Crypto Products Launch for Custody, Tokenization, Staking; Crypto Adoption Report Published; DFS Proposes New VC Guidance; NFT Initiatives Announced | BakerHostetler

Financial Firms Launch Crypto Products for Custody, Tokenization and Staking

By Christopher Lamb

In a recent press release, BitGo announced its plans “to create the first Bitcoin-only trust company” by partnering with Swan Bitcoin, a leading Bitcoin financial services company. According to the press release, “[t]he new joint venture will combine BitGo’s best-in-class Bitcoin cold storage technology and regulatory compliance expertise with Swan’s industry-leading capabilities in onboarding, fraud prevention, AML/KYC, and dedicated Bitcoin experts.”

In another recent press release, a major U.S. financial services firm announced the creation and piloting of “Token Services for cash management and trade finance” that “uses blockchain and smart contract technologies to deliver digital asset solutions for institutional clients.” According to the press release, the service will “integrate tokenized deposits and smart contracts” into the financial services firm’s global network, “upgrading core cash management and trade finance capabilities.” The press release further notes that the service will provide “cross-border payments, liquidity, and automated trade finance solutions on a 24/7 basis.”

In a third recent press release, a leading player in crypto and digital business among European stock exchange groups and a global provider of reinsurance, primary insurance, and insurance-related risk solutions have announced an insurance partnership in the token-staking sector. According to the press release, the firms will “establish a comprehensively insured, full-service staking solution for the institutional market” that is “based on the innovative staking risk insurance coverage … which mitigates slashing risks.” To complement this, the firms’ existing custody solution offerings will be expanded to include the new staking offering.

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Crypto Adoption Report Provides Data on Grassroots Adoption Across Globe

By Robert A. Musiala Jr.

Blockchain analytics firm Chainalysis recently published a blog post with highlights from its forthcoming 2023 Geography of Cryptocurrency Report. According to the blog post, the report seeks to “combine on-chain data and real-world data to measure which countries are leading the world in grassroots crypto adoption” and “highlight the countries where average, everyday people are embracing crypto the most.” The blog post provides details on the following five subindices used to rank 154 countries: (1) On-chain cryptocurrency value received at centralized exchanges, weighted by purchasing power parity (PPP) per capita; (2) On-chain retail value received at centralized exchanges, weighted by PPP per capita; (3) Peer-to-peer (P2P) exchange trade volume, weighted by PPP per capita and number of internet users; (4) On-chain cryptocurrency value received from DeFi protocols, weighted by PPP per capita; and (5) On-chain retail value received from DeFi protocols, weighted by PPP per capita.

Based on these subindices, the top 20 countries, in order from the first to the 20th ranking, are India, Nigeria, Vietnam, the United States, Ukraine, the Philippines, Indonesia, Pakistan, Brazil, Thailand, China, Turkey, Russia, the United Kingdom, Argentina, Mexico, Bangladesh, Japan, Canada, and Morocco. Among other takeaways, the blog post notes that worldwide grassroots crypto adoption is down, but lower-middle-income countries (as designated by the World Bank) such as India, Nigeria and Ukraine have seen “a much stronger recovery than anywhere else” over the past year and, overall, have maintained an adoption level above their Q3 2020 level, which was just prior to the most recent bull market.

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NY DFS Publishes Proposed Guidance For Listing Virtual Currencies

By Robert A. Musiala Jr.

The New York Department of Financial Services (DFS) recently announced that it has “published proposed guidance which adopts enhanced criteria for coin-listing and delisting procedures, as well as updated guidance on the framework for designating coins or tokens to the DFS greenlist.” According to a press release, the “proposed guidance for Coin-listing and guidance on the General Framework for Greenlisted Coins enhances the original framework issued by the Department in 2020 by clarifying DFS’ expectations with respect to the coin-listing and delisting policies of DFS-regulated entities.” Among other things, the press release notes that the guidance (1) heightens risk assessment standards for coin-listing policies and tailors enhanced requirements for retail consumer-facing businesses; (2) requires licensees to develop and submit to the DFS for approval a coin-delisting policy that is compliant with this proposed guidance; and (3) updates the DFS Greenlist, the list of coins and tokens approved for all licensees to list or custody, and the Greenlist process.

The new proposed guidance takes the form of two letters addressed to “All Virtual Currency Business Entities Licensed under 23 NYCRR Part 200 or Chartered as Limited Purpose Trust Companies under the New York Banking Law,” which the letters refer to as VC Entities. The first letter addresses the “General Framework for Greenlisted Coins” and notes that while VC Entities do not need DFS approval to list coins included on the Greenlist, they must (1) provide advance notification to DFS prior to beginning support and (2) have a DFS-approved coin-delisting policy.

The second letter addresses “Proposed Updates to Guidance Regarding Listing of Virtual Currencies,” referred to in the letter as the “Guidance.” The letter sets forth the Guidance, which consists of a new set of DFS expectations for (1) Heightened risk assessment standards for coin-listing policies and tailored, enhanced requirements for retail consumer-facing products or service offerings, and (2) New requirements associated with coin-delisting policies. According to the letter, the DFS is seeking public comment on the Guidance, with comments due by Oct. 20.

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Italian Fashion Brand Launches NFT Drop; Search Engine Relaxes NFT Ad Policy

By Keith R. Murphy

According to recent reports, a well-known Italian apparel company recently launched a minting of 300 non-fungible tokens (NFTs) during Milan Fashion Week. The NFTs were reportedly minted on both the Polkadot and Polygon networks and provide access to exclusive digital artwork, the opportunity to purchase limited-edition merchandise, and access to a new music soundtrack and related events. The same company also recently collaborated with an American digital fashion company to create digital wearables that mirror the apparel company’s in-store physical products, according to a recent report.

In related NFT news, a music writer/producer for pop star Justin Bieber is selling NFTs that entitle the owners to a fractional percentage of future streaming royalties from the song “Company.,” based on recent reports. The royalty rights are being sold in the form of 2,000 Ethereum NFTs, and payments to holders reportedly will be made every six months. Addressing the concept of sharing part of Bieber’s song with fans, the producer commented that “the fusion of blockchain and music rights opens the door to an entirely new realm for both rights holders and enthusiasts. This approach is democratic and signifies the future.” It is noted that Bieber is not involved with the sale, and United States citizens reportedly may not be able to access the minting and royalty claims.

In more NFT news, one of the world’s largest and well-known search-engine technology companies recently modified its policies to allow advertisements offering NFT games, as long as they do not promote gambling-related content, according to a report. In examples noted in the report, advertising NFT games that permit players to purchase in-game assets that “enhance” their experience – for example, weapons, armor and outfits – will comply with the company’s revised policy; however, those with gambling components or wagering or staking of NFTs, for example, will not.

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