The Four Areas Online Merchants and E-Commerce Companies Must Know About Cryptocurrency

Partner Jeewon Serrato and Counsel Rob Musiala discuss what online merchants and e-commerce companies should know about cryptocurrency.

Questions & Comments: jserrato@bakerlaw.com, rmusiala@bakerlaw.com

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Crypto Initiatives Launch; Bitcoin Upgrade Activated; Reports Address DeFi, Tether; SEC Rejects Bitcoin ETF; DOJ to Sell $56M in Crypto Fraud Proceeds

Raising Municipal Funds and Rewarding Loyalty: New Cryptocurrency Use Cases

Bitcoin’s Taproot Upgrade Activated to Improve Network Security

Reports Address DeFi Security, Tether Distribution and Liquidity

SEC Rejects Proposal for Spot Bitcoin Exchange Traded Fund

US and Canadian Authorities Pursue Fraud Schemes, Recover Stolen Crypto

Raising Municipal Funds and Rewarding Loyalty: New Cryptocurrency Use Cases

By Lauren Bass

Earlier this week, a cryptocurrency nonprofit organization reportedly launched a Bitcoin-based digital asset designed to raise funds for New York City’s municipal government while simultaneously allowing individual stakeholders to earn rewards. According to reports, although NYC has yet to officially partner with the nonprofit, funds generated by the token will be stored in a secured wallet and can be claimed and used by the city at any time.

The NYC-related coin is the second in a series and follows Miami’s earlier adoption of its city-specific token in August. According to reports, the staking of the Miami cryptocurrency has reportedly generated over $21 million in revenue for the city. To celebrate and promote the success of its digital asset, Miami’s mayor is reportedly working on a plan to distribute a “bitcoin yield” dividend to each of the city’s residents.

In related news, a multinational hamburger fast food chain will reportedly reward loyal customers with cryptocurrency. According to reports, any customer who spends at least $5 at the restaurant will be eligible to receive digital tokens, including Dogecoin, Ethereum and Bitcoin.

For more information, please refer to the following links:

Bitcoin’s Taproot Upgrade Activated to Improve Network Security

By Veronica Reynolds

This week, a 90 percent lock-in consensus from Bitcoin Network miners and mining pools (achieved in June 2021) resulted in the successful activation of the long-awaited and discussed Taproot upgrade, the first protocol upgrade to the Bitcoin Network in over four years implemented via soft fork. Taproot’s goal is to modify the way Bitcoin’s scripts operate to improve scalability, privacy and security. To do this, “the soft fork introduces the concept of Merkelized Abstract Syntax Tree (MAST),” which can increase the privacy and efficiency of smart contracts by revealing only their relevant parts when transacting.

A cryptocurrency network “fork” refers to a change in a cryptocurrency network’s underlying protocol (software or code), resulting in a split into two different chains. A soft fork differs from a hard fork in that soft forks are backward-compatible upgrades to the network software, with validators (nodes) running older versions of the software able to recognize network blocks added by validators running the newer software. In contrast, hard forks are not backward compatible and typically represent an ideological difference between validators, resulting in two separate, parallel blockchains and separate digital assets.

Not since SegWit, a community-implemented upgrade that occurred in August 2017, has a Bitcoin upgrade been so highly discussed and anticipated. Reports indicate that the Taproot upgrade will result in lower transaction fees and improved smart contract functionality.

For more information, please refer to the following links:

Reports Address DeFi Security, Tether Distribution and Liquidity

By Veronica Reynolds

A report published earlier this month titled “Top 10 DeFi Security Best Practices” outlines numerous measures developers can take to improve the security of decentralized applications (dApps). This list includes measures to prevent “reentrancy attacks,” which is “when a contract calls an external contract before updating its own state.” The infamous DAO hack of 2016 reportedly fell victim to this particular flaw, resulting in $60 million in ether being stolen. The report also cautions against using decentralized exchange (DEX) or automated market maker (AMM) reserves as price oracles because doing so can allow users to “manipulate the spot price of an order book or AMM DEX, often through the use of a flash loan,” and recommends using a decentralized oracle instead. The report further recommends using Chainlink VRF as a verifiable randomness oracle instead of Keccak256 or Blockhash and encourages developers to incorporate DeFi security principles generally to ensure heightened security.

According to a study released last week purporting to have analyzed blockchain data from various sources, Tether, a company that distributes the Tether (USDT) stablecoin, distributed $108.5 billion USDT and received $32.7 billion USDT during the 2014-2021 time period. Of the total USDT distributed, 89.2 percent reportedly went to market makers, with two market makers receiving a reported 55 percent of all outbound transfers ever distributed and 60 percent of outbound transfers distributed over the past year. According to the study, the majority of the USDT transferred to these two market makers was done through just two exchanges – FTX and Binance.

For more information, please refer to the following links:

SEC Rejects Proposal for Spot Bitcoin Exchange Traded Fund

By Joanna F. Wasick

Last Friday, the SEC issued a decision rejecting a proposal for a spot bitcoin exchange traded fund (ETF), stating that the proposal failed to demonstrate that the ETF would follow federal securities laws, particularly the requirement that the ETF be “designed to prevent fraudulent and manipulative acts and practices” and “protect investors and the public interest.” While the proposal emphasized facets inherent to bitcoin and the bitcoin market that purportedly deter fraud and manipulation, the SEC found them inadequate.

Instead, the SEC explained that any bitcoin ETFs would need a “comprehensive surveillance-sharing agreement,” with a regulated market of significant size related to the underlying or reference bitcoin assets,” in order to get clearance for trading. Such agreements would provide for the collection and sharing of information about market trading activity, clearing activity and customer identity between parties. This, the SEC stated, would be a “necessary deterrent” to manipulation because it would make available information needed to investigate a manipulation should one occur.

The decision may seem inconsistent with the SEC’s October decision permitting ETFs linked to bitcoin futures contracts. However, SEC Chair Gary Gensler has pointed out that bitcoin futures trade on highly regulated exchanges, which is not the case with actual bitcoin.

For more information, please refer to the following links:

US and Canadian Authorities Pursue Fraud Schemes, Recover Stolen Crypto

By Keith R. Murphy

The United States Department of Justice and the U.S. Attorney’s Office for the Southern District of California were granted court authority to liquidate almost $56 million in fraud proceeds recovered from a promoter of the cryptocurrency BitConnect, according to a press release this week. The government intends to sell the seized cryptocurrency and will hold the proceeds in U.S. dollars in furtherance of its effort to provide restitution to the victims. The BitConnect scheme is reportedly the largest cryptocurrency scheme to be prosecuted criminally, and the promoter is set to be sentenced in January 2022.

According to a report this week, a Canadian youth was charged with stealing $46 million in cryptocurrency from a United States resident through a SIM swap attack. The youth’s age was not released; however, the report notes that Canadian police, working along with the U.S. Federal Bureau of Investigation and the U.S. Secret Service, were able to crack the case after the thief used some of the stolen funds to purchase a gaming username. Seven million dollars in cryptocurrency was reportedly seized this week in connection with the case.

For more information, please refer to the following links:

Crypto Payment Products Launch; SEC Addresses DeFi, Targets DAO Tokens; OFAC Adds Crypto Exchange to SDN List; Crypto Fraud Schemes Revealed

New Crypto Payment Products Launch, Report Cites Exchange Consolidation

SEC Commissioner Publishes Article Addressing DeFi Risks and Regulation

OFAC Adds Crypto Exchange and Cryptocurrency Addresses to OFAC SDN List

Enforcement Agencies Target DAO Offering and Fraudulent Crypto Companies

New Cryptocurrency Fraud Schemes Revealed, DeFi Protocol Hacked

New Crypto Payment Products Launch, Report Cites Exchange Consolidation

By Kayley B. Sullivan

This week, a major U.S. financial services firm announced its partnership with three leading cryptocurrency service providers in the Asia Pacific region to launch cryptocurrency-funded payment cards. The cards will reportedly allow consumers and businesses in the Asia Pacific region to apply for crypto-linked credit, debit or prepaid cards that instantly convert their cryptocurrencies into traditional fiat currencies for use in online and point-of-sale payments.

In another recent announcement, a major U.S. payments firm disclosed in its third-quarter earnings letter that it’s peer-to-peer payment service, which enables bitcoin transactions, generated $1.82 billion in bitcoin revenue during the quarter and $42 million of gross profit, up 115% and 29%, respectively, year over year.

In another development this week, a national dining and hospitality company announced plans to team up with bitcoin payments and technology firm NYDIG to offer a bitcoin loyalty rewards program. According to the press release, the program will allow customers of the dining and hospitality group to earn bitcoin points when dining at any of its 500 nationwide locations. The offering will reportedly be powered by NYDIG’s secure, regulated, full-stack platform.

A recent “report preview” from blockchain analytics firm Chainalysis cites a recent trend of the consolidation of companies in the cryptocurrency exchange landscape, noting that the number of active exchanges peaked in July 2020 and has since been falling. Among other things, the report breaks down different categories of exchanges and describes the trends and patterns in centralized exchanges, decentralized exchanges, high-risk exchanges, over-the-counter brokers and derivatives exchanges.

For more information, please refer to the following links:

SEC Commissioner Publishes Article Addressing DeFi Risks and Regulation

By Robert A. Musiala Jr.

This week, the U.S. Department of the Treasury “announced a set of actions focused on disrupting criminal ransomware actors and virtual currency exchanges that launder the proceeds of ransomware.” According to a press release, the actions are part of the Biden administration’s efforts to “to disrupt ransomware infrastructure and actors and address abuse of the virtual currency ecosystem to launder ransom payments.” The announced actions include “the designation of Chatex, a virtual currency exchange, and its associated support network, for facilitating financial transactions for ransomware actors.” The press release notes that Chatex “has direct ties with SUEX OTC, S.R.O. (Suex),” which “was sanctioned on September 21, 2021, for facilitating financial transactions for ransomware actors.”

Concurrently with the Department of the Treasury announcement, its Office of Foreign Assets Control (OFAC) added Chatex, as well as four other entities and two individuals, to OFAC’s List of Specially Designated Nationals and Blocked Person (SDN List), which means that “all property and interests in property of the designated targets that are subject to U.S. jurisdiction are blocked, and U.S. persons are generally prohibited from engaging in transactions with them” and with entities 50 percent or more owned by such targets. Three of the designated entities were listed because they “set up infrastructure for Chatex, enabling Chatex operations.” These additions to OFAC’s SDN List also included multiple cryptocurrency addresses that are associated with the newly designated individuals and entities.

For more information, please refer to the following links:

OFAC Adds Crypto Exchange and Cryptocurrency Addresses to OFAC SDN List

By Joanna F. Wasick

An article by Caroline Crenshaw, a commissioner of the U.S. Securities and Exchange Commission (SEC), was published earlier this week on investor risks in decentralized finance (DeFi) and how the DeFi community and SEC should combat them. The commissioner begins by noting that although its underlying technology is new, DeFi is “fundamentally about investing,” and many DeFi products and activities have close analogs within the SEC’s jurisdiction. Likewise, Crenshaw notes in the article that risks associated with traditional financial products, such as fraud, self-dealing, information asymmetry and manipulation, also exist with DeFi products. The commissioner’s article states that these risks are exacerbated by certain DeFi fundamentals, including less transparency, limited gatekeepers and pseudonymity.

To protect investors in the DeFi space, Crenshaw asserts that the DeFi community must work with the SEC to maintain certain conduct expectations that ensure a fair market where all investors can exist on a level playing field. And if a development team is unsure as to whether its project is within the SEC’s jurisdiction, according to the commissioner, that team should reach out to the SEC for guidance before proceeding to market. She then cautions that for any noncompliant DeFi projects in the SEC’s jurisdiction, “we do have an effective enforcement mechanism.”

For more information, please refer to the following link:

Enforcement Agencies Target DAO Offering and Fraudulent Crypto Companies

By Veronica Reynolds

This week, the U.S. Securities and Exchange Commission (SEC) filed an “Order Instituting Administrative Proceedings and Notice of Hearing” against American CryptoFed DAO LLC, a decentralized autonomous organization (DAO) established under Wyoming’s DAO statute. According to an SEC press release, the order halts the effectiveness of American CryptoFed’s registration of two digital tokens as securities. The order alleges that American CryptoFed submitted a Form 10 document to the SEC on Sept. 16 seeking to register two tokens – Ducat and Locke – as equity securities under the Securities Exchange Act of 1934. Thereafter, according to the order, SEC staff communicated to American CryptoFed certain deficiencies in its Form 10 submission, including failure to provide certain financial information and audited financial statements as well as providing inconsistent and misleading statements and omissions. The order states that American CryptoFed resubmitted a purported amended Form 10 two days later, asserting the tokens were not securities. According to the order, because American CryptoFed did not correct its Form 10 deficiencies or withdraw its Form 10, it must attend a hearing to determine whether the allegations in the order are valid and whether American CryptoFed’s purported token registration should be denied or suspended.

In New Jersey, the state’s Bureau of Securities recently issued summary cease and desist orders against five companies “touting fraudulent investment opportunities relating to cryptocurrencies” and requiring they stop operating in violation of New Jersey law. According to the orders, the companies all promote fraudulent statements and omissions, including vague promises of profit, limited and misleading disclosures, bogus client endorsements, and failure to identify the companies’ principals. A press release issued by the bureau asserts that none of the companies are registered with the bureau to sell or offer securities or act as broker-dealers in New Jersey, even though some of the companies targeted by the orders falsely claim to be licensed, insured or otherwise authorized to sell securities in the state. According to the press release, at least three of the five companies targeted by the orders have been found by the bureau to have defrauded investors out of approximately $89,000.

For more information, please refer to the following links:

New Cryptocurrency Fraud Schemes Revealed, DeFi Protocol Hacked

By Keith R. Murphy

The FBI recently issued a public service announcement (PSA) warning about cryptocurrency fraud schemes that utilize cryptocurrency ATM machines and QR codes. The PSA provides details of typical encounters between a victim and criminal actors who make use of impersonation schemes, romance schemes and lottery schemes in order to steal funds. The victim is encouraged to deposit funds into a cryptocurrency ATM, populate the transfer recipient information through a QR code directed by the criminal actors and then transfer the funds in the form of cryptocurrency, often to foreign locations. The PSA further notes the difficulty of trying to recover such stolen funds given the decentralized nature of cryptocurrency.

A recent report warns of ads posted on a major international technology and search engine company website through which users are being directed to fake cryptocurrency wallet providers. According to the report, scammers are purchasing ads in response to users’ searches for the names of popular cryptocurrency wallets. However, the ads, which appear to mimic sites of actual wallet providers, instead direct the users to a phishing website. Once at the fraudulent website, users are asked to provide their credentials, or to enter a recovery password if they are trying to create a new wallet, resulting in the potential immediate transfer of funds directly to the scammer. According to a comment in the report, this appears to be a new trend in cybercrime, where a search engine is used as a primary way to reach victims as opposed to the typical phishing attack through email.

A decentralized finance lender reportedly suffered a hack of over $55 million, based on a report last week. The company indicated that a private key related to the protocol’s deployment was affected, but its smart contracts were not, according to the report. The company reportedly experienced three hacks last year and was previously able to recover some of the funds involved in those hacks.

For more information, please refer to the following links:

Financial Firms Integrate Crypto Offerings; Congressmen Address Bitcoin ETFs; NFT Boom Continues; Agencies Seek Crypto Oversight; Crypto Hacker Indicted

Traditional Financial Firms Integrate Crypto Services, CBDC Reports Published

Congressmen Advocate for Bitcoin Spot ETFs, Australia Issues Crypto ETP Regs

Sports Franchises and Music Platforms Continue to Embrace NFTs

Government Agencies Argue for Increased Oversight of Cryptocurrency Markets

DOJ Charges Cryptocurrency Hacker, Decentralized Exchange Hacked for $139M

Traditional Financial Firms Integrate Crypto Services, CBDC Reports Published

By Jordan R. Silversmith

This week a fintech and e-commerce firm announced the integration of its payment gateway with a major U.S. financial services corporation’s new cryptocurrency processing service. According to the press release, merchants using the payment gateway “can now activate … cryptocurrency transaction processing at any time.” The fintech firm’s CEO noted that “crypto commerce … enables merchants to offer a broad choice of payment options that match customer’s expectations.”

According to reports this week, Australia’s largest bank has begun integrating bitcoin services into its banking app. The bank will reportedly enable its approximately 6.5 million customers to buy, sell and hold Bitcoin beginning next year. The bank’s customer base is believed to represent over 25% of Australia’s total population.

A major U.S. investment banking corporation and a U.S. consulting firm recently released a report discussing how banks can leverage central bank digital currencies (CBDCs) for global corporations. The report suggests that a $120 billion value in cross-border payments can be “unlocked” through a multicurrency central bank digital currency (mCBDC) network that would make round-the-clock and real-time, cross-border, cross-currency payments plausible.

In a related development, this week the Bank for International Settlements (BIS) released a new working paper addressing the potential role for digital money in emerging markets and developing economies. Among other things, the working paper discusses some of the benefits and drawbacks of stablecoin initiatives and CBDCs in emerging market countries and argues that improving the existential financial infrastructure in these economies may address many of the issues private stablecoins and CBDCs aim to address.

For more information, please refer to the following links:

Congressmen Advocate for Bitcoin Spot ETFs, Australia Issues Crypto ETP Regs

By Joanna F. Wasick

On Wednesday, two members of the Congressional Blockchain Caucus, Tom Emmer (R-Minn.) and Darren Soto (D-Fla.) wrote to the chair of the Securities and Exchange Commission (SEC) providing reasons why the SEC should approve bitcoin spot exchange traded funds (ETFs), especially in light of the SEC’s recent approval of two bitcoin futures ETFs. First, the letter urges, concerns of fraud and manipulation in bitcoin markets are no different for bitcoin futures ETFs (where the fund holds contracts to trade bitcoin at a future date at a specified price) as compared to spot ETFs (where the fund holds actual bitcoin). Second, spot ETFs are efficient and “strongly preferred” by investors. Third, permitting futures ETFs while denying spot ETFs causes alternative spot bitcoin investment vehicles to emerge, which goes against the SEC’s mission of protecting investors. The letter closes by stating that the congressmen take no position as to whether one type of bitcoin ETF is superior to the other, but that investors should have a choice to invest in a product that they decide is best for them.

Last week, the Australian Securities and Investments Commission (ASIC) issued a new set of regulatory requirements for funds seeking to offer crypto exchange traded products, including ETFS. ASIC also provided new guidance in which it stated that bitcoin and ether likely satisfy all factors that ASIC considers when determining whether an asset is suitable as an underlying asset for an ETP. ASIC also stated that it will not require domestic crypto custody for those entities issuing crypto ETFs, as such a restriction would unfairly limit competition.

For more information, please refer to the following links:

Sports Franchises and Music Platforms Continue to Embrace NFTs

By Lauren Bass

This week an American mixed martial arts (MMA) promotion company has reportedly teamed with a cryptocurrency app to release a collection of nonfungible tokens (NFTs) featuring memorabilia from the MMA universe. According to press releases, purchasers of the NFTs will also be entered into a sweepstakes to win exclusive MMA-centric prizes.

In other sports news, a Spanish soccer team is reportedly planning to offer an NFT collection featuring photos and videos from the team’s centurylong history. According to reports, the tokens will be available for auction later this month on an Ethereum-based blockchain.

Relatedly, an international cricket organization has reportedly partnered with a tech startup to create a virtual metaverse dedicated to the sport. According to press releases, the digital world, based on the Flow blockchain, will include unique NFTs, marquee activations, and immersive experiences featuring historical and iconic moments from the game.

In another recent development, last week a digital platform specializing in tokenized music assets reportedly teamed with a Japanese technology company to develop NFT- and blockchain-based services for musicians. According to reports, the new partnership aims to use blockchain technology to “reshap[e] the music industry.”

For more information, please refer to the following links:

Government Agencies Argue for Increased Oversight of Cryptocurrency Markets

By Keith R. Murphy

This week the President’s Working Group on Financial Markets released an interagency report on stablecoins, according to a press release. The release and corresponding report suggest that based on risks associated with increased use of stablecoins as payment, Congress should promptly enact legislation to provide a comprehensive regulatory framework and means to address risk concerning payment stablecoins and stablecoin arrangements. Secretary of the Treasury Janet L. Yellen is quoted as saying, “Stablecoins that are well-designed and subject to appropriate oversight have the potential to support beneficial payments options. But the absence of appropriate oversight presents risks to users and the broader system.” Secretary Yellen further noted that current oversight is fragmented, allowing some stablecoins to fall beyond the regulatory perimeter.

In a speech this week, Michael Hsu, acting chief of the Office of the Comptroller of the Currency (OCC), suggested that large cryptocurrency firms seeking to provide multiple financial services should “embrace comprehensive, consolidated supervision” similar to banks, according to a report. Hsu noted that, currently, cryptocurrency firms are only partially and selectively regulated, resulting in risks and competitive inequalities, among other concerns. Following his arrival at the OCC, Hsu reportedly commenced a broad policy review of the OCC’s positions, including with respect to nontraditional bank charter applications and cryptocurrency-related guidance, the results of which he said are to be communicated shortly.

For more information, please refer to the following links:

DOJ Charges Cryptocurrency Hacker, Decentralized Exchange Hacked for $139M

By Elyssa S. Kates

This week, the United States Attorney’s Office for the Southern District of New York announced the unsealing of an indictment charging U.K. citizen Joseph “Plugwalk Joe” O’Connor with conspiracy to commit computer hacking, conspiracy to commit money laundering, conspiracy to commit wire fraud and aggravated identity theft. According to a press release, from approximately March 2019 to May 2019, Mr. O’Connor and his co-conspirators engaged in a SIM-swapping scheme through which they committed cyber intrusions and stole approximately $784,000 worth of cryptocurrency. According to the press release, Mr. O’Connor and his co-conspirators are alleged to have committed a cyberattack against a New York-based cryptocurrency company that provided wallet infrastructure and related software to its clients, and then allegedly stole, fraudulently diverted and laundered Bitcoin Cash, ether, bitcoin and Litecoin. Mr. O’Connor was previously charged with other crimes in connection with his alleged role in the hack of a major U.S. social media network. The United States is currently seeking Mr. O’Connor’s extradition from Spain.

In other news, according to reports, decentralized cross-chain exchange Boy X Highspeed (BXH) was hacked early this week, resulting in losses totaling $139 million in various cryptocurrencies. The CEO of the exchange reportedly said the hack was probably the result of a leaked administrator key and possibly an inside job.

For more information, please refer to the following links:

Financial Firms Integrate Crypto, NFT Market Expands, Blockchain Pilots Launch, FATF Publishes New Crypto Guidance, Crypto Enforcement Actions Continue

Financial Firms Integrate Crypto Products, New Bitcoin Network Data Published

From Digital Art to Alcohol: The NFT Marketplace Continues to Expand

Blockchain Pilots Launch in News Data, Satellite Networks and Trade Finance

FDIC Chair Addresses Crypto, FATF Publishes Updated Crypto AML Guidance

Global Agencies Target Darknet Market; CFTC Investigates Crypto Platform

Financial Firms Integrate Crypto Products, New Bitcoin Network Data Published

By Veronica Reynolds

This week, a large financial services corporation and a digital wallet app company announced a partnership to reduce friction among merchants, banks and financial technology firms by making increased access to digital assets available to consumers. According to a press release, the partnership will allow consumers to buy, sell and store digital assets through a custodial wallet provided by the digital wallet app company, will streamline the issuance of branded crypto credit and debit cards, and will allow for the issuance of cryptocurrency rewards to consumers, thereby creating a fungible relationship between digital assets and loyalty points.

According to reports, a large cryptocurrency investment was made late last week by a large Houston-based pension fund, making it the first pension fund in the U.S. to invest in digital assets. The fund reportedly purchased bitcoin and ether for one of its plans’ portfolios through a partnership with a leading bitcoin company that supported the purchase through the provision of a regulated, audited and insured custody system.

Another recent report noted that tuition for an Ivy League university’s blockchain program can now be paid in bitcoin and other cryptocurrencies. The university expects thousands to enroll in the program and is charging $3,800 as tuition.

A study published this week found that approximately 11,000 entities are responsible for more than half of the Bitcoin Network’s on-chain volume. In addition, the study found that roughly 15.9 percent of circulating bitcoin is controlled by the top 1,000 largest investors and that the network continues to remain highly centralized even as new investors have flooded the market in 2021. Moreover, the bitcoin mining sector appears to remain concentrated, with the study estimating that 10 percent of miners control 90 percent of the global hash rate, with 50 miners commanding 50 percent of the network’s hashing power. Still, according to the report, individual bitcoin holders represent approximately 45.1 percent of total supply.

For more information, please refer to the following links:

From Digital Art to Alcohol: The NFT Marketplace Continues to Expand

By Lauren Bass

Earlier this month, a Vancouver-based digital design agency reportedly sold out its new class of nonfungible tokens (NFTs) in just 37 minutes, generating a net profit of approximately $6.2 million. According to reports, these unique digital avatars represent a new multimedia franchise for which the design firm will retain a 5 percent royalty in perpetuity for all secondary market sales of the tokens.

Last week, an online auction house reportedly sold an NFT representing title to a rare cask of Scotch whisky for $2.3 million. According to reports, the digital collectible also included two one-of-a-kind, specially commissioned, whisky-themed digital art works from a Scotland-based artist.

To help provide attribution for digital content, developers of a popular graphic design suite have reportedly added a new feature to their software. According to press releases, the tool will allow artists to embed personal information – including social media profiles and cryptocurrency wallet addresses – into their digital creations. The metadata will then be displayed as a digital certificate on partner NFT marketplaces and media outlets to allow purchasers to verify authenticity and origin of the work.

In other NFT news, a U.S.-based cryptocurrency exchange has reportedly announced that it will discontinue listing any NFT that pays secondary market royalties to its holders. According to reports, the president of the exchange cited potential regulatory risk from the U.S. Securities and Exchange Commission as the reason for the decision.

For more information, please refer to the following links:

Blockchain Pilots Launch in News Data, Satellite Networks and Trade Finance

By Robert A. Musiala Jr.

According to a recent press release, a major U.S. nonprofit news agency has launched a Chainlink node to allow its data to be “supplied and sold directly to applications running across various blockchains.” The press release notes that the news agency “will make its trusted economic, sports and race call datasets available to leading blockchains via Chainlink, the world’s largest decentralized network of oracles, enabling smart contracts on any blockchain to securely interact with the [news agency’s] real-world data.” The data will reportedly be cryptographically signed to verify it is from the news agency, and will include “U.S. race calls, economic data, sports game outcomes and business financials.”

Another recent press release reported that a major U.S. satellite television provider has partnered with the Helium Network to utilize the Helium Network’s “unique blockchain-based incentive model with customers deploying their own 5G CBRS-based hotspots.” According to the press release, customers participating in the new platform “will earn rewards in the form of $HNT, a Helium network-based token” that will underpin “a new wireless economy through a breakthrough economic model.”

In a final recent development, a trade finance and working capital platform provider announced a pilot to integrate “blockchain, smart contracts and AI to automate trade credit policy management and compliance processes and integrate the policies into financial workflows.” The pilot will aim to enable insurers to “gain a real-time view of actual value at risk” and automate certain policy compliance requirements.

For more information, please refer to the following links:

FDIC Chair Addresses Crypto, FATF Publishes Updated Crypto AML Guidance

By Joanna F. Wasick

On Monday, the chair of a U.S. bank regulatory agency stated that U.S. bank regulators are trying to provide a new road map for banks to engage with crypto assets. The chair acknowledged that if banks cannot enter the crypto space, that activity will develop outside the banking system, and then “the federal regulators won’t be able to regulate it.” However, she also identified banks’ challenges in working with crypto assets, such as how to use them as collateral, or how to include them on balance sheets, given the asset class’s volatility. Still, these statements suggest movement by the cryptocurrency “sprint” team first announced in May, which aims to ensure cryptocurrency policy coordination among various U.S. financial regulators.

The Financial Action Task Force (FATF), a global, intergovernmental money laundering and terrorist financing watchdog, recently issued its Updated Guidance for a Risk-Based Approach for Virtual Assets and Virtual Asset Service Providers (VASPs). This guidance, a revision of the FATF’s 2019 guidance, includes updates on six areas: (1) definitions of virtual assets and VASPs; (2) how FATF standards apply to stablecoins; (3) addressing money laundering and terrorist financing risks related to peer-to-peer transactions; (4) licensing and registration of VASPs; (5) implementation of the “travel rule” in the public and private sectors; and (6) principles of information-sharing and cooperation among VASP supervisors. Overall, the guidance aims to help countries and VASPs understand their anti-money laundering and counterterrorist financing obligations, and effectively implement the FATF’s requirements as they apply to this sector.

For more information, please refer to the following links:

Global Agencies Target Darknet Market; CFTC Investigates Crypto Platform

By Keith R. Murphy

Following a coordinated international and multiagency effort to locate and stop the illegal sale of drugs and other illicit goods and services on the darknet, law enforcement agents across multiple countries arrested 150 drug traffickers and others engaged in the illicit sale of goods and services around the globe, according to a recent press release. The release notes that in addition to the arrests, the efforts resulted in the recovery of drugs, weapons and millions of dollars in cryptocurrency.

A decentralized information markets platform has come under scrutiny by the U.S. Commodity Futures Trading Commission (CFTC), according to a recent report. The CFTC reportedly commenced an investigation to determine whether the platform is allowing its customers to trade binary options and swaps that should be regulated. The platform, which is in the process of pursuing a new round of funding, has reportedly hired a former CFTC enforcement division director to help address the matter.

For more information, please refer to the following links:

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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