Baker & Hostetler LLP

09/16/2024 | Press release | Distributed by Public on 09/16/2024 09:48

Weekly Blockchain Blog – September 16, 2024

09/16/2024|7 minute read
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In this issue:

New Crypto Products Launch in US, Europe and UAE

By Christopher Lamb

According to recent reports, two U.S. multinational financial technology companies have integrated Ethereum Name Service (ENS), a decentralized naming system built on the Ethereum blockchain, into their payment platforms. The integration will allow users to enter recipients' ENS names directly when sending crypto, allowing the payment platforms to automatically identify the wallet addresses associated with the names. According to reports, this new feature should reduce risk related to errors in typing a recipient's wallet address.

According to other reports, crypto payments firm Mercuryo has partnered with a major U.S.-based credit card issuer to release a crypto debit card in Europe. The virtual payment method being used through the debit card is called Spend, and it enables users to turn their crypto holdings into fiat to make purchases in a traditional manner at more than 90 million merchants that accept credit and debit card payments. According to reports, Spend is embedded into a noncustodial wallet, allowing users to store and manage their own keys to their crypto holdings, and is compatible with 40 cryptocurrencies.

In further news, a major multinational bank issued a press release announcing that its crypto custody service is now available in the United Arab Emirates. According to the release, the bank has been issued a license by the Dubai Financial Services Authority (DFSA) within the Dubai International Financial Centre (DIFC). The service "enables clients to safekeep their digital assets" and will initially support bitcoin and ether.

For more information, please refer to the following links:

Fintech Firms Announce Digital Asset Securities Licenses, Settlement Solutions

By Keith R. Murphy

According to a recent press release, financial technology company tZERO Group Inc. (tZERO) announced its approval as a new Special Purpose Broker-Dealer for digital asset securities custody by the U.S. Securities and Exchange Commission and the Financial Industry Regulatory Authority. As stated in the press release, the new license is one of only two licenses that have been approved in the United States for a regulated broker-dealer digital asset security custodian. The release additionally notes that obtaining the license furthers the company's position that many digital assets constitute securities under existing legal frameworks, necessitating that infrastructure such as broker-dealer-led custody exist in and migrate to a regulated securities environment. According to the release, the license will allow tZERO to provide custody, clearance and settlement services to investors without the need for third-party custodial relationships.

In another recent press release, a German multinational technology company announced it has used blockchain technology to issue a digital bond. The company reportedly issued its first digital bond on a blockchain last year, and through this latest issuance, the bond was settled "for the first time in a fully automated manner, within minutes, and in central bank money," as stated in the release. The securities transaction is reported to have settled via the private permissioned blockchain network, SWIAT.

For more information, please refer to the following links:

Crypto Custody Providers Announce Blockchain Network Integrations

By Robert A. Musiala Jr.

According to recent reports, BitGo, a major U.S. cryptocurrency custody provider and issuer of the Ethereum-based wrapped bitcoin token (WBTC), has adopted the LayerZero "OFT Standard" to enable WBTC to "exist natively across many blockchains." BitGo is reportedly deploying WBTC to the Avalanche and BNB Chain networks and has plans to deploy WBTC to additional blockchain networks.

In related news, according to recent reports, crypto custody provider Copper.io has integrated with the Hedera network to provide custody services for the Hedera network's native cryptocurrency, HBAR. According to a press release by The HBAR Foundation, "As part of the integration, clients will be able to stake their HBAR to validators of their choosing, and perform DeFi transactions from Copper's MPC wallet infrastructure, via API and Copper's DeFi platform Copper Connect." The press release further notes that "[p]ending client demand, HBAR will also be available for trading via ClearLoop, Copper's off-exchange settlement solution."

For more information, please refer to the following links:

Report Finds Downward Trends in NFT Activity

By Robert A. Musiala Jr.

A recent report by nft evening presented findings from a "comprehensive analysis of over 5,000 NFT collections and 5 million NFT transactions." Among other things, the report found that 96 percent of NFTs are "dead," which the report defined as having zero trading volume, seven-day sales at fewer than 20, and no activity on a specific social media platform for at least three months. The report further finds that "The average lifespan of an NFT is now 1.14 years, which is 2.5 times shorter than the average lifespan of traditional crypto projects." According to the report, "This short lifespan reflects the intense speculative nature of NFTs, where rapid price fluctuations and the novelty of digital assets fail to sustain long-term value."

For more information, please refer to the following links:

SEC and State Securities Regulators Continue Crypto Enforcement Actions

By Isabelle Sterling

The U.S. Securities and Exchange Commission (SEC) recently announced a settlement with eToro USA LLC, a cryptocurrency exchange, for $1.5 million and an agreement by the exchange to cease and desist violating federal securities laws. According to a press release, the SEC found that the exchange operated as a broker and clearing agency, allowing customers to trade crypto assets being offered and sold as securities without registering under the federal securities laws. Going forward, the SEC said the exchange will only offer bitcoin, bitcoin cash and ether. The exchange will allow customers to sell all other crypto assets for 180 days from issuance of the order and thereafter must liquidate them and return the proceeds to customers.

The SEC also recently announced settled charges against a Florida-based asset manager that was formerly registered as an investment adviser for a private fund that primarily invested in crypto assets, including some being offered and sold as securities, for failure to comply with requirements related to the safeguarding of those client assets. The SEC found the company held crypto assets in online trading accounts in crypto asset trading platforms, including FTX, whose collapse caused a loss of half of the fund's assets under management. The SEC also found the company misled investors about the notice period required for redemptions. The SEC settled charges against the company for a $225,000 penalty to go to harmed investors and a cease and desist from further violations of the Investment Advisers Act.

A recent report on the SEC's crypto enforcement fines analyzes fines imposed on major crypto companies since 2013. According to the report, fines total $7.4 billion over the period, with almost $4.7 billion in 2024 alone, which represents the fines imposed on Terraform Labs and Do Kwon. The report finds that average fines have increased from $3.39 million in 2018 to $426 million in 2024.

In a state-based enforcement action, the Texas State Securities Board announced that it settled claims against a German company and its owner and affiliates related to the alleged offering of investments tied to digital assets and metaverses, including digital assets tied to physical gold, digital assets representing ownership interests in a skyscraper, and a staking pool in a metaverse. The Securities Commissioner said, "The securities markets continue to rapidly evolve, and many legitimate firms are using new technologies to develop cutting-edge products . . . Sellers of allegedly illegal securities . . . are often using the same technologies to deceive and defraud retail clients."

For more information, please refer to the following links:

Exchange Hacked for $22M, FBI Publishes 2023 Crypto Crime Report

By Robert A. Musiala Jr.

According to reports, Indodax, an Indonesian cryptocurrency exchange, was recently hacked for approximately $22 million. The hack reportedly involved an attack on the exchange's hot wallets and primarily targeted the ETH, TRX, BTC and MATIC cryptocurrencies.

In other news, the FBI recently published its Cryptocurrency Fraud Report for 2023. According to an FBI press release, "In 2023, the FBI's Internet Crime Complaint Center received more than 69,000 complaints from the public regarding cyber-enabled crime and financial fraud involving the use of cryptocurrency, with over $5.6 billion in reported losses." The report provides statistics from crypto-related complaints reported to the FBI in 2023, including on the types of crimes with a cryptocurrency nexus and trends related to investment fraud, cryptocurrency kiosks and crypto recovery schemes. The report also includes guidance for cryptocurrency scam victims and tips for how to protect yourself from cryptocurrency scams.

In a separate press release, the U.S. Commodity Futures Trading Commission (CFTC) recently announced "two partnerships to give customers targeted information about cryptocurrency relationship investment scams." The first is a partnership "with the American Bankers Association Foundation along with other federal agencies and a private regulator to distribute an infographic to help consumers recognize and avoid so-called 'pig butchering' fraud." The second is a partnership with the U.S. Securities and Exchange Commission, the Financial Industry Regulatory Authority, and the North American Securities Administrators Association "to develop and distribute an investor alert that gives customers a clear picture of how 'pig butchering' scammers work their way into the minds and wallets of everyday, knowledgeable people."

In a final recent development, Tether, the issuer of the USDT stablecoin, announced a partnership with TRON and TRM Labs "to establish the T3 Financial Crime Unit (T3 FCU), a first-of-its-kind initiative aimed at facilitating public-private collaboration to combat illicit activity associated with the use of USDT on the TRON blockchain." According to the release, "In the weeks since launch, the initiative, in collaboration with law enforcement, facilitated the freezing of over USDT 12 million in funds associated with a blackmail scam, an investment fraud scheme, and others."

For more information, please refer to the following links: