Welcome to edition #19 of the Web3Blast!
Today’s edition comes out on a historic day, as Bitcoin reached the $100K mark for the first time in crypto history. We cover other celebratory moments in this edition, plus some less-promising court outcomes, crypto tax law developments, and the UK's underwhelming crypto regulation timeline.
We cover:
- Tornado Cash’s partial win against the U.S. Treasury
- Lido DAO’s damning court ruling and what it might mean for the wider DAO community
- U.S. SEC changes: anti-crypto Gary Gensler is out and pro-crypto Paul Atkins is in
- UK publishes timeline for crypto rules to apply from 2026 but industry is skeptical
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Legal Cases
🇺🇸 DAO members could face liability under partnership laws
In a case that has rocked the DAO community and "dealt a huge blow to decentralized governance," a California court has ruled that DAO participants, including major investors like a16z and Paradigm, may face liability under partnership laws. The case concerned Lido DAO, the governing organisation behind the Lido liquid staking protocol, whose LDO tokens have been subject to a class action suit filed in December 2023. The tokens, purchased through the Gemini exchange, were allegedly sold as unregistered securities, with the lawsuit pinning liability on Lido DAO for the decline in value. Despite having established a Cayman Foundation entity in 2022, Lido DAO did not leverage this structure in court for reasons that remain unclear. The court agreed that Lido DAO's structure of token holders governing decisions and earning from staking rewards equates to a general partnership under state law.
Nestor Dubnevych, Head of Web3 Legal at Legal Nodes notes:
"This ruling marks a significant shift for profit-driven DAOs—members could now face unlimited liability under partnership laws, even for simple forum participation. The court found that identifiable members managing DAO operations weren't protected by the decentralized structure, potentially making every participant liable for others' actions. All for-profit DAOs should think about a comprehensive DAO legal wrapper. DAOs are not just about treasury-holding activities—which are often structured in the form of a foundation—but also about protocol upgradability and improvements. This creates expectations among token holders that their tokens' value depends on DAO members' management efforts. When these expectations aren't met (like when token prices fall), it can lead to lawsuits like this Lido DAO case.
This decision renewed interest in Wyoming's Decentralized Unincorporated Nonprofit Association (DUNA) structure, which provides legal protections for DAOs while maintaining their decentralized nature. The framework could become the U.S. industry standard. Up next in Lido’s court case, both parties will proceed with the discovery phase.
🇺🇸 Appeal Court calls US Treasury’s sanctions against Tornado Cash unlawful
Users of Tornado Cash, a cryptocurrency mixer, are rejoicing after a 3-judge panel found that the U.S. Treasury, specifically the Treasury’s Office of Foreign Assets Control (OFAC) went too far with their sanctions of some of Tornado Cash’s associated smart contracts. The sanctions, issued in August 2022, were applied following the OFAC’s view that Tornado Cash had been involved in over $7 billion worth of crypto laundering. The case hinged on the Treasury’s powers to take action against property; as immutable smart contracts cannot be owned or controlled, they can’t be property and therefore can’t be blocked according to a federal law enacted in 1977. OFAC overstepped its authority. The court’s verdict partially overturned an earlier court decision, causing Tornado Cash’s value to surge. It’s expected that the issue will be handed back to the lower courts for parties to get full summary judgments; however, under the new Trump administration, it’s unclear what policy changes may be in store for next year.
Nestor adds:
“The fact that “immutable smart contracts” cannot be recognized as property or services, and consequently cannot be subject to regulation is definitely a victory for the industry. It’s also common sense: the manufacturer of a reliable padlock used by thieves to store stolen goods shouldn’t be held liable for the thieves actions. However, smart contracts are not the only element of decentralized projects—there are interfaces and fee pools which are already subject to strict regulation, as promoting an interface for money laundering purposes or circumventing sanctions is viewed as conspiracy to commit these crimes. Regulation is moving in the right direction, but there’s still more change needed.”
🇺🇸 SEC's dealer rule struck down by court
The U.S. Securities and Exchange Commission (SEC) has been told by a court in Texas that two of its rules requiring some liquidity providers to register with the SEC exceeded the regulator’s authority. The court stated that liquidity providers do not need to register as dealers or government securities dealers and should instead follow prior SEC guidance as to when they must register with the SEC. The two rules, adopted in February 2024, must now be scrapped, and the SEC has until January 20, 2025, to appeal the decision. These two rules imposed additional broker-dealer-type regulatory obligations on crypto firms that simply didn’t have customers that required protection under the broker-dealer laws. The SEC’s rules were viewed as largely untenable and impractical. This ruling certainly provides more clarity; however, it's unclear if the Trump administration will encourage or discourage any appeal by the SEC.
Key regulatory updates
🇬🇧 UK FCA announce roadmap to new crypto regulation in 2026
The UK’s Financial Conduct Authority (FCA) has recently published a roadmap setting the UK on course to launch a comprehensive crypto regime by early 2026. The FCA plans to achieve this by churning out consultation and discussion papers on stablecoins, lending, trading platforms, staking, custody, intermediation and market abuse over the next 12 months. The final dates for all policies published is ambiguously scheduled for 2026, and there appears to be no specific launch date for the new regime set at this stage either.
The crypto industry is—understandably—frustrated at this news. Some investors and firms are sceptical of the FCA’s involvement in regulating crypto, especially as 85% of firms failed to meet standards set by the FCA in 2023. Despite growing crypto investor interest in the UK, the lack of clear regulatory strategy, the ongoing delay in releasing stablecoin rules, and this latest roadmap are not filling everyone with confidence about the future of the UK’s crypto rules.
Comparatively, in Europe, most of the MiCA (Markets in Crypto Assets) regulation is already live and will be in full swing by the end of this month. For now, we’ll have to wait and see how well the UK sticks to their roadmap and whether they’ll pick up the pace and build a regulatory regime for crypto that the industry is so eager to see.
👉 Get the latest updates on the MiCA regulation from the Legal Nodes Team.
🇺🇸 Could crypto bloom under Trump?
On January 20, 2025, President-elect Donald Trump will begin his second term in the White House, and Gary Gensler, Chair of the SEC, will step down. Gensler has been widely criticized for his aggressive stance against crypto and perceived hostility toward industry innovation. Trump, conversely, is notably pro-crypto, and promised voters he would “fire” Gensler if elected. It seems the tough-on-crypto SEC Chair has decided to leave on his own terms. In his short tenure of just 3 years, Gensler has led the SEC to bring over 100 actions against crypto firms, many of which felt to be an aggressive approach of ‘regulation by enforcement’ that was felt by many to be non-cooperative and damaging by the crypto industry.
JUST IN: On Wednesday, 4 December, Trump announced that he plans to nominate Paul Atkins to replace Gensler. Atkins is a former SEC commissioner who is viewed as a crypto advocate; he has advocated for a more hands-off approach to market oversight and regulation. This nomination is a positive one for the industry. Many hope that under Trump, crypto laws can be substantially reformed. The Blockchain Association has detailed crypto priorities for the first 100 days and shared them with the administration. Trump is reportedly also considering creating a first-ever White House crypto post, although details are still unclear over who would hold it and what that might entail.
Tax updates
🇰🇷 Amidst the political turbulence in South Korea, it appears that the crypto tax rules have been pushed back, again, to 2027. Initially due for implementation in 2021, they’ve been subject to a long drawn-out game of ping-pong between political parties and investors. The current status is that the laws likely won’t be enforced for another 2 years.
🇯🇵 In Japan, the government has committed to crypto tax reforms, as part of an economic stimulus package. This includes a set rate of 20% tax on crypto assets, in lieu of a more disconcerting “miscellaneous” tax rate that could hit highs of 55% on some transactions.
🇭🇰 In Hong Kong, proposals to exempt tax levies against crypto gains for hedge funds, private equity and family investment vehicles could boost the region’s standing as a digital economy.
🇦🇺 Lastly, in Australia, consultations have begun on how to implement the OECD’s CARF rules into domestic law. The Crypto-Asset Reporting Framework, introduced by the Organisation for Economic Co-operation and Development in 2022, has gained support from 48 countries, including Australia, who have committed to implementing these tax reporting standards by 2027.
Other notable news
- Brazil’s central bank proposes new crypto laws, including a ban on stablecoin withdrawals to self-custody wallets. Could this be related to the national fiat currency’s recent decline?
- European Banking Authority releases new guidance for CASPs when transferring crypto. CASPs must choose a reliable screening system to comply with “restrictive measures” obligations.
- Morocco drafts new crypto laws which would reverse 2017 ban and legalize digital currencies.
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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The Legal Nodes Team
