Thomas Murray Digital Newsletter
As we head towards the year end, here is a final round-up of institutional digital asset-related news for 2022. We will be back in the new year with a review of developments over the course of this year and a look ahead to what the major themes of 2023 may be.
In the post-trade sector, ASX has suspended its challenged attempt to replace its ageing but still serviceable CHESS clearing and settlement system with a blockchain-based platform, and more digital asset custodians receive regulatory approvals.
In other news:
- The Basel Committee has made a new proposal to limit banks’ Tier 1 capital exposure to cryptocurrencies.
- Technology provider Fireblocks has become the first organisation to attain CryptoCurrency Security Standard Level 3 certification.
- SEC prevails in court over LBRY, setting a potential precedent for treating more tokens as securities.
Custody and Post Trade Developments
|ASX Will Reassess All Aspects of the CHESS Replacement Project and Derecognise Capitalised Software of $245-255 Million Pre-tax in 1H23 (ASX)|
The Australian exchange and financial market infrastructure provider ASX has paused its efforts to replace its Clearing House Electronic Subregister System (CHESS) clearing and settlement platform with a blockchain-based system that was being built in conjunction with Digital Asset. This follows a review by Accenture that cast doubt on the project’s timelines and suitability to provide the speed and scale required to replace the legacy system, which continues to work satisfactorily. Blame is apportioned to an under-estimation of the complexity of the market and weak project management, and not to the technical implementation. A new Project Director will oversee the next phase of development, which may or may not incorporate blockchain technology and components already built using Digital Asset’s Daml smart contract language.
|BitGo to Take Custody of FTX Assets in Bankruptcy Procedure (CryptoSlate)|
|LCH Explores Crypto Derivatives Clearing (Risk.net)|
The central counterparty is in discussions with Global Futures and Options Exchange (GFO-X) with a view to partnering to clear cryptocurrency derivatives including crypto index-based futures and options.
|DBS Completes Repo Transaction on JPMorgan’s Onyx (Finextra)|
DBS has used JPM Coin for instant settlement and intraday maturity of a repo transaction, reducing the time requirement from the current standard of one to two working days. DBS is the first Asian bank to achieve this, following BNP Paribas as the first European bank to do so in May of this year (BNP Paribas).
|Komainu Secures MVP Licence from Dubai’s Virtual Assets Regulatory Authority (Komainu)|
Digital asset custodian Komainu has secured a licence from Dubai’s Virtual Assets Regulatory Authority (VARA) to provide digital asset custody and management services to institutional investors. Komainu is reportedly the first Digital Asset Service Provider (DASP) to receive such a licence.
|Bitpanda Receives Crypto Custody and Proprietary Trading BaFin Licence (Finextra)|
|The Global Ambitions of Partior, the JP Morgan, DBS Blockchain Payment System (Ledger Insights)|
Partior, the joint venture of JPMorgan, DBS and Temasek, is drawing the attention of more settlement banks as the network – only announced last year – now has more than 60 banks across 15 jurisdictions engaged. The interbank network is designed to support multi-currency payments, which initially started with USD and SGD and are now expanding to include GBP, EUR, AUD, JPY, CNH and HKD. As noted in the article, the network is very similar to SWIFT in that it is not a payment system but rather a blockchain that supports the execution of instructions communicated through it, which makes it agile and a potential competitor to SWIFT.
|HSBC, Wells Fargo Extend FX DLT Settlement to Chinese Yuan (Ledger Insights)|
|Zodia Expands Digital Asset Support to WBTC, USDC and UNI (LinkedIn)|
Digital asset custodian Zodia has expanded its support for digital assets, to include WBTC, an ERC20 (Ethereum blockchain-based) token that is backed 1:1 by bitcoin; USDC, the second largest stablecoin; and UNI, the utility token of the Uniswap network, a decentralised finance (DeFi) network that supports peer-to-peer trading, lending, and applications.
Zodia Custody Rolls Out Service to Protect Client Assets from Exchange Insolvency (The Block)
Zodia’s Interchange service will reduce counterparty risk by allowing clients to settle trades directly from custody, while ‘mirroring’ client balances to the exchange to facilitate trading.
|Fnality and HQLAX Demonstrate the First Cross-Chain Repo Swap Pilot (Fnality)|
The proof of concept, with Santander, Goldman Sachs and UBS, demonstrated a repo swap between the R3 Corda and Ethereum Enterprise blockchains, showing possibilities for intraday settlement and the provision of a cross-chain single pool of liquidity for payments, cross-currency payments (PvP) and delivery versus payment (DvP).
Other News and Links
| ||Basel Committee Finalizes Policy Suggesting 2% Bitcoin Exposure Cap for Banks (Bitcoin Magazine)|
The Basel Committee proposes a 2% limit on riskier ‘Group 2’ digital assets such as unbacked cryptocurrencies as part of banks’ Tier 1 capital, increased from 1%, and still comfortably in excess of total cryptocurrency market capitalisation.
|Crypto Custody Tech Provider Fireblocks Receives First-of-Its-Kind Security Certificate (CoinDesk)|
Fireblocks, the underlying digital asset technology provider to major clients including Bank of New York Mellon, has become the first digital asset service provider to achieve Level 3 certification under the CryptoCurrency Security Standard (CCSS), satisfying requirements for robust segregation of duties, controls, geographic and organisational distribution, and IT security, as audited by Confide. The certification joins others in its portfolio including SOC2 Type II, ISO 27001, ISO 27017, and ISO 27018.
|Kenya Proposes Bill to Tax Crypto (CoinDesk)|
Given approximately 8.5% of Kenya’s citizens own cryptocurrencies (fifth by adoption globally according to this UN Report), the country’s lawmakers have proposed an amendment to the Capital Markets Bill that would allow for the taxation of crypto exchanges, wallets, and transactions, as well as the reporting of holdings and capital gains tax when selling or using digital assets.
|Italy to Impose 26% Crypto Gains Tax from 2023 (Crypto Slate)|
|UK Lawmakers Support Easy Seizure of Crypto Linked to Terrorist Activity (CoinDesk)|
Lawmakers in the UK have approved new powers that will make it easier for law enforcement agencies to seize crypto assets. The Economic Crime and Corporate Transparency bill will be updated to give powers over crypto assets linked to terrorist activity that cannot readily be prosecuted under the criminal system, supplementing earlier amendments that do the same for assets linked to crime.
|Bitcoin Cash Could Be Legal Tender in St Kitts by March, Prime Minister Says (CoinDesk)|
|Crypto Financial Services Firm Eqonex Files for Voluntary Debt Restructuring in Singapore (CoinDesk)|
Nasdaq-listed Eqonex puts its HK-based Diginex and Singapore-based Eqonex Capital into voluntary liquidation, ending plans to offer custody, brokerage and asset management services through these entities, following the August closure of its crypto exchange. Its UK-based entities, FCA-registered crypto custodian Digivault and Bletchley Park Asset Management, are also to be voluntarily wound down.
|Can Utility Tokens Be Securities? The Significance of SEC v. LBRY (Solidus Labs)|
A recent US court ruling found in favour of the SEC’s argument that the LBRY Credit token is an unregistered security, based on LBRY’s own marketing that promoted the token’s potential to appreciate in value. This blog from Solidus Labs summarises the case and assesses its potential as a precedent that could tip the balance towards SEC Chair Gary Gensler’s argument that many utility tokens also, or exclusively, bear the characteristics of securities, and therefore would fall under his agency’s jurisdiction.
|Gemini Secures Regulatory Approvals to Operate in Italy and Greece (Gemini)|
|Sygnum Awarded Abu Dhabi In-Principal Approval (Finextra)|
Sygnum Expands its Offering into Luxembourg, Europe’s Largest Fund Market (Sygnum)
|USDC Stablecoin Issuer Circle Says Businesses Can Accept Apple Pay (CoinDesk)|
Business are now able to accept USDC, a USD pegged stablecoin, via Apple Pay.
|Vanguard Australia Deploys Blockchain-based Back Office Tech (Finextra)|
Vanguard’s Australian division has deployed a fund administration system based on the R3 Corda private blockchain. Use of a shared blockchain obviates the need for reconciliations between participants.
|Binance Starts Recovery Fund for Crypto Projects Facing Liquidity Crisis (CoinDesk)|
|Accountant That Vetted Binance Reserves Halts Crypto Work (Bloomberg)|
Audit firm Mazars suspends its work on crypto reserves attestations, concerned that their scope is not correctly understood by the public and at media scrutiny. BDO is understood to be reviewing the situation but is continuing its own similar work.
|TP ICAP Wins Approval from FCA for Wholesale Spot Exchange for Digital Assets (Finextra)|
|Goldman Sachs on Hunt for Bargain Crypto Firms After FTX Fiasco (Reuters)|
|El Salvador Proposes Digital Securities Bill, Paves Way for Bitcoin Bonds (CoinDesk)|
Delivered to the legislative arm of the government on November 17, El Salvador’s Minister of Economy has proposed a bill that seeks to establish a National Digital Assets Commission that would be tasked with the oversight of the digital asset industry in the country. The bill is designed to create a regulatory regime that supports administration, safeguarding and investments in public digital assets, a precursor to the country’s ambition to raise USD 1 billion via bitcoin-backed bonds.
|Bitcoin Core 24, Bitcoin’s Controversial Upgrade is Now Live (Crypto Slate)|
The Bitcoin protocol has once again received another update. Bitcoin Core 24 was activated on November 26, and fully implements Replace-by-Fee (RBF) logic, a way for nodes to prioritise conflicting transactions based on which pays the highest fee, instead of in chronological order. Some fear the update will encourage double-spend attacks, and it will also disincentivise zero-confirmation transactions, which are accepted by the blockchain prior to validation by miners, with the secondary outcome of increasing transaction fees paid to those miners.
|Key:||Legal/Regulatory Technology Ecosystem Markets|
|The Atlantic Council’s CBDC Tracker has been updated to show that all G7 countries and 18 out of 20 G20 countries are actively developing CBDCs, with 7 pilot schemes running. 11 countries have launched CBDCs. China will expand its pilot to most of the country in 2023, and over 20 countries will move towards their own pilot schemes, including Australia, Thailand, Brazil, India, South Korea and Russia, and likely also the ECB.|
|Central Banks Consider Backing Stablecoins Instead of Launching CBDCs (FinanceFeeds)|
Antoine Martin, a research advisor at the New York Fed, has posited that central banks, rather than commercial banks, could hold the reserves that back stablecoins to increase bankruptcy protections and decrease risks. This would be simpler than central banks supporting retail use cases for CBDCs directly themselves.
|US Banks Launch Digital Asset Settlement Platform PoC (Finextra)|
Several US Banks including Citi, Wells Fargo, BNY Mellon, HSBC and US Bank have partnered with the innovation arm of the New York Fed to explore the feasibility of an interoperable digital money platform called the regulated liability network (RLN). The 12-week proof-of-concept project is designed to test the settlement of simulated US dollars from commercial banks through simulated central bank reserves using a shared ledger. The test is supported by technology provided by SETL and Digital Asset, running on Amazon Web Services.
|Several more CBDC proof of concept projects are in the works:|
Bank of Japan to Run CBDC Experiments With Country’s Megabanks: Report (CoinDesk)
Bank of England issues RFP for a CBDC wallet (Bank of England) to support testing, including compatibility with the BIS Innovation Hub’s Project Rosalind (an API for retail CBDC distribution)
The Reserve Bank of Australia’s eAUD pilot programme (Reserve Bank of Australia) has attracted 140 proposals from around 80 entities, spanning retail and wholesale CBDC use cases
Banco de España has issued a call for expressions of interest in wholesale CBDC experiments (Banco de España) regarding fund transfers and settlement, and comparing CBDC advantages and disadvantages with traditional processes
|Naira Redesign Policy – Revised Cash Withdrawal Limits (Central Bank of Nigeria)|
The Central Bank of Nigeria is limiting cash withdrawals to 100,000 naira per week for individuals and 500,000 naira per week for corporations, with excesses subject to withdrawal fees of 5% and 10% respectively, in an effort to drive adoption of traceable electronic transactions and Nigeria’s CBDC, the eNaira.
|Kazakhstan Central Bank Recommends a Phased CBDC Rollout Between 2023–25 (Cointelegraph)|
|India’s Digital Rupee Fails to Excite Interest, Bankers Say (Reuters)|
|EIB Innovates Further with Project Venus, the First Euro-denominated Digital Bond on a Private Blockchain (European Investment Bank)|
The French and Luxembourg central banks have completed Project Venus in which they settled a EUR 100 million digital bond issued by the European Investment Bank (its second digital bond) using a synthetic CBDC on a jointly operated private blockchain on Goldman Sachs’ GS DAP tokenisation platform. Société Générale Securities Services acted as digital custodian.
|National Bank of Ukraine Releases Draft Concept for Digital Hryvnia (Cointelegraph)|
The paper considers three use cases: retail (including payments and smart contract usage), wholesale (for operations related to cryptocurrency exchanges and other digital asset service providers), and for cross-border payments.
Crypto To The Rescue: Why The UN Is Sending War-Torn People In Ukraine Aid In Stablecoins (Bitcoinist)
UNHCR is partnering with Stellar Development Foundation to send USD Coin to Vibrant digital wallets of eligible Ukrainians displaced by the Russian invasion. Withdrawals can be made at MoneyGram outlets in USD, EUR or UAH.
Wishing you a Merry Christmas and a Happy New Year!
Thomas Murray Digital
Andrew Wright | Hugo Jack
Tel. +44 (0)20 8057 7100
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