Stephen Palley is the chair of Brown Rudnick’s Digital Commerce group and represents crypto platforms, digital asset exchanges, software developers, AI companies, and their founders, investors, and boards in high-stakes disputes, including class actions, regulatory enforcement defense, corporate governance fights, reputation-based claims, and complex commercial litigation for clients facing consequential business risk.
We asked him how his expertise informs his approach on the American Arbitration Association® Blockchain & Web3 Disputes Panel.
Tell us about your professional background and how you became involved in Web3-related disputes, including matters involving blockchain, cryptocurrency, digital assets, or smart contracts.
I have handled commercial disputes since I began practicing in 1998, in litigation, trials, arbitrations, and mediations. For much of that time, I recovered insurance proceeds for corporate policyholders in large construction matters. In 2013, I started building a software-based dispute resolution platform and learned about Bitcoin along the way. The platform failed, but what I learned about software and crypto transformed my practice. As I got to know the industry and the technology and began to write and speak about them, clients began calling me with disputes. Thirteen years later, crypto and technology matters account for about 90 percent of my work, and I lead Brown Rudnick’s Digital Commerce practice group.
What types of Web3 disputes do you most often see in your work? How do they differ from more traditional commercial, financial, or technology disputes?
The disputes fall into four categories: financial, corporate and governance, reputational, and regulatory. These largely mirror the categories of disputes I have handled throughout my career. The technology is what has changed.
A financial dispute may be an ordinary payment fight in which the payment is denominated in a cryptocurrency, raising novel valuation questions. A governance dispute may turn on board control or founder ownership, but also on control of a DAO's multisig wallet, on-chain voting, or software licensing and ownership. A recent matter involved rights to coins distributed in a hard fork. Another matter involves asset management services provided by an asset manager to a digital asset treasury company.
The legal principles are usually well established. The technology, however, is often new to the lawyers and the tribunal, and understanding it is essential to getting the answer right. My construction insurance coverage work taught me the same lesson: whether a policyholder recovered under delay-in-completion coverage could depend on the project's critical path or on the difference between torsional and tensile strength. The advocate’s understanding of, and ability to explain, the underlying technology can be as critical to resolving the dispute as understanding the law.
What trends are you seeing in Web3 disputes? What developments do you think will most shape the future of dispute resolution in this area?
Governance disputes continue to surface years after founders created novel offshore structures. Payment disputes with vendors, advisors, executives, and other counterparties also continue to grow, often under contracts drafted in haste, with little legal review, during a company's earliest days. Control of funds in multisig wallets frequently underlies or accompanies these disputes.
Asset valuation is also often critical, requiring a nuanced understanding of cryptocurrency markets and an appreciation for how conventional valuation models may apply to new and novel asset classes, all of which are issues I have litigated extensively. I expect more parties to write arbitration clauses that address on-chain evidence, wallet control, and interim relief relating to digital assets, as well as increased demand for neutrals who can read the code as well as the contract.