Bank Launches Blockchain Network; Stablecoin Initiatives Launch in Foreign Markets; New Crypto Guidance Published; Reports Provide Data on Crypto Crime | BakerHostetler
U.S. Bank Launches Blockchain Network, Crypto Bank Gains Securities License
According to recent reports, the largest bank in the U.S. has gone live with its blockchain-based Tokenized Collateral Network (TCN) and completed its first transaction involving a U.S. multinational investment company and a British universal bank. The TCN was used to convert shares from a money market fund into digital tokens, which were then transferred as collateral between the parties for an over-the-counter derivatives trade. According to the reports, TCN assists by moving collateral almost instantly, shortening what is usually a daylong process, and will look to add support for more assets as collateral, including equities and fixed income.
According to other recent reports, Xapo, a Gibraltar-based digital asset bank, has acquired a European Markets in Financial Instruments Directive securities broker license and will now offer trading of stocks alongside its bitcoin wealth management offerings. This securities broker license is in addition to the digital asset bank’s banking license and its principal memberships with several global payment networks. According to the reports, these licenses and memberships allow Xapo to work directly with correspondent banks and access money market accounts without involving third parties.
In a recent press release, Trezor announced the launch of three new cryptocurrency hardware wallets. The line-up includes the Trezor Safe 3, “an easy-to-use, secure hardware wallet”; the Trezor Keep Metal, described as a “mistake-proof, convenient backup solution for your recovery seed”; and a limited-edition Trezor Safe 3 bitcoin-only wallet to celebrate Trezor’s 10-year anniversary.
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Stablecoin Initiatives Launch in Philippines, UAE; LATAM Crypto Data Published
In a recent press release, Circle Internet Financial (Circle) – the issuer of the USDC stablecoin – announced a strategic partnership with Coins.ph, “the Philippines’ leading cryptocurrency exchange and digital wallet provider,” to “drive awareness of USDC-denominated remittances as a secure, low-cost and near-instant solution for international money transfers for the 18 million Filipino users of Coins.ph.” According to the press release, “[b]y driving real-time settlements and minimal transaction costs, Coins.ph and Circle’s partnership aims to improve the existing remittance landscape, starting in the Philippines, the fourth largest recipient of remittances globally.”
In another recent press release, the UAE Ministry of Economy “announced that US-based Fluent Finance, the developer of a cryptocurrency-based payment platform that facilitates cross-border trade, has joined its NextGen FDI program.” According to the press release, “Fluent will use its new UAE headquarters to deploy and scale its proprietary Fluent Economic Bridge, which can be used by importers and exporters to settle transactions via a bank-issued cryptocurrency, which are known as stablecoins or, increasingly, deposit tokens.”
In a final development, blockchain analytics firm Chainalysis recently published a blog post with an excerpt of its forthcoming 2023 Geography of Cryptocurrency Report. The blog post provides data and findings related to cryptocurrency adoption in Latin America. Among other findings, the blog post notes that “Latin America shows the highest preference for centralized exchanges of any region we study, and tilts slightly away from institutional activity compared to other regions.” The blog post also highlights Argentina and Venezuela as countries where data indicates that cryptocurrency is being used to hedge against fiat currency devaluation, with crypto purchases increasing during periods when national currencies lose value.
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New Crypto Guidance Published by European, Canadian and UK Regulators
The European Securities and Markets Authority (ESMA) recently published a report, titled Decentralised Finance in the EU: Developments and risks, that “assesses the development of DeFi, its distinctive features, and the risks it raises to ESMA’s objectives, with a view to informing the future review of the markets in crypto-assets regulation (MiCA).” Key findings from the report include the following: (1) Although investors’ exposure to DeFi remains small overall, there are serious risks to investor protection due to the highly speculative nature of many DeFi arrangements, important operational and security vulnerabilities, and the lack of a clearly identified responsible party; (2) DeFi does not represent a meaningful risk to financial stability at this juncture; (3) decentralized exchanges purport to eliminate important pain points in the trading of crypto assets but bear their own flaws and challenges; and (4) DeFi has spawned new market manipulation issues and techniques, such as maximal extractable value and flash loan attacks, that the industry needs to address.
In Canada, the Canadian Securities Administrators (CSA) recently published a press release announcing the publication of CSA Staff Notice 21-333 Crypto Asset Trading Platforms: Terms and Conditions for Trading Value-Referenced Crypto Assets with Clients (Staff Notice). According to the press release, the Staff Notice provides “further clarity and guidance to crypto asset trading platforms” about the CSA’s “interim approach to the trading of value-referenced crypto assets (some of which are commonly referred to as ‘stablecoins’).” Among other things, the press release notes that “[w]hile crypto asset trading platforms operating in Canada are prohibited from trading crypto assets that are securities and/or derivatives … the CSA … may allow, subject to terms and conditions, the continued trading of certain value-referenced crypto assets that are referenced to the value of a single fiat currency (fiat-backed crypto assets).”
And in the United Kingdom, the UK Financial Conduct Authority (FCA) recently published a press release announcing that the FCA’s new “crypto marketing regime” rules are now in force. According to the press release, the FCA “issued 146 alerts about cryptoasset promotions on the first day of the new regime.” The alerts identify firms that may be providing or promoting financial services or products without FCA permission.
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Reports Provide Data on Cross-Chain Crime, Tornado Cash; DeFi Hacks Continue
Blockchain analytics firm Elliptic recently published its 2023 report The State of Cross-chain Crime. In a blog post announcing the report’s publication, Elliptic noted that “[t]he value of illicit crypto laundered through cross-chain crime has reached a record $7 billion.” The blog post defines “cross-chain crime” as “the swapping of cryptoassets between different tokens or blockchains – often in rapid succession and with no legitimate business purpose – to obfuscate their criminal origin.” Among other things, the blog post further notes that data from Elliptic’s recently published report suggests that cross-chain crime “is fast becoming the preferred money laundering method for a range of cybercrimes, including scams and crypto thefts, as enforcement actions continue to target criminals’ traditional means of obfuscating funds.”
Another recent report by blockchain analytics firm TRM Labs analyzed the use of decentralized mixing service Tornado Cash by illicit actors following the sanctions imposed on Tornado Cash by the U.S. Treasury Department’s Office of Foreign Asset Control (OFAC). The report notes that “OFAC’s sanctioning of Tornado Cash succeeded in radically reducing usage of the service,” with overall transaction volume having “decreased by close to 85% post OFAC sanctions.” Despite the significant decrease in transaction volume, the report notes that “TRM’s research indicates known illicit use of Tornado Cash has nearly doubled when viewed as a percentage of the service’s volume,” indicating continued use of Tornado Cash by illicit actors.
Recent reports published by CertiK, a decentralized finance (DeFi) security firm, provide details on two hacks of DeFi platforms. According to one report, on October 9, 2023, “the price of LSC token dropped by 99% due to a token dump carried out by externally owned address 0x9Ef72 which withdrew LSC tokens from two contracts owned by the Lucky Star Currency project.” The report further notes that the LSC tokens “were then swapped for approximately $1.1 million making it the largest exit scam seen in October so far.” A second CertiK report notes that on October 12, 2023, “DeFi project Platypus Finance was exploited across three flash loan transactions, by two externally owned addresses (EOAs), for approximately $2.23 million” with the exploit carried out by “price manipulation of the Platypus WAVAX and sAVAX pools.”
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Reports Provide Details on Use of Crypto by Hamas
Recent blog posts by both Elliptic and TRM labs provide details on the use of cryptocurrency by Hamas, a foreign terrorist organization as designated by the U.S. secretary of state. Both blog posts provide a brief history of the use of cryptocurrency by Hamas and report a recent initiative by the Israeli government that resulted in the freezing of hundreds of cryptocurrency accounts associated with the terrorist organization.
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