Ether-Backed Loans and Blockchain Solutions Announced; New Crypto Guidance from CFTC, WEF, Basel, Texas and El Salvador; DOJ Seizes Ransomware Bitcoin

BakerHostetler

Bank Offers Ether-Backed Loans, Auction and Property Sales Accept Crypto

By Jordan R. Silversmith

Digital asset bank Anchorage recently announced that its institutional clients will now be able to obtain Ethereum-backed loans through the bank’s financing wing, which will provide access to a USD line of credit backed by ether (ETH). According to a press release, the new offering will allow crypto-native funds that have investments in ETH to obtain funding in USD without liquidating ETH-based holdings.

A major British auction house recently said it would accept cryptocurrencies as a form of payment for artwork by Banksy worth millions. The auction house joins several other major competitors in now accepting cryptocurrencies as a form of payment. Bidding at the auction will be conducted in Hong Kong dollars and the winner will have the option to pay in either dollars or cryptocurrencies. The exchange rate of bitcoin, ETH and the Hong Kong dollar will be cited from a U.S. crypto exchange on auction day, and the seller will bear the risk of exchange rate volatility. Cryptocurrencies are also entering the real estate market: a Miami penthouse recently sold for $22.5 million in cryptocurrency, making it the most expensive known U.S. residential crypto real estate transaction to date.

For more information, please refer to the following links:

Supply Chains Innovate with Blockchain, China Launches Copyright Blockchain

By Veronica Reynolds and Danielle Richardson

This week, a leading Spanish seafood company announced a collaboration with a multinational technology company to trace seafood products using a blockchain-based network tailored for tracing products across the supply chain. The goal of the seafood traceability system is to improve the sustainability of the seafood industry by creating secure records of seafood production from their origin to the consumer. A global chemistry supplier also recently announced a blockchain-based supply chain initiative. The chemistry supplier plans to use blockchain technology to create secure digital records and ensure product traceability and authenticity.

An Austrian energy provider partnered with a large European blockchain interface company to launch MyPower, an energy tokenization platform, this week. According to a press release, MyPower’s blockchain-powered platform tokenizes solar photovoltaic (PV) assets and allows energy consumers to purchase shares in PV plants, allowing consumers to also participate in energy production. Consumers receive tokens based on the energy produced at PV plants and can use the tokens for various purposes, including paying electric bills.

Also, overseas, the Copyright Society of China (CSC) has reportedly launched the China Copyright Chain to facilitate the protection of copyrights in the nation. According to reports, the newly launched blockchain platform can “document proof of digital assets, monitor infringement activities, collect evidence online, issue notices to remove piracy products and help courts settle copyright-related disputes and process lawsuits.” Blockchain-authenticated evidence became legally binding in China in September 2018, and Internet courts in certain Chinese cities have reportedly started using blockchain technology to conduct meetings and document court records.

For more information, please refer to the following links:

CFTC and WEF Comment on DeFi, Basel Addresses Cryptoasset Exposure

By Teresa Goody Guillén

This week, Commissioner Berkovitz of the Commodities Futures Trading Commission (CFTC) addressed DeFi products in his remarks at the Asset Management Derivatives Forum 2021. The commissioner said that he views unlicensed DeFi markets for derivatives instruments as a “bad idea” and added, “I also do not see how they are legal” under the Commodities Exchange Act (CEA). He explained that the CEA provides that (1) futures contracts must be traded on a designated contract market (DCM) licensed and regulated by the CFTC; (2) it is unlawful for any person other than an eligible contract participant to enter into a swap unless the swap is entered into on, or subject to, the rules of a DCM; and (3) any facility that provides for the trading or processing of swaps must be registered as a DCM or a swap execution facility (SEF). Berkovitz indicated that DeFi markets, platforms or websites that are not registered as DCMs or SEFs are unlawful and warned of instability in the financial markets posed by DeFi.

The World Economic Forum (WEF), in collaboration with the Wharton Blockchain and Digital Asset Project, recently published a white paper, the DeFi Policy-Maker Toolkit, with the goal of identifying potential policy approaches and important considerations for the DeFi context. The paper explains that financial regulatory regimes vary depending on the jurisdiction and explores how to regulate and assert jurisdiction over DeFi activities. The toolkit provides (1) an overview of the DeFi space and major classes of DeFi protocols, (2) potential benefits and challenges associated with DeFi, (3) a detailed breakdown of the risks that DeFi may pose, and (4) potential legal and regulatory responses to DeFi.

This week, the Basel Committee on Banking Supervision issued a public consultation on preliminary proposals for the prudential treatment of banks’ cryptoasset exposures. The committee invites submissions on the proposals by Sept. 10. The proposals split cryptoassets into two broad groups: (1) those eligible for treatment under the existing Basel Framework with modifications and (2) those that are subject to a new conservative prudential treatment (e.g., bitcoin). The press release stated that banks’ current exposures to cryptoassets are limited, but the continued growth and innovation in cryptoassets and related services, along with the rising interest of some banks, could increase global financial stability concerns and risks to the banking system in the absence of a specified prudential treatment.

For more information, please refer to the following links:

Texas Enacts New Blockchain Law, El Salvador Makes Bitcoin Legal Tender

By Teresa Goody Guillén

Texas Gov. Greg Abbott recently signed into law a measure creating a legal framework for cryptocurrencies and blockchain. The new law amends Texas’ Uniform Commercial Code to better adapt commercial law to blockchain and digital assets, formally defines virtual currencies, and offers individuals and businesses a legal environment for crypto investment. Abbott tweeted, “Blockchain is a booming industry that Texas needs to be involved in.” According to the National Law Review, approximately 25 states are considering blockchain- and/or digital asset-related measures in their 2021 legislative sessions.

This week, El Salvador’s Legislative Assembly voted in favor of President Nayib Bukele’s proposal for the country to adopt bitcoin as legal tender. According to reports, the approved bill will mandate that all businesses accept bitcoin for goods or services, but the government will act as a backstop for entities that are unwilling to bear the risk of a volatile cryptocurrency. The government is expected to establish a trust at the Development Bank of El Salvador to instantly convert bitcoin to U.S. dollars for merchants. Government officials from El Salvador are planning to meet with the International Monetary Fund to discuss the plan.

For more information, please refer to the following links:

DOJ Seizes Bitcoin from Ransomware Attack as Crypto Enforcement Continues

By Joanna F. Wasick

On Monday, the Department of Justice (DOJ) announced the seizure of $2.3 million in bitcoin paid to a hacker group known as DarkSide, which carried out the ransomware attack against the Colonial Pipeline in early May, resulting in the shutdown of critical infrastructure. The DOJ reportedly located the funds by tracking multiple bitcoin transfers and by discovering and using the attackers’ private keys – the rough equivalent of a password needed to access assets from specific bitcoin addresses. Reports of ransomware continued this week, with a major New York newspaper reporting that the world’s largest meat company paid $11 million in bitcoin in late May in a ransomware attack.

Late last week, the DOJ announced that a Latvian national was arraigned in federal court on multiple charges stemming from her role in a cybercrime organization responsible for creating and deploying Trickbot, a type of malware designed to steal financial information and deploy bitcoin ransomware. The government alleges that the individual and her cohorts operated in Russia, Belarus, Ukraine and Suriname, and primarily targeted victim computers at hospitals, schools, public utilities and governments, including those in the United States.

Earlier this week, Europol announced the arrest of roughly 800 criminals, and the seizure of over $48 million in various fiat currencies and cryptocurrencies, by a law enforcement operation known as OTF Greenlight/Trojan Shield. According to a press release, beginning in 2019, the FBI, with assistance from the Australian Federal Police, developed and covertly operated an encrypted device company called ANOM, which grew to service more than 12,000 encrypted devices to over 300 criminal syndicates worldwide. The FBI and 16 countries exploited the intelligence from the 27 million messages obtained and reviewed from the devices, which led to the arrests.

For more information, please refer to the following links:

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