CryptoLaw Newletter #21

The IMF warns against crypto-ization, Japanese crypto-investors failed to pay millions of taxes, Germany implements strict FATF travel rules, SEC subpoenas stablecoin firm Circle, Compound’s DeFi bug.

Digital assets

  • IMF -The IMF has warned that the crypto-ization of emerging market economies can undermine exchange and capital controls and upsetting financial stability. It said a “widespread and rapid adoption can pose significant challenges by reinforcing dollarization forces in the economy—or in this case cryptoization—where residents start using crypto assets instead of the local currency.” It acknowledges that “cryptoization can be driven by weak central bank credibility, vulnerable banking systems, inefficiencies in payment systems and limited access to financial services.” One of its proposed solutions, issuing CBDC, won’t magically solve those concerns. (Reuters and IMF)

  • US – SEC Chair Gary Gensler is testifying today before the US House Financial Services Committee. We’ll give you a summary of his comments, and crypto Twitter’s reaction, next week!

  • US – The SEC has once again pushed back a decision on four crypto ETFs, sticking to an hold habit. (Decrypt)

  • US – The Financial Accounting Standards Board received hundreds of letters “inspired by software company Microstrategy Inc. that tell U.S. accounting rulemakers that companies that invest in Bitcoin end up with financial statements that don’t make sense”. The letters came in response to the FASB’s call for input on its long-term agenda. The Big Four accounting firms were among those asking the FASB to revise its crypto-accounting rules. (Bloomberg Tax)

  • US  - A member of Congress proposed a bill that would largely turn into law the safe harbour proposal proposed by SEC Commissioner ‘CryptoMum’ Hester Peirce. Rep. Patrick McHenry revealed the draft Clarity for Digital Tokens Act shortly before SEC Chairman Gensler testified before the House Financial Committee. For a summary, see our blog post here.

  • US - Gabriel Shapiro, a.k.a. LexNode, wrote Debunking Securities Law Myths About Tokens last year. It is still a relevant refresher for anyone interested in the topic.

  • US – The company Plan B Passport “offers crypto-rich clients a path to a second passport in their pick of seven, mostly tropical, tax-haven states, all of which are exempt from capital gains taxes on crypto holdings,” reports CNBC.

  • Japan – Crypto investors have failed to pay taxes worth as much as 1.4 billion yen (about $12.6 million), according to local news source Nikkei. Cardano investors in Japan were singled out for underreporting their crypto-gains: roughly US$6 million of Cardano-linked gains were not reported to the Japanese tax authorities, the large-scale audit found. (Decrypt and Nikkei)

  • China and the US – A Bloomberg analysis on what’s driving crypto crackdowns in China and the US. (Bloomberg)

  • Germany  - Germany released the Crypto Asset Transfer Regulation – KryptoWTransferV, implementing the FATF travel rule in the country, according to TittlePress. The new rules require Crypto Asset Service Providers (CASPs) to collect information on both the originator and recipient of crypto-transactions. The difficulty lies when crypto-transactions involve non-custodial wallets, but the law requires CASPs to collect information about the sender and receiver even in that case, unless they can assure the traceability of the transaction in some other way, writes Patrick Hansen. However, according to Hansen (@paddihansen), CASPs can ask for a 24-month exemption from this requirement to collect info on unhosted/non-custodial wallets.” However, he expects that “[e]ven 24 months from now, we won’t have global & interoperable messaging standards & channels between most of the CASPs. That means German CASPs will have to stop transactions from/to other CASPs if they can’t record & exchange the data.”

  • Singapore – The stakes are rising for Singapore’s crypto bet, writes the FT. The city-state can benefit from China’s crypto crackdown, tough rules imposed on the sector in South Korea and new limitations in Hong Kong, according to the report.

  • Global  - The Pandora Papers revealed information about a “bitcoin czar”, already sentenced for money laundering related to a major cyberheist, who may have been part of the Carbanak hacking group. “The International Consortium of Investigative Journalists (ICIJ),  has identified a major crypto criminal among those exposed to have funneled funds into shadowy tax havens,” writes Cointelegraph.


  • US – The long-awaited Federal Reserve review on the potential benefits and risks of a US CBDC might be published as soon as this week. The review was initially scheduled for the summer but pushed back until September. Now it would be near completion. However, that does not mean that we’ll see a US CBDC anytime soon. The first hurdle is to find agreement among Fed officials on what stance to take – and with Fed officials divided on the issue, that is unlikely to happen soon. (WSJ)

  • New Zealand published an issue paper on CBDC. (Cointelegraph)

  • Laos – Bank of the Lao People’s Democratic Republic , the central bank of Laos, will launch a study on a potential CBDC as early as this month. It plans to partner with Japanese fintech Soramitsu, which was involved in a similar project in Cambodia, according to ( and Nikkei Asia)

  • Brazil -  The Central Bank of Brazil said the B3 stock exchange could be an oracle of its central bank digital currency. (Coindesk)


  • US - The Biden administration wants to regulate stablecoin issuers as banks, according to the WSJ. The government reportedly wants to ask Congress to enact a special purpose charter for the purpose.  (WSJ)

  • US – The SEC is expanding its range of crypto-related enforcement actions. It subpoenaed Circle, one of the companies behind the second largest US-dollar backed stablecoin USDC. Circle confirmed in its regulatory filings that it has been under SEC investigation since July and says it is coordinating fully with the agency. (Decrypt) Regulators and lawmakers have long made clear that they were keeping a close eye on private stablecoins.

  • US – A US court ruled on claims made against Tether in a class action lawsuit, according to reports (we’ll provide an update when we find a copy of the actual judgment!). Former Tether investors the company behind Tether, iFinex, violated the Racketeer Influenced and Corrupt Organizations Act (RICO) and engaged in market manipulation. Several of the claims, including all RICO claims, were tossed out Judge Katherine Polk Failla of the US District Court for the Southern District of New York. Tether’s website claimed the class action “was doomed”. However, the judgment did not deny all the claims, which means the claimants can still pursue a number of their claims against Tether-related defendants. This includes claims of alleged violations of antitrust laws and the Commodity Exchange Act by issuing unbacked Tether tokens and buying crypto-assets to shore up prices. We haven’t seen a copy of the actual judgement yet – if you have one, please let us know! (Law360 and CryptoDaily)


  • Compound went through a turbulent week, after COMP tokens worth millions of dollars were overpaid to liquidity providers due to a software bug. This drained the Compound Comptroller. Compound founder Robert Leshner’s tweet asking the recipients to return the funds minus a 10% white-hat discount was widely criticized as it ended by an apparent threat to denounce the recipients to the IRS: “Otherwise, it's being reported as income to the IRS, and most of you are doxxed.” He acknowledged the faux-pas, but the discussion has continued on what users should do in this scenario. Do you return the funds to the community or do  you cash in the profits? Compound’s code does not allow for quick emergency fixes: governance changes have to go through a 7-day process. That time-delay was meant to protect the protocol against adversaries. However, the same time-delay also makes it impossible to patch up the code quickly in case of a bug. The high-profile DeFi incident is likely to provide ammunition to those arguing that we need to impose liability rules in one way or another even in decentralized projects. We’ll keep you updated as this story evolves!

  • Is securities law making DeFi less secure? That’s the take of Collins Belton (@collins_belton): the Howey test under US securities laws makes developers reluctant to undertake any “essential managerial” efforts on DeFi projects/DAOs post-development, once they are released. But that means developers shy away from emergency buttons that would allow them to intervene quickly if a DeFi project runs into an emergency situation (such as a hack or bug exploit). “It makes sense for us to recognize the public interest in assuring dev[eloper]s they can respond to critical bugs without those acts alone being dispositive for a securities law analysis.”

  • UK – The Financial Conduct Authority granted registration to a DeFi custodian firm, writes Coindesk.


  • EU – The EU Blockchain Forum and Observatory published a report on energy efficiency of blockchains. We’ll give you a summary in our newsletter next week.

  • Global university rankings – Coindesk ranked top university courses on blockchain and crypto-assets around the world. The top spot is reserved for the National University of Singapore. (Coindesk)


  • “The experimentation going on right now with DAOs is the biggest revolution in corporate governance since the LLC; maybe longer”, tweeted lawyer Jason Gottlieb (@ohaiom) in a thread on DAOs. He sees the “decentralization revolution” as a “revolt against modern corporate autocracy”, with individual shareholders having very little say (which might be fine in some cases, but not others).  “It’s possible that many DAO experiments will fail, and come to understand why most modern corporations became centralized. But it’s also possible that many DAOs will thrive. And that we may come to understand *why* some thrive.”

Thanks for reading! Suggestions and comments always welcome!

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