Digital Asset Exchanges, NFT Cos. Launch New Products; Banks Announce Crypto Initiatives; NY DFS Publishes Crypto Guidance; Hackers Steal Over $127M | BakerHostetler

Digital Asset Exchanges Launch Margin Futures, Stablecoins, Custody Products

By Christopher W. Lamb

The digital asset affiliate of one of the world’s largest derivatives exchanges recently published a press release announcing that it will “launch trading and clearing in margin futures on Bitcoin and Ether, beginning January 11, 2024.” According to the release, this will make the company “the first U.S. regulated crypto native combined exchange and clearinghouse to enable both spot and leveraged derivatives trading on a single platform.” The exchange will “initially offer financially settled margined contracts on Bitcoin and Ether” and plans to expand this model, subject to regulatory approval.

According to another recent press release, Paxos, a “leading regulated blockchain infrastructure and tokenization platform,” has “secured in principal approval (IPA) from the Monetary Authority of Singapore (MAS) for its new Singapore entity … to offer digital payment token services.” According to the release, the new Singapore entity will “issue a new US dollar stablecoin that MAS has acknowledged to be substantively compliant with MAS’ proposed stablecoin regulatory framework.”

In a related development, a recent press release from the MAS announced three initiatives “to ensure the safe and innovative use of digital money in Singapore,” including (1) a blueprint outlining the infrastructure required for a digital Singapore dollar, (2) expanding digital money trials and (3) a plan to issue a “live” central bank digital currency (CBDC) for wholesale settlement. The release notes that “[t]he three forms of digital money that MAS is promoting are wholesale CBDCs, tokenised bank liabilities, and regulated stablecoins.”

In a final recent development, the OKX cryptocurrency exchange announced that it is collaborating with Komainu and Coinshares “to empower Coinshares to conduct 24/7 trading through the OKX platform while assets are held in segregated custody with Komainu.” According to the release, this collaboration will “ensur[e] that collateral assets are securely held by Komainu in third-party custody in order to mitigate counter party risks.”

For more information, please refer to the following links:

Major Banks Announce Tokenization and Crypto Custody Initiatives

By Robert A. Musiala Jr.

Several major banks recently announced new digital asset initiatives. According to recent reports, the venture capital arm of a major global bank has launched a tokenization platform, named Libeara. Separately, the world’s largest bank by market capitalization recently issued a press release announcing an initiative with several blockchain startups, as part of the Monetary Authority of Singapore’s Project Guardian, “to demonstrate how blockchain technology could be used to manage large-scale client portfolios, execute trades and enable automated portfolio management of tokenized financial assets.” And in a third notable development, a press release by a major German bank announced that it has become “the first German full-service bank to be granted the Crypto Custody Licence pursuant to Article 1 Section 1a Sentence 1 No 6 German Banking Act (KWG).”

For more information, please refer to the following links:

NFT Development Firms Announce New Initiatives

By Robert A. Musiala Jr.

Non-fungible token (NFT) development firm Dapper Labs recently announced the upcoming launch of “an all-new socially driven collectible experience that brings the magic of pin collecting to the digital age.” According to a Dapper Labs blog post, the new product “will bring together characters from 100 years” of productions from a major U.S. media and entertainment company. The blog post further noted that with the new product, “[f]ans anywhere will be able to collect dynamic pins on their phone and trade instantly and securely with each other no matter where they are in the world.”

In a separate development, NFT development company Yuga Labs announced an initiative to launch a new Ethereum-based NFT marketplace by the end of 2023. According to a press release, the new NFT marketplace “will be the first major Ethereum marketplace contractually obligated to honor creator royalties.”

For more information, please refer to the following links:

NY DFS Publishes Updated Guidance on Listing of Virtual Currencies

By Robert A. Musiala Jr.

The New York State Department of Financial Services (NY DFS) recently announced that it has “issued guidance which adopts enhanced requirements for coin-listing and coin-delisting policies of DFS-regulated virtual currency entities, updating the prior framework issued by the Department in 2020.” According to a NY DFS press release, among other things, the new guidance “bolsters risk assessment standards for coin-listing policies,” “tailors enhanced requirements for retail consumer-facing businesses” and “requires licensees to develop and submit to DFS for approval a coin-delisting policy.” The new guidance addresses general frameworks for the creation of a virtual currency entity’s coin-listing and coin-delisting policies.

With respect to coin-listing policies, the guidance focuses on key attributes in the areas of governance, risk assessments and monitoring. The guidance notes that a virtual currency entity’s “governing authority” must approve the coin-listing policy and ensure compliance with various standards. The guidance requires a “comprehensive risk assessment” for each listed coin and provides a list of key risk assessment factors. Additionally, the guidance provides that virtual currency coins with certain features cannot be “self-certified,” including stablecoins, exchange coins, bridged coins, coins that lack protocol resiliency and coins in which the circulating supply is less than 35 percent of the total supply. The guidance also requires policies and procedures to monitor listed coins for safety and soundness, consumer protection and compliance with the guidelines, and provides minimum standards for such policies and procedures.

With respect to coin-delisting policies, the guidance requires “a separate policy that governs the steps the VC Entity must take to ensure safety and soundness and the protection of customers and the general public in the event the VC Entity ceases support for a coin.” The guidance provides minimum attributes for such delisting policies, including attributes related to responsibilities of the governing authority; the process that underpins a delisting event; and the process for executing a delisting event such as advance notice, customer support, documentation, ongoing monitoring and impact analysis.

For more information, please refer to the following links:

Over 40 National Governments Issue Joint Statement on Crypto Tax Compliance

By Robert A. Musiala Jr.

According to a joint statement published by the United Kingdom’s HM Treasury, a group of over 40 national governments have expressed support for “the new international standard on automatic exchange of information between tax authorities developed by the OECD – the Crypto-Asset Reporting Framework (CARF).” By implementing the CARF, these countries intend to “further improve [their] ability to ensure tax compliance and clamp down on tax evasion.” According to the joint statement, the group of countries “intend to work towards swiftly transposing the CARF into domestic law and activating exchange agreements in time for exchanges to commence by 2027, subject to national legislative procedures as applicable.”

For more information, please refer to the following links:

Crypto Hackers Steal Over $127M in Two Incidents; Vulnerability Data Published

By Robert A. Musiala Jr.

Over $127 million in cryptocurrency was recently stolen in two separate hacking incidents. According to recent reports, the Poloniex cryptocurrency exchange was hacked for over $100 million in what one blockchain security firm reportedly described as likely to be a private key compromise. In a separate incident, a hacker reportedly stole $27 million worth of USDT from a wallet linked to the Binance “deployer” wallet – a wallet used to create smart contracts. According to reports, a Binance user withdrew the funds from Binance to a decentralized finance (DeFi) wallet that was compromised, which allowed the hackers to steal the funds.

Recently published research from two cybersecurity companies has provided new data on cryptocurrency hacking vulnerabilities. A report from Unciphered provided details on a vulnerability that reportedly affects millions of crypto wallets that were generated by “BitcoinJS, a popular package for the browser based generation of cryptocurrency wallets, as well as products and projects built from this software.” According to the Unciphered report, the vulnerability could put at risk crypto assets totaling around $2.1 billion in value. Another report by Immunefi indicated that almost half of all cryptocurrency value lost from hacks was due to Web2 security issues, such as leaked private keys and other IT-infrastructure issues, as opposed to Web3 security issues, such as smart contract flaws.

For more information, please refer to the following links:

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