Representation of cryptocurrency and Gayscale logo displayed on a phone screen are seen in this illustration photo taken in Poland on November 6, 2021. (Photo by Jakub Porzycki/NurPhoto via Getty Images)
Photo: Jakub Porzycki/NurPhoto via Getty Images

Crypto’s getting litigious in the absence of regulations

Protocol Fintech

Oh hello there, and welcome to Protocol Fintech. This Tuesday: crypto in court, GameStop’s NFT market and Klarna’s down round.

Off the chain

GameStop’s NFT marketplace is here, with a missing partner. Immutable X support, a big part of the initial pitch, is advertised as “coming soon.” The marketplace is running on Loopring, a competing Layer 2 technology, instead. That didn’t stop GameStop from profiting off of the IMX tokens it received as part of the Immutable deal. IMX, which has fallen in line with other cryptocurrencies, is trading below 90 cents now, down from around $3 when the Immutable-GameStop deal was first announced.

— Owen Thomas (email | twitter)

When in doubt, sue their pants off

When the SEC shot down Grayscale’s pitch for a bitcoin spot ETF, the crypto investment firm could have given it another try by filing a new proposal. But Grayscale was bent on going to court, the company signaled. And it’s not the only company to adopt an aggressive legal posture against a regulator.

Litigation has emerged as an important tool for crypto. Grayscale’s disputes bubbling up shows how important the courts have become for settling issues with regulators like the SEC.

  • Grayscale CEO Michael Sonnenshein had talked about his company’s plans to lawyer up weeks before the SEC’s decision. The company hired prominent Washington attorney Donald Verrilli to prepare for a legal battle.
  • There is a long history of the courts shaping how financial rules are interpreted. The Howey Test that the SEC still uses to determine whether an asset is a security is derived from a 1946 Supreme Court decision about orange groves.
  • Victory is never assured, but the courts can offer an outlet for well-funded crypto companies to flex their resources. “If you have enough money to file or defend enough lawsuits, you can more easily wear down your opposition, even if they are a major regulator," said Mark Hays, a senior policy analyst on fintech at Americans for Financial Reform, a group that has advocated for stronger consumer protections in crypto regulation.

The crypto industry is eyeing a fresh legal opening. A Supreme Court decision limiting the ability of the EPA to draft regulations related to climate change could have wide-reaching implications for all federal agencies.

  • The ruling “challenges the regulation by enforcement approach that the digital asset industry has been forced to navigate,” Perianne Boring, founder and CEO of the Chamber of Digital Commerce, a major crypto lobby group, said in a tweet the day the decision came out.
  • It’s not clear how the EPA decision will affect crypto cases. Todd Phillips, director of financial regulation and corporate governance at the Center for American Progress, pointed out that the Supreme Court's ruling is focused on the authority agencies have to address major questions not directly assigned by Congress. The SEC has long regulated securities, and has taken the position that many crypto assets are securities, "so it is not like the SEC is trying to address a problem it has never addressed before," he said.

Another closely watched legal brawl is the SEC suit against Ripple. In that case, the regulator accused the crypto company of failing to register $1.4 billion of XRP as securities. The lawsuit, which was filed in 2020, was damaging to Ripple, causing the value of XRP to fall dramatically.

  • But the legal battle is now seen as a potential turning point for crypto. If Ripple wins, it could weaken the SEC’s argument that most cryptocurrencies should be registered as securities. “That could open the door for other other tokens out there being deemed not to be a security,” said Marc Fagel, a former regional director for the SEC. “It could shrink the SEC’s jurisdiction.”
  • But litigation can also be risky for crypto companies. Cathy Yoon, chief legal officer at MPCH, cited the costs of pursuing legal action if a case drags on. “In the end, even though you've won, you might not be able to continue” in business, she said.

Katherine Dowling, chief compliance officer and general counsel at Bitwise, said litigation can be “an avenue” for a crypto company, but not necessarily the most efficient one. Court rulings are typically based on the facts of a specific case, which can limit their application. Legislation and clearer regulations, drafted in consultation with the industry, are still the preferred path, she said.

— Benjamin Pimentel (email | twitter) and Ryan Deffenbaugh (email | twitter)

A version of this story first appeared on Read it here.


Android and Google Play are blank canvases. Developers are the artists who paint on them: During the past two years there has been a big debate between life and livelihood. A lot of people had to make a choice between the two. Those who could work from home didn’t have to make that hard choice because we could have both life and livelihood — and tech was the reason people could have both.

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On the money

Celsius repaid $113 million in loans Monday. The crypto lender repaid $78.1 million in USDC to Aave and $35 million in DAI to Compound. The embattled crypto lender has repaid $300 million in loans since July 1, freeing up collateral as it seeks to avoid bankruptcy.

Robinhood settled a class-action lawsuit over a data breach. The plaintiffs accused the trading app company of negligence over a data breach in 2020 that could’ve exposed sensitive customer information. The settlement may cost Robinhood about $20 million.

Klarna raised $800 million, at the cost of a sharp drop in its valuation. The “buy now, pay later” company confirmed that its latest financing round came at a $6.7 billion valuation, signifying an 85% decrease from its previous valuation of $45.6 billion a year ago. CEO Sebastian Siemiatkowski defended the move, pointing out that public-company stocks had dropped.

The European Central Bank wants MiCA to be implemented ASAP. The central bank’s latest reports included worries about stablecoin contagion spilling over to the broader financial system, leading to a renewed call for the Markets in Crypto-Assets bill to be implemented “as a matter of urgency.”

Texan bitcoin miners are shutting operations due to a heat wave. Almost all industrial bitcoin miners, including Riot Blockchain and Core Scientific, have shut down operations to conserve energy for Texas’ power grid and brace for a heat wave.

Binance reportedly processed trades in Iran despite U.S. sanctions. A Reuters investigation found that traders could skirt the ban on business operations in Iran by registering accounts with just an email address as recently as September last year, before Binance tightened its AML checks.


The Financial Stability Board announced Monday that it will draft a proposal for “robust” crypto regulation, but some are saying that it’s too little, too late. “Regulators are aware since 2018 that companies like Celsius are pseudo-banks without FDIC insurance. Yet, they failed to protect consumers. FSB rules are coming too late and will likely be unhelpful to the industry as a whole,” general counsel Joseph Collementsaid.

Chainalysis CEO Michael Gronager is optimistic about the crypto market despite crypto winter, saying that he’s “a firm believer that what we saw in the ’90s, you’ll see the same in the crypto space going forward,” referring to the dot-com bubble. “In the next 10 or 20 years, the crypto [firms] will outgrow the rest,” he added. For more on the comparisons people are making between the dot-com and crypto bubbles, see Ben Pimentel’s deep dive from this weekend.

Deal flow

SoftBank-backed Brazilian fintech lender Creditas is raising another $200 million. The lender is using the funds to acquire the Brazilian banking license of the Andorran bank Andbank and mortgage marketplace Kzas.

Mexican commerce software company Deuna raised $30 million in a series A round led by Activant Capital. Valor Capital, Abstract Ventures, Upload Ventures and Acrew Capital also participated in the round.

Adaptive, an American startup whose software helps construction companies manage their finances, raised $6.5 million in a pre-seed round led by Andreessen Horowitz. Executives from corporate spend management companies Brex, Ramp and Airbase also participated in the round.

San Francisco fintech Tesorio, which provides AR automation software, raised $17 million. The series B round was led by Bamcap Ventures with participation from Madrona Venture Group, First Round Capital, Floodgate, Susan and Anne Wojcicki and more.

Finli, maker of payment management tools for service businesses, raised $6 million in seed funding in a round led by the Urban Innovation Fund. Motley Fool Ventures and Alumni Ventures also participated in the round, which brings total funding to $9.5 million.

Nebraska-based corporate cash management company Crescent received $5 million in pre-seed funding from Nathan McCauley, CEO of Anchorage Digital. The company helps companies deploy excess capital.

Blackstone is investing $400 million in Xpansiv, a marketplace that sorts commodities against ESG metrics. Blackstone is investing through investment arm Blackstone Energy Partners.


Android and Google Play are blank canvases. Developers are the artists who paint on them: Many people don’t realize the many ways developers benefit from Google Play and that the core DNA of Android is open. From the minute that developers get a creative idea, they have every tool they need to build the app, understand the security policies, launch the app and gain a global audience.

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