[co-author: Lauren Bass]
Crypto Market Develops in DeFi, Payments, Compliance and Consumer Adoption
By Veronica Reynolds and Robert A. Musiala Jr.
A large institutional financial and media conglomerate recently announced a partnership with a major financial services and investment management company that specializes in digital assets, with the two companies offering the public the opportunity to invest in a decentralized finance (DeFi) index. Uniswap, Aave, Maker and Compound are a few of the DeFi protocols included in the index. The financial services and investment management company also announced its new DeFi Index Fund – its own separate “passively managed fund tracking the performance of DeFi.”
This week, Chainalysis introduced the Chainalysis Global DeFi Adoption Index, “a new geographic index ranking countries by DeFi adoption” that focuses on “grassroots adoption by individuals, rather than those sending the largest raw values of funds.” The index ranks 154 countries according to three criteria: (1) on-chain cryptocurrency value received by DeFi platforms, weighted by purchasing power parity per capita; (2) total retail value received by DeFi platforms; and (3) individual deposits to DeFi platforms. The top five ranked countries, in order, are the United States, Vietnam, Thailand, China and the United Kingdom.
According to recent reports, a major U.S. technology firm has been awarded a patent for software designed to “help users develop blockchain applications by making it easier and more efficient to create crypto tokens for different distributed ledgers.” And in a development from the Bitcoin ATM industry, this week, a group of Bitcoin ATM operators announced the formation of the Cryptocurrency Compliance Cooperative, with a mission to “legitimize the cash-to-cryptocurrency industry by bolstering compliance standards.”
In a final item of note, growing consumer interest in cryptocurrency was highlighted in three recent surveys. Findings from the surveys include the following:
- In one survey, respondents on average planned to invest $1,645 in cryptocurrency in the coming year and to hold on to their crypto for an average of five years.
- In another survey, 60 percent of respondents viewed cryptocurrency as a long-term investment, and 11 percent of U.S. respondents purchased cryptocurrency with their COVID-19 stimulus checks.
- A third survey found that Africa’s peer-to-peer bitcoin trading volume is close to $17 million and is now the largest in the world, exceeding that of North America.
For more information, please refer to the following links:
Market Navigation, Fashion Metaverse, Online Tutorials: NFT Adoption Continues
By Lauren Bass
Last week, an international digital payments corporation partnered with the first federally chartered digital asset bank to purchase the non-fungible token (NFT) CryptoPunk 7610. According to reports, the $150,000 transaction, which marked the corporation’s first foray into digital collectibles, was designed to help the company navigate this emerging marketplace and understand “what it takes to acquire, custody and interact with an NFT.”
Earlier this week, a U.S. beer company reportedly purchased NFT artwork featuring its own branded content. According to reports, the company then used the digital image as its profile picture on social media. The recent NFT sale follows the beer magnate’s earlier purchase of the Beer.eth domain name through OpenSea’s Ethereum Name Service.
In other NFT news, a major luxury fashion publication will reportedly launch an interactive fashion metaverse via a scannable QR code embedded in the magazine’s September print cover. According to reports, this digital world will feature two magazine covers, each to be released as a limited-edition NFT, as well as unique interactive online experiences. The publication will also reportedly release 15 NFTs featuring digital-only fashion wear, beauty and design products. The NFTs will be available for purchase on Brytehall, a newly launched NFT platform on the Binance Smart Chain.
To encourage the creation of NFTs on the Ethereum blockchain, Ethereum.org has published a tutorial that describes the step-by-step process necessary to generate and release an NFT. The three-part series teaches readers how to (i) write and deploy an ERC-721 smart contract, (ii) mint an NFT, and (iii) view the finished NFT on the Ethereum network.
For more information, please refer to the following links:
Crypto Compliance Addressed by CFTC, Thai SEC, South Korea and UK FCA
By Teresa Goody Guillén
Commissioner Dawn Stump of the U.S. Commodity Futures Trading Commission (CFTC) issued a statement this week addressing the CFTC’s regulatory and enforcement authority over digital assets. Among other things, the commissioner stated that the CFTC does not regulate commodities, but rather, it regulates derivatives. The statement outlined 10 points clarifying how and what the CFTC regulates and distinguished its regulatory versus enforcement authority.
This week, the Securities and Exchange Commission of Thailand (Thai SEC) proposed additional regulations related to the custody of investors’ cryptocurrency holdings held by digital asset business operators, citing investor protection concerns. The regulations address custody of fiat money, fiat money and digital assets, and seeking benefits from clients’ assets. Among other things, the Thai SEC is specifically proposing to prohibit crypto companies from using investor assets for the “benefit of another client or other persons,” and it proposes a new framework for the withdrawal and transfer of fiat money from digital asset accounts, requiring compliance with the principles of “decentralized approval authority, multi-sign approval authority, and check and balance.” The Thai SEC is accepting public comments on the newly proposed regulations until Sept. 22.
All South Korean crypto exchanges have reportedly failed their regulatory “consulting” audits. In June, the regulatory Financial Services Commission (FSC) collaborated with government ministries and state-owned IT firms to conduct a “complete investigation of corporate accounts” and crypto exchanges’ “coin management and investor protection” protocols. The FSC reportedly found that out of 33 exchanges, 25 had gained information security management system accreditation, anti-money laundering protocols were still “lacking” at most exchanges, and none of the trading platforms had obtained the required real name-authenticated banking contracts they will need to continue doing business after Sept. 24. Finally, in news from the U.K., a June notice from the Blockchain Blog Image Request Financial Conduct Authority to the cryptocurrency exchange Binance was made public this week. Among other things, the notice found that the exchange was “not capable of being effectively supervised.”
For more information, please refer to the following links:
SEC, DOJ and Ontario Securities Commission Bring Crypto Enforcement Actions
By Keith R. Murphy
The U.S. Securities and Exchange Commission (SEC) obtained judgments against three individual defendants in connection with their roles with BitConnect and its “lending program,” according to a recent press release. The charges among the various defendants included offering and selling securities without registering the securities offering with the SEC, aiding and abetting that unregistered securities offering, and unjust enrichment. The press release notes that thus far the defendants collectively have been ordered to pay $3.5 million and 190 bitcoin in disgorgement and prejudgment interest, with one defendant still awaiting court determination of the amount he will owe.
In related news, the Ontario Securities Commission recently issued a notice to a Seychelles-based fintech company operating the OKEx cryptocurrency exchange, asserting that the products it offers are considered securities and derivatives and thus are subject to Ontario securities law. The notice alleges the company failed to comply with Ontario’s registration and prospectus requirements, and it recommends various penalties, including prohibiting certain activities of the exchange and financial penalties.
The inventor of cryptocurrency AriseCoin has been sentenced to five years in prison for defrauding investors out of more than $4 million, according to a United States Department of Justice press release this week. In connection with his guilty plea, the defendant reportedly admitted lying to prospective investors, including representing that his similarly named AriseBank could offer Federal Deposit Insurance Corp.-insured accounts and traditional banking services such as Visa-branded credit cards and use the money from investors to fund his personal life.
A recently unsealed federal indictment alleges that a dark web drug dealer going by the name of Xanaxman has been laundering nearly $140 million of bitcoin while serving time in a Maryland prison. The defendant is already serving a nearly five-year prison term for dark web sales activities and was previously ordered to forfeit thousands of bitcoin. In connection with the recent charges, the United States Drug Enforcement Administration reportedly has seized 2,934 bitcoin since February.
For more information, please refer to the following links:
Reports Released on Crypto Scams and Malware, Poly Hacker Returns Funds
By Joanna F. Wasick
According to recent findings by the Australian Competition and Consumer Commission, Australians have lost over $70 million to scams in the first six months of this year. More than half of these losses were reportedly due to cryptocurrency scams, many involving a simple setup, where the scammer lies to investors about having an innovative, profitable trading system, when in fact no such system exists and investments are just stolen. Scam-related bitcoin losses were reportedly up 44 percent from last year.
An analysis out earlier this month found that a new type of malware involving a social engineering-based “malvertising” campaign is targeting users in Japan. The application masquerades as either an animated porn game, a reward points application or a video streaming application, and then delivers a malicious application that deploys a Cinobi banking trojan to steal cryptocurrency account credentials. The operation is attributed to Water Kappa, a threat actor that previously targeted Japanese banking users. In related news, last week, Trend Micro, an enterprise data security and cybersecurity company, discovered eight deceptive mobile apps masquerading as cryptocurrency cloud mining applications. The apps trick victims into watching ads, paying for subscription services and paying for increased mining capabilities without getting anything in return.
The hacker who took more than $600 million from the Poly Network platform on Aug. 10, has released the private key for the remaining $141 million after returning the rest of the funds earlier this month. The Poly Network later tweeted its thanks for the return and posted a link to a transaction on the Ethereum blockchain, confirming that the key worked.
For more information, please refer to the following links:
2021 Global Blockchain Survey Focuses on Views of Financial Services Leaders
By Robert A. Musiala Jr.
This week, a Big Four accounting and consulting firm published its 2021 Global Blockchain Survey. The survey focused on the global financial services industry (FSI) and finds that “global FSI leaders see digital assets … as a strategic priority.” According to the survey, “80% of overall respondents say that digital assets will be ‘very/somewhat important’ to their respective industries in the next 24 months.” The survey polled a sample of 1,280 senior executives in 10 locations: Brazil, Mainland China, Germany, Hong Kong SAR, Japan, Singapore, South Africa, the United Arab Emirates, the United Kingdom and the United States. Some key findings from the survey include the following from FSI respondents:
- 83 percent agree there is a compelling business case for blockchain, digital assets and/or cryptocurrencies within their organization or project.
- 83 percent report that their business partners, suppliers, customers and/or competitors are discussing working on blockchain, digital assets and/or cryptocurrencies in the context of solutions or strategies.
- 80 percent agree their industry will see new revenue streams from blockchain, digital asset and/or cryptocurrency solutions.
- 77 percent agree that their organization will lose an opportunity for competitive advantage if they fail to adopt blockchain and digital assets.
- 76 percent strongly or somewhat believe digital assets will be a strong alternative to or replacement for fiat currencies in the next 10 years.
- The top expected roles of digital assets in FSI organizations were custody of digital assets, new payment channels, tokenization of assets and access to decentralized finance platforms.
- The top reported barriers to digital asset acceptance were financial infrastructure, cybersecurity and regulatory barriers.
- The top reported impacts of digital assets were more efficient processes, greater compliance and transparency, and achieving competitive advantages.
For more information, please refer to the following link:
