August 2023 Recap
We are more than halfway through the year, but don’t let that fool you into thinking that we here at LexDAO aren’t still working up a sweat. This issue will give you a peak at what recent news in the world of web3, upcoming events, and what LexDAO has been working on.
LexNews+ Weekly Headlines
Biden administration unveils new crypto tax reporting rules
Alexa, play “Taxman” by the Beatles
The United States government is increasing efforts to tax the digital asset industry with a sweeping new tax proposal from the Treasury Department. The stated goal of these proposed rules is to mitigate tax avoidance in cryptocurrencies sales and simplify reporting rules making it easier to comply with tax laws. This rule proposal is tied to a larger push by Congress and regulatory authorities to prevent people from avoiding tax on cryptocurrency gains. Senator Elizabeth Warren asked in a letter that these rules be implemented immediately to prevent the system from being gamed.
Under these proposed rules crypto exchanges would be treated by the IRS similarly to brokers who handle investor’s stock and mutual fund portfolios—this would include centralized and decentralized crypto exchanges. Such a designation would entail, among other mandates, requiring exchanges to send annual reports on Form 1099s to the IRS as well as their customers’ cost basis for assets.
Relevant to individual crypto purchasers, the proposed rules would create a new form called Form 1099-DA. The form is meant to help taxpayers figure out what they owe in taxes and avoid having to make complicated calculations to determine their gains or losses.
The cryptocurrency industry seems to express mixed reviews surrounding these proposed new rules. According to Blockchain Association CEO Kristin Smith, the rules "could help provide everyday crypto users with the necessary information to accurately comply with tax laws." However, CEO of the DeFi Education Fund, Miller Whitehouse-Levine said the proposal would neither make filing taxes easier nor improve tax compliance. Whitehouse-Levine stated "Today's proposal from the IRS is confusing, self-refuting, and misguided. It attempts to apply regulatory frameworks predicated on the existence of intermediaries where they don't exist."
Those wishing to submit written comments on the rules may do so by October 30, 2023, and a public hearing on the proposed regulation has been scheduled for November 7, 2023.
Proposed crypto tax rules draw ire from industry groups
Get Ready, Get Set, KYC Everyone!
With the US Treasury Department proposing its new crypto tax reporting rules, many have been vocal in the space about the potential effects they would have on existing operators within the industry. In particular, Lex_Node voiced concern over the broad interpretation the proposed language uses to define a crypto broker. As currently drafted, the regulations would define many DeFi projects—as well as entities maintaining tools like Etherscan, Snapshot, and Zapper—as crypto brokers requiring them to follow the proposed tax reporting rules. This would force many projects to comply with KYC requirements and collect and transmit a large amount of personal client information on a yearly basis.
For projects like Etherscan, this potentially represents a major regulatory compliance burden, and for others, it might be an outright impossibility under current operational methods. In a statement to The Hill, Ji Kim from the Crypto Council for Innovation was encouraged to see some specific exemptions, but also said the proposed rules potentially capture “a lot of participants who have no practical way to comply.” Whether this is based on a misunderstanding of the technology or is a flagrant attempt to cripple crypto remains to be seen and may only be determined by the final rule draft. Bill Hughes suggests it is indeed intentional, and the goal is simply to make peer-to-peer systems “excruciating for 99% of people to use”. If targeting tools like Etherscan and Zapper is an indication, excruciating times in crypto UX are (again?) ahead, at least for those based in the US.
Though the proposed regulations, if adopted, are not effective till 2025 with reporting starting in 2026, the Treasury Department is currently encouraging feedback from stakeholders. Interested parties have until October 30, 2023, to submit written comments, and public hearings are scheduled for early November.
An unendorsed discussion of the impact these proposed rules could have can be found here.
(See also: LexNode, thehill.com, financefeeds.com, Bill Hughes)
FTX Creditor Data Leak from Kroll
From bad to worse:
In a case of client data storage gone wrong, the company overseeing the restructuring of FTX and handling bankruptcy claims suffered a hack, compromising FTX client information. Kroll appears to have been the victim of a sim-swap attack via an employee on or about August 19, 2023. Using access to the phone credential, the attacker accessed files in Kroll’s cloud storage and FTX client information.
Compromised client data includes information such as creditor name, address, email, and FTX balance. Kroll did not store any password data related to FTX, and no FTX systems or digital assets were affected. FTX creditors should be on high alert for attempted scams and exploits such as phishing emails and other potentially malicious communications.
The incident serves as yet another example of how attractive centralized stores of user data are to attackers, how vulnerable phone number based 2FA is, how prevalent and effective sim-swapping is, and how persistent hackers are when there is information that can be linked to massive sums of crypto. Clients with larger positions of FTX are likely to see the brunt of new phishing attempts.
The data leak is occurring against a backdrop of newly proposed government regulations seeking to require a massive expansion of the collection and storage of user KYC and other personally identifiable information in both CeFi and DeFi.
While sharing news of the attack, banteg took to X reminding followers KYC necessarily entails “amassing lucrative datasets for hackers.” TradFi organizations overseeing the unwinding of several crypto bankruptcies (FTX, BlockFi, and Genesis) might do well to remember this and take additional measures to secure sensitive client data.
SEC v. Impact Theory
More regulation by enforcement:
On August 28th, the Securities and Exchange Commission (SEC) charged Impact Theory, LLC—a media and entertainment company headquartered in Los Angeles—with allegedly conducting an unregistered securities offering. In 2021, Impact Theory engaged in a non-fungible token (NFT) launch selling roughly $30 million in NFTs to hundreds of purchasers. This is the first unregistered securities sale claim involving an NFT launch.
The alleged securities violations occurred between October and December 2021 pursuant to Impact Theory’s sale of NFTs dubbed “Founder’s Keys” with three tiers—Legendary, Heroic, and Relentless. Impact Theory is accused of promoting the sale of these NFTs by suggesting purchasers would earn a profit from its business endeavors. Examples of this include Impact Theory emphasizing it was attempting to build the next Disney and—if successful—deliver substantial value to Founder’s Key holders.
Without admitting to the SEC’s claims, Impact Theory has agreed to a cease-and-desist order and will pay a combined total of more than $6.1 million in disgorgement, prejudgment interest, and civil penalties. Impact Theory also agreed to destroy all Founder’s Keys NFTs in its control, issue a notice of the order on its entertainment platforms, and eliminate any royalty it might receive from secondary NFT sales.
What’s New in LexDAO
LexDAO keeps working hard to further its mission of bringing legal resources, tools, and knowledge to the web3 community. Follow us below to see what we have been up to and what events are coming up!
GG18: LexDAO’s Q3 Gitcoin Grant Outcome [fundraising]
Though we’re still waiting on the official GG18 results, according to https://chaineye.tools/gr18:
We raised ~$2,000 from 117 votes plus QF matching pool
73 votes were QF matched
We placed #28 out of 239 projects, just shy of the top 10% QF matched percentile
For GG18, we changed our strategy and asked for donations to help cover our operational costs:
This is the first round in which we noticed organic community support that understands how important open source legal engineering is to web3! This bodes auspiciously for Q4’s GG19 results.
Some of our favorite compliments during GG18:
This post by @PinSav3
This post by @litter_token
LexDAO relies on the support of the web3 community to continue its operations and ongoing efforts to provide resources to others.
Though Gitcoin grants only run for two weeks every quarter, you can donate to LexDAO’s Giveth grant any day of the year! For the most up-to-date donation opportunities, please visit http://lexdaogrant.us.
Operations Committee Updates [news]
If you’re a member, remember to sign up to push notifications on LexDAO’s Snapshot!
LexDAO.org: Our Official Domain
In previous months we spoke about the changes coming to LexDAO’s website. After several months of work on the website relaunch, we are happy to announce that the first iteration of the site is now up and running. On July 14th, the DAO voted to approve the core domain of lexdao.org in a snapshot vote, which you can check out here.
Since then we have managed to redirect several domains to the our new landing page on the newly approved, central domain. Anyone can now visit our new website at lexdao.org so see the new layout. We hope that this new site will be a professional and user friendly gateway to continue to host critical content about LexDAO.
A huge thank you to Anson Parker who has been instrumental in the deployment of our server infrastructure and website configuration. We are continuing to work on the features of this new website and invite everyone, members and nonmembers alike, to stop by our Discord and give us feedback on the new layout.
Member directory: back by popular demand!
Context: when we decided to toke down the member directory a few months ago over privacy concerns, we got feedback from many of our members that they get clients from the directory and would like it back online as soon as possible.
Alongside our efforts to revamp the user experience and checkout process for new and returning members, we have embarked on a major overhaul of one of LexDAO's most in-demand features, the member directory.
This overhaul is slated to provide members with the ability to list profile information, credentials, and a contact module to receive leads from potential clients. A major component of this directory redesign has been to remove the ability for contact lists to be pulled in bulk from our public sites. It will also provide the seamless integration with a cryptocurrency checkout flow that will make the entire process of joining the DAO a more seamless and professional experience.
The directory overhaul is being led in large part by Brent Russell, an experienced PHP developer and white hat hacker, and we expect to have our new directory up and running by the end of September. This project was approved by the members in snapshot on August 23rd and can be found here.
LexDAO Template Agreements: An “SDK” for Open Law
We are working to firm up our Terms and Conditions as well as our Privacy Policy in preparation for the next phase of development work for our membership token revamp project. The privacy policy and terms and conditions are currently in draft and being managed by Paolo Gangi, a European Union privacy attorney who has been kind enough to work on setting this up for the DAO pro-bono. We thank him greatly for his time and effort.
We have also set up a Google Workspace to help manage documents and make information more accessible to the DAO. It is currently a permission-based system, but any active member in good standing is welcome to request access. Please reach out to the Operating Committee for access by tagging @ops in Discord.
While we recognize that using a Google product does not exemplify the spirit of web3 building, it is extremely cost effective, secure, and provides extensive version controls. In this case, we have decided that trying to build everything from scratch is not the best use of the limited resources we have. For the time being, using a prebuilt and secure file sharing and user management system makes the day-to-day business of running the DAO significantly easier on the leadership group. It also minimizes the learning curve for our members to find critical information to help everyone get up to speed as quickly as possible. We hope this will make it easier for everyone to know where to go when digging around for historical context, current projects, and contact information. It will also help us to manage the ever changing calendars and events across the DAO in a more appropriate platform than Discord Events.
Keep in mind that we will be simultaneously continuing to use more technology-forward and open-source systems, like our Github repository, wherever possible. We hope to run these and other open source software in parallel with the ultimate goal of hopefully replacing systems like Google Workspace with less "corporate" solutions as they become available, and we welcome membership efforts to accelerate that process.
Lastly, we are continuing to review the best options for updating our membership mechanism in a way that will help promote the longterm growth and health of LexDAO. Several options are currently being evaluated by the Operating Committee and all opinions, from members and non-members alike, are welcome.
As we come to this next chapter in the DAO technology stack, we hope that you will reach out to offer assistance on any and all of these projects. For anyone looking to help contribute, please reach out directly to your Assistant Operator (Cimply) at assistantoperator@lexdao.org.
Spin-Off DAO Coalition Develops OpenCivics Web3 Tools
DAO Coalition is a spin-off created by a LexDAO, Lobby3, ATX DAO and PAC DAO grant. Recently, DAO Coalition funded the development of a Hats Protocol and Snapshot integration.
We believe this Hats Protocol and Snapshot integration has the potential to become a high-impact governance tool. Have a look at the open source code here.
AMA with Enterprise Member SuperRare on AI Art [event]
Last month we mentioned that LexDAO admitted SuperRare DAO as our first Enterprise Member. We kicked off our work with SuperRare DAO this month with a Space discussion on artificial intelligence tools and the potential repercussions of using AI tools in projects on August 9. LexDAO members Kyle Smith (#bestape), Elizabeth Rothman (@liztechlex), and Stephen Kelly (@thor1223) joined the conversation to discuss how businesses using AI tools may encounter issues with trademark and copyright laws in the United States and abroad. The lack of judicial precedent surrounding the technology, and the current issues and fears surrounding adoption of AI tools to generate new content as demonstrated by the ongoing WGA and SAG-AFTRA strikes, underscore the need for legal and social clarity on the roles these technologies can and should play in society.
SuperRare DAO is a decentralized organization comprised of $RARE Keepers who have a shared interest in shaping the future of art. Their mission is to revolutionize the economics of human creativity by building a new art market anyone can access. Click here to learn more about SuperRare DAO.
If your DAO, law firm, or other organization is interested in Enterprise Membership and would like to see how you can work with LexDAO, please contact
here or on our Discord for more details.LexDAO’s Ross Campbell on Law of Code Podcast #111 Discussing ERC 1155 and Legal Engineering [event]
LexDAO’s Ross Campbell joined Law of Code podcast host, Jacob Robinson (@JacobRobinsonJD) on August 14 for episode #111. This was Ross’s third appearance on the podcast and he discussed ERC 1155 tokens and the state of legal engineering at Kali DAO and Nani. The conversation also included Ross’s ongoing efforts to develop a better-designed smart contract library for DAOs that are lean, minimal, easy to understand, and efficient and existing unincorporated nonprofit associations and limited liability company laws for DAOs to solidify their legal standing. Click here to listen to the podcast.
LexDAO joins Space on Gitcoin Grants Round 18 [event]
Kyle joined the Space on Gitcoin Grants Round 18 on August 21 and the DAO Club Gitcoin Grants Session to represent LexDAO and promote LexDAO. For those that don’t know, LexDAO is the industry’s leading legal impact DAO striving to build a world where decentralized organizations to thrive within the law.
Our mission is to promote legal engineering as a profession by directly participating in endeavors such as blockchain advocacy, smart contract development and education. Legal engineering is the application of computational law in daily decentralized life, including lowering legal costs through smart contracts and open source ethics, as well as the study and practice of advocating for equitable integration of computational law within applied jurisprudence as a whole.
If you are interested in supporting LexDAO, please check out our linktree for the latest opportunities to donate and make a difference!
Thanks to Kyle for his ongoing efforts to spread awareness for LexDAO’s continuing mission!
Upcoming Events
ETH Global NYC on September 21-24 [event]
ETH Global is taking place in New York City from September 21-24. LexDAO is applying to participate and is seeking LexDAO members interested in participating by attending in person, speaking at the event, and meeting up with other members in attendance. Please reach out to @Cimply if you plan to attend or would like to hear more about how you can help represent LexDAO at the event!
ETHMilan on October 5 and 6 [event]
ETHMilan will be taking place in Milan at the Hotel Palazzo Delle Stelline on October 5 and 6. You can visit the official event website to read about the topics to be discussed, see a list of speakers, apply to speak, sponsor, or volunteer at the event, and buy tickets
LexDAO will have some goodies to hand out at the event and LexDAO member, Paolo, will be attending. So, if you will be there as well, make sure to find him and pick up some exclusive LexDAO swag.
Crypto Futures & Legal Engineering - A Próspera Builders’ Summit on November 3 [event]
A Buidlers’ Summit on Crypto Futures & Legal Engineering will be hosted by Infinita and LexDAO in Próspera on November 3 from 10:00 AM to 6:00 PM CST. This will be a multi-session event for cypherpunks, legal hackers, financial engineers, and others working and investing in startups seeking to challenge the status quo and accelerate innovation using digital assets powered by blockchain-enabled financial systems.
Speakers from across the industry will host introductory sessions on the Próspera legal and regulatory system, workshops for attendees to discuss business ideas a new technologies, and present startup and project ideas currently in development. And all of this is taking place on a beautiful island in the Caribbean with plenty of sights to see, places to visit, and experiences to bring back with you.
Click here to learn more about the event and purchase tickets and join the Telegram chat to coordinate with and meet other attendees.
Like what you see?
LexDAO relies on donations from the community to maintain our operations and continue delivering content and resources to the web3 community. If you enjoy our work, please consider donating! Visit https://lexdaogrant.us to see how you can contribute. Thank you ❤️🙏
Get Involved!
LexDAO is always looking for new members! If you are interested in the work we are doing:
Check out our Discord and ask some questions (feel free to DM our Assistant Operator Cimply (Cimply#3820) with any onboarding questions).
Join our bi-monthly governance calls on Wednesdays at 12pm EST in Discord!
When you are ready to join, fill out this form and check out this post for all the information that you need to apply.
Special thanks to our contributors: Nick Cross, Kris Jones, @txBlokChainLaw, and Kyler Wandler