New Crypto Products Launch; CBDC and NFT Reports Published; Network Protocol/Governance Updates Announced; Crypto Enforcement Continues | BakerHostetler

New Crypto Products Launch in Exchanges, Wallets, and Custody

By Christopher W. Lamb

A recent press release announced the launch of EDX Markets, a “first-of-its-kind digital asset marketplace designed to enable safe and compliant trading of digital assets through trusted intermediaries.” According to the release, EDX Markets is backed by several major financial institutions and will “facilitate trades against a central counterparty, allowing participants to benefit from enhanced price competition and reduced settlement risks, while increasing operational efficiencies.”

Another recent press release announced that the subsidiary of a major U.S. blockchain and crypto solutions company has obtained “In-Principle Approval of the Major Payments Institution License application from the Monetary Authority of Singapore (MAS).” According to the press release, this license will allow the “offer[ing] [of] regulated digital payment token products and services in the city state” and enable the company to “further scale its customers’ use of its crypto-enabled On-Demand Liquidity (ODL) service.”

In a third recent announcement, a self-custody bitcoin wallet app provided details on new partnerships with two major cryptocurrency exchanges to enable its customers to “transfer and buy bitcoin through these platforms with a transparent and integrated experience.” According to the announcement, the wallet app will “display the full cost of the transaction being offered by the different partners so that customers can decide which partner is right for them before redirecting to the partner-hosted experience.”

In a final development, according to a recent report, the asset servicing arm of two major European banks has been registered by French regulators to provide crypto custody services. The new crypto custody offering will reportedly be regulated under the European Union’s new crypto licensing rules, known as MiCA, beginning in 2024.

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BIS, IMF, and Monetary Authority of Singapore Publish Papers Exploring CBDCs

By Robert A. Musiala Jr.

The Bank for International Settlements (BIS) recently released two publications addressing central bank digital currencies (CBDCs). The first is the final report on Project Rosalind, “an experiment exploring application programming interfaces (APIs) for retail central bank digital currency (CBDC).” According to a press release, Project Rosalind “is based on a two-tier model representing a public private partnership” with an API layer that “connects public and private infrastructures” and “offers a set of standardised functionalities to enable different systems to interoperate.”

Another recent BIS publication, “Blueprint for the future monetary system: improving the old, enabling the new,” explores the concept of “A new type of financial market infrastructure – a unified ledger – [that] could capture the full benefits of tokenisation by combining central bank money, tokenised deposits and tokenised assets on a programmable platform.” According to the paper, a unified ledger providing access to central bank money could “harness programmability” to access the “great potential” of tokenized money and assets.

The International Monetary Fund (IMF) also addressed CBDCs in a recent publication, “Central Bank Digital Currency Adoption: A Two-Sided Model.” According to an IMF press release, the paper “develops a dynamic two-sided payments model with both heterogeneous households and merchants/firms to study: (1) The adoption of CBDC by households and firms, and (2) The impact of CBDC issuance on financial inclusion, informality, and disintermediation.” Among other things, the paper finds that “[h]ouseholds are more likely to adopt CBDC if it is low cost, provides an attractive savings vehicle, reduces the cost of remittances, improves the efficiency of government payments, and … offers a valuable means of payment.” The paper also finds that “[f]irms are more likely to accept CBDC if fees are low, if there are tax exemptions or subsidies for transactions made in CBDC, and if households who prefer to make payments with CBDC make up a large share of revenue.”

In a final notable item, the Monetary Authority of Singapore (MAS) recently published a white paper “proposing a common protocol to specify conditions for the use of digital money such as central bank digital currencies (CBDCs), tokenised bank deposits, and stablecoins on a distributed ledger.” According to an MAS press release, the paper was developed in collaboration with the IMF, Banca d’Italia, Bank of Korea, and various financial institutions and fintech firms.

For more information, please refer to the following links:

Advocacy Group Publishes NFT Report; NFT Initiatives Continue

By Amos Kim

A blockchain industry advocacy group recently published a report discussing different use cases for non-fungible tokens (NFTs). According to the report, NFTs “are by and large consumer products that should not be regulated in the same manner … as cryptocurrencies.” Among other things, the report explains how NFTs differ from cryptocurrencies and takes the position that “mitigation strategies used for physical analogues are effective for NFTs.” NFT use cases discussed by the report include digital art and collectibles, the supply chain, financial services, music, community access, gaming, the metaverse, and ticket sales.

In other recent news, American rapper and actor Snoop Dogg announced the release of an NFT collection collaboration project with Transient Labs that will provide “various content, such as behind-the-scenes videos and photos” uploaded while on tour. In the past, Snoop Dogg has collaborated with other artists to showcase NFTs and is also the co-founder of the Web3-powered platform Shiller.

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Blockchain Networks Announce Protocol and Governance Developments

By Robert A. Musiala Jr.

The Uniswap Foundation recently published its first-ever “Bridge Assessment Report,” which analyzes the use of “cross-chain messaging protocols (bridges)” by the Uniswap decentralized autonomous organization (DAO) “to relay governance decisions from Ethereum to destination chains where the Uniswap V3 contracts have been deployed.” According to the report, the Uniswap Foundation “evaluated six bridges and approved two for the DAO’s cross-chain governance use case.” Among other things, the report found that “a multi-bridge architecture was likely the best option for the Uniswap DAO’s cross-chain governance use case, but … protocols that provide this functionality are nascent and not mature enough for immediate implementation.”

In another recent development, a blog post introduced Polkadot OpenGov, a new governance framework for the Polkadot ecosystem of interconnected public blockchains. Among other things, the blog post described the process by which network upgrade proposals are proposed, voted on, and enacted “to ensure that the decisions made by the community are legitimate and transparent.”

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Multistate Investigation Results in Cease and Desist Order Against Crypto Firm

By Maya E. Rivera

On June 16, the Texas State Securities Board (TSSB) issued an emergency cease and desist order against California-based cryptocurrency firm Abra, its subsidiaries, and its founder. The order alleges that the parties “engaged in fraud,” that they made “statements that were materially misleading or otherwise likely to deceive the public,” and that the company is “insolvent or nearly insolvent.” The TSSB order also declared that certain of Abra’s products are unregistered and unlicensed securities and demanded that the company immediately cease and desist all operations in Texas.

In a related action, on June 20, a press release announced that the New Jersey Bureau of Securities had issued a summary penalty and cease and desist order against Abra to stop the company and its associated entities from violating state Uniform Securities Law “in connection with the sale of interest-bearing crypto accounts.” The order demanded that the company, its subsidiaries, and its founder immediately cease and desist offering and selling unregistered securities to New Jersey investors and stop misrepresenting material facts to investors in connection with the sale of securities. The order further assessed civil penalties of $232,900 against Abra and its subsidiaries and $50,000 against its founder.

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FDIC Issues Warning to Crypto Exchange; New Multiagency Task Force Formed

By Keith R. Murphy

According to a recent letter published by the Federal Deposit Insurance Corporation (FDIC), the FDIC asserts that a major U.S. cryptocurrency exchange and its senior executives have made false and misleading statements regarding the exchange’s insured status. The FDIC letter identifies specific examples of improper statements on the exchange’s website and demands corrective action and the removal of any offending claims from the website. According to the FDIC’s letter, the exchange “is not FDIC-insured and the FDIC does not insure non-deposit products. By not distinguishing between U.S.-dollar deposits and crypto assets, the statements imply FDIC insurance coverage applies to all customer funds (including crypto assets). In addition, the FDIC does not insure or endorse particular blockchains.”

A recent press release from U.S. Immigration and Customs Enforcement announced a multiagency memorandum of understanding (MOU) formalizing the Darknet Marketplace and Digital Currency Crimes Task Force (Task Force). The MOU was signed on behalf of Homeland Security Investigations, the Arizona U.S. Attorney’s Office, the U.S. Drug Enforcement Administration, the Internal Revenue Service, and the U.S. Postal Inspection Service. According to the press release, the Task Force’s mission “is to disrupt and dismantle criminal organizations that exploit the appearance of anonymity on the darknet or use digital currency to facilitate criminal activities, such as drug trafficking, money laundering, theft of personal information, and child exploitation.”

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