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Coinbase CEO Speaks Favorably About Libra

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Coinbase CEO Speaks Favorably About Libra
Coinbase CEO Speaks Favorably About Libra

Following a rousing presentation from David Marcus – the head of Facebook’s Libra – Coinbase CEO Brian Armstrong has come out in support of the developing cryptocurrency.  Libra is often depicted as a pretty divisive and maligned project. It’s not shocking to think that a cryptocurrency with plans of financial domination – emanating from a company with a checkered past of privacy problems – has regulators and citizens up in arms. 

Nonetheless, Libra now has at least one supporter, Coinbase’s CEO Brian Armstrong.  On Wednesday, Armstrong tweeted out a message of support for Libra, calling it “one of several important crypto projects;” adding that he doesn’t understand why it gets such a bad wrap.

Despite the apparent positive news for crypto pundits, there are still many obstacles ahead. Bitcoin and Ethereum are not legal tenders in most countries.  Furthermore, the state will have to convince their counterparts to accept crypto as a means of payment. And then also to possibly foot the hefty exchange bill when converting to their local currency. Unless of course they too accept cryptocurrency outright.  The Venezuelan Bolivar is reeling from the effects of hyperinflation and locals have limited access to the more stable U.S. dollar.

Blockchain News

Hong Kong and Thailand Are Testing A DLT-Based Project For Cross-Border Payments

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Hong Kong and Thailand Are Testing A DLT-Based Project For Cross-Border Payments
Hong Kong and Thailand Are Testing A DLT-Based Project For Cross-Border Payments

Hong Kong and Thailand’s central banks have stepped closer to implementing a joint central bank digital currency (CBDC) for cross-border payments. On Jan. 22, the Hong Kong Monetary Authority (HKMA) and the Bank of Thailand (BOT) officially announced the outcomes of a joint CBDC research project called Project Inthanon-LionRock.

Alongside publishing a joint press release, the banks have issued a detailed 90-page report providing an exhaustive analysis of the potential risks and benefits of CBDCs for real-time money transfers, liquidity management, regulatory compliance, and other aspects of finance.

After the HKMA and the BOT initiated the Inthanon-LionRock project back in May 2019, the banks completed the joint initiative in December 2019, the official announcement reads. The project involved ten participating banks from both Hong Kong and Thailand and featured a Proof-of-Concept (PoC) prototype based on distributed ledger technology. Particularly, Thai participants included banks like Bangkok Bank and Siam Commercial Bank (SCB), while Hong Kong participants included the Hongkong and Shanghai Banking Corporation and ZA Bank. Additionally, the project is supported by major enterprise blockchain consortium R3, which acts as a technology partner, the joint report notes.

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Within the project, the banks created a cross-border corridor between Thai baht and Hong Kong dollars in order to allow participating banks to transfer funds and operate foreign exchange transactions on a peer-to-peer basis, which is expected to cut settlement costs and time. The project is based on R3’s blockchain platform Corda and implements smart contracts in order to perform atomic Payment-versus-Payment (PvP) settlements for foreign exchange. A PvP settlement is a mechanism that ensures that the final transfer of a payment in one currency occurs if and only if the final transfer of a payment in another currency or currencies takes place.

Following a successful PoC, the banks concluded that the CBDC has the potential to significantly reduce intermediaries and settlement layers in comparison to the traditional banking payments system as well as prevent risks such as double spending. The joint report reads:

“For example, payers can directly and immediately settle payments with their payees via CBDC in a DLT network as opposed to going through via RTGS intermediaries, including banks, involving multiple debit and credit account entries. The infrastructure for these direct payments further prevents double-spending with temporal transaction orders in place.”

Mathee Supapongse, Deputy Governor of the BOT, was optimistic about central banks implementing emerging technologies like blockchain, claiming that the recent joint CBDC efforts by Hong Kong and Thailand’s central banks is “only the beginning”:

“Though our Project Inthanon has come to the last phase, I believe that it is only the beginning of our next journey where central banks and relevant partners collaborate to tackle existing and incoming challenges, as well as enhance our cross-border funds transfer efficiency…just like the old saying “Going together, we go further”

According to the joint statement, the BOT and the HKMA have agreed to further proceed with joint research in relevant areas. The BOT and the HKMA are not the only banks that are working on cross-border payments projects based on blockchain technology. Earlier in January, SCB, Thailand’s oldest bank, partnered with Ripple to create a blockchain-based mobile app to provide instant and low-cost cross-border payments.

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Regulation News

SEC Slaps $600,000 Penalty On ICO Project Opporty ForFraudulent Security Offering

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SEC Slaps $600,000 Penalty On ICO Project Opporty ForFraudulent Security Offering
SEC Slaps $600,000 Penalty On ICO Project Opporty ForFraudulent Security Offering

The Securities and Exchange Commission (SEC) has charged Sergii Grybniak, the founder of the initial coin offering (ICO) project Opporty, according to a Jan. 21 press release. Despite raising approximately $600,000, the commission targeted Grybniak for falsely declaring the project as “100% SEC compliant.”

 Opporty launched its ICO between September and October 2018. The project purported to provide a “blockchain-based ecosystem for small businesses and their customers,” primarily in the United States. The platform was meant to be a place where small businesses could list their services and enter into an agreement via smart contracts. The ICO for the OPP token raised $600,000 from approximately 200 investors, some of whom were located in the U.S. While the SEC’s primary charge is for conducting an unregistered sale of securities, it also claims that the project made many misleading and false statements to encourage investment. Among them, Opporty claimed to have onboarded thousands of “verified providers” to do business on the platform, the majority of which “had expressed no such willingness,” the SEC complaint reads. 

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A claim of having more than 17 million businesses in its database was revealed to be a simple purchase of a third-party catalog. Finally, the SEC alleges that the project lied about a partnership with a “major software company.” The accused founder is a resident of Brooklyn, against whom the SEC seeks injunctions against future digital offerings, the return of all ICO money and civil penalties.

The case against Opporty is an outlier given the caliber of projects previously targeted by the SEC. Notable cases include the litigation for Telegram’s $1.7 billion ICO, Kik’s offering for $97 million, and recently, Boaz Manor’s $30 million token sale. By contrast, other projects received far more lenient treatment. The SEC settled with EOS parent company Block.one for $24 million, out of a $4 billion ICO. Debates around XRP’s security status did not yet result in an investigation by the regulator. 

Other projects, such as TurnKey Jet, received no-action letters by the SEC. While the SEC pledged to offer more lenient and flexible treatment to crypto projects in 2020, it appears that some projects will remain under scrutiny. One possible distinction for Opporty is that, in addition to offering unregistered securities, the project allegedly lied about its achievements. In addition, unlike many similar ICOs, the offering did not explicitly exclude U.S. investors from participating.

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Regulation News

Digital Chamber of Commerce Speaks About Telegram Legal Battle With SEC

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Digital Chamber of Commerce Speaks About Telegram Legal Battle With SEC
Digital Chamber of Commerce Speaks About Telegram Legal Battle With SEC

The Chamber of Digital Commerce has filed an amicus brief in the ongoing court case between encrypted messenger service Telegram and the United States Securities Exchange Commission (SEC). Filed on Jan. 21, the document was authored by Lilya Tessler, a partner and the New York head of Sidley Austin LLP, counsel to the Chamber. 

In the amicus brief — a legal document that allows a non-litigant to submit its expertise or opinion in a case — the Chamber makes a number of arguments regarding how the U.S. District Court for the Southern District of New York should consider digital assets. The Chamber is a non-profit trade association established in 2014 which aims to promote the adoption of digital assets and blockchain-based technology. As part of its mission, the Chamber established major blockchain and crypto-related advocacy groups including the Blockchain Alliance and the Token Alliance.

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Given its supportive stance on blockchain technology, the Chamber emphasized that it is not trying to prove whether Telegram’s $1.7 billion Gram token sale was a securities transaction. Instead, the trade association aims to ensure that there is enough clarity around regulations applying to digital assets:

“Although the Chamber does not have a view on whether the offer and sale of Grams is a securities transaction, the Chamber has an interest in ensuring that the legal framework applied to digital assets underlying an investment contract is clear and consistent.”

As such, the Chamber has urged the Court to distinguish the term of digital asset, which is the subject of an investment contract, from the securities transaction associated with it. The association stated that this requires two separate analyses including whether there is an investment contract that is offered in a securities transaction and whether the subject of the investment contract is a commodity that can be sold in a traditional commercial transaction. The question of whether a token sale constitutes an investment contract — and therefore a securities offering — has been at the heart of the SEC’s case against Telegram. Earlier this month, Telegram stated that Gram does not constitute an investment product and that investors should not expect profits for buying and holding the token.

In the document, the Chamber also states that not all digital assets should be regulated as securities simply because they are based on blockchain technology:

“We further respectfully request that the Court affirm that a digital asset is not a security solely by virtue of being in digital form or recorded in a blockchain database.”

Additionally, it noted that, while digital asset investors should be afforded full protections of securities laws, disclosures required by the securities laws “serve little purpose with respect to commercial transactions in the digital assets themselves.” Moreover, the brief also stresses that not all digital asset-related transactions require the protection of securities laws, noting that there are a number of related regulators other than the SEC. The Chamber further requested the Court to consider multiple regulatory regimes while making its decision in SEC vs Telegram case:

“Depending on the relevant activity, other regulatory regimes exist to protect purchasers or counterparties. For example, fraud and market manipulation in certain digital asset transactions (depending on the facts and circumstances) is subject to CFTC enforcement authority. Other activities involving digital assets may also be subject to the Bank Secrecy Act, federal and state consumer protection laws, state money transmitter licensing laws, and state laws specific to virtual currency transactions, such as New York’s Virtual Currency Business Activity law.”

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