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.

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 The bill would have repealed the SEC’s accounting guidance requiring SEC-registered companies to treat digital assets held on behalf of customers as liabilities, effectively making it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

In what may be the first of its kind, a New York state court has authorized service via token airdrop in a case regarding allegedly stolen cryptocurrency assets. This form of alternative service is novel but could become a more routine practice in an industry where the identities of potential parties to litigation may be difficult to ascertain using blockchain data alone. Background on the Dispute According to the Complaint in the case, the plaintiff LCX AG (“LCX”) is a Liechtenstein based virtual currency exchange. As alleged in the Complaint, on or about January 8, 2022, the unknown defendants (named in the Complaint as John Does 1-25) illegitimately gained access to LCX’s cryptocurrency wallet and transferred $7.94 million worth of digital assets out of LCX’s control. Cryptocurrency wallets are similar in many ways to bank accounts, in that they can be used to hold and transfer assets. In the same way a thief can transfer funds from a bank account if they gain access to that account, thieves can also transfer cryptocurrency assets if they gain access to the keys to the wallet holding digital assets. Following the alleged theft, LCX and its third-party consulting firm determined that the suspected thieves used “Tornado Cash,” which is a “mixing” service designed to hide transactions on an otherwise publicly available blockchain ledger by using complicated transfers between unrelated wallets. While Tornado Cash and other mixing services have legal purposes such as preserving the anonymity of parties to legitimate transactions, they are also utilized by criminals to launder digital funds in an illicit manner. Even the use of these mixing services, however, can often also be unwound. This is especially true in transactions of large amounts of cryptocurrency, similar to how transactions utilizing complex money laundering schemes in the international banking system can be unwound. According to the blockchain data platform Chainalysis, although Illicit crypto transactions reached an all-time high of $14 billion in 2021, these suspected nefarious transactions accounted for 0.15% of crypto volume last year, down from 0.62% in 2020. While the Complaint alleges the suspected thieves used Tornado Cash, LCX believes its hired consultants were able to unwind those mixing services to identify a wallet which is alleged to still hold $1.274 million of the allegedly stolen assets. Unlike bank accounts which have associated identifying information, there are often no registered addresses or other identifying information connected to digital wallets. This makes it difficult to provide the actual proof of service required to institute an action or obtain a judgement against an individual where the only known information is their digital wallet addresses. Service via token airdrop into those wallet addresses solves that issue. Service Via Airdrop Service of lawsuits is traditionally made on the defendant personally at a home or business address via special process servers. In cases where service on the individual is not possible for some reason, many states authorize alternative means of service if the plaintiff can show that the alternative means of service likely to provide actual notice of the litigation to the defendant. For example, courts have historically allowed notice via newspaper publication as an alternative means of service where the defendant cannot be serviced personally. Here, the Court permitted service via “airdrop” in which a digital token is placed in a specific cryptocurrency wallet, similar to how a direct deposit can place funds in a traditional bank account. This particular token contained a hyperlink to the associated court filings in the case, and a mechanism which allowed the data of any individual who clicked on the hyperlink to be tracked. While this is a novel way to serve notice of a lawsuit, similar airdrops have been used to communicate with the owners of otherwise anonymous cryptocurrency wallet owners. Such was the case recently when actor Seth Green had his Bored Ape non-fungible token (“NFT”) stolen and the unknowing buyer of the stolen NFT was otherwise difficult to locate. While this type of digital service is new, it could be implemented in many disputes in the future regarding digital assets. Similar to the authorization of service that was seen recently in the Facebook Biometric Information Privacy Act litigation (where notice was served on potential class members via email and directly on the Facebook platform), service via airdrop may be the most efficient way to inform potential lawsuit participants of the pending dispute and how they can protect their rights in that dispute. This type of airdropped service is not without issues, though. First, transactions on the blockchain are largely publicly available, meaning any individual with the wallet address would also be able to see service of the lawsuit notice. Additionally, many users are hesitant to click on unknown links (such as the one in the airdropped LCX) due to legitimate cybersecurity concerns. While service via airdropped token is unlikely to replace traditional methods of service, it may be a useful means of serving process on unknown persons where there is a digital wallet linked to the acts which the applicable lawsuit relates.

A former employee of OpenSea, the largest marketplace for the purchase and sale of non-fungible tokens (NFTs), has been indicted and charged with wire fraud and money laundering allegedly in connection with actions he took while employed by OpenSea. NTFs bought and sold on the OpenSea platform mostly consist of digital assets that represent the ownership interest in a piece of digitally generated and displayed works of art.  The full ten-page indictment is available here. While not charged with actual insider trading under Securities Exchange Act Rule 10b-5 or other applicable securities laws, in a press release the Department of Justice (DOJ) has framed this to be the first ever “digital asset insider trading scheme” to be prosecuted in the United States. Nathaniel Chastain (“Chastain”) was arrested on June 1, 2022 and released on $100,000 bond after entering a plea of “not guilty” in federal court. According to the indictment, in September of 2021, Chastain resigned from his position as product manager at OpenSea after it was revealed he was purchasing NFTs based on confidential information about the identities of artists and collections that would be placed on OpenSea’s front page.  The placement of art on OpenSea’s front page is alleged to be relevant to its price since highlighted projects and artists often enjoy a price bump while featured more prominently on OpeaSea’s website. The DOJ indictment is based on Chastain’s alleged breaches of the fiduciary duties he owed to his employer at the time (OpenSea), along with Chastain’s use of “burner” (anonymous) cryptocurrency wallets in an alleged attempt to hide his actions. The NFTs Chastain purchased were largely art projects with no utility outside of ownership of the artwork, which may in part explain why Chastain is being charged with wire fraud and not securities fraud. Works of art have not, in-and-of-themselves, traditionally been treated as securities by the U.S. Securities and Exchange Commission (SEC) or other government entities. A few other interesting facts of the case not otherwise mentioned in the pleading documents themselves but found reported elsewhere by others include: At the time of Chastain’s actions, OpenSea did not have a policy explicitly prohibiting using confidential information to purchase or sell any NFTs, whether available on the OpenSea platform or not. That was only implemented after Chastain’ actions were revealed. Chastain’s purchases largely occurred after the items were available on display on the front page of the OpenSea platform (albeit, only by mere seconds in some cases). This means, at the time of purchase, there arguably was public knowledge that the items were being promoted on the front page of OpenSea and that Chastain was not necessarily “front running” trades of the NFTs in the traditional sense.  That said, under the allegations he may have been able to use advance knowledge of the proposed listing locations to make trades before the market had time to digest the information. These alleged front running actions were initially uncovered by individuals on Twitter in September of 2021, who were able to connect Chastain’s actions to various otherwise anonymous cryptocurrency wallets by tracking transactions through a public blockchain. The total amount Chastain made from these purchases and sales is currently believed to be less than $150,000. While Chastain was not formally charged with securities fraud, the DOJ’s use of “insider trading” verbiage throughout the indictment and in their press-release seems to indicate a clear signal of future enforcement actions to come. These statements by the DOJ along with the recently released DOJ report on detection and prevention of crimes involving digital assets likely portend for securities law actions in respect of NFTs that have other characteristics that could cause them to be deemed “investment contracts” under the Howey test, such as a right to redistribution of profits. It also shows that the DOJ likely has been paying much closer attention to this space closer and for a longer period of time than is conventionally thought, as not many outside of the NFT community knew about or paid attention to this relatively minor scheme when it was uncovered in 2021, and that even relatively minor players risk becoming the subject of law enforcement.