Hello Understanding Web3 Legal readers,

Is one of the biggest legal headaches in the crypto world—uncertainty, particularly the retrospective and subjective nature of the famous Howey Test—finally getting resolved?

On August 18, 2026, the U.S. Securities and Exchange Commission (SEC) proposed a new rule package called “Regulation Crypto Assets”. It aims to bring long-awaited predictability to the crypto ecosystem.

In today’s newsletter, I’ll be summarizing the highlights of this new regulatory proposal, drawing from an in-depth analysis I recently published on Vircon Legal.

1. Two New Exemption Paths (Startup and Fundraising)

The SEC offers two distinct exemptions from Securities Act registration for investment contracts involving crypto assets, tiered by the size of the raise:

• Startup Exemption: Valid for raises up to $5 million over four years. It requires no SEC qualification and involves much lighter procedures, making it highly suitable for launchpad processes.

• Fundraising Exemption: For larger raises up to $75 million in each 12-month period. This path comes with stricter conditions, including SEC qualification, periodic reporting (annual/semiannual/current), and independent audits for higher tiers (Tier 2).

2. A Standardized “Ten-Topic” Disclosure Regime

Until now, every exchange and launchpad imposed its own standards for token listings (different legal opinion formats, varying lock-up schedules, etc.), leading to a heavily fragmented process. The new proposal mandates a standard disclosure narrative covering ten specific topics, ranging from token economics and risk factors to management and network security. This will help establish a “common denominator” or a common language for listing processes across the market.

3. The Real Breakthrough: Safe Harbor (Exit from Howey)

This is perhaps the most crucial aspect of the proposal. Typically, the decisive element in determining whether a token is an investment contract under Howey is the “efforts of others”—namely, the team’s ongoing development and managerial efforts. According to the proposal, if an issuer has completed or permanently ceased all of its essential managerial efforts, it can file a notification (Form TR) containing a certification to the SEC to delink the asset from the investment contract. This effectively creates an official “exit door” for projects to declare they have matured and become decentralized.

4. What About Real-World Assets (RWAs)?

For tokenized real-world assets (RWAs), services like servicing the asset, custody, valuation, and income distribution continue by nature. Since the operational effort of the team does not permanently cease, the exit door is effectively closed for RWA issuers. These assets are more likely to continue their journey as securities, shifting the focus to which exemption and reporting infrastructure fits them best.

5. What Does This Mean for Projects in Türkiye?

The smaller-scale “Startup Exemption” carries no U.S. nexus requirement, meaning global teams or those emerging from Türkiye can benefit from it. However, the larger $75 million “Fundraising” exemption requires the company to be organized and principally administered in the United States. For projects seeking repeatable, large-scale investments, U.S. redomiciliation (flip-up) remains firmly on the table. Of course, relying on a U.S. exemption does not alter any obligations or create exemptions in Türkiye regarding the Capital Markets Board’s rules or local crypto regulations.

In Summary; This SEC proposal is an attempt to end the period where investigations were the only reliable way to know if a token was a security. It is not yet final and is open for a 60-day comment period. While it has some limitations (for instance, secondary market operations are left unaddressed), it holds the potential to bring a standardized, predictable framework to the industry.

For a much deeper dive, including operational impacts on exchanges and launchpads, you can read my full article on Vircon Legal here: The SEC’s Regulation Crypto Assets Proposal: Exchanges, Launchpads and an Exit From Howey.

See you in the next issue!

On November 12, 2025, at the Federal Reserve Bank of Philadelphia, Securities and Exchange Commission (SEC) Chairman Paul Atkins delivered a keynote address unveiling the next phase of “Project Crypto,” the SEC’s initiative to provide clarity and consistency in applying US securities laws to digital assets.

Atkins emphasized the SEC’s commitment to establishing a regulatory framework that promotes fairness, predictability and innovation while maintaining robust investor protections. The goal, he noted, is to move beyond ad hoc enforcement and offer a clear roadmap for market participants navigating the evolving crypto landscape.

From uncertainty to clarity

Atkins has emphasized that, for the past decade, the SEC’s approach to crypto has focused on enforcement actions with only limited guidance or rulemaking, and that this created a fog of uncertainty around how securities laws apply to crypto.

According to Atkins, the prior SEC administration’s focus on determining whether crypto assets themselves are investment contracts fundamentally misapplied the securities laws and US Supreme Court precedent, which focus on transactions and relationships between parties – not on an object. Yes, tokens can be sold as part of investment contract transactions. But investment contracts end – they don’t last forever just because a token is trading on a blockchain.

Atkins argues that this flawed application of securities laws muddied the waters and ultimately hurt the US economy:

• Innovation flight: US projects relocating to friendlier jurisdictions offshore.

• Compliance chaos: Convoluted legal structures and pervasive litigation risk.

• Investor confusion: Uncertainty over what qualifies as a security.

Atkins made clear: That era is over. The objective now is to replace ambiguity with clarity, while continuing to pursue fraud and market manipulation aggressively.

Core principles of ‘Project Crypto’

Before outlining the details, Atkins introduced two guiding principles for the SEC’s crypto framework:

1. Form does not change substance: A stock remains a stock, whether represented on paper, through a DTCC entry or as a blockchain token.

2. Economic reality over labels: Calling something a “token” or a “non-fungible token (NFT)” does not exempt it from securities laws. Conversely, just because a token was part of a capital raise does not mean it is permanently a security.

Bottom line: Economic reality governs – labels do not.

Token taxonomy: Four buckets

Atkins previewed a classification framework for digital assets:

1. Digital commodities/network tokens: Decentralized, functional networks where value is not tied to managerial efforts – likely not securities.

2. Digital collectibles: NFTs and similar items purchased for enjoyment rather than profit, such as art, music, memes or in-game items – not securities.

3. Digital tools: Tokens providing access or credentials, such as membership passes or tickets. If sold for use rather than speculation, these are not securities.

4. Tokenized securities: Traditional financial instruments – such as stocks and bonds – issued on chain. These remain securities.

What’s next?

Atkins outlined the SEC’s roadmap:

1. Classification framework: Formal guidance on the four buckets, grounded in the Howey This will likely replace the Framework for Investment Contract Analysis, published in 2019.

2. Regulatory roadmap: Atkins outlined a vision for a regulatory framework that balances investor protection with innovation. In the coming months, and in alignment with legislation currently before Congress, the SEC is expected to consider a package of exemptions to create a tailored offering regime for crypto-assets that are part of or subject to an investment contract. The roadmap also emphasizes cross-agency coordination with the Commodity Futures Trading Commission (CFTC) and banking regulators, as well as alignment with congressional initiatives, to ensure a harmonized approach that supports innovation while maintaining market integrity.

3. Fraud enforcement: Atkins underscored that “fraud remains fraud,” and the SEC – alongside other regulatory bodies – will continue to take aggressive enforcement action against fraud, market manipulation and other illicit conduct. His warning was clear: “If you raise money by promising to build a network, and then take the proceeds and disappear, you will be hearing from us, and we will pursue you to the full extent of the law.”

Why it matters

• Issuers: Begin mapping tokens to the new taxonomy.

• Trading platforms: Non-security tokens may gain a clear path to listing outside SEC-regulated venues.

• Investors: Expect greater transparency regarding what constitutes a security versus a collectible or utility token.

The big picture

Atkins’ remarks signal a pivotal shift in the SEC’s approach to digital assets – from “regulation by enforcement” to structured, predictable rules. For crypto innovators and investors, this represents a significant step toward clarity and stability in the US market.

On May 29, 2025, the U.S. Congress introduced H.R. 3633 – Digital Asset Market Clarity Act, a landmark proposal to resolve the SEC–CFTC jurisdictional overlap and define a regulatory future for crypto. This issue breaks down what it means for lawyers, founders, and compliance professionals.

1. Dual Registration: Finally, a Starting Point

The Act creates a provisional registration regime for digital asset brokers, dealers, exchanges, and custodians — under both the SEC and CFTC. While it doesn’t settle which agency ultimately rules crypto, it provides an operational middle ground.

Why it matters: Projects and platforms can start working toward compliance without waiting for final rules. However, dual registration may be burdensome for early-stage startups.

2. End-User Distributions ≠ Securities

If a token is distributed primarily for utility — and not for fundraising — it can be exempt from being classified as a security.

Why it matters: Think of Filecoin, Arweave, or Lido. Tokens earned or used in decentralized protocols may avoid securities treatment if distribution is genuinely for on-chain usage.

⚠️ But there are no bright-line rules — SEC discretion remains.

3. Stablecoin Guardrails

Introduces a framework for "permitted payment stablecoins":

• Fiat-backed

• Issued under state or federal oversight

• Must guarantee 1:1 redemption

Why it matters: This favors compliant, heavily regulated issuers and likely sidelines algorithmic stablecoins.

4. DeFi and Decentralization: Narrow Carveouts

Some DeFi systems and "mature blockchain systems" get partial exemptions — acknowledging that not every protocol fits legacy financial categories.

Why it matters: The Act recognizes decentralization — but sets no clear threshold. DAO governance, treasury control, and protocol upgradability will be scrutinized.

5. Long-Term Vision: Innovation as Policy

• Establishes a permanent SEC FinHub and codifies LabCFTC

• Mandates studies on NFTs, DeFi, and adversarial crypto risks

Why it matters: Crypto is no longer treated as a regulatory anomaly. It’s now a subject of strategic national innovation policy.

My Take as a Crypto Lawyer

This bill signals a shift in tone from enforcement to facilitation. Even under strict supervision, the recognition of stablecoins and softening around P2P usage could unleash momentum in DeFi. Yet, the persistent frictions in fiat-crypto rails and ambiguous decentralization thresholds leave many questions open.

Final Takeaway

This bill doesn’t offer certainty, but it offers structure — a path forward for builders, regulators, and lawyers alike.

Founders can begin compliance planning. Lawyers gain definitional clarity (and new interpretive challenges). Regulators commit to coordination.

If enacted, H.R. 3633 could become the defining U.S. crypto legislation of the decade.

📬 Enjoyed this breakdown? Subscribe to Understanding Web3 Legal for future updates on legislation, compliance strategy, and regulatory trends..

On May 12, 2025, SEC Chairman Paul S. Atkins delivered a keynote address at the Crypto Task Force Roundtable on Tokenization. It wasn’t just another regulatory talk—it felt like a statement of intent. And for those of us building at the intersection of crypto, capital markets, and regulation, it’s a signal worth watching.

Below is a breakdown of the key points—and what they may mean for the future of tokenized finance.

1. Tokenization is Now Institutional

“Tokenization is not theoretical—it’s happening.”

From JPMorgan’s Onyx to the EU’s DLT pilot regime, tokenization is no longer a crypto-native concept. It’s being shaped by TradFi incumbents with deep infrastructure and regulatory ties. Atkins acknowledged this shift, underlining that the U.S. can’t afford to treat tokenization as a niche experiment.

As someone who advises tokenization projects from the Gulf to the Caribbean, I’ve seen how fast this is moving—especially in regulatory-forward hubs like Dubai, Singapore, the Cayman Islands, and BVI. The U.S. is officially late to the race. But this speech might be the first step toward catching up.

2. The Call for Regulatory Clarity is Getting Louder

“The U.S. must play a leading role in shaping the regulatory landscape for tokenization.”

Atkins clearly understands that ambiguity drives innovation offshore. His emphasis on regulatory clarity echoes what founders, asset managers, and even banks have been saying for years: if the U.S. wants to lead, it needs to provide pathways—not just enforcement actions.

We’ve been helping clients navigate Singapore’s sandbox, the VASP regime in Dubai, and tokenization pilots in Abu Dhabi. With the U.S. finally stepping into the arena, the global map may shift—again.

3. U.S. Legal Frameworks Are Outdated—and They Know It

“Our rules weren’t designed for digital-native assets.”

Hearing this from the SEC Chair is meaningful. The Howey Test and the ‘33 Act are struggling to keep up with tokenized bonds, real estate, or revenue-sharing NFTs. Atkins didn’t promise new rules, but he did hint that the current regime is insufficient. That’s an opening.

If Congress or the SEC were to introduce tailored frameworks for tokenized RWA (Real World Assets), we could see a boom not just in token creation—but in secondary markets, liquidity infrastructure, and institutional adoption.

4. Infrastructure Questions Remain

“The lack of standardization in smart contracts and custody remains a challenge.”

Yes, the vision is big—but the rails are still under construction. Custody, wallet recovery, and smart contract auditing are still inconsistent across jurisdictions. If the U.S. wants to lead here, it needs to invest not just in legal reform, but in supporting the technical stack—perhaps through grants, pilots, or public-private infrastructure efforts.

5. RWA Tokenization ≠ Crypto Casino

“Let me be clear: tokenization of real-world assets is not the same as cryptocurrency speculation.”

This distinction matters. By drawing a clear line between speculative digital assets and compliant tokenized financial products, Atkins gave institutions the political cover they need to re-engage. This is the tone shift we’ve been waiting for.

Conclusion: Tokenization’s Next Chapter Will Be Global—and Compliant

This keynote was the strongest indication yet that the U.S. is preparing to treat tokenization as a capital markets innovation, not a regulatory threat. It’s a shift we’ve already seen in Dubai, the Caymans, and Singapore—and it’s encouraging to finally hear a similar tone in Washington.

If the U.S. aligns its policy tools with this vision, we may see RWA tokenization evolve from niche use case to institutional standard. I believe this will be one of the defining battlegrounds of the next financial cycle.

On March 13, 2025, four new communiqués were published in the Official Gazette, introducing long-awaited secondary regulations for crypto asset service providers (commonly known as crypto exchanges) in Turkey. These regulations bring significant changes for companies operating in the sector. Here are the key highlights:

Capital Adequacy Requirements

The minimum capital requirement for crypto exchanges is set at 150,000,000 TRY (~$4.8 million), while custody service providers must have at least 500,000,000 TRY (~$16 million) in capital. Compared to MiCA’s €150,000 (~$162,000) capital requirement, this is significantly higher. However, there is ongoing debate about whether this amount is sufficient given the size of Turkey’s crypto user base.

Relationship Between Custody Providers and Exchanges

At least 95% of customer assets must be held by custody providers, while only 5% can be kept by exchanges. These ratios must be monitored dynamically throughout the day and must never exceed a 90%-10% split. Additionally, exchanges must maintain liquid reserves equal to 3% of the customer assets they hold. While most of the burden falls on custody providers, this liquidity requirement suggests that past financial crises have not been fully accounted for.

New Management Requirements

General managers and deputy general managers of crypto exchanges must have at least seven years of professional experience in financial markets, IT, information technologies, or financial technologies. Even if they meet these criteria, SPK (Capital Markets Board of Turkey) approval is required for their appointment.

Transparency Requirement: KAP Compliance

Crypto exchanges are now subject to Kamuyu Aydınlatma Platformu (KAP) disclosure requirements. One particularly noteworthy regulation (Article 24-i) mandates exchanges to disclose their listing procedures via KAP, bringing much-needed transparency to crypto asset listing processes.

SPK Approval for Share Transfers

Shareholder changes in crypto exchanges are now subject to SPK approval. Transfers of 10%, 20%, 33%, or 50% ownership stakes require regulatory approval, while even minor ownership changes must be reported to the SPK. Additionally, the Competition Authority will oversee mergers and acquisitions, making such transactions more complex.

Restrictions on Marketing and Promotions

• Exchanges cannot conduct marketing campaigns promising additional income.

• Insurance policies cannot be used as a marketing tool.

• High-reward promotional campaigns are prohibited.

Mandatory Independent Audits

Crypto asset service providers must undergo annual independent audits covering internal controls and information systems. These audits must be conducted by authorized institutions.

Regulatory Deadlines

• Exchanges must apply for operational licenses by the end of June.

• They must integrate with custody providers by the end of the year.

• Exchange contracts must be renewed by the end of the year.

Trading Restrictions That Could Push Traders to Global Platforms

Crypto exchanges operating in Turkey are now prohibited from offering leveraged trading, derivative contracts, margin trading, short selling, or lending services. While these measures aim to protect consumers, they could drive major investors to global exchanges.

Removal of Previous Guidelines

With the publication of these communiqués, previous SPK principle decisions on the same subject have been repealed. This marks a regulatory turning point, providing more clarity while also initiating a major transition period for the industry.

Conclusion

A new era is beginning for Turkey’s crypto ecosystem. These regulations are designed to create a safer and more structured market, but they may also lead to some exchanges exiting the market and institutional traders moving to global platforms. In the coming months, we will closely monitor how these rules are implemented and their impact on the industry.

For those looking for content in Turkish, I have shared a detailed breakdown on Twitter. You can find it here.

If you have any questions or need further clarifications, feel free to reach out! For centralized exchanges (CEXs), the communiqué contains numerous detailed calculations that might require additional explanation.

See you in the next edition!

— Mümtaz

The Turkish Capital Markets Board (SPK) recently issued a significant directive impacting the cryptocurrency ecosystem, causing considerable overnight discussions. Below is a brief overview of the key takeaways from the new regulatory framework and their implications for platforms and users.

Key Changes in SPK's Directive for Crypto Ecosystem

1. Clear Customer Account Identification: All accounts opened on behalf of customers must be explicitly identified as belonging to specific customers. This aims to prevent the use of "pooled accounts" by platforms, ensuring that customer funds are segregated and cannot be misused.

2. No Cash Transactions: Cash transactions will no longer be permitted. All transfers must occur through banks or authorized institutions. This change further formalizes the separation of customer and platform funds, aligning crypto platforms with regulations in traditional financial markets.

3. Restrictions on Orders: Orders can now only be placed through registered means such as official websites, mobile apps, or through recorded phone lines. Platforms like WhatsApp and Telegram are now prohibited for placing trades.

4. Ban on Cryptocurrency Exchanges Acting as Bureaus: The directive prohibits exchanges from operating in a manner similar to traditional currency exchange bureaus. This regulation could limit the on/off ramps that many users have relied on.

5. NFTs and In-Game Tokens: These are currently exempt from the scope of the new regulations, but if listed on platforms, it must be made clear to users that they are not regulated by the SPK. This move could encourage more transparency but also highlights the need for further classification of different types of tokens.

6. Closure of P2P Marketplaces: Peer-to-peer crypto marketplaces are required to cease operations by November 8, 2024. The effectiveness of enforcing this ban and its implications for users remains uncertain, but it raises questions about the future of decentralized exchange models.

7. Tokenization Allowed with Conditions: Tokenization of assets has received a cautious green light. However, listing of these tokens will be subject to strict compliance with relevant institutional rules, reflecting the complex nature of real-world asset tokenization.

8. Prohibition on Leveraged and Loan-Based Transactions: Platforms can no longer offer leveraged trading or allow margin loans. This is expected to face resistance, particularly from platforms that heavily rely on these services for revenue.

Conclusion

The SPK's new rules introduce a more stringent and formal framework for cryptocurrency platforms in Turkey, signaling a shift towards greater oversight. While the directive provides much-needed clarity, certain areas such as the role of NFTs, P2P marketplaces, and tokenization will likely require further development. This is a critical moment for platforms to adapt to the new regulations while ensuring user protection and operational transparency.

In this edition, we dive into the recent developments regarding the principles and regulations for "Crypto Asset Trading Platforms" as outlined in the latest bulletin from the Capital Markets Board of Turkey (SPK). Here's what you need to know:

New Regulations for Crypto Asset Trading Platforms

1. Capital Requirement: The SPK has set a minimum paid-in capital requirement of 50,000,000 TL for Crypto Asset Service Providers. Additionally, their equity capital must not fall below this threshold.

• Analysis: This requirement is significantly lower than anticipated, suggesting a lower entry barrier into the market. As a result, we might see an influx of players in the space. However, it also implies that companies won't be able to dip into this capital for other uses.

2. Corporate Structure: These platforms must be established as joint-stock companies (Anonim Şirket) with registered shares and must include "crypto asset trading platform" in their official title.

• Analysis: The requirement for a joint-stock company ensures a robust liability regime. Registered shares provide clarity and make transfers more challenging, which is a reasonable approach for ensuring transparency.

3. Board of Directors: The Board of Directors must consist of at least three members.

• Analysis: While having an odd number and a larger board is recommended for better corporate governance, a minimum of five members would have been more effective. Including an independent board member could also add value.

4. Exclusive Business Focus: The company's business activities must be exclusively related to crypto asset trading, initial sales or distribution, exchange, transfer, and the necessary custodial services.

• Analysis: This means that these companies can only operate as platforms, ensuring a clear and focused business model.

5. Active Platforms Only:

• Analysis: This effectively weeds out last-minute applicants, ensuring that only active platforms are considered.

6. Educational Requirements for Board Members:

• Analysis: While this is a positive step, there is room for stricter requirements. Additional certifications such as SPL Level 3, Derivative Instruments, CAMS, or CIPM could be considered to raise the bar.

7. Restrictions on Founders, Partners, and Executives:

• Analysis: This provision also extends to those convicted of certain crimes, ensuring that only credible individuals are involved in the management of these platforms.

8. Application Procedures:

• Analysis: The continuity in application procedures provides stability, while the SPK’s authority to adjust the capital requirement allows flexibility as the market evolves.

Conclusion

As we move into this new regulatory era, it's clear that the SPK is striving to strike a balance between fostering innovation in the crypto space and ensuring robust oversight. These regulations, while lighter than expected, set a foundation for a more organized and secure market. We will be watching closely as the market responds to these changes.

In this issue, I'm excited to share insights from a panel I recently attended in Tbilisi, Georgia, at the DeGameFi conference. With the help of ChatGPT, I've distilled the discussions into key highlights for you. You can watch the full video from this link:

Panel Highlights and Discussions

Speakers:

• Erdem Mümtaz Hacıpaşaoğlu, Managing Partner of Vircon Legal

• Cal Evans , Digital Asset Lawyer

• Mohamed Issa , Regional Sales Strategist at Chainalysis

• Moderated by Gvantsa Tatoshvili , IBCCS Tax

Opening Remarks: Gvantsa Tatoshvili set the stage by emphasizing the complexities of navigating the legal landscape of Web 3, given its international nature. The panelists, each an expert in their field, were introduced to help shed light on these challenges.

Key Topics Discussed:

Challenges of International Legal Frameworks:

• Mohamed Issa: Highlighted the difficulties in dealing with varying international legal frameworks. He emphasized the need for education among law enforcement and regulators. Chainalysis collaborates globally to provide blockchain analysis for illicit activities.

• Erdem Mümtaz Hacıpaşaoğlu: Discussed the complexity and the need for constant updates and adaptability in Web 3 legal frameworks. He stressed the importance of understanding and navigating gray areas in regulations.

Jurisdictional Arbitrage and Regulatory Relationships:

• Cal Evans: Spoke on the strength of jurisdictional arbitrage in the Web 3 industry. He highlighted the importance of companies educating regulators and building relationships with them, and mentioned the challenges of rapid industry evolution outpacing regulatory frameworks.

• Erdem Mümtaz Hacıpaşaoğlu: Added that different regulations and frameworks can be both a curse and a blessing. The challenge lies in balancing safety and flexibility.

Future of Law and Regulation:

• Cal Evans: Stressed the importance of consulting lawyers early in the project lifecycle. He emphasized the need for scalability in legal frameworks and proactive engagement with regulations.

• Erdem Mümtaz Hacıpaşaoğlu: Agreed on the necessity of early legal consultations and highlighted the potential rise of legal tech and AI in assisting with regulatory compliance in the future.

Tools and Solutions for Regulatory Gaps:

• Mohamed Issa: Suggested collaboration between regulators, law enforcement, and the private sector. He cited successful workshops and education initiatives in Turkey and Georgia.

• Cal Evans: Highlighted the need for a unified approach to regulations and mentioned the concept of regulatory passporting to simplify compliance across jurisdictions.

Relationship with Traditional Banking Systems:

• Mohamed Issa: Advocated for better integration between crypto and traditional banking. He underscored the importance of proper AML, KYC, and KYT procedures to foster trust and cooperation with banks.

• Erdem Mümtaz Hacıpaşaoğlu: Discussed upcoming regulations in Turkey and the role of banks in the crypto ecosystem. He expressed hope for a more prominent role for decentralized finance (DeFi) in the future.

• Cal Evans: Emphasized the social responsibility of implementing KYC and AML measures, highlighting the foundational principles of Bitcoin and the importance of maintaining control over one's assets.

Audience Q&A:

• Rhetorical Question on Wealth vs. Jail: The panel humorously declined to answer a hypothetical question about wealth versus imprisonment.

• Privacy Coins: The panel had mixed views on privacy coins like Monero and Zcash. Mohamed Issa and Cal Evans emphasized the social responsibility aspect and the potential risks of anonymity in facilitating illicit activities.

• Partial KYC and Future Solutions: The discussion ended with a focus on potential partial KYC solutions using technologies like zero-knowledge proofs, which could balance privacy and regulatory compliance.

Conclusion:

The panel wrapped up with thanks to the participants and attendees, acknowledging the complexity of the topics discussed and expressing hope for continued dialogue and collaboration in the future.

Qatar Websummit hosted a closed workshop that brought together leading minds from the blockchain and cryptocurrency industries. Attendees included representatives from prominent projects and influential positions worldwide. This gathering facilitated an in-depth exploration of current and emerging trends in the crypto legal landscape. Here's a detailed overview of the key topics discussed:

1. Incorporation Strategy for Blockchain Companies

Incorporating a blockchain company involves navigating complex regulatory environments, which can vary significantly from one jurisdiction to another. The workshop emphasized the importance of selecting the right jurisdiction to align with business goals and regulatory requirements. Popular jurisdictions for blockchain companies include Switzerland, Singapore, and Estonia, each offering a favorable regulatory environment, robust legal frameworks, and supportive government policies. Companies must weigh factors such as tax incentives, regulatory clarity, and access to financial services when deciding where to incorporate. Additionally, the U.S. is commonly used for non-security token projects due to its well-established legal system and robust infrastructure.

2. Compliance Strategy

Compliance remains a critical concern for blockchain companies, especially as regulators worldwide tighten their oversight of the industry. The workshop highlighted best practices for maintaining compliance, including adhering to Anti-Money Laundering (AML) and Know Your Customer (KYC) regulations. Companies are increasingly turning to advanced technologies like AI and blockchain analytics to streamline their compliance efforts. Ensuring transparency and maintaining robust record-keeping practices were underscored as essential components of a comprehensive compliance strategy. I've started another newsletter focused on AML & KYC; you can subscribe if you are interested in staying updated on these crucial topics.

3. Investments: SAFE and SAFT

Simple Agreement for Future Equity (SAFE) and Simple Agreement for Future Tokens (SAFT) have become popular instruments for raising capital in the crypto space. The workshop discussed the legal intricacies of these agreements and their suitability for different types of projects. SAFE is commonly used in equity financing rounds, offering a flexible and straightforward method for startups to secure funding. SAFT, on the other hand, is tailored for token sales, providing a legal framework for pre-selling tokens that will be issued once the network is operational. Notably, SAFE is now used with token warrants, adding another layer of complexity and utility. I will deep dive into this topic in another issue of this newsletter. Understanding the regulatory implications and ensuring proper documentation were highlighted as crucial steps in utilizing these instruments effectively.

4. Central Bank Digital Currencies (CBDCs)

Central Bank Digital Currencies (CBDCs) are gaining traction as governments explore digital alternatives to traditional fiat currencies. The workshop delved into the potential benefits and challenges of CBDCs, including enhanced financial inclusion, improved payment systems, and increased regulatory control. However, concerns about privacy, security, and the impact on existing financial institutions were also discussed. Participants agreed that while CBDCs present significant opportunities, careful design and implementation are vital to address these challenges.

5. Tokenization and NFT Minting

Tokenization involves converting physical or digital assets into blockchain-based tokens, while NFT minting refers to creating unique digital assets on the blockchain. The workshop explored the legal aspects of these processes, including intellectual property rights, regulatory compliance, and market dynamics. Tokenization can democratize access to assets such as real estate, art, and commodities, but it requires clear legal frameworks to ensure investor protection and market stability. NFT minting, on the other hand, has opened new avenues for creators and collectors, necessitating robust mechanisms to address issues like copyright infringement and authenticity.

6. Decentralized Autonomous Organizations (DAOs)

DAOs represent a novel organizational structure governed by smart contracts and decentralized decision-making processes. The workshop examined the legal recognition and regulatory treatment of DAOs across different jurisdictions. Key challenges include defining legal personhood, liability, and governance standards. Participants noted that while DAOs offer significant advantages in terms of transparency and efficiency, there is a need for clearer regulatory guidelines to facilitate their adoption and integration into the mainstream economy.

7. Cybercrime

As the crypto industry grows, so does the risk of cybercrime. The workshop addressed the increasing prevalence of hacks, scams, and other illicit activities targeting blockchain platforms. Strategies to mitigate these risks include implementing robust cybersecurity measures, conducting regular audits, and educating users about best practices. Regulatory bodies are also intensifying efforts to combat cybercrime by collaborating with international agencies and developing frameworks to track and prosecute offenders. Ensuring the security and integrity of blockchain systems is paramount to maintaining trust and fostering growth in the industry.

8. Real World Asset Tokenization

Tokenizing real-world assets involves creating digital representations of physical assets on the blockchain, enabling fractional ownership and improving liquidity. The workshop highlighted the potential of this technology to revolutionize markets such as real estate, art, and commodities. However, legal and regulatory challenges must be addressed, including issues related to property rights, valuation, and transferability. Establishing clear legal frameworks and industry standards is crucial to unlocking the full potential of real-world asset tokenization. I'm particularly bullish about this trend and believe it will significantly impact various industries.

9. Offshore Incorporations

Offshore incorporations offer blockchain companies several advantages, including tax benefits, regulatory flexibility, and access to international markets. The workshop discussed popular offshore jurisdictions such as the Cayman Islands, the British Virgin Islands, Gibraltar, and Seychelles. While these locations provide attractive incentives, companies must ensure compliance with international regulations and address potential reputational risks. Choosing the right offshore jurisdiction requires a careful assessment of legal, financial, and operational considerations.

10. Rise of Dubai, Qatar, Palau, Saint Vincent & The Grenadines

The workshop also examined the growing prominence of Dubai, Qatar, Palau, and Saint Vincent & The Grenadines as crypto-friendly destinations. These regions are proactively developing regulatory frameworks to attract blockchain businesses and foster innovation. Dubai and Qatar, in particular, are investing heavily in blockchain infrastructure and regulatory clarity, positioning themselves as global hubs for the crypto industry. Palau and Saint Vincent & The Grenadines are leveraging their flexible regulatory environments to offer attractive conditions for blockchain startups. Participants agreed that these regions are likely to play a significant role in shaping the future of the global crypto landscape.

Conclusion

The 2024 Qatar Websummit provided valuable insights into the evolving crypto legal trends, highlighting both opportunities and challenges facing the industry. As blockchain technology continues to advance, staying informed about regulatory developments and adopting best practices will be crucial for businesses to thrive in this dynamic environment. By understanding and addressing these trends, companies can navigate the complex legal landscape and capitalize on the growing potential of the crypto industry.

The SEC has recently accepted 19b-4 applications related to Ethereum ETFs, marking a significant step towards potential approval. These applications are submitted for the necessary regulatory evaluations required for ETFs to be traded on the market. The acceptance of 19b-4 applications signifies that these ETFs are under review by the SEC, indicating progress in the approval process. A 19b-4 form is a regulatory document used by exchanges and securities issuers to seek approval from the SEC for new products or services. This form includes details of the proposed changes and undergoes regulatory scrutiny.

S-1 applications, which contain detailed information and financial data that ETFs must submit to the SEC before going public, are also part of the approval process. The approval of these applications is the final step before ETFs can start trading on the market. The S-1 form comprises documents that companies must submit to the SEC before an initial public offering (IPO). These documents provide comprehensive information about the company's financial status, business model, risk factors, and details about the IPO. Approval of S-1 applications is necessary for ETFs to go public and for investors to buy these funds. This process involves the SEC evaluating whether the proposed ETF is suitable and safe for investors.

The SEC's stance on cryptocurrency ETFs varies with market conditions and the regulatory environment. The challenges and regulatory hurdles faced during the approval of Bitcoin ETFs have also shaped the approval process for Ethereum ETFs. However, Ethereum’s broader ecosystem and its transition to a proof-of-stake model have led to a more favorable evaluation by the SEC. The approval of Bitcoin ETFs has set a precedent for evaluating Ethereum ETFs. The SEC has been more open to accepting more ETF applications as cryptocurrency markets mature and regulatory frameworks become clearer. The volatility of cryptocurrency markets and regulatory uncertainties require the SEC to adopt a cautious approach. However, increasing investor demand and improving market infrastructure may lead the SEC to develop more flexible policies.

The approval of Ethereum ETFs will significantly impact markets and attract new investor profiles. Institutional investor interest will increase Ethereum’s adoption and liquidity. ETFs provide investors with easier access and liquidity. The approval of Ethereum ETFs will enable wider audiences to access this cryptocurrency and expand the investor base. The introduction of Ethereum ETFs can lead to price fluctuations and market movements. However, in the long term, these ETFs are expected to bring stability and confidence to the market.

The approval of Ethereum ETFs will pave the way for other cryptocurrency projects. Projects like Cardano, Solana, and Polkadot are expected to file for ETF applications as well. Ethereum’s path and the examples it sets will enable other projects to take necessary steps for ETF approval more quickly and efficiently. However, each project will be evaluated based on its unique risks and characteristics. Other projects will also undergo similar regulatory reviews for ETF approval. This process involves a detailed assessment of each project’s financial stability, technical competence, and market potential.

Bitcoin ETFs were approved by the SEC in January 2024, which led to a significant rally in digital assets. This development also greatly increased interest in Ethereum spot ETFs. Recently, the financial world has been rife with speculation about Ethereum spot ETF approvals, and Ether prices have surged sharply. Now, the much-anticipated approval has arrived. This approval holds significant meaning for investors and closely concerns many projects looking to file for ETF applications. Ethereum spot ETFs allow traditional investors to gain exposure to Ethereum without needing digital wallets or complex exchanges. There are two camps with differing views on this matter. One group laments that this undermines the philosophy of blockchain technology and crypto assets, while the other group is pleased not to deal with complex trading processes.

Ethereum ETFs listed on major exchanges are expected to instill confidence in the crypto market and encourage institutional investors to invest more in crypto assets. In short, crypto ETFs serve as a bridge between traditional finance and digital assets, providing an excellent opportunity to clean up the tarnished reputation of crypto assets. Increasing participation in crypto investments through ETFs is expected to enhance market liquidity and facilitate the buying and selling of large amounts without significant price fluctuations. More participation is anticipated to reduce volatility and create a more stable investment environment. Investors have always considered risks of hacking and security breaches when it comes to crypto investments. With ETFs, directly owning digital assets will become safer for traditional investors as well. This means that Ethereum investments will be accessible through traditional brokerage accounts, leading to broader adoption.

The approval of Ethereum ETFs has not been without political influence. The upcoming U.S. elections have played a significant role in this decision. Trump’s crypto donation campaign has mobilized the crypto-supporting voter base, prompting Republicans to respond. The election climate has significantly influenced this decision and the SEC's approach to crypto in the near future. High-profile investor and billionaire entrepreneur Mark Cuban has recently voiced significant criticisms regarding the regulatory environment surrounding cryptocurrencies, particularly focusing on the SEC's role. Cuban's criticisms, centered on the SEC's failure to adequately meet the needs of the crypto community and protect investors from potential fraud, have come at a critical time, highlighting the potential impacts of the upcoming elections on the crypto sector.

Trump's support for the crypto community has resonated with many in the sector, with his stance seen as a departure from the current regulatory climate. His willingness to engage with digital assets, exemplified by the launch of the Mugshot NFT, underscores his commitment to cryptocurrencies. The political divide on cryptocurrency regulations is becoming clearer, with the Biden administration adopting a cautious approach while Republicans, including Trump, signaling support for a more relaxed regulatory environment. The Ethereum ETF decision has been significantly influenced by this political landscape. The election results and subsequent regulatory decisions in the coming months will shape the trajectory of the crypto sector in the coming years. One thing is certain: the crypto community's voice will continue to grow louder, shaping the political landscape and significantly impacting policy.

In conclusion, the approval of Ethereum ETFs is a landmark development with profound implications for the crypto market and regulatory environment. By providing easier access and greater security, these ETFs are poised to attract a broader investor base and foster greater market stability. The political and regulatory landscape will continue to play a crucial role in shaping the future of crypto ETFs, with upcoming elections and evolving policies likely to impact the sector significantly. As we move forward, the Ethereum ETF approval sets a precedent and paves the way for future crypto projects to gain regulatory approval, contributing to the maturation and legitimacy of the crypto market.

I recently joined Coindesk Türkiye's weekly live session to share my thoughts on this exciting development. You can find the link to the discussion in Turkish here:

The much-anticipated "Crypto Asset Law" has finally been proposed to the Turkish Grand National Assembly (TBMM) with an amendment suggestion. Over the course of this process, numerous drafts were leaked, leading to a myriad of changes. However, it appears that a version very close to the document known in our ecosystem as the "November Draft" or "v.27" has been published. This draft addresses a wide array of issues, including the licensing of exchanges, the allocation of a portion of their income to the state, the positioning of foreign exchanges, the responsibilities of managers, the role of TÜBİTAK in the crypto asset ecosystem, user identification rules, and the custody of crypto assets. This proposal has already caused significant excitement and concern within the ecosystem. It is important to note that the draft does not need to be accepted in its current form; it can legally be modified or even rejected during the legislative process.

From an investor's perspective, these regulations aim to protect against potential fraud and market manipulation, creating a safer investment environment. Regulatory clarity is vital for boosting investor confidence, which is essential for the growth and stability of the market. The distinction made in the rationale between securities, e-money, and utility tokens for crypto assets suggests an alignment with Europe’s new MICA regulation, which sets a high standard for regulatory frameworks in the digital asset space.

A key aspect of the draft is the requirement for crypto asset service providers to obtain a license to operate. This licensing approach aligns with international practices, ensuring consistency in regulation. This move is seen as an essential step in legitimizing the crypto industry within Turkey, providing a structured pathway for businesses to operate legally and transparently. However, the draft does not specify the capital adequacy needed for obtaining a license, the application and renewal fees, or the capital market licenses that may be required on the board of directors. These details will be determined by secondary legislation. Under the transitional provisions, existing service providers must either apply for permission within one month or liquidate within three months without causing harm. Unauthorized operations will face severe penalties, including imprisonment for three to five years and administrative fines. This stringent measure underscores the government's commitment to curbing illicit activities and ensuring compliance within the crypto industry.

The issue of taxing crypto assets has been one of the most significant questions surrounding this draft. The current draft does not impose any taxes on end-users, which is seen as a positive move for the ecosystem. By not burdening the end-users with taxes initially, the draft aims to encourage the adoption and use of crypto assets. The expectation is that tax regulations for end-users will follow once this law is enacted. For platforms, 1% of income, excluding interest, will be paid to the Capital Markets Board, and another 1% to TÜBİTAK, totaling 2%. This dual allocation not only funds regulatory oversight but also supports technological advancements in the crypto space, reflecting a balanced approach to fostering innovation while maintaining control.

For crypto businesses, the new regulations present both challenges and opportunities. While the licensing requirements and compliance costs might be burdensome, they also provide a clearer framework for legal operations, reducing the risk of legal uncertainties and potential penalties. This proactive stance of Turkish authorities in addressing global concerns about the crypto sector signifies the urgency and importance of the matter.

The draft also emphasizes the principle of self-custody of crypto assets in user wallets while introducing the concept of crypto asset custody institutions. This approach, combined with the requirement for customers' cash to be kept in a bank, aims to minimize risks from negative behaviors by crypto asset service providers. By keeping crypto assets with the user or a custody institution, money in the bank, and records likely in the Central Securities Depository (MKK), platform risk is significantly reduced. This framework is designed to protect users' assets comprehensively, ensuring that funds are secure and accessible.

One of the most frequently asked questions is whether foreign exchanges are banned. According to the draft, if a service provider operates a Turkish website, has a workplace in Turkey, or advertises in Turkey, they must be licensed. This does not ban foreign exchanges; users can still trade on them, but those wishing to operate in Turkey must localize their services. This requirement is a strategic move to ensure that all exchanges operating in Turkey adhere to local regulations, thereby protecting Turkish users from potential foreign malpractice.

The draft also touches on the situation of crypto influencers or finfluencers. While it does not directly prohibit their activities, it acknowledges that capital market crimes will extend into the crypto space. With the Capital Markets Board overseeing crypto assets, issues such as insider trading, market fraud, and market manipulation will also be regulated. The guide published by the Advertising Board for influencers is expected to become more relevant in this ecosystem. This is a significant step in ensuring that information shared by influencers is accurate and reliable, protecting consumers from misleading or fraudulent advice.

Additionally, the role of TÜBİTAK in fostering technological innovation within the crypto space cannot be overlooked. By supporting research and development, TÜBİTAK will play a crucial part in advancing the technological infrastructure that underpins the crypto ecosystem in Turkey.

Taking a broader view, the need for this law has been strongly advocated by international organizations, underscoring its global significance. The rationale behind the law is also tied to our country's removal from the grey list, making these regulations crucial. Originally expected to be published in the third quarter, the draft has been released ahead of schedule. This early release not only signifies the urgency of the matter but also reflects the proactive stance of Turkish authorities in addressing global concerns about the crypto sector. Despite the possibility of changes to its content, the likelihood of its outright rejection is minimal.

In summary, the effort to establish legal foundations for the crypto asset ecosystem is a positive development. Defining the main rules is crucial in the ongoing battle between decentralization and regulation. This regulation is essential for creating a safer and more transparent environment for investors and users. The draft, while restrictive and challenging for platforms, includes many measures to protect end-users. Although it does not yet address all issues, such as types of crypto assets, taxation, license fees, and principles of crypto asset issuance, the draft is coherent and aligned with the ecosystem's approach. This law represents a significant step towards a more regulated and secure crypto environment in Turkey. Despite the possibility of minor changes during the legislative process, secondary legislation is likely to address any grey areas. This proactive approach to regulation not only stabilizes the market but also builds investor confidence, which is crucial for the growth and maturity of the crypto industry in Turkey. May this regulation, which has already energized the ecosystem, be beneficial to all of us!

As I dive deeper into the era of decentralized technology, the legal landscape surrounding Web3 and cryptocurrencies continues to evolve. This edition of our newsletter focuses on the significant strides Turkey is making in the crypto space, setting precedents that could influence global markets.

Turkey's Crypto Adaptation: A Forefront of Change

Turkey has emerged as a leading market for cryptocurrency exchanges, despite the global economic crises affecting many nations. The Turkish enthusiasm for digital currencies is not just a trend but a reflection of a broader shift towards innovative financial solutions in the face of fluctuating traditional economic structures.

Regulatory Frameworks: The Anticipated Shift

For several years, Turkish legislators have recognized the need to regulate the burgeoning field of digital currencies. However, multiple elections and the accompanying political shifts have led to repeated postponements of regulatory frameworks. Today, we stand on the brink of a significant breakthrough. A clear draft of legislation aimed at regulating cryptocurrencies has been finalized and is awaiting publication.

Key Highlights of the Upcoming Legislation:

1. Definitions and Foundations: New legal definitions for "crypto asset," "wallet," and "crypto asset service providers" set the stage for comprehensive regulation.

2. Licensing Requirements: Crypto asset service providers will need to obtain licenses and meet stringent operational and financial standards, enhancing market integrity.

3. Consumer Protection: Emphasis on safeguarding users' assets, with strict guidelines for separating client and company funds.

4. Innovation and Public Fundraising: The legislation allows for public fundraising through blockchain technologies, a novel approach that could revolutionize startup financing.

5. Robust Penalties: Establishing strict penalties for non-compliance ensures that the platforms adhere to high security and transparency standards.

What This Means for Investors and Enthusiasts

The forthcoming legislation is expected to bring clarity and security to investors and crypto enthusiasts. By setting robust legal parameters, Turkey aims to protect its citizens from potential fraud and market volatility, while also fostering an environment conducive to technological innovation and financial inclusivity.

Additional Resources

I have recorded a detailed video in Turkish discussing these upcoming changes, providing further insights into what this means for our local market and beyond. Be sure to check it out for a deeper understanding of the implications. I would also love to thank again to Cemal for joining the discussion.

Looking Ahead: Implications for Global Markets

Turkey's proactive approach could serve as a model for other nations grappling with similar regulatory challenges. As more countries observe the outcomes of Turkey's legislation, we might see a wave of international policies tailored to the unique demands of Web3 technologies.

Stay tuned as I continue to monitor these developments and explore their broader implications for the global financial landscape.

Introduction

As we step into 2024, the financial landscape is gently unfolding to welcome Bitcoin Exchange-Traded Funds (ETFs) in the United States. Anticipated to bloom around mid-to-late January, this event is like a fresh breeze in the world of cryptocurrency, blending the new with the traditional. However, this integration comes with its unique subtleties, particularly the SEC's preference for cash over Bitcoin in ETF redemptions, which adds a layer of complexity to this financial innovation.

Understanding Bitcoin ETFs: A Simple Overview

• What are ETFs?: Think of Exchange-Traded Funds (ETFs) as baskets of securities, akin to a collection of stocks, bonds, or commodities, available for trading on stock exchanges.

• Bitcoin ETFs: Imagine being able to trade Bitcoin on traditional stock exchanges, just like stocks. Bitcoin ETFs make this possible, inviting traditional investors to explore the world of cryptocurrencies.

• Regulatory Attention: With the rise of Bitcoin ETFs, regulatory authorities like the SEC are paying closer attention, ensuring the stability and safety of these new financial instruments.

Navigating Concerns

• SEC's Approach: The SEC's leaning towards cash redemptions for Bitcoin ETFs, instead of the usual in-kind transfers, has stirred some ripples of concern. This method could potentially make Bitcoin ETFs a bit more costly and less appealing to everyday investors.

• Response from Major Firms: Financial powerhouses like Fidelity and BlackRock are seeking a balance in redemption methods, aiming to make these ETFs as investor-friendly as possible.

Conversations with the SEC

• Resolving Differences: The dialogue between asset managers and the SEC is like a dance, trying to find the perfect steps around the operational aspects of Bitcoin ETFs. The key discussion point is the redemption process – whether to settle in Bitcoin or cash.

• In-kind vs. Cash Redemption: In-kind redemption is like swapping ETF shares for Bitcoin directly, which can be tax-efficient. Cash redemption, on the other hand, is like exchanging shares for their cash value. The SEC's preference for cash aims to simplify these transactions.

Adapting to the Times

• Adjustments by Issuers: In response to the SEC's guidance, firms like BlackRock are gracefully tweaking their ETF structures to include cash redemptions, aligning with regulatory preferences and aiming to maintain investor appeal.

Looking Ahead

• 2024 Projections: The ongoing discussions with the SEC, especially around redemption models, are crucial for the shape and approval of Bitcoin ETFs. The outcomes expected in January 2024 could gently sway Bitcoin's market dynamics.

• Insights from BlackRock's Filing: BlackRock's proposed Bitcoin ETF, named IBIT, reveals their strategy to prioritize cash redemption, with an "in-kind" option as a plan B. This approach might become a template for other issuers to follow.

Conclusion

The introduction of Bitcoin ETFs is like a bridge connecting the traditional finance world with the innovative realm of cryptocurrencies. While this development brings new considerations and a bit of complexity, it also opens a welcoming door to greater accessibility and integration of digital currencies in conventional investment avenues.

This gentle progression signifies a harmonious blend of the new-age crypto market with established financial practices. The SEC's emphasis on cash redemptions, although adding a layer of simplicity, may also slightly adjust the appeal and cost-effectiveness of Bitcoin ETFs for everyday investors.

As we look forward to the blossoming of these ETFs, the financial community is poised to embrace this new chapter. It's a narrative that speaks of broader acceptance and understanding of cryptocurrencies, potentially leading to their seamless inclusion in our daily financial decisions and portfolios. This unfolding story is not just about investment; it's about the evolving synergy between tradition and innovation, pointing towards an exciting future where finance meets technology in harmony.

This week was hard for everyone. I hope we will reach a more peaceful world soon. I saw numerous attempts from the crypto world which even increased my trust in the community. WAGMI!

Opensea hacks were still on the agenda of the crypto community. When you think of the responsibility of platforms and marketplaces, normally since all assets are physical, even there is a security breach, the main concern will be personal data. When it comes to the NFT marketplace, you can lose your BAYC Ape, CryptoPunk, or Doodle so we should think more about their responsibility. This case will be a hit in the gate!

Let me introduce you Mckimmy vs Opensea ! (You can click here to read Timoty Mckimmy's complaint)

According to the claim:

-Timoty Mckimmy is the rightful owner of BAYC #3475

-Opensea failed to provide security of the platform and got hacked.

-Timoty reached the new owner and Opensea, but still couldn't get his ape back. According to NFT forums, he believes Opensea offered other victims the floor price but this was not the case in this claim.

-Timoty believes it is around a million dollars when he compares it with Justin Bieber's ape in terms of rarity.

-Plaintiff claims that Open Sea failed to exercise reasonable care, to take the proper measures to protect the users, to use reasonable security systems and networks, to institute safety protocols, to address vulnerabilities they knew or should have known, to properly secure, to properly safeguard, to implement processes by which they could timely detect, address and/or remediate security breaches.

-Timoty asks for a jury trial.

I'm looking forward to seeing how things will end up in this case. (I will die to watch the jury trial with a bucket of popcorn. Alternative dispute mechanism: Trial by combat?!)

Watch

Regulatory Considerations for Crypto Exchanges

Follow

Jacq Radebaugh

dubz0922

This week there were three major things in the ecosystem for me: JPMorgan’s Metaverse Report, ETHDENVER, and Opensea Hacks.

ETHDENVER is huge, I wish I could fit it into my schedule, but the dates were unlucky. Efe is in Denver, it is a relief for me so that I will reach the inner gossip of the conference. Hopefully, next time I will schedule earlier to see Vitalik’s pajamas and yeti?! costume.

Opensea hacks bother me too much. I’m not a criminal lawyer at the end of the day, but I will write a newsletter about the responsibilities of platforms. If anyone wants to deep dive into criminal perspective, please drop me a DM.

Every gamer is a potential metaverse fan. I’ve spent years playing MMORPG games, Vircon started as a VR company, and I represented lots of e-sport athletes and e-sport teams so I was born for metaverse!

A small anecdote, we bought every headset in the market to test and develop our product, of course, we bought lots of games for nights! There was a game called Robo Recall, in one level you had to squat a lot to kill a boss robot. I believe I made around 400 squats a night, even though I was rowing daily, it was dreadful to sit on a chair for a couple of days.

By the way, you should definitely watch Ready Player One if you can not visualize what metaverse would look like.

The report wasn’t life-changing for me, but at least it is an “okay” explanation and it will be a starting point for most people.

In this issue, I will try to explain what a lawyer might see as a risk while evaluating what metaverse will look like.

I believe we will see lots of fraud cases. Since there is no “the metaverse”, we have potential verses; there will be lots of platforms (actually they already did) claiming being “the metaverse”. People will jump into buying lands and stuff, but they will face the truth.

The governing law will be a huge question mark. It will probably be a wild west at the beginning, but we will need problem-solving mechanisms. I start using Jur Arbitration clauses for crypto clients, we will need to create alternative dispute solving mechanisms to cover the needs of metaverse clashes.

While you can become anonymous or pseudonymous, privacy will be a huge concern. Essentials like privacy by design and privacy by default are not always the priority of on-chain coders. Every transaction is traceable but encrypted, it is a dilemma. Is your mutant ape avatar your personal data? Most likely!

Taxation is a pain in the wallet! It relies on important concepts such as “establishment”, “double taxation”, “residency” and “place of taxation”. Probably we will need to redefine some of the concepts to fit into the current need.

Property ownership. You should definitely check the class action lawsuit against Second Life. NFTs probably solve the current debate. Every right of a game used to be the property of the publisher and players hadn’t had a say. It won’t be the case in the metaverse.

Regulatory and licensing. Every finance mechanism has a de-fi version. Imagine you opened a metaverse bank. Do you need to register? What if the in-game currency becomes a viable currency, do you need to register to SEC for ICOs in return for in-game currency? Things get complicated.

Thefts, hacks, of course!

We already have a sexual harassment case! What a shame!

What is my metaverse strategy?

Think, learn, debate, try, write, ask, share, feel, imagine!

Read

JP Morgan Report on Metaverse

Opensea Hacks

Watch

in case you missed Blockchain + Law Conference

Register

Regulatory Considerations for Crypto Exchanges

Metaverse in Digital World [Turkish by Turkish DPA]

Follow

Erich Dylus

Jordan Teague

Pethereum

Treasure DAO

Another personal news, we are hiring crypto lawyers. You can find the application down below. I believe web3 will soon become one of the main focus areas for us, nowadays we are working on such exciting projects.

Back to the newsletter!

Source: iStock

Gibraltar: Experiment or Opportunity?

Little Bit of Geography

No, it is not just the Straits of Gibraltar. It is a British Overseas Territory and a European country. It is close to Spain and Portugal. They are known for monkeys! Apes would be obviously a better fit, but still, monkeys!

Bored Gibraltar Monkey Club!

Why Gibraltar is popular nowadays?

Valereum, is a holding company listed on AQUIS Stock Exchange in London. They are trying to be a bridge between fiat currencies and cryptocurrencies. They bought 90% of GSX which is THE exchange of Gibraltar. They are negotiating with regulatory authorities to list cryptos in the exchange. That would be sick!

Cryptofriendly Regulation

The Government of Gibraltar is cryptofriendly. They created a good background from online gaming and they started evaluating the cryptospace in 2014. They created 3 consultation papers to end up into a regulation. Financial Services (Distributed Ledger Technology Providers) Regulation was published in 2017. Since it is such a small jurisdiction it is really easy to access the regulator. Literally, regulators, government, and private sector are almost inside each other.

I believe they did a quite well job. According to a report by PWC and Elwood Asset Management, Gibraltar is the third-highest choice of crypto hedge fund managers.

You can apply for a DLT license to legally operate in Gibraltar. Now, there are 15 licensed firms.

Surprisingly, they deep dive into your business model, your overall knowledge, and your corporate governance. It is not like a place to skip all the requirements by being licensed on paper, they are doing proper due diligence. It takes almost a year. It costs £10k, £20k, or £30k according to your category.

Please note that they are not part of the EU because of Brexit.

It seems like it will be a safe place for exchanges and companies who are willing to do ICOs. (According to FAQ, ICOs may always not be under this license.) It will be far more important for cryptogaming. (FAQ about DLTs)

To sum up, when I listened the podcast down below, I felt it is more like “they know what they are doing” than it is just an experiment. Gibraltar is in my radar now, I hope I can publish one more issue after physically being there or closing a deal.

Thanks for reading. My DM is open for any comments or inquiries.

Follow

Pēteris Zilgalvis

Hester Peirce

Arno R. Lodder

Read

A Legal Framework for Decentralized Autonomous Organizations by David Kerr

Listen

How Gibraltar is Championing Crypto Podcast

Apply

to work with Vircon Legal team (We had enough of interviewing, if you are excited to read this newsletter, please join us!)

To begin with, I would like to thank @Mümtaz for giving me the opportunity of being a part of this newsletter. I believe every contribution matters as the ecosystem still struggling with the legal aspect of digital tokens.

As arguments are still going on about whether SAFTs are investment contracts or not, let’s focus on the most important thing everybody is missing: If SAFTs are investment contracts, what does this tell us about secondary sales of SAFTs and the tokens lying underneath in respect of the SEC regulations?

The main deal about the SEC regulations is that all securities issued in the United States must either be registered with the SEC or fall under a registration exemption: either a class of securities exemption (government bonds) or a transactional exemption (private sales to accredited investors). Therefore, before even concerning about whether there is an exemption that we could benefit (which we might dive into later), we should consider whether there is a security to be offered in the first place.

Amongst all category of securities, the investment contracts received the most clarity through the U.S. Supreme Court’s opinion in the case of SEC v. Howey Co. The jurisprudence of this case remains mostly unchanged in over almost eighty years. Since this is the case, I do not intend to review the application of the Howey test to SAFT here, and also @Mümtaz has a whole episode about this. But, note that many SAFTs were based on the legal theory that, although the SAFT itself was a security which would be sold to investors in a private placement exempt from the registration requirements, the tokens, once they are generated, would not be securities. By creating SAFT, the intention was to separate the token from any pre-launch determination of whether the token is a security. Therefore, the theory here is that it is the SAFT that is sold with the ‘expectation of profit’, not the underlying utility token. However, in a number of cases, the SEC and courts have found that the tokens underlying SAFTs were securities in the first place.

Under the SAFT, rather than delivering a ‘non-functional’ token to a user, the company sells a security in the tokens to be developed and the tokens are delivered when the network is functional. Whether on network launch, the token morphs into a utility, a commodity, or something other than security, is irrelevant for purposes of initial sale (i.e., the sale of SAFT itself is a security). However, whether the digital tokens attached to the SAFTs are securities, or not, is still very arguable. Let me tell you why this is important to know.

Even though in most cases the SAFTs are subject to contractual transfer restrictions that prohibit the assignment of the SAFT contract or any rights thereunder to a third party without the prior written consent of the issuer; there are still cases that this might happen. This gets us to the central questions that we still do not have all the answers for: (i) do the transfer restrictions apply to transfers of the underlying tokens (if such tokens are accepted as securities) or only the SAFT itself; and (ii) do the transfer restrictions encompass transfers of the economic rights under a SAFT? To start with let’s take a further look at some of Howey test criteria as applied to digital tokens by the SEC.

Let’s keep in mind that Howey is not a black-and-white metric for security status, especially when you use this metric to determine the security status of tokens regardless of whether they are utility or security tokens. It is a highly variable facts-and-circumstances test. I would also like to remind you that the SEC does not only consider the Howey test but also the economic realities of each token ‘sale’ when deciding. So, let’s dive into the tokens and what the SEC thinks about them, shall we.

 -       Investment of money

One element of the Howey test is the investment of money. Many purchasers of digital tokens use BTC, ETH, or other similar cryptocurrencies, rather than fiat currency. Well, the jurisprudence is clear here, purchases of new digital tokens, by means other than fiat currencies, would still qualify as an investment of money. Since this criterion applies for both security and utility tokens, we can say there is an investment of money in both cases.

-       Common enterprise

In the DAO Report, the SEC makes an open statement that token purchasers were investing in a common enterprise. The focus of the common enterprise element is tied to a pooling of funds in complementation of the expectation of profits, which I will be addressing in the next criteria.

-       Expectation of profit: intent to use v. intent to profit

Is the purchase of a future token, even a token that once launched can only be used within its established network, a security under this criterion?

Now, this is where things get interesting. As I mentioned above, Howey metric is not the only thing when the SEC decides whether there is a registration requirement. The SEC also makes economic reality assessment regarding the tokens’ purposes.

Is it usable solely within the network environment which it is created on and for; or is it fungible and tradable such that its value may increase with the growth or success of the company?

Let’s take a quick look at the SEC v. Howey Co. case. The investors were purchasing interests in orange groves, where oranges to be cultivated were not for personal use but for resale and profit. Following this logic, digital tokens sold for use in established networks that only have utility within those networks, such as game tokens, loyalty points, and such other utility tokens, might appear less likely to be considered as securities. SEC Chairman Clayton disagrees and suggests that merely calling a token utility token or structuring it to provide some utility does not prevent a token from being a security. In comparison with Chairman Clayton’s opinion, there is also a strong belief of if the motivation is focused more on investment, creating a secondary market for token sales, rather than functional token use or ‘utility’, creating a community, building a market for the product and developing network participation, it is more likely that the token will be considered as a security and subject to the SEC regulations. Your token based on its use and functionality may not be a security, but actively listing those tokens on an exchange that creates a secondary market may reverse the situation in the eyes of the SEC.

This and all of the things I mentioned so far gets to us to the main question that every entrepreneur must answer honestly before even beginning the token sale via a SAFT or an ICO, - what is the motivation for holding a token sale and how central and crucial is the token to the use of the Company’s products.

As for what happens now, since there is not any blanket, bight-line rule across all scenarios, it seems that’s up to the community. After all, as noted by those involved, a framework is only as useful as its adoption.

Cheers,

Sena

Follow

Obviously Sena

Dan Robinson

0xLegal

Read

Stanford Journal of Blockchain and Law Policy

World Economic Forum - Blockchain Toolkit - Legal and Regulatory Compliance

DAOs are basically the new way to collaborate to achieve a greater good. They are the ideal version of an organization. It is transparent, controlled by its members, and rule-based. Mümtaz in 2016 would die for such an organization. (I had a conversation with my partners where I offered to try to manage our company in a holacratic way!)

It is obviously not regulated but since every DeFi needs a DAO to operate, we will keep seeing DAOs. They were almost buying a copy of the US Constitution as ConstitutionDAO! There are some DAOs lack basic legal knowledge as well:

C'mon, you shouldn't spend €2.66 M to learn IP rights basics.

If something happens in a member-managed DAO, probably we will consider them as general partnerships or joint ventures depending on the jurisdiction. If it is an algorithmically managed DAO, it will be a tough question! (It will probably be the same discussion as the legal liability of artificial intelligence.) When it is a general partnership, we are also talking about unlimited liability! That’s why what Wyoming brought matters that much.

Key Takeaways From Wyoming Limited Liability Company Act - Bill on DAO

Best of my knowledge, Wyoming is the only jurisdiction where DAOs are recognized expressly. You can register your DAO as an LLC or more correctly “Limited Liability Autonomous Organization (LAO)”!

In order to achieve that, you have to say explicitly it is a DAO in your articles or organization. (You can either incorporate as DAO or convert your company into a DAO.)

You can define, reduce or eliminate fiduciary duties with articles of incorporation, smart contract, or operating agreement. (Post-incorporation is always important but it is even more crucial for DAOs.)

You can incorporate algorithmically managed DAOs in Wyoming!

You can not register a foreign DAO in Wyoming. You have to incorporate it in Wyoming.

Wyoming is the pioneer, I hope more will come!

Thanks for being with me in this episode as well. Please drop me DMs about your comments, let’s grab a virtual coffee and discuss further.

Follow

Nick Rishwain’s Twitter

LeXpunK_Army’s Twitter

Listen

Law of Code Podcast

Read

NFT for Dummies

Deconstructing the DAO: The Need for Legal Recognition and the Application of Securities Laws to Decentralized Organizations

2spencer’s Code of Law Resource List

Legal Structures for DAOs

Understand

Concept of Ricardian LLC

SAFT: Simple Agreement For Future Token

Everyone loves acronyms, and SAFT is one of the most used ones in the WEB3 ecosystem after NFTs. Basically, it is a contract where you can offer tokens to investors that you haven’t created yet. It makes total sense to you if you are offering the token because you need funds and don’t want to lose shares at day 0; it makes sense to investors because they will have a huge advantage for the future token sale. Voila! Everyone is happy!

Actually, after the Initial Coin Offering (ICO) boom, and if you consider their legal validity is not rock solid + security laws varies in every jurisdiction, everyone needed an alternative. You had to write a whitepaper (whitepapers in most of the cases.), you needed to make your coins ready, so it was a burden for the entrepreneurs. It was exactly the same in startup investments. People were sick of NDA -> Term Sheet -> Shareholders Agreement -> General Assembly -> Stock Certificate routine, they needed something fast, they came up with SAFEs. The same here: SAFT!

In order to explain SAFTs properly, I have to deep dive into different concepts and it will require a multijurisdictional approach, that’s why this issue will be an introduction to SAFT. If you’ll want to continue on SAFTs, I will continue with a different angle for the next issue, if not, I will probably go with another topic.

What is the SAFT exactly?

It is born by Protocol Labs; raised by Cooley and Angelist. The whitepaper was written by Juan Benet, Marco Santori, and Jesse Clayburgh and was released as an open-source document available on SAFT GitHub.

As I mentioned earlier, it is a more simple way to offer future utility tokens to accredited investors. It is an investment contract under U.S laws. It came forward to become a way not to conflict with SEC’s security offering requirements. Tokens are most likely not securities, SAFT itself is most likely security.

You don’t have to be a legal entity to offer future tokens with SAFT but your investors must be accredited, investors. It is always a good idea to incorporate a company to limit legal liability.

It doesn’t work with security tokens and you will need to conduct a Howey test to be sure.

What is the Howey Test?

I really admire US courts! When they have a special case that concludes into a standard, they name it with the case name. Howey is one of those examples. Once, there was a dispute between SEC and Howey, (1946 SEC vs. W.J. Howey Co.) after the ruling, the Howey test became a national standard to differentiate securities. Still, if you want to make sure something is a security, you have to conduct the Howey test even its interpretation became modernized with the needs of modern society. In order to become security, you need to match 4 criteria:

1) An investment of money

2) In a common enterprise

3) With the expectation of profit

4) To be derived from the efforts of others

How it is different from ICOs?

In order to make an Initial Coin Offering, you have to be ready in any way. You need to write several whitepapers explaining your project legally, financially, and technically. It must be aligned with security offering regulations in the chosen legal jurisdiction. 

In contrast, SAFTs work more like startup investments. You’ll most likely pitch your tokens to investors. You don’t have to write a very detailed whitepaper. It is advised to consult with an attorney, but SAFTs seem like they are out of the radar of the SEC.

What you can read to deep dive into SAFTs:

SAFT Whitepaper

SAFT Agreement

Podcast on SAFTs with Aaron Wright (You may recall him from the last newsletter.) 

Secondary SAFT Sales Article

Securities Regulation and Initial Coin Offerings: A Legal Primer

What I try to follow nowadays:

Attend

Blockchain + Law Conference by Amsterdam Law & Tech Institute (Free Event)

Read:

Blockchain + Anti Trust: Decentralization Formula Book (Free Book)

Blockchain: Legal and Regulatory Guidance by Law Society UK

Use

Crypto Legal Risks Checklist

Follow

Marco Santori’s Twitter

Juan Benet’s Twitter

Jake Chervinsky’s Twitter

Please drop me some comments which will direct the next issue. If you aren’t subscribed yet, you can down below!

GM! and greetings from Istanbul! (as if it will matter too much where I am physically located in the near future.)

I started both my legal and entrepreneurial careers at the same time. I’ve been working on startup and privacy laws ever since. It becomes a daily sport to be prepared for what technology brings and what will be their legal implications. In addition, if you work multijurisdictional, any new trend knocks on your door.

I was never hesitant about blockchain but I think resources were awful. There were even some books which doesn’t teach me a single word. Hopefully first cryptos, then NFTs became a phenomenon and prepared the stage for what matters -at least to me-: WEB 3.0

In the meantime, apart from 100x coins and “cryptosth” “boredsth club” NFT collections; we had lots of cases, legislation attempts, solid communities, quality content which triggered me to deep dive into WEB 3.0 and its possible legal implications.

I will be posting weekly newsletters about my findings during the dives.

What’s on my mind to deep dive (not in order):

• DAO Formations and Liability (DAOs are obviously huge! Everyone loves an added layer of non-liability)

• SAFTs (I’ve been negotiating SAFEs for years, it is going to be fun.)

• Privacy x WEB3 (I need to use those certificates somewhere! - ofcoursejoking- It is been a passion for me to evaluate the privacy aspect of everything. WEB3 is on an important edge.)

• Portugal Crypto Taxation (It looks too good to be true.)

• Wyoming DAO Law* (They became the pioneer but DAO LLCs in Wyoming are not that popular. I have to poke the bear.)

• Property Law x Virtual Lands (What is the limit of traditional property ownership?)

• Intellectual Property Issues for NFTs and Metaverse (I have never been a huge IP believer but everyone keeps asking, so why not dig in?)

• Legal Responsibility of Decentralized or so-called Decentralized Platforms (I’m not too enthusiastic about crypto exchanges, other platforms like OpenSea will be a priority to me.)

• Delaware Tokenized Shares (I’ve been incorporating companies in Delaware for years, it was such an excitement to me!)

• Powers of Communities in Dispute Solving (I had a flood about what happened in BAYC. More will come!)

• Legal Enforceability of Smart Contracts (Smart contracts are not legally binding contracts in every legal system, it will be fun to compare.)

Please feel free to comment and add to the discussion. If you want to publish issues, just DM me, we can write together on any topic. I’m planning to send a new issue every Monday. I will try to add an additional issue per 50 subs. Let’s see what’s going to happen!

What I try to follow nowadays:

BanklessDAO’s Newsletter

Crypto Law US’s News and Cases

LexDAO’s Discord

Prof. Aaron Wright’s Twitter

DefiDefense Lawyer’s Twitter

Prof.J.W. Werret’s Twitter

DAOTalk’s Legal Resource List

OpenLaw