The Clarity for Digital Tokens Act of 2021 would give token issuers the guardrails they need to innovate with far less regulatory anxiety.

By Stephen P. Wink and Deric Behar

US Securities and Exchange Commission (SEC) Commissioner Hester Peirce has always been something of a maverick. She has been a lone dissenting voice on the Commission on many topics, applying her libertarian leanings to question the need for regulations that could hobble free markets or stifle innovation.

Those who follow the digital assets markets also know Commissioner Peirce by her nickname “Crypto Mom,” for her relentless support of digital asset innovation and calls for clear regulatory guidance when she perceives they are lacking. To remedy some of those issues, Commissioner Peirce published a Token Safe Harbor Proposal on February 6, 2020, and reissued a revised version (Proposal 2.0) on April 13, 2021 (previously discussed in this post).

Proposal 2.0 never quite gained traction at the SEC, but it has found an ally in Congress. On October 5, 2021, Representative Patrick McHenry, the ranking member on the House Financial Services Committee, introduced a bill titled the Clarity for Digital Tokens Act of 2021 (the Bill) that substantially embodies Commissioner Peirce’s Token Safe Harbor Proposal 2.0.

NFT creators should craft strategies to avoid minting or auctioning NFTs that use the likeness of an individual without their consent.

By Ghaith Mahmood, Nima H. Mohebbi, and Tara McCortney

As non-fungible tokens (NFTs) increase in popularity, the so-called common law “right of publicity” may create additional legal risks for NFT minters. The common law right of publicity prevents the commercial exploitation of an individual’s identity without that person’s consent.[1] Most U.S. states have defined a right of publicity and, correspondingly, a standard tort for violation of that right — frequently referred to as the tort of appropriation.

While the law is similar across most US jurisdictions, California — the heart of the entertainment industry — has particularly well-developed authority in this area. For this reason, this blog post focuses on California law in describing the unique issues that NFTs may present.

Learn about 2021’s defining cryptoasset in a new infographic video and webcast, the latest in a Latham series covering NFTs.

By Christian F. McDermott

Latham & Watkins Technology Transactions Partner Christian McDermott introduces the basics of non-fungible tokens (NFTs) in this short infographic video. In particular, he addresses the following questions:

  • What are NFTs?
  • How are they created and managed?
  • How does blockchain technology fit in?
  • What are the benefits of NFTs?
  • What legal issues do NFTs present?

SEC Commissioner Peirce has revived and refreshed her proposed three-year safe harbor for qualifying token projects, but some unresolved ambiguities remain.

By Miles P. Jennings, Stephen P. Wink, Naim Culhaci, and Deric Behar

US Securities and Exchange Commission (SEC) Commissioner Hester Peirce, a longtime and vocal advocate for innovation in financial services, has not shied away from engaging with and supporting the fledgling digital asset ecosystem. One of the milestones along this path has been the unveiling of her Token Safe Harbor Proposal on February 6, 2020, in a speech at the International Blockchain Congress. (See Taking the Scarlet Out of the Letters I-C-O.) Now, following up on a promise to refresh the proposal in light of feedback received in the past year from “the crypto community, securities lawyers, and members of the public,” Commissioner Peirce has published Token Safe Harbor Proposal 2.0 (Proposal 2.0).

The State of Wyoming is solidifying its position as the friendliest state in the US for digital asset innovation.

By Miles P. Jennings, Stephen P. Wink, and Deric Behar

Although comprehensive digital asset regulation at the federal level remains elusive, US states are angling to establish themselves as blockchain and crypto-friendly jurisdictions. At the forefront stands Wyoming, with a track record of fostering digital asset-friendly policies. Most recently, on April 21, 2021, Wyoming’s governor signed into law a bill sponsored by the state’s Select Committee on Blockchain, Financial Technology and Digital Innovation Technology, the first in the nation to allow decentralized autonomous organizations (DAOs) to obtain legal company status. The legislation becomes effective on July 1, 2021.

An NFT is a special, one-of-a-kind digital asset that raises a number of novel legal questions.

By Christian F. McDermott and Calum Docherty

Earlier this month, a blockchain firm bought a US$95,000 print by the British street artist Banksy, only to burn it in a livestreamed video and re-sell it for US$380,000 as a virtual asset called a non-fungible token (NFT) — sparking a flurry of news around what may prove to be this year’s hottest crypto craze.

How did the Banksy sale work? The group explained that by removing the physical piece from existence and releasing the NFT as digital art, the value of the physical piece will be moved onto the NFT. This trend isn’t just setting the art world ablaze; in fact, musicians and even footwear companies are finding ways to break into the space.

As the market heats up for art-related NFTs, buyers should be aware of limitations on their rights to use those works.

By Ghaith Mahmood, Jordan Naftalis, and Veronica Ye

The convergence of blockchain technology and creative intellectual property (IP) through a non-fungible token (NFT) is having a mainstream moment. Media stories abound with reports of artwork, tweets, and other digital media selling for millions of dollars on blockchain marketplaces when they are represented by an NFT.

This post explains how NFTs are linked to sales of digital media, and the practical IP considerations that can arise when buying or selling the creative works that the NFTs are attached to.

In a new publication, ISDA explores the benefits of digitization and blockchain solutions for global foreign exchange derivatives markets.

By Yvette D. Valdez, Adam Bruce Fovent, and Deric Behar

As blockchain and distributed ledger technology (DLT) use cases continue to grow across the broad spectrum of financial markets, the International Swaps and Derivatives Association, Inc. (ISDA) is once again stepping into the crossroads of technology and derivatives with the publication of the ISDA Legal Guidelines for Smart Derivatives Contracts: Foreign Exchange Derivatives (the Guidelines).

A thorough dispute resolution model can help market participants navigate inevitable disputes in the blockchain network and minimize costly litigation.  

By Jenny Cieplak

Some of the biggest challenges in scaling blockchain solutions revolve around setting up an effective governance framework, particularly a component to manage the processes by which disputes among parties are properly settled. A new paper from the World Economic Forum (WEF) and Latham & Watkins explores forward-looking practical options for different dispute resolution mechanisms distilled from case studies, various existing solutions, and blockchain-based dispute resolution protocols.

The paper outlines the following five key insights to help market participants — blockchain professionals, businesspeople, and lawyers — not only plan for disputes related to on-chain transactions, but anticipate disputes that may arise in new and unexpected ways.

US Department of Justice’s sprawling report reveals regulatory enforcement priorities for cryptocurrencies and highlights multi-agency cooperation.

By Susan Engel, Miles Jennings, Benjamin Naftalis, Yvette Valdez, Eric Volkman, Stephen Wink, Douglas K. Yatter, and Deric Behar

On October 8, 2020, the US Attorney General’s Cyber-Digital Task Force of the Department of Justice (DOJ) published an extensive white paper, titled Cryptocurrency: An Enforcement Framework (the Report). The Report gives a detailed overview of legitimate uses of cryptocurrencies, the risks of illicit cryptocurrency activity, and related federal enforcement challenges and response strategies.