Welcome to edition #20 of the Web3Blast!
This edition explores key legal and regulatory changes in the crypto world, showing how different countries are adapting their rules and enforcement approaches coming into 2025.
We cover:
- UK Treasury says staking is not the same as investing providing a positive signal for the crypto community
- First US criminal prosecution for crypto tax evasion results in prison sentence
- Polymarket blocked in Singapore, while Coinbase subpoenaed by US CFTC in Polymarket case
- Digital Operational Resilience Act comes into effect on January 17: what it means and who is affected
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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Disclaimer: none of the information shared in the newsletter should be considered legal, investment, tax, or any other kind of advice.
Legal Cases
🇬🇧 UK regulator bans Pump.fun
On December 3, 2024, the UK’s Financial Conduct Authority (FCA) issued a warning against Pump.fun, stating that the platform may be operating without proper authorization. In response, Pump.fun blocked access for UK users three days later. The platform, which allows users to create and trade memecoins on the Solana blockchain, is now inaccessible to UK residents.
This tough stance by the FCA is reflected in the numbers: since 2020, just 47 of 347 applicants have received FCA approval. The Pump.fun’s ban means UK users will not have access to consumer protections like the Financial Ombudsman Service or Financial Services Compensation Scheme.
🇺🇸 First-ever US criminal prosecution for crypto tax evasion
Frank Richard Ahlgren III, an early Bitcoin investor from Austin, Texas, has been sentenced to two years in prison for tax evasion related to cryptocurrency gains, marking the first criminal prosecution of its kind in the US.
Ahlgren failed to report $3.7M in Bitcoin sales from 2017 and used the money to buy a house in Utah. He tried to hide the transactions using multiple wallets, cash exchanges, and crypto mixers. Along with a prison sentence, Ahlgren must pay $1.1M in restitution to the US government.
The case highlights the increasing scrutiny of cryptocurrency transactions by tax authorities and serves as a warning to other crypto investors about the importance of accurate tax reporting.
🇸🇬 Singapore continues crackdown efforts, blocks Polymarket
Singapore has blocked access to Polymarket, a cryptocurrency-based prediction market platform, as part of its crackdown on unlicensed gambling. On January 12, 2025, users in Singapore reported being unable to access the site, instead receiving a warning from the Gambling Regulatory Authority (GRA) citing the Gambling Control Act 2022.
Singapore only allows online gambling through state-licensed platforms, with violators facing fines up to SGD 10,000 and 6 months imprisonment. Since 2015, authorities have blocked 3,800+ gambling sites and intercepted SGD 37 million in transactions. Polymarket continues to face regulatory challenges globally.
🇺🇸 CFTC serves Coinbase with subpoena regarding Polymarket case
Coinbase, a major US cryptocurrency exchange, has informed users about receiving a subpoena from the Commodity Futures Trading Commission (CFTC) regarding the crypto prediction market platform, Polymarket. The subpoena, issued on January 8, 2025, seeks general customer information related to user accounts. Coinbase may be required to share this data with the CFTC by January 15, 2025, unless served with a motion to quash.
This comes amid heightened scrutiny of Polymarket after an FBI raid on CEO Shayne Coplan’s home in November 2024. The investigation focuses on market manipulation concerns, particularly regarding substantial profits made from bets on the 2024 US presidential election.
🇺🇸 Fresh indictions for crypto mixer operations
The US Department of Justice has indicted three Russian nationals for operating crypto mixing services Blender and Sinbad. Two suspects were arrested in December 2024, with one remaining at large. They face money laundering and unlicensed money transmission charges and potentially 25-year sentences. The mixers were previously sanctioned for allegedly helping North Korean hackers launder funds. This case continues US efforts to regulate crypto mixers, following the 2022 Tornado Cash sanctions.
Regulatory updates
🇬🇧 Crypto staking isn’t the same as investing, says UK Treasury
The UK Treasury has amended the Financial Services and Markets Act 2000 to clarify that crypto staking does not fall under the definition of a collective investment scheme (CIS). This amendment, set to take effect on January 31, 2025, specifically states that “arrangements for qualifying cryptoasset staking do not amount to a collective investment scheme”. The change is significant because CIS are heavily regulated in the UK, and this clarification removes a potential regulatory hurdle for proof-of-stake blockchains like Ethereum and Solana.
Nestor Dubnevych, Head of Web3 Legal at Legal Nodes notes:
“The UK’s decision to exempt crypto staking from collective investment scheme regulations is a pivotal moment for Web3 innovation. By recognizing staking as a fundamental aspect of blockchain security rather than an investment product, regulators are demonstrating a more nuanced understanding of decentralized technology. This move not only provides clarity for major proof-of-stake networks but also signals the UK’s commitment to fostering blockchain innovation while maintaining prudent oversight. However, the question remains: is this measured approach swift enough to keep pace with the rapidly evolving crypto landscape?”
🇪🇺 DORA comes into effect tomorrow (Jan 17)
EU regulation DORA, the Digital Operational Resilience Act, aims to secure financial stability by addressing vulnerabilities caused by reliance on digital technologies. DORA will apply to entities in the financial sector (banks, credit & payment institutions, investment firms, insurance companies and critical infrastructure providers) and to many crypto projects.
As a general rule, all crypto projects required to comply with MiCA will also need to comply with DORA. DORA will be applicable to all crypto-asset service providers (CASPs) operating in the EU and will likely affect wallet infrastructure services, staking-as-a-service, blockchain analytics platforms, peer-to-peer trading software, KYC services, and cloud services.
Our partners at Hacken are organizing a webinar to help crypto projects prepare for DORA.
👉 Register for the webinar here
Tax updates
🇨🇿 Czech Republic introduces capital gains tax exemption on crypto
Under the new regulation, which took effect on January 1, 2025, individuals are not required to pay capital gains tax on digital assets sold after a three-year holding period, and annual transactions under CZK 100,000 (~ USD 4,200) will not need to be reported. Prime Minister Petr Fiala highlighted that this move aims to simplify life for crypto users and support modern technologies. The law aligns with the EU’s Markets in Crypto-Assets (MiCA) regulations and positions the Czech Republic among global leaders in promoting crypto-friendly policies.
🇺🇸 Latest US crypto rules spark trouble for front-end providers of DeFi protocols
The “midnight” broker rule
On December 27, 2024, the IRS released “midnight” broker rules, broadening the definition of “broker” and imposing extensive reporting requirements. On the same day, the DeFi Education Fund, Blockchain Association, and Texas Blockchain Council filed a lawsuit against the IRS and Treasury Department, challenging the final “broker” rulemaking. The lawsuit argues that the rule exceeds statutory authority, violates the Administrative Procedure Act, and is unconstitutional. Industry leaders claim the rule imposes unrealistic compliance burdens on software developers, potentially infringing on privacy rights, and could stifle innovation in the digital asset sector, particularly in decentralized finance (DeFi). Critics hope that the incoming Congress will use the Congressional Review Act (CRA) to rescind the rule.
The Final DeFi Regulations
On December 30, 2024, the US Treasury and IRS published Final DeFi Regulations, effective February 28, 2025, focusing on front-end service providers operating decentralized finance platforms. These regulations define “digital asset middlemen” as front-end service providers in the interface layer of the DeFi stack, requiring them to report gross proceeds from digital asset sales starting January 1, 2027, with backup withholding beginning January 1, 2028. The rules introduce a modified “position to know” standard to determine if service providers are delivering trading front-end services, based on their control or influence over transactions.
🇺🇸 IRS postpones FIFO rule, offering temporary relief for crypto exchanges
The IRS has postponed the implementation of a rule requiring centralized crypto exchanges to use FIFO for calculating crypto capital gains until the end of 2025. This temporary relief allows crypto traders to continue using their preferred accounting methods for documenting specific units sold, rather than being locked into FIFO and provides more flexibility for crypto investors in managing their tax liabilities.
Other notable news
- As of January 12, 2025, global cryptocurrency exchange Bybit, has temporarily suspended its services in India, affecting cryptocurrency trading, account openings, and order placements. Users can still withdraw funds and Bybit, who is actively working with Indian regulators to finalize its registration as a virtual digital asset service provider, expects to resume full operations in the coming weeks.
- Gemini Trust Company has agreed to pay a USD 5 million civil penalty to settle charges brought by the US CFTC over alleged false and misleading statements made in connection with its Bitcoin futures contract in 2017. The settlement, filed on January 6, 2025, allows Gemini to avoid a civil trial that was scheduled for January 21, 2025. As part of the agreement, Gemini is subject to a permanent injunction without admitting or denying the CFTC’s findings.
- A US court has ruled in favor of Coinbase, ordering the SEC to provide a more detailed explanation for its denial of the exchange’s 2022 petition for crypto-specific rulemaking. The court found the SEC’s rejection “arbitrary and capricious” due to insufficient reasoning, marking a partial victory for Coinbase in its ongoing battle for regulatory clarity.
New from Legal Nodes!
Guide on token issuance & DAO set up in Panama 🇵🇦
(A big thank you to Teresa Carballo, Panama-based crypto lawyer and Legal Nodes partner, who contributed to this guide)
Dive in to learn more about:
- Why Panama has become a popular destination for application-type crypto projects in recent years
- What Panama’s advantages are (cost and flexibility) and what considerations founders should make before choosing to domicile their projects there
- How the full Panamanian Triangle legal structure for a decentralized app looks like and what step-by-step legal roadmap we recommend to follow
- What alternative legal setups are available
👉 Read more here or check out Nestor's thread with a summary below
Crypto marketing compliance guide
In 2025, compliance will likely end up being just a buzzword for many crypto projects. Still, it remains a necessity and now regulators are paying more attention to marketing compliance. In this guide, we break down the key best practices of how to craft compliant marketing campaigns with proper disclaimers.
Stay tuned for our upcoming marketing compliance guides focused on advertising platforms, jurisdictions and protocol front-end compliance.
RAK DAO 🇦🇪 Dialogues session on the regulatory landscape for DAOs
Luc Froelich, CCO at RAK DAO, and Serhii Kravchenko, CEO of Dexe DAO Studio, joined our co-founder Nestor Dubnevych in a discussion on the current regulatory landscape for DAOs, what the main use cases for DAOs to create legal wrappers are, and how RAK DAO’s new DARE regime might be beneficial for existing and new projects.
👀 Watch it here 👇
That’s all for this edition of the Web3Blast. We hope you’ve enjoyed it and found it useful. If you have any feedback 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.
Thanks and see you next time!
The Legal Nodes Team
