blockchain tipsheet

stablecoin rules – Waters

With the news of PayPal’s stablecoin breaking on Monday, and then the Federal Reserve conveniently introducing new crypto rules for banks a day later, yesterday, House Financial Services (HFS) Ranking Member Maxine Waters (D, CA) kept up the drumbeat of pushback by Democratic leadership on the new stablecoin bill.

“I am deeply concerned that PayPal has chosen to launch its own stablecoin while there is still no Federal framework for regulation, oversight, and enforcement of these assets,” began Waters in her statement released on the Democrats’ House Financial Services website. Later, she doubled down on rejection of the stablecoin bill and what could be construed as a message from the White House: “As I said during last month’s markup, the Republican bill has no chance of actually being signed into law, and I urge Chair McHenry and Committee Republicans to come back to the negotiation table…” Read more.

On Monday, HFS Chair Patrick McHenry had come out in support of PayPal’s new stablecoin efforts.

stablecoin rules – Waters history

It was only last March that Waters was fully supportive of moving a stablecoin bill forward “as quickly as possible” and then suddenly, at the first HFS stablecoin hearing in April, came her about-face with Rep. Stephen Lynch (D, MA), Ranking Member of the Committee’s Subcommittee on Digital Assets, Financial Technology and Inclusion, stridently backing her up. Continue reading “Waters Doubles Down Saying Stablecoin Bill Has ‘No Chance’; SEC Intent On Ripple Appeal”

Fed oversight for crypto

Late yesterday, the Federal Reserve announced a more detailed regime for banks offering, or considering offering, crypto products – or as the Fed terms it – the “novel activities supervision program.” Read the press release.

Among the regime’s elements subject to supervision:

• • “Complex, technology-driven partnerships with non-banks to provide banking services…”
  • “Crypto-asset related activities…”
  • Projects that use [distribute ledger technology] with the potential for significant impact on the financial system…”
  • “Concentrated provision of banking services to crypto-asset-related entities and fintechs…”

Adding to the warning to banks, “The Program will be risk-based, and the level and intensity of supervision will vary based on the level of engagement in novel activities by each supervised banking organization.” The more a bank adds digital asset products, the more it receives supervision by the Federal Reserve.

The announcement is reminiscent of the January 3 warning titled, “Joint Statement on Crypto-Asset Risks to Banking Organizations” by the Fed, Office of the Comptroller of the Currency (OCC) and the Federal Deposit Insurance Corporation (FDIC). See that one (PDF).

The Fed claims in yesterday’s announcement that it’s supporting innovation, but remains – at best – cautious stating, “The goal of the novel activities supervision program is to foster the benefits of financial innovation while recognizing and appropriately addressing risks to ensure the safety and soundness of the banking system.”

As Reuters notes, stablecoins are an important element of the directive, perhaps inspired by Monday’s PayPal stablecoin announcement. “For banks to receive a written non-objection to be able to engage with stabelcoins, banks should demonstrate appropriate risk management, including having systems in place to identify and monitor any potential risks, including cybersecurity and illicit finance threats,” reports Reuters. Read more.

more tips:

Letter SR 23-7: Creation of Novel Activities Supervision Program – FederalReserve.gov

Letter SR 23-8 / CA 23-5: Supervisory Nonobjection Process for State Member Banks Seeking to Engage in Certain Activities Involving Dollar Tokens (stablecoins) – FederalReserve.gov Continue reading “Fed Starts Crypto Activities Supervision Program; SEC Accounting Regime Attracts Criticism”

new PayPal stablecoin

Payment platform PayPal arguably made the most pro-crypto announcement of the year yesterday when it announced the introduction of its new stablecoin, PayPal USD (PYUSD) which runs on the Ethereum blockchain. Read the release.

Like many stablecoins PYUSD is backed 1:1 with the US Dollar and this one is managed by Paxos Trust. PayPal was issued a BitLicense by New York Department of Financial Services in June 2022.

TechCrunch looks at PayPal’s crypto development history including when the company introduced crypto services back in 2020. Read it.

The significance of PayPal – with a $71 billion market cap – taking its next step in digital assets is, perhaps, the leading edge of traditional finance firms embracing digital assets and stablecoins, in particular. Equally important is the US Dollar finding another on-ramp into the Web3 ecosystem. Squeaky blockchain transactions are getting a bit more of the oil they need.

The press release explains that the rollout, which started yesterday for PayPal customers, will allow them to: Continue reading “PayPal Announces Stablecoin; Chair McHenry Sees ‘Signal’”

Coinbase seeks dismissal

Cryptocurrency exchange Coinbase asked a judge to dismiss the SEC’s lawsuit against the company on Friday. The company’s Chief Legal Officer Paul Grewal said in a Tweet thread, “Our core argument is simple – we do not offer ‘investment contracts’ as that term has been construed by decades of Supreme Court and other binding precedent.” Therefore, the suit is baseless, reasons the Company. See the dismissal request (PDF).

Coinbase seeks dismissal – reaction

Jason Gottlieb, a partner and digital assets chair with law firm Morrison Cohen, complimented the company’s brief on Twitter, and argued that the Securities and Exchange Commission (SEC) has overreached. Gottlieb made note of the use of the “Major Questions Doctrine” (MQD) in Coinbase’s motion to dismiss tweeting the company could have gone even further in its argument.  Later, Gottlieb argues, “As everything is becoming digitized, this fight isn’t just about cryptocurrency. It’s a much larger battle for the right to your digital life — and whether the Securities and Exchange Commission is the proper regulator for the entire digital economy.”

Digital assets are at the forefront of regulating and integrating technology into U.S. government and its policies today. Continue reading “Coinbase Seeks Dismissal Of SEC Lawsuit; Digital Chamber Advocates Against AML Bill”

Prometheum investor gets license

Hashkey Group, announced it is among the first crypto exchanges to receive “Type 1 and Type 7 Licences” under Hong Kong’s new crypto regulatory framework. Read the release.

U.S. crypto regulation aficionados may recall that Hashkey Group is a subsidiary of Wanxiang Blockchain which is an investor in U.S.-based Prometheum. Prometheum was granted “a first-of-its-kind Special Purpose Broker-Dealer (SPBD) for digital asset securities” earlier this year by the Securities and Exchange Commission (SEC).  Then, in mid-June, Prometheum CEO Aaron Kaplan appeared as a witness at a House Financial Services hearing on digital assets, which raised questions about Prometheum’s SPBD.

On July 10, Republicans led by Senator Tommy Tuberville (R, AL) asked U.S. Attorney General Merrick Garland and Securities and Exchange Commission (SEC) Chair Gary Gensler for an investigation into Prometheum and Wanxiang Blockchain’s relationship expressing concerns about Wanxiang Blockchain’s ties to the Chinese Communist Party.

Yesterday, Hashkey Group emphasized in a press release its consumer protections in light of the new Hong Kong license: “User funds are kept under segregated accounts, separated from platform operations, with 98% in cold storage and 2% in hot wallets. In addition, the platform strictly adheres to regulatory requirements and undergoes regular audits and compliance inspections conducted by the Big 4 auditing firms, establishing itself as one of the most secure exchanges globally.”

Bloomberg reports that Hashkey was looking to raise $100-200 million in May in an effort to support growth of the company. The company’s Chairman and CEO, Dr. Xiao Feng, is also Vice Chairman and Executive Director of China Wanxiang Holding, and Chairman and CEO of Wanxiang Blockchain. Continue reading “Prometheum Investor Gets Hong Kong Crypto Exchange License; CFTC Friction Reported”

Do Kwon ruling

Another court ruling, more rough waters for digital assets. The Wall Street Journal reported Monday that algorithmic stablecoin creator Do Kwon of Terraform Labs did not convince Judge Jed Rakoff of dismissing the Securities and Exchange Commission’s (SEC) enforcement action against him using the recent Ripple/XRP outcome penned by Judge Analisa Torres.

Read the ruling (PDF) on CourtListener.

Judge Rakoff said he disagreed with Torres’ decision and wrote that securities laws do not make the distinctions between institutional and retail investors that Torres identified in her decision two weeks ago. Rakoff said that “secondary-market buyers have the same expectations for an investment as initial purchasers,” according to The WSJ. Read more.

Do Kwon ruling – reaction

Brown Rudnick crypto lawyer Stephen Palley commented on Twitter about Rakoff’s decision saying, “A big [difference] between Rakoff & Torres decisions is that the former was on a motion to dismiss & the latter on summary judgment. Motions to dismiss focus on if plaintiff has stated a cognizable claim in the pleadings. Summary judgment looks outside the pleading, at evidence.” Read Palley’s thread. Continue reading “Reaction To Do Kwon Crypto Securities Ruling; Blockchain For Museums”

state of stablecoins

It’s starting to become clear that the front lines of the stablecoin legislation battle in House Financial Services (HFS) is being fought in the state of New York.

That’s no surprise given Ranking Member Maxine Water’s (D, CA) position (and the White House’s position) on the Federal agencies having the last word on stablecoin registrations. The robust state stablecoin regime currently available through the New York Department of Financial Services (NYDFS) and led by Superintendent Adrienne Harris says a state framework can work – potentially without the Federal “last word.”

Remember that awkward moment in April when Superintendent Harris told Ranking Member Waters about New York’s stablecoin framework at an HFS stablecoin hearing to Waters’ surprise?

Rep. Ritchie Torres (D, NY) and Rep. Gregory Meeks (D, NY) votes in support of the stablecoin bill coming out of the HFS Committee markup last week reinforce the bipartisan interest in preserving state’s rights when it comes to stablecoins.

Punchbowl News’ Brendan Pedersen reported yesterday on NYDFS’s involvement in the stablecoin bill and speaks to Rep. Torres, who said, “New York members, such as myself, take our guidance from Adrienne. If she were dissatisfied with the state option in the bill, then I would have trouble supporting it.”

And then there’s the separate intrastate battle which NYDFS and Superintendent Harris are waging with New York State Attorney General Letitia James.  There was a lof of fanfare when James issued her own legislation (CRPTO) to address the crypto industry – seemingly circumventing NYDFS and Harris. But, with expectations of a June ratification of sorts in New York State’s assembly having quietly fallen by the wayside, nothing has come of James’ legislation thus far. Continue reading “New York State Inserts Itself In Stablecoin Bill Debate; IRS Issues Guidance On Staking Rewards”