Hi everyone!

You are receiving this email because a while back you subscribed to our newsletter which focuses on the legal underpinnings of crypto and web3. Good news! This is our first email after a long silence. If things have changed and you are no longer interested in this topic feel free to unsubscribe. No hurt feelings – we feel that the easier it is to unsubscribe from a newsletter, the better the newsletter content must be. And we will hold ourselves to this high bar.

Since this is our first email, let me make a brief intro. My name is Roman Buzko, I am one of the partners at Buzko Krasnov where I lead our firm’s blockchain, crypto or web3 practice (whatever you prefer to call this weird industry). We advise web3 founders, investors, crypto service providers, shadowy coders, and many other good folks from the industry. We have been on this ride since 2016.

This past summer, we published our Web3 Startup Legal Guide (PDF, web page) and announced the thematic series of newsletters – including the one that you are about to read.

The newsletter will be delivered to your inbox every other week and be simultaneously published on Mirror here. We will discuss one or two topics in more detail and share short-form links to all other relevant news. Apart from the legal stuff, we will also share what we are working on and reading in web3. In this inaugural issue, we will touch upon our open-source legal documents and share a new podcast.

But before we start, let me say that there are many other great legal resources and publications on this topic. We’ve collected what we like to read and encourage you to give those authors a shout-out.

Finally, although I will be drafting and editing this newsletter myself, this initiative would not have been possible without members of our team. I will introduce all of them personally in future issues.

Let’s start!

CFTC Sues Ooki DAO and Its Members

The biggest news in the past couple of weeks was a lawsuit brought by CFTC against Ooki DAO, the legal successor of the bZx DAO, and its members. СFTC claims that the defendants engaged in activities that could only lawfully be performed by a registered designated contract market (“DCM”) and a registered futures commission merchant (“FCM”).

Simultaneously with filing the suit against the DAO, CFTC has announced the settlement with bZeroX, LLC and its two individual founders. This move has effectively eliminated the main persons behind the project from pursuing any active efforts to defend themselves in the court leaving the amorphous DAO and its members hanging out in Discord one on one against the major U.S. financial regulator. In the words of Miles Jennings, CFTC has manufactured a “defenseless defendant.”

Apparently, CFTC wants to signal to the brave new crypto world out there that operating as a DAO does not equate to immunity from compliance.

CFTC identifies the defendant in this case “as unincorporated association comprised of holders of Ooki Tokens [...] who have voted those tokens to govern [...] the Ooki Protocol [...].” Guess what CFTC did to properly serve those token holders with court papers? They posted on the DAO’s forum and sent a message in a chat on their website. Check out the Motion for Alternative Service that was granted by the U.S. District Court for the Northern District of California.

This promises to be one of the most interesting crypto cases in 2022 with reverberating implications for all DAOs out there, and in particular for DAOs operating major DeFi protocols. That’s why some active groups moved quickly to ask the court to join the case and submit their amicus curiae, such as this one from leXpunK. Today, the court granted those motions and set the deadline for activist groups to submit their amici curiae by November 7, 2022.

Crypto Regulation in Europe Is Coming

Amid aggressive regulatory actions in the U.S., it is refreshing to see legislators in other parts of the world work on some actual guidance as opposed to regulating by enforcement.

On October 10, 2022, the European Parliament Committee on Economic and Monetary Affairs struck a provisional political agreement with the EU Council on the new rules for crypto-assets and crypto-assets service providers (“CASP”). This landmark piece of regulation named Markets in Crypto-Assets (“MiCA”) may become the first global regulatory framework for the crypto industry.

MiCA differentiates between three types of crypto-assets based on whether they seek to stabilize their value by reference to other assets, namely:

• electronic money tokens (stabilize their value by referencing only one official currency);

• asset-referenced tokens (stabilize their value by referencing to any other value or right, or combination thereof, including one or several official currencies); and

• all other crypto-assets that do not meet the above criteria.

There are different requirements and rules with respect to each type of the tokens.

MiCA further introduces and defines 10 types of regulated services and corresponding licensing and minimum capital requirements ranging from EUR 50,000 to EUR 150,000.

This regulation has the potential to set the stage for legal frameworks in other parts of the world. We will monitor MiCA closely and publish further analysis and updates in this newsletter.

In Other News

• FASB Settles on Fair-Value Accounting for Measuring Crypto Assets

• Sushi Revisits Its Legal Structure Advised by Fenwick

• CFTC Charges Digital Asset Derivatives Platform with Facilitating Unlawful Futures Transactions and Attempted Manipulation of Native Token

• SEC Investigates Yuga Labs, Creator of BAYC

• Ethereum’s New ‘Staking’ Model Does Not Make ETH a Security (Paradigm)

• SEC Charges Kim Kardashian for Unlawfully Touting Crypto Security

• DAOs & Legal Risks (Kevin Chen)

• Regulate Web3 Apps, Not Protocols (Miles Jennings)

• Court Rules Apple Is Not Liable for Crypto Scams in Its App Store

• MakerDAO Approves Up To $500 Million Investment To US Treasuries

• Flashbots in Search for Legal Counsel

• OFAC Settles with Bittrex, Inc. for $24,280,829.20 Related to Apparent Violations of Multiple Sanctions Programs

• Coin Center Is Suing OFAC over Its Tornado Cash Sanction

Web3 Team Legal Docs

In case you didn’t see this already, we have a GitHub repo with some helpful legal documents for web3 teams, including:

• Web3 Insider Trading Policy (minimize risks of insider trading and market manipulation);

• FAST Token Addendum (grant tokens to your advisors); and

• Internal Crypto Funds Management Agreement (delegate your employees certain rights to manage crypto for internal purposes).

You can download the .docx versions in the repo, make a commit or fork the repo for your own perusal. In the coming weeks, we will publish an open-source version of the Token Warrant, so consider subscribing to the repo if you may need any of those documents.

Finally, last weekend, I came across a new podcast that I want to share with you. The pod is called Good Game Podcast and is hosted by Imran Khan and Qiao Wang from Alliance. I really enjoyed “E03: The State of Crypto” discussing the competition between various L1s and L2s and learned something new about Aptos and Sui.

That’s it for today. Thanks for your time and attention!

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Contributors: Filipp, Anastasia, Georgy, Robert.