CBDC report published; Launch of Crypto and NFT initiatives; OFAC renames Tornado Cash; SEC and CFTC Target Cryptocurrency Fraud; FTX Files for Bankruptcy | BakerHostetler


CBDC Report Published, Blockchain Settlement and Payment Initiatives Launched

By Robert A. Musiala Jr.

This week, the New York branch of the U.S. central bank released a report on the results of the first phase of the Cedar project, “a multi-stage study to develop a technical framework for a theoretical wholesale central bank digital currency (wCBDC).” According to the press release, most spot foreign exchange (FX) transactions currently take two days to settle, exposing both senders and payees to “settlement, counterparty and credit risk that, among other things, may hinder an institution’s ability to easily convert its assets to cash. As part of the Cedar Phase I project, “the experiment simulated spot foreign exchange (FX) trading and introduced a prototype wholesale central bank digital currency to test whether the use of blockchain technology could improve the speed, cost, and access to cross-border wholesale payments.” In this test environment, the experiment reportedly revealed three key findings:

  • Fast payments: In the test environment, transactions in a blockchain-enabled system were processed in less than 15 seconds on average.
  • Nuclear village: The simulated ledger network made it possible to perform atomic settlements, that is, the settlements on the two sides of the simulated transactions were either carried out simultaneously or not settled at all, which reduces currency risks.
  • More secure and affordable transactions: The structure of the distributed ledger system allowed for 24/7/365 payments and supported interoperability goals between financial institutions, including central and private banks.

Separately this week, a major global bank issued a press release announcing “the world’s first digital bond that is publicly traded and settled on both blockchain and traditional exchanges.” According to the press release, “[t]The CHF 375 million bonds are digital only and will be issued on the blockchain-based SIX Digital Exchange (SDX) platform and will also be listed and traded on SDX and SIX Swiss Exchange (SIX).”

Finally, a major grocery store chain in South Africa has reportedly announced plans to start allowing shoppers to pay for groceries with bitcoin at 39 stores in South Africa using any bitcoin lightning-enabled app. Customers will reportedly scan the QR code from the app and take the conversion rate on their smartphone at the time of the transaction.

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NFT World Cup Initiative Launched, Market Participants Launch NFT Royalty Solutions

By Veronica Reynolds

According to a recent press release, a major US financial services company has partnered with a major cryptocurrency exchange to launch an NFT auction for Qatar 2022 FIFA World Cup fans. iconic goals scored by five legendary football players. The experience will become exciting later this month when fans can create their own “digital images inspired by their own signature moves” and mint the images on their own NFTs.

This week, the NFT marketplace OpenSea reportedly introduced a new online tool that will make it easier to collect royalties. The tool, described in an OpenSea blog post as “a simple snippet of code,” is designed to allow NFT creators to charge consent-based online fees and block their NFTs from being listed on marketplaces that do not support creator fees. The tool is only available for new, not-yet-existing NFT collections, a decision that reportedly made some users feel that “there is no plan and [there are] no clear answers [regarding] existing collection and artist’s fees.

Last week, Solana-based NFT marketplace Exchange.Art announced a “Royalty Protection Standard” that will reportedly “ensure creator royalties for secondary sales of NFTs that were originally minted on its platform.” According to reports, the new standard is a voluntary program developed by the marketplace to allow NFT creators to choose which secondary NFT platforms their NFTs can use and prevent “forced inclusion of creators’ work” on marketplaces that do not apply NFT royalties.

In this regard, the Ethereum Level 2 NFT platform recently announced the release of its “community-driven whitelist and blacklist for smart contracts that take into account royalties.” This feature reportedly allows NFT creators to use lists to manage smart contracts that deploy their NFTs without the aid of a third-party exchange, and can be used to limit the ability to transfer NFTs through the tool’s royalty-aware smart contracts.

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OFAC Renames Tornado Cash, Mixer Gets Hacked Cryptocurrency

By Amos Kim

This week, the U.S. Department of the Treasury’s Office of Foreign Assets Control (OFAC) announced that it has delisted Tornado Cash and renamed it to record additional reasons for the listing, including its role in hiding the “movement of more than $455 million stolen in March 2022. Lazarus Group, appointed by OFAC and controlled by the DPRK, in the largest known virtual currency heist to date.” OFAC also issued new guidance, “providing additional compliance guidance regarding the nature of the Tornado Cash organization, and updated three existing FAQs with additional guidance.” Earlier this week, based on data from Etherscan, the hacker responsible for the $28 million Deribit hack, a major bitcoin and ether options exchange, transferred more than 1,600 ether (~$2.5 million) to Tornado Cash, according to reports.

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SEC and CFTC Launch Enforcement Actions Related to Fraudulent Cryptocurrency Trading Bots

By Joanna F. Vasik

Last week, the U.S. Securities and Exchange Commission (SEC) announced charges against four individuals for their participation in the Trade Coin Club (TCC), which the SEC describes as a “crypto Ponzi scam that raised more than 82,000 bitcoins on $295 million.” at the time from over 100,000 investors around the world.” According to the complaint, the TCC was a multi-level marketing program that ran from 2016 to 2018 that promised to profit from the trading activities of an alleged cryptocurrency trading bot. The defendants told investors that the bot was making “millions of microtransactions” every second and that investors would earn a minimum profit of 0.35% per day. However, instead of the investor funds going to the alleged bot, they went into the pockets of the defendants and other TCC promoters, according to the SEC.

Similarly, last week the Commodity Futures Trading Commission (CFTC) issued an order alleging that Jeremy Rownsville was defrauding investors through his company, which also claimed to have a “highly advanced arbitrage bot” running the company’s complex operations. . digital asset trading strategies. However, according to the CFTC, the bot has never made trades; customers were unable to withdraw funds and lost all their funds. The order requires Rownsville to pay a $177,000 civil monetary penalty, permanently bans him from soliciting or trading commodity interests and virtual currencies or registering with the CFTC in any capacity, and requires him to cease and desist from any further violations of the commodity exchanges. and CFTC rules.

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FTX Files For Bankruptcy Amid Binance FTT Sell-off, Pending DOJ Investigation

By Christopher W. Lamb

On November 11, 2022, the once-third-largest cryptocurrency exchange FTX announced that it had filed for bankruptcy protection along with approximately 130 other affiliates. According to reports, CEO and founder Sam Bankman-Fried has stepped down and will be replaced by John Ray III, a restructuring veteran involved in the Enron bankruptcy.

Several reports have been released this week highlighting FTX’s attempts to secure over $1 billion in bailouts before a non-binding letter of intent was received from fellow cryptocurrency exchange Binance. Binance has reportedly neglected to take further action following an initial review of FTX’s ledgers and amid concerns that FTX is the subject of government investigations. One report explains that the problems began when Binance began offloading hundreds of millions of dollars worth of FTT tokens created by FTX on Sunday. According to the report, FTX’s legal and compliance staff quit soon after. Another report indicated that FTX was already under investigation by state and federal regulators and that the US Department of Justice (DOJ) may have opened an investigation into FTX due to its recent liquidity problems.

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