News
Blockchain update for the week of May 9, 2024
In recent weeks, big news has arrived that has shocked the entire sector: according to a recently filed lawsuit, the SEC has classified the second largest cryptocurrency, Ether, as a security in some investigations that have been ongoing for more than a year now. While many expected such a revelation to come sooner rather than later as Ether spot ETF approval deadlines approached, the scope and duration of the SEC investigation was news the industry is still trying to come to grips with on terms. There have also been several noteworthy developments related to criminal cases against developers of digital asset privacy protocols, and the SEC is likely to take enforcement action against the popular trading platform, Robinhood, in relation to its trading platform. digital asset trading.
These developments and some other brief notes are discussed below.
MetaMask Wallet developer sues SEC: April 25, 2024
Background: Consensys, developer and supplier of the leading self-custody digital wallet MetaMask, sued the SEC for declaratory and injunctive relief in the Northern District of Texas. The complaint is available here. The lawsuit alleges that the SEC issued a Wells notice warning of a highly likely lawsuit against Consensys. The Consensys lawsuit seeks to declare that (1) the purchase and sale of Ether are not securities transactions subject to SEC jurisdiction; (2) MetaMask Wallet trading features are not subject to Agency broker-dealer registration requirements; and (3) the MetaMask Wallet staking features are not securities transactions.
Summary: Consensys appears to expect that the SEC’s notification process of Wells will not result in a lack of prosecution, sue the SEC in a favorable 5th Circuit instead of allowing the SEC to file a lawsuit sooner. Similar to the Coinbase case, this case appears to be part of a larger play to create a potential circuit split if the rulings differ from the Coinbase case in SDNY (2nd Cir.), Binance case in DDC (Fed. Cir.), or Case Kraken in the NDCal. (9th Circle). The SEC faces a resource allocation problem at this point, as it is unclear whether the agency will have the resources in the cryptocurrency enforcement unit to file lawsuits against the above entities plus Uniswap plus the other pending litigation the agency is ongoing at the same time.
Various Developments in Blockchain Privacy Protocols Raise Questions About Allowable Levels of Privacy Preservation: April 24-27, 2024
Background: Samourai and associates portfolio Bitcoin mixing protocol the developers were arrested and reported with conspiracy to commit money laundering and conspiracy to operate an unlicensed money transfer business. Relativelyafter those charges were filed, the FBI issued a warning That “[u]Providing a service that fails to comply with its legal obligations could risk losing access to funds after law enforcement operations target such businesses.” Also related, the The Justice Department responded to Roman Storm’s motion to dismiss on the matter his involvement with Tornado Cash.
Summary: Developments in the above cases will set a legal precedent for when individuals can create privacy-preserving technologies that can be used for legal and illegal purposes alike. In the Tornado Cash case, for example, the Justice Department challenges the defendants’ failure to program a law enforcement backdoor into the protocol code. More frustrating part of this answer it is the government (potentially intentionally) linking together the actions of disparate actors (developers, validators, relays, and TORN token holders) into a single entity. It is also interesting that the Department of Justice appears to be taking the position that the lack of control over the funds in question is not relevant to the “accepting value that substitutes for currency” aspect of the rules and regulations. All of the above could lead to US citizens have fewer privacy tools availableputting their safety and funds at risk.
Robinhood Serviced Wells Notice for Cryptocurrency Trading Services: May 6, 2024
Background: Robinhood Crypto has received a Wells Notice from the SEC advising that agency staff will recommend that the SEC file an enforcement action related to Robinhood’s cryptocurrency trading platform. You can read Robinhood’s response Here and the 8-K filing update here. Robinhood is the latest major player in the space to receive such a notice, along with the notice to Consensys discussed above and the Uniswap notice discussed in our previous update. Robinhood Crypto also lists fewer than two dozen digital assets and is much more selective with its listings than exchanges like Coinbase, Kraken and Binance that were previously sued by the SEC.
Summary: The combined actions mean that offering retail participants access to any digital asset other than Bitcoin is viewed by the agency as a violation of applicable securities laws. The fact that the SEC seems intent on bringing an action against Robinhood even after Robinhood REMOVED Some of token presumably securities in the Coinbase/Binance lawsuit from cryptocurrency trading platform Robinhood demonstrates that simply removing assets that the SEC claims are securities from the list is not enough. It is also worrying if Robinhood CTO’s congressional testimony on this topic is part of what led to this action. The Chamber of Digital Commerce and other industry groups condemned this latest action by the agency. The founder of Robinhood did it has indicated that it intends to fight the charges if the agency files a lawsuit.
Briefly noted:
The Custodian appeals against the loss of the main account: Case has appealed the decision to support the Federal Reserve banks’ refusal to access a master account. Custodia’s new business plan to charge customers to maintain 100% of reserves instead of lending deposited amounts to third parties, along with their willingness to accept digital asset deposits, appear to be the main reasons for the refusal of account access principal.
Industry groups question retailer rule: The Blockchain Association and the Crypto Freedom Alliance of Texas filed a lawsuit against the SEC challenging the dealer’s new rule which would have a huge impact on DeFi. The cryptocurrency bar appears to have chosen Texas as a fighting ground to challenge potential administrative overreach.
Binance founder sentenced to four months in prison: Binance the founder is sentenced to 4 months after previously pleading guilty to anti-money laundering violations. This chronology of legal issues what Binance and CZ have come across is phenomenal.
Exodus Movement, Inc. Listed on the New York Stock Exchange: Self-custodial digital wallet provider Exodus announced that its common stock was approved for trading on the New York Stock Exchange. Available for desktop, mobile, and browsers, the Exodus wallet allows users to secure, manage, and trade cryptocurrencies such as Bitcoin, Ether, and more. It became the first company to have its common shares are tokenized for blockchain-based trading.
Conclusion:
As the cryptocurrency regulatory landscape continues to evolve, the SEC’s recent actions, including classifying Ether as a security and issuing a Wells Notice to major platforms like Robinhood, highlight the complex interplay between innovation and regulation. These developments, along with ongoing legal challenges and enforcement actions, highlight a period of significant uncertainty and adjustment for the industry. As stakeholders navigate these turbulent waters, the outcomes of these legal battles will likely shape the future of digital asset regulation and the broader financial ecosystem. The industry’s response, as well as established legal precedents, will be critical in determining how technologies that preserve privacy and enhance user autonomy can coexist with regulatory frameworks designed to ensure market integrity and protect investors.