What actually happened? DC crypto news, explained
Separating signal from noise in recent crypto news: Tornado Cash, SAB 122, and more
Recent policy news & updates: What founders should know
1. The latest on the Tornado Cash case: the signal vs. the noise
The news: Multiple media outlets have been reporting that the case has been “reversed” or “overturned”, or that the sanction orders are to be “lifted”. These reports are likely due to the appearance of a document filed in the U.S. District Court for the Western District of Texas case docket on January 21, 2025.
The big picture: For context, in 2022 the U.S. Treasury sanctioned Tornado Cash for money laundering of cybercrime proceeds, including proceeds of North Korean hacks. The case initially made headlines in the crypto community when the Dutch Fiscal Information and Investigation Service detained a developer of Tornado Cash. We covered this in detail here with a16z crypto illicit finance experts and former government prosecutors Michele Korver and Jai Ramaswamy.
What actually happened: The January 21 filing is simply a procedural action. Nothing new has been decided since November 2024, when the Court of Appeals for the 5th Circuit issued an order and opinion finding in favor of the plaintiffs, and sending (“remanding”) the case back to the district court for further action.
Basically: The 5th Circuit order in November reversed the district court decision, and held that Treasury “exceeded its statutory authority” when it sanctioned Tornado Cash’s immutable smart contracts. In the order, the 5th Circuit remanded the case back to the district (that is, the trial-level) court in Texas to determine remedies. Now, the district court in Texas has to re-open legal proceedings in light of the Court of Appeal’s order. That’s why the district court is updating its docket, and getting ready to restart proceedings and move the case forward — whether to issue another opinion, schedule additional briefing, or hold another hearing.
Some more in-depth detail: The legal term of art involved here is the appeals court issuing a “mandate”. Even if an appellate court has published an opinion in a case, the district court cannot take back the case for further action until said mandate is issued. This is accomplished sometime after the ruling — when the clerk's office for the district court receives a certified “mandate” stamped copy of the appeals court order — which is then filed on the court docket in the relevant underlying case.
The bottom line: Nothing new to see here (at least since November 2024); the case is now in the Texas district court for a fight over remedies. The Tornado Cash sanctions are still in effect until the district court enters an order to the contrary.
Some things to watch for:
A similar case was filed last October 2024 against OFAC and others, arguing that the Tornado Cash case was “unprecedented and unlawful” among other things. This case is yet to be decided in the 11th Circuit (Southern states) court of appeals. How the 11th Circuit court decides the issue could also affect whether this goes to the Supreme Court. (Note that the government could also still petition for review by the Supreme Court, though this is fairly unlikely in the current environment.)
The district court could order a nationwide vacatur and set aside the initial Tornado Cash ruling. The current 5th Circuit case law supports this, but the outcome isn’t guaranteed.
The case to keep an eye on: The criminal indictment in the Southern District of New York brought by the U.S. Department of Justice against Tornado Cash developers. It is possible that the civil case reversal in Texas (and Florida if it follows) could help some of the legal arguments in the criminal case — if the court confirms that Treasury exceeded its authority under the law in sanctioning these smart contracts and calling them “property”.
Industry implications: The criminal case will have implications not just for Tornado Cash but for all non-custodial software protocols. Watch this space; we’ll keep you posted on any important developments.
2. The latest on SEC Staff Accounting Bulletin 121: now rescinded!
The update: Last week, the SEC issued Staff Accounting Bulletin (SAB) No. 122, which “rescinds the interpretive guidance” in the bulletin series entitled Accounting for Obligations to Safeguard Crypto-Assets an Entity Holds for its Platform Users” — aka SAB No. 121.
Why it matters: SEC Staff Accounting Bulletin SAB No. 121 — which was effective as of April 2022 — directed entities safeguarding customers’ crypto assets to move them onto their balance sheets. This required custodians to treat crypto assets as liabilities — a practice at odds with the traditional accounting treatment for custodied assets.
With SAB No. 121 repealed, custodied digital assets can now reflect the nature of the custody arrangements (rather than an inherent presumption of liability). This was one of 6 immediate steps we recently suggested that the SEC could take to immediately create “fit-for-purpose” regulations, without sacrificing innovation or critical investor protections.
According to the new bulletin No. 122, custodians can now apply Financial Accounting Standards Board standards, U.S. generally accepted accounting principles, and International Financial Reporting Standards as appropriate. The bulletin also asked custodians to consider “existing requirements to provide disclosures” so that customers understand the nature of the custodial relationship, obligations, and risks.
The journey: As reported in our ongoing regulatory updates, many policymakers protested SAB No. 121 when it was first introduced, calling on Congress to block it. The U.S. Government Accountability Office (GAO) found in October 2023 that SAB No. 121 should have been submitted for Congressional review as part of a rulemaking process. In February 2024, Senator Cynthia Lummis (R-Wyo.), and House Representatives Wiley Nickel (D-N.C.) and Mike Flood (R-Neb.), introduced a joint Congressional Review Act resolution to overturn SAB No. 121. Nickel later wrote to former SEC Chair Gary Gensler, accusing the SEC of turning crypto regulation into a “political football” that forced the president to “choose sides on an issue that matters to many Americans”.
The bulletin was almost repealed in May 2024 when the House of Representatives and the Senate passed a bipartisan resolution to undo SAB No. 121, but it was vetoed by former President Biden (who had to sign the resolution for it to take effect). Senator Cynthia Lummis, former House Financial Services Committee Chair Patrick McHenry, and others sent a letter to President Biden urging him to reconsider, given its passage in Congress with strong bipartisan support.
Industry implications: Although challenges may still limit some banks from directly custodying crypto, it is now more financially viable for them to do so since they are not required to carry customer assets as liabilities.
3. Executive order: on digital financial technology
President Trump issued a new executive order on “Strengthening American Leadership in Digital Financial Technology” on January 23. The order noted that:
“The digital asset industry plays a crucial role in innovation and economic development in the United States, as well as our Nation’s international leadership. It is therefore the policy of my Administration to support the responsible growth and use of digital assets, blockchain technology, and related technologies across all sectors of the economy…”
The order then included several policy recommendations; revoked some previous orders; and established a working group on digital asset markets, chaired by White House AI & Crypto Czar David Sacks, who shared his summary here.
One notable aspect of the order — to focus on teasing apart signal vs. noise — was on the previously reported bitcoin strategic reserve. Here, the order noted that the working group would evaluate creating and maintaining a “national digital digital asset stockpile” — one that is “potentially derived from cryptocurrencies lawfully seized by the Federal Government through its law enforcement effort.”
…Plus other ‘news you can use’: Consumer crypto apps to try out
There’s been a number of recent product announcements that crypto users and novices alike can try out, and without necessarily having to use crypto directly. These span restaurants rethinking how loyalty rewards work to redefining how modern entertainment franchises are developed —
In Variety: “David S. Goyer Sets ‘Emergence’ Franchise at New AI and Blockchain-Driven Platform Incention”
“Centered around a white hole in a galaxy, the ‘Emergence’ franchise will feature various storytelling mediums, including podcasts, comics, and animations. Built using blockchain AI storytelling platform Story, Incention will launch Goyer’s [Foundation and The Dark Knight trilogy writer and producer] project to ‘showcase the potential of this revolutionary model’ and ‘capture mainstream attention while redefining how IP evolves.’ ‘Emergence’ will be created by Incention users as well as through its generative AI tool, Atlas, which is designed to serve as a ‘creative partner’ to help with common tasks like aggregating ideas, crafting narratives, and generating full videos.”
In How I Built This: “Resy and Eater: Ben Leventhal”
“When Ben Leventhal first started blogging about New York City’s restaurant scene in the early 2000s, he was doing it as a hobby. But as the website Eater gained weight and spread to other cities, it became a snarkily influential voice in the dining world. Recognizing that many restaurants struggle to survive, Ben then co-founded Resy, a booking app that squeezed more value into seats by charging diners higher rates for a hot table. When this business model flopped, Resy made a rapid pivot that eventually paid off…”
Also see and hear how Ben Leventhal — now the founder and CEO of BlackBird — is revamping the restaurant industry with crypto, in conversation with a16z crypto General Partner Arianna Simpson, here and here.
— a16z crypto
You’re receiving this newsletter because you signed up for it on our websites, at an event, or elsewhere (you can opt out any time using the ‘unsubscribe’ link below). This newsletter is provided for informational purposes only, and should NOT be relied upon as legal, business, investment, or tax advice. This newsletter may link to other websites or other information obtained from third-party sources — a16z has not independently verified nor makes any representations about the current or enduring accuracy of such information. Furthermore, the content is not directed at nor intended for use by any investors or prospective investors in any a16z funds. Please see a16z.com/disclosures for additional important details, including link to list of investments.