The ninth monthly bulletin for 2023 focuses on important legal developments surrounding the use and acceptance of blockchain technology, smart contracts, and digital assets. This bulletin specifically emphasizes the financial services sector and discusses various types of digital assets, such as securities, virtual currencies, commodities, and more.
One significant legal development highlighted in the bulletin is the Securities and Exchange Commission’s (SEC) settlement with Stoner Cats 2 LLC (SC2), the company responsible for the Ethereum-based NFT project called Stoner Cats. The SEC brought and settled charges against SC2, signaling its intention to assert authority over unregistered securities in the NFT space. Stoner Cats raised approximately $8 million and produced an animated web series that can only be viewed by owning a Stoner Cats NFT.
Another development discussed in the bulletin is the proposed regulations issued by the IRS and Treasury Department outlining a new digital asset reporting regime. These proposed regulations clarify and adjust the rules regarding tax reporting by brokers of digital asset transactions, bringing them in line with reporting rules for securities and other financial instruments.
The bulletin also covers federal court decisions, such as the dismissal of a putative class action against Uniswap Labs, the developer behind a popular decentralized exchange on the Ethereum blockchain. The court’s decision provides key takeaways regarding the liability of DEX developers and liquidity providers.
In terms of statutory and agency developments, the bulletin provides updates on various federal agencies. For example, Coinbase has received approval from the National Futures Association (NFA) to operate as a Futures Commission Merchant (FCM), allowing eligible US customers to trade crypto futures on the platform. The Commodity Futures Trading Commission (CFTC) has also issued proposed rules to amend regulations under the Commodity Exchange Act, enabling self-certification of entities and the trading and clearing of cryptocurrency and other digital asset derivatives.
The Office of Foreign Assets Control (OFAC) has secured a federal court’s affirmation of its designation of Tornado Cash, a cryptocurrency mixing service, as a Specially Designated National. This designation restricts access to Tornado Cash within the US due to its alleged use in money laundering activities.
The Federal Reserve is seeking authority over stablecoins, with Vice Chair for Supervision Michael S. Barr emphasizing the need for a robust federal framework to regulate stablecoins and mitigate risks to financial stability, monetary policy, and the US payments system.
In the securities sector, SEC Chair Gary Gensler testified before the US Senate Committee on Banking, Housing, and Urban Affairs, describing the crypto industry as “rife with misconduct.” Gensler highlighted the SEC’s efforts to bring clarity and transparency to the industry through enforcement actions, rulemaking, and education.
The bulletin also includes information on the FBI’s warnings regarding scams involving NFT developers and crypto recovery companies, as well as updates from state agencies, such as the New York Department of Financial Services’ (NYDFS) updated guidance on virtual currencies.
Overall, this monthly bulletin provides valuable insights into the legal developments surrounding blockchain technology, smart contracts, and digital assets in the financial services sector. It helps companies stay informed and navigate the evolving regulatory landscape in this rapidly growing industry.
