usual purpose of a staff bulletin and establishes new policy rather than interpreting an existing rule.  Even if SAB 121 is overturned, it would not affect the SEC’s proposed “Safeguarding Rule” which would overhaul the Investment Advisers Act Custody Rule and make non-security crypto assets subject to custody requirements that could be difficult, if not impossible, to fulfill for many digital assets. Briefly Noted: SEC Delays Decision on Spot ETH ETF: Well this is a shocker!  Some analysts are predicting that a spot ETH ETF could be approved as early as May if the SEC doesn’t reject the rule change required to approve the ETF, but later seems more realistic.  While the SEC was bench-slapped over its failure to approve a BTC ETF, Gary Gensler has telegraphed that the SEC will argue that the holding in that case only applies to BTC and that, with a significantly lower market cap and different blockchain validation mechanics, ETH could be significantly more prone to manipulation than BTC.  After having approved an ETH futures ETF, it could be difficult for the SEC to stall for too long.  That said, every objection made by Commissioner Crenshaw (who still voted against the ETF despite a court order to the contrary) to the BTC ETF would also be true for an ETH ETF (even though most of those objections are also true for nearly all single-asset ETFs). Article on DeFi As Critical Infrastructure Released: Various legal practitioners in the space issued an academic paper proposing that DeFi be regulated as a critical infrastructure provider rather than as a financial intermediary assuming it meets certain technical thresholds. It is not a final proposal, but is an interesting starting point in thinking of DeFi as technology first. SEC Commissioner Dissents to Rule Prohibiting Denial of Charges by Settling: SEC Commissioner Hester Peirce has issued a dissent to the Commission’s decision to reject a proposed rule change that would allow settling parties to continue to claim innocence after accepting a settlement. It raises the question if a government agency while acting in civil litigation, has the ability to restrict speech to such a degree. FTX Expected to Pay Customers in Full/Will Not Restart Exchange: FTX issued an update to the bankruptcy court stating that it expected to be able to pay back all depositors in the exchange prior to its collapse, but will not be restarting the business following the bankruptcy proceedings. It is yet to be determined if depositors will be paid back in kind or, more likely, based on the price of the applicable cryptocurrency at the time of bankruptcy (which was near 2-year lows for many digital assets). Industry Opposed FinCEN Rulemaking Proposal: Chamber of Digital Commerce, Coinbase, Paradigm, and others all submitted comments to FinCEN’s Notice of Proposed Rulemaking which would result in bulk data collection and reporting requirements for all transactions involving any crypto mixing even with no indication of suspicious activity. Conclusion: As the digital asset landscape continues to evolve, the first month of this year has brought to light significant legal, regulatory, and ethical challenges facing the industry. From the shocking revelation of the alleged FTX hack to the ongoing debates over energy consumption and regulatory oversight, each development underscores the complex interplay between innovation, security, and governance in the digital age. The bipartisan effort to overrule the SEC’s digital asset custody rule highlights a growing recognition of the need for nuanced, balanced policies that safeguard both the industry's potential and the public's interest. As we navigate these turbulent waters, it's clear that the path forward requires a collaborative approach, one that embraces the transformative possibilities of digital assets while addressing the vulnerabilities and ethical considerations they can also represent. The rest of the year promises to be a critical period for shaping the future of digital assets, as stakeholders across the spectrum strive to find common ground in building a resilient, equitable, and sustainable digital economy. 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 Bi-Weekly updates took a break during the holiday season, but the Web3 developments did not. It was a busy month in both litigation and regulatory changes, including what is expected to be a wave of approvals for various spot bitcoin exchange traded funds which will make exposure to bitcoin as a store of value more available to institutional and other investors.  It is possible that by the time this is posted the first round of approvals will be granted which we will cover in the next Bi-Weekly installment. These developments and a few other brief notes are discussed below. Mango Markets “Profitable Trading” Strategist Loses Early Dismissal Bid: December 18, 2023 Background: Avraham (“Avi”) Eisenberg lost on his Motion to Dismiss the criminal Complaint against him regarding his October 2022 exploit of the Mango Markets trading protocol. The Order is available here. Avi is facing criminal charges of commodities fraud, commodities manipulation and wire fraud. The Court specifically rejected Avi’s Major Question defense, stating “Eisenberg cites no authority for applying the major-questions doctrine in the context of a single criminal case.” It went on to hold, though, that “this denial is without prejudice to Eisenberg raising his arguments by way of a Rule 29 motion for judgment of acquittal after the close of the government’s evidence…” Summary: As you may remember, in October of 2022, Avi used what he referred to on Twitter as a “highly profitable trading strategy,” using a combination of leveraged trades which resulted in the protocol (Mango Markets) becoming insolvent. This case will determine important issues going forward on what level of human interaction is needed for “wire fraud” in a protocol exploit like this, where the main fraud is being perpetrated against an algorithm. While the Court denied dismissal at the Motion to Dismiss stage, it also demonstrated in its Order the need to see additional facts to resolve disputed issues which isn’t proper at this stage in litigation but may be proper later. The development company behind Mango Markets is also having its own regulatory issues in the fallout from the events leading up to the aforementioned criminal prosecution. Elizabeth Warren Sends Letter to Trade Associations Who Oppose Her Bill: December 18, 2023 Background: Elizabeth Warren sent a letter to the Blockchain Association, Coin Center and various advocacy groups “regarding a troubling new report that your association and other crypto interests are ‘flexing a not-so-secret weapon: a small army of former defense, national security and law enforcement officials.’” Sen. Warren’s letter requests further information on the employment of former government officials by digital asset advocacy groups and industry participants. Summary: It is disheartening that a sitting Senator would send a threatening letter demanding information she has no legal right to regarding former government officials working at advocacy organizations after leaving government. Especially considering her former staffer just left the Whitehouse to go to work directly with an advocacy group that previously lobbied him while in his official capacity. Coin Center’s official response was well put: “Engaging like-minded experts to advocate against legislative proposals that one sincerely believes are unconstitutional and detrimental to the nation's welfare does not constitute 'undermining bipartisan efforts in Congress.' Rather, it is the exercise of the fundamental right to freely associate and petition the government. It’s everyone’s right and no one should apologize for doing it. Resorting to questioning motives often reflects an inability to prevail on the merits of an argument itself.” SEC Wins (Mostly) in Terraform Labs Case: December 28, 2023 Background: The SEC was granted summary judgment against Terraform Labs regarding the SEC’s allegation that the UST, LUNA, wLUNA and MIR tokens are investment contracts under the Howey test while being a bit more nuanced about the UST stablecoin and leaving the possibility open that the investment contract is UST in conjunction with the protocols that allowed it to earn interest. Terraform Labs was granted summary judgment dismissing the SEC’s allegations that it engaged in illegal security-based swaps. The issue of whether Terraform Labs’ actions constitute fraud was left for trial. Summary: The Court held that LUNA and MIR were securities, in large part due to statements from founder Do Kwon indicating that LUNA purchasers were effectively putting their money in a common enterprise with expectations of profits from the efforts of Terraform Labs and Kwon. However, the Court also ruled that Terraform’s Mirror Protocol, which allowed users to mint “mAssets,” mirroring real-world assets on the blockchain, were not security-based swaps under the law. Interestingly, the Court did not even cite Judge Torres’ Ripple ruling, despite previously being critical of it on Motion to Dismiss. 2024 Crypto Tax Reporting Unclear Under Infrastructure Investment and Jobs Act: January 1, 2023 Background: The Infrastructure Investment and Jobs Act, which passed Congress in November of 2021, included a provision amending the Tax Code (“6050I”) to require anyone who receives $10,000 or more in cryptocurrency in the course of their trade or business to make a report to the IRS about that transaction. The law became effective as of January 1, 2024, leaving many unclear as to their reporting obligations. Coin Center filed a lawsuit challenging the law in the summer of 2022 and has posted its current thoughts about it here. Summary: Jason Schwartz had a great thread breaking down the reporting obligations. He and others have reported that the IRS appears to believe that the 6050I reporting requirement doesn't come into effect for crypto until after regulations are issued. This also only applies to receipts of one or more related transactions that were received in business and amount to over $10,000. So, 10,000 people buying a jpg for $100 each is not something that should trigger reporting obligation, nor is most day trading, even at a large scale. Additionally, failure to file is a $50 fine unless intentional (and hard to say it would be intentional here in most cases without clarifying rules). In the meantime, at a minimum, we think it would be prudent to maintain accurate books and records while awaiting further guidance from the IRS or for a market practice to develop.” Briefly Noted: There Will Be No Second Sam Bankman-Fried (“SBF”) Criminal Trial: It looks like there will not be a second SBF trial. Charges on campaign finance fraud would not have looked great and could have had collateral effects on the level of trust in our political and judicial system. That said, SBF is most likely going to jail for at least the next decade or two on his existing convictions, so having another trial on matters that would be much more difficult to prove likely would have been a waste of time and resources. BarnBridge DAO Settles with the SEC: BarnBridge DAO, which you may remember had an attorney purporting to represent the DAO post in their Discord about the SEC investigation and had a DAO vote on how to respond to the investigation, settled with the SEC last week. This is an interesting case study in response of DAOs to criminal and civil investigations. Interestingly, the settlement raised the issue of possible registration under the Investment Company Act for the first time since the Blockfi Settlement. Conclusion: The latest updates in blockchain law reveal a dynamic and evolving intersection of blockchain technology, regulation and legal challenges. From the significant developments in the Mango Markets criminal case to the intriguing nuances of the Terraform Labs ruling, these stories underscore the complexities facing the blockchain and crypto industries. Senator Elizabeth Warren's recent actions and the ongoing ambiguity in crypto tax reporting further highlight the intricate dance between innovation and regulation. As we anticipate further developments, particularly regarding the impact of these events on institutional investment in cryptocurrencies, it's clear that the landscape of blockchain technology and law remains as vibrant and challenging as ever. 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.

Stephen Rutenberg and Michael DiPietro, real estate finance attorneys in the firm's Miami and Wilmington offices, discuss the collapse of major crypto companies like Voyager, Celsius, 3AC, BlockFi, and FTX in 2022, revealing their involvement in crypto asset investments and loans. Read more about the recent crypto insolvencies.

An interesting and thoughtful whitepaper called “A Legal Framework for Decentralized Autonomous Organizations” was co-authored by a general counsel of one of the major venture investors in the blockchain space suggesting a framework for DAOs under the legal system in the United States.  A decentralized autonomous organization, or a “DAO,” is an “organization” encoded as a transparent computer program, controlled by the organization members, and not by a central corporate entity. Currently, many DAOs are not established as legal entities, potentially exposing their members to a number of risks and liabilities. The whitepaper highlights some of the major legal issues facing DAOs, including difficulty with tax reporting, difficulty in entering contracts, and potential general partner liability for DAO participants. The whitepaper suggests that an ideal solution will involve new laws that recognize a type of non-entity that could at least have sufficient legal personality to provide some protections for these above-mentioned concerns. However, there are several hurdles facing a new type of regulation both from the regulators themselves, as well as from many people involved with DAOs who believe that constituting these organizations as a legal entity is antithetical to the philosophy behind a DAO. In the meantime, prior to the introduction of a new corporate structure, the whitepaper proposes the use of an unincorporated nonprofit association (UNA) as a ‘wrapper’ for a DAO to give which would give such organizations sufficient legal coherence including the ability to pay taxes, make filings, and the like.  Unincorporated nonprofit associations are broadly defined and, in many jurisdictions, can consist of just a few people agreeing to work, either orally or with an agreement, on a charitable endeavor together. Many states provide for a simple mechanism for these groups to obtain a tax ID number, and, while it may not be feasible for many DAOs due to their activities or structure, they also are permitted to apply for tax-exempt status under Section 501(c)(3) of the tax code.  Much of the question as to the applicably of UNA for a DAO will rest on the whether the activity of that DAO is considered “not-for-profit” under something called the Uniform Unincorporated Nonprofit Association Act (UUNAA) that has been adopted by many states. While many DAO generate profits, in general that is allowed under the UUNAA if the profits are not being distributed to members. Another existing legal structure suggested by one of the members of Polsinelli’s nonprofit organizations group for use by DAOs is a public benefit limited liability company, which he believes may be a more effective structure for these organizations. While it would mean that the DAO would need to more formally adopt a corporate structure than a UNA requires, it would also create limited liability for its members as a matter of law.

The Federal Trade Commission (“FTC”) recently announced an updated rule to strengthen data security safeguards for financial institutions. 16 C.F.R. § 314. As a result of increasing cyberattacks and data breaches, the FTC augmented requirements to protect customer financial information. The updated rules include limiting access and authentication protocols using encryption to secure information and laid out incident response plans and security programs based on risk assessments. Institutions will be required to explain their policies and practices, specifically administrative, physical, and technical safeguards. Financial institutions will also have to designate a single “qualified individual” to oversee the information security program.  The individual must also report to the board of directors of the institution or to a senior information security officer there. The rule also requires non-banking institutions such as mortgage brokers, vehicle dealers and small loan lenders, to develop and implement comprehensive security systems to keep customer data safe. These new safeguards reflect the FTC’s increased focus on preempting cyberattacks by requiring that businesses and institutions implement processes and procedures that safeguard user data. The final rule can be found here.

On Tuesday, April 20, 2021, the House of Representatives passed the Eliminate Barriers to Innovation Act of 2021 (the “Act”). The Act was initially introduced in March with an overarching aim to clarify the roles of the Commodity Futures Trading Commission (“CFTC”) and the Securities and Exchange Commission (“SEC”) in the policing of cryptocurrencies in the U.S., and create collaboration between the two agencies. If passed in the Senate, the Act would require the CFTC and the SEC to jointly establish a digital asset working group (the “Working Group”) within 90 days of enactment.  This is landmark legislation as it is the first time either branch of Congress has passed a blockchain-related bill.  If passed, the Act could help provide some much-needed clarity in determining which regulators have jurisdiction over different digital asset issuers. The Working Group’s directive would be to submit, within one year, a report that contains an analysis of the current CFTC and SEC legal and regulatory framework for digital assets, the impact a lack of clarity has had on primary and secondary markets in the U.S., and the country’s competitive standing in comparison to developments in other countries. The report would also be required to include recommendations addressing the following: Creation, maintenance, and improvement of primary and secondary markets in digital assets; Legal treatment of custody, private key management, cybersecurity, and business continuity relating to digital asset intermediaries; and Future best practices to reduce fraud and manipulation of digital assets, improve protection of investors, and assist in compliance with banking and anti-money laundering laws and regulations. The Working Group’s composition would be comprised of an equal number of employees and non-governmental representatives appointed by the SEC and CFTC. The non-governmental representatives in the Working Group would be required to include at least one representative from each of the following sectors: FinTech companies providing digital assets products or services; Financial firms under the jurisdiction of the SEC or the CFTC; Institutions or organizations engaged in academic research or advocacy relating to digital asset use; Small businesses engaged in FinTech; and Investor protection organizations - Institutions and organizations that support investment in historically-underserved businesses (women-owned, minority-owned, and rural businesses). The full text of the Act can be found here.