Edition No. 28
Edition No. 28
FTX; LBRY; Elections; DAOs in Tokyo. Here's what happened from 11/7/2022 to 11/14/2022.
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 bi-weekly educational segment written by law students)
6. The Public Ledger (Highlights from our weekly library of sources, built by our Feedly AI)
7. Closing Statements
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On the Docket
Five things you might have missed last week:
1. FTX Tapped Into Customer Accounts to Fund Risky Bets, Setting Up Its Downfall
Sam Bankman-Fraud
One of the most sudden and devastating losses of wealth in financial history occurred this week as Sam Bankman-Fried’s (SBF) $16 billion empire—originating from his centralized exchange FTX and hedge fund Alameda Research—crashed to zero in a matter of days. The ensuing fallout has seen around 130 affiliated entities seek bankruptcy protection according to Decrypt.
These events shocked many as SBF was among the most influential political dealers in crypto, who had led the rescue of other failing crypto firms and built a mainstream reputation. FTX became widely popular by airing Super Bowl commercials, purchasing the naming rights to an area in Miami, and drawing investment from celebrities like Tom Brady, Steph Curry, and Shaq. In most respects SBF’s FTX exchange was perceived as a responsible steward of digital assets and a gold standard in crypto.
That was until things began to quickly unravel last Sunday. Trouble arose when Binance CEO Changpeng Zhao (CZ) said he would liquidate all his exchange’s FTT tokens–FTT is the native token of FTX. The tweet caused a bank run as customers began withdrawing funds from FTX en masse. Over the next 72 hours, a whopping $6 billion exited the troubled exchange.
By Tuesday, it became clear FTX lacked sufficient liquidity to satisfy withdrawal requests. Later that day FTX paused withdrawals and things got interesting when CZ stepped in to bail out the exchange signing a non-binding LOI.
But by Wednesday, November 9, Binance quickly reversed course after “corporate due diligence” revealed issues in FTX’s financial situation Binance said were “beyond our control or ability to help.”
Sources close to the matter allege after the collapse of Terra Luna, Alameda was incentivized to bailout its insolvent lending counterparties to prevent collateral liquidation. The collateral for most loans was FTT. Essentially, SBF is accused of using billions of dollars worth of FTX customer assets to fund risky bets at Alameda Research. This was the very thing SBF preached against when advocating for the Digital Commodities Consumer Protection Act (DCCPA) in front of U.S. lawmakers.
The rise and fall of SBF and the FTX empire has already had a profound impact on the crypto industry and regulators' perception of it. Without a doubt the fallout will be felt for the foreseeable future as new details continue to emerge.
See also: coindesk.com
By: Evan Santos
2. Federal Judge Rules LBRY Sold Tokens as Securities in Case Brought by the SEC
SEC Granted Summary Judgment Against LRBY, Inc.
On November 7, 2022, Judge Peter Barbadoro of the United States District Court for the District of New Hampshire granted the SEC's motion for summary judgment against LBRY, Inc., a blockchain-based content sharing company issuing crypto assets called "LBRY Credits" or "LBC."
The SEC sued LBRY in March of 2021, alleging tat LBC tokens are securities, and the startup violated U.S. securities law by failing to register with the agency. The court agreed, and in granting the SEC’s motion for summary judgment, Jude Barbadoro also held LBRY could not rely on a fair notice affirmative defense that it lacked fair notice its conduct was a violation of law.
Since the ruling, many in cryptolaw are analyzing what the LBRY decision and the court’s rejection of the “fair notice” defense means for the SEC’s case against Ripple Labs and other similarly situated crypto companies.
Blockchain and securities attorney Lewis Cohen told Decrypt “what the LBRY decision does is provide a major step forward in the SEC’s quest to label all tokens as securities. And that is indeed a very, very significant thing.”
Procedurally, the ruling means LBRY’s case will not go to trial. A status hearing on next steps is slated for November 21.
See also: Decrypt.com
By: Evan Santos
3. The Midterm Elections and the Implications for Crypto
Winners and Losers from Election Weekend in the crypto world.
It is still unclear how the midterm elections will shake out and which party will take control of Congress. Currently, the Senate is tied at forty-eight seats for each party, and the GOP has a narrow lead of 212 House seats to 203 controlled by Democrats.
However, there are already some notable wins from supporters of the crypto industry. Minnesota Representative Tom Emmer (R) was reelected. Representative Emmer has been a supporter of the industry–claiming crypto could be an opportunity for Americans to obtain financial freedom. Another pro-crypto representative, North Carolina Republican Patrick McHenry, was also reelected. Representative McHenry has been outspoken about his disapproval of the Biden Administration's effort to regulate digital assets. Ohio Representative J.D. Vance (R), a Bitcoin holder, was also reelected.
On the other hand, California Congressman and crypto-skeptic Brad Sherman (D) was reelected, and the industry will lose a digital asset supporter with the retirement of Ohio Senator Rob Portman (R).
On the state level, several Governors who have expressed interest in crypto won reelection. Governor Gavin Newsom, for example, previously issued an executive order seeking to foster responsible innovation in the crypto space. Newsom also vetoed a digital asset licensing bill many in the industry viewed unfavorably.
In addition to Newsome, New Hampshire Governor Chris Sununu was reelected. Sununu issued an executive order establishing a commission to study cryptocurrencies.
Though it remains unclear if the election will shift the balance of power in D.C., it’s certain several members of Congress with an interest in crypto will retain their seats, and numerous state governors with similar interests will remain in power for at least another election cycle.
By: Nick Corso
4. FTX Collapse Exposed 'Weaknesses' in Crypto, Janet Yellen Says
Systemic failure.
Bloomberg reported on Saturday that U.S. Treasury Secretary Janet Yellen said the business need "extremely careful supervision" in the wake of the collapse of cryptocurrency exchange FTX.
The collapse of Sam Bankman-Fried's multibillion dollar enterprise exemplifies the weaknesses of the entire sector, according to Federal Reserve Chairwoman Janet Yellen. This is the same company that, just months ago, was attempting to rescue other struggling crypto firms from this year's market crash.
Under an executive order from President Joe Biden, the U.S. government is already investigating the regulation of the business.
In the months preceding the collapse, Bankman-Fried reportedly spent time in Washington, D.C. speaking with lawmakers and regulators in advance of midterm elections. Sens. Sherrod Brown and Elizabeth Warren demanded probes, however, after the exchange became trapped in a liquidity bottleneck and quickly collapsed.
“At least it’s not deeply integrated with our banking sector and, at this point, doesn’t pose broader threats to financial stability.”
By: Kyler Wandler
5. Japan Digital Ministry to Create DAO for Web3 Exploration
Some good news for DAOs:
Japan's Digital Ministry will establish a decentralized autonomous organization (DAO) to advance its Web3 technology research.
According to the minutes of a ministry meeting, the DAO will assist the government in developing an understanding of what such organizations may accomplish and identifying their limitations. The government also wishes to examine issues such as the legal status of voting-related governance tokens.
Japan has investigated ways to incorporate Web3 technology into its government and economy. Prime Minister Fumio Kishida has established a Web3 policy office inside the Ministry of Economy, Trade, and Industry (METI) with the mission of developing policies to facilitate the growth of blockchain.
By: Kyler Wandler
Podcasts, Videos, and Blogs
The brightest voices & sharpest pens:
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 Tamara Szulc and Nicole Prada
Welcome to another edition of Voices of Women in Crypto!
We spoke with the lovely attorney, Danielle Clark, on her experiences within the intersections of crypto and legal. Danielle got started in crypto in 2019 through friends who were into innovative technology. Danielle always enjoyed the concept of “magic internet money” and through her research and tech friends' support, crypto eventually made sense to her.
To read the whole interview, CLICK 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. 8: Alternative Layer-1 Blockchains
Welcome back, readers! Last week, we covered the different types of tokens and their purposes. Today, we’re diving deeper into the following blockchain networks:
Cardano (ADA)
Solana (SOL)
Polygon (Matic)
Ripple (XRP)
To view this week’s lesson, 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
How Digital Assets Have Infiltrated the Wide World of Sports
Adam Neumann’s a16z-backed startup launches carbon-offsetting NFT project
‘Hyperbitcoinization’ Is a Few Years Away, Predicts Samson Mow
Blockchain Guy Sets Priceless Drawing on Fire to Mint 10,000 NFTs, Only Sells Four
Fashion Meets Web3 – Protecting Emerging Phygital Fashion Innovations
U.S. - Federal
More than Just the Ooki DAO: Lessons for Web3 Companies About Control After bZx
Coinbase joins crypto supporters siding with Ripple in SEC case
Crypto Regulators 'Missing An Opportunity' With Bitcoin Spot ETF
BlockFi brings back high-yield product thanks to SEC exemption
Digital Assets: LBRY Deemed To Have Issued A Security As Crypto Firm Loses Legal Battle Against SEC
Crypto Advocate ForUsAll Would Drop DOL Suit if Guidance Not Enforced
Investors increasingly confident of Ripple’s victory over SEC
U.S. - State Law
FTX Arena Deal Spurs Miami-Dade Warning About Need to Pay Up
New Jersey Legislature moves to make state’s cryptocurrency rules ‘industry-friendly’
California Announces Investigation Into ‘Apparent Failure” of Crypto Exchange FTX
International
Crypto Legalization in Russia: New Laws to Ensure Legal Cooperation
Bahamas Regulator Freezes FTX Assets — Supreme Court Appoints Provisional Liquidator
Governing law and jurisdiction in the Metaverse under Law Commission review
Indonesia plans to tighten oversight of crypto market, task OJK with regulation
Brussels to Put Out Digital Euro Law Shortly, ECB's Lagarde Says
Crypto exchange Binance helped Iranian firms trade $8 billion despite sanctions
Closing Statements
We want to hear from you:
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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.
ATBC LinkedIn and Twitter:
Around the Blockchain is expanding our social presence on new platforms!
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.
Quote of the Week:
“I’m sorry.” - Sam Bankman-Fried
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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