Lowenstein Crypto advises leading digital asset and cryptocurrency projects, exchanges, and trading firms. Our practice covers regulatory advice, transactions and structuring advice, investigations, and adversarial matters including commercial disputes, bankruptcy, and related litigation. As these markets continue their rapid growth and market participants continue to evolve and mature their businesses, we are providing this weekly digest as a resource that highlights and summarizes a selection of key recent legal regulatory developments.
Ethereum Protocol Advocacy Alliance Formed by Seven Leading Protocol Teams.
On Nov. 5, seven Ethereum-based protocols released an announcement regarding the creation of the Ethereum Protocol Advocacy Alliance (EPAA), which aims to coordinate policy efforts with government and regulatory authorities. The initial members include, Aave Labs, Aragon, Curve, the Lido Labs Foundation, the Spark Foundation, the Graph Foundation, and the Uniswap Foundation. The EPAA’s priorities are to protect the neutrality of the Ethereum protocol layer, advance on-chain transparency, preserve flexibility for protocol innovation, and uphold global permissionless access. The EPAA also noted that it has partnered with organizations including the DeFi Education Fund, the Decentralization Research Center, and the European Crypto Initiative. See the announcement here.
Hong Kong Expands Crypto Exchange Access and Offerings.
On Nov. 3, Hong Kong’s Securities and Futures Commission (SFC) issued two circulars that expand the operational scope of licensed virtual asset trading platforms (VATPs). Under the new guidance, SFC-licensed VATPs may now share order books with affiliated oversees platforms, enabling cross-platform order matching to enhance liquidity and price discovery. This integration requires prior written approval from the SFC and must comply with applicable regulatory requirements. The SFC also relaxed listing criteria, allowing VATPs to offer virtual assets without a 12-month trading history to professional investors. Stablecoins authorized by the Hong Kong Monetary Authority are exempt from this track record requirement. Additionally, the circular permits the distribution of tokenized securities and digital asset investment products and allows associated entities to provide custody services for off-platform assets. See the circulars here and here.
Bad Actors Exploit Balancer V2 Composable Stable Pools.
On Nov. 3, Balancer, a decentralized finance protocol that enables users to create pools of assets where users can contribute assets to a certain pool and earn fees based on the use of their assets, announced via X that its V2 Composable Stable Pools were exploited due to a rounding error vulnerability, which resulted in over $100 million worth of Ether. Since the breach, the Balancer team has worked on various mitigation and recovery efforts with key ecosystem participants and partners, which so far have led to at least about $19 million worth of Ether recovered. See Balancer’s initial announcement here and its preliminary findings report here.
10th Circuit Upholds Fed’s Discretion in Custodia Master Account Case, Leaving Door Open for Future Options.
On Oct. 31, in a 2-1 decision, the U.S. Court of Appeals for the 10th Circuit upheld a 2024 Wyoming district court ruling that the Federal Reserve has full discretion to deny Custodia Bank, a Wyoming-based crypto-focused institution, access to a master account. The court concluded that federal law grants Federal Reserve banks the authority to reject such applications, affirming the Federal Reserve Bank of Kansas City’s 2023 decision to deny Custodia direct access to the Federal Reserve’s payment rails. While Custodia’s CEO, Caitlin Long, called the ruling a setback, the company pointed to a strong dissent from Judge Timothy Tymkovich, who raised constitutional concerns about the Federal Reserve’s structure and discretion, echoing arguments made by former U.S. Solicitor General Paul Clement. See a copy of the court’s decision here.
Canada Charts Path to Stablecoin Regulation in 2025.
On Nov. 4, Canada announced its intention to regulate fiat-backed stablecoins, marking a significant step in its digital asset policy. As part of the 2025 federal budget, the government will introduce legislation to oversee Canadian-dollar-denominated stablecoins, with the Bank of Canada designated as the supervisory authority. The proposed framework will require issuers to maintain adequate asset reserves, establish redemption policies, implement robust risk management systems, and ensure the security of personal and sensitive information. Amendments to Canada’s Retail Payment Activities Act are also expected to include provisions regulating payment service providers that facilitate payments made in stablecoins. See the Budget 2025 report here.
