Welcome to Web3Blast edition #16!
In this edition, we focus on how the SEC, CFTC (and authorities!) are ploughing on with shaping the industry by enforcement. As the SEC’s scrutiny intensifies, DeFi platforms and NFT creators alike are feeling the heat. We also take a look at the Bahamas’ strengthened crypto regulations, the UK’s move to recognize digital assets as personal property “things”, and the latest updates on MiCA’s impact across Europe. What do these developments mean for the future of crypto?
In this edition, we also cover:
- eToro, Abra, and Mango Markets settle with SEC
- Uniswap Labs deals with CFTC settlement, a New York AG probe, and looming SEC action
- FCA cracks down on crypto firms and issues first-ever charges to individuals
- Qatar unveils bold new crypto framework
This newsletter is brought to you by Legal Nodes, a legal platform that helps tech and Web3 businesses create global legal structures and stay compliant with regulations as their business grows.
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None of the information shared in the newsletter should be considered legal, investment, tax, or any other kind of advice.
Legal Cases
A note from Nestor Dubnevych, Head of Web3 Legal at Legal Nodes:
“In this newsletter, you’ll spot an obvious trend: regulators and agencies have started looking deeper into the mechanics of protocol operations, and are focused on finding not only tokens and protocols that could be identified as unregistered securities, but also examining other models and cases, in a broader crypto market search. Examples include liquidity bootstrapping pools being considered unauthorized funds, regulators paying more attention to NFTs and some of them being considered as financial instruments, especially when staking’s involved, and marginal products being under more scrutiny.”
🇺🇸 Ripple triumphs over SEC in latest court developments
Ripple—and the wider crypto industry—recently gained a win in it’s long-running battle with the SEC. A federal judge imposed a $125 million fine for violating securities laws through 1,278 institutional sales of XRP, however the fine is significantly lower than the $1.9 billion originally sought by the SEC. Judge Analisa Torres reaffirmed her earlier ruling, confirming that Ripple’s programmatic sales of XRP to retail clients through exchanges did not breach securities laws. Although the judge imposed an injunction to ensure Ripple follows securities regulations for future institutional sales, the decision is far from the SEC’s expectations. The case may not be over yet, as an appeal from the SEC is likely, but Ripple’s success in avoiding the bulk of the penalties and putting programmatic token sales outside the scope of securities is being celebrated across the wider crypto community.
🇺🇸 NFTs in murky waters as SEC dives into OpenSea
OpenSea, a leading NFT marketplace, has received a Wells notice from the SEC, indicating potential legal action over the classification of NFTs as securities. OpenSea CEO Devin Finzer expressed shock at the SEC’s “sweeping move against creators and artists” and the company has vowed to fight the potential lawsuit. The SEC has been issuing similar Wells notices to other crypto companies, and in anticipation of more to come for NFT projects, OpenSea has pledged $5m to “ensure creators can continue innovating without fear”. In 2023, the Stoner Cats NFT cartoon series produced by actress Mila Kunis settled with the SEC for $1m. Should the SEC convince courts and governments that digital artworks and collectibles markets are securities markets, then this could impact everyone in the NFT space including independent artists and creators, NFT marketplaces and platforms, and collectors and investors. Should the Wells notice escalate into a full-blown court drama, the outcome would likely set some sort of precedent on how NFTs are treated under securities laws.
🇺🇸 Winter is coming for Uniswap Labs: CFTC Settlement, NY AG Probe, and Looming SEC Action
- $175,000 settlement reached in CFTC investigation
- New York AG subpoenas VC firms in Uniswap Labs investigation
- Action from SEC expected after Wells notice received in April
Uniswap, a leading DeFi platform, has reached a settlement with the U.S. Commodity Futures Trading Commission (CFTC) over allegations of offering illegal leveraged and margined commodities transactions. The case involved tokens developed by third parties that offered leveraged exposure to BTC and ETH. The CFTC said Uniswap Labs was not registered as a designated contract market. Uniswap Labs’s Chief Legal Officer Katherine Minarik seemed to downplay the investigation, saying the $175,000 fine was part of a ‘no admit-no deny settlement’. Two CFTC commissioners dissented with the CFTC’s approach, observing that the application of rules intended for centralized platforms to decentralized ones was wrong, as was the ‘regulation by enforcement’ approach. The settlement raises questions about the legal status of leveraged tokens in DeFi and threatens to fuel more regulatory uncertainty for small cash market businesses and innovators in the space.
Meanwhile, Uniswap Labs faces mounting regulatory pressure after the New York State Attorney General subpoenaed major investors like Andreessen Horowitz and Union Square Ventures. All parties are remaining tight-lipped about the nature of the subpoenas and the AG’s investigations. The intensifying scrutiny, which some industry insiders view as politically motivated, highlights the growing regulatory challenges for DeFi projects. Web3 builders and investors should keep a close watch on what happens next, as these developments could significantly impact the future of the industry.
A note from Nestor:
“Many DeFi projects launched in 2021–2022 are now under more scrutiny from regulators as these authorities had had time to study the technical details of these projects. This means that new projects launching in 2024 and 2025 need to take into account all these legal cases and market practices stemming from the latest developments, in order to minimize their legal risks.”
SEC Settlements
🇺🇸 eToro settles with SEC, limits crypto offerings in US
Trading platform eToro has reached a $1.5m settlement with the SEC over allegations of operating as an unregistered broker and clearing agency for crypto assets. Along with the fine, eToro has agreed that U.S. customers will be limited to trading only Bitcoin, Bitcoin Cash, and Ether and estimates only 3% of customers’ crypto assets by dollar value are affected. The SEC has yet to offer any clarity on which tokens fall under its jurisdiction, and failed to specify which tokens it considers securities in this case.
🇺🇸 Abra settles with SEC over unregistered securities sales
Crypto platform Abra has reached a settlement with the SEC regarding its Abra Earn product, which the agency deemed an unregistered security. At its peak, Abra Earn amassed up to $500 million from US investors and the company operated as an unregistered investment company for at least two years. Abra agreed to cease violations of securities registration rules and pay civil penalties. Stacy Bogert, associate director of the SEC’s enforcement division, said the SEC was governed by “economic realities, not cosmetic labels”. Abra has already settled with 25 states, agreeing to return up to $82 million to US customers. This is Abra’s second joust with the SEC: it was fined $150,000 in 2020 over its swaps product.
🇺🇸 Mango Markets proposes SEC settlement over securities violations
Mango DAO has opened voting on a settlement proposal with the SEC, over alleged securities law violations. The proposal includes a $223,228 fine, destruction of MNGO tokens, and delisting of MNGO from all crypto exchanges. Mango Markets, once a leading decentralized exchange on Solana, is now facing investigations from the SEC, DOJ, and CFTC. Mango Markets struggled to recover from a $110m exploit in October 2022. Now, the future of Mango Markets’ operations is uncertain if MNGO tokens become obsolete. For other DEX’s facing similar scrutiny, the settlement could set a precedent in an otherwise grey area of securities law.
🇺🇸 SEC settles charges with DeFi platform Rari Capital
📣 Hot off the press
Yesterday, the SEC reached a settlement with DeFi startup Rari Capital and its co-founders over allegations of misleading investors and operating as unregistered brokers. Rari Capital and co-founders Jai Bhavnani, Jack Lipstone, and David Lucid agreed to settle without admitting or denying the SEC’s findings. The SEC alleged Rari falsely claimed its Earn pools would automatically rebalance assets for maximum yields, when manual intervention was often required. The company allegedly promoted high annual percentage yields (APY) without disclosing fees that reduced actual returns. Rari was charged with conducting unregistered securities offerings and engaging in unregistered broker activities through its Fuse platform. The settlement, pending court approval, includes permanent and conduct-based injunctions, civil penalties, and more. This action highlights the SEC’s ongoing scrutiny of DeFi platforms and willingness to look beyond “decentralized” labels to economic realities.
🇺🇸 SEC intensifies scrutiny on Binance’s token listings in amended complaint
The SEC has filed a proposed amended complaint against Binance, focusing more heavily on the exchange’s token listing process and trading practices. The amended complaint addresses issues that were partially dismissed in the SEC’s initial suit. The SEC’s detailed allegations focus on BNB and 10 other cryptocurrencies, with emphasis on Binance’s role in promoting listed tokens as investments. The SEC describes Binance as “an integral part” of crypto asset markets, including those offered as securities. It asserts that by promoting digital assets, Binance is encouraging investment, and the BNB token is an “exchange token” marketed as an investment in Binance’s success. In clarifying its stance on “crypto asset securities”, the SEC focused on “crypto assets that were offered and sold as securities” and ultimately as investment contracts. This case could set precedents for how token listings and promotions are viewed under securities law.
International Legal Cases
🇦🇺 Australian court rules against Kraken’s local operator
Australia’s Federal Court has ruled in favor of the Australian Securities and Investments Commission (ASIC) in a case against Bit Trade Pty Ltd, Kraken’s local operator. The court found Bit Trade violated the Corporations Act by offering its margin extension product without a proper target market determination. Although the ruling applies to margin extensions in fiat currency, and not in cryptocurrency, the ASIC views this as a significant outcome in its efforts to regulate the crypto industry. Now, Kraken must comply with the court’s decision, potentially limiting its product offerings in Australia. Kraken expressed disappointment with the ruling, yet was pleased that the judge understood the challenges of regulating crypto offerings. The case further underscores a need for clearer crypto rules in Australia.
Regulations & agencies updates
🇬🇧 UK introduces bill to recognize digital assets as personal property
The UK government has introduced the Property (Digital Assets etc) Bill in Parliament, marking a significant step in clarifying the legal status of cryptocurrencies and other digital assets. If passed, digital assets, including cryptocurrencies, NFTs, and carbon credits, would be considered personal property under UK law. The bill creates a third category of personal property for digital assets, alongside “things in possession” and “things in action”. This should give increased legal clarity for digital asset ownership and disputes and enhance protection against fraud and scams in the digital asset space. The UK government also hopes this bill will attract more business and investment to the UK’s legal services industry, and help the UK retain its status as a preferred jurisdiction for international legal matters (English law governs an estimated £250 billion in global mergers and acquisitions).
🇶🇦 Qatar introduces Crypto Regulatory Framework, signals further growth in Middle East’s Web3 economy
Qatar has launched a comprehensive regulatory framework for digital assets, marking a significant shift from its 2018 crypto ban. The Qatar Financial Centre (QFC) introduced the Digital Asset Regulations 2024, which allows companies to apply for licenses to become token service providers. The framework includes legal recognition of smart contracts and property rights in tokens, establishes legal and regulatory foundations for digital assets, and even covers tokenization, custody arrangements, transfer, and exchange.
🇧🇸 Bahamas enacts DARE 2024, strengthens crypto regulations post-FTX
The Bahamas has passed the Digital Assets and Registered Exchanges Act 2024 (DARE 2024), reinforcing its cryptocurrency regulations following the FTX collapse. DARE 2024 expands regulated activities to include advisory services, digital asset derivatives, and staking. It introduces stricter requirements for digital asset exchanges and establishes a comprehensive framework for stablecoins and custody services. It also bans algorithmic stablecoins and privacy tokens. All of this is aimed at enhancing investor and consumer protection standards and bringing the Bahamas in line with international best practices and recommendations from IOSCO and FATF. The Bahamas is hoping to restore trust that it is a crypto-friendly jurisdiction after the disastrous FTX events exposed gaps in regulation.
MiCA updates
🇪🇺 EU regulator clarifies overseas business classification
The European Securities and Markets Authority (ESMA) has outlined its approach to regulating non-EU crypto businesses under the Markets in Crypto Assets (MiCA) regulation. This clarification aims to prevent unauthorized companies from exploiting loopholes to serve EU clients. Under the new guidelines, crypto firms that are not authorized to operate within the 27-nation trading bloc are prohibited from offering any services to European Union clients, unless those clients initiate contact first. This measure is designed to enhance regulatory oversight and protect EU consumers from potentially risky or unregulated crypto services.
🇫🇷 France opens MiCA applications
France’s Autorité des Marchés Financiers (AMF) has begun accepting applications for crypto asset service provider licenses as part of the MiCA framework, becoming the first major EU economy to do so ahead of the regulations taking effect on December 30.
🇫🇷 Bybit withdraws from France
In response to the new regulatory environment established by France’s MiCA framework, crypto exchange Bybit announced it would cease offering products and services to French nationals and residents while planning to secure appropriate authorizations in the future. The French financial regulator AMF warned citizens that Bybit was blacklisted. The cut off date was August 2, after which French users could no longer purchase products and use Bybit’s services.
🇪🇺 EU stablecoin standards expected soon
The European regulator anticipates publishing stablecoin standards in the Official Journal by year-end, further solidifying the regulatory landscape for digital assets within the EU. Rules will cover standards for authorization, stress testing and methods to estimate the number and value of transactions for stablecoin issuers.
FCA updates
🇬🇧 First charges filed against illegal crypto ATM operator in the UK
The UK’s Financial Conduct Authority (FCA) has charged Olumide Osunkoya with operating an illegal network of crypto ATMs, making him the first person to be charged on those grounds in the UK. Osunkoya is accused of running multiple unregistered machines that processed £2.6m ($3.4m) in crypto transactions between December 2021 and September 2023. In August, Habibur Rahman was the first person charged with operating a single illegal cryptocurrency ATM in the UK.
🇬🇧 Most UK crypto registration applications don’t meet FCA standards
The FCA rejected 87% of cryptocurrency registration applications, approving only 4 out of 35 applications in the fiscal year ending March 31. This high rejection rate underscores the stringent anti-money laundering (AML) requirements crypto firms face in the UK, forcing some companies to seek approval in other jurisdictions while continuing to serve UK customers from abroad.
🇬🇧 FCA dishes out warnings to unregistered crypto firms
The UK’s Financial Conduct Authority (FCA) has issued over 1,000 warnings to crypto firms since October 2023 as part of its efforts to crack down on unregistered crypto businesses. This aggressive approach by the FCA demonstrates its commitment to protecting consumers and maintaining market integrity in the rapidly evolving crypto sector. As of August 7, 48 apps have already been removed from UK app stores.
A final thought from Nestor:
“Now that the busy autumn season has begun, many countries and governments will try to reach milestones in developing and updating their crypto policies and regulations before the winter break. As we see new updates from UK regulators, more activity from Middle Eastern countries, and more guidelines and clarifications around MiCA, we're also expecting more to come. Stay tuned for more news to come.”
What’s new at Legal Nodes
Utility token launch guide
As more token issuers are being hit by the regulators, we’ve published a new playbook for utility token launches to help founders navigate the specifics of:
- How the token legal qualification changes over time and during different project stages (pre-token, token launch (TGE), post-token (DAO));
- What are the legal structure options for infrastructure and application tokens and who these structures change during each stage;
- What are the popular jurisdiction options for the legal entities involved in token issuance, and transition to a DAO;
Here’s a sneak peek of one of the possible structures for a token launch (in this case, a double-entity structure during a token launch stage), and you can find more in the full guide.
Read, share, save for later and if you have any feedback, you can let us know by replying to this email or dropping us a message on X.
Check the token launch guide 👉
You can also consider checking our previous playbooks on this topic:
- Navigating token launch legal strategy
- Token types based on use cases
- Token types based on token launch strategy
- Progressive decentralization roadmap
Legal Nodes partners with yard[hub] 🤝
That’s all for this edition of the Web3Blast. We hope you’ve enjoyed it and found it useful. If you have any feedback you’d like to share, you can let us know by responding to this email or dropping us a message on X.
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Disclaimer: the information in this newsletter is provided for informational purposes only. You should not construe any such information as legal, tax, investment, trading, financial, or other advice.
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