Sufficient decentralization: playbook; EU regulator seeks crypto trading data, Robinhood Crypto fined $30m in US, Singapore considering stablecoin rulebook, US IRS tax questions

CryptoLaw Newsletter #60

Hello everyone,

Another week, another bridging attack: US$190 million was taken due to an exploit of the Nomad bridge. And another exploit affected the Solana network, likely caused by leaked private key information, according to the team’s initial analysis. More trouble for Solana the past 24 hours: its initial analysis suggests “private key information was inadvertently transmitted”.  And Binance will issue soulbound tokens (a less prosaic term: identity verification NFTs).

TLDR:

• Sufficient decentralization for DeFi and DAOs: a playbook for lawyers & web3 builders

• EU market regulator seeks crypto trading data

• Binance.US to delist one of 9 tokens labelled security by US regulator in insider trading case

• Robinhood’s crypto arm fined $30 million in New York for poor compliance

• Singapore “actively reviewing” stablecoin rules

• US IRS updates crypto tax questions again

Blockworks @Blockworks_

NEW: 🇯🇵 Japan’s Central Bank abandons CBDC plans due to a lack of interest from the public

Top-5:

1. EU market regulator ESMA wants to buy crypto trading data. Its tender requires trading data to “encompass all major exchanges and crypto assets so that it provides a fair representation of the crypto market landscape”. Regulatory monitoring of crypto is ramping up.

2. Binance.US will delist one of the nine tokens (AMP) that the SEC claimed to be a security in a recent insider trading case against a former Coinbase employee (who’s pleading not-guilty). It shows how the SEC’s statements can cause jitters even if they have not yet been upheld in court.

3. Robinhood Crypto was slapped by $30 million fine by New York State for alleged violations of anti-money-laundering, cybersecurity and consumer protection rules. Parent company Robinhood announced a 23% staff cut.

4. Singapore’s market regulator is “actively reviewing” its stablecoin rules and assessing the merits of a bespoke stablecoin rulebook, including reserve requirements and peg stability. It will consult the public “in the coming months”. The initiative comes as no surprise, after the public outcry over the Terra stablecoin‘s collapse. What about Singapore’s overall crypto approach? Crypto is unsuitable as an investment asset for retail investors, according to an MAS official.

5. When is something in DeFi or a DAO sufficiently decentralized to escape US securities law? Marc Boiron, Chief Legal Officer at dydx Trading, gives a playbook for web3 builders and lawyers. This time his focus is on decentralization of off-chain activities, such as marketing or business development. The question of “sufficient decentralization” goes back to a statement by former SEC official William Hinman, who used it to interpret a leg of the Howey test to ascertain whether a token is a security under US securities law. His advice on how to use corporate entities in a decentralized organization? “A practical middle ground would create between five and ten entities to carry out different, and at times overlapping, off-chain activities. These entities should map out to each subDAO to protect community members that contribute to that subDAO. This would limit their liability, provide the authority to sign contracts and ensure that a subDAO complies with taxes.” “SubDAOs should consider the use of (1) afoundation created in the Cayman Islands or British Virgin Islands, (2) a trust created in Guernsey or Jersey, and (3) an UNA existing under U.S. state law.”

Blockworks @Blockworks_

A new bill that would give CFTC oversight over Bitcoin and Ether has been unveiled. The bill would deem Bitcoin and Ether as commodities.

And also…

• U.S. crypto firm Nomad hit by $190 million theft. Another bridging attack. $9 million was sent back.

• The US tax authority IRS updated its crypto questions for the 2022 tax returns: receiving crypto includes earning digital assets through “rewards, awards or compensation”. The IRS also wants to know if you received crypto as a gift.

• The Australian Stock Exchange ASX delayed its blockchain network once more, until at least late 2024.

• Craigh Wright still insists he’s Bitcoin’s anonymous founder Satoshi Nakamoto. Peter McCormack had vehemently undermined that claim on Twitter and elsewhere and was sued by Wright for defamation. A UK court this week awarded Wright £1 after concluding that McCormack’s statements had “caused serious harm to the reputation of Dr Wright”, without taking a stance on whether Wright’s claims were true or not. The judgment also reprimanded Wright: “because he advanced a deliberately false case and put forward deliberately false evidence until days before trial, he will recover only nominal damages.” Wright also won a separate court victory in the US (Ira Kleiman v. Craig Wright) a few days ago: read more in Around the Blockchain’s latest newsletter.

• More US news: A bipartisan group of US Senators introduced the draft Digital Commodities Consumer Protection Act, which would broaden the CFTC’s crypto powers. Lawmakers want to clarify the much-discussed definition of broker in the Infrastructure Act. The US SEC charged 11 individuals for their roles in creating and promoting an allegedly fraudulent crypto pyramid and Ponzi scheme that raised more than $300 million from millions of retail investors worldwide.

• Blockchain.com obtained registration in the Cayman Islands.

• Dubai: which companies got approvals recently?

• Kazakhstan’s new tax rates for crypto mining.

• Decentralized Autonomous Organizations - Decentralized Law, by BanklessDAO.

• New York’s Attorney General urged New Yorkers come forward if they have been “deceived or affected by the cryptocurrency crash”, for example by being locked out of accounts or unable to access investments.

• Turkey’s crypto regulatory attempts: lessons learned.

• France’s market regulator grants digital asset service provider registration to crypto exchange Luno.

Thanks for reading!