Compiled by the Oliver Wyman Forum
A foundation backed by OpenAI CEO Sam Altman launches a crypto token and digital identity solution it contends will provide proof of personhood and secure global payments against attacks by artificial intelligence (AI). Authorities in France, Russia, and Japan press ahead with efforts to develop central bank digital currencies while a US court questioned a recent ruling that favored a cryptocurrency issuer. These are among the notable recent developments in future of money.
Business Developments
Altman’s Worldcoin Launches Identity Solution And Token
The Worldcoin Foundation on July 24 launched a digital identity solution and crypto token that its founders contend can provide the basis for a secure global payments and governance platform resistant to attack by artificial intelligence (AI).
Worldcoin, co-founded by OpenAI Chief Executive Sam Altman, uses a biometric device called the Orb to scan a person’s iris and generate a World ID proving that they are a unique human. It said it had verified more than 2 million individuals since May 2021 and given each of them 25 Worldcoin tokens. Worldcoin is a Cayman Islands-based limited guarantee foundation company, a vehicle used by some crypto projects, that aims to make profits from its products. It has raised about $250 million and is making its technology and tokens available initially in 35 cities across 20 countries, but not in the United States because of regulatory uncertainty around cryptocurrencies.
France’s data protection regulator said it was investigating Worldcoin for “questionable” practices around data collection and preservation while the UK’s Information Commissioner’s Office said it would examine the venture to see if it has “a clear lawful basis to process personal data.” In a blog, Ethereum co-founder Vitalik Buterin warned of several risks in the project, including potential violations of privacy, security breaches via hacks or 3-D printing to create fake IDs, and centralization through the Orb hardware.
WLD, the Worldcoin token, rose just above $3.15 immediately after the launch and then eased to trade around $2.40 on Aug. 2, according to Coinmarketcap.
Nasdaq Pauses Crypto Custody Over Regulatory Uncertainty
The Nasdaq stock exchange is pausing its plans to launch a cryptocurrency custody business because of “the shifting business and regulatory environment in the US,” Chief Executive Adena Friedman said on the company’s earnings call on July 19.
The exchange remains committed to supporting the digital assets ecosystem by providing technology solutions, engaging with regulators, and partnering with potential issuers of crypto-related exchange traded funds (ETFs), Friedman said.
Nasdaq’s pause came on the same day that Societe Generale received French approval to offer crypto services including custody.
Policy Front
Banque de France Sees Stability Benefits In Wholesale CBDC
A wholesale central bank digital currency (CBDC) could improve cross-border payments and ensure market stability for a wide range of financial assets, the Banque de France said in a July 21 report summarizing the lessons from 12 experiments conducted during the past three years.
Issuing a wholesale CBDC as a complement to a retail CBDC would contribute to the singleness of money and facilitate convertibility between different forms of private money, the French central bank said. Authorities should prioritize interoperability between digital ledger technology-based systems and conventional money infrastructures, and seek convergence on frameworks through international cooperation and public-private partnerships, it added.
Former Central Banker Calls For CBDC To Pay Interest
Governments and central banks should pay interest on central bank digital currency (CBDC) balances to “level the monetary playing field to the benefit of all citizens,” Andy Haldane, former chief economist of the Bank of England, argued in a July 31 opinion piece in the Financial Times.
While it is impractical to pay interest on physical cash, the resulting seigniorage imposes an effective “stealth tax” of more than $400 billion a year on people around the world, said Haldane, currently CEO of the RSA, a UK think tank for social change said. “Interest could easily and simply be paid on the CBDC held by citizens, just at is has been for many decades on the CBDC held by banks,” he wrote. “Cash is our money, not theirs.”
Putin Signs Law For Introduction Of Digital Ruble In Russia
President Vladimir Putin on July 24 signed a law paving the way for Russia to introduce a digital ruble, starting with a pilot project in August, Cointelegraph reported.
The Russian central bank will be principal operator of the digital ruble infrastructure. The new central bank digital currency (CBDC) is designed for use in payments and money transfers and not investment purposes. Bank of Russia Governor Elvira Nabiullina said no one would be forced to use the digital ruble but the authorities hoped it would be more convenient and cheaper for consumers and businesses.
CFA Survey Finds Uneven Support For CBDCs Globally
Support for central bank digital currencies (CBDCs) is limited in many parts of the world, but a lack of understanding provides central banks an opportunity to build public interest through education and outreach efforts, the CFA Institute said in a July 25 report.
The report, based on a survey of 4,157 CFA Institute members around the world, found that 42% of respondents thought central banks should issue CBDCs while 34% disagreed and 24% expressed no opinion. Support was higher in emerging markets (61%), led by China and India, than in developed markets (37%). Emerging markets respondents were also more likely to say a CBDC would enhance inclusion and financial stability.
A majority of respondents in all countries except Japan said public trust in government money had suffered because of excessive use of quantitative easing by central banks, while a majority also said private money would always be inferior in quality and security to government money.
Bank Of Japan Forms CBDC Forum With Private Sector
The Bank of Japan has launched a forum with dozens of private-sector companies to tap their skills and insights in its pilot program on a potential central bank digital currency (CBDC), the central bank announced on July 20.
The forum held its first meeting on July 20 with 60 companies form the financial services, technology, and retailing sectors. They agreed to form two working groups on overlay services for a CBDC and connections between the CBDC system and external systems. The central bank launched its CBDC pilot in April.
Bank Of Italy Green-lights DeFi Tokenization Project
The Bank of Italy’s innovation hub will support an experiment in asset tokenization using decentralized finance (DeFi) rails involving Italian financial institutions, Ethereum scaling firm Polygon Labs, and blockchain developer Fireblocks, Coindesk reported on July 26.
Legal Briefs
US Prosecutors Seek Pre-trial Detention For Bankman-Fried
A federal judge in New York issued a gag order restricting the ability of former FTX Chief Executive Sam Bankman-Fried to speak publicly about his case after prosecutors requested his detention over allegations of witness tampering.
Prosecutors accused Bankman-Fried of communicating with the media and leaking personal writings of Caroline Ellison, his former girlfriend and head of FTX hedge fund affiliate Alameda Research, to the New York Times. Ellison is expected to testify against Bankman-Fried at his trial on charges of defrauding investors in the failed FTX, which is scheduled to start in October.
US District Court Judge Lewis Kaplan issued a temporary gag order while giving prosecutors and Bankman-Fried’s attorneys time to prepare formal presentations before ruling on the detention request.
Judge Rejects Ripple Judgment In Terraform Ruling
Terraform Labs and its founder, Do Kwan, must face US fraud allegations over the 2022 collapse of the Terra-Luna stablecoin system, US District Court Judge Jed Rakoff ruled on July 31.
Lawyers for the defendants had moved to dismiss the charges, contending that investors bought Terra for practical purposes and not as an investment contract. They cited a US court ruling earlier in July that said some of Ripple Lab’s sales of its XRP token didn’t constitute a securities offering and that the token itself wasn’t a security.
But Judge Rakoff ruled that the SEC had sufficiently argued that the TerraUSD and Luna token offerings may have violated US securities law. He also rejected the premise of the Ripple judgment, which made a distinction between tokens sold by the developer to institutional investors and tokens sold to investors on the secondary market.