Compiled by the Oliver Wyman Forum
Digital payments provider PayPal launched a new dollar-backed stablecoin, a sign of growing interest in vehicles connecting cryptocurrencies with traditional finance, while exchange operator Coinbase won approval to offer crypto futures trading. Regulators were equally active with the US Federal Reserve tightening supervision of banks’ cryptoasset activities and Singapore adopting new rules for stablecoin issuers. These are among the latest developments in the future of money.
Business Developments
PayPal Launches US Dollar Stablecoin
Digital payments provider PayPal on Aug. 7 announced it was launching a dollar-backed stablecoin, PayPal USD, to enable consumers and merchants to connect fiat currencies with cryptocurrencies and facilitate commerce in web3 ecosystems.
The new stablecoin will be issued by Paxos Trust Co., a blockchain infrastructure company regulated by the New York State Department of Financial Services. It will be backed 100% by US dollar deposits, short-term US Treasury securities, and similar cash equivalents. Paxos will publish a monthly report on the composition and value of the reserve assets.
In February, Paxos was ordered by the New York State regulator to cease issuing Binance USD, a dollar-backed stablecoin for the crypto exchange Binance, because of unresolved issues related to oversight of the company’s relationship with Binance. That move came just days after Paxos said the US Securities and Exchange Commission (SEC) informed the company that it should have registered Binance USD as a security and was considering taking action against Paxos.
Democratic Congresswoman Maxine Waters said she was “deeply concerned” about PayPal’s move and that Federal oversight of its stablecoin was essential because of the firm’s size and reach. PayPal handled $376 billion in payments in the three months ended June 30. The Financial Services Committee of the House of Representatives in July endorsed draft legislation to create a regulatory framework for stablecoins, but it’s not clear if the bill can win Congressional approval.
Coinbase Wins US Approval For Crypto Futures
Coinbase Financial Markets on Aug. 16 announced that it had obtained approval from a US regulator to offer cryptocurrency futures on the exchange’s platform.
The approval from the National Futures Association, a self-regulatory body authorized by the US Commodity Futures Trading Commission, came nearly two years after Coinbase applied for permission. The company has had issues with regulators since then, most notably in June when the US Securities and Exchange Commission sued Coinbase for alleged violations of securities laws, including offering crypto exchange, broking, and clearing services without having registered with the SEC.
“We believe this is a watershed moment to be able to bring regulated crypto products to US customers,” Greg Tusar, vice president of institutional product at Coinbase, said in a statement.
Separately, Coinbase made market share gains with its new Layer 2 blockchain network, Base. Like other Layer 2s, Base enables developers of decentralized apps, or Dapps, to avoid congestion on the Ethereum blockchain by conducting transactions on a separate network and then periodically transferring them in batches to Ethereum. Since Base went public on Aug. 9, it has become the fifth-largest Layer 2 network with more than $200 million in total value locked, Forbes reported.
UK Fund Manager Lists Europe’s First Bitcoin ETF
London-based Jacobi Asset Management on Aug. 15 announced the listing of Europe’s first spot Bitcoin exchange-traded fund, or ETF.
The Jacobi FT Wilshire Bitcoin ETF is regulated by the Guernsey Financial Services Commission and listed on the Euronext Amsterdam exchange. Wilshire Indexes provides the fund’s benchmark for Bitcoin prices.
Policy Front
US Fed Tightens Supervision Of Banks’ Crypto, Stablecoin Activities
The Federal Reserve Board on Aug. 8 announced the establishment of a Novel Activities Supervision Program to strengthen oversight of banks’ activities related to cryptocurrencies, stablecoins, and digital-ledger technology.
The new program also will focus on banks’ complex, technology-driven partnerships with non-banks and the concentrated provision of banking services to cryptoasset-related entities and fintechs.
The move is part of a broader enhancement of regulatory oversight of digital asset activity following a number of major collapses during the last 16 months, including the Terra-Luna stablecoin system, the FTX crypto exchange, and Silicon Valley Bank, and the liquidation of Silvergate Bank.
Singapore Sets Reserve Requirements For Stablecoins
The Monetary Authority of Singapore on Aug. 15 announced a new framework for regulating stablecoins, mandating that issuers meet reserve and capital requirements and meet any redemption requests within five days.
Under the new rules, issuers of stablecoins pegged to the Singapore dollar or any G10 currencies must maintain a portfolio of liquid, low-risk assets worth at least 100% of the amount of stablecoins outstanding, keep reserves in a segregated account, and have reserves independently verified on a monthly basis. Issuers also must hold capital of 50% of operating expenses and will be prohibited from engaging in risk-taking activities such as extending loans or making investments.
Russia And Brazil More Forward On CBDCs
The Bank of Russia planned to launch a pilot test of a digital ruble on Aug. 15, the central bank announced on Aug. 9.
The pilot involves 13 banks and a limited number of clients, who will be able to use the central bank digital currency (CBDC) at 30 points of sale in 11 cities. If the pilot is successful, the authorities intend to make the digital ruble available for broad use by businesses and consumers in 2025.
Meanwhile in Brazil, the Banco Central do Brasil on Aug. 8 announced that its CBDC would be named Drex and that a pilot test would run through the end of 2024.
Hong Kong Warns Of Improper Practices By Digital Asset Platforms
Hong Kong’s Securities and Futures Commission (SFC) on Aug. 7 warned that some unlicensed virtual asset trading platforms were falsely claiming to have submitted applications for an SFC license and that investors should be wary of the risks of trading on unregulated platforms.
The SFC adopted a new licensing regime for virtual asset platforms on June 1 and gave platforms 12 months to come into compliance, as part of an effort by the authorities to promote the territory as a regional crypto hub. But some firms are claiming to have submitted license applications when they haven’t done so, which the regulator noted is an offense. It also said that some unlicensed firms were offering new services and products that may not comply with the rules of the new licensing regime.
Legal Briefs
SEC Seeks To Appeal Ripple Labs Court Ruling
The US Securities and Exchange Commission (SEC) is seeking to appeal a recent court ruling about Ripple Labs’ XRP token that threatens to undermine the agency’s approach to regulating cryptoasset activity.
On Aug. 9, the SEC asked District Judge Analisa Torres to let a federal appeals court review her July 13 ruling, which said the sale of XRP on a public exchange did not constitute a securities offering and therefore complied with securities laws. That ruling was criticized on July 31 by another District Court judge, who in a separate case said there should be no distinction between tokens bought by retail investors on an exchange and tokens sold to institutional investors in a formal offering.
The SEC has based many of its recent enforcement actions, including those against Ripple and the exchanges Binance and Coinbase, on the argument that they were selling unregistered securities. In making its request to Judge Torres, the SEC said an appeal could address legal issues on where there was “substantial differences of opinion” and that the outcome would have “particular consequence” for its ability to enforce securities laws.
Judge Orders Former FTX Chief Bankman-Fried To Jail
A US federal judge on Aug. 11 revoked bail for former FTX chief executive Sam Bankman-Fried and ordered him to be jailed, citing probable cause that he had attempted to tamper with a witness in his fraud case.
Judge Lewis Kaplan sided with prosecutors’ claims that Bankman-Fried had leaked personal writings by Caroline Ellison, a former girlfriend who has pleaded guilty to charges connected with the collapse of FTX and is expected to testify against Bankman-Fried at his trial. Such leaks would only be done “to hurt, discredit, and frighten the subject of the material.”
Bankman-Fried, who had been living with his parents in California since being released on a $250 million bond in December, was sent to a federal detention facility in the New York City borough of Brooklyn.