Congress may be in its August recess, but the crypto legal developments have not slowed. The SEC’s Division of Corporation Finance released long-awaited guidance on Proof-of-Stake liquid staking tokens, clarifying when such activities may fall outside the scope of securities laws. The very next day, a jury returned a split verdict in the Department of Justice’s criminal case against Tornado Cash developer Roman Storm, a case that leaves unanswered fundamental questions about individual liability in creating neutral privacy-preserving software. This all comes while Wall Street and public/soon-to-be-public companies have been looking for legally compliant ways to integrate crypto into their business strategies. Together, these updates capture the evolving legal landscape for crypto, as regulators and courts wrestle with how to apply traditional frameworks while embracing developing technologies.
Detailed breakdowns of these developments, their implications for businesses going forward and a few other updates on crypto-law topics are discussed below.
SEC Issues Guidance on Proof of Stake Liquid Staking Tokens: Aug. 5, 2025
Background: For the less crypto savvy, liquid staking tokens (LSTs) are tradable tokens received in exchange for staking cryptocurrency with a Proof-of-Stake (PoS) protocol. These tokens serve as receipts — representing staked assets plus accrued rewards — while allowing the holder of the tokens to use them in decentralized finance activities. This enables investors to earn staking rewards without fully locking up liquidity since the LST can be sold, lent or otherwise used while the original underlying staked asset remains locked in the network. The SEC’s Division of Corporation Finance has now released guidance on when it views “Liquid Staking Activities” as not involving the offer or sale of securities. Importantly, this guidance is limited and does not mean that all configurations of LST issuance and redemptions fall outside of the activities regulated by the SEC and state securities regulators.
Analysis: This statement follows prior guidance on Covered Stablecoins, Memecoins and Staking, and it continues the current SEC’s approach of issuing targeted regulatory guidance for digital asset activities, where previously Commissioners advocated for (and some continue to advocate for) ambiguity. Polsinelli specifically called for the Commission to address liquid staking tokens in our written submission to the SEC on behalf of the Digital Chamber (see, pg. 20), making this exactly the type of guidance that leading industry advocacy groups are actively seeking. One big takeaway is that the guidance only addresses “the staking of crypto assets that are intrinsically linked to the programmatic functioning of a public, permissionless network and are used to participate in and/or earned for participating in such network’s consensus mechanism or otherwise used to maintain and/or earned for maintaining the technological operation and security of such network.” Further, while the latest guidance specifically referenced the SEC’s prior staking guidance, this statement appears to have been carefully crafted to avoid explicitly limiting the guidance to only apply to PoS protocols. Given the already substantial LST market, this guidance is particularly important as crypto treasury companies expand and look for ways to earn yield on their token holdings.
DOJ v. Storm Privacy Preserving Technology Criminal Trial Ends: Aug. 6, 2025
Background: The trial in the DOJ’s criminal prosecution of Roman Storm, a developer of privacy preserving technology, lasted about three weeks. The DOJ’s case alleged Storm’s knowledge of criminals using the privacy tool he created (alongside noncriminal use) placed put him in a conspiracy with the criminals who used the technology. The case concluded with a verdict of guilty on the charge of conspiracy to operate an unlicensed money-transmitting business, but the jury deadlocked on the charges of conspiracy to commit money laundering and conspiracy to violate sanctions. The verdict came a week after closing statements — as jurors needed additional time to deliberate — but they were still ultimately unable to reach a unanimous verdict in two of the three charges. This means the DOJ must now decide whether or not to request a new trial on those counts. The case echoes Bernstein v. United States, which was critical in articulating that the right to free speech includes the right to create and publish cryptographic technology, the backbone of online privacy today. Storm’s case could prove equally significant in defining individual rights to create “neutral” privacy-preserving software.
Analysis: The government’s case featured questionable evidence and witness complications. The first witness testified that a “recovery firm” told her that crypto that was stolen from her was sent through the Tornado Cash protocol. It was reported, however, that the “recovery firm” was actually under investigation by the FBI for fraud, and her stolen crypto likely never actually touched the protocol. There were also issues around witness availability: after it was reported that prosecutors were still considering charges against certain defense witnesses, those witnesses to pled the Fifth instead of testifying for the defense. The fact that the only charge for which Roman Storm was convicted — regarding failing to obtain a license — was for something FinCEN, which issues such licenses, directly told the DOJ a person doesn’t require a license for makes the issue seem ripe for appeal. This is far from over, as the sole conviction was also the most centered on legal vs. factual issues, and post-trial motions are expected, but the verdict itself was a mixed result with uncertain implications for the creation of non-custodial software generally. This also comes as the Department of Treasury is looking for comments on how to address illicit finance issues in digital assets.
Briefly Noted:
Public Markets Booming: While it may be ambivalent about the adoption of stablecoins and other cryptocurrencies, Wall Street seems to be clamoring for more public company activity in the space. In addition to the dozens of crypto treasury companies that have launched or are rumored to be launching and the successful IPO of stablecoin issuer Circle, Gemini publicly filed Form S-1 in advance of an IPO, and Bullish — the owner of an exchange that doesn’t even permit U.S. investors, along with other related businesses, including CoinDesk — significantly upsized its IPO, ultimately raising about $1.1 billion dollars. There has been great flexibility in the transaction structures of these vehicles, from traditional IPO to moving existing listings to the U.S., to de-SPAC transactions, to mergers into existing listed companies, to simply shifting the business strategy of an existing public company. Polsinelli has been advising investors and other stakeholders in all flavors of these transactions.
Digital Chamber Releases Comments to Senate Working Draft: The Digital Chamber has submitted its response to the Senate Banking Committee’s digital asset market structure working draft questions. The Senate will have much to consider when they return from the August Congressional Recess.
Crypto Executive Orders: The President issued two Executive Orders related to crypto recently. The first mandates that the Secretary of Labor issue guidance for 401ks that includes “alternative assets,” including crypto. The other is related: preventing a recurrence of Operation ChokePoint 2.0, which under the prior administration severely limited the banking opportunities of crypto industry participants by requiring federal banking regulators to create policies preventing de-banking based on political or industry affiliations.
White House Crypto Head Steps Down: Bo Hines is stepping down as the executive director of the White House crypto council to return to the private sector. With the President’s Working Group on Digital Asset Markets having completed its report, this was likely a good time to hand off the reigns to others to continue these efforts.
Crypto Privacy Updates: In light of the Tornado Cash verdict, this article from Coinbase on privacy preserving technologies like zero-knowledge proofs, and this speech from SEC Commissioner Peirce on the importance of financial privacy preservation, provide compelling reasoning for the importance of preserving financial privacy in an increasingly digital world, as well as the struggles of doing so.
Uniswap DUNA Proposal: Uniswap proposed adopting a DUNA corporate wrapper for its existing token governance structure. The DUNA structure was introduced by Wyoming and created last year to attract crypto businesses. Seeing an extremely sophisticated team like Uniswap make this proposal and become one of the first major DAOs to contemplate a DUNA corporate structure is certainly something worth monitoring. That said, the structure is just one of many in the decentralization toolbox and still may not be appropriate for many DAOs and other protocols looking to decentralize, particularly in light of potential tax consequences and significant ambiguity within the DUNA law itself.
Do Kwon Pleads Guilty: Three years after the Terra/Luna collapse that contributed to the downfall a crash of 3AC and FTX, founder Do Kwon plead guilty to two counts of federal fraud. He faces up to 25 years in U.S. prison, after which he still may face extradition to South Korea — which engaged in a tug-of-war with U.S. authorities regarding his release from prison in Montenegro.
Conclusion:
Both the SEC’s liquid staking guidance and the mixed verdict in Storm’s trial reflect an inflection point for U.S. crypto regulation. Industry stakeholders now have greater clarity on certain staking activities, yet the line between permissible software development and unlawful facilitation of financial crime remains contested. With additional executive action from the White House, new market structure proposals from Congress and industry-led governance experiments such as Uniswap’s DUNA initiative, the legal and policy environment for digital assets is changing at an unprecedented pace.
How regulators, courts and industry participants navigate these developments in the coming months will shape not just compliance obligations, but also the broader trajectory of innovation in blockchain-based finance.
