Market Updates in CBDCs, Crypto Funds, BD-ATS Platforms and Stablecoins; DOJ and CFTC Enforcement Continues; DeFi Error Releases Millions in Crypto


[co-author: Lauren Bass]

CBDCs Explored by the U.K., New Zealand and Major Payments Network

By Veronica Reynolds

This week, the Bank of England and Her Majesty’s Treasury announced the members appointed to its central bank digital currency (CBDC) Engagement and Technology Forums (Engagement Forum), which includes tenured stakeholders from industry, civil society and academia. The purpose of the Engagement Forum is to foster discussion and elicit strategic feedback on policy considerations and technical requirements related to the implementation of CBDCs. The creation of the Engagement Forum was first announced in April 2021 in conjunction with the CBDC Taskforce to facilitate the potential creation of a U.K. CBDC.

The Reserve Bank of New Zealand announced in a press release this week that it has issued two papers on CBDCs and is seeking public input regarding the operational and cybersecurity risks that could arise with the adoption of CBDCs and the potential impact that their issuance could have on the financial sector. The press release cites the Reserve Bank’s desire to explore CBDCs while maintaining the integrity of the New Zealand monetary system.

This week, one of the largest digital payment platforms in the world announced a “conceptual protocol” that demonstrates interoperability among various CBDCs to facilitate payments. The concept, which is called Universal Payments Channel, shows how unrelated blockchain networks can be interconnected to allow for the transfer of CBDCs by routing payments through a centralized hub that acts as a gateway to facilitate payment requests between sending and receiving parties. In furtherance of this effort, the payment platform has deployed its first sample smart contract on Ethereum’s Ropsten testnet, which provides an efficient off-blockchain payment channel that accepts ether and the USDC stablecoin.

For more information, please refer to the following links:

New Products Launch in Crypto Funds, BD-ATS Platforms and Stablecoins

By Kayley B. Sullivan

The Swiss Financial Market Supervisory Authority (FINMA) announced this week its approval of the first Swiss fund that will invest primarily in cryptoassets, the Crypto Market Index Fund. FINMA noted that the fund is limited to qualified investors.

In other capital markets news this week, Securitize Inc. announced the launch of Securitize Markets, a Securities and Exchange Commission-registered broker-dealer and alternative trading system that facilitates the trading of blockchain-based securities. According to a press release, “all investments on Securitize Markets are tokenized as Digital Asset Securities (also commonly referred to as ‘security tokens’), which bring a host of benefits over traditional paper securities, including virtually instantaneous settlement minimizing counterparty risk, greater efficiency with fewer intermediaries, and the opportunity for fractional ownership.”

In another recent press release, Circle, the issuer of the USDC stablecoin, stated that it has integrated with a U.S.-based technology platform and data network. According to the press release, the integration will streamline Circle’s fiat-to-crypto operations by enabling automated clearing house (ACH) payments to settle as USDC and payouts of USDC to convert into ACH transfers. Meanwhile, in Peru, according to reports this week, the first stablecoin pegged to Peru’s national currency, the sol, has launched on the Stellar blockchain.

For more information, please refer to the following links:

Fashion, Sports, Graphic Novels and Art: NFT Market Continues to Expand

By Lauren Bass

According to reports, a global luxury fashion brand has partnered with the content lab of a men’s fashion magazine and a Singapore-based startup to develop and release six NFTs (non-fungible tokens) inspired by the luxury brand’s iconic designs. The limited-edition digital collectibles will be released using the ZK-Rollups protocol and will be given to the winners of a “mix and match” design competition hosted on a Chinese social media platform.

Earlier this week, Dapper Labs, creator of the Flow blockchain, reportedly announced a new partnership to develop and produce an NFT marketplace in conjunction with a major U.S. sports league and its players. According to reports, this new digital partnership will focus heavily on video content.

In other NFT news, a legendary comic and graphic novel publisher has reportedly partnered with a ConsenSys-backed digital studio to design and release a series of NFTs. According to a press release, the digital collectibles, which will feature fan-favorite superhero characters, will be available for free to registrants of the publisher’s upcoming global virtual fan event.

Finally, one of the largest peer-to-peer NFT marketplaces has reportedly relisted a Polygon-based NFT collection after a Digital Millennium Copyright Act (DMCA) counter notice was successfully filed by its creators. The relist follows a monthlong marketplace ban that resulted after a competing collection claimed the NFTs infringed copyright and filed an initial DMCA takedown notice.

For more information, please refer to the following links:

Crypto Enforcement: DOJ and CFTC Target Sanctions and Registration Violations

By Keith R. Murphy

The U.S. Attorney for the Southern District of New York announced in a press release this week that an Ethereum network developer, Virgil Griffith, pleaded guilty to conspiring to help the Democratic People’s Republic of Korea (DPRK) evade sanctions, including by providing technical services and advice on using blockchain technology and cryptocurrency. According to the press release, the defendant traveled to the DPRK to attend a blockchain and cryptocurrency conference, where he allegedly presented information on how blockchain technology could be used to benefit the DPRK, including in connection with nuclear weapons negotiations with the U.S. The defendant also purportedly tried to assist with the exchange of cryptocurrency between the DPRK and South Korea while knowing that such efforts violated existing sanctions. The defendant is scheduled to be sentenced in January 2022.

One of the largest U.S. cryptocurrency exchanges settled charges by the Commodity Futures Trading Commission (CFTC) for $1.25 million that it illegally offered margined retail commodity transactions in digital assets, according to a press release this week. According to the press release, the transactions were improper because they were supposed to take place on a designated contract market, but the exchange failed to register as a futures commission merchant (FCM). The press release quoted a representative of the CFTC stating that “[m]argined, leveraged or financed digital asset trading offered to retail U.S. customers must occur on properly registered and regulated exchanges in accordance with all applicable laws and regulations.”

In related enforcement news, another CFTC press release announced that the commission has brought charges and seeks cease and desist orders against 14 entities, some for failing to register as FCMs and others for misrepresenting that they had CFTC registration and National Futures Association membership. According to the press release, the majority of the complaints assert that the entities offered the general public opportunities to purchase options based on the value of commodities, including cryptocurrencies such as bitcoin, without ever having registered as FCMs.

For more information, please refer to the following links:

DeFi Error Releases Millions in Crypto; Bitcoin ATM Vulnerability Reported

By Jordan R. Silversmith

According to reports this week, the DeFi protocol Compound has erroneously paid out millions of dollars in COMP rewards following an update to one of its smart contracts. According to reports, millions of COMP were erroneously dispensed, including $27 million in one transaction. The botched payout sums may indicate a flaw related to a recent upgrade in the comptroller contract, which disburses the COMP liquidity mining rewards.

This week, the security research team at a major U.S. cryptocurrency exchange reported multiple hardware and software vulnerabilities in the General Bytes BATMtwo, a commonly used cryptocurrency ATM. The researchers found multiple attack vectors through the default administrative QR code, the Android operating software, the ATM management system and the hardware case of the machine. The known exploits in the hardware and software of the ATM are now well known, the researchers say, and they encourage users of the BATMtwo to use it only at trusted locations.

For more information, please refer to the following links:

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