New Crypto Products Launch, Draft Digital Assets Bill Released, Regulators Address Stablecoins, DOJ Publishes Crypto Report, Hacks and Scams Continue



Fintech and Crypto Firms Announce Myriad New Crypto Product Launches

By Robert A. Musiala Jr.

This week, a major global payments firm announced the launch of a stablecoin settlement solution that leverages technology by Fireblocks, a digital assets infrastructure firm. According to a press release, the solution will “deploy automatic fiat to stablecoin conversion for … merchants as they receive and process funds from customers” and “offers merchants the flexibility of 24/7 settlement including weekends and holidays.” The same payments firm also published a report this week titled Demystifying Crypto: Shedding light on the adoption of digital currencies for payments in 2022.

Also this week, a major U.S. fintech firm announced that it has launched support for “the native transfer” of cryptocurrencies among its customer wallets and from its customer wallets to external third-party cryptocurrency wallets. Previously the firm had allowed its customers to purchase and sell cryptocurrencies but did not allow the transfer of crypto to others. The firm also announced that it has “been granted a full Bitlicense by the New York Department of Financial Services (NYDFS) – becoming the first company to convert a conditional Bitlicense into a full Bitlicense.” Separately, a major U.S. Mexican-style fast-food chain recently announced that it will begin accepting cryptocurrencies as payment.

Several firms received licenses for cryptocurrency services this week. The FTX exchange announced that it will begin servicing Japanese customers as a “licensed Japanese crypto-asset exchange services provider and Type 1 Financial Instruments Business license holder.” The exchange announced that it “received provisional approval of its Virtual Asset MVP License from the Dubai Virtual Assets Regulatory Authority (VARA).” And Jewel Bank announced that it “has received approval from the Bermuda Monetary Authority (BMA) for its combined full bank license and digital asset business (DABA) license.”

Finally, a report published this week provides new data and analysis on the environmental impact of the Bitcoin Network. The report also addresses Bitcoin miner flexibility, grid infrastructure, and regulatory issues.

For more information, please refer to the following links:

Senators Release Digital Assets Bill, Crypto Activists Send Letter to Congress

By Maria S. Luevano and Veronica Reynolds

This week, Kirsten Gillibrand, a Democratic U.S. senator from New York, and Cynthia Lummis, a Republican U.S. senator from Wyoming, shared a draft of the Responsible Financial Innovation Act, a proposed bill that would create a regulatory framework for government oversight of digital assets. In a jointly authored blog post published in conjunction with the draft bill, Senators Gillibrand and Lummis warned that continued consumer adoption of digital assets in an unregulated market creates significant risk of financial harm to market participants and predicted that absent adequate regulatory oversight, U.S.-based digital asset innovation will languish. The bill’s main goals include protecting consumers and encouraging innovation. Among other things, the proposed bill’s key provisions seek to clarify when a digital asset should be deemed a security or a commodity, grant the U.S. Commodity Futures Trading Commission (CFTC) specific oversight of certain digital assets and related markets, regulate stablecoin issuers, and mandate the creation of a digital asset self-regulatory agency overseen by the CFTC and the SEC.

In related news, a leaked version of a U.S. Senate bill titled Responsible Interagency Coordination was circulated this week on Twitter. The draft bill focuses on bringing cryptocurrencies “within the regulatory perimeter” and notes key areas of concern for regulators, namely decentralized finance (DeFi), stablecoins, decentralized autonomous organizations (DAOs), and cryptocurrency exchanges.

In a final development, human rights activists submitted an open letter to the U.S. Congress this week in support of responsible cryptocurrency policy and praising cryptocurrency for offering “financial inclusion and empowerment” to those living under authoritarian regimes or unstable economies. The group of activists reportedly hail from over 20 countries and was organized by a cryptocurrency think tank to write in response to an anti-cryptocurrency letter submitted to Congress on June 1.

For more information, please refer to the following links:

NY DFS and Japan Address Stablecoins, BIS Addresses Crypto ‘Fragmentation’

By Robert A. Musiala Jr.

This week, New York State Department of Financial Services (DFS) Superintendent Adrienne A. Harris issued new DFS Regulatory Guidance for USD-backed stablecoins issued by DFS-regulated entities. Among other things, the guidance addresses stablecoin backing and redeemability, reserve requirements, and independent audits. According to the press release, “[t]he purpose of [the guidance] is to set forth baseline requirements that will generally apply to stablecoins backed by the U.S. dollar that are issued under DFS oversight.”

According to reports, this week the Japanese parliament also introduced a legal framework for stablecoins. Among other things, the framework will reportedly require stablecoin issuers to guarantee that (1) stablecoins are linked to the yen or another fiat currency and (2) stablecoin holders have the right to redeem stablecoins at face value.

This week the Bank for International Settlements (BIS) published a report titled Blockchain scalability and the fragmentation of crypto. Among other things, the report focuses on the growing use of alternative blockchains for payments and associated “fragmentation of the crypto landscape.” The report notes that “[l]imited scalability and a lack of interoperability not only prevent network effects from taking root, but a system of parallel blockchains also adds to governance and safety risks.”

For more information, please refer to the following links:

DOJ Calls for International Cooperation in Fight Against Crypto Crime

By Alexandra Karambelas

This week, the U.S. Department of Justice (DOJ) issued a report calling for greater interagency and international coordination to combat crime in the world of digital assets and cryptocurrencies. The report follows President Joseph Biden’s Executive Order on Digital Assets, which directs numerous federal agencies and interagency groups to submit reports addressing issues related to digital assets.

The DOJ report focuses on the importance of cooperation with foreign law enforcement agencies as well as the development of consistent international standards, due to the cross-border nature of digital asset and cryptocurrency transactions and technologies. Notably, the report highlights the risk of bad actors engaging in “jurisdictional arbitrage” to take advantage of “uneven and often inadequate” monitoring and regulation of digital assets across borders.

In a letter accompanying the report, U.S. Attorney General Merrick Garland said, “Strong international law enforcement cooperation will be essential to best position the United States and its partners to detect, investigate, prosecute, and otherwise disrupt criminal activity related to digital assets, and to overcome the unique obstacles posed by the features of these technologies to law enforcement efforts to combat their misuse.”

For more information, please refer to the following links:

CFTC Sues Crypto Exchange, NY AG Issues Investor Alert, UST Investigated

By Robert A. Musiala Jr.

According to a recent press release from the U.S. Commodity Futures Trading Commission (CFTC), the CFTC has filed a complaint against a major U.S. cryptocurrency exchange “for making false or misleading statements of material facts or omitting to state material facts to the CFTC in connection with the self-certification of a bitcoin futures product.” According to the press release, the exchange provided information to the CFTC, made statements, and omitted information that was “false or misleading with respect to, among other things, facts relevant to understanding whether the proposed Bitcoin Futures Contract would be readily susceptible to manipulation.”

In another recent press release, New York Attorney General Letitia James “issued an alert to New Yorkers to remind them of the dangerous risks of investing in cryptocurrencies after the market reached record lows last month and investors lost hundreds of billions.” The alert addresses seven key cryptocurrency risk factors: (1) Highly Speculative and Unpredictable Value, (2) Difficulty Cashing Out Investments, (3) Higher Transaction Costs, (4) Unstable “Stablecoins,” (5) Hidden Trading Costs, (6) Conflicts of Interest, and (7) Limited Oversight.

According to reports, South Korean authorities are investigating Terraform Labs in relation to the recent collapse of the terraUSD (UST) algorithmic stablecoin and the related Luna coin (now known as LUNC). Since the implosion of UST, Terraform Labs has reportedly released a new LUNA token that was airdropped to previous holders.

For more information, please refer to the following links:

FTC Reports Over $1B Lost to Crypto Fraud; Crypto Scams and Hacks Continue

By Lauren Bass

According to a recent press release by the U.S. Federal Trade Commission (FTC), consumers lost over $1 billion in cryptocurrency-related frauds during 2021 and the first quarter of 2022. Reports suggest that the top schemes involved (i) bogus cryptocurrency investment opportunities; (ii) romance scams; and (iii) business or government impersonation scams, many of which originated on or through social media channels.

One such romance scam, called “pig-slaughtering,” in which “a victim is ‘fattened up’ over months by a criminal who builds an online relationship, then guides the prey into crypto trading and seizes their money,” has reportedly been on the rise, especially in high-net-worth areas, such as Silicon Valley. According to a recent report, this type of online psychological and emotional attack has cost its victims billions of dollars.

In related news, earlier this week an Ethereum scaling solution company was reportedly the victim of a theft to the tune of $15 million. According to reports, the company intended to transfer governance tokens to a market maker but was provided an incorrect wallet address, which left 20 million of its tokens vulnerable to attack. The thief reportedly stole the tokens but to date has liquidated only a portion of them; the balance remain in the attacker’s wallet.

Similarly, a major non-fungible token (NFT) studio reported its social media server was hacked earlier this week. According to reports, the hacker stole 200 ETH (approximately $360,000) worth of NFTs via a phishing scam posted on the social media channel.

For more information, please refer to the following links:

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