Blockchain Analysis & Investigations

Looking ahead, 2025 will be a pivotal year for blockchain, digital asset, and cryptocurrency-related legislative and regulatory policy across the Federal government. With Republicans now controlling both chambers of Congress and President Trump in the White House for a second term, this ‘trifecta’ will be integral in shifting the approach the United States takes towards policies impacting blockchain, cryptocurrencies, and other emerging financial technologies. Last year, the Financial Innovation and Technology of the 21st Century Act (FIT-21) was the first ever joint House Financial Services and Agriculture bill designed to bring some structure to the cryptocurrency market. It garnered bipartisan support in the House, with 71 Democrats voting for the bill, showcasing broader Democratic support for these issues. Stablecoin legislation also drew bipartisan and bicameral interest, which will continue to be a priority this Congress. Coupled by an unparalleled number of pro-digital asset candidates winning election or reelection to Congress, lawmakers will show–and already have shown a commitment to prioritizing these issues this year moving forward.  Key Figures in Congress  In Congress, the House Financial Services Committee and the Senate Banking Committee, as well as the House and Senate Agriculture Committees, are at the forefront of crafting policy surrounding digital asset regulation.  Newly appointed House Financial Services Committee Chairman French Hill (R-AR) is known for his supportive stance on cryptocurrency and blockchain technology. Rep. Hill played a key role in the drafting, development, and ultimate passage of FIT-21 and will continue to advocate for policies that promote innovation in the digital asset space while ensuring consumer protection and market stability. We also expect him to align digital asset policies with the broader GOP agenda under the Trump Administration. With such tight margins in the House this year, Democratic support for any framework will also be necessary, as with FIT-21. Democratic Members on the Financial Services Committee, including Reps. Josh Gottheimer (D-NJ), Jim Himes (D-CT), and Richie Torres (D-NY), have been forward leaning on these issues and worked with the Majority to add amendments to the bill during mark-up. Ranking Member Waters (D-CA) had worked closely with former Chairman McHenry (R-NC) on stablecoin legislation in the last Congress including a last-minute push at the end of last year. That work will continue this year with Rep. Waters staying stablecoin legislation remains a top priority for her.  With Republicans now controlling the majority in the U.S. Senate, Senate Banking Committee Chairman Tim Scott (R-SC) has already indicated he plans to move forward on digital asset issues and has created a  new subcommittee on digital assets which will be chaired by Sen. Cynthia Lummis (R-WY), a longtime cryptocurrency and digital asset supporter. Senator Sen. Elizabeth Warren (D-MA) is the new Ranking Member of the Senate Banking Committee and has been vocal about her concerns with the industry over consumer protection issues and illicit finance and the need to regulate. However, in the 119th Congress the Committee will also include several newly appointed Democrats whose approach to policies in the crypto space are expected to differ from their Ranking Member. Senator Warren has named Senator Ruben Gallego (D-AZ) to be the Ranking Member of the Digital Assets Committee, showcasing an interest in having new Members take a leadership role on an important set of issues for the Committee.   The House and Senate Agriculture Committee will also continue to be active on these issues as they were in the 118th Congress. The House Agriculture Committee, led by Chairman G.T. Thompson (R-PA), returned to his position and took a leadership role in working closely with the House Financial Services Committee on FIT-21, the first ever joint HFSC and Agriculture bill. The Committee has a new Ranking Member, Rep. Angie Craig (D-MN), who won a contested race amongst House Democrats to take over this role.  In the Senate, Sen. Boozman takes over as the Chairman of the Agriculture Committee and with the retirement of former Sen. Stabenow (D-MI), Sen. Amy Klobuchar (D-MN) takes over as Ranking Member. Both have stated publicly they plan to fully engage on these issues and to work closely with the House Agriculture Committee.  The Trump Administration: New AI/Crypto Czar and an Executive Order on Digital Assets In the White House, President Trump is taking a significantly different approach to digital assets compared to his first Administration. He has established a new position within the White House, appointing former PayPal executive David Sacks as the “AI and Crypto Czar.” This role is designed to spearhead the administration's efforts in the rapidly evolving fields of artificial intelligence and cryptocurrency. Sacks, a prominent venture capitalist and co-founder of an AI company, is expected to bring a pro-industry stance to the position, which aligns with the administration’s broader goals of fostering innovation and reducing regulatory barriers. On January 23, 2025, President Trump issued an Executive Order (EO)  focusing on digital assets, stablecoins and CBDCs, entitled “Strengthening American Leadership in Digital Financial Technology.” The EO outlines the Administration’s policies on digital assets, financial technologies, and blockchain, such as ensuring open access to public blockchain networks, fair access to banking services, and prohibits any establishment of a CBDC. Notably, the EO establishes a working group within the National Economic Council to be chaired by Sacks to propose a federal regulatory framework for digital assets focusing on market structure, oversight, consumer protection, and risk management. The appointment of Sacks coincides with other significant changes in the regulatory landscape, such as the anticipated confirmation of Paul Atkins to be Chairman of the SEC. Atkins’ predecessor, Gary Gensler, took a very aggressive ‘regulation by enforcement’ approach to emerging digital assets. This alignment suggests a concerted effort by the administration to overhaul existing policies and focus on clearer guidance to industry on how the SEC views securities in the digital assets and cryptocurrency industry. Soon after being named Acting Chair, Commissioner Mark Uyeda announced the creation of a crypto task force dedicated to developing a comprehensive and clear regulatory framework for crypto assets. Under Uyeda, the SEC has already rescinded Staff Accounting Bulletin 121, which created onerous reporting requirements on banks and crypto companies.   Legislative Focus on Blockchain and Fintech The House Financial Services Committee, under Chairman Hill’s leadership, is expected to work on policies that integrate digital assets into the broader financial system, while also potentially addressing regulatory clarity and consumer protection. Both the House Financial Services Committee and the House Agriculture Committee have indicated that they will focus on updating FIT-21, working with industry and the new Trump Administration, all of which will be a primary focus in the first six months of the year. Meanwhile, the Senate Banking Committee, led by Sen. Scott, aims to champion legislative changes that support the crypto industry's growth, addressing concerns about innovation being stifled by existing regulations. Stablecoin legislation, which had bipartisan support in the House is likely to be moved more quickly early in 2025, while efforts will continue on updating FIT-21.  The collaboration between Congress and Administration officials will be crucial in shaping a comprehensive approach to fintech and digital assets. While the legislative efforts will likely focus on creating a balanced regulatory environment that fosters innovation and includes consumer protection issues  while ensuring the stability and security of the financial system; the Administration is likely to focus on issues such as the SEC and the CFTC working in lockstep with Congress to pass a legislative and regulatory framework for digital assets that includes consumer protections and clearer “rules of the road.” This alignment and a broader focus by more Members in a bipartisan and bicameral fashion appear to showcase an optimistic 2025 for consumers and the industry.  Authors: Norma Krayem (VP & Chair, Cybersecurity, Privacy and Digital Innovation, Van Scoyoc Associates) Scott Mason (Senior Policy Advisor at Holland & Knight LLP)

A Primer: Understanding Tokenized Real-World Assets by: Lilya Tessler (Partner), Andrew Sioson (Partner), and Erika Cabo (Senior Managing Associate) at Sidley Austin, LLP Tokenization of real-world assets (RWAs) is revolutionizing the way we perceive and manage assets. This article aims to provide an overview of RWAs, debunk common myths, and outline the legal considerations and risks associated with tokenized RWAs. What Are Tokenized RWAs? The term “tokenized RWAs” refers to the digital representation of physical or intangible assets utilizing a token recorded on a blockchain. This innovative approach allows for the efficient recording, trading, transferring, and management of tangible assets in a digital format.  A wide range of RWAs can be tokenized, including real estate, commodities, art, and intellectual property. By recording ownership of these assets using digital tokens, they can be more easily tracked and traded on blockchain platforms. This is similar to the e-commerce trend in the 1990s, when online shopping sites were developed to allow consumers to buy physical goods by seeing digital images on the internet, instead of physically going to a brick-and-mortar store in a shopping mall to see, feel, and buy the items.  The primary benefits of tokenizing real-world assets include increased liquidity, fractional ownership, and enhanced transparency. Tokenization allows for the division of assets into smaller, more affordable units, making it easier for a broader range of purchasers to participate. Additionally, the use of blockchain technology ensures a transparent and immutable record of ownership and transactions.  Debunking Myths: Tokenized Assets vs. TGEs and STOs Tokenization is not a new concept. Digital records have existed for years from digital shopping sites, digital concert tickets, and digital securities. Tokenization of RWAs is simply recording these digital records on a blockchain as opposed to other centralized databases. Tokenizing an asset does not change the nature of the asset and it is not to be confused with token generation events (TGEs) or security token offerings (STOs). Below are some of the common myths regarding asset tokenization that need to be clarified. Myth 1: Tokenizing an Asset Changes the Nature of the Asset Tokenizing an asset does not change the nature of the asset itself. Tokenization is the process of creating a digital representation of a physical or intangible asset using a token recorded on a blockchain. This digital token serves as a record of ownership and can be traded or transferred on blockchain networks. However, the underlying asset remains the same, whether it is real estate, art, commodities, or intellectual property. The token merely provides a more efficient and transparent way to manage and transfer ownership of the asset, without altering its fundamental characteristics or value.  Myth 2: Tokenized Assets Are TGEs TGEs are a mechanism used by new blockchain protocols to distribute tokens to potential users of the network. These tokens, such as ETH (Ethereum) and AVAX (Avalanche), are designed to provide functionality within the blockchain ecosystem, enabling users to interact with the network, pay for services, or validate transactions, among other uses. TGEs are not a form of fundraising, but they are also not tokenized RWAs, because the token associated with the TGE represents utility on the network and not a digital representation of an actual asset. In contrast, tokenized RWAs are digital representations of actual, tangible, or intangible assets. The value of these tokenized RWAs is directly linked to ownership of the underlying assets, which can be verified and audited. Myth 3: Tokenized Assets Are Just Another Form of STOs STOs involve the issuance of tokens that are classified as securities and are subject to regulatory oversight. These tokens are backed by assets that generate income or have equity-like features, such as dividends, voting rights, or profit sharing. Although tokenized RWAs can be tokenized equity or fund interest, they are not limited to securities and have many more benefits when representing a wide range of other physical or intangible assets. The primary focus of tokenized RWAs is on the digital representation and fractional ownership of these assets, rather than raising capital through the issuance of securities. Legal Considerations Regulatory Compliance: Navigating the regulatory landscape is crucial for tokenized RWAs. Compliance with U.S. securities and commodities laws, anti-money laundering regulations, commercial laws, and know-your-customer requirements is essential to ensure the legality and legitimacy of tokenized assets.  Ownership and Transfer of Title: The digital representation of an asset must accurately reflect the legal ownership of the holder and their enforceable right to the underlying asset. Ensuring clear and enforceable ownership rights is critical to the success of tokenized RWAs. Smart Contracts: Smart contracts are self-executing agreements encoded on the blockchain and triggered by predefined conditions. While they play a vital role in automating and streamlining the tokenization process, one must consider whether smart contracts are enforceable, comply with existing contract laws and regulations, and adequately address potential disputes and contingencies.  Jurisdictional Issues: Tokenized assets can be created and traded globally, raising questions about cross-border jurisdiction and applicable laws. Being aware of the roles of regulatory bodies such as the U.S. Securities and Exchange Commission, U.S. Commodity Futures Trading Commission, European Securities and Markets Authority, Monetary Authority of Singapore, Hong Kong Monetary Authority, and others globally is of paramount importance in navigating different legal frameworks and standards for tokenization.  Risk Considerations and Management Security Risks: Blockchain technology is not immune to cybersecurity risks, such as hacking, phishing, or malware attacks. Tokenized assets may be vulnerable to theft, loss, or manipulation if the private keys, wallets, or platforms that store and access them are compromised. Ensuring the security and integrity of the blockchain and the tokenized assets is paramount to protecting investors and maintaining trust in the system. Market Risks: Tokenized assets are subject to market volatility and liquidity risks, depending on the supply and demand of the tokens and the assets, as well as the performance and stability of the blockchain platforms. Considering risk mitigation strategies is essential in order to protect investments and navigate the complexities of the tokenized asset market. Conclusion Tokenized RWAs represent a significant advancement in the management and trading of physical and intangible assets. They can unlock new value, efficiency, and innovation for both asset owners and investors. However, they also pose significant legal challenges and risks that need to be addressed and managed. Seeking guidance from law firms on regulatory compliance, ownership issues, and risk management, while engaging with experienced vendors and blockchain platforms, can provide the necessary technical knowledge and support to ensure the smooth operation of tokenized RWAs. As the landscape continues to evolve, staying informed and proactive will be key to leveraging the full potential of tokenized RWAs.

Audio show ushers in a new and necessary storytelling format for navigating the world of Web3, exploring themes of privacy, regulatory compliance, niche markets makers, and decentralized exchange ecosystems in blockchain. Web3 policy-focused podcast, Owl Explains, returns for a second season of ‘Crafting The Crypto Economy’ with leading academics to tackle timely regulatory challenges and the practical blockchain applications reshaping Web3. Focusing on critical topics from Decentralized Exchanges (DEXes) regulation, blockchain privacy, and MEV mitigation, ‘Crafting The Crypto Economy’ introduces academic thoughtleaders and papers from around the world with the latest research on blockchain technology and the crypto economy. With five substantive episodes, Season 2 drops in with well-timed topics to equip policymakers and stakeholders with valuable insights on Web3 regulation and emerging challenges. The hosts of this series, Professors Andreas Park (University of Toronto) and Fahad Saleh (University of Florida) are leading authors in Blockchain Economics and Finance and are part of the Crypto and Blockchain Economics Research (CBER) Forum. The group producing the podcast, Owl Explains, is a trusted blockchain policy resource driven by the expertise of Ava Labs’ Legal team. This partnership between Owl Explains and the CBER Forum seeks to bridge the gap between academic rigor and actionable insights for policymakers. As the SEC increasingly scrutinizes decentralized finance (DeFi) platforms, Episode 1, ‘Regulation of Decentralized Exchanges,’ with Professors Campbell Harvey of Duke University and Joel Hasbrouck of NYU Stern, dives into the novel risks for traders who trade at DEXes and why standard regulatory approaches are not well-suited for addressing those risks. In Episode 2, ‘Blockchain Privacy and Regulatory Compliance,’ Professor Fabian Schär from the University of Basel discusses how blockchain users may attain privacy in their transactions while also remaining compliant. Despite the perception of anonymity, most blockchain transactions are traceable, leading to a rising demand for privacy solutions. The episode explains how blockchain identities are not anonymous and what methods may be implemented to achieve both privacy and regulatory compliance. Detailing the economic values presented in the concepts of Maximal Extractable Value (MEV) and Loss-Versus-Rebalancing (LVR), Columbia University’s Professor Ciamac Moallemi discusses associated mitigation methods such as expedited block times and auction mechanisms for extraction in ‘Mitigation Methods for MEV and LVR.’ Moving into intent-based markets (i.e., Uniswap X, CoW Swap) as a hot topic, ‘Decentralized Exchange (DEX) Aggregators and Solvers,’ with Professor Mallesh Pai of Rice University, explores the economic implications of these niche markets, potential outcomes for traders, and the impact of their underlying economic structures. The World Economic Forum predicts that 10% of global GDP will be tokenized on the blockchain by 2027. Wrapping up the Season 2, ‘Deep-dive on the Avalanche Blockchain’ features Ava Labs’ Chief Protocol Architect Stephen Buttolph to discuss how Avalanche’s blockchain can be used for the tokenization of real-world assets, specifically through the lens of Avalanche’s consensus protocol. Owl Explains and the CBER Forum are committed to helping regulators navigate the world of Web3 and break through the hype. In an always-on blockchain landscape, ‘Crafting The Crypto Economy’ breaks through the noise, leveraging curated perspectives and mental models from top minds in the space.