Crypto Firms Announce Initiatives in Payments, Mining, DAOs and More
By Christopher Lamb
Recent reports provided details on new developments across the cryptocurrency market:
- Strike, a global money app, recently announced the release of a new feature that allows users to buy bitcoin using their debit card in 36 countries. An additional new feature, supported in 12 countries, allows users to cash out bitcoin, USDT, or fiat to their local currencies.
- A major U.S. fintech firm and issuer of the PYUSD stablecoin recently gained approval from the United Kingdom’s Financial Conduct Authority (FCA) to offer certain crypto services.
- The developer firm behind the Uniswap Protocol has seen their cumulative front-end fees exceed $1 million within the first month of their introduction. The new 0.15% fee reportedly affects transactions made by users on the web interface and wallet app with assets including ether, wrapped bitcoin, and certain stablecoins.
- Tether, the company behind the stablecoin USDT, recently announced plans to invest $500 million over six months in building Bitcoin Network mining facilities in locations such as Uruguay, Paraguay, and El Salvador. According to reports, Tether also plans to acquire stakes in other mining companies.
- Aragon DAO, a decentralized autonomous organization (DAO), has voted to take legal action against its founding team following a decision by the founding team to dissolve its governing body and distribute the remaining assets to tokenholders in exchange for Ethereum tokens. According to reports, the founding team came to this decision without consulting the DAO.
- A major U.S. online banking platform recently announced that it is discontinuing its cryptocurrency trading service following regulatory guidance issued by the Federal Reserve. Some existing users will have the opportunity to migrate their crypto accounts to Blockchain.com, while other users, such as residents of New York, will be forced to sell their crypto assets.
For more information, please refer to the following links:
IOSCO, FSB and BIS Publish Reports on Digital Asset Markets and CBDCs
By Robert A. Musiala Jr.
The International Organization of Securities Commissions (IOSCO), a global standard setter for securities market regulators, recently published its Final Report with Policy Recommendations for Crypto and Digital Asset (CDA) Markets. According to an IOSCO press release, the recommendations “are central to the delivery of a coordinated global regulatory response to the significant investor protection and market integrity risks posed by centralized cryptoasset intermediaries called crypto asset service providers (CASPs).” The recommendations cover six key areas: (1) Conflicts of interest arising from vertical integration of activities and functions; (2) Market manipulation, insider trading, and fraud; (3) Custody and client asset protection; (4) Cross-border risks and regulatory cooperation; (5) Operational and technological risk; and (6) Retail distribution.
The Financial Stability Board (FSB), an international organization that sets standards for the global financial sector, recently published a report titled The Financial Stability Implications of Multifunction Crypto-asset Intermediaries. According to the report, “[m]ultifunction crypto-asset intermediaries (MCIs) are individual firms, or groups of affiliated firms, that combine a broad range of crypto-asset services, products, and functions typically centred around the operation of a trading platform.” Among other things, the report finds that “Available evidence suggests that the threat to financial stability and to the real economy from the failure of an MCI is limited at present.” The report identifies the following key policy implications for FSB to consider with respect to MCIs: (1) Assess identified risks related to combinations of MCI functions, as well as lack of proper governance and extensive conflicts of interest; (2) Consider ways to enhance cross-border cooperation and information sharing to effectively regulate and supervise MCIs operating globally; and (3) Consider ways to address information gaps identified in the report.
The Bank for International Settlements (BIS) recently published two reports addressing central bank digital currencies (CBDCs). The first BIS report provides findings on Project Tourbillon, which, according to a BIS press release, “demonstrates a new privacy paradigm” for CBDCs and “proposes a concept of payer anonymity, providing cash-like anonymity to the payer.” The second BIS report addresses CBDC information and operational risks to central banks and “analyses the operating, technology, third-party and business continuity risks for the issuing central bank.” According to a BIS press release, “[t]he report proposes an integrated risk-management framework that can be applied to the entire life cycle of a CBDC, from the research and design stages to implementation and operation.”
For more information, please refer to the following links:
OFAC Sanctions Virtual Currency Mixer Sinbad
By Keith R. Murphy
According to a recent press release, the U.S. Department of the Treasury’s Office of Foreign Assets Control (OFAC) has sanctioned virtual currency mixer Sinbad.io (Sinbad). The press release states that Sinbad facilitates illicit activities and operates as a key money-laundering tool of the Lazarus Group, an entity reportedly related to the Democratic People’s Republic of Korea and involved with state-sponsored cyber hacking. Sinbad reportedly has processed millions of dollars in virtual currency from Lazarus Group hacks, such as the Axie Infinity and the Horizon Bridge heists. According to the Deputy Secretary of the Treasury, “[t]he Treasury Department and its U.S. government partners stand ready to deploy all tools at their disposal to prevent virtual currency mixers, like Sinbad, from facilitating illicit activities. While we encourage responsible innovation in the digital asset ecosystem, we will not hesitate to take action against illicit actors.” As part of the action OFAC added two Bitcoin public keys associated with Sinbad to the OFAC Specially Designated Nationals (SDN) List.
For more information, please refer to the following links:
SEC and DOJ Enforcement Continues, Tether Freezes USDT Linked to Fraud
By Teresa Goody Guillén
Recently, the U.S. Securities and Exchange Commission (SEC) filed a complaint in the U.S. District Court for the Northern District of California, alleging that Kraken violated federal securities laws by commingling company funds (cash and crypto) with those of its customers and operating as an unregistered securities exchange, broker-dealer, and clearing agency. In averring these violations, the SEC alleges that at least 11 crypto assets made available through Kraken’s trading platform and other services are securities, and that as a consequence, Kraken is violating federal securities laws. This enforcement action is on the heels of a February 2023 settlement agreement between the SEC and Kraken regarding the SEC’s claims that Kraken’s staking services constituted unregistered securities offerings.
A recent press release from the U.S. Department of Justice (DOJ) announced that the DOJ has seized approximately $9 million worth of Tether, which was traced to crypto addresses alleged to have victimized over 70 persons through “pig butchering” scams. According to the DOJ press release, the perpetrators of the scam worked together to convince victims to make crypto deposits by fraudulently representing they were making investments with trusted companies and crypto exchanges. In addition, it is alleged that the crypto funds were laundered by “chain hopping,” which is essentially using various crypto addresses and exchanging the funds for different cryptocurrencies.
In a separate press release, Tether announced that it froze $225 million USDT, allegedly linked to an international human trafficking syndicate in Southeast Asia, following an investigation by Tether, OKX, and the DOJ. The investigations reportedly used blockchain analytics tools and, by analyzing the flow of funds, were alerted to the location of the alleged illicit funds. It is reported that Tether voluntarily froze the funds upon the request of the U.S. Secret Service.
Another DOJ press release announced that Esteban Cabrera da Corte has been sentenced to 63 months in prison and ordered to pay restitution of $3,578,786.69 and forfeit $1,200,000 for “organizing a scheme to steal millions of dollars’ worth of cryptocurrency.” Cabrera da Corte and co-conspirators allegedly opened crypto exchange accounts with fake documents and information, purchased crypto using linked bank accounts that they controlled, transferred the crypto to other wallets they controlled, then falsely reported to the U.S. banks that the crypto purchases were unauthorized. As a result, the banks processed more than $4 million in fraudulent reversals and the crypto exchange lost more than $3.5 million worth of crypto.
For more information, please refer to the following links:
HTX Exchange Hacked for $97 Million, KyberSwap DEX Hacked for $50 Million
By Diana Milton
According to recent reports, crypto exchange HTX and blockchain protocol Heco Chain were hacked for a cumulative $97 million in various tokens. HTX has reportedly committed to fully compensate for any losses originating from the exchange. Cyver, a blockchain security firm, reportedly suspects that the attack was due to a private key leak, which allowed the key holders to access the Heco bridge and transfer tokens between Heco Chain and the Ethereum Network.
According to another recent report, decentralized exchange KyberSwap was hacked for nearly $50 million, mostly in Ether, wrapped Ether, and USDC. Kyber Network administrators have reportedly advised users to withdraw all funds as a precautionary measure. Evidence reportedly suggests that the theft was a directed attack against the Kyber Network liquidity provider pools.
OpenSea users and developers have reportedly been targeted by various email phishing campaigns, but OpenSea insists that its platform has not been hacked and urges users not to click on lists they do not trust. According to reports, the surge of phishing emails to OpenSea users and developers may be linked to a security incident experienced by one of OpenSea’s third-party vendors that exposed information related to user API keys.
According to recent research published by Elliptic, a blockchain analytics firm, at least $107 million in bitcoin ransom payments to the Black Basta ransomware group have been identified since early 2022, across more than 90 victims with an average ransom payment of $1.2 million. According to the Elliptic report, Black Basta employs double-extortion tactics, threatening to publish a victim’s stolen data unless they pay a ransom, and uses Qakbot malware, which infects computers through email phishing attacks.
For more information, please refer to the following links:
Digital Assets Client Alert: November 15, 2023
By Carlos F. Ortiz, Kayley B. Sullivan, Nicholas C. Mowbray, Deirdre Farrell
The DOJ, IRS Criminal Investigations (CI), and international tax authorities continue to prosecute tax abuses related to digital asset transactions. In imposing a multiyear prison sentence in a recent case in the Southern District of New York, the court sent a strong message that taxpayers caught by the IRS in the service’s ongoing efforts to address this issue face severe consequences. After pleading guilty in April to two counts of tax evasion, cryptocurrency founder Amir Elmaani (aka Bruno Block) was recently sentenced to the maximum term of four years in prison. Damian Williams, U.S. attorney for the Southern District of New York, warned that “[p]articipants in the cryptocurrency markets must play by the rules, and this Office will be tireless in prosecuting those who are not.”[1]
For more information, please refer to the following link: Crypto + Evasion = Jail – The Government’s Old Math for a New Technology
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