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dark DeFi report
A new publication released Friday from the U.S. Treasury takes a dark look at Decentralized Finance or DeFi. Touting itself as “the first illicit finance risk assessment conducted on decentralized finance (DeFi) in the world,” Treasury’s press release on the report tries to tackle a definition of DeFi saying, “…the term broadly refers to virtual asset protocols and services that purport to allow some form of automated peer-to-peer transactions, often through use of self-executing code known as ‘smart contracts’ based on blockchain technology. This term is frequently used loosely by the private sector, often for services that are not functionally decentralized.” Read the release.
Get the report: Illicit Finance Risk Assessment of Decentralized Finance (PDF) – U.S. Treasury
The 42-page report lists 6 recommendations to address the threat it sees with decentralized finance:
- Strengthen U.S. AML/CFT (Anti-Money Laundering/Countering the Financing of Terrorism) Supervision of Virtual Asset Activities
- Assess Possible Enhancements to the U.S. AML/CFT Regulatory Regime as Applied to DeFi Services
- Continue Research, Private Sector Engagement to Support Understanding of Developments in DeFi Ecosystem
- Continue to Engage with Foreign Partners
- Advocate for Cyber Resilience in Virtual Asset Firms, Testing of Code, and Robust Threat Information Sharing
- Promote Responsible Innovation of Mitigation Measures
“THIS IS WHY Biden Admin’s anti-crypto strategy to push crypto into the shadows makes no sense: They want compliance w/ AML/CFT laws, but crypto is just code–so compliance can only be assured at the very connection points that they’re actively choking.” – Caitlin Long, CEO, Custodia on Twitter
TradFi, CeFi, DeFi: A Balance Sheet Journey Through Financial Alchemy – Gordon Liao, Chief Economist, Circle
no Choke Point 2.0
New York Department of Financial Services Superintendent Adrienne Harris was unequivocal – again – regarding the non-existence of any “Choke Point” initiative by government at last Wednesday’s Chainalysis Links NYC conference. “The idea that the taking possession of Signature was about crypto and this is ‘Choke Point 2.0’ is really ludicrous,” she said according to the Wall Street Journal. Read it.
Superintendent Harris delivered a similar message in mid-March which disputed former Massachusetts Democratic Senator and Signature Bank board member Barney Frank’s assertion that the Bank’s closure represented an “anti-crypto message.” Read that one.
“[PSA]: there are a number of lawsuits underway regarding [Operation Choke Point 2.0], the most important thing is finding plaintiffs with standing. if you are a firm that has suffered due to being unbanked and you suspect it’s related, please reach out via DM.” – Nic Carter, general partner at Castle Island Ventures on Twitter
India is moving quickly on scaling its Central Bank Digital Currency (CBDC). CoinDesk reports, “The Reserve Bank of India (RBI) is running both retail and wholesale CBDC pilots. The retail CBDC pilot is active in at least 15 cities with more than 13 banks participating. India’s retail CBDC pilot began on Dec. 1, 2022, and has seen more than 100,000 customers participate in the four months since.” And now, RBI sees 1 million users participating in the CBDC pilot by July. Read more.
stablecoins and CBDCs
A recent presentation by USDC issuer Circle regarding stablecoin reserve strategy caught the attention of American Banker’s John Adams who reports, “At the Warwick conference, Circle advocated for holding dollar reserves directly with the Federal Reserve to back the stablecoin. That would be a short-term solution, with a long-term model involving a CBDC as part of the stablecoin’s backing.” Read more (subscription).
on banning crypto
American University law professor Hilary Allen, who has appeared in front of Senator Sherrod Brown’s (D, OH) Senate Banking Committee at least twice (most recently December 2022’s FTX implosion hearing), reiterated her case in Foreign Affairs that it’s time either to ban cryptocurrency or heavily restrict it through regulation. “If allowed to proceed unchecked, the unrestricted growth of the cryptocurrency industry and its future integration with the traditional financial system could produce a major crisis. Blockchain-based finance is complex, automated, and highly interconnected, and it offers vast opportunities for creating leverage, because there is a virtually unlimited supply of assets to borrow against,” she writes. Read it.
Ms. Allen’s prepared testimony at December 2022’s Senate Banking hearing (PDF) – banking.senate.gov
Flashback: A 2014 article from Foreign Affairs titled “Explosion or Implosion for the World’s Favorite Cryptocurrency?” – Foreign Affairs
still more tips
“Plaintiffs [file] a motion for summary judgment, asking the court to reopen Tornado Cash for all” – Paul Grewal, Chief Legal Officer, Coinbase on Twitter
Binance Australian Financial Services License Canceled – Blockworks
Checks and balances: Machine learning and zero-knowledge proofs – a16zcrypto
Decentraland Metaverse Fashion Week attendance plummets – The Block
Scaramucci’s SkyBridge Capital Was Spiraling, and Then Came FTX – Bloomberg
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