Sidley Blockchain Bulletin – January 2025

1. Policy Changes Under New U.S. Administration, an SEC Crypto Task Force, and Immediate Recission of Staff Accounting Bulletin (SAB) 121 in the First Week
2. Courts Signal Potential Liability for Decentralized Autonomous Organizations (DAO) Members
3. Consumer Financial Protection Bureau (CFPB) Proposes Interpretive Rule Deeming Some Digital Assets Subject to Regulation E
4. Federal Deposit Insurance Corporation (FDIC) Releases Letters Documenting “Crypto Pause”
5. Sidley Previews Application and Impacts of Markets in Crypto-Assets Regulation (MiCAR) and UK Regulation of Cryptoassets in Upcoming Webinar
   
   
   

1. Policy Changes Under New Administration, an SEC Crypto Task Force, and Immediate Recission of SAB 121 in the First Week

Significant change is underway in the blockchain and digital asset legal and regulatory landscape, which is anticipated to drive increased innovation and adoption by emerging companies, asset managers, financial institutions, and public companies.

New Leadership. President Donald Trump nominated a pro-crypto former SEC Commissioner, Paul Atkins, to chair the Securities and Exchange Commission (SEC). Until Atkins is confirmed, SEC Commissioner Mark Uyeda will head the agency. One of Uyeda’s first actions as acting Chair was to launch a “crypto task force dedicated to developing a comprehensive and clear regulatory framework for crypto assets.”¹ SEC Commissioner Hester Peirce will lead the task force. At the Commodity Futures Trading Commission (CFTC), President Trump named Commissioner Caroline Pham to serve as acting Chair until a permanent chair is named and confirmed by the Senate. As a Commissioner, acting Chair Pham was the sponsor of the Global Markets Advisory Committee and its Digital Asset Markets Subcommittee. She has announced plans for the CFTC to host public roundtables on digital assets and other topics.² President Trump also created a new senior policy adviser role in the White House, naming technology entrepreneur and investor David Sacks as “Special Advisor for A.I. & Crypto.”

Executive Order. On the third full day of his term, as anticipated, President Trump signed an executive order (Order) concerning digital assets and blockchain technology.³ The Order states that it is “the policy of [the] Administration to support the responsible growth and use of digital assets, blockchain technology, and related technologies across all sectors of the economy.” In addition to (i) revoking President Joe Biden’s 2022 Executive Order 14067 (Ensuring Responsible Development of Digital Assets) and the Department of the Treasury (Treasury)’s 2022 Framework for International Engagement on Digital Assets and (ii) prohibiting federal agencies from taking any actions to create a central bank digital currency, the Order establishes a Presidential Working Group on Digital Asset Markets (Working Group) within the National Economic Council to be chaired by the Special Advisor for A.I. and Crypto.

• Within 30 days, the Working Group must identify all regulations, guidance documents, orders, and other items affecting the digital assets sector.
• Within 60 days, the Working Group must recommend to the Chair whether to rescind, modify, or adopt such item in a regulation (if not already a regulation).
• Within 180 days, the Working Group must submit a report to the President recommending regulatory and legislative proposals, including (i) a proposed federal regulatory framework for digital asset markets and (ii) an evaluation of the potential creation of a national digital asset stockpile.
• The Working Group must hold public hearings and receive expertise from leaders in the private sector.

The Working Group will comprise officials from the SEC, CFTC, Treasury, Department of Justice, Commerce Department, Homeland Security, and the Office of Management and Budget as well as national security advisers and other agency representatives.

SAB 121 Rescinded. On the same day as the Order, the SEC issued SAB 122, rescinding SAB 121, which had required public companies and banks to recognize digital assets held on behalf of customers as liabilities on their balance sheets. Under SAB 122,⁴ such entities should “determine whether to recognize a liability related to the risk of loss under such an obligation, and if so, the measurement of such a liability,” according to generally accepted accounting practices or International Financial Reporting Standards. The change aligns with accounting practices for the custody of other types of assets. Companies must apply the new guidance for upcoming fiscal year-ends but may voluntarily apply SAB 122 as of its effective date. Entities should include clear disclosure of the effects of the change in accounting principle upon their first application of the new rules.

Congress. Congress is expected to pursue major legislation this term covering a comprehensive market regulatory structure, stablecoins, and, potentially, a federal strategic token reserve. On January 23, 2025, the Senate Banking Committee created a Subcommittee on Digital Assets, chaired by Sen. Cynthia Lummis, a Wyoming Republican, who has been a longtime proponent of blockchain and digital assets. Across the Capitol, the House Financial Services Committee’s Subcommittee on Digital Assets, Financial Technology, and Artificial Intelligence will work in parallel as both committees conduct public hearings in the coming weeks related to legislative solutions to problems facing the industry.

2. Courts Signal Potential Liability for DAO Members

DAOs allow holders of cryptocurrency tokens to participate in governance through smart contracts on a blockchain, without central intermediaries. But a federal court recently held that participating in DAO governance can lead to liability under state partnership law.

Lido is an Ethereum-based staking service, which allows holders of LDO tokens to participate in governance decisions through Lido DAO. Lido was backed by certain venture capital firms, which purchased large amounts of LDO and made public statements about participating in governance of Lido DAO. In Samuels v. Lido DAO, an investor sued Lido DAO itself, as well as certain institutional investors, in the Northern District of California, arguing that they were liable for his losses under Section 12(a)(1) of the Securities Act of 1933 (Securities Act).

On November 18, 2024, Judge Vincent Chhabria denied motions to dismiss by three large investors, holding that Lido DAO was a general partnership under California law because its founders intended to carry on a business for profit by distributing revenues from their staking service to themselves and other LDO token holders. Judge Chhabria allowed the lawsuit to proceed on the theory that investors who had the “capacity for meaningful participation in management” were general partners.

Any DAO investor held to be a general partner faces uncertainty and potentially significant liability under the Securities Act. Under Section 12 of the Securities Act, any person who “offers or sells” an unregistered security can be liable to investors for their losses. Judge Chhabria held that a DAO that “comprehensively involved” in creation, issuance, or promotion of a token is a statutory seller liable under Section 12. Under California law, investors held to be general partners can be held jointly and severally liable for the DAO’s liability.

If other courts follow Judge Chhabria’s approach, many institutional DAO investors could be exposed to liability. Judge Chhabria held that allegations of large investments by venture capital firms, combined with general statements about participating in Lido DAO’s governance, were sufficient to hold them liable as general partners. However, not every DAO token holder may face the same risk: Judge Chhabria granted a motion to dismiss against an investor who was not alleged to have “d[one] or said anything other than purchase some unknown quantity” of LDO.

In the wake of Judge Chhabria’s decision, investors should consider the risk of liability under Section 12 of the Securities Act before making large investments in DAOs, participating in management, or making communications about either. The case is Samuels v. Dao, No. 23-CV-06492-VC, 2024 WL 4815022 (N.D. Cal. Nov. 18, 2024).

3. CFPB Proposes Interpretive Rule Deeming Some Digital Assets Subject to Regulation E

On January 10, 2025, the CFPB (the Bureau) published a proposed interpretive rule (the Interpretive Rule) taking the position that at least some digital assets, among other forms of value, are “funds” subject to the Electronic Fund Transfer Act (EFTA) and Regulation E. If finalized in its current form, the Interpretive Rule would create significant uncertainty for the digital asset industry by designating at a minimum stablecoins, and possibly other digital assets, as “funds” subject to the EFTA and Regulation E without providing guidance as to precisely what assets or business models are covered or how obligations such as error resolution would apply to blockchain-based services. The incoming Bureau leadership under the Trump administration may have a different view of this issue.

4. FDIC Releases Letters Documenting “Crypto Pause”

On January 3, 2025, the FDIC published as part of ongoing litigation a package of redacted letters (Pause Letters) issued to banking entities that proposed to engage in a variety of cryptocurrency business activities in 2022 and 2023. The Pause Letters generally instruct their recipients to pause proposed cryptocurrency business activities pending FDIC review but stop short of instructing banks to deny services to cryptocurrency businesses on a permanent basis. Still, the Pause Letters have only fueled allegations that banking regulators under the previous administration used informal supervisory pressure to “de-bank” cryptocurrency companies, particularly as questions remain as to whether the FDIC has turned over all required correspondence.

5. Sidley Previews Application and Impacts of MiCAR and UK Regulation of Cryptoassets in Upcoming Webinar

The EU MiCAR is now in force with compliance implications for crypto-businesses with customers or investors in the EU. The UK is also planning significant regulatory reforms relating to cryptoassets. Join Sidley’s London office lawyers Max Savoie, Arash Dashtgard, and Paida Manhambara in early March for a webinar outlining the application of MiCAR and the UK reforms, their impacts, and how to ensure compliance. Invitations will follow soon.

¹ SEC Release 2025-30, SEC Crypto 2.0: Acting Chairman Uyeda Announces Formation of New Crypto Task Force (Jan. 21, 2025); https://www.sec.gov/newsroom/press-releases/2025-30.
² CFTC Release 9038-25, Acting Chairman Pham to Launch Public Roundtables on Innovation and Market Structure (Jan. 27, 2025); https://www.cftc.gov/PressRoom/PressReleases/9038-25.
³ Strengthening American Leadership in Digital Financial Technology (Jan. 23, 2025); https://www.whitehouse.gov/presidential-actions/2025/01/strengthening-american-leadership-in-digital-financial-technology.
⁴ Staff Accounting Bulletin No. 122, Securities and Exchange Commission (Jan. 23, 2025); https://www.sec.gov/rules-regulations/staff-guidance/staff-accounting-bulletins/staff-accounting-bulletin-122.

Knowledge Management Lawyer Daniel Engoren contributed to this Sidley Update.