- Paul Atkins, Trump's nominee to lead the SEC, will take a different tack than Gary Gensler.
- This doesn't mean he'll be able to wipe the legal slate clean.
- Pending court cases will have profound implications for developer and DAO liability.
In December, the crypto industry cheered the nomination of attorney Paul Atkins to lead the US Securities and Exchange Commission.
Atkins previously led an effort to create best practices for cryptocurrency issuance, and he’s replacing a man, Gary Gensler, who came to be reviled by industry investors and executives for an approach they dubbed “regulation by enforcement.”
More than half of the crypto-related enforcement actions taken by the SEC since 2015 have come during Gensler’s three-year tenure, according to an analysis by Paradigm, a crypto venture capital firm.
One leading industry trade group said its members have spent at least $429 million fighting the SEC’s lawsuits.
A different tack
Crypto lawyers said Atkins’ tenure will be very, very different. But that doesn’t mean Atkins is going to instantly wipe the slate clean.
“It’s unusual for an incoming chair to dismiss all of the ongoing cases,” Jason Gottlieb, the chair of Morrison Cohen’s digital assets practice, said in December at an industry confab.
For all the anguish over SEC lawsuits, some of the most important court cases facing crypto developers and companies have come from other agencies such as the US Justice Department, as well as civil actions pursued by jilted investors and business partners.
Here are some to watch out for in the new year.
Samuels v. Lido DAO
Last year, a US judge ruled that Ooki DAO — an ostensibly leaderless cooperative where crypto tokens grant membership and voting rights — was a traditional business that should have registered with the country’s commodities regulator.
But the decision had little impact on crypto’s other “decentralised autonomous organisations,” or DAOs.
That’s because Ooki DAO never defended itself in court, and the resulting technical knockout didn’t set legal precedent that others had to follow.
Another case might.
In 2024, a California man named Andrew Samuels sued Lido DAO and some of the industry’s most prominent venture firms. He alleged that Lido sold unregistered securities in the form of its governance token, LDO, and that the VCs should be held liable.
That’s because the backers — the list includes Andreessen Horowitz, Dragonfly, and Paradigm — held so much LDO that they effectively ran the project, Samuels alleged.
The judge in the case found his argument plausible, and the case is moving forward.
Lido is the biggest liquid staking protocol. It lets investors lock up Ether for a 3% annual yield while receiving stETH, a tradable version of their locked Ether they can use across the Ethereum ecosystem.
Like many protocols in decentralised finance, Lido is managed by a DAO, a cooperative that uses blockchain-based voting. DAOs often operate without a legal entity and are governed by people who hold so-called governance tokens, which confer voting rights.
DAOs are meant to help crypto projects realise the cypherpunk ideal of distributed, uncensorable software, with no leaders or formal headquarters — just members scattered around the world.
But not all DAOs are truly decentralised, a fact that has exposed some to legal liability.
And with the legal status of crypto tokens in dispute in the US, regulators there have argued that some DAOs are effectively unregistered businesses.
Earlier cases, like the one involving Ooki DAO, have found DAO members liable for the cooperatives’ missteps.
“Those cases have mostly been decided on the pleadings at the preliminary stage versus on the merits,” crypto attorney Moishe Peltz told DL News.
Paradigm argues that its relationship with Lido DAO doesn’t meet any of the criteria of a partnership: there was no agreement to run a business together nor to share in Lido’s profits and losses.
But the judge isn’t convinced.
“It’s not clear at this point who exactly might be a member of the partnership,” Judge Vince Girdhari Chhabria wrote in a November opinion.
All he knows is, there is indeed a business there, and somebody’s responsible.
The finding is important. “It impacts all DAOs, and it impacts all holders of DAO tokens, which is really everyone participating in crypto,” Peltz said. “So it’s really far-reaching.”
The next hearing in the case is scheduled for January 10.
Coinbase v. SEC
Crypto’s legal counteroffensive has already borne fruit. After all, it was Grayscale’s decision to fight the SEC that paved the way for crypto exchange-traded funds.
That, in turn, led to a flood of institutional money and contributed to the incredible rally that saw Bitcoin repeatedly break its all-time high in 2024.
Crypto’s legal push will continue in 2025, with a small apparel company in Waco, Texas, and a pair of NFT artists suing the SEC over its sue-first-ask-questions-later approach to regulating the crypto industry.
Perhaps Coinbase’s own SEC lawsuit will be the most significant.
In 2022, Coinbase, one of the world’s largest crypto exchanges, petitioned the SEC, asking it to create “a new regulatory framework” that would settle the key question hanging over digital assets: Are they securities or commodities?
At the heart of that request was an attempt to resolve a Catch-22, Coinbase said.
“The SEC told digital asset firms to ‘come in and register’ under threat of enforcement suits, but registration is neither required nor possible under existing rules, which were designed decades ago for legacy financial assets and businesses,” Coinbase said in a March filing.
‘That is an extraordinary remedy that happens very rarely.’
— Miller Whitehouse-Levine, DeFi Education Fund
The SEC denied the request in December 2023, and Coinbase sued.
Separately, the SEC sued Coinbase in June 2023 for operating an unlawful exchange and permitting investors to trade in assets that failed to be registered as securities. Coinbase denies the allegations.
The SEC has called Coinbase’s request “extraordinary.” Miller Whitehouse-Levine, CEO of crypto advocacy group DeFi Education Fund, agrees.
That’s because the court would order the SEC to create bespoke rules for crypto in the event Coinbase wins.
“That is an extraordinary remedy that happens very rarely,” Whitehouse-Levine told DL News.
He came away from the oral arguments with the impression the court would indeed request that extraordinary remedy. But it’s no guarantee, and the arrival of a new, crypto-friendly administration could enter the calculus.
“Who knows?” he said. “They might want to just sit on it and see what the new commission does.”
Both sides laid out their arguments in briefs in May, and a decision could come any day, according to Whitehouse-Levine.
“Generally, they try to get decisions out within six months,” he said. “It’s ripe for a decision.”
US v. Storm
The prosecution of Tornado Cash co-founder Roman Storm has galvanised crypto’s cypherpunks, who say the crackdown on the crypto mixer poses an existential threat to the development of open source and privacy-preserving software.
Tornado Cash is self-executing, non-upgradeable software that helps users conceal the movement of their crypto on Ethereum, a public ledger where every transaction is otherwise viewable to anyone with some know-how and an internet connection.
In 2022, the US sanctioned Tornado Cash, citing its use by hackers affiliated with North Korea. An appeals court recently ruled the Treasury Department didn’t have the authority to sanction the protocol.
In August 2023, Storm was charged with three counts of conspiracy: to commit money laundering; operate an unlicensed money-transmitting business; and to violate US sanctions.
He faces decades in prison if he’s found guilty. Alexey Pertsev, a fellow Tornado Cash developer was sentenced to five years in prison by a Dutch court in 2024. He is appealing his conviction.
Critics of Storm’s prosecution have likened it to suing a gun manufacturer after a shooting, or a car manufacturer after a wreck — the shooter or distracted driver was at fault, critics say, not the tool.
And the implications are serious.
“The government would be free to target software developers aligned with politically disfavoured causes and industries, who would have little in the way of defence or recourse,” the DeFi Education Fund wrote in a legal brief it filed with the court to support Storm.
Storm’s trial, initially set to begin this month in Manhattan, has been delayed to April.
Storm is soliciting donations to pay for his multimillion-dollar defense, and some industry heavyweights, like Ethereum co-founder Vitalik Buterin, have already chipped in.
Aleks Gilbert is DL News’ New York-based DeFi correspondent. You can contact him at aleks@dlnews.com.
