Being an in-house lawyer at a growing startup comes with a unique set of challenges. Working as an in-house counsel at a crypto startup brings more distinct challenges and rewards. It requires an entrepreneurial mindset and certain skills that differ from those needed for another type of startup or for a traditional company.
In-House Counsel Skillset
Laws and regulations that pertain to the cryptocurrency industry are new or still evolving. Lawyers in this space must stay on top of the latest legal developments so they can advise the startup accordingly. Since there are a lack of precedents to look to for guidance, in-house lawyers should be able to think out-of-the-box to resolve problems and create innovative legal solutions.
Any in-house counsel position requires a grasp of many different areas of law. At a crypto company, certain areas of legal knowledge are particularly crucial. The crypto industry frequently runs into issues with securities and tax laws.
A solid understanding of the legal, regulatory, and operational framework of the international financial system helps. Specifically, there are extensive anti-money laundering (AML) and know-your-customer (KYC) reporting requirements that companies engaged in financial transactions must follow. These procedures exist to discover and address bad actors. In-house counsel must understand the mechanics of civil and criminal enforcement actions. Such an understanding is important in case anything goes wrong or the startup accidentally gets itself in a legal tangle.
Being an in-house counsel at a crypto startup is a great fit for someone who is entrepreneurially minded and a risk taker.
“It’s the opportunity to be an early adopter in a new practice area. There aren’t that many crypto lawyers. The lawyers in the space will be more plentiful in the next two to three years,” states Dimitri Mastrocola, a recruiter. “But for now, it’s new, and a lot of rules have yet to be written. For lawyers and potential thought leaders, it’s a chance to be impactful and shape regulation to some degree.”
Many crypto startups value regulatory expertise. Most tech startup industries have relatively established rules in place that are subject to few changes in the near term. In contrast, the lack of established rules in crypto law appeals to in-house counsel candidates who can quickly adapt to change and are comfortable in less predictable environments.
“They have a culture where they want to attract talent that is motivated to join a fledgling industry and people who are willing to bet on themselves,” commented Mastrocola.
Compensation, Risks and Rewards
As the crypto industry grows, regulatory burdens are increasing. Crypto startups are actively seeking to increase their number of in-house attorneys. Like many other types of startups, in-house lawyers at crypto startups receive a significant portion of their compensation and bonuses in the form of company equity.
In the event of a successful initial public offering, the attorney’s equity in the startup can skyrocket in value. The value of such equity could be anywhere from $300,000 to $1 million following a successful IPO.
Historically, transitioning from working at a large corporate law firm to working as an in-house attorney involved a pay cut. However, pay for in-house counsel at crypto companies can result in larger compensation packages than at a large corporate law firm. Although large pay packages are possible, the potential rewards come with greater risk. Since a substantial portion of compensation is in the form of company equity, that equity could be worth little if the startup fails to take off.
Most established companies and many startups offer equity exclusively to top corporate counsel, so someone with the title “counsel” or “senior counsel” rarely receives equity. In contrast, most crypto companies offer equity to members of the legal team more broadly.
In-House Counsel Must Keep Track of Regulatory Developments
The use of cryptocurrencies has given rise to complex legal issues. The legal and regulatory landscape is rapidly evolving with respect to digital assets. Regulators in the United States and around the world have taken different approaches, and some jurisdictions are still in the nascent stages of formulating policies.
In the United States, the head of the U.S. Securities and Exchange Commission (SEC) has indicated that it will take a tougher stance toward crypto regulation. The newly appointed SEC chair Gary Gensler referred to the growing crypto economy as the “Wild West” and stated that the SEC will crack down on fraud. Mr. Gensler has extensive experience working on Wall Street and at governmental financial regulatory agencies. He has also taught cryptocurrency regulation at MIT.
The cryptocurrency industry must stay abreast of the way new spending bills can impact crypto. The $1 trillion infrastructure bill the U.S. Senate recently voted to pass contains a hidden crypto tax and imposes tax-reporting requirements for cryptocurrency brokers. This is a part of a push by the Internal Revenue Service (IRS) for greater tax compliance. However, the term “broker” is broadly and ambiguously defined as “any person who is responsible for regularly providing any service effectuating transfers of digital assets on behalf of another person.”