Around the Blockchain

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Edition No. 25

aroundtheblockchain.substack.com

Edition No. 25

Ripple v. SEC continues; SBF in the hot seat; Craig Wright; 9th Circuit Californication; Celsius meets billable hours, and more. Here's what happened from 10/18/2022 to 10/24/2022.

Around the Blockchain News
,
Christopher Foreman
,
Nick Corso
, and
Evan Santos
Oct 24, 2022
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Edition No. 25

aroundtheblockchain.substack.com

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 though and action)
5. The Public Ledger (Highlights from our weekly library of sources, built by our Feedly AI)
6. Closing Statements

On the Docket

Five things you might have missed last week:

1. Ripple Labs Obtains Long-Sought Hinman Documents

The Saga Continues

On Oct. 21, after months of proceedings, the SEC agreed to release documents Ripple claims will shed light on the regulator’s thinking and strengthen its arguments against the agency. The case over whether XRP is a security remains closely watched, as it could set a legal precedent affecting the entire industry.

Ripple general counsel Stuart Alderoty confirmed on Twitter his company finally has the elusive Hinman documents after, “18 months and 6 court orders.” Though he noted they remain confidential at the SEC’s insistence. “It was well worth the fight to get them,” Alderoty stated. 

The documents concern former SEC Corporate Finance director William Hinman and a much-publicized speech he delivered in 2018 declaring Ethereum—like Bitcoin—was "sufficiently decentralized" and thus not subject to federal securities regulation.

Last month, a federal district judge overruled the SEC’s repeated attempts to prevent Ripple from accessing the documents. Counsel for Ripple also expect to hear from Hinman directly, having won the opportunity to depose the former SEC director last year.

This latest development comes as both Ripple and the SEC recently called for a summary judgment in lieu of a trial. While XRP is still down 87% from its all time high, the push for an expedited resolution in the case has driven an increase in XRP’s value in recent weeks. Stay tuned as this potential precedent setting case continues to move forward. 

See also: blockworks.com

By Evan Santos

2. FTX’s Sam Bankman-Fried proposes standard for sanctions, licensing for DeFi protocols

SBF Under Fire Over Proposed Centralized Industry Standards

On Oct. 19, crypto billionaire and FTX CEO Sam Bankman-Fried (SBF) tweeted his “current thoughts on crypto regulation” alongside a more detailed set of Possible Digital Asset Industry Standards posted to FTX’s Policy website.

In the blueprint, SBF explains how he believes hacks can be limited and how FTX plans to decide which crypto assets are securities. He also proposes customer protection standards, a stablecoin auditing mechanism, and regulation using “blocklists” to ban blockchain transfers between sanctioned parties.

On its face, SBF appears to be suggesting mostly logical rules to safeguard consumers–especially vulnerable retail investors. He nonetheless drew stark criticism from many in the crypto industry. Detractors of SBF’s proposal believe the regulatory measures he espouses will inevitably limit DeFi’s potential and ultimately lead to its demise. 

One of the first to respond was Bankless founder Ryan Sean Adams who said, “Sam. With respect. This absolutely sucks.” Erik Voorhees, an early Bitcoin investor, also outlined numerous concerns with SBF’s proposal and penned a response explaining his position. Voorhees agrees with the need for transparency and scam prevention but has opposing views on two key elements: following OFAC sanctions and licensure for DeFi-related activities. Voorhees and other critics assert both would completely remove the “decentralized” part of DeFi, simply transforming it back into CeFi/TradFi. 

Blockchain analysts Chainalysis recently reported the US leads the world in DeFi activity, claiming a 37% share to runner-up Europe’s 31%. SBF’s critics claim the US’s frontrunner status would vanish if regulators heed his advice. While it is unknown whether any of SBF’s suggestions will gain transaction in Congress, the responses to his proposal demonstrate the deep divide over how crypto should be regulated. 

By: Evan Santos

3. Crypto Community Reacts to Hodlonaut Historic Win in Legal Battle Against Craig S. Wright

Nakamoto? Not so fast:

On October 20, 2022, Norwegian Judge Helen Engebrigtsen found that Hodlonaut had sufficient grounds to say that Wright lied about being Satoshi Nakamoto. Consequently, she exonerated Granath and ordered Wright to pay him approximately $383,000 in legal fees.

The judge's decision arrives far sooner than anticipated. After the seven-day trial concluded on September 21, 2022, she tentatively scheduled the judgment for November 8, 2022. Regardless, the complete Norwegian translation of the judgement can be viewed here.

After Hodlonaut's victory, attorney Preston Byrne expressed his admiration for the horse. According to Byrne, he served as Granath's pro bono attorney in 2019.

Twitter avatar for @prestonjbyrne
Preston Byrne @prestonjbyrne
I am immensely proud of Hodlonaut for winning this case, which (as is publicly known) I was initially involved with in 2019 as one of my first clients on a pro bono basis. Great result by his UK and Norge legal teams and the BTC community who helped crowdfund the initial defense.
Twitter avatar for @hodlonaut
hodlonaut 🌮⚡🔑 🐝 @hodlonaut
I won. Welcome to law.
1:39 PM ∙ Oct 20, 2022
127Likes13Retweets

4. Ninth Circuit Rules California Financing Law Applies to Crypto

Californication

The California Financing Law prohibits anybody without a license from the Department of Financial Protection & Innovation from engaging in the business of a "finance lender." California Financial Code section 22100 (a). A "finance lender" is defined by the CFL as "any individual involved in the business of making consumer loans or commercial loans." California Financial Code Section 22010 (a). In addition, the Act specifies that "may involve lending money" and accepting security. Id.

In Jeong v. Nexo Cap. Inc., 2022 WL 3590329 (N.D. Cal. August 22, 2022), the plaintiff based an unfair competition claim on Nexo Capital, Inc.'s purported inability to secure a CFL license. Nexo stated that "the CFL defines 'money' as 'a means of exchange that is approved or adopted by the United States or a foreign government,' Cal. Fin. Code 2003(p), but Plaintiff fails to plead his loan was in 'money,' as opposed to a non-fiat currency' stablecoin' such as USDT or USDC." The definition of "money" provided by the defendant is located in the California Money Transmission Act, not the CFL, despite the fact that the court did not make this distinction. In any case, Judge Beth Labson Freeman ruled, "In accordance with the CFL provision that it should be "liberally construed and applied to promote its underlying purposes and policies," one of which is "to protect borrowers against unfair practices by some lenders," Cal. Fin. C. 22001(a)(4), the Court finds that Plaintiff is not required to allege that his loan was denominated in fiat currency.

While it is true that the word "include" is typically regarded as a term of expansion rather than limitation, the difficulty is that this renders the statute completely open-ended.

5. Bankrupt Crypto Lender Celsius Pays More Than $3 Million in Legal Fees

Billable hours

The insolvent cryptocurrency lender Celsius (CEL) has paid more than $3 million in legal fees to date, with a single law firm responsible for the vast majority of the cost —for barely two weeks of work.

Two recent court filings indicated that the amount of over $3 million was comprised of close to $2.6 million charged by the law firm Kirkland & Ellis for services performed between July 13 and July 31, and $750,000 charged by the law firm Akin Gump.

Celsius incurred the legal fees as it continues to pursue bankruptcy protection under Chapter 11 of the United States Bankruptcy Code.

In June of this year, after experiencing huge money outflows under unstable market conditions, Celsius temporarily suspended customer withdrawals. One month later, the company filed for bankruptcy.

Customers of Celsius, who hope to receive at least a portion of their initial deposits back as a consequence of the court proceedings, are undoubtedly dissatisfied with the substantial legal fees. However, little is known about how and when payments would be made to creditors.


Podcasts, Videos, and Blogs

The brightest voices & sharpest pens:
  • This episode outlines Pre-DAO and Post-DAO Legal Risk Assessment, an article written by Kevin Chen (@anothrkevinchen) in collaboration with the DAO Research Collective (@DAOResearchCo).

  • Bankless on SBF:

  • This is episode 100 of the Bloomberg Crypto podcast. “When we launched, in June, Bitcoin was trading around $30,000. Celsius and Three Arrows Capital hadn’t yet filed for bankruptcy. People knew where Do Kwon was. Celebrities cared about NFTs. It was a different time. When we launched, we knew what we wanted to do: every day, we’d take a look at all things digital assets.

  • Do Kwon, cofounder of Terraform Labs, discusses the charges against him, gives a message to Terra victims, answers allegations about potential fraud and non-transparent business practices, and much more.

  • frisson & tommy bring you one last banger of an episode before the duo takes some time apart :/ but do not fret! tommy has a stacked line-up of DT guest hosts lined up while frisson is out on leave. until then, sit back relax and enjoy the smooth tones of your favorite DAO podcast.


Bird Watching

Tweet, Tweet, Tweet!
  • Patrick Hansen reports on the new DeFi regulations commissioned by the EU Commission was published:

Twitter avatar for @paddi_hansen
Patrick Hansen @paddi_hansen
A new report on DeFi regulation commissioned by the EU Commission was published. This report will contribute to the EU policy debate on the topic that is expected to lead to a DeFi report (or even legislation) in 2023. The report makes 4 policy proposals:
10:47 AM ∙ Oct 21, 2022
387Likes115Retweets
  • Gabriel Shapiro brings the DCCPA to the people:

Twitter avatar for @lex_node
_gabrielShapir0 @lex_node
I have long been a believer in transparency and open discussion of the future of cryptolaw. Accordingly, I have obtained a copy of a draft of the notorious DCCPA circulating secretly in D.C. and am hereby making it available to the public.
github.comCrypto-CaseLaw/DCCPA Markup Latest 10.19.22.pdf at main · LeXpunK-Army/Crypto-CaseLawa repository of filings, opinions, etc for cryptolaw cases - Crypto-CaseLaw/DCCPA Markup Latest 10.19.22.pdf at main · LeXpunK-Army/Crypto-CaseLaw
7:23 PM ∙ Oct 19, 2022
650Likes236Retweets
  • Gary’s legacy:

Twitter avatar for @CGasparino
Charles Gasparino @CGasparino
Breaking: Inspector General’s report on @GaryGensler’s tenure at @SECGov confirms the reporting we’ve done at @FoxBusiness that uncovered significant turnover in the senior ranks of the commission. Story developing
3:16 PM ∙ Oct 19, 2022
2,201Likes540Retweets
  • Laura Shin interviews the man on the lamb:

Twitter avatar for @laurashin
Laura Shin @laurashin
.@stablekwon joins Unchained for the first time since Terra's collapse. 🌎Where is he? 🪙Where's the money? 🧑‍⚖️What does he say to allegations of business irregularities? 💭 What does he think about the direction his life took? 📺Don’t miss this episode. unchainedpodcast.com/do-kwon-of-ter…
11:26 AM ∙ Oct 18, 2022
1,118Likes245Retweets
  • Spooky szn:

Twitter avatar for @heyitsalexsu
Alex Su @heyitsalexsu
Very spooky
Image
9:56 PM ∙ Oct 23, 2022
2,662Likes229Retweets

Motion To Compel

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

Opposing Views Surrounding the DCCPA Draft

By Nick Corso

Controversy has broken out amid the apparent division in views on the DCCPA (Digital Commodities Protection Act) between Sam Bankman-Fried, FTX CEO, and others in the industry. Ultimately, the divergence of opinions originates from the potentially deleterious effects on the DeFi industry the DCCPA could cause–coupled with skepticism about Fried’s intentions for alleged support of the bill and recent lobbying efforts. 

Alliance DAO asserts this bill kills DeFi by potentially placing compliance requirements on decentralized exchanges (DEXs). To this point, Alliance cites a provision in the DCCPA that would likely consider DEXs to be “trading facilities” which require the authority to liquidate positions and halt trading of certain commodities in consultation with the CFTC (Commodities Futures Trade Commission). Were this the case, DCCPA would place compliance requirements on open-source software–forcing human activity and intermediaries resulting in DEXs no longer being strictly decentralized and peer-to-peer. 

In contrast, Sam Bankman-Fried claims the DCCPA does not concern DeFi, save for the extent to which interacts with centralized entities. From Fried’s perspective, the bill mainly proposes regulation on centralized entities like FTX.  He further states the bill is not making claims about what DeFi devs, smart contracts, and validators must do. Fried further expresses his support for the bill due to legislators’ responsiveness to industry input and an understanding regulation is needed for centralized entities–like FTX–to interact with DeFi. 

Some have questioned Fried’s motives, and whether his efforts primarily benefit FTX or  Web3 and DeFi more broadly–a rather important consideration in light of Fried’s recent considerable  lobbying expenses. . 

DAO Alliance and others have a compelling argument laying out the concerns for DeFi if DCCPA were to pass. Fried has expressed an understanding of this perspective’s concern but still thinks the bill is moving the industry in the right direction. 

Loading...

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

  • Mango Markets exploiter said actions were ‘legal’

  • Cryptocurrency Market Facing Winter Period of Low Prices

  • Hilary Allen on the Superficial Allure of Crypto

  • Emerging Legal Tech Forum: Even as the metaverse emerges, traditional legal questions guide its growth

  • Crypto Law Firm Co-Founder Out After Secret Recordings Leak

  • JPMorgan Adds Crypto Policy Head After Dimon's 'Ponzi' Quip

  • Why a Handshake Won't Seal a Crypto Business Deal

  • Blockchain: The Future Of The Legal Profession

  • The crypto industry fights regulators in the courts

  • 96 File Legal Action Demanding Coinbase Reimburse $21M Lost to Crypto Scammers

U.S. - Federal

  • The IRS Includes NFTs In 2022 Tax Language

  • Prosecutors argue ‘insider trading’ claim in the OpenSea case is accurate

  • Paradigm Argues Feds’ Move on DAOs ‘Makes No Sense’

  • Celsius Under Federal Investigation in 40 States for Pending Crypto Withdrawals

  • Ripple Obtains Vital Hinman’s Internal Documents From the SEC

  • It’s time for the feds to define digital commodities

  • Celsius Network Charged Over $3M in Legal Fees

  • Crypto Leaks Risks Roche Freedman Losing More Class Action Work

  • CFTC chairman, Sens. Gillibrand, Lummis say crypto legislation could pass within months

  • Crypto Venture Capital Fund Paradigm Also Wants CFTC to Serve Ooki DAO's Members

U.S. - State Law

  • Ninth Circuit Rules California Financing Law Applies to Crypto

  • Why the jurisdiction of choice for trust planning with digital assets has to be Wyoming

  • Cryptocurrency firm FTX, billionaire CEO focus of Texas securities investigation

  • FTX, CEO Sam Bankman-Fried investigated by Texas securities regulator

  • NYAG Letitia James Targets Unregistered Crypto Platforms

  • U.S. State Regulators Issue Cease And Desist Order To Slotie On NFT Sales

  • New York-based forex broker Oanda launches crypto trading services in US

  • California isn't the No. 1 state for cryptocurrency enthusiasts—but it still ranks in the top 7

  • Pro-crypto Wyoming Not Yet Pro Enough To Attract Bitcoin Miners

  • Four U.S. states order a metaverse casino to halt sale of NFTs

International

  • Not like China: Hong Kong reportedly wants to legalize crypto trading

  • Hodlonaut Wins Landmark Bitcoin Court Case Against Craig S. Wright

  • Kraken Joins List of Crypto Firms to Comply With EU Sanctions Against Russia

  • Why law enforcement struggles to throttle crypto scams

  • Bitcoin Fail - 80% Of El Salvador’s People Believe The President's Crypto Program Is A Disaster

  • Interpol creates team to focus on crypto crimes

  • EU Takes Aim At Bitcoin Mining Industry With Upcoming Draft Law

  • Fintech Bill Approved and Ready to Be Sanctioned in Chile

  • Report: Macau Discusses Bill That Proposes to Make Digital Currencies Legal Tender

  • Company secretary held for crypto fraud

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.

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

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Quote of the Week:

“Only one thing is impossible for God: To find any sense in any copyright law on the planet..” - Mark Twain

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

Thanks for reading Around the Blockchain! Subscribe for free below.


This newsletter is written, curated, annotated, and edited by Christopher Foreman (@CryptlessInSEA), Kyler Wandler (@KylerW56), with consultation and input from Jacob Robinson of the Law of Code Podcast; editing courtesy of TΞxas ₿l◎ckchain LawyΞr .
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:
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; Olive Branch JPEG;
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Edition No. 25

aroundtheblockchain.substack.com
A guest post by
Nick Corso
A second year law student at the University of Miami. Twitter: @nickcorso2
A guest post by
Evan Santos
Newly minted lawyer focusing on technology & the law. Researching and writing about blockchain, digital assets, and regulation. Twitter: @EvanSantosJD
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