In a landmark decision highlighting the unique aspects of blockchain technology, an SDNY bankruptcy judge ruled in favor of Celsius’s motion for alternative services, where Celsius sought to provide legal services by airdropping non-fungible tokens (NFTs) into the digital asset portfolios of anonymous defendants.
The following opinion article was written by Alex Forehand and Michael Handelsman for Kelman.Law.
Judge Approves Celsius’s NFT Airdrop for Legal Services
In the wake of the cryptocurrency exchange’s insolvency, the bankruptcy estate filed a lawsuit seeking to void allegedly fraudulent transfers and recover additional funds for its creditors. However, due to the pseudonymous nature of the technology, Celsius has so far been unable to identify the owners of the wallets associated with the transfers in question.
As a result, the Litigation Administrator designed a new solution for an alternative method of service. Celsius proposed sending NFTs with a hyperlink to a website containing the complaint and other relevant legal documents to the respective wallet addresses. To ensure the NFTs are served properly, Celsius will have FTI Consulting confirm that the wallets are receiving the NFTs on-chain, and record the exact date and time the NFTs are opened. FTI will also monitor website traffic to ensure that the links are opened by real people rather than automated bots.
Additionally, FTI Consulting confirmed that it has traced the transfers to the wallets in question, that the wallets have been active since the transfers, and that the same individuals likely retain control of the wallets.
Alternate methods of service are generally permitted when the statutory methods of service are “impracticable.” Under New York case law, service is generally unenforceable when the plaintiff fails to locate a business or residential address for the defendant despite best efforts to do so. Alternative methods must also meet constitutional due process requirements, which require that service be reasonably calculated in all the circumstances to inform interested parties of the nature of the action against them.
The Court recognized that the anonymity of the wallet owners made traditional service impracticable and was satisfied that the defendants would likely receive the summons and complaint via the hyperlink in the NFT, as the NFT was sent to the exact wallet provided by the defendants was used to receive the documents. funds involved, and the activity could be traced throughout the chain.
Judge Glenn concluded that the NFT airdrop was “the best possible way” to notify the defendants of the actions against them, and praised Celsius for its “innovative” solution. In terms of service, email addresses were the pioneer of the Internet. Wallet addresses just paved the way for blockchain.
This case highlights one of the many challenges associated with adopting new technology into society, and illustrates how blockchain technology continues to disrupt the status quo. Fortunately, the industry has taken the initiative to come up with new solutions that enable implementation in everyday life.
As lawyers who practice exclusively in the digital assets space, we understand the importance of staying abreast of the latest developments and helping clients stay informed as the legal landscape changes. Whether you are an investor, entrepreneur, or company involved in cryptocurrency, our team is ready to provide you with the legal counsel needed to maneuver this complex landscape. If you think we can help you, make an appointment for a consultation here.
This article originally appeared on Kelman.law.