Edition No. 24
LexPunk & DeFi Education Fund v. CFTC; Mangoes & (more) rugs; the state of Tornado's wake; Ape securities?; Crypto Cowboys, and more. Here's what happened from 10/10/2022 to 10/17/2022.
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 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. Voices of Women in Crypto (We need more women in Crypto - this is our small contribution: A bi-weekly segment dedicated to the women changing the space).
4. Bird Watching (Tweet, tweet!)
5. Blockchain 101 (Our weekly educational segment written by law students)
6. Motion to Compel (Meant to provoke thought and action)
7. The Public Ledger (Highlights from our weekly library of sources, built by our Feedly AI)
8. Closing Statements
On the Docket
Five things you might have missed last week:
1. US Federal Judge Rules LexPunk Army And DeFi Education Fund Can Appear In CFTC-OokiDAO Case.
Update: DAOs & Due Process
U.S. District Judge William Orrick of the Northern District of California held LeXpunK Army and the DeFi Education Fund (DEF) could file amicus briefs in the CFTC v OokiDAO case. The two groups seek to argue the Commodity Futures Trading Commission (CFTC) should not be able to serve the members of a decentralized autonomous organization (DAO) through a website help bot.
Partner at Brown Rudnick, Stephen Palley, who represents LeXpunK along with Associate Sam Moniz, told Law360 in an emailed statement the case raises important legal issues regarding liability for participation in open source software projects. According to Palley:
“My client believes given the novelty of this technology it — along with other Amicus — has important insight to offer, which would not be available in the absence of parties to defend the case. As set forth in the moving papers, LeXpunk does not believe that posting a notice on a website provides the type of notice that the Constitution requires.”
In Wednesday's procedural ruling, the judge gave LeXpunK until Oct. 17 to file its amicus brief. DeFi Fund filed its own amicus brief alongside its motion for leave. The CFTC has until Nov. 7 to oppose the DEF and LeXpunK filings, while the two groups can respond to the CFTC's motion within a week after. There will be a hearing on Nov. 30 to hear the motions.
By: Evan Santos
See also: Brownrudnick.com
2. Solana DeFi Trading Platform Mango Markets Loses $100M in Hack, Offers $50M Bounty
Mangoes and Rugs
In the second major Defi hack last week, an attacker stole roughly $112 million from Solana-based cryptocurrency exchange Mango Markets (Mango). Mango tweeted Tuesday evening a hacker emptied funds via an oracle price manipulation.
According to reports, the hacker allegedly stole the funds by purchasing a large amount of MNGO tokens on the exchange using two separate accounts–going long on one and short on the other. The hacker then used more funds to manipulate the price of MNGO causing it to increase sharply allowing the attacker to cash out on the long account, effectively draining all liquidity on Mango Markets.
The hacker, who has been doxxed, used this setup to make a proposal to the MangoDAO community saying they would return some of the funds if Mango used the money that's still in their treasury to make users whole and repay the bad debt stemming from an episode in June involving Solend.
The hacker also demanded that they not be criminally investigated, nor should their tokens be frozen. The Mango team then posted a counter proposal, offering to let the hacker keep around $50 million for the return of the rest of the funds while promising no criminal prosecution and to erase the bad debt.
According to Chainalysis Inc., hackers have so far in October alone stolen at least $718 million, bringing the annual total to over $3 billion. The Mango hack indicates DAOs still have a lot more work to do–not just to prevent hackers from stealing funds, but also to keep them from exploiting governance mechanisms.
By: Evan Santos
See also: decrypt.co, bloomberg.com
3. Coin Center Sues U.S. Treasury Over Criminalization of Tornado Cash Tool
“Snow falls from the heaven pure. We cannot blame the snow for being soiled by the earth.” - Franz Wickmayer.
On Wednesday, Coin Center, a nonprofit organization focused on cryptocurrencies and decentralized technology, filed a lawsuit against Treasury Secretary Janet Yellen and OFAC Director Andrea Gacki. The lawsuit alleged that the August 2022 "criminalization" of Tornado Cash, an open-source software privacy solution, by the Biden Administration is unprecedented and illegal.
The petition described the events that led to the lawsuit, which began when OFAC prohibited the "virtual currency mixer" Tornado Cash for launder the proceeds of cybercrimes. While OFAC described the Ethereum blockchain-based application as indiscriminately enabling anonymous transactions by obscuring their origin and destination, this week's lawsuit provided a different picture of the technology.
According to the complaint:
“Tornado Cash is a tool that allows users of cryptocurrency to protect themselves from being followed in everything that they do.”
The petition goes on to argue that the Biden Administration's decision made Americans who use Tornado Cash to safeguard their privacy into cybercriminals, despite the fact that they themselves utilize the technology to protect against cybercrime. In addition, the complaint said that the decision was "arbitrary and capricious" because the defendants failed to evaluate crucial aspects of the matter, altered their position without explanation, and disregarded their own standards. Lastly, the lawsuit asserted that the criminalization of Tornado Cash violates the First Amendment rights of Tornado Cash users who use the currency to secure their private entities.
So who is to blame here? The user, or the tool?
By Kyler Wandler
See also: jdsupra.com, coindesk.com
4. SEC to Probe Bored Ape Yacht Club’s Parent Company, Yuga Labs, Over Web3 Offerings
It’s still Ape follow Ape though, right? “Security Apes” sounds like a decent derivative NFT project tbh…you could do 10k different security guard apes with different badges and - never mind. Here’s the summary.
The US Securities and Exchange Commission (SEC) is investigating Yuga Labs, the parent company of the viral Bored Ape Yacht Club NFT collection, for a potential securities violation connected to its offers of digital goods.
Bloomberg sources report that the SEC is investigating whether or not the non-fungible tokens offered for sale by the Florida-based startup are akin to regular equities. As part of its investigation into Yuga, the government is examining whether digital asset sales should be subject to the same disclosure requirements as securities offerings.
Bloomberg reports that the financial authority is investigating Yuga Lab's distribution of ApeCoin, a blockchain-based cryptocurrency created for web3, a series of decentralized web portals. Yuga Labs has not been charged of lawbreaking or misconduct as of yet.
In a statement to ARTnews, Yuga Labs said,
“It’s well-known that policymakers and regulators have sought to learn more about the novel world of web3. We hope to partner with the rest of the industry and regulators to define and shape the burgeoning ecosystem. As a leader in the space, Yuga is committed to fully cooperating with any inquiries along the way.”
By: Kyler Wandler
5. Legislators Press Texas Grid Operator On Crypto Energy Use
Crypto Cowboys // “Don’t mess with Texas”
According to reports, within a year, Texas crypto miners may consume more electricity than Houston. The state's inexpensive energy and weak laws have made it the bitcoin capital of the nation. This is raising concerns that the growth could further threaten Texas' frail electrical infrastructure and exacerbate global warming pollution. According to some estimates, Texas is now home to a fifth of all digital coin mining operations in the United States, following China's prohibition on the industry earlier this year.
Texas governor Greg Abbott has embraced the migration as a means to spur investment in power generation expansion. The amount of possible climate damage, however, has prompted the White House to investigate and crack down on producers of digital products that are energy-intensive.
According to a recent study published in Scientific Reports, bitcoin mining is as energy-intensive as beef production or gasoline combustion, and generates comparable climate-related damage. During this summer's record-breaking heat wave, Texas' energy demand surpassed 80 gigawatts for the first time ever, forcing the system operator to promote energy conservation. When electricity demand peaked in July, the crypto business swiftly reduced its power consumption, as required.
Critics, however, are concerned that cryptocurrency miners received substantial subsidies for reducing their energy consumption, which helped the business avoid increased electricity bills.
In addition, on Wednesday, seven Democratic legislators issued a letter to the principal grid operator in Texas expressing worry on the anticipated strain on the grid.
By: Kyler Wandler
Podcasts, Videos, and Blogs
The brightest voices & sharpest pens:
“David Kerr (@David_M_Kerr) is the Head of Research for the DAO Research Collective (daocollective.xyz) and the Principal of Cowrie LLC, where he uses ten years of experience in tax strategy, financial accounting, and risk advisory in the industries of gaming, telecommunications, and technology-driven online sales platforms to assist clients.”
Bankless ROLLUP covers the Binance exploit, a lawsuit against the Treasury, Devcon Bogota, and more:
“Guest-host and senior crypto editor Anna Irrera reviews some regulatory actions that took place this week and considers what smoke signals it may be sending to investors and to companies. Plus, a look at how China’s crypto ban has played out - spoiler alert: it’s not unfolding like many expected it would.”
“Good news: it was a juicy week in the DAO world & the DT bois brought their A-game. DT weekly #21 has it all: sushi, mangos, a baby???? that's just a taste. come hang and let DAO Talk bring you your weekly DAO brain food.”
“Zaki Manian, cofounder of Sommelier Protocol and cofounder of Iqlusion and Jack Zampolin, founder of Strangelove Ventures, discuss everything about Cosmos, the new white paper, and how to improve MEV capture for ATOM holders.”
ATTENTION AROUND THE BLOCKCHAIN READERS:
There's nothing better than doing what you love and getting paid for it. CryptoJobs.Law has your next opportunity to work on the legal side of web 3.
With hundreds of open roles and new positions added daily, CryptoJobs.Law is the only website dedicated solely to finding top legal minds jobs in web 3. Join the revolution today.
The Voices of Women in Crypto
By Nicole Fernandez Prada & Tamara Szulc & Kyler Wandler
The Association for Women in Crypto: How Amanda Wick is Changing the Space for the Better:
Amanda Wick, the former chief of legal at analyst firm Chainalysis, wants to make a difference for women in Web3 — and she’s putting her money where her mouth is. Wick has launched a new nonprofit organization, The Association for Women in Crypto, predicated by her earlier work at Chainalysis promoting women's professional growth. According to the group's mission statement, the association, which is preparing to petition for 501(c)(3) registration, will focus on expanding crypto understanding and education:
"[W]hile advancing the opportunities for women and the role they will play in the future of digital finance."
To learn more about the Association, READ HERE.
We hope this segment inspires women from all backgrounds to learn and grow within the crypto space! If you have educational links to share we’d love to show them to the public! Reach out to us via Discord or @Octopape on Twitter.
Bird Watching
Tweet, Tweet, Tweet!
Blockchain 101
Blockchain 101 is the product of our team’s desire to reduce what has typically been a significant educational barrier of entry into the crypto space. Our goal is to create a digestible and understandable curriculum accessible to anyone - while simultaneously helping our own nascent members to expand their understanding of the fundamentals of Web3.
Lesson No. 6: The Accredited Investors Rules and Crypto
By: Kyler Wandler
Welcome back, readers! Last lesson, we gave a brief introduction to the various types of stablecoins and the effect of the Terra-Luna crash that catalyzed in part our current proverbial “crypto winter”. This week, we’re going to take a look at the history and evolution of the Accredited Investor’s Rules, and how they apply to crypto. In this brief essay, we answer the following questions:
What are the Accredited Investor’s Rules?
How does one become an Accredited Investor in the U.S.?
How can/do these rules impact crypto?
Follow the link here to READ MORE.
Motion To Compel
Thought-provoking questions and arguments for your consideration each week:
Crypto Regulations & DC Fintech Week
By Violet Flocks
Let’s discuss what’s happening in DC this week. And no, we’re not referring to the committee hearings. The 6th annual DC Fintech Week, a policy conference organized by Georgetown University School of Law’s Chris Brummer, kicked off on Monday in the Nation’s capital. While every professional knows the true benefit of a conference is the in-person connections made, there are still plenty of impactful highlights from the week.
If you’ve been following the progression of the stablecoin bill, there’s a glimmer of hope as reported in coverage by CoinDesk:
“We agree on all the components of what the asset is,” said Rep. Patrick McHenry, ranking Republican member of the House Financial Services Committee. “We’ve come up with a pretty ugly baby. It is a baby, nonetheless.”
To learn more about the event, READ HERE.
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
Industry exec explains why NFT fraud protection falls on brand and not marketplaces
Why the US is one of the most crypto-friendly countries in the world
Emerging Legal Questions for the Post-Merge Ethereum Network
Satoshi Island project aims to turn a remote Pacific island into a city built on cryptocurrency
Satoshi Island project aims to turn a remote Pacific island into a city built on cryptocurrency
Binance Exec: BNB Smart Chain Hack Could Have Been Worse if Validators Hadn’t ‘Sprung Into Action’
Tom Brady to Matt Damon: Here's how losses for celebrity-endorsed digital assets stack up
U.S. - Federal
IRS Wins Ex-Parte Petition for Another Crypto John Doe Summons
Voyager Creditors Oppose Plans to Grant Executives Legal Immunity
SEC Files Enforcement Action Against Crypto Influencer Ian Balina
Voyager's Creditors Push Back Against Plans to Provide Execs With Legal Immunity
Queens Man Convicted of Laundering Bitcoin and Operating Unlicensed Money Transmitting Business
Ripple CEO Anticipates Answer in SEC Lawsuit Over XRP in the First Half of 2023
U.S. - State Law
Democrat Senators call Texas ‘Deregulated Safe Harbor’ for Bitcoin miners
BNY Mellon receives New York approval for crypto custodial services
Californian Man Indicted for Laundering Over $5M With Cryptocurrency
Tennessee Taxpayer Lawsuit Cryptocurrency Tokens Through Staking
International
UK Wants to Make It Easier to Seize Crypto in Terrorism Cases
The legislative tortoise chases the cryptoasset hare – UK Economic Crime Regulatory Reform
El Salvador's bitcoin experiment: $60 million lost, $375 million spent, little to show so far
European Digital Compliance: Key Digital Regulation & Compliance Developments
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, and the Around the Blockchain News team.
ATTENTION AROUND THE BLOCKCHAIN READERS:
There's nothing better than doing what you love. And getting paid for it. CryptoJobs.Law has your next opportunity to work on the legal side of web 3.
With hundreds of open roles and new positions added daily, CryptoJobs.Law is the only website dedicated solely to finding top legal minds jobs in web 3. Join the revolution today.
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Quote of the Week:
“No man is above the law and no man is below it: nor do we ask any man's permission when we ask him to obey it.” - Theodore Roosevelt
Ok, all done! You can go ahead and check your P/L now (Coin Market Cap)
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.
Special thanks / image credits:
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