NFTs might be all the craze now, but there are number of legal issues that they can potentially raise.
Last month at the NF Castle conference at the Lobkowicz Palace in Prague Castle, I moderated a panel about those potential issues with Jonathan Victor, product/business development at Protocol Labs; Louis Baudoin, advisor at Monax; Diana Stern, product counsel at Stripe; and Shant Marootian COO at Fractional.art.
Other than that, here are the top crypto news stories in a busy week.
Ethereum set an all-time high price for $ETH at $4,674.90 on Wednesday, according to Coin Gecko. That’s a bit over ten times its price just a year ago.
Coinciding with the skyrocketing price is a new trend concerning Ethereum’s monetary policy. In August, Ethereum’s issuance was changed due to the implementation of Ethereum Proposal 1559 during the London hard fork, which instituted a policy of burning $ETH whenever network demand increases over a certain threshold.
According to The Block, this change in issuance, or the network’s monetary policy, has resulted in more ETH being burned than issued over the past week. Since October 26th, Ethereum’s net issuance is approximately negative 12,000 ETH, or $54 million. Essentially, Ethereum is becoming a deflationary asset, making ETH more and more scarce with each day of negative issuance.
Also, this week, the Chicago Mercantile Exchange announced plans to launch Micro Ether futures, sized at one-tenth of an ether, on December 6th, adding an additional avenue for institutions to gain exposure to the price of ETH.
On November 1, the President’s Working Group published its much-anticipated report on stablecoins. While admitting that stablecoins could, if “well-designed and appropriately regulated,” offer faster, more inclusive, and more efficient payment options, the PWG spent much of the report outlining their risks.
These include the loss of peg due to stablecoin runs, payment system risks associated with blockchains, the systemic risk of a single stablecoin issuer failing, money laundering and terrorist financing.
To address the risks, the PWG called for Congress to implement legislation and appropriate federal oversight specifically regarding stablecoins. Notably, the PWG suggested stablecoin issuers be limited to insured depository institutions. If Congress fails to act, the PWG said it would ask the Financial Stability Oversight Council (FSOC) to designate stablecoins as a systemically important activity, which would permit federal agencies to establish risk management criteria concerning stablecoin backing.
In the interim, the PWG urged regulators, such as the Securities and Exchange Commission (SEC), the Commodity Futures Trading Commission (CFTC), the Financial Crimes Enforcement Network (FinCEN), and the Consumer Financial Protection Bureau (CFPB), to leverage their existing authority while Congress works to develop proper measures to regulate the asset class.
In related news, Michael Hsu, the acting comptroller, announced that the “crypto sprint” between the Office of the Comptroller of the Currency, the Federal Reserve, and the Federal Deposit Insurance Corporation has concluded and that the results will be communicated shortly. Hsu hinted that the crypto sprint would help build a framework for regulating crypto banking activities.
The Ethereum Name Service, the protocol behind .eth domain names, announced plans to launch a governance token this week, transforming the organization into a DAO. It first asked community members to step forward as governance delegates in charge of the DAO and then released the tokenomics of $ENS. Users who registered and held an ENS domain before October 31 may claim $ENS tokens starting November 8th. 50% of $ENS tokens will be reserved for a community treasury, 25% will go to a community airdrop, and 25% will be reserved for core contributors.
However, on Wednesday, Nick Johnson, the lead developer of ENS, informed the community that the airdrop hit an obstacle in the form of airdrop farming, despite the company writing a lengthy ethics policy for the core team about keeping airdrop information quiet. It seems information about the $ENS drop leaked, allowing certain addresses to purchase and register a multitude of .eth domains ahead of the announcement, adversely affecting the distribution of tokens.
Said Johnson, “We kept it 'need to know,' but you'd be surprised how many people "need to know" ahead of the announcement. All it would take is one person chatting to a less-scrupulous friend about vague details to give them a hint that this is worth trying.”
Johnson said that ENS will be manually blacklisting 784 addresses from the token airdrop in light of the farming.
From the looks of it, the infrastructure bill, along with its provision 6050I, which requires parties to report Social Security numbers on trading partners for transactions over $10,000, will be passed in the House today, November 5th. The provision, which Coin Center describes as “unworkable” and “unconstitutional,” would make not reporting on such an event a criminal felony, according to Abe Sutherland in his appearance on Unchained in October.
Jake Chervinksy, a lawyer and strategic advisor at Variant Fund, said, “it’s out of our hands now” regarding actions to stop the bill from passing. He added, “Importantly, nothing will happen right away. The crypto provisions don't go into effect until 2024 (for FY2023 reporting). We can try to get them repealed or amended before then.”
Former Binance US CEO and acting head of the OCC, Brian Brooks, has been hired as the new CEO of Bitfury, a Bitcoin mining company. Brooks is replacing Valery Vavilov, who will stay on as “chief vision officer” as the company makes its way to a public listing, which it plans to do in less than 12 months.
Brooks previously left Binance US after four months on the job, citing differences in strategic direction.
Digital Currency Group, the company behind Grayscale, Genesis, CoinDesk and others, closed a $700 million round this week at a valuation of $10 billion, as reported by the Wall Street Journal. The round was led by SoftBank Group’s Vision Fund 2 and Latin America Fund. GIC, Ribbit Capital, and Alphabet Inc. also participated. According to Dove Metrics, it was the fourth-largest raise in crypto.
Speaking of DCG, The Block reported the company is looking to hire a team of financial advisors for a wealth management subsidiary centered around crypto millionaires, citing sources familiar with the situation.
Additionally, it appears the Securities and Exchange Commission is taking a closer look at Grayscale’s application to convert its flagship product, the Grayscale Bitcoin Trust (GBTC), into an ETF. In a November 2nd notice, the SEC said it was soliciting public feedback on the proposal.
SQUID, a Binance Smart Chain token based on the Netflix show “Squid Game,” saw its price rise over $2,000 per token before crashing to nearly zero after developers withdrew millions of dollars worth of crypto from the protocol and deleted all social media in an apparent rug pull.
According to Barron’s, an address was able to turn its nefariously acquired SQUID into $3 million in BNB. Binance announced that it had frozen and blacklisted wallets associated with the developers of SQUID. However, since the developers used Tornado, a coin mixer, it is unclear if the blacklist will stop the devs from cashing in.
A group of more than 15 shareholders in Ethereum software company ConsenSys AG intend to begin legal proceedings against its board of directors, one of whom is Ethereum co-founder and ConsenSys CEO and founder Joseph Lubin, over the formation of ConsenSys Software, Inc. (CSI), whose investors include JPMorgan, Mastercard, and UBS.
Their complaint centers around the transfer of intellectual property from the original Swiss firm to the new one, a Delaware-incorporated entity established in June 2020. They contend that the valuation used for the transfer of assets was for tax purposes, not for M&A, and at a fraction of the market price. They also say it was made without independent oversight, as would be required under Swiss law.
Calling out MetaMask and Infura specifically, shareholder and former ConsenSys employee Arthur Falls said in a press release, “No Ethereum stakeholder would ever agree to part with these two products—products they were instrumental in building—for a combined value of ~$19 million.”
A ConsenSys spokesperson said in a statement, “We believe that these shareholders are confused on a number of key factual points.”
Congressmen Tom Emmer and Darren Soto sent a bipartisan letter to SEC chair Gary Gensler urging approval of a spot bitcoin ETF, saying, “Since the SEC no longer has concerns with Bitcoin futures ETFs (given trading has begun for these products), then it presumably has changed its view about the underlying spot Bitcoin market because Bitcoin futures are, by definition, a derivative of the underlying Bitcoin spot market.”
Halloween 2021 was the thirteenth anniversary of the publication of the Bitcoin white paper. Penned by the anonymous Satoshi Nakamoto, “Bitcoin: A Peer-to-Peer Electronic Cash System” laid the foundation for a new financial system.
“I've been working on a new electronic cash system that's fully peer-to-peer, with no trusted third party,” wrote Satoshi in the original email containing the white paper. He/she/they descsribed describe the properties of what is now a multi-trillion asset class:
Double-spending is prevented with a peer-to-peer network.
No mint or other trusted parties.
Participants can be anonymous.
New coins are made from Hashcash style proof-of-work.
The proof-of-work for new coin generation also powers the network to prevent double-spending.
(A few years on the 10th birthday of the Bitcoin white paper, I was the Bitcoin white paper for Halloween. One of my better Halloween costumes, ranking up with the year when I was Facebook 👀 with a scrolling news feed where you could update your status and I handed out like stickers so people could like the statuses.)
Quentin Tarantino, the famous film director, is minting six uncut and never-before-seen scenes from Pulp Fiction as NFTs on OpenSea. Tarantino is using Secret Network to publish the NFTs. As discussed on this week’s Unchained, the privacy-focused network allows for metadata to be private -- meaning only the token holder will have access to the scenes.
Tarantino will publish the seventh NFT at a formal auction house.
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