The initiative covers a wide array of insights and guidance for the blockchain ecosystem, while a Latham-led working group explores the convergence of blockchain and AI.

By Latham & Watkins’ Fintech Team

Latham & Watkins collaborated with Global Blockchain Business Council (GBBC) and industry leaders to release the Global Standards Mapping Initiative (GSMI) 4.0. GSMI 4.0 is the most comprehensive effort to map and analyze the blockchain and digital assets landscape across key areas. It builds on previous releases since 2020 by mapping, cataloging, and analyzing data to provide a holistic view of the blockchain and digital assets industry’s global activity.

An appeals court panel rules that the SEC rejection of a proposed spot bitcoin ETP was arbitrary and capricious, opening the door for the potential launch of numerous ETPs in the near future.

By Jack BarberAaron Gilbride, Marlon Paz, Stephen P. Wink, and Deric Behar

On August 29, 2023, a three-judge panel on the District of Columbia Circuit Court of Appeals ruled in favor of Grayscale Investments, LLC On Petition for Review of an Order of the Securities and Exchange Commission (SEC).

Grayscale proposed to the SEC in October 2021 that Grayscale would convert its Bitcoin Trust into an exchange traded product (ETP) based on the spot bitcoin market (rather than bitcoin futures). As ETPs are traded on stock exchanges, and investors in the ETP would not need to buy the digital asset directly, an ETP could potentially accelerate retail and institutional adoption.

The SEC rejected Grayscale’s proposal in June 2022 because it asserted that the ETP failed to meet consumer protection requirements, including measures “designed to prevent fraudulent and manipulative acts and practices.” Grayscale subsequently sued the SEC under the Securities and Exchange Act of 1934, petitioning the Court of Appeals to review the SEC’s denial. In its decision, the Court of Appeals panel vacated the SEC’s denial.

A federal court’s dismissal of claims against a decentralized cryptocurrency platform and its investors for the actions of scam token issuers is a case of first impression with wider significance.

By Jenny Cieplak, Benjamin A. Naftalis, Stephen P. Wink, Douglas K. Yatter, Gregory Mortenson, and Deric Behar

On August 29, 2023, the US District Court for the Southern District of New York dismissed a proposed class action lawsuit against Uniswap Labs and its CEO, foundation, and three venture capital backers[1] (the Defendants) brought by plaintiffs who sought damages from alleged exposure to scam tokens that originated with anonymous third-party token issuers on the company’s decentralized cryptocurrency trading protocol.

In its first enforcement action involving NFTs, the SEC focused on issuer marketing that promised outsized returns on investment and platform building.

By Ghaith Mahmood, Nima H. Mohebbi, Stephen P. Wink, Douglas K. Yatter, Adam Zuckerman, and Deric Behar

On August 28, 2023, the Securities and Exchange Commission (SEC) issued a cease-and-desist order (the Order) against a Los Angeles media and entertainment company (the Company) for an unregistered securities offering relating to its sale of $29.9 million worth of non-fungible tokens (NFTs)[1]. The company agreed to a settlement that includes disgorging $5 million, paying another $1 million in fees and penalties, and ceasing and desisting from violating the Securities Act of 1933. Notably, the settlement does not include fraud charges.

The viability of DAO structures draws attention after a judge declares that a decentralized autonomous organization is a “person” under the law.

By Nima H. Mohebbi, Yvette D. ValdezStephen P. WinkDouglas K. Yatter, Peter Trombly*, Adam Zuckerman, and Deric Behar

On June 8, 2023, the US District Court for the Northern District of California granted the Commodity Futures Trading Commission (CFTC) a default judgment against Ooki DAO, a decentralized autonomous organization (DAO) that the CFTC charged in September 2022 with three violations of the Commodity Exchange Act (CEA).

The proposed bill sets forth a comprehensive framework for the digital asset ecosystem by bridging regulatory gaps, promoting innovation, and protecting consumers.

By Jenny Cieplak, Marlon Q. Paz, Yvette D. Valdez, Stephen P. Wink, Adam Zuckerman, and Deric Behar

On June 2, 2023, Patrick McHenry, Chairman of the House Financial Services Committee, and Glenn Thompson, Chairman of the House Committee on Agriculture, published a discussion draft of legislation (the Proposed Bill) that seeks to close regulatory gaps and provide a “functional framework” for digital asset regulation in the US. Unlike several other proposed crypto-focused laws around the world, most notably MiCA in the EU, this Proposed Bill largely draws on existing legal frameworks and standards rather than creating an entirely new regime specifically for regulating cryptoassets.

The Proposed Bill grants regulatory authority to the Commodity Futures Trading Commission (CFTC) and the Securities and Exchange Commission (SEC) and clarifies the jurisdictional scope between the two agencies. The CFTC would be granted explicit authority over spot market digital asset commodities, while the SEC would maintain authority over digital assets offered as part of an investment contract (i.e., securities). And while the Proposed Bill would exclude payment stablecoins from the definition of digital commodity under the Commodity Exchange Act (CEA), the CFTC would still be granted jurisdiction over transactions in payment stablecoins “as if” they were digital commodities when transacted on a CFTC-registered entity.

Representatives McHenry and Thompson have stated that their goal in publishing the Proposed Bill is “to strike the appropriate balance between consumer protection and encouraging responsible innovation.” They have also indicated their intention to formally introduce the Proposed Bill on the House floor in early July 2023.

By Stephen Wink and Adam Zuckerman

Decentralization is the key innovation enabled by blockchain technology, and can have significant technological, economic, and legal implications for web3 companies and protocols. Decentralization remains hard to grasp and define despite its importance. In the web3 spirit of collaboration and open source, Latham has partnered with a16z Crypto to develop two matrices to help enumerate the components of decentralization.

The matrices articulate not only the various categories and factors of decentralization but also suggest

The CRPTO Act is intended to increase transparency and consumer protections, and reduce conflicts of interest, through heightened disclosures and penalties.

By Jenny Cieplak, Arthur S. Long, Yvette Valdez, Stephen P. Wink, and Deric Behar

On May 5, 2023, New York Attorney General (NYAG) Letitia James introduced a bill that, if passed, would increase New York’s oversight of digital assets market activity.[1] The Crypto Regulation, Protection, Transparency and Oversight Act (the CRPTO Act, or the Bill) would provide the NYAG’s office with greater enforcement powers to police the digital asset industry. It would also expand the New York Department of Financial Services’ (NYDFS’s) authority to regulate individuals and businesses engaging in digital asset transactions. The CRPTO Act comes on the heels of several high-profile enforcement actions by the NYAG against digital asset businesses.

In a major Web3 trademark infringement case, NFT creators prevail over those with a bad-faith intent to profit.

By Stephen P. Wink, Tiffany M. Ikeda, Adam Zuckerman, and Deric Behar

On April 21, 2023, Yuga Labs, the original creators of the Bored Ape Yacht Club (BAYC) non-fungible token (NFT) collection, successfully moved for summary judgment on two of its key claims arising under the Lanham Act against Ryder Ripps and Jeremy Cahen (collectively, the Defendants). The US District Court for the Central District of California (the Court) considered Yuga’s motions to determine that NFTs are goods for purposes of the Lanham Act of 1946 and that the Defendants had violated the Lanham Act through false designation of origin and cybersquatting.

Whereas the original proposal did not directly discuss digital assets, the reopening release is mainly focused on digital asset platforms.

By Stephen P. Wink, Marlon Q. Paz, Naim Culhaci, and Deric Behar

On April 14, 2023, the Securities and Exchange Commission (SEC) issued a release amending portions of its earlier proposal to reinterpret the definition of an “exchange” and reopening the comment period for the proposed amendments (the Reopening Release.)

The SEC had issued a set of proposed amendments (the Original Proposal) on January 26, 2022, regarding the regulation of alternative trading systems (ATSs). The Original Proposal would amend Rule 3b-16 (Rule 3b-16) under the Securities Exchange Act of 1934 (the Exchange Act) to more expansively interpret certain terms used in the statutory definition of an “exchange” under Section 3(a)(1) of the Exchange Act. This reinterpretation would, among other things, cause the “exchange” definition to capture “Communication Protocol Systems”, which are not captured under the present version of Rule 3b-16. (See this Latham post for more information.)