Edition No. 15

Tornado cash sanctions; SEC v. Ripple update; NFTs and MiCA; The genesis of crypto AML litigation; a new open source DAO Library, and more. Here's what happened from 8/8/2022 - 8/15/2022.

Welcome to another edition of Around the Blockchain, the weekly letter dedicated to keeping readers like you up to date on the fast-paced world of Crypto & Law by airdropping current stories and projects directly to your browser.

Table of Contents:

1. On the Docket (Top 5 Stories of the Week)

2. Podcasts, Videos, & Blogs (The faces, voices, and pens of Web3’s brightest contributors)

3. Bird Watching (Tweet, tweet!)

4. Motion to Compel (Meant to provoke thought and action)

5. The Public Ledger (Highlights from our weekly library of sources, built by our Feedly AI)

6. Closing Statements

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On the Docket

Five things you might have missed last week:

1. US Treasury Sanctions Crypto Mixing Protocol Tornado Cash

What the hell happened with Tornado Cash?

On Monday August 8, 2022, the U.S. Treasury announced it sanctioned Tornado Cash, an open-source crypto mixer. The Office of Foreign Asset Control (OFAC), a financial intelligence and enforcement agency of the U.S. Treasury Department added Tornado Cash and over 40 related Ethereum wallet addresses to the Specially Designated Nationals (SDN) list accusing it of helping hackers, including from North Korea, launder illicit proceeds.

According to the Treasury Department, for entities listed on the SDN all “assets are blocked and U.S. persons are generally prohibited from dealing with them.” OFAC’s actions essentially make it illegal for any U.S. person or company to interact with Tornado Cash or the Ethereum wallet addresses tied to the protocol. Those who do may face fines, civil and/or criminal penalties.

To read more, follow this link to the full length summary written by Evan Santos.

See also: CNBC.com

2. SEC v. Ripple Update

The battle rages on:

In the latest development of the years long litigation, Ripple filed its Response to SEC Objections to Magistrate Judge Netburn’s decisions on the Deliberate Process Privilege (DPP) issue and the Attorney-Client Privilege (ACP) issue.

To put this in context, the filing comes in response to SEC objections asserting Judge Netburn erred in finding documents from former SEC Division of Corporate Finance Director Bill Hinman’s infamous 2018 speech on digital assets and federal securities laws are (1) relevant, (2) not protected by the DPP, and (3) not protected by ACP.

The filing comes after several rounds of briefings, multiple hearings, three in camera reviews, and multiple requests for reconsideration on the issues. Ultimately, Judge Netburn issued three orders compelling the SEC to produce the documents from Hinman’s 2018 speech.

Ripple states in its Response the SEC’s real objection is the court did not accept the SEC’s invitation to retreat from its findings. To quote the Response, the SEC

“…sought to put the toothpaste back in the tube and rely on self-contradictory lawyer argument to avoid the consequences of its litigation strategy.”

On Twitter class action lawyer for XRP Holders, John Deaton, references the summary judgment against the LBRY. Deaton argues current SEC Chairman Gary Gensler is heading towards an unlawful expansion of the seminal Howey Test. 

Keep a look out for more developments in this case and other  SEC actions impacting crypto.

3. NFT Collections Will Be Regulated Like Cryptocurrencies Under EU’s MiCA Law

If it looks like a duck, and quacks like a duck…

An official from the European Commission has suggested that NFTs which are part of a collection will have to warn investors of risks and comply with Markets in Crypto Assets (MiCA) law. The comments came from Peter Kerstens, an adviser for technological innovation at the commission. Kerstens spoke at Korea Blockchain week on Tuesday, saying:

“If a token is issued as a collection or as a series – even though the issuer may call it an NFT and even though each individual token in that series may be unique – it's not considered to be an NFT, so the requirements will apply.”

The EU takes a narrow view on what is an NFT, arguing that the NFT market is prone to securities-style price manipulation such as wash trading. Whilst drafts of the law exempted NFTs from MiCA, in practice these remarks suggest few assets would fall under the EU classification of an NFT. The commission reached a political consensus on MiCA in June, but there is currently no detailed text available.

See also: coindesk.com; MiCA

4. New York Financial Regulator Brings First AML and Cybersecurity Enforcement Action against Licensed Crypto Trading Entity

First time for everything:

The New York Department of Financial Services’ (NYDFS) brought its first enforcement action against a ‘virtual currency business’ on Aug 1st 2022. Robinhood Crypto LLC (RHC) settled for $30 million when faced with charges stemming from deficiencies in RHC Bank Secrecy Act and anti-money laundering (AML) programs as well as shortcomings in its cyber security obligations. 

Robinhood was granted a BitLicence in 2019 which authorized RHC to offer services for buying, selling and storing various cryptocurrencies to New York residents. Having conducted an examination, NYDFS found that RHC had:

“…shortcomings in the company’s management and oversight of its compliance programs and that inadequate staffing and resources were devoted to BSA/AML, transaction monitoring and cybersecurity compliance commensurate with its growth.”

Under the settlement, RHC must pay a $30m penalty and retain an independent consultant to perform an evaluation of the RHC’s remediation and compliance efforts.

5. New Non-Profit DAO Research Collective Launches Open Source DAO Library

It takes a village to raise a child; a community to raise a DAO:

The DAO Research Collective officially launched their open source DAO library for community use last week, ushering in a new era of un-siloed aggregation of DAO research on Governance, Treasury management, and more:

DAO Research Collective @DAOResearchCo

We are thrilled to officially announce the launch of our new non-profit DAO Library 🍾🍾🍾 This library aggregates and curates DAO research on a single platform. It is a public good that will always be accessible to the community at no cost. How the DAO Library works:

Co-founder Connor Spelliscy notes that the time is now for DAOs to prove they’re worthy of independent and specific legislation:

“The clock is ticking for DAOs. As policymakers turn their attention to this novel form of organization, now is the time to demonstrate DAOs’ robustness, compliance, and compelling governance features. If DAOs don’t effectively make the case that they deserve special status, regulators will box them in with legacy corporate rules, crushing their potential.”

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Podcasts, Videos, and Blogs

The brightest voices & sharpest pens:

• Law of Code episode #57: Jacob speaks with Bill Richards & Gideon Esakoff on crypto litigation:

• The Bankless Podcast team covers the Goerli testnet merge, Tornado Cash Ban, the Coinbase // BlackRock deal, and more in this week’s ROLLUP:

• Bloomberg reporter David Pan and Ethan Vera, COO & Co-Founder of Luxor Technology, both attended a recent Bitcoin mining conference in Miami. They join this episode to share some takeaways from the conference and how miners hope to survive this complicated crypto winter:

• Adam Miller of MIDAO joins the DOIcast to talk about Marshall Islands DAOs:

• Ann Sofie Cloots covers the DAO Research Collective’s new DAO library, US Treasury sanctions smart contract for crypto mixer, Iran paying import with crypto, Moonbirds NFT to move to open IP license; EU Travel rule & MiCA, and much more in edition #61 of the CryptoLaw Newsletter:

DAO library, US Treasury sanctions smart contract for crypto mixer, Iran paying import with crypto, Moonbirds NFT to move to open IP license; EU Travel rule & MiCA - Chainalysis

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Bird Watching

Tweet, Tweet, Tweet!

• Be free my friend! Just don’t repeat the same mistakes - nevermind.

Not Billable Podcast @NotBillablePod

I can find no video that sums up being a lawyer better

• Hear Do Kwon break the radio silence later today:

Zack Guzmán @zGuz

EXCLUSIVE: I sat down with Terra Founder @stablekwon for his first interview since the project’s $45 billion collapse Our 2-day conversation premieres only on the community-owned NFTV series @coinage_media. Episode 0 coming Monday

• Archduke Ferdinand V2.0

Jake Chervinsky @jchervinsky

We should all be closely watching the situation in Amsterdam, where a Tornado Cash developer has been detained. It's unclear if there are allegations of illicit conduct unrelated to writing code. If not, this threatens to be the start of Crypto Wars II. theblock.co/post/163206/su…

• And, so it begins.

Cobie @cobie

Welcome to the war on code

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Motion To Compel

Thought-provoking questions and arguments for your consideration each week:

The Growing Rate of Crypto Adoption in South America

By Nick Corso:

Cryptocurrency adoption is steadily growing in many regions of the world, and Latin America has particularly embraced such innovation with vim and vigor. The enthusiasm underlying this adoption makes sense considering many countries in this region struggle with high inflation and weak national fiat currencies. Latin Americans have classically preserved their wealth by holding USD or gold because of the uncertain and depreciative nature of their native currencies. 

With the advent of new cryptoeconomic technologies, Latin Americans now have alternatives such as bitcoin, when it comes to storing their wealth.  Participation in this digital economy is far more accessible than traditional financial services–since the primary barrier to owning bitcoin is internet access. 

This week’s Motion to Compel will explore the ways certain Latin American countries have approached cryptocurrency adoption and why it may be important for the U.S. to follow suit. Read the full review HERE.

Nick is a fellow Blockchain Barrister Law Student, and is a 2L at the University of Miami School of Law. Coming from an engineering background, Nick is interested in intellectual property law and crypto law. Twitter: @nick_corso2.

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The Public Ledger

Highlights from the hundreds of sources gathered each week by our research AI. Always DYOR - but in case you don’t have time, here’s some of ours:

General News and Opinion

• Embattled Crypto Futures Exchange Files for Restructuring Amid Ongoing Legal Battle

• We’re All Degens, So Let’s Do It Together

• Crypto Assets in the Voyager Bankruptcy: Can Customers Recover?

• Ripple General Counsel Listed Among Influential Legal Execs Fighting For Positive Crypto Regulations

• Binance Recovers $450K Stolen From Curve.Finance

• Larry Fink doubles back on Bitcoin- POLITICO

• Crypto Insurance Policies 'Popping Up' to Meet Frenetic Demand

• More Changes Are on the Way for Cryptocurrency Tax Reporting

• Saving Private Keys From The Courts

• ACR Updates Program Rules for Tokenization of Carbon Credits

U.S. - Federal

• TransUnion blockchain partner Bloom settles with SEC re crypto token deemed a security

• SEC Investigating Coinbase Over Crypto Offerings, Listing Process

• IRS Launches Court Action in Crackdown on Crypto Tax Evaders

• SEC Subpoenas Coinbase Over Listing Process, Staking Products

• Warren and Sanders want new rules for banks and crypto

• Robinhood to face class action lawsuit from meme stock debacle

• Robinhood to Face Class Action Suit Over Halting Meme Stock Trading

• BitMex’s Greg Dwyer changes plea to guilty in criminal proceedings

• First-of-a-Kind Crypto Insider Trading Prosecution: SEC-v-Wahi et al Action May Have Broad Implications Across the Digital Asset Space

• Coinbase lawsuits allege company lied about problems prior to IPO

U.S. - State Law

• Ohio State Board of Professional Conduct Says Lawyers Can Hold Crypto in Escrow

• New York Financial Regulator Brings First AML and Cybersecurity Enforcement Action against Licensed Crypto Trading Entity

• Ohio Attorneys Can Hold Crypto in Escrow, Ethics Board Says

• Robinhood Faces First Virtual Currency Business Enforcement Action

• California’s DEPI Bans Celsius Securities Sales

• Colorado cryptocurrency related court case garnering global attention

• California regulator orders Celsius to stop selling securities in the state

International

• Thailand Could Empower Central Bank to Help Regulate Crypto

• Uzbekistan Moves to Block Foreign Cryptocurrency Exchanges

• NFT Collections To Be Regulated Like Crypto Under The MiCA Law – Official Says

• Canada’s shaky rules on cryptocurrencies have their root in Ontario

• Crypto Payments Implicated in Alleged Bolton Assassination Plot, US DOJ Says

• TradeFi's Never-Ending Blockchain Odyssey Down Under

• French NFT Thieves Exposed By Crypto Sleuth ZachXBT

• Further EU and UK Developments in Financial Crime Regulation of Cryptoassets

• Potential friction between blockchain, EU GDPR

• Police in Kazakhstan Arrest Gang Forcing IT Specialists to Run Crypto Farms

NOTE: For your convenience, we have started identifying articles that require a subscription or site registration (paid or free) with ** preceding the article link, and the linked site in () after.

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Closing Statements

We want to hear from you:

If you enjoyed what you read today, subscribe to receive the weekly publication and give the authors a follow on Twitter for updates on what’s next for the newsletter!

If you didn’t enjoy it, let us know why! We value the opinion of our readers above all else. After all, this letter is for you. - Kyler & Chris

Voices of Women in Crypto:

Keep an eye out for our interview with Jessica Neer McDonald, coming next week!

Be on the lookout for new features!

We’ve been listening to your feedback, and we’re excited to announce we will be launching our new Around the Blockchain Twitter, Discord, and Website in the very near future.

Quote of the Week:

““The blockchain does one thing: It replaces third-party trust with mathematical proof that something happened.” - Adam Draper

Ok, all done! You can go ahead and check your P/L now (Coin Market Cap)

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This newsletter is written, curated, annotated, and edited by Christopher Foreman (@CryptlessInSEA), Kyler Wandler (@KylerW56), Nicole Prada (@octopape); Nick Corso (@nick_corso2); Evan Santos (@evansantos4); and Kleb (@kleb_33); with consultation and input from Jacob Robinson of the Law of Code Podcast; editing courtesy of TΞxas ₿l◎ckchain LawyΞr ; in collaboration with Ann Sofie Cloots; and support from the Blockchain Barristers Law Student Collective.

The articles and opinions in this newsletter are not legal or financial advice. For legal and financial guidance, please consult a qualified attorney or financial advisor.

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Special thanks / image credits:

Law / Scale Image; Twitter Image; Blockchain Image; Podcast Image; P / L Image; Tea GIF; Stable JPEG; Law JPEG; Hacker GIF; Folder GIF; Angry GIF; Celsius GIF; Rose PNG; Rocket GIF; No GIF; Speech GIF; Mask Png; Pyramid GIF; Wrestling JPEG; Book GIF; Sword JPEG;