Banks Complete Stablecoin Pilot, Crypto Indices and Web3 Solutions Launch
By Robert A. Musiala Jr.
According to recent reports, a major German bank and an affiliate of a major British bank have completed a pilot in which stablecoin swaps were executed on the Universal Digital Payments Network (UDPN), a blockchain-based network launched earlier this year that is focused on providing interoperability between stablecoins, central bank digital currencies (CBDCs) and other digital assets. The pilot reportedly involved swaps between the USDC and EURS stablecoins.
In other news, a recent press release by a leading cryptocurrency asset manager announced the launch of a new set of “Crypto Sector Indices … a comprehensive set of five distinct, rules-based indices capturing the investable crypto market.” According to the press release, the new Crypto Sector Indices include (1) the Currencies Crypto Sector Index, which includes crypto assets that serve at least one of three fundamental roles – a medium of exchange, store of value, and unit of account; (2) the Smart Contract Platforms Crypto Sector Index, which includes crypto assets that serve as the baseline platforms, upon which self-executing contracts are developed and deployed; (3) the Financials Crypto Sector Index, which includes crypto assets that seek to deliver financial transactions and services; (4) the Consumer & Culture Crypto Sector Index, which includes crypto assets that support consumption-centric activities across a variety of goods and services; and (5) the Utilities & Services Crypto Sector Index, which includes crypto assets that aim to deliver practical and enterprise-level applications and functionalities.
Another recent press release, by Circle Internet Financial, announced “the beta launch of two new Web3 Services products: Gas Station and Smart Contract Platform.” According to the press release, the “Gas Station” product is focused on reducing friction attributable to the need for Web3 users to pay the blockchain network fees commonly referred to as “gas fees.” The press release states that Circle’s “Gas Station” product “enables developers and businesses that integrate their apps with Circle’s Programmable Wallets to deliver a gasless experience to customers.” The press release further notes that the new “Smart Contracts Platform” product “removes the barriers and helps builders launch apps to market faster by providing a one-stop shop to import, explore, deploy, and manage smart contracts effortlessly and efficiently.”
For more information, please refer to the following links:
New Data Published on Cryptocurrency Market in North America
By Christopher Lamb
A recent blog post from blockchain analytics firm Chainalysis provides new data on the cryptocurrency market in North America. According to the blog post, North America is the leader in crypto usage despite regulatory concerns and lack of clarity. The blog notes that while “[m]ost of the activity is driven by the United States…. Canada also contributes a significant transaction volume, placing seventh globally.” The blog post further notes that “North America’s crypto market is more driven by institutional activity than any other region’s” and is “split relatively evenly between DeFi and centralized exchanges.” According to the blog post, “[d]espite the declines…stablecoins are the most widely-used type of crypto asset” and “half of all on-chain transaction volume to or from centralized services” between July 2022 and June 2023 “took place in stablecoins.” The blog post also notes “data suggests that more and more stablecoin activity is occurring through entities that aren’t licensed in the United States.” According to the blog post, “more crypto users are pursuing stablecoin-related activity with trading platforms and issuers headquartered abroad” and “the U.S. government is increasingly losing its ability to conduct stablecoin oversight.” Other notable data highlighted in the blog post includes the following:
- North America received $1.2 trillion in on-chain value between July 2022 and June 2023, or “24.4% of global transaction activity during the time period studied.”
- 76.9% of transaction volume driven by transfers of $1 million or more is from institutional activity.
- Stablecoin usage declined beginning around February 2023 and June 2023, where “stablecoins fell from 70.3% to 48.8% of North America’s on-chain transaction volume.”
- “[M]ore than 90% of stablecoin activity takes place in stablecoins pegged to the U.S. dollar.”
- “As of June [2023], a 54.6% share of stablecoin inflows to top 50 services were going to non-U.S. licensed exchanges.”
For more information, please refer to the following link:
FinCEN Publishes Proposed Rule to Combat Crypto Mixing Services
By Robert A. Musiala Jr.
On October 19, 2023, the U.S. Department of the Treasury’s Financial Crimes Enforcement Network (FinCEN) issued a press release announcing a Notice of Proposed Rule Making (NPRM) “that identifies international Convertible Virtual Currency Mixing (CVC mixing) as a class of transactions of primary money laundering concern.” According to the press release, the NPRM “highlights the risks posed by the extensive use of CVC mixing services by a variety of illicit actors throughout the world and proposes a rule to increase transparency around CVC mixing to combat its use by malicious actors including Hamas, Palestinian Islamic Jihad, and the Democratic People’s Republic of Korea (DPRK).”
The press release notes that “[t]he lack of transparency surrounding international CVC mixing activity is an acute money laundering and national security risk,” and calls for increasing transparency related to CVC mixing services for the purpose of “denying illicit actors access to the U.S. and global financial systems” and “to counter the efforts of terrorist groups, such as Hamas and Palestinian Islamic Jihad, that engage in violence against innocent civilians; the efforts of ransomware criminals targeting critical infrastructure; and the efforts by state actors and their supporters to evade U.S. and global sanctions.” Among other things, the NPRM provides information about CVC mixing, proposes recordkeeping and reporting requirements related to CVC mixing, and “would require covered financial institutions to report information about a transaction when they know, suspect, or have reason to suspect it involves CVC mixing within or involving jurisdictions outside the United States.” The NPRM was published in the Federal Register on October 23, 2023. Written comments on NPRM must be submitted on or before January 22, 2024.
In a related action, on October 20, 2023, FinCEN published a FinCEN Alert to Financial Institutions to Counter Financing to Hamas and its Terrorist Activities. The purpose of the alert is “to assist financial institutions in identifying funding streams supporting the terrorist organization Hamas.” Several sections of the alert reference the use of cryptocurrencies by Hamas, including four out of seven red flag indicators.
For more information, please refer to the following links:
European Central Bank Paper Addresses DAOs
By Joanna F. Wasick
Earlier this month, the European Central Bank published a paper on the future of decentralized autonomous organizations (DAOs) and the growing need for a comprehensive regulatory framework to govern their operation within the financial sector. The paper focuses on the DAO as a participant in the growing number of decentralized finance (DeFi) projects and as an issuer, custodian, settler and/or transferor of crypto-assets. Among its other findings, the paper notes that “technology has outpaced regulation in relation to DAOs” and that they are subject to vastly different jurisdictional regimes, or sometimes no regulatory regime at all. The paper concludes that until DAOs are adequately – and consistently – regulated globally, such that they pose no threat to financial stability, to payments and securities systems, or to consumer protection, “the place for DAOs in the financial sector of the future will necessarily remain limited.”
For more information, please refer to the following links:
2023 Q3 Crypto Hacking Data Published
By Robert A. Musiala Jr.
Blockchain security firm Hacken recently published its Q3 2023 Security Insights Report, which reportedly considered research of “every major incident between 1 July – 30 September.” Key takeaways from the report include the following:
- From July to September 2023, $720 million was stolen across 117 major breaches.
- Access control breaches remain the most devastating type of vulnerability in the crypto space, with each exploit costing tens of millions of dollars.
- Of the 78 rug pulls examined, only 12 reported having undergone any kind of audit and two-thirds of all incidents involved non-audited projects.
- The breakdown of hacks by type revealed that 65.1% Rug Pulls; 11.8% Reentrancy hacks; 6.9% Access Control attacks; 3.7% Phishing; 0.8% Flash Loan attacks; 0.2% Oracle hacks; and 11.4% Other.
For more information, please refer to the following links:
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