TradFi/DeFi Integrations Announced, Yield-Bearing Stablecoin Launches
By Isabelle Corbett Sterling
According to reports, Robinhood, a major U.S. financial services company, has entered into an agreement to acquire Bitstamp, a global cryptocurrency exchange. According to a Bitstamp blog post, Bitstamp has offices in Luxembourg, the U.K., Slovenia, Singapore and the U.S. and holds over 50 active licenses and registrations globally. The acquisition will reportedly accelerate Robinhood’s global reach, grow its crypto business and allow it to service institutional clients.
According to a recent press release, a major U.S. stock exchange is collaborating with CoinDesk to launch cash-settled index options tracking the CoinDesk Bitcoin Price Index (XBX). The press release notes the parties will develop specific product offerings in collaboration with regulators. The chief product officer of the exchange said, “Upon regulatory approval, these options contracts will offer investors access to an important liquid and transparent risk-management tool.”
Another recent press release announced that the UAE affiliate of Paxos, a digital assets financial services and infrastructure company, has launched USDL, referred to as the first stablecoin to offer holders daily yield in wallets under regulatory oversight. According to the press release, the USDL issuing entity is regulated under the Financial Services Regulatory Authority (FSRA) of Abu Dhabi Global Market. USDL holders will reportedly earn yield from short-term high-quality liquid U.S. government securities and cash equivalent reserve assets held in accordance with FSRA regulations. The yield will be distributed automatically to eligible wallet addresses.
A third press release announced that crypto exchange users are now able to send and receive crypto using credentials provided by a major U.S. payments company “instead of the typically long and complex blockchain addresses.” According to the press release, the credential system helps verify interactions among consumers and businesses using blockchain networks.
According to reports, another major U.S. payments company announced a partnership with Gnosis Pay, a decentralized payments provider, to allow entities to link cryptocurrency accounts to the payment company’s debit cards. Those debit cards can be used to spend cryptocurrencies at all merchants that accept debit cards issued by the payments company.
For more information, please refer to the following links:
NFT Mints Continue Despite Data Indicating Downturn; Dapper Labs Case Settles
By Robert A. Musiala Jr.
According to reports, last month a major European automobile manufacturer partnered with Mojito, a Web3 consumer engagement platform, to launch a new non-fungible token (NFT) collection. The auto manufacturer’s Web3 arm reportedly sold 780 NFTs in a mint that was open for seven days, from May 21 to May 28.
In more NFT news, recently published data indicates that global NFT sales volume dropped significantly in the month of May. According to reports, global NFT sales in May were $624 million, compared with over $1 billion in April, representing a 54 percent decrease.
In a final notable development, NFT platform Dapper Labs has reportedly settled a class action lawsuit with customers who argued Top Shot NFTs were securities. If the settlement is approved by the court, the company will reportedly pay $4 million to the class action plaintiffs and the plaintiffs will forfeit any future right to claim that Top Shot NFTs are securities.
For more information, please refer to the following links:
J5 Issues Crypto Assets Risk Indicators for Financial Institutions
By Robert A. Musiala Jr.
On May 23, the Joint Chiefs of Global Tax Enforcement (J5) released an advisory note to financial institutions highlighting five risk indicators tied to cryptocurrency assets that may be indicative of money laundering, cybercrime, tax evasion and other illicit activities. The following is a brief description of the five risk indicators:
- Crypto Asset Layering. Indicators include rapid movement of funds between accounts with no apparent business rationale; sending/receiving larger-than-expected transactions from private wallets; high-volume/-frequency conversion of funds across multiple crypto assets; high-volume transactions with peer-to-peer (P2P) platforms; transactions with mixers, gambling platforms, darknet markets, fraud shops or high-risk exchanges; large activity with privacy coins; and transactions flowing through multiple addresses in a short time just before being deposited to, or just after being withdrawn from, a client’s wallet.
- Geographical Risk. Indicators include transactions with exchanges in high-risk jurisdictions; changing IP addresses; IP addresses in high-risk jurisdictions; and relationships with crypto public keys on watch lists such as the Office of Foreign Assets Control specially designated nationals list.
- High-Risk Counterparties. Indicators include crypto assets originating from over-the-counter desks advertising privacy; direct sending/receiving of funds from crypto exchanges in high-risk jurisdictions; and interaction with public keys with links to known suspicious sources.
- New Client Onboarding. Indicators include providing incomplete identification information; difficulties establishing beneficial ownership or contacting the customer; transactional activity inconsistent with customer profile; multiple clients registering in a short period using shared identity indicators; use of anonymity-oriented email addresses/providers; use of crypto addresses linked to illegal activities or public investigations; access to multiple crypto or bank accounts; multiple changes to account information; email addresses linked to P2P crypto platforms; accounts in countries different than that of nationality/residence; and unwillingness to provide information about source of funds or privacy coin use.
- Ransomware and Cybercrimes. Indicators include unusual or high use of privacy coins; chainhopping; mixers; mule accounts; high-volume transfers followed by little or no further activity; crypto accounts linked to multiple bank accounts at different financial institutions; and new customers making immediate large crypto purchases followed by immediate withdrawal to an external address.
For more information, please refer to the following links:
NY DFS Publishes Customer Service Guidance for Crypto Businesses
By Robert A. Musiala Jr.
The New York Department of Financial Services (NY DFS) recently published guidance for virtual currency entities (VCEs) licensed in New York state regarding customer service requests and complaints. According to the guidance, the NY DFS’ experience “indicates that a VCE’s policies and procedures with regard to customer service requests and complaints are unlikely to be sufficient unless they effectively address the issues and incorporate the mechanisms outlined” in the guidance. The guidance addresses concepts that should be present in a VCE’s policies and procedures related to (1) phone and electronic text communications; (2) providing timely, sufficiently detailed and accurate information to customers; (3) providing frequently asked questions regarding customer service issues; (4) monitoring and quality assurance; and (5) reporting to NY DFS on customer service requests and complaints.
For more information, please refer to the following links:
DOJ Enforcement Actions Target Crypto Money Laundering Schemes
By Robert A. Musiala Jr.
The U.S. Department of Justice (DOJ) recently published a press release announcing that two Estonian nationals have been extradited to the U.S. “to face criminal charges related to their roles in a massive multi-faceted cryptocurrency Ponzi scheme.” According to the press release, the defendants “allegedly induced hundreds of thousands of victims to purchase contracts entitling them to a share of virtual currency mined by the defendants’ purported cryptocurrency mining service, HashFlare” for a fee. The defendants allegedly entered into more than $550 million worth of such contracts. However, “HashFlare allegedly did not have the virtual currency mining equipment it professed to have,” “engaged in less than one percent of the Bitcoin mining activity it claimed” and “could not pay the investors with the mined currency they had promised.”
Additionally, the defendants allegedly “offered investments in a company called Polybius, which they said would form a bank specializing in virtual currency” and “promised to pay investors dividends from Polybius’ profits.” According to the press release, the defendants never formed a bank and never paid any dividends. Instead, the defendants “raised at least $25 million and used approximately $7 million of HashFlare proceeds in this scheme and allegedly transferred most of the money to other bank accounts and virtual currency wallets they and their co-conspirators controlled.” According to the press release, the defendants “allegedly used shell companies and phony contracts and invoices to launder the fraud proceeds and to purchase real estate and luxury cars” in a scheme that “involved at least 75 real properties, six luxury vehicles, cryptocurrency wallets, and thousands of cryptocurrency mining machines.”
Another recent DOJ press release announced the unsealing of an indictment charging “the Chief Financial Officer of a multinational media company headquartered in New York City with participating in a transnational scheme to launder at least approximately $67 million of illegally obtained funds to benefit himself and the media company.” Among other things, the press release noted that the scheme involved using “cryptocurrency to knowingly purchase tens of millions of dollars in crime proceeds, including proceeds of fraudulently obtained unemployment insurance benefits, that had been loaded onto tens of thousands of prepaid debit cards.” According to the press release, the crime proceeds were purchased “using a particular cryptocurrency platform, at discounted rates of approximately 70 to 80 cents per dollar, and in exchange for cryptocurrency.”
For more information, please refer to the following links:
Japanese Exchange Hacked for $305M; New Data Released on 2024 Crypto Hacks
By Robert A. Musiala Jr.
According to recent reports, Japanese cryptocurrency exchange DMM Bitcoin has lost 4,502.9 BTC (approximately $305 million) in a hack. This is reportedly the second-largest crypto hack in Japan following the 2018 hack of the Coincheck exchange for cryptocurrency valued at 58 billion yen (approximately $370 million).
A recently published report by Immunefi provides new data on losses to cryptocurrency hacks, scams and other exploits. The report’s findings include the following:
- As of May 2024, $473,229,944 has been lost to hacks and rug pulls in 2024 YTD across 108 specific incidents, representing a 20 percent decrease when compared with the same period in 2023.
- In May 2024, $52,371,900 was lost due to hacks and fraud across 21 specific incidents, representing a 12 percent decrease from May 2023.
- Most of the May 2024 losses are attributable to exploits of crypto gaming project Gala Games ($21 million) and DeFi protocol SonneFinance ($20 million).
- In May 2024, DeFi was the main target for exploits, while CeFi did not witness a single major attack.
- In May 2024, a total of $50,618,600 was lost due to hacks across 14 specific incidents, while $1,753,300 was lost due to fraud in seven specific incidents.
For more information, please refer to the following links:
Alert: Digital Assets Legislation: House Passage of FIT21 Unlikely To Carry Momentum in Senate
The House passed H.R. 4763, the Financial Innovation and Technology for the 21st Century (FIT21) Act, by a vote of 279-136, including 71 votes from Democrats. The bill passed despite opposition from the White House in a Statement of Administration Policy and opposition in a statement by U.S. Securities and Exchange Commission Chair Gary Gensler. Brief descriptions of the bill can be found in our recent blog post and in the press release by the House Financial Services Committee announcing passage of the bill.
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