Blockchain Week in Review - September 2019

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U.S. Developments

VanEck and SolidX to Offer Bitcoin ETF to Qualified Institutional Buyers

On September 3, 2019, VanEck Securities Corp. and SolidX Management LLC announced that they are seeking to use Rule 144A of the Securities Act to issue shares in the VanEck SolidX Bitcoin Trust to qualified institutional buyers. According to a joint statement by the companies, the shares would be the first Bitcoin product for institutional investors that are cleared and would feature the same creation and redemption process common to traditional exchange-traded funds (“ETFs”).

Under the proposal, SolidX will be the sponsor of the Bitcoin Trust while VanEck will market the fund. BNY Mellon will be the daily fund accountant, administrator, and transfer agent. A syndicate of underwriters has provided $125 million of insurance according to the head of VanEck’s ETF products. From September 5, 2019 the shares will be quoted on OTC Link ATS, a Securities and Exchange Commission (“SEC”)–regulated alternative trading system.

Separately, VanEck and SolidX are seeking approval from the SEC for an ETF product that would be available to retail investors. A decision on that product is due no later than October 18, 2019.

Click here for information on the VanEck SolidX Bitcoin Trust 144A Shares, and here for a Coindesk article on this development.

Frank Templeton to Launch a Form of Tokenized Shares

On September 3, 2019, Franklin Templeton Trust, an issuer affiliated with the investment management company Franklin Templeton Investments, filed a Form N-1A registration statement and preliminary prospectus with the SEC to create a new open-ended mutual fund, the Franklin Blockchain Enabled U.S. Government Money Fund (the “Fund”).

The fund will be a government money market fund, investing at least 99.5% of its assets under management in government securities, cash, and repurchase agreements that are fully collateralized by government securities or cash. The Fund will not invest in cryptocurrencies. One of the investment goals of the fund is to maintain a stable $1.00 share price. Although the Fund’s transfer agent will maintain the official record of share ownership in book-entry form, the ownership of the Fund’s shares will also be tokenized on the Stellar blockchain network, with the potential in the future for the shares to be entirely maintained and recorded on the Stellar blockchain network.

Investors will be able to purchase or redeem Fund shares through a Franklin Investments mobile app but will not be able to transfer the shares on a peer-to-peer basis or on a secondary trading market at this time. Upon the creation of an account through the mobile app, a blockchain wallet and a corresponding public and private key pair will be created for each investor.

Franklin Templeton believes that blockchain-based shares will permit reduced settlement times and provide other benefits to fund shareholders.

Please click here for the EDGAR filing, and here for a Block article on this development.

New York Department of Financial Services Approves New Virtual Currency Products

On September 5, 2019, Paxos Trust Company LLC (“Paxos”), an existing limited-purpose trust company licensed by the New York Department of Financial Services (“NYDFS”), was authorized to offer two new products in New York: PAX Gold and BUSD Stablecoin.

PAX Gold, or “PAXG,” is a gold-backed virtual currency, the first tokenized gold product authorized by NYDFS. PAXG is an ERC-20 based token that can be redeemed for London Bullion Market Association–accredited Good Delivery gold bullion bars custodied by Paxos in Brink’s bullion vaults in London. Each PAXG token is backed one-to-one with a fine troy ounce of gold. Customers can also purchase fractions of a PAXG. Paxos’ description of PAXG states that customers can convert their tokens to allocated gold, unallocated gold, or fiat currency. Smaller amounts of PAXG can be redeemed through a network of physical gold retailers around the world, and institutional customers can also redeem PAXG for unallocated gold in a Loco London account.

BUSD is a virtual currency pegged to the U.S. dollar. Paxos will be the issuer of BUSD and act as custodian of its fiat reserves. BUSD is being built in association with cryptocurrency exchange Binance, with Paxos providing direct purchase and redemption of BUSD, alongside the availability to trade BUSD on Binance’s website.

Previously, in September 2018, DFS authorized Paxos to offer its own “stablecoin” pegged to U.S. dollars, called Paxos Standard.

Please click here for the NYDFS press release, here for the PAXG whitepaper, here for the BUSD press release, and here for a Block article on the BUSD development.

Membership of the New York Digital Currency Task Force to Increase

The New York State Governor signed Senate Bill S1194 on August 29, 2019, amending a chapter of a 2018 law that created a digital currency task force and increasing the number of members from nine to thirteen. The prior version of the task force comprised the following nine members: three appointed by the governor, two appointed by the temporary president of the senate, two appointed by the speaker of the assembly, one appointed by the minority leader of the senate, and one appointed by the minority leader of the assembly.

The bipartisan bill increases the total number of the taskforce to thirteen, with four additional members to be appointed by the governor. This brings the total number of governor-appointed members to seven.

Please click here for the amendment.

Blockchain Association Forms Open Finance Working Group to Address DeFi

The Blockchain Association, a Washington, D.C.–based non-profit industry association, is launching an open finance working group. The group is intended to facilitate discussion among industry participants, educate policymakers, and propose public policy solutions on issues related to the decentralized finance (DeFi) community. Membership is open to Blockchain Association members and will be chaired by Jason Somensatto, Strategic Legal Counsel of 0x.

Please click here for the Blockchain Association announcement.

International Developments

China Central Bank Official Provides Further Information on Digital Currency Proposal

The deputy director of the People’s Bank of China’s payments department gave a lecture in which he stated that the proposed Chinese digital currency would be able to be used across major payment platforms such as WeChat and Alipay and would be capable of use without an internet connection, according to a Reuters report on September 6, 2019.

Please click here for the Reuters article on this development.

Japan’s FSA Licenses New Cryptocurrency Exchange Business

Japan’s financial regulator, the Financial Services Agency (FSA), approved a cryptocurrency business license for Line, a popular Japanese messaging app, on September 6, 2019.

Please click here for the FSA notice (in Japanese) and here for a Coindesk article on this development.

Japan’s FSA Statistical Release Indicates It Is Receiving Fewer Inquiries Regarding Cryptocurrency

The FSA has received fewer inquiries related to cryptocurrencies in the latest statistical report from its Counseling Office for Financial Services Users on September 3, 2019. It received only 494 inquiries about digital assets in the quarter ending June 30, as compared to 574 in the previous quarter and 788 in December 2018 quarter. The FSA accepts general questions, consultations, and opinions regarding financial products and services, and addresses them via a counselor.

Please click here for the FSA release (in Japanese) and here for a Block article on this development.

Nominee for President of the European Central Bank Calls for a Measured Approach to Monitoring Digital Currencies

Christine Lagarde, former managing director of the International Monetary Fund and nominee for the presidency of the European Central Bank, has issued a statement to the Economic and Monetary Affairs Committee of the European Parliament setting out the proposed principles that will guide her approach if confirmed.

The statement noted that central banks should ensure the safety of the financial sector, but also be receptive to “the opportunities provided by change.” Madame Lagarde specifically mentioned digital currencies: “In the case of new technologies—including digital currencies—that means being alert to risks in terms of financial stability, privacy or criminal activities, and ensuring appropriate regulation is in place to steer technology towards the public good. But it also means recognising the wider social benefits from innovation and allowing them space to develop.”

Please click here for Madame Lagarde’s statement, and here for a Block article on this development.

Maltese Financial Regulator Releases Three-Year Strategic Plan

The Malta Financial Services Authority (“MFSA”) released a strategic plan for 2019-2021 on September 6, 2019. According to the plan, the MFSA will actively monitor and manage risks relating to licensed virtual assets and cryptocurrency businesses.

Please click here for the MFSA’s strategic plan.

[View source.]

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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