Launch of new crypto and defi products; SEC Charges Crypto Exchange; States bring enforcement action; Bitcoin Public Key Added to SDN List; Hacks Continue | Baker Hostetler

European Bank Launches Stablecoin; Financial firms expand crypto products

Of Robert A. Musiala Jr.

A subsidiary of a major European financial firm recently launched EUR CoinVertible (EURCV), an Ethereum ERC20 stablecoin backed 1:1 by the euro. According to a press release, EURCV will include, among other characteristics, “(i) complete separation of the collateral held to support the value of stablecoins from the issuer, (ii) with direct access granted to token holders on collateral, and (iii) implementation of business continuity plan mechanisms in the event of a market or technological event.” The press release also notes that the smart contract code for EURCV will be published under an open source license and access to EURCV will be limited to people who complete onboarding through the financial firm’s existing anti-money laundering procedures.

Another recent press release announced that “the world’s leading derivatives market … plans to expand its suite of cryptocurrency options across its standard and micro-sized Bitcoin and Ether contracts starting May 22.” The press release notes that through Q1 2023, “Bitcoin and Ether futures and options complex achieved a record daily average of more than $3 billion, signifying an increase in client demand for liquid hedging tools.”

According to a recent report, a major Japanese bank has announced that it has integrated MoneyTap, a blockchain-based money transfer app powered by RippleNet, into three local banks in Japan. RippleNet is a product of the American blockchain payment company Ripple. And in a recent latest development, the Bank for International Settlements has published a white paper with findings on Project Meridian, which explores the use of distributed ledger technology to drive innovations in real-time gross settlement systems.

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Ethereum ‘Unstaking’ Data Published; Launch of new DeFi products

Of Robert A. Musiala Jr.

According to recent reports, in the wake of the Ethereum network’s “Shanghai” upgrade, which marks the completion of Ethereum’s transition to a proof-of-stake network and enables network validators to unstake ether (ETH), approximately 5 percent of the validators to liquidate their ETH. The report notes that requests to remove and withdraw ETH take up to 17 days to complete.

According to a recent press release, decentralized finance (DeFi) infrastructure firm Maple Finance has launched its Cash Management Pool, which, according to the press release, is designed to provide “Non-US DAOs” [decentralized autonomous organizations]Offshore Companies, Web3 Treasuries and HNWI participants” with “the most direct access to T-bill yields.” The release notes that the DeFi liquidity pool is designed to allow participants to invest stablecoins and “will transfer 1-month US T-bills, minus fees, to lenders.” The press release further notes that “Room40 Capital, an institutional crypto hedge fund, has established a stand-alone SPV to be the sole borrower from the pool.” The new product is reportedly only available to non-US accredited investors.

A major US credit rating agency recently announced that it has partnered with technology companies Spring Labs and Quadrata “to deliver off-chain credit scoring to DeFi and Web3 applications.” According to a press release, the new service will deliver off-chain credit data to DeFi applications using a patented process that maintains the privacy of consumer identity data. According to the press release, the new service will “allow DeFi borrowers to have access to this critical information when making their lending decisions…ultimately minimizing risk and giving borrowers greater opportunity for better terms.”

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SEC Charges US Crypto Exchange With Multiple Securities Act Violations

Of Lauren Bass

According to a recent press release, the US Securities and Exchange Commission (SEC) has filed a complaint against US-based cryptocurrency trading platform Bittrex Inc. and its former CEO, alleging the operation of an unregistered exchange, broker-dealer and clearing agency in violation of US securities laws. The SEC also accused Bittrex’s foreign subsidiary, Bittrex Global GmbH, “of failing to register as a national securities exchange in connection with the operation of a single shared order book jointly with Bittrex.” Among other things, the complaint alleges that Bittrex and its CEO advised issuers of client tokens to remove certain “problematic statements” from public channels that could “raise questions from the SEC” about whether the crypto tokens and assets offered on Bittrex were securities. The complaint seeks injunctive relief along with merits and civil penalties.

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States Take Crypto Enforcement Actions, Consider Oversight Costs

Of Robert A. Musiala Jr.

A recent press release from the California Department of Financial Protection and Innovation (DFPI) announced that DFPI has issued “cease and desist orders against five entities to stop fraudulent investment schemes related to artificial intelligence (AI).” According to the press release, “[t]He orders finding that the named entities and individuals violated California securities laws by offering and selling ineligible securities and making material misrepresentations and omissions to investors.” The entities allegedly “solicited funds from investors by claiming to offer high-yield investment programs (HYIPs) that generate incredible returns by using AI to trade crypto-assets” and “used multi-level marketing schemes that reward investors for recruiting new investors.” “

According to a recent press release, “The New York State Department of Financial Services (DFS) has adopted a final regulation that sets out how companies holding a DFS-issued Bitlicense will be assessed for costs of their oversight and investigation.” The new regulation gives the DFS the authority “to collect regulatory fees from licensed virtual currency businesses, in the same manner as other licensees regulated by the DFS.”

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OFAC adds new Bitcoin public key to SDN list

Of Christopher Lamb

According to a press release issued by the US Department of Treasury’s Office of Foreign Assets Control (OFAC), pursuant to Executive Order (EO) 14059, OFAC has designated two entities in the People’s Republic of China (PRC) and five individuals, based in China and Guatemala, for having engaged in actions that contribute to “the international proliferation of illicit substances or their means of production”. On April 4, 2023, a federal grand jury in the US District Court for the Southern District of New York indicted some of these designated individuals on various conspiracy charges, including fentanyl importation and money laundering. As part of the action, OFAC added an individual’s Bitcoin public key that was “used to receive bitcoin payments for illegal drug transactions” to the Specially Designated Nationals List (SDN List).

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DeFi protocol hacked for $7.4 million; Wallet attack drains $10.5 million

Of Joanna F. Wasick

On April 15, Hundred Finance, a Multichain lending protocol, announced that it suffered a significant security breach on the Ethereum layer-2 blockchain Optimism, resulting in approximately $7.4 million in losses. Although the protocol did not reveal how the attack was carried out, blockchain security firm CertiK said it was a flash loan attack, which involves a hacker borrowing a large amount of funds via a type of unsecured loan from a lending protocol. The hacker then uses these funds to manipulate the price of an asset on a decentralized finance (DeFi) platform. Hundred Finance stated that it had contacted the hacker and was working with various security teams about the incident.

Recent reports suggest that more than $10.5 million in cryptocurrencies and NFTs were taken in an unidentified wallet drain that had been going on since December 2022. MetaMask developer Taylor Monahan recently brought the issue to light on Twitter. Although it is claimed that no one yet knows exactly how the exploit works, some of its features include that it targets keys created from 2014 to 2022 and users who are more “crypto-native”, i.e. those with multiple addresses and who work in crypto -/ blockchain space. Because of this, the developer advised those with assets linked to a single private key to migrate their funds, split their assets, or get a hardware wallet.

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