After Celsius, who’s next? EU making progress on crypto regulation. Airdropping court documents as NFTs. Coin Center sues Treasury. BIS on DeFi lending. SEC probing exchanges on insider trading.
CryptoLaw Newsletter #54 - by Ann Sofie Cloots
After Terra’s collapse came Celsius. Who’s next?
Airdropping a court injuction by NFT.
EU edging closer to final text of crypto asset regulation.
Coin Center sues US Treasury over tax reporting rule.
DeFi lending = speculation, overcollateralization negates financial inclusion, says BIS.
US SEC probing exchanges on insider trading measures.
Top-5 this week:
First it was Luna. Then it was Celsius. Next is… Tron? Celsius ceased withdrawals from its lending platform, sending further shockwaves through crypto markets. An excellent thread on what went wrong:1/ Celsius Network: Here’s everything you need to know to understand what’s going on. What is Celsius? What went wrong? What can we learn from it? A thread summarizing a report and I published yesterday for Bitcoin Magazine PRO subscribers… 🧵
TLDR: excessive risk-taking (did we really not learn anything since 2008?), poorly designed token incentives, the link between Terra/Luna and Celsius. And perhaps also this:Fun Celsius factoids: - For over a year, Celsius had no in-house staff and outsourced all development & most management to a Serbian 'web3 builder' called MVP Workshop known for fairly shoddy work. - Celsius's former CFO was arrested for fraud & money laundering in Israel.
Citigroup is advising Celsius on next steps. If Celsius ends up with bankruptcy proceedings things may get messy, warned Adam Levitin:
Who’s next – Tron maybe, with the USDD stablecoin losing its peg? Three Arrows Capital? Whatever may come next, the mayhem on crypto (and traditional financial markets) is causing big crypto layoffs:
Airdropping a lawsuit as an NFT? Around the Blockchain explains how a US law firm served a defendant a “pre-trial temporary injunction as an airdropped NFT after receiving permission to do so from The New York State Supreme Court”. “The token was airdropped to a wallet address believed to be associated with or belonging to the anonymous defendant”.
EU edges closer to finalizing crypto asset regulation. The European Union is edging closer to an agreement on its new crypto rule book, the Markets in Crypto Assets (MiCA) Regulation. One of the open questions negotiators have yet to finalize is whether the document should cover newer crypto developments such as NFTs or even DeFi. France, which presides the EU Council until 30 June, is pushing for a speedy adoption of the regulation. The recent collapse of Terra and now Celsius, together with concerns over sanctions evasion, are adding to a sense of urgency to implement a comprehensive crypto rule-book. MiCA is part of a broader EU package, which also includes the recently adopted Distributed Ledger Technology (“DLT”) Pilot Regulation. The Pilot allows DLT to be used to trade and settle traditional financial instruments of certain types and amounts.
After roundtables and outreach: lawsuits. Coin Center sued the US Treasury over an crypto tax reporting rule in the Infrastructure Act. The rule, which is scheduled to take effect in 2024, requires individuals and businesses who receive $10,000 or more in crypto to report to the government not just the name of who sent them the funds, but that person’s date of birth and Social Security number as well, which is unconstitutional, Coin Center argues.
Can DeFi remain DeFi? DeFi lending mostly facilitates speculation, says the BIS in its bulletin DeFi lending: intermediation without information? In addition, overcollateralization generates procyclicality, it says, and “also limits access to credit to borrowers who are already asset-rich, negating financial inclusion benefits.” To make inroads into the real economy, DeFi must tokenize real assets and abandon anonymity in favour of gathering information about users, the BIS suggests. That sounds like DeFi no longer being DeFi. An alternative solution is to explore decentralized digital identities.
Want to read more crypto & law insights? Check out Around the Blockchain by Christopher Foreman and Kyler Wandler. Their awesome compilation of legal crypto news in the US and around the world is available for free, every Monday. Have an interesting topic to share? Are you a student looking for an opportunity to publish? Contact Kyler (@KylerW56) or Chris (@CryptlessInSEA)!
South Korean authorities are investigating potential bitcoin embezzlement at TerraLabs in the wake of Terra’s stablecoin collapse. Meanwhile, investors in the US filed a class action lawsuit against Binance.US for its sale of LUNA and UST, which the claimants argue were unregistered securities.
The US SEC has launched a "sweeping inquiry into whether crypto exchanges have proper safeguards to prevent insider trading on their platforms”.
BlockFi is ordered to pay more than US$940,000 by Iowa regulator, which found BlockFi misrepresented the level of risk in its loan portfolio in addition to selling unregistered securities.
An IMF study on central bank digital currencies (CBDCs) and energy consumption encourages central banks to consider design choices to lower the carbon footprint of future payment tools.
The European Central Bank wants to limit the supply of a potential digital euro to maximum 15 trillion.
US regulators should join forces to discuss the best regulatory approach to crypto, wrote a SEC Commissioner Peirce and CFTC Commissioner Crenshaw.
“Australia cannot afford to go back to square one. That would only see innovation move offshore and consumers unprotected for longer,” writes law academic Aaron Lane.
Are many crypto ventures active in the US unlicensed money transmitters?
Paradigm published a DAO legal matrix, comparing legal entity wrappers for decentralized organisations in the US and a few other jurisdictions, such as Switzerland , Guernsey, Panama and the Cayman Islands.
If you’re interested in DAOs, check out the Law of Code’s episode with Jordan Teague on DAO Structuring & Legal Engineering
The US Gillibrand-Lummis Responsible Financial Innovation Act proposal has reset the discussion for the regulation of digital asset business in the US, according to Lewis Cohen and Freeman Lewin.
Fundamentals of Non-Fungible Tokens, by law firm Perkins Coie.
Messari is working on quarterly reporting tools for crypto protocols.
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