Weekly Blockchain Blog – July 2024 #2 US Stablecoin Companies Achieve Licenses, Avoid SEC Enforcement Action
By Christopher Lamb
According to a recent press release, Circle, the issuer of USDC and EURC, announced that it is now the “first global stablecoin issuer to achieve compliance with the European Union’s landmark Markets in Crypto-Assets (MiCA) regulatory framework.” This achievement “was enabled by the company’s attainment of an Electronic Money Institution (EMI) license” from a French banking regulatory authority. According to the press release, this license will allow both USDC and EURC to be issued “in compliance with MiCA’s regulatory obligations for stablecoins or e-money tokens,” which recently took effect. This achievement allows Circle Mint to be “officially available for business customers in Europe.”
In more stablecoin news, a major U.S. blockchain infrastructure provider and stablecoin issuer recently published a blog post announcing the termination of an investigation by the U.S. Securities and Exchange Commission (SEC) related to the stablecoin BUSD. According to the blog post, the company “received a formal termination notice from the SEC on July 9, 2024, stating that it will not recommend enforcement action” against the company in the investigation of BUSD. Among other things, the company’s blog post stated, “We believe this development will unlock a new wave of stablecoin adoption by leading global enterprises.”
For more information, please refer to the following links:
Major US Crypto Exchange Announces New Products and Partnerships
By Christopher Lamb
According to a recent blog post on its website, Coinbase has announced a partnership with Stripe to “increase onchain adoption and provide faster, cheaper financial infrastructure.” Through this partnership, Stripe will “add[] USDC on Base” to (1) their crypto payouts to “make faster, cheaper money transfers to over 150 countries,” (2) their fiat-to-crypto onramp, allowing easier and faster conversion to fiat, and (3) the Coinbase Wallet to allow instantaneous purchase of crypto with credit cards and other payment gateways.
In another recent blog post on its website, Coinbase announced that it “will be the first U.S. futures exchange to introduce [Commodity Futures Trading Commission]-regulated margined futures contracts for Avalanche (AVAX), Chainlink (LINK), Polkadot (DOT), Stellar (XLM), and Shiba Inu (SHB).” In providing these margined futures contracts, Coinbase will collaborate with “Nodal Clear, as well as leading third-party FCMs and retail brokers” to “provide retail investors with a safe and secure trading environment.”
A third blog post by Coinbase announced that the U.S. Marshals Service (USMS) has chosen the Coinbase Prime platform to provide custody and trading services for the USMS’ large cap digital assets. In making this selection, the USMS conducted due diligence and evaluated a range of solutions before ultimately selecting Coinbase Prime. According to recent reports, the USMS has already begun using the platform, sending 3,940 Bitcoin to a Coinbase Prime wallet on June 26.
For more information, please refer to the following links:
Report Analyzes NFT Royalties
By Lauren Bass
A venture capital fund recently released an article analyzing the pros and cons of existing NFT royalty enforcement mechanisms and positing potential new paradigms for the future. The post explains that because it is difficult to distinguish between sales (which should pay royalties) and other types of transfers (which may not trigger royalties), enforcement of NFT royalties has been historically challenging. According to the article, NFT creators face a dilemma: the more one enforces strict royalty compliance, the less functionality and interaction the token may have with other onchain applications. The article proposes two new models that may incentivize marketplace participants to create systems that “respect royalties,” thereby shifting the onus of enforcement from creators alone to the larger NFT ecosystem.
For more information, please refer to the following links:
How NFT royalties work: Designs, challenges, and new ideas
US Treasury Dept., IRS Issue Final Regulations on Digital Asset Reporting
By Robert A. Musiala Jr.
On June 28, the U.S. Department of the Treasury and the U.S. Internal Revenue Service (IRS) issued final regulations “requiring custodial brokers to report sales and exchanges of digital assets, including cryptocurrency.” The final regulations require brokers to report certain sale and exchange transactions beginning in calendar year 2025 on the soon-to-be released Form 1099-DA. According to a press release, brokers covered by the final regulations “include operators of custodial digital asset trading platforms, certain digital asset hosted wallet providers, digital asset kiosks, and certain processors of digital asset payments (PDAPs).” The press release notes that the U.S. Treasury Department and IRS intend to provide a different set of final regulations to provide rules for brokers “commonly called decentralized or non-custodial brokers.”
Key requirements in the final regulations include the following:
Backup withholding rules Rules for taxpayers to determine their basis, gain and loss from digital asset transactions Requirements for real estate professionals to report the fair market value of digital assets paid by buyers and received by sellers in real estate transactions An optional, aggregate reporting method for certain sales of stablecoins and certain non-fungible tokens (NFTs) applicable only after sales of these stablecoins and NFTs exceed de minimis thresholds Basis reporting by certain brokers for transactions on or after Jan. 1, 2026
The press release also highlights the following transitional relief:
Notice 2024-56, which provides general transitional relief from reporting penalties and backup withholding for brokers Notice 2024-57, which informs brokers that until further notice, they do not have to file information returns or furnish payee statements on digital asset sales and exchanges for (1) wrapping and unwrapping transactions; (2) liquidity provider transactions; (3) staking transactions; (4) lending of digital assets; (5) short sales of digital assets; and (6) notional principal contract transactions Revenue Procedure 2024-28, which generally permits taxpayers to rely on any reasonable allocation of units of unused basis to wallets or accounts that hold the same number of remaining digital asset units, based on the taxpayers’ records
For more information, please refer to the following links:
Basel Approves Crypto Disclosure Framework, Central Bank Initiatives Continue
By Isabelle Corbett Sterling
According to a press release, after reviewing the comments it received, the Basel Committee approved a new disclosure framework for banks’ cryptoasset exposures, which includes a standardized set of public tables and templates for banks to use to make those disclosures more usable to the public. The Basel Committee also approved changes to its cryptoasset prudential standard, which was established in December 2022. The amendments are reported to be aimed at promoting a consistent understanding of the standard, including providing clarity around requirements for stablecoins to be in “Group 1b” and, therefore, receive preferential treatment. Both the framework and the amendments to the standards have an implementation date of Jan. 1, 2026.
According to a press release from a leading Swiss digital exchange, the Swiss National Bank announced that it will continue its Helvetia Pilot, a Swiss franc wholesale Central Bank Digital Currency solution focused on tokenized securities settlement. According to reports, this next phase will expand on the work in Project Helvetia III, growing the scope to additional financial institutions and financial market transactions. The head of the digital exchange said, “Robust and scalable financial market infrastructure requires that wholesale transactions be settled in central bank money, the safest form of money. To fully utilize blockchain’s potential, both the tokenized investment and the settlement asset must be on the same chain.”
According to news reports, the Board of the Central Bank of the United Arab Emirates (UAE) approved a proposed regulatory framework for dirham-backed stablecoin arrangements, which are within the Central Bank’s jurisdiction. According to a recent article, presently, non-dirham backed stablecoins are regulated in Dubai by the Virtual Assets Regulatory Authority, which was established in 2022 to oversee crypto specifically. This proposed regulatory framework is reportedly a part of the UAE’s broader Financial Infrastructure Transformation Programme, which is designed to promote innovation and digitization of the UAE’s economy.
For more information, please refer to the following links:
SEC Charges Allege Crypto AML Failures, DOJ Charges Crypto Platform Founder
By Robert A. Musiala Jr.
According to a recent press release by the SEC, the SEC charged Silvergate Capital Corporation and its former CEO and chief risk officer (CRO) with “misleading investors about the strength of the Bank Secrecy Act/Anti-Money Laundering (BSA/AML) compliance program and the monitoring of crypto customers, including FTX, by Silvergate’s wholly owned subsidiary, Silvergate Bank.” The SEC’s complaint charged Silvergate and its former CEO and CRO with “negligence-based fraud and charge[d] Silvergate with violating certain reporting, internal accounting controls, and books-and-records provisions.” Among other things, the SEC alleged that “Silvergate’s automated transaction monitoring system failed to monitor more than $1 trillion of transactions by its customers on the bank’s payments platform” and “failed to detect nearly $9 billion in suspicious transfers among FTX and its related entities.”
A recent press release by the U.S. Department of Justice (DOJ) announced that the co-founder and former chief technology officer of an online peer-to-peer virtual currency platform and money‑transmitting business has pleaded guilty to conspiracy to fail to maintain an effective anti-money laundering (AML) program as required by the Bank Secrecy Act. According to the DOJ press release, from July 2015 to June 2019, the defendant operated the platform in a manner that allowed customers to open accounts and trade, without gathering sufficient know-your-customer (KYC) information; marketed the platform as not requiring KYC; presented fake AML policies to third parties that he knew were not, in fact, implemented or enforced at the platform; and failed to file a single suspicious activity report, despite knowing that users were perpetrating suspicious and criminal activity. The defendant faces a mximum penalty of five years in prison.
Another recent DOJ press release announced that the BitMEX digital asset exchange has pleaded guilty to “violating the Bank Secrecy Act by willfully failing to establish, implement, and maintain an adequate anti-money laundering (‘AML’) program.” The guilty plea relates to consent orders entered into by the company with DOJ and the U.S. Commodity Futures Exchange Commission in May of 2022.
For more information, please refer to the following links:
New Data on Crypto Hacks Indicates Dramatic Increase in First Half of 2024
By Robert A. Musiala Jr.
Multiple recent reports present new data indicating that losses from crypto hacks have increased dramatically since Q2 2023. A report by Cyvers indicates that funds stolen from cryptocurrency exchanges increased 900 percent year-over-year in Q2 2024, citing the total volume of stolen funds in 2024 at close to $1.4 billion. A report by CertiK noted the following on crypto hacks in the first half of 2024:
Approximately $1.19 billion was lost in 408 onchain incidents. Phishing resulted in approximately $498 million lost in 150 incidents. Private key compromises resulted in approximately $409 million lost in 42 incidents. Ethereum had the most losses, with approximately $397 million lost in 235 incidents.
A report by Immunefi cited approximately $573 million in losses from hacking incidents in the Web3 ecosystem in Q2 2024, representing a 112 percent increase compared to Q2 2023. Finally, a report by TRM Labs noted the following:
By June 24, 2024, hackers had stolen $1.38 billion, compared to $657 million this time last year. The top five hacks and exploits accounted for 70 percent of the total amount stolen so far this year. Private key and seed phrase compromises remain a top attack vector in 2024, alongside smart contract exploits and flash loan attacks.
For more information, please refer to the following links:
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