Non-Fungible Insights: Blockchain Decrypted

Regulatory uncertainty has haunted the digital asset space since its inception. The U.S. Securities and Exchange Commission (SEC) and the Commodity Futures Trading Commission (CFTC) have been engaged in a multi-year turf war over which agency has the power to regulate various aspects of digital assets.

Winston’s “NFT Litigation and Regulatory Proceedings Tracker” on Lexis+ provides timely updates on significant litigation and administration proceedings involving NFTs brought by U.S. regulatory agencies and private litigants.

On September 22, 2022, the Commodity Futures Trading Commission filed a complaint against Ooki DAO, a decentralized autonomous organization, and its members for (i) offering to enter into and executing leveraged retail commodity transactions outside of a registered futures exchange, (ii) failing to register as a futures commission merchant, and (iii) failing to implement know-your-customer and customer identification program procedures as required of FCMs under the Bank Secrecy Act. Concurrent with the complaint, the CFTC published a settlement order against the individual founders of bZeroX, LLC for the same violations.

On September 8, 2022, Securities and Exchange Commission (SEC) Chair Gary Gensler expounded his thoughts on cryptocurrency tokens (“Tokens”) and cryptocurrency intermediaries (“Intermediaries”) at the Practising Law Institute’s “SEC Speaks” program.

The Commission recently filed S.E.C. v. Wahi, et. al. (2022), an insider trading case brought in federal court in the state of Washington against a former Coinbase manager and others. The crux of the action is whether the former manager unlawfully provided the others advance notice of which digital assets were to be listed on the Coinbase platform before the listing was announced publicly.

Governments and regulators have struggled to keep pace as new digital asset classes and other blockchain applications have risen to prominence. This regulatory uncertainty has caused confusion in the markets and impeded greater adoption of distributed ledger technologies in the United States.

On April 4, 2022, Securities and Exchange Commission (SEC) Chair Gary Gensler presented his views on decentralized finance (DeFi) platforms and crypto tokens, which reiterated the active stance the SEC is prepared to take on the nascent industry.

On February 14, 2022, the Securities and Exchange Commission announced a first-of-its kind enforcement action against BlockFi Lending LLC, a crypto lending platform, indicating that it intends to treat such products as securities and aggressively regulate the crypto area.

In the last 12 months, institutional‑ and retail-investor demand for cryptocurrency and digital assets has risen exponentially, resulting in a nearly 500% increase in the total market capitalization for over 7,000 forms of cryptocurrency.