Australia’s first crypto exchange bailout kicks off Digital Surge ready to rise back to life
There has been significant fallout and financial suffering from the FTX collapse throughout the crypto community, and in December 2022 Digital Surge, an Australian digital currency exchange in Queensland entered voluntary administration, with AUD$32M of crypto trapped on FTX.
While 76% of companies that enter administration go on to liquidate, often leaving little recovery for customers, Digital Surge directors Josh Lehman and Dan Rutter refused to let that happen. They stepped up and supported the business, putting forward a bailout proposal with AUD$1.3 million of their own money to support the rescue. Under the plan, customers with balances of AUD$250 or less will be refunded in full, and other customers will receive a rebalance of approximately 45% of the value of their crypto accounts when trading resumes. The remaining 55% will be paid from any profits from Digital Surge over the next 5 years, with an interface showing customers how much has been paid to date as distributions are made.
In January 2023, creditors of Digital Surge voted overwhelmingly to support the rescue plan, which could see customers profiting from Digital Surge. Such a restructuring bailout is rare in general and has never been seen in Australia for a crypto exchange before.
KordaMentha were appointed as administrators and will now be trustees for a creditors’ trust which will be responsible for overseeing the company for the next five years. Administrator David Johnstone said:
This is a great result for all stakeholders and gives the best possible return to customers and creditors given the circumstances
KM’s Digital Assets team, led by Paul Hewson, supported by the author, worked closely with the directors throughout the restructuring, which faced unique challenges arising from the nature of digital assets. Zerocap provided insured safe custody for crypto assets during the administration and its directors have been working around the clock to enable the business to resume trading early next week.
The commitment of the directors of Digital Surge combined with the collaborative spirit of the blockchain community as seen by customers overwhelmingly voting through the deal is a rare point of good news for digital currency exchanges.
Siemens issues 60 million euro digital bond on blockchain
Siemens, the German engineering and technology giant, has become the first company to successfully issue bonds on a public blockchain under Germany’s Electronic Securities Act 2021.
The offering raised €60 million on the Polygon blockchain. By using a public blockchain, Siemens could sell the bonds directly to investors without using a bank to act as an intermediary in issuing the bonds. The offer also makes paper-based global certificates and central clearing unnecessary. Investors in the bonds include ekaBank, DZ Bank and Union Investment.
Peter Rathgeb, Corporate Treasurer at Siemens hailed the bond issue as a great success for the company and an important milestone in the development of digital securities in Germany:
By moving away from paper and towards public blockchains for the issuance of securities, we can execute transactions significantly faster and more efficiently than when issuing bonds in the past.
According to Siemens, investors paid for the bonds using the traditional banking system as the digital euro is not yet available. The transaction could be completed within two days. Direct on-chain payment using digital currency or CBDC holds the promise of further efficiency in the future.
It has been possible to issue blockchain-based digital bonds in Germany since the Electronic Securities Act came into effect in June 2021. A number of German companies have taken advantage of this opportunity, but Siemens is reportedly the first to do so using a public blockchain.
This is not Siemens’ first foray into blockchain technology. The firm has reportedly experimented with blockchain technology for energy trading and car sharing.
Given the advantages of blockchain-based offerings, Siemens’ successful bond issue is likely to pave the way for other companies to issue securities on public blockchains within existing regulatory frameworks.
Please Don’t Stop The Music: Rihanna NFT Holders To Receive Royalties
Rihanna’s hit song “B**** Better Have My Money”, released in 2015, has sold after being offered as a non-fungible token (NFT) by Deputy, one of the co-producers of the song. Deputy, who collaborated with Rihanna, Kanye West and Travis Scott to produce the hit song, has partnered with AnotherBlock, a Web 3 startup focused on increasing investment in the music streaming industry.
The collection includes 300 fractional NFTs and gives holders a share of the streaming royalties for the triple Platinum-certified song estimated at 6.5% for the first year (based on the sale price of USD$210, but now the NFTs sell for USD 1400).
To date, most NFTs have been represented as digital art that occasionally grants holders exclusive benefits and opportunities, such as access to the Yacht Club for holders of Bored Ape Yacht Club NFTs, or free entry to the Australian Open Precinct, but NFTs like this demonstrate the power of connecting digital assets to a real product, eliminating the need for cumbersome paperwork and expensive intermediaries. To secure the delivery of royalties, several agreements usually need to be drawn up, and the music industry contains different types of royalties with complex structures.
For example, performance royalties are different from streaming royalties and mechanical royalties, each of which requires a separate agreement. Mechanical royalties are the much rarer form of royalty that accrues only when physical copies are purchased.
These agreements may include songwriter agreements, record contracts, streaming agreements, and synchronization license agreements, each of which contains specific clauses that determine the distribution of royalties between eligible parties.
This project cuts through the enormous complexity that hangs over traditional contracts and allows for a quick and efficient public record of who receives which royalty, as well as an opportunity for fans and investors.
NFTs have experienced a roller-coaster ride of success in recent years, with some projects reaching unprecedented heights while others have experienced significant value losses. Nevertheless, projects like this show the full range of possibilities and potential of NFTs for consumers. This offer not only includes royalty payments, but promises a “street community” of fellow “music owners” that superfans of Rihanna are sure to appreciate.
The ability for entities to create an NFT representing any piece of art, such as a song or film, fractionalize the NFT and distribute to consumers for real-world rewards such as royalties explores a whole new opportunity for consumers, artists and the financial sector. and these tangible connections are likely to grow in the future.
Paxos forced to park BUSD stablecoin
The US Securities and Exchange Commission has informed Paxos Trust Company, the firm behind Binance’s stablecoin, that it is considering taking action against the company, which the SEC claims should have registered BUSD as a security. The claim has been denied by Paxos, who say that BUSD is not a security and that they are:
prepared to prosecute vigorously if necessary.
Stablecoins are digital tokens that are often backed by traditional assets that are intended to hold a stable value. There is also a flavor of stablecoins known as “unbacked” or “algorithmic” stablecoins that are not backed, but BUSD is said to have always been 1:1 backed.
SEC Chairman Gary Gensler appears to be of the opinion that almost any crypto asset is a security, but there have been very few defended actions, with most issuers paying fines on a “no concessions” basis and changing the content of their offerings . It is strange that the SEC has only attacked BUSD, when Paxos also issues other stablecoins, which have nothing to do with Binance, and it comes a month after a report claimed that Binance had inflated the number of BUSD issued on Binance. platform, which could potentially render the BUSD unsupported to some extent (if this is true).
The announcement of the action, published via a consumer alert, was made right after the New York Department of Financial Services (NYDFS) ordered Paxos to stop minting Binance USD. A spokesperson for the NYDFS said that:
Paxos breached its obligations for tailored, periodic risk assessments and due diligence checks on Binance and Binance USD customers that were necessary to stop bad actors from using the platform.
Paxos has informed customers that as of February 21, 2023, it will no longer issue Binance USD, which is backed by traditional cash and US Treasury bills, but will continue to support and redeem tokens until at least February 2024. The company said that:
Paxos has always prioritized the security of its customers’ assets
This move, according to Ivan Kachkosvi, FX and crypto strategist at UBS, represents:
a big setback for Bianance…[and that]… it remains to be seen if (and when) Binance will be able to find a US-based partner for its stablecoin. The latter appears to be decisive in the wake of American regulation of stablecoins, which will come sooner rather than later
The question of when the US will adopt regulations on crypto assets and what form they will take is still up in the air. If Paxos defends a lawsuit, it is not clear what the SEC’s arguments will be or whether they will succeed, but what is certain is that it will put stablecoins in the shadows for several years. As always, regulation by enforcement is a poor strategy for policymakers to use when industry engagement and tailored regulation are available.
