Blockchain Legal Resource

On January 8, 2024, the CFTC’s Technology Advisory Committee issued a detailed report on decentralized finance, or DeFi. The report, which was authored by the Subcommittee on Digital Assets and Blockchain Technology, notes that DeFi offers both promising opportunities and complex, significant risks to the US financial system, consumers and national security.

As we previously reported in our summary of the Ripple case, a federal district court judged determined that under certain circumstances the offering of a digital asset does not create a security. The reasoning in the Ripple case has been criticized by leading to an outcome that places institutional investors ahead of retail investors and employees. In a separate, recently decided case involving digital assets, another federal district judge has declined to follow the ruling in Ripple.

On July 13, 2023, the Federal District Court for the Southern District of New York issued the hotly anticipated ruling in the SEC’s case against Ripple Labs, Inc. (Ripple). On cross-motions for summary judgment, the court found that only Ripple’s sale of its XRP tokens to institutional buyers pursuant to sales contracts constituted unregistered sales of securities in violation of Section 5 of the Securities Act of 1933. But according to the court, Ripple’s programmatic sales of XRP through crypto exchanges, Ripple using XRP to pay employees and service providers and Ripple ...

On May 30, 2023, the Commodity Futures Trading Commission Division of Clearing and Risk (DCR) issued a staff advisory (CFTC Letter No. 23-07) on the risks associated with the Derivatives Clearing Organization (DCO) clearing of digital assets. DCR will emphasize compliance with the DCO core principles related to system safeguards, conflicts of interest, and physical delivery.

On May 5, 2023, New York Attorney General Letitia James released proposed legislation that seeks to regulate all facets of the cryptocurrency industry. Entitled the “Crypto Regulation, Protection, Transparency, and Oversight (CRPTO) Act,” if enacted the draft bill would substantially expand New York’s oversight of crypto enterprises conducting business in the Empire State.

On April 14, 2023, by a 3-2 party-line vote the US Securities and Exchange Commission (SEC) reopened the public comment period and provided supplemental information on amendments proposed in January 2022 to the definition of “exchange” under Rule 3b-16. The SEC previously reopened the comment period in May 2022. The April 2023 action provides supplemental information and economic analysis regarding trading systems that trade crypto asset securities that would be newly included in the definition of “exchange” under the proposed rules.

As reported on the Hunton Insurance Recovery Blog, blockchain technology has been touted as inherently reliable for years. More recently, collectors of Non-Fungible Tokens (NFTs) have explored expanded uses for that novel technology. Some courts have bought in and, in doing so, recently authorized a use that perhaps no one had imagined when NFTs first entered the mainstream: service of process.

On January 20, 2023, The Centre for Information Policy Leadership (“CIPL”) at Hunton Andrews Kurth published “Digital Assets and Privacy,” a discussion paper compiling insights from workshops with CIPL member companies that explored the intersection of privacy and digital assets, with a particular focus on blockchain technology. The paper includes recommendations for developing coherent, tech-friendly, future-focused, and pragmatic regulations and policies.

When investors are considering investments in cryptocurrency, it is critical to understand the terms of asset ownership and transfer. Current and potential cryptocurrency investors should be aware that the Southern District of New York (SDNY) recently ruled that holders of cryptocurrency investments with the now-bankrupt cryptocurrency lending company Celsius Network LLC are not the true owners of these assets.

On December 16, 2022, the Financial Stability Oversight Council (Council) published its 2022 annual report. The report highlights a number of key policy recommendations for federal financial regulators, including four recommendations for further legislation or regulation in the digital asset space.

On December 1, 2022, the Consumer Financial Protection Bureau (Bureau) made public an administrative order denying Nexo Financial LLC’s (Nexo) petition to modify the Bureau’s civil investigative demand.  The order represents the first publicly known Bureau investigation of a digital asset company, in this case, over Nexo’s “Earn Interest” crypto lending product.

Thursday, December 1, 2022
1:30–2:30 pm ET

Feeling at sea about crypto and NFTs? Well, no wonder: existing laws that govern the transfer and financing of assets were last updated just before Captain Jack Sparrow first appeared on the big screen. An innocent time, when we knew how to transfer and finance not only gold doubloons, but many other assets. But nobody envisioned wanting to transfer and finance intangible digital assets such as crypto. The proliferation of cryptocurrencies and other digital assets, and the related new financing and investment structures, have caused ...

In a seven-part series delving into issues relating to insurance coverage for digital assets, we provide a comprehensive understanding of the types of loss that can be sustained, who can sustain them, the availability of coverage under traditional insurance policies, and the emergence of new insurance products.

Following up on President Biden’s recent executive order on digital assets, the US Treasury Department recently announced the publication of three reports on digital assets.  The reports address issues relating to The Future of Money and Payments; Implications for Consumers, Investors, and Businesses; and an Action Plan to Address Illicit Financing Risks of Digital Assets.

In recent months, members of Congress have introduced a wide variety of bills seeking to create a new federal regulatory regime for digital assets. NASAA, which is an umbrella organization for state and provincial securities regulators in the US, Canada and Mexico, recently submitted a letter to Congress critical of one such bill that lays out a series of arguments more broadly against federal action.

On August 10, 2022, 3-2 majorities of the SEC and CFTC voted to propose amendments to Form PF reporting for certain investment advisers to private investment funds. Among the many proposed amendments to the form, the proposed rules would for the first time require covered investment advisers to report on certain digital asset investments.

In a June 9, 2022 letter to the Directors of the US Patent and Trademark Office (USPTO) and US Copyright Office, Senators Thom Tillis (R-NC) and Patrick Leahy (D-VT) requested that the agencies jointly undertake a study of intellectual property (IP) rights considerations with respect to non-fungible tokens (NFT or NFTs).

On June 1, 2022, the Department of Justice announced its first criminal indictment for insider trading of nonfungible tokens, or NFTs. The case opens yet another front in the Government’s efforts to police the burgeoning marketplace for digital assets and NFTs.

On March 31, 2022, the staff of the Division of Corporation Finance and the Office of the Chief Accountant of the SEC issued Staff Accounting Bulletin (SAB) No. 121 (SAB 121), which “adds interpretive guidance for entities to consider when they have obligations to safeguard crypto-assets held for their platform users.” SAB 121 highlights the enhanced technological, legal and regulatory risks associated with safeguarding digital assets, as compared with more traditional asset classes. Specifically, SAB 121 asserts that a company is subject to “significant increased risks... including an increased risk of financial loss” when that company controls the cryptographic keys associated with a user’s digital assets. As a result, the staff believes that reporting companies should quantify and disclose that obligation, and record a liability and corresponding asset on their balance sheets at fair value.

On March 24, 2022, the US Attorney for the Southern District of New York announced charges against two defendants and alleged an ongoing fraud involving the sale of nonfungible tokens (NFTs). The federal criminal case is among the first involving NFTs and foreshadows further regulatory scrutiny of the popular digital asset class.

On March 9, 2022, the Biden Administration released its much-anticipated “Executive Order on Ensuring Responsible Development of Digital Assets” (Executive Order). The White House describes the Executive Order as the “first whole-of-government strategy” on digital assets and attempts to strike a balance between encouraging innovation and US leadership in the digital asset space, while signaling an appetite to protect against a variety of stated risks through additional regulation and legislation.

On November 15, 2021, President Biden signed the Infrastructure Investment and Jobs Act (the “Infrastructure Bill”), which significantly expands tax information reporting for certain cryptocurrency transactions. The Infrastructure Bill includes an information reporting requirement for cryptocurrency asset exchanges and custodians on an IRS Form 1099, and an information reporting requirement for certain persons who accept large payments in cryptocurrency in such person’s trade or business on an IRS Form 8300. The effective date of these changes will apply to any information return required to be filed after December 31, 2023.

On November 1, 2021, the President’s Working Group (PWG) released a long-awaited report on stablecoins (the “Report”).¹ The Report outlines a number of significant legislative recommendations for Congress to consider as well as a number of interim measures that agencies should adopt under their existing authorities to protect against prudential risks in the near-term.

A recent dispute over trademark ownership to the name of meme-fueled Dogecoin highlights the importance of trademark rights in the ever-growing world of cryptocurrencies.

In 15 recent enforcement actions, the Commodity Futures Trading Commission (CFTC) announced charges against various digital asset exchanges for failure to register appropriately as futures commission merchants (FCMs). This series of actions is the latest in an ongoing regulatory crackdown across federal agencies involving cryptocurrency and other digital asset trading platforms.

Congresswoman Maxine Waters (D-CA), Chairwoman of the House Committee on Financial Services, recently announced the organization of the Committee’s Digital Assets Working Group. At this time, the working group’s roster appears limited to Democratic Members.

In the past month, the Federal Reserve, FDIC and OCC have each detailed their upcoming focus on digital asset activities in the banking industry. So far, state banking regulators have often outpaced their federal counterparts in terms of issuing formal regulations and guidance around digital assets. Many banks are waiting to explore potential digital asset products and services until the functional federal bank regulators provide concrete guidance to complete the picture.

In a wide-ranging hearing before the House Financial Services Committee on May 6, 2021, SEC Chairman Gary Gensler addressed a number of SEC regulatory priorities, including the recent short-squeeze on so-called “meme stocks,” gamification of securities trading, broker-dealer payment for order flow, and climate change disclosure. During his first testimony before Congress as SEC chair, Gensler also answered a series of questions on cryptocurrency and digital asset regulation.  The statements on crypto regulation begin to shed some light on his official approach to regulating the digital asset security ecosystem.

Texas is seeing considerable momentum with respect to a proposed digital asset law that is being considered in the 2021 legislative session in the form of House Bill 4474 (the “Virtual Currency Bill”). As the second largest economy in the United States, and the ninth largest economy in the world by GDP, the legislation could have one of the biggest impacts on digital asset industry since the New York BitLicense was introduced. In short, the Texas Virtual Currency Bill provides a basic legal framework for companies dealing with virtual currencies.

In some of her first remarks on the subject of digital assets since Senate confirmation, Treasury Secretary Janet Yellen sounded an alarm on Bitcoin. Her views on the regulation of digital assets more broadly are sure to influence policy in the coming years at the various offices and bureaus within the Treasury Department that oversee the asset class, including the OCC, IRS, OFAC and FinCen.

The Wyoming Division of Banking issued a No-Action Letter (NAL) in October 2020 in response to a request from a Wyoming-chartered public trust company seeking the Division of Banking’s position on the ability of the company to custody digital assets as well as hold itself out as a “qualified custodian.” The NAL prompted the Staff of the Securities and Exchange Commission to issue a public statement seeking public comment on matters concerning the definition of “qualified custodian” under the Investment Advisers Act of 1940 (the “Advisers Act”) and Rule 206(4)-2 thereunder (the “Custody Rule”).

On July 22, 2020, the Office of the Comptroller of the Currency (OCC) published an interpretive letter clarifying the authority of national banks to provide cryptocurrency custody services for customers. This latest guidance is just one of many recent developments coming out of the OCC focused on modernizing the regulatory framework at the national level.  Since Brian Brooks took over as acting Comptroller of the Currency on May 29, 2020, the agency has announced a number of significant initiatives designed to allow national banks to capitalize on technology and innovation.

As part of its ongoing effort to supervise broker-dealers conducting transactions in digital assets, FINRA recently issued Notice 20-23. The Notice encourages FINRA members to continue to keep FINRA updated on a firm’s activities relating to digital assets that have not been previously disclosed.

On March 28, 2020, the Commodity Futures Trading Commission (CFTC) issued final interpretive guidance (Guidance) clarifying its position with respect to retail commodity transactions and the “actual delivery” exception in the context of digital assets.

On September 24, 2019, the House Financial Services Committee held an oversight hearing entitled “Oversight of the Securities and Exchange Commission: Wall Street’s Cop on the Beat.” The format of the hearing was somewhat unusual in that the sole witnesses were the five sitting SEC commissioners. Though it is common for the SEC chair to testify before Congress, the other commissioners testify very infrequently, and the assembly of all five at a single hearing is extremely rare, with the last such joint testimony coming back in 2007. While the hearing covered a wide range of issues related to securities regulation and enforcement, it also touched on a number of topics of particular interest to crypto and blockchain businesses, including the application of the securities laws to digital assets.

Recently, California Governor Jerry Brown signed into law Assembly Bill No. 2658 for the purpose of further studying blockchain’s application to Californians. In doing so, California joins a growing list of states officially exploring distributed ledger technology.

Interest in the crypto economy continues to grow in Congress. On September 25, 2018, Representative Warren Davidson (R-OH) hosted a roundtable, “Legislating Certainty for Cryptocurrencies,” with more than 50 financial institutions and crypto start-ups invited to attend. Additionally, the House Financial Services Committee has scheduled a hearing on financial innovation on September 28, 2018, entitled Examining Opportunities for Financial Markets in the Digital Era.