Digital Asset Marketplaces Evolve in US, Japan and Switzerland
By: Marc D. Powers and Teresa Goody Guillén
The Public Private Execution Network (PPEX), an alternative trading system (ATS) that supports transactions in exempt digital asset securities, recently completed its FINRA continuing membership application and filed its Form ATS with the U.S. Securities and Exchange Commission (SEC). PPEX reportedly supports secondary trades for all exempt securities, including traditional securities and digital asset securities native to a blockchain.
R3 recently announced a collaboration agreement with the owner and operator of a major U.S. stock exchange to facilitate institutional grade offerings for digital assets exchanges. According to a press release, R3 intends to work with the stock exchange to integrate its proprietary enterprise blockchain software, Corda, in building a platform and lifecycle solutions for digital assets marketplaces on a 24/7/365 basis.
Japan’s Financial Services Agency (FSA) has announced it has certified two local blockchain trade groups, the Japan STO Association and the Japan Virtual Currency Exchange Business Association (JVCEA), as self-regulatory groups for derivative transactions and security token offerings of digital assets. The JVCEA, which is the official SRO for the cryptocurrency industry in Japan authorized to create regulations and policies for cryptocurrency exchanges in the country, will be renamed the “Japan Crypto Asset Trading Business Association” on May 1. As of March 2020, there were 21 registered and licensed crypto exchanges in Japan.
In Switzerland, the Capital Markets and Technology Association, an independent association of financial experts formed to promote the use of new technologies in capital markets, recently issued a report setting forth a Digital Assets Custody Standard (DACS). The DACS consists of requirements and recommendations for technology solutions enabling the custody and management of digital assets to satisfy traditional concepts of safekeeping financial assets.
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Blockchain Token Models Confront Legal Complexities in US Filings and Court Cases
By: Teresa Goody Guillén
Blockstack PBC – the first cryptocurrency company to qualify a Regulation A+ token offering with the SEC – explained in its annual 1-K filing that it is considering the status of its STX token as a security. Blockstack explained that the company expects “this determination to turn on whether the Blockstack network is sufficiently decentralized; this will, in turn, depend on whether, at the time the board evaluates this question, purchasers of Stacks tokens reasonably expect Blockstack to carry out essential managerial or entrepreneurial efforts, and whether Blockstack retains a degree of power over the governance of the network such that its material non-public information may be of special relevance to the future of the Blockstack network, as compared to other network participants.”
In the ongoing litigation involving the SEC’s enforcement action against Canadian messaging company Kik Interactive Inc., the parties recently set forth their arguments in their opposition briefs to the cross-motions for summary judgment. The SEC contends Kik’s SAFTs and Kin token sales were unregistered securities offerings regardless of whether the SAFT and token sales are a single offering, two integrated offerings, or two independent offerings. Kik argues the Kin sales were distinct from the SAFTs and were sales of goods, not of securities. Kik further argues that it would be “fundamentally unfair” to expect it to have known the Kin sale would violate the federal securities laws, citing lack of guidance. The SEC relies on the notice from the DAO report and asks the court to apply a similar analysis as in the Telegram case.
In Telegram, a federal court recently held that Telegram cannot launch its blockchain or issue its gram tokens until the case is resolved. When the SEC brought the action, it is reported, Telegram offered to return up to 72% of each purchaser’s stake and set a revised launch deadline of April 30, 2020. It is now reported that purchasers who choose to forgo their 72% can lend their investment to Telegram until this time next year, and in return they will receive 110% of the original investment by April 30, 2021, which is 53% higher than the amount that would otherwise be returned.
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WEF Issues Blockchain Toolkit, New Enterprise Solutions Announced
By: Jordan R. Silversmith
The World Economic Forum (WEF) has published a blockchain toolkit that is intended to provide guidance on deployment of new blockchain-related solutions in the economy and highlight key enterprise requirements. According to the WEF, the toolkit “was developed through lessons from and analysis of real projects, to help organizations embed best practices and avoid possible obstacles in deployment of distributed ledger technology.”
The food supply chain continues to be a ripe use case for blockchain, with a major food company recently announcing a five-year blockchain plan for stronger food safety. The fruit and vegetable distributor plans to launch blockchain product tagging and other “advanced traceability solutions” across its three business divisions. In a separate development involving the digital supply chain, a major Chinese technology firm was recently granted a patent for a process that leverages blockchain to track and protect music copyrights.
The U.S. Department of Transportation (DOT) recently released a tech report arguing that blockchain can bring more trust to large-scale use of commercial drones. As commercial usage of unmanned aircraft systems (UAS) becomes more prevalent, logistics relating to the safe management of droves of unmanned aerial vehicles (UAV), as well as operations near “high risk” areas such as airports, remain problematic. One of the concepts outlined in the report was a blockchain-based flight recorder, or “black box,” which could help law enforcement monitor drones’ flight patterns in real time and help industry regulators track and review drone flight data to ensure better decisions about the safest routes to specific destinations.
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Foreign Police Uncover Crypto Crimes, Analytics Firm Launches AML Solution for Banks
By: Joanna F. Wasick
On Tuesday, Norwegian police reported they arrested Norwegian multimillionaire Tom Hagen for murdering his wife, who went missing from her home in October 2018. Hagen had reported that his wife had been kidnapped and said he received a ransom note demanding $10 million worth of the cryptocurrency Monero. When announcing the arrest, the police inspector said, “There was no kidnapping, no real negotiating counterpart or real negotiations.” Rather, Hagen purportedly lied about the cryptocurrency ransom request to sidetrack the investigation.
Earlier this week, a South Korean news agency reported that police used information from a raid of 20 of the biggest cryptocurrency brokerages and exchanges in South Korea to trace and find 40 people suspected of having made cryptocurrency payments to access videos of rape and sexual exploitation of minors on “Nth Room” – chatrooms on the messaging app Telegram that had been operating since 2018 to share pornographic videos of children as young as 11 years old. Police successfully traced one account to a crypto wallet belonging to Cho Joo-bin, the suspected mastermind behind the Nth Room, who has already been charged by the prosecution and is awaiting trial. South Korean police are reportedly interested in obtaining data from overseas-based exchanges, as a number of crypto transactions made to suspected Cho-owned wallets have been traced to addresses at exchanges based outside South Korea.
Also this week, CipherTrace, a blockchain analytics company, reported its release of Armada, a monitoring solution designed to help large banks and financial institutions achieve better compliance with anti-money laundering rules. Armada is said to work with the institutions’ existing monitoring tools to identify transactions with virtual asset service providers (VASPs), thereby creating increased visibility into suspicious cryptocurrency transactions.
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Tether Mints 160 Million USDT as Bitcoin Price Climbs
By: Marc D. Powers
In the past week, the price of bitcoin has reportedly increased by more than 20%. During this same time, as bitcoin made its move past $9,000 for a period of time on Thursday, April 30, reports indicated that 160 million USDT tokens were minted. Over a two-day period, Tether, the company behind USDT, reportedly minted 60 million USDT when bitcoin was valued just over $8,000. Soon afterward, Tether reportedly issued another 100 million in USDT just before the bitcoin price hit $8,500. According to reports, some have speculated that the Tether Treasury mints USDT to influence and manipulate the market price of bitcoin. There are now reportedly 7.8 billion USDT in circulation.
