CBDC Report Published, Blockchain Settlement and Payment Initiatives Launch
By Robert A. Musiala Jr.
This week the New York branch of the U.S. central bank published a report on the Phase I results of Project Cedar, “a multiphase research effort to develop a technical framework for a theoretical wholesale central bank digital currency (wCBDC).” According to a press release, currently it takes two days for most foreign exchange (FX) spot trades to settle, which exposes payment senders and recipients to “settlement, counterparty, and credit risk which, among other things, can hinder an institution’s ability to readily convert its assets into cash.” In Project Cedar Phase I, “the experiment simulated a foreign exchange (FX) spot trade and introduced a wholesale central bank digital currency prototype to test whether using blockchain technology could improve speed, cost, and access to cross-border wholesale payments.” In this test environment, the experiment reportedly revealed three key findings:
- Faster Payments: In the test environment, transactions on the blockchain-enabled system settled in under 15 seconds on average.
- Atomic Settlement: The simulated ledger network enabled atomic settlement, meaning the two sides of the simulated transactions were settled either simultaneously or not at all, which reduces FX risks.
- Safer and Accessible Transactions: The distributed ledger system design enabled payments on a 24/7/365 basis and supported objectives related to interoperability across financial institutions, including central and private sector banks.
Separately, this week a major global bank published a press release announcing “the world’s first digital bond that is publicly traded and settled on both blockchain-based and traditional exchanges.” According to the press release, “[t]he CHF 375 million bond is digital only, and will be issued on the blockchain-based platform of SIX Digital Exchange (SDX) while being dual listed and traded on SDX and SIX Swiss Exchange (SIX).”
In a final notable item, a major South African grocery chain has reportedly announced plans to begin allowing customers to pay for groceries with bitcoin at 39 stores in South Africa using any bitcoin lightning-enabled app. According to reports, customers will scan a QR code from the app and accept the conversion rate on their smartphone at the time of the transaction.
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NFT World Cup Initiative Launched, Market Actors Launch NFT Royalty Solutions
By Veronica Reynolds
According to a recent press release, a major U.S. financial services firm has partnered with a major cryptocurrency exchange to launch an NFT auction for fans of the FIFA World Cup Qatar 2022. The initiative will reportedly feature digital art designed using an algorithm and “inspired by iconic goals from five legendary footballers.” The experience will become immersive later this month, when fans will be able to create their own “digital art inspired by their own signature movements” and mint the art onto their own NFT.
This week, NFT marketplace OpenSea reportedly unveiled a new onchain tool that will facilitate enforcement of royalties. The tool, described in an OpenSea blog post as a “simple code snippet,” is intended to allow NFT creators to enforce fees onchain on an opt-in basis and block their NFTs from being listed on marketplaces that do not support creator fees. The tool is available only for new, not-yet-existing NFT collections, a decision that reportedly left some users feeling like there is “no plan and [there are] no clear answers [regarding] existing collection and artist’s royalties.”
Last week, Solana-based NFT marketplace Exchange.Art announced a “Royalties Protection Standard” that reportedly “will enforce creator royalties on secondary sales of NFTs that originally mint on its platform.” According to reports, the new standard is an opt-in program that the marketplace designed to allow NFT creators to choose which secondary NFT platforms may feature their NFTs and to prevent “creators’ work from being ‘force-listed’” on marketplaces that don’t enforce NFT royalties.
In a related development, an Ethereum layer 2 NFT platform recently announced the release of its “community-governed whitelist and blacklist for smart contracts that honor royalty fees.” The feature reportedly allows NFT creators to use the lists to control smart contracts that deploy their NFTs without the help of a third-party exchange, and may be used to limit the transferability of NFTs through the tool’s royalty-respecting smart contracts.
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OFAC Redesignates Tornado Cash, Mixer Receives Hacked Crypto
By Amos Kim
This week the U.S. Department of the Treasury’s Office of Foreign Assets Control (OFAC) announced that it has delisted and redesignated Tornado Cash to record further reasons for the designation, including its role in obfuscating “the movement of over $455 million stolen in March 2022 by the OFAC-designated, DPRK-controlled Lazarus Group in the largest known virtual currency heist to date.” OFAC also issued new guidance “to provide additional compliance guidance regarding the nature of the Tornado Cash entity, and updated three existing FAQs with additional guidance.” According to reports, earlier this week, based on data from Etherscan, the hacker responsible for the $28 million hack of Deribit, a major bitcoin and ether options exchange, transferred over 1,600 ether (~$2.5M) to Tornado Cash.
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SEC, CFTC Bring Enforcement Actions Involving Fraudulent Crypto Trading Bots
By Joanna F. Wasick
Last week, the U.S. Securities and Exchange Commission (SEC) announced charges against four individuals for their roles in Trade Coin Club (TCC), which the SEC describes as “a fraudulent crypto Ponzi scheme that raised more than 82,000 bitcoin, valued at $295 million at the time, from more than 100,000 investors worldwide.” According to the complaint, TCC was a multilevel marketing program that operated from 2016 through 2018 and promised profits from the trading activities of a purported crypto asset trading bot. Defendants told investors the bot made “millions of microtransactions” every second and that investors would receive a minimum return of 0.35 percent daily. However, according to the SEC, instead of investors’ funds being deployed for the purported bot, they went into the pockets of defendants and other TCC promoters.
In a similar action, last week, the Commodity Futures Trading Commission (CFTC) issued an order indicating that Jeremy Rounsville defrauded investors through his company, Arbitraging.co, which also purported to have a “highly advanced arbitrage bot” that executed the company’s complex digital asset trading strategies. However, according to the CFTC, the bot never executed any trades; customers were unable to make withdrawals and lost all of their funds. The order requires Rounsville to pay a $177,000 civil monetary penalty, permanently bans him from soliciting or trading in commodity interests and virtual currencies or registering with the CFTC in any capacity, and requires him to cease and desist from any further violations of the Commodity Exchange Act and CFTC regulations.
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FTX Files Bankruptcy Amid Binance’s FTT Selloff and Incoming DOJ Probe
By Christopher W. Lamb
On Nov. 11, 2022, the once-third-largest cryptocurrency exchange, FTX, announced that it filed for bankruptcy protection along with approximately 130 additional affiliated companies. According to reports, CEO and founder Sam Bankman-Fried has stepped down and will be replaced by John Ray III, a turnaround veteran who participated in the Enron bankruptcy.
This week, multiple reports have been released highlighting attempts by FTX to achieve a bailout of over $1 billion before receiving a nonbinding letter of intent from fellow cryptocurrency exchange Binance. Binance reportedly neglected to move forward after an initial review of FTX’s books and amid concerns that FTX was the subject of governmental investigations. One report explained that the problems began when Binance started to offload hundreds of millions of dollars of FTT, a token created by FTX, on Sunday. According to the report, FTX’s legal and compliance staff quit shortly thereafter. Another report indicated that FTX was already the subject of probes from state and federal regulators, and that the U.S. Department of Justice (DOJ) may have opened an investigation into FTX related to its recent liquidity issues.
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