An Immensely Active Space In The Crypto Ecosystem
With Wide-Ranging Regulatory Implications
Decentralized Finance (DeFi) is a dynamic, innovative, and immensely active space in the broader blockchain and cryptocurrency ecosystem that holds some of the most extensive opportunities with the potential for the dispersion of legacy banking and financial stalwarts. To illustrate, decentralized exchanges (DEXes) or peer-to-peer exchanges see record trading volumes, with March 2024 being the recent month with record activity.
While there is strong potential for capitalization on the opportunities present in the space, DeFi is arguably the most regulatory-heavy sector of blockchain and crypto. Ensuring compliance with the patchwork-style regulatory framework on the state, federal, and international levels is essential, and more players in the space, particularly centralized crypto exchanges (CEXs), are seeking to comply with emerging regulatory frameworks. In the United States, depending on the specifics of the offering at hand, the relevant federal regulators include the Securities and Exchange Commission (SEC), the Department of Justice (DOJ), the Financial Criminal Enforcement Network (FinCEN), the Internal Revenue Service (IRS), the Commodity Futures Trading Commission (CFTC), as well as the patchwork regulatory landscape applicable to money services businesses and money transmitter licenses, and the consequences that come along with non-compliance as well as the Bank Secrecy Act (BSA) considerations, and whether these decades old frameworks are fit for DeFi. Internationally, there are a range of legal frameworks, including in the European Union’s Markets in Crypto-Assets Regulation (MiCA) and laws in the United Kingdom, the Caribbean, and beyond.
Some relevant enforcement and legal developments in the DeFi and broader decentralized blockchain and crypto space include the following:
- KuCoin Pleads Guilty in Crypto Case, Agrees to Pay $300 Million: The cryptocurrency exchange KuCoin pleaded guilty to operating an unlicensed money transmitting business and agreed to almost $300 million in fines and forfeitures, resolving a criminal case after settling similar civil claims in New York more than a year ago.
- U.S. Appeals Court (Mostly) Affirms 2023 Ruling Tossing Out Uniswap Class Action Suit: The U.S. Court of Appeals for the Second Circuit issued a ruling on Wednesday largely agreeing with a lower court’s 2023 decision to toss out a class action suit against decentralized exchange Uniswap.
At RICHT, we are blockchain and crypto-natives with a dedicated practice, LexoCryptoto, assisting clients operating in varying parts of the DeFi, DLT, and cryptocurrency ecosystems. We strive to allow clients to capitalize on their immense potential while accounting for and minimizing legal risk.
Regulation of DeFi Roundtable Report
Key outcomes of a discussion between policymakers, regulators, and private sector participants on the future regulation of truly decentralised finance (tDeFi).
DeFi Has Not Followed Through On Its Privacy Promises — Yet
The DeFi industry is not living up to the expectations of Web3 builders or regulators.
Bridging Policy and Practice: A Pragmatic Approach to Decentralized Finance, Risk, and Regulation
Confronted with a Hobson’s choice of either implementing stringent enforcement of uncertain regulation or geo-fencing the United States, it’s become paramount for regulators and stakeholders to consider collaborative alternatives for shaping the future of decentralized finance (DeFi). Championing collaboration, this paper emphasizes the need for all DeFi stakeholders, from intermediaries to builders, to proactively enhance transparency and risk management, irrespective of regulatory dictates.
What the SEC’s Proposed ‘Exchange’ Definition Could Mean for DeFi
Legal challenges are likely imminent, as one lawyer argues the US securities regulator is “exceeding its statutory authorization”
Unpacking Treasury’s DeFi Risk Assessment
The United States Treasury Department released its Illicit Finance Risk Assessment of Decentralized Finance (the “assessment”). The assessment comes as a response to the September 2022 White House framework for digital assets, which specifically asked Treasury to provide a risk assessment for DeFi. The assessment attempts to define DeFi — a term that, according to Treasury, is “often used loosely in the virtual asset industry” — and enumerates a number of illicit finance risks.
Regulators Investigate Crypto-Exchange Developer Uniswap Labs
The Securities and Exchange Commission is investigating the startup behind one of the biggest cryptocurrency exchanges, as regulators probe further into parts of the digital-asset market that have resisted oversight, according to people familiar with the matter.
Cannabis, Crypto & Crowdfunding In First Of Its Kind Litigation Finance Offering
An agricultural research and commercial hemp operation called Apothio LLC is officially the first plaintiff to attempt to fund a civil case by asking individual investors to buy crypto tokens in a crowdfunded “initial litigation offering.”
