Crypto Initiatives Launch in Payments, Capital Markets and NFTs; OFAC and White House Address Crypto Risks; CFTC and NYAG Take Enforcement Actions

Blockchain Payment Pilots Launched by Media, Government and Crypto Firms

Blockchain Market Advances in Options, ATS Platforms, Commodities and DeFi

New Platforms Launch NFT Collections

OFAC and White House Address Cryptocurrency Industry Risks

CFTC and NYAG Enforcement Actions Target Cryptocurrency Exchanges

Blockchain Payment Pilots Launched by Media, Government and Crypto Firms

By Keith R. Murphy

A leading social media and technology company recently launched pilots of its crypto wallet, which is intended to allow users to send and receive funds around the world securely and with no fees, according to several reports. The pilots are taking place in the United States and Guatemala, and will utilize Pax Dollars (USPD). The company reportedly is collaborating on the project with a well-known cryptocurrency exchange platform and blockchain infrastructure platform Paxos. According to a press release discussing the project, this is the first time that stablecoins have been easily available in a consumer wallet outside of the cryptocurrency ecosystem.

The U.S. Bureau of the Fiscal Service recently issued a task order to evaluate ways to streamline grant-payment processes through the use of blockchain technology. According to a recent release, the goals of the effort include improving transparency, reducing reporting burdens and combating fraud. The task order reportedly will help answer questions relating to establishing blockchain nodes and digital wallets, among other issues. According to a representative of the Office of Financial Innovation and Transformation, “This study will provide us with hands-on experience and insight on how blockchain technology can enhance security and improve government services and the customer experience, from the perspective of both the federal government and the recipient.”

According to a recent report, the dollar-backed stablecoin USDC is now part of the Hedera Hashgraph ecosystem, making Hedera Hashgraph the sixth blockchain on which USDC is supported. Hedera Hashgraph was reportedly prioritized for the use of USDC based on its enterprise focus and the potential for USDC to be used in permissioned settings.

For more information, please refer to the following links:

Blockchain Market Advances in Options, ATS Platforms, Commodities and DeFi

By Robert A. Musiala Jr.

This week, the largest U.S.-based options exchange announced an agreement to acquire ErisX, which operates “a U.S. based digital asset spot market, a regulated futures exchange and a regulated clearing house.” According to a press release by the options exchange, “Ownership of ErisX presents a unique opportunity … to enter the digital asset spot and derivatives marketplaces through a digital-first platform developed with industry partners to focus on robust regulatory compliance, data and transparency.”

According to recent reports, Prometheum Ember ATS Inc. recently received regulatory approval to operate its alternative trading system (ATS), which will provide investors the ability to buy, sell and manage digital asset securities. The ATS will reportedly implement “on-chain custody and settlement” provided by a digital bank chartered with the U.S. Office of the Comptroller of the Currency.

In foreign markets, according to reports, a Brazil-based mineral commodity trading marketplace recently integrated with a blockchain platform to enhance assurance over the provenance of mineral trades. According to reports, the integration aims to enable transparency over where metals come from and under what conditions they are produced.

And in the decentralized finance (DeFi) markets, data recently published by a community-based statistics dashboard indicates that total value locked in DeFi protocols across multiple platforms is now estimated to exceed $200 billion. The report notes that the majority of this value resides on the Ethereum blockchain.

For more information, please refer to the following links:

New Platforms Launch NFT Collections

By Lauren Bass

Earlier this week, an American nonprofit news agency reportedly launched a non-fungible token (NFT) collection on one of the largest cryptocurrency exchange marketplaces. According to press releases, the collectibles, which will be curated by an Australian NFT publisher and available for sale as mystery boxes, will feature digital versions of historic photos and news wires from the past century.

In other NFT news, a Chinese e-commerce platform has reportedly minted and released a series of NFTs on its new proprietary blockchain. According to reports, the digital collectibles will be distributed without cost to attendees of the platform’s upcoming conference.

For more information, please refer to the following links:

OFAC and White House Address Cryptocurrency Industry Risks

By Robert A. Musiala Jr.

Late last week, the U.S. Department of the Treasury’s Office of Foreign Assets Control (OFAC) published a new “Sanctions Compliance Guidance for the Virtual Currency Industry.” According to OFAC, the guidance is intended to assist the virtual currency industry in mitigating sanctions risks, including “the risk that a sanctioned person or a person in a jurisdiction subject to sanctions might be involved in a virtual currency transaction.” The guidance notes that “the virtual currency industry, including technology companies, exchangers, administrators, miners, wallet providers, and users, plays an increasingly critical role in preventing sanctioned persons from exploiting virtual currencies to evade sanctions and undermine U.S. foreign policy and national security interests.” Among other topics, the guidance addresses evaluating sanctions-related risks; building a risk-based sanctions compliance program; protecting against sanctions violations and intentional misuse of virtual currencies by malicious actors; and understanding OFAC’s record-keeping, reporting, licensing and enforcement processes.

In a related development, late last week a statement published by the White House to address ransomware threats noted that “virtual assets” were “the primary instrument criminals use for ransomware payments and subsequent money laundering.” Among other concerns, the statement acknowledged that “uneven global implementation of the standards of the Financial Action Task Force (FATF) to virtual assets and virtual asset service providers (VASPs) creates an environment permissive to jurisdictional arbitrage by malicious actors seeking platforms to move illicit proceeds without being subject to appropriate anti-money laundering (AML) and other obligations.”

For more information, please refer to the following links:

CFTC and NYAG Enforcement Actions Target Cryptocurrency Exchanges

By Kayley B. Sullivan

The U.S. Commodities and Futures Trading Commission issued orders this week settling two civil suits – one against cryptocurrency issuer Tether and the other against crypto exchange Bitfinex. Tether agreed to pay $41 million to resolve charges that it made misleading or untrue statements that it held sufficient U.S. dollar reserves to fully back up its U.S. dollar-pegged tether token. In a separate order, Bitfinex agreed to pay $1.5 million to resolve charges that Bitfinex engaged in illegal, off-exchange retail commodity transactions in digital assets with U.S. persons on the Bitfinex trading platform and operated as a futures commission merchant without required registration.

Also this week, two cryptocurrency lending platforms were asked to cease activities in New York State by the state’s attorney general, Letitia James. In a letter published by the Office of the Attorney General, James stated that two virtual currency lending platforms were directed to immediately cease unregistered and unlawful activities in New York. Three other platforms were also asked to provide information to the office about their activities and products.

For more information, please refer to the following links:

Crypto Financial Products Launch; G7 Addresses CBDCs; SEC Commissioners and Foreign Regulators Address Crypto; ICO Founders Plead to Tax Evasion

Crypto Products Launch in Payments, ETFs, DeFi; Bitcoin Mining Data Published

G7 Considers Impact of CBDCs in New Publications

Blockchain Solutions Launch in B2B Software; Cobalt and Leather Supply Chains

SEC Commissioners Address Crypto Market Regulation in Contrasting Speeches

Foreign Regulators Address Crypto Advertising, Mining and Ransomware

ICO Founders Plead to Tax Evasion, Crypto Used in Illegal Sale of Nuclear Data

Crypto Products Launch in Payments, ETFs, DeFi; Bitcoin Mining Data Published

By Veronica Reynolds

This week, a digital asset marketplace announced a partnership with a major multinational technology company specializing in Internet and cloud-based products and services. According to a press release, the partnership will allow consumers to use virtual debit cards funded with cryptocurrencies to pay for goods and services using the tech company’s popular digital payment portal.

Last week, the U.S. Securities and Exchange Commission (SEC) approved a new exchange-traded fund (ETF) that provides exposure to “Bitcoin Industry Revolution Companies,” defined in a related SEC filing as entities that “hold a majority of their net assets in bitcoin … or derive a majority of their revenue or profits directly from [Bitcoin] mining, lending, or transacting.” In a related development, the price of bitcoin reportedly rose above $60,000 for the first time in almost six months following a report that a bitcoin futures ETF may soon be approved by the SEC.

Overseas, a Swiss-regulated digital-asset exchange and bank has introduced a platform that will allow institutional clients to lend bitcoin and ether and earn yield on proof-of-stake protocols including Polkadot, Tezos and Cardano. According to reports, this will make the bank the first in the nation to provide access to these decentralized finance activities on a fully regulated basis.

According to a recently released report, the location of Bitcoin Network mining activity has experienced a seismic shift following China’s increased regulation of the mining sector, with the U.S. taking the lead in mining operation growth and development. According to the report, the “leading share of global Bitcoin Network hashrate now sits in the U.S.,” followed by Kazakhstan and the Russian Federation. The report indicates that the U.S. global hashrate has increased by 16.8 percent since the end of April, for a total global share of 35.4 percent as of August.

For more information, please refer to the following links:

G7 Considers Impact of CBDCs in New Publications

By Veronica Reynolds

This week, the G7 issued “G7 Finance Ministers and Central Bank Governors’ Statement on Central Bank Digital Currencies (CBDCs) and Digital Payments” and an accompanying guidance document titled “Public Policy Principles for Retail Central Bank Digital Currencies (CBDCs).” Among other things, the publications discuss “foundational issues” and “opportunities” associated with CBDCs, including monetary and financial stability; legal and governance frameworks; data privacy; competition; operational resilience and cybersecurity; illicit finance; spillovers; energy and environment; innovation; financial inclusion; payments to and from the public sector; cross-border functionality; international development; and dependencies that may be encountered in designing a retail CBDC ecosystem. The reports note that “[n]o G7 authority has yet taken the sovereign decision to issue a CBDC and careful consideration of the potential policy implications will continue.”

For more information, please refer to the following links:

Blockchain Solutions Launch in B2B Software; Cobalt and Leather Supply Chains

By Robert A. Musiala Jr.

Recent press releases announced the launch of blockchain solutions across various industries to streamline business operations. In one press release, a provider of B2B payments software announced that it had integrated blockchain to “unlock new supply chain financing opportunities,” “power digital B2B payments,” “streamline … manual processes” and mitigate fraud risk. In another press release, “one of the world’s largest physical commodity trading companies” and a “leading provider of supply chain provenance and emissions tracking services” announced a blockchain solution aimed at tracking emissions in the nickel and cobalt supply chains, with a focus on the electric vehicle industry. A final press release, published by a major global automobile manufacturer, announced a pilot program that will leverage “blockchain technology to ensure full transparency within a sustainable leather supply chain” in the automobile manufacturing process.

For more information, please refer to the following links:

SEC Commissioners Address Crypto Market Regulation in Contrasting Speeches

By Joanna F. Wasick

Last week at the Texas Blockchain Summit, U.S. Securities and Exchange (SEC) Commissioner Hester Peirce addressed SEC Chair Gary Gensler’s description of the crypto space as the “Wild West,” which, according to Peirce, “we imagine to have been lawless” and where “the gunslinger with the best reflexes and worst morals wins at everyone else’s expense.” Peirce accepted Gensler’s nomenclature but emphasized that the West, and by extension the crypto “frontier,” was a place for hard workers, idealists and freethinkers—an environment that breeds innovation and healthy industrialism. Addressing the regulatory environment, among other things, Peirce noted a “conflict between the SEC and the public” on whether there is “clarity as to when crypto assets are securities” and pointed to her proposed “safe harbor” provision as a step toward resolving this conflict. Peirce also posed questions that she believes should be at the forefront of regulators’ minds, including whether they were fighting for investors or “jurisdiction,” whether enforcement actions are the correct vehicle to bring legal clarity to the space, whether the value of stable coins (which Gensler has sharply criticized) was being overlooked and whether it made sense to treat certain decentralized finance protocols as centralized entities.

During this week’s SEC Speaks event, SEC Commissioner Caroline Crenshaw also commented on crypto regulation. Like Pierce, Crenshaw stated that regulation should support innovation. However, Crenshaw stressed that such support should not come at the expense of other industries, and she highlighted instances of fraud within the space. Crenshaw stated that there was no lack of clarity from the SEC in terms of guidance, and said that analyzing regulatory compliance has always been, “first and foremost, the responsibility of the enterprise and their counsel.” She criticized Peirce’s safe harbor idea, saying it would only delay regulatory decisions and would harm investors in the interim. Crenshaw stressed the need for transparency and encouraged blockchain businesses to meet with and collaborate with the SEC to achieve compliance. Both Peirce and Crenshaw noted that the views expressed in their speeches were personal and not those of the SEC.

For more information, please refer to the following links:

Foreign Regulators Address Crypto Advertising, Mining and Ransomware

By Keith R. Murphy

The Canadian Securities Administrators (CSA) and the Investment Industry Regulatory Organization of Canada (IIROC) recently published a joint staff notice intended to provide guidance to cryptocurrency trading platforms (CTPs) as to how securities regulation and IIROC rules concerning marketing, advertising and the use of social media might apply to them. The notice was reportedly issued following discovery by the CSA and the IIROC that certain advertising and marketing activities by CTPs may be in violation of securities rules, or otherwise raise public interest or investor protection concerns.

Separately, Canadian authorities are reportedly considering a multimillion-dollar fine against a company accused of operating a bitcoin-mining power plant without notifying the utilities commission, the county or surrounding neighbors. According to a recent report, the company operated two additional sites for the same purpose and has plans for three additional sites by year-end. The company is reportedly attempting to work through the issues with the utilities commission.

The Australian government recently issued a Ransomware Action Plan that discusses the country’s strategic approach to cybercriminals and ransomware. The plan discusses the wide-ranging effects of ransomware and identifies strategies and initiatives to address it, citing three primary objectives: prepare and prevent; respond and recover; and disrupt and deter. The plan’s proposed disruption and deterrence initiatives include “tackling cryptocurrency transactions associated with the proceeds of ransomware crimes.”

For more information, please refer to the following links:

ICO Founders Plead to Tax Evasion, Crypto Used in Illegal Sale of Nuclear Data

By Jordan R. Silversmith

This week the U.S. attorney for the Northern District of Texas announced that the founders of a crypto initial coin offering have pleaded guilty to tax evasion. According to plea papers, the two founders of the company raised approximately $24 million from more than 13,000 investors and then used those funds on personal expenses. The defendants’ guilty plea comes after a civil settlement with the Securities and Exchange Commission, in which the company agreed to pay an $8.3 million penalty to resolve claims that it defrauded investors and operated an unregistered digital asset exchange. Both men now face up to five years in federal prison.

According to a recent criminal complaint filed in the District Court for the Northern District of West Virginia, a nuclear engineer, who worked for the U.S. Navy, and his wife have been charged in a conspiracy to sell restricted data relating to the design of U.S. nuclear submarines to a foreign nation in exchange for cryptocurrency. The charge alleges that the pair violated the Atomic Energy Act, which prohibits the communication, transmission or disclosure of restricted nuclear data “with the intent to injure the U.S. or to secure an advantage to any foreign nation,” according to the statute. The couple allegedly received a total of $100,000 in cryptocurrency before they were arrested by the FBI and the Naval Criminal Investigative Service in West Virginia.

For more information, please refer to the following links:

DOJ Targets Cryptocurrency Fraud

Authorship credit: John J. Carney, Robert A. Musiala Jr., Michelle N. Tanney, and Kayley B. Sullivan

On October 6, 2021, the U.S. Department of Justice (“DOJ”) announced the creation of a National Cryptocurrency Enforcement Team (“NCET” or “Team”) to tackle investigations and prosecutions of criminal misuses of cryptocurrency, including crimes committed by virtual currency exchanges, mixing and tumbling services, and money laundering actors.[1] The DOJ’s announcement came on the same day that it launched its Civil Cyber-Fraud Initiative,[2] which is geared toward “emerging cyber threats” that target “sensitive information and critical systems.” The creation of the NCET also comes on the heels of continued expressions of concern and an intent to ramp up the regulation of digital assets by the U.S. Securities and Exchange Commission (“SEC”) and its Chair, Gary Gensler.[3]

Similar to recent comments by the SEC Chair, the DOJ announcement displayed a focus on cryptocurrency exchanges, noting that the NCET will seek to root out abuse on cryptocurrency platforms in an effort to promote and ensure user confidence.[4] The NCET will also focus on prosecuting criminal activity involving the use of cryptocurrencies “from being the primary demand mechanism for ransomware payments, to money laundering and the operation of illegal or unregistered money services businesses, to being the preferred means of exchange on ‘dark markets’ ….” The DOJ’s press release announcing the NCET also notes the Team’s commitment to trace and recover assets lost in criminal schemes involving cryptocurrencies.

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Crypto Initiatives and Blockchain Supply Chain Solutions Launch; Reports Provide 2021 Crypto Market Stats, Address Risks; DOJ Crypto Team Announced

Major Financial Institutions Announce Crypto and Blockchain Initiatives

Blockchain Adopted to Improve Supply Chains and Authenticate Products

Blockchain Reports Publish 2021 Blockchain, DeFi and NFT Stats

Financial Watchdogs Publish Reports Addressing Cryptocurrency Markets

DOJ Announces Crypto Enforcement Team, Warning Issued on French ICO

Major Financial Institutions Announce Crypto and Blockchain Initiatives

By Robert A. Musiala Jr.

According to reports this week, one of the largest money transfer services in the world will partner with the Stellar Development Foundation to integrate the Stellar Blockchain into its money transfer services through the USDC stablecoin, which went live on the Stellar Blockchain in February 2021. The report notes that “[c]ustomers will be able to convert cash into and out of USDC for instant pickup at [physical] locations,” with an FDIC-insured bank facilitating settlement of the transactions.

Another press release published this week announced that a major U.S. financial institution has launched cryptocurrency custody services for institutional investment managers. The press release notes that the new service will focus on institutional custody for bitcoin, with support for more cryptocurrencies forthcoming.

Two other recent press releases announced blockchain trade finance initiatives by major global financial institutions. According to one of the press releases, a New York-based financial institution has joined the Marco Polo Network, a blockchain-based network operated by “a consortium of approximately 45 banks that provides an open software platform for trade, payments and working capital financing to banks, corporates and other market participants.” Another press release announced that the India and United Arab Emirates (UAE) subsidiaries of a major global bank have “successfully executed a blockchain enabled, live trade finance transaction” between an Indian steel company and a UAE plastics company. According to the press release, “The success of this transaction reinforces the commercial and operational viability of blockchain as an alternative to conventional exchanges for paper-based documentation.”

For more information, please refer to the following links:

Blockchain Adopted to Improve Supply Chains and Authenticate Products

By Lauren Bass

Earlier this week, one of Italy’s largest producers of olive oil reportedly partnered with a European technology consulting firm to develop and implement a secure and sustainable blockchain-based supply chain for oil olive production. According to reports, the new digital register, which will deploy on Algorand’s public blockchain, will provide resultant data to buyers, sellers and consumers in an effort to improve the quality, transparency and efficiency of olive oil manufacturing.

Similarly, a Japan-based trio formed by two chemical corporations and a printing company have reportedly partnered with a Netherlands-based technology company to begin testing a blockchain-based supply chain for the chemical industry. According to press releases, the partnership aims to use blockchain technology to help manufacturers manage and share information related to raw materials and carbon emissions in order to perpetuate the use of sustainable resources over petroleum-based products.

In a final related development, an Italian manufacturer of high-end road-racing bicycles has reportedly partnered with a boutique Italian tech company to integrate blockchain technology into its bicycle manufacturing process. According to reports, each new bicycle frame will be connected through RFID tags to the Automotive Blockchain, where owners and prospective buyers can authenticate the manufacture, transport and sale of the bicycles. This technology aims to reduce theft and allow purchasers to verify the legitimacy and provenance of a bicycle frame.

For more information, please refer to the following links:

Blockchain Reports Publish 2021 Blockchain, DeFi and NFT Stats

By Veronica Reynolds

This week, a major multinational financial institution published a primer on digital assets, reporting that to date, digital assets represent more than $2 trillion in market value with over 200 million users. The report points to this data as an indicator of the potential that digital assets have to “transform every industry by improving efficiency and reducing friction across transactions.” The primer provides an overview of investment frameworks related to smart contract applications, stablecoins, central bank digital currencies, non-fungible tokens (NFTs) and tokens that act like operating systems. Among other things, the primer addresses the impact these products have across various industries, including finance, technology, supply chains, social media and gaming.

According to a Q3 2021 blockchain report released this month by a global decentralized app (dapp) store, the blockchain industry grew 25% quarter-over-quarter and 509% year-over-year in terms of the number of Unique Active Wallets (UAW) connected to any type of dapp. The report notes that the market cap for the top 100 Ethereum NFT collections, including NBA Top Shot, amounts to an estimated $14.19 billion, with the NFT space generating $10.67 billion in trading volume during Q3 alone. According to the report, much of this growth is attributable to the “play-to-earn” or games category, which has attracted millions of users across numerous blockchains and an average of 754,000 UAW during Q3, even as both NFT- and DeFi-connected wallets decreased from the previous quarter, by 2% and 11%, respectively.

According to recently published research by one of the largest blockchain analytics providers, Central and Southern Asia and Oceania (CSAO) is one of the fastest-growing cryptocurrency markets in the world and the fourth largest included in the study, representing 14% of global transaction value during the July 2020 and June 2021 time period, with 706% growth compared with the same time period the year prior. The study cites DeFi as a main driver of growth in the CSAO region as well as globally, with transaction volumes spiking around May 2020 due to increased activity across decentralized exchanges and DeFi protocols. Global data will be released later this month when the analytics provider’s report is published.

For more information, please refer to the following links:

Financial Watchdogs Publish Reports Addressing Cryptocurrency Markets

By Robert A. Musiala Jr.

Multiple international financial organizations published reports this week addressing various aspects of the cryptocurrency markets. The Bank for International Settlements (BIS), an international financial institution owned by central banks that “fosters international monetary and financial cooperation and serves as a bank for central banks,” published two sets of guidance. The first guidance document addresses conditions for central bank digital currencies (CBDCs) to operate effectively. The conditions cited by the report include cooperation between public and private institutions to “ensure integration with existing payments systems; to anticipate customers’ future needs; and to support innovation while preserving public trust, privacy and stability in the broader financial system.” The second BIS guidance document addresses standards for “stablecoin arrangements” (SAs) and “provides considerations to assist relevant authorities in determining whether an SA is systemically important.”

The International Monetary Fund (IMF) published a blog post this week addressing challenges to global financial stability posed by the cryptocurrency industry. According to the post, “The total market value of all the crypto assets surpassed $2 trillion as of September 2021—a 10-fold increase since early 2020.” The post identifies various risks associated with this growth, including consumer protection risks, and makes policy recommendations for regulators.

Finally, the Financial Stability Board (FSB), an international body that monitors and makes recommendations about the global financial system, published a report this week addressing “global stablecoins.” Among other things, the report notes that fostering the soundness of “global stablecoins” is critical to enhancing cross-border payments. The report identifies key areas for international coordination, including “conditions for qualifying a stablecoin as a ‘global stablecoin’; prudential, investor protection, and other requirements for issuers, custodians and providers of other global stablecoin functions (e.g., wallet providers); redemption rights; cross-border and cross-sectoral cooperation and coordination; and mutual recognition and deference.”

For more information, please refer to the following links:

DOJ Announces Crypto Enforcement Team, Warning Issued on French ICO

By Jordan R. Silversmith

On Wednesday, the U.S. deputy attorney general announced the formation of the new National Cryptocurrency Enforcement Team (NCET). According to a press release, the team has been formed to handle complex investigations and prosecutions of criminal misuses of cryptocurrency, particularly crimes committed by virtual currency exchanges, mixing and tumbling services, and money laundering infrastructure actors. The team will also assist in the tracing and recovery of assets lost to fraud and extortion, including cryptocurrency payments to ransomware groups.

According to reports, the issuer of the USDC stablecoin has been served a subpoena by the U.S. Securities and Exchange Commission (SEC). The company reportedly said in a regulatory filing that it had received an “investigative subpoena” from the SEC’s Enforcement Division in July requesting “documents and information regarding certain of our holdings, customer programs and operations,” according to the filing. The company said that it is cooperating fully with the SEC’s investigation of the filing, which was submitted as part of the company’s bid to go public. The company did not elaborate on the focus of the SEC’s investigation.

The AMF, France’s stock market regulator, recently issued a warning to the public about the risks of fraud associated with the upcoming initial coin offering (ICO) prepared by the company Air Next. After the AMF was contacted by the company to obtain a visa for its proposed ICO, the AMF reported that some of the submitted documents appear to be forgeries. The AMF warns investors approached to invest in this project to be vigilant and to refrain from passing on such solicitations to other parties.

For more information, please refer to the following links:

NFT Scandals Coincide with Increased Push for Crypto Regulation

Authorship credit: George A. Stamboulidis, Robert A. Musiala Jr., and Christina O. Gotsis

Problems caused by the lack of regulation in NFT markets were clearly exposed just last month with the revelation of not one, but two NFT scandals involving the use of insider information to snag exclusive pieces and game the market. In early September, a social media user claimed that an Art Blocks employee had purchased one of an artist’s few exclusive NFT works slated for public feature. Art Blocks’ CEO and founder, Erick Calderon, later responded that he agreed guidelines needed to be established to get ahead of those situations.[1]

Merely one week later, on September 15, a Twitter user and NFT trader and collector accused an OpenSea employee of frontrunning the popular NFT marketplace’s products similar to the way a broker might do with a stock. The user noticed that the $1.5 billion startup’s head of products, Nate Chastain, appeared to use several secret Ethereum wallets to buy exclusive NFT drops before they were officially listed on the website for purchase. The user claimed that Chastain later sold the NFTs when prices spiked upon their official release and funneled the profits back to his personal Ethereum wallets. The next day, OpenSea admitted that an employee had misused non-public information and implemented new policies that restrict certain employee transactions on NFT platforms.[2]

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Market Updates in CBDCs, Crypto Funds, BD-ATS Platforms and Stablecoins; DOJ and CFTC Enforcement Continues; DeFi Error Releases Millions in Crypto

In this issue:

CBDCs Explored by the U.K., New Zealand and Major Payments Network

New Products Launch in Crypto Funds, BD-ATS Platforms and Stablecoins

Fashion, Sports, Graphic Novels and Art: NFT Market Continues to Expand

Crypto Enforcement: DOJ and CFTC Target Sanctions and Registration Violations

DeFi Error Releases Millions in Crypto; Bitcoin ATM Vulnerability Reported

CBDCs Explored by the U.K., New Zealand and Major Payments Network

By Veronica Reynolds

This week, the Bank of England and Her Majesty’s Treasury announced the members appointed to its central bank digital currency (CBDC) Engagement and Technology Forums (Engagement Forum), which includes tenured stakeholders from industry, civil society and academia. The purpose of the Engagement Forum is to foster discussion and elicit strategic feedback on policy considerations and technical requirements related to the implementation of CBDCs. The creation of the Engagement Forum was first announced in April 2021 in conjunction with the CBDC Taskforce to facilitate the potential creation of a U.K. CBDC.

The Reserve Bank of New Zealand announced in a press release this week that it has issued two papers on CBDCs and is seeking public input regarding the operational and cybersecurity risks that could arise with the adoption of CBDCs and the potential impact that their issuance could have on the financial sector. The press release cites the Reserve Bank’s desire to explore CBDCs while maintaining the integrity of the New Zealand monetary system.

This week, one of the largest digital payment platforms in the world announced a “conceptual protocol” that demonstrates interoperability among various CBDCs to facilitate payments. The concept, which is called Universal Payments Channel, shows how unrelated blockchain networks can be interconnected to allow for the transfer of CBDCs by routing payments through a centralized hub that acts as a gateway to facilitate payment requests between sending and receiving parties. In furtherance of this effort, the payment platform has deployed its first sample smart contract on Ethereum’s Ropsten testnet, which provides an efficient off-blockchain payment channel that accepts ether and the USDC stablecoin.

For more information, please refer to the following links:

New Products Launch in Crypto Funds, BD-ATS Platforms and Stablecoins

By Kayley B. Sullivan

The Swiss Financial Market Supervisory Authority (FINMA) announced this week its approval of the first Swiss fund that will invest primarily in cryptoassets, the Crypto Market Index Fund. FINMA noted that the fund is limited to qualified investors.

In other capital markets news this week, Securitize Inc. announced the launch of Securitize Markets, a Securities and Exchange Commission-registered broker-dealer and alternative trading system that facilitates the trading of blockchain-based securities. According to a press release, “all investments on Securitize Markets are tokenized as Digital Asset Securities (also commonly referred to as ‘security tokens’), which bring a host of benefits over traditional paper securities, including virtually instantaneous settlement minimizing counterparty risk, greater efficiency with fewer intermediaries, and the opportunity for fractional ownership.”

In another recent press release, Circle, the issuer of the USDC stablecoin, stated that it has integrated with a U.S.-based technology platform and data network. According to the press release, the integration will streamline Circle’s fiat-to-crypto operations by enabling automated clearing house (ACH) payments to settle as USDC and payouts of USDC to convert into ACH transfers. Meanwhile, in Peru, according to reports this week, the first stablecoin pegged to Peru’s national currency, the sol, has launched on the Stellar blockchain.

For more information, please refer to the following links:

Fashion, Sports, Graphic Novels and Art: NFT Market Continues to Expand

By Lauren Bass

According to reports, a global luxury fashion brand has partnered with the content lab of a men’s fashion magazine and a Singapore-based startup to develop and release six NFTs (non-fungible tokens) inspired by the luxury brand’s iconic designs. The limited-edition digital collectibles will be released using the ZK-Rollups protocol and will be given to the winners of a “mix and match” design competition hosted on a Chinese social media platform.

Earlier this week, Dapper Labs, creator of the Flow blockchain, reportedly announced a new partnership to develop and produce an NFT marketplace in conjunction with a major U.S. sports league and its players. According to reports, this new digital partnership will focus heavily on video content.

In other NFT news, a legendary comic and graphic novel publisher has reportedly partnered with a ConsenSys-backed digital studio to design and release a series of NFTs. According to a press release, the digital collectibles, which will feature fan-favorite superhero characters, will be available for free to registrants of the publisher’s upcoming global virtual fan event.

Finally, one of the largest peer-to-peer NFT marketplaces has reportedly relisted a Polygon-based NFT collection after a Digital Millennium Copyright Act (DMCA) counter notice was successfully filed by its creators. The relist follows a monthlong marketplace ban that resulted after a competing collection claimed the NFTs infringed copyright and filed an initial DMCA takedown notice.

For more information, please refer to the following links:

Crypto Enforcement: DOJ and CFTC Target Sanctions and Registration Violations

By Keith R. Murphy

The U.S. Attorney for the Southern District of New York announced in a press release this week that an Ethereum network developer, Virgil Griffith, pleaded guilty to conspiring to help the Democratic People’s Republic of Korea (DPRK) evade sanctions, including by providing technical services and advice on using blockchain technology and cryptocurrency. According to the press release, the defendant traveled to the DPRK to attend a blockchain and cryptocurrency conference, where he allegedly presented information on how blockchain technology could be used to benefit the DPRK, including in connection with nuclear weapons negotiations with the U.S. The defendant also purportedly tried to assist with the exchange of cryptocurrency between the DPRK and South Korea while knowing that such efforts violated existing sanctions. The defendant is scheduled to be sentenced in January 2022.

One of the largest U.S. cryptocurrency exchanges settled charges by the Commodity Futures Trading Commission (CFTC) for $1.25 million that it illegally offered margined retail commodity transactions in digital assets, according to a press release this week. According to the press release, the transactions were improper because they were supposed to take place on a designated contract market, but the exchange failed to register as a futures commission merchant (FCM). The press release quoted a representative of the CFTC stating that “[m]argined, leveraged or financed digital asset trading offered to retail U.S. customers must occur on properly registered and regulated exchanges in accordance with all applicable laws and regulations.”

In related enforcement news, another CFTC press release announced that the commission has brought charges and seeks cease and desist orders against 14 entities, some for failing to register as FCMs and others for misrepresenting that they had CFTC registration and National Futures Association membership. According to the press release, the majority of the complaints assert that the entities offered the general public opportunities to purchase options based on the value of commodities, including cryptocurrencies such as bitcoin, without ever having registered as FCMs.

For more information, please refer to the following links:

DeFi Error Releases Millions in Crypto; Bitcoin ATM Vulnerability Reported

By Jordan R. Silversmith

According to reports this week, the DeFi protocol Compound has erroneously paid out millions of dollars in COMP rewards following an update to one of its smart contracts. According to reports, millions of COMP were erroneously dispensed, including $27 million in one transaction. The botched payout sums may indicate a flaw related to a recent upgrade in the comptroller contract, which disburses the COMP liquidity mining rewards.

This week, the security research team at a major U.S. cryptocurrency exchange reported multiple hardware and software vulnerabilities in the General Bytes BATMtwo, a commonly used cryptocurrency ATM. The researchers found multiple attack vectors through the default administrative QR code, the Android operating software, the ATM management system and the hardware case of the machine. The known exploits in the hardware and software of the ATM are now well known, the researchers say, and they encourage users of the BATMtwo to use it only at trusted locations.

For more information, please refer to the following links:

Financial Institutions Pursue Cryptocurrency and Blockchain Offerings, US Treasury Sanctions Russian Crypto OTC Desk, Multiple DeFi Platforms Hacked

Traditional Financial Firms Pursue Crypto and Blockchain Market Offerings

States Target Crypto Lending Platform, Alleging Securities Laws Violations

US Treasury Sanctions Russian Crypto OTC Desk, Issues Ransomware Advisory

Cryptocurrency Hackers Continue to Plague DeFi Platforms

Traditional Financial Firms Pursue Crypto and Blockchain Market Offerings

By Lauren Bass

Earlier this week, a major Dutch financial institution reportedly became the sixth broker-dealer to join forces with the first blockchain-based securities settlement service. According to press releases, the private, permissioned blockchain network hopes this new partnership will help increase the efficiency and reach of its pilot program, which currently operates under a No-Action Phase while it applies to the SEC for full clearing agency registration.

According to reports this week, a major U.S. financial services firm has minted its first non-fungible token (NFT) in collaboration with a celebrated European soccer coach. According to reports, the one-of-a-kind collectible will take the form of a digital animated soccer ball, signed by the coach, and will be awarded to one lucky sweepstakes winner.

In other financial news, to prepare for its U.S. expansion, a U.K.-based digital bank reportedly became the first enterprise client of a major shared workspace provider to lease office space using cryptocurrency. According to reports, the U.K. bank has signed a long-term tenancy on a Dallas office and plans to pay rent in bitcoin.

For more information, please refer to the following links:

States Target Crypto Lending Platform, Alleging Securities Laws Violations

By Veronica Reynolds

Late last week and this week, financial regulators from the states of Texas, New Jersey, Alabama and Kentucky each took actions against a well-known cryptocurrency trading, lending and borrowing platform. The state actions all relate to the platform’s “Earn Rewards” program, which the state regulators allege are interest-bearing accounts that are in violation of state securities laws.

In one example, the Alabama regulator alleges that the lending platform has engaged in the “sale of unregistered securities in the form of cryptocurrency interest-earning accounts” and alleges that these accounts expose investors to undue risk because they are not protected by certain federal programs designed to protect consumers investing in regulated securities. In another example, the Texas regulator alleges that the platform is “not disclosing material information necessary for investors to make an informed decision, including critical material information about the risks associated with purchasing its unregistered securities.”

The New Jersey and Kentucky regulators issued cease-and-desist orders against the company. The Texas and Alabama regulators will provide the company an opportunity to respond before cease-and-desist orders are issued.

For more information, please refer to the following links:

US Treasury Sanctions Russian Crypto OTC Desk, Issues Ransomware Advisory

By Joanna F. Wasick

On Monday, the U.S. Department of the Treasury (the Department) issued a press release announcing a set of actions focused on countering ransomware. As part of the announcement, the Department stated that the Office of Foreign Assets Control (OFAC) “sanctioned” Russian-based cryptocurrency exchange SUEX OTC, S.R.O. (SUEX), identifying it as having facilitated transactions involving proceeds from at least eight ransomware variants. OFAC added SUEX, and over 20 associated cryptocurrency public keys, to OFAC’s List of Specially Designated Nationals.

As a result of the designation, all of SUEX’s property and interests in property that are subject or become subject to U.S. jurisdiction are blocked, and U.S. persons are prohibited from engaging in transactions with SUEX and any entity that is owned fifty percent or more by SUEX, and in transactions involving any of the designated cryptocurrency public keys.

On the same day, OFAC issued an updated advisory to highlight the sanctions risks associated with ransomware payments and provided steps companies can take to mitigate such risks, including actions that OFAC would consider to be “mitigating factors” in any related enforcement action. Among other things, the “mitigating factors” include the implementation of a risk-based compliance program to mitigate exposure to sanctions-related violations.

For more information, please refer to the following links:

Cryptocurrency Hackers Continue to Plague DeFi Platforms

By Kayley B. Sullivan

According to reports, late last week, a non-fungible token (NFT) auction on SushiSwap’s MISO cryptocurrency platform was hacked as a result of a software supply-chain attack. The hacker reportedly got away with approximately $3 million in ether. According to a report of the incident released by SushiSwap, the hack may have resulted from faulty GitHub procedures.

In another reported incident, this week pNetwork, a cross-chain decentralized finance protocol that allows different blockchains to communicate with each other, also announced that it had been hacked. The hack reportedly resulted in a loss of 277 pBTC, a version of wrapped bitcoin, worth over $12 million. The attacker reportedly found a bug in the platform’s code, which has since been fixed.

In a third hack reported this week, decentralized finance platform Vee Finance was hit, losing 8,804.7 ETH and 213.93 BTC, for a total loss of around $35 million. According to reports, this is the second major attack on an Avalanche platform – the first being decentralized finance protocol Zabu Finance earlier this month.

For more information, please refer to the following links:

Market Initiatives Announced in Crypto Compliance, Digital Asset Exchange, Blockchain Enterprise Solutions and NFTs; SEC Chairman Comments on Crypto

US Firm Acquires Crypto Co., Swiss Digital Asset Exchange Gains License

Enterprise Firms Announce Polygon Integration and Shipping Data Solution

NFT Sells for Record $1.1M, NFT Marketplace Exec Accused of Insider Trading

SEC Chairman Comments on Crypto Market in Senate Committee Speech

US Crypto Exchange Files with NFA, UK FCA Warns on Celebrity Crypto Ads

US Firm Acquires Crypto Co., Swiss Digital Asset Exchange Gains License

By Kayley B. Sullivan

In a recent press release, a major U.S. financial services firm announced its acquisition of CipherTrace, a blockchain analytics and cryptocurrency intelligence software provider. According to the press release, this will allow the financial services firm to “drive continued innovation with a diverse range of partners” and provide an “integrated offering” that will “provide businesses with greater transparency to help identify and understand their risks and to help manage their digital asset regulatory and compliance obligations.” The deal is reportedly set to close by the end of the year.

In international developments, SIX Digital Exchange has received approval from the Swiss Financial Market Supervisory Authority “to go live with a fully regulated, integrated trading, settlement, and custody infrastructure based on distributed ledger technology for digital securities.” And in Argentina, an owner of luxury villas in the Mendoza wine region recently announced that it would be accepting payment in the form of bitcoin for purchases of its luxury homes.

Last, according to a recent report, Bitcoin Network energy consumption in 2021 has already beaten last year’s numbers. The report cites the Bitcoin Network as having consumed an estimated 67TWh of electricity in 2020, and it predicts that if current numbers continue, Bitcoin Network mining will use approximately 91TWh of energy in 2021 — as much as is used annually in Pakistan.

For more information, please refer to the following links:

Enterprise Firms Announce Polygon Integration and Shipping Data Solution

By Robert A. Musiala Jr.

This week, a Big Four accounting and consulting firm announced that it is “using the Polygon protocol and framework to deploy … blockchain solutions on the public Ethereum blockchain ecosystem.” The press release notes the recent spike in transaction costs on the Ethereum Blockchain and that integration with the Polygon protocol will allow the firm “to offer enterprise users increased transaction volumes with predictable costs and settlement times and the option to move transactions onto the public Ethereum mainnet.” The press release also notes that the firm is “working with Polygon to create permissioned, private industry chains leveraging new models for handling transaction verification” and to “offer enterprises the comfort and security of a closed system but retain the close alignment with the public Ethereum mainnet.”

In other enterprise developments, the Global Shipping Business Network (GSBN) recently announced the launch of a new blockchain-enabled operating system for managing shipping industry data. According to reports, the new system includes a feature whereby “data is encrypted before it is sent to the GSBN platform, and as a result GSBN cannot see the data without the members’ authorisation.” In another recent development, a Singapore-based firm announced a partnership with VeChain to deploy a blockchain traceability solution in the shrimp-farming industry.

For more information, please refer to the following links:

NFT Sells for Record $1.1M, NFT Marketplace Exec Accused of Insider Trading

By Veronica Reynolds

A Degenerate Ape Academy non-fungible token (NFT) sold this week for $1.1 million, making it the most expensive Solana-based NFT sold to date. The NFT, reportedly the 13th-rarest in existence, was purchased by a European-based blockchain advisory and investment firm. Solana, an Ethereum rival, is an open-source, proof-of-stake, permissionless blockchain that facilitates transactions of the SOL token and digital assets, such as NFTs.

An executive of one of the world’s largest NFT marketplaces was accused of insider trading this week. The marketplace issued a statement acknowledging that “one of [its] employees purchased items that they knew were set to display on our front page before they appeared there publicly.” The executive reportedly profited from this insider knowledge by selling the NFTs after the front-page feature and corresponding price jump. According to the marketplace’s statement, the platform requested and accepted the executive’s resignation and is conducting an internal investigation of the incident.

For more information, please refer to the following links:

SEC Chairman Comments on Crypto Market in Senate Committee Speech

By Keith R. Murphy

In testimony this week to the United States Senate Committee on Banking, Housing and Urban Affairs, the chairman of the U.S. Securities and Exchange Commission (SEC), Gary Gensler, commented on cryptocurrency assets. Addressing the cryptocurrency market, Gensler said the following:

“Currently, we just don’t have enough investor protection in crypto finance, issuance, trading, or lending. Frankly, at this time, it’s more like the Wild West or the old world of “buyer beware” that existed before the securities laws were enacted. This asset class is rife with fraud, scams, and abuse in certain applications.”

Addressing cryptocurrency exchange platforms, Gensler said the following:

“Many platforms have dozens or hundreds of tokens on them. While each token’s legal status depends on its own facts and circumstances, the probability is quite remote that, with 50, 100, or 1,000 tokens, any given platform has zero securities. Make no mistake: To the extent that there are securities on these trading platforms, under our laws they have to register with the Commission unless they qualify for an exemption.”

Gensler also noted that the SEC is working with multiple government entities, including the Commodity Futures Trading Commission (CFTC), the Federal Reserve and the Department of the Treasury, on investor protection and policy frameworks relating to cryptocurrencies.

For more information, please refer to the following links:

US Crypto Exchange Files with NFA, UK FCA Warns on Celebrity Crypto Ads

By Keith R. Murphy

This week, a major U.S. cryptocurrency exchange filed to become a member of the National Futures Association and to register as a futures commission merchant, according to a report. The company seeks to offer futures and derivative trading relating to cryptocurrency assets on its platform, according to a statement by a company representative. The report notes that further licensing by the CFTC may be necessary as part of this effort.

The Financial Conduct Authority (FCA), a financial regulatory body in the United Kingdom, is cautioning people against blindly buying cryptocurrency assets based on a fear of missing out, according to a recent report. The report notes that the FCA is concerned that people with little knowledge of the risks may be influenced by celebrities to purchase cryptocurrencies that are unregulated and potentially could be fake, for example. The chairman of the FCA reportedly is seeking greater powers to govern the online promotion of cryptocurrencies in an effort to combat “problematic content.”

For more information, please refer to the following links:

NFT Market Expands in Alcohol, Athletics and Art; Regulators Warn Against Crypto Risks; U.S. Agencies Target Crypto Fraud

In this issue:

Alcohol, Athletics, and Art: NFT Adoption Continues to Expand

US, UK and Thailand Regulators Warn of Crypto Risks, Act Against Exchange

DOJ and SEC Actions Target Crypto Fraud Scheme and Crypto Exchanges

Alcohol, Athletics, and Art: NFT Adoption Continues to Expand

By Lauren Bass

To celebrate National Rum Day, a privately held liquor label has reportedly launched a platform from which it will auction a specially designed non-fungible token (NFT) – a 3D video that details the history and journey of the label. Sale proceeds will be donated to an initiative that helps Black-owned establishments obtain liquor licenses. In related news, having previously launched several NFTs, an international brewery has reportedly expressed interest in leveraging the NFT market and creating virtual “brand activations”. According to the company’s global head of technology the brewer’s intention is to build more “loyal and engaged communities” through the digital metaverse.

In athletic industry news, a Spanish football club has reportedly become the first European league to mint an NFT of each of its players. According to reports, once purchased, the unique player collection can be used by owners to create and compete in virtual fantasy football tournaments on Sorare, a French fantasy football digital trading platform. In arts and entertainment news, earlier this week a prominent female rapper reportedly launched an exclusive NFT collection on OneOf, a new “green” NFT platform built on the Tezos blockchain and backed by music moguls.  According to press releases, the NFTs start at $5, and each purchase includes the chance to win an instant “golden ticket,” which provides the winner access to exclusive concerts and other VIP experiences.

A recent fine arts auction of Yuga Labs’ “101 Bored Ape Yacht Club” NFT collection has reportedly generated a $19 million bid. According to reports, the collection also includes a feature that allows the artwork’s characteristics to mutate, thereby increasing the rarity and value of the digital collectible. In other art NFT news, a hacker reportedly posed as the pseudonymous English artist/activist Banksy to auction an NFT titled “Great Redistribution of the Climate Change Disaster” through the street artist’s official website. According to reports, however, once the scam was revealed, the hacker returned the $336,000 in Ethereum that the winning bidder had paid.

For more information, please refer to the following links:

US, UK and Thailand Regulators Warn of Crypto Risks, Act Against Exchange

By Kayley B. Sullivan

In a recent Investor Alert, the U.S. Securities and Exchange Commission (SEC) issued a warning to consumers about the risks associated with digital asset and crypto investment scams. The announcement highlights the “devastating losses” faced by retail investors due to scams that exploit the rising popularity of digital assets. The SEC urged digital asset investors to understand and evaluate risks as well as to look out for warning signs of possible frauds, including “guaranteed” high investment returns, unlicensed or unregistered sellers, investment opportunities sounding “too good to be true,” skyrocketing account values and fake testimonials.

In another warning to cryptocurrency investors, Charles Randell, the chair of the U.K.’s Financial Conduct Authority (FCA), gave a speech this week commenting on cryptocurrency scams and the role of the FCA in combating the associated harm to consumers. Among other things, Randell urged that legislation is needed to address risks in online advertisements for digital financial products. Randell also noted that cryptocurrency regulations should consider how to make it harder for digital tokens to be used for financial crime, how to support useful innovation, and the extent to which consumers should be free to buy unregulated, purely speculative tokens and to take the responsibility for their decisions to do so.

Last, according to a statement on its website, Thailand’s Securities and Exchange Commission (Thai SEC) will ask its Ministry of Finance to revoke the digital asset trading license of Huobi Thailand. The Thai SEC reports that Huobi Thailand has failed to comply with local regulations related to its operations and management structure and to fix such system flaws after they were identified more than five months ago.

For more information, please refer to the following links:

DOJ and SEC Actions Target Crypto Fraud Scheme and Crypto Exchanges

By Veronica Reynolds

According to a press release from the U.S. Department of Justice (DOJ), an Ohio man pled guilty this week to one count of wire fraud for his role in orchestrating a multimillion-dollar cryptocurrency fraud scheme whereby he raised over $30 million from investors under fraudulent claims that the money would be invested in a fund that used a proprietary cryptocurrency trading algorithm. According to the press release, in reality the defendant reported falsified returns while using investor funds to bankroll his lavish lifestyle. The defendant agreed to make restitution of at least $30,667,738.79; agreed to forfeiture of $36,268,515; and faces a potential maximum prison sentence of 20 years.

The U.S. Securities and Exchange Commission (SEC) filed a complaint this week alleging that between July and September 2017, two men, using a Cayman Islands-registered company, conducted an unlawful unregistered securities offering through a token offering, primarily to raise funds for the company. The defendants allegedly raised funds from over 7,200 investors worldwide, with over 30% of the investors residing in the U.S. The SEC alleged that the “RvT tokens” at the time of sale, could not be used to purchase any products or services. According to a press release, the SEC alleged that the “offers and sales of RvT, which raised the equivalent of $18 million in digital assets from investors, were not registered with the SEC and did not qualify for any exemption from registration.”

According to reports, the SEC has been looking into the marketing and business activities of two large cryptocurrency exchanges in recent weeks. In one instance, the SEC is reportedly investigating the world’s largest decentralized exchange, which facilitates swaps between Ethereum-based coins and other tokens. In another instance, the SEC has reportedly issued a Wells notice to one of the largest centralized cryptocurrency exchanges in the U.S. related to the exchange’s planned cryptocurrency lending program. According to a blog post, as a result, the exchange will delay the launch of the program.

For more information, please refer to the following links:

CBDC Initiatives Announced, NFTs Expand Across Markets, Token and Wallet Applications Evolve, SEC and DOJ Target Crypto Fraud, Crypto Hacks Continue

In this issue:

CBDC Initiatives Announced, Blockchain Trade Finance Platform Launches

Baseball, Art, Politics, Commerce: NFT Market Continues to Expand

Gaming Token Shifts Away from Ethereum, MetaMask Announces 10M Users

BitConnect Charged in $2B Crypto Fraud, BitConnect Promoter Pleads Guilty

Seychelles Investigates Crypto Fraud, Singapore Issues Warning for Exchange

DeFi Hacked, Exchange Hack Traced, Report Addresses Crypto Crime by Region

CBDC Initiatives Announced, Blockchain Trade Finance Platform Launches

By Robert A. Musiala Jr.

This week, the Bank for International Settlements (BIS) announced Project Dunbar, an initiative in which BIS will collaborate with the Reserve Bank of Australia, Bank Negara Malaysia, Monetary Authority of Singapore and South African Reserve Bank “to test the use of central bank digital currencies (CBDCs) for international settlements.” According to the press release, the project will seek to develop “multi-CBDC platforms” that “allow financial institutions to transact directly with each other in the digital currencies issued by participating central banks, eliminating the need for intermediaries and cutting the time and cost of transactions.”

The Central Bank of Nigeria issued a press release this week to announce that it has engaged Bitt Inc. as a technical partner for its planned CBDC, named eNaira. The press release notes that the eNaira is due to be unveiled later in the year. The Central Bank of Cuba, according to a recent report, issued a resolution establishing its authority to authorize the use of cryptocurrencies in commercial transactions and to license virtual asset service providers to conduct certain financial activities.

In the private sector, this week a major global financial institution announced that it has partnered with “a leading supply chain finance technology solution provider in China” to establish a “fully-digitised trade finance origination and distribution platform” underpinned by blockchain and artificial intelligence technology. And in a recent final report, a five-star hotel in the Swiss Alps, The Chedi Andermatt, has announced that it will begin accepting bitcoin and ether as payment from its guests.

For more information, please refer to the following links:

Baseball, Art, Politics, Commerce: NFT Market Continues to Expand

By Lauren Bass

A baseball trading card company recently announced the launch of its new NFT series. According to reports, the digital collectibles will contain motion animation, facsimile signatures, and “digital relic content” featuring rookie and veteran players. The NFTs will be offered exclusively online through an Avalanche-powered public blockchain platform.

A New York fine art auction house has begun taking bids for two Yuga Labs-designed NFTs: “101 Bored Ape Yacht Club” and “101 Bored Ape Kennel Club.” According to reports, the collections, which together are expected to draw bids close to $20 million, will be available for purchase via ether, bitcoin or USDC.

To raise funds for his gubernatorial campaign, a former Minnesota state senator is reportedly offering a series of state fair themed NFTs. The limited-edition tokens are available for a minimum campaign donation of $5. According to reports, an NFT purchase also entitles the owner to be entered into a rewards program, with prizes ranging from meet-and-greets to access to exclusive campaign events.

On the heels of its CryptoPunk purchase last week, an international payments corporation has published a white paper on NFTs. The 17-page report offers insights on the current NFT landscape and provides “actionable guidance” on how businesses can “evaluate and scale NFT opportunities” in branding and consumer engagement.

For more information, please refer to the following links:

Gaming Token Shifts Away from Ethereum, MetaMask Announces 10M Users

By Veronica Reynolds

This week, a cryptocurrency subsidiary of a large video game, entertainment and technology company announced that its interactive gaming token, ATRI, will now operate on the Fantom proof-of-stake blockchain, shifting away from the ERC-20 proof-of-work standard on which the token was originally launched. In a press release, the company cited network speed and cost as justifying factors for the move.

According to recently released data, MetaMask, provider of a popular software Ethereum wallet, has amassed over 10 million users to date. This is reportedly a 1,800% increase in user acquisition over a one-year period. The increase appears to be the result of a sharp increase in Decentralized Finance (DeFi) adoption this year, with MetaMask considered “the most widely used wallet in the DeFi world.”

For more information, please refer to the following links:

BitConnect Charged in $2B Crypto Fraud, BitConnect Promoter Pleads Guilty

By Jordan R. Silversmith and Robert A. Musiala Jr.

This week the U.S. Securities and Exchange Commission (SEC) announced charges against BitConnect, an online crypto lending platform; its founder; and its chief U.S. promoter and his affiliated company for their role in defrauding investors of over $2 billion. According to the SEC’s complaint, from early 2017 through January 2018, the defendants operated a scheme whereby they lured investors by promising exorbitant returns using proprietary trading software. Rather than invest those funds, however, the defendants siphoned investors’ funds to digital wallets for their own personal use. The SEC’s complaint charges the defendants with violating the antifraud and registration provisions of the federal securities laws and seeks injunctive relief, disgorgement plus interest, and civil penalties.

In a related press release, the U.S. Department of Justice announced that a BitConnect director and promoter, Glenn Arcaro, has pleaded guilty for his participation in the scheme, including by fraudulently marketing BitConnect’s purported coin offering, digital currency exchange and trading bot, and by operating “a pyramid scheme known as the BitConnect Referral Program.” According to the DOJ press release, Arcaro admitted that he earned no less than $24 million from the fraud. He faces a maximum penalty of 20 years in prison, and a fine equal to $250,000 or twice the gross gain or loss from the offense, whichever is greater.

For more information, please refer to the following links:

Seychelles Investigates Crypto Fraud, Singapore Issues Warning for Exchange

By Jordan R. Silversmith

The Seychelles Police financial crime investigation unit has reportedly received documents asking for an investigation into multiple transactions involving the transfer of 230,000 bitcoin related to the OneCoin fraud scheme. The transactions reportedly included cash and property worth over $10 billion and resulted from claims filed in London, Dublin and Brussels after almost $500 million of allegedly stolen funds was discovered in a Dubai bank account. According to a press release, the Seychelles Police are currently verifying the documents before taking further steps.

This week Singapore issued an investor alert for Binance, a major crypto exchange, after the city-state’s financial watchdog reported that the company had provided payment services to and solicited business from residents of Singapore in violation of the Payment Services Act. In an emailed statement this week, Binance reportedly stated it is aware of the watchdog’s comments and is actively working with the Monetary Authority of Singapore to address these issues.

For more information, please refer to the following links:

DeFi Hacked, Exchange Hack Traced, Report Addresses Crypto Crime by Region

By Teresa Goody Guillén

A decentralized finance (DeFi) lending protocol reportedly suffered its second flash loan attack this year, losing over $25 million. Flash loan attacks take advantage of the DeFi feature of loans that do not require collateral. A representative of the DeFi protocol stated that the root cause of the incident was lending of AMP tokens, as AMP token contracts allowed for a reentrancy attack (reportedly the same type of exploit used in the 2016 Ethereum Network DAO hack).

According to a blockchain analytics firm, hackers who recently stole approximately $97 million in cryptocurrency from a crypto exchange used a noncustodial, privacy-focused desktop wallet to protect some of their gains. The desktop wallet allows users to make their bitcoin less traceable on the public ledger by arranging CoinJoin transactions, also referred to as coin mixing, whereby multiple users can commingle their bitcoin in joint transactions and maintain the same number of bitcoin while obfuscating external tracking of the payments. The wallet also routes transactions over the Tor network to conceal the user’s IP address. Over 437 bitcoin ($20 million) associated with the exchange hackers has reportedly been laundered to date using the wallets’ CoinJoin feature.

This week, a blockchain analytics firm published a preview of its 2021 Geography of Cryptocurrency report. Among other report findings, the preview noted the following:

  • Addresses based in Africa and Eastern Europe have the first- and second-highest rates of exposure to illicit cryptocurrency addresses, respectively.
  • Eastern Europe sends more cryptocurrency to darknet markets than does any other region, largely due to activity involving a darknet market that caters only to users in Russian-speaking countries throughout Eastern Europe.
  • Eastern Europe sent the most web traffic to scam websites during the time period studied.
  • Western Europe and Eastern Europe sent the most cryptocurrency to illicit addresses and received the most cryptocurrency value from scams.
  • Western Europe-based addresses and Eastern Europe-based cryptocurrency addresses have received the most significant funds from addresses associated with ransomware ($51 million and $46 million, respectively).

For more information, please refer to the following links:

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