Compiled by the Oliver Wyman Forum
Efforts to improve regulation of cryptoassets and markets progressed at global and local levels, with the International Monetary Fund and Financial Stability Board presenting a timetable for implementing stronger oversight to G20 leaders while New York State’s financial regulator tightened standards for listing and custody of crypto tokens. These are among the notable recent developments in the future of money.
Policy Front
IMF And FSB Publish Roadmap For Global Cryptoasset Regulation
The International Monetary Fund (IMF) and the Financial Stability Board (FSB) on Sept. 7 published a roadmap for implementing a global framework for regulating and supervising cryptoasset activities to address risks to macroeconomic and financial stability.
The roadmap, prepared for the G20 summit meeting in New Delhi, India, on Sept. 9 and 10, combines proposals made by the FSB in July for global regulation of crypto on the principle of “same activity, same risk, same regulation,” with a February IMF paper on the macroeconomic implications of crypto.
Among other things, the roadmap sets a 2025 target for reviewing implementation of new regulatory and supervisory standards for cryptoassets and global stablecoins. It also calls for the FSB to complete work on the financial stability implications of asset tokenization in 2024, and for the Bank for International Settlements’ Committee on Payments and Market Infrastructures to study the benefits and risks of the tokenization of money and payments.
New York Plans Tighter Standards For Crypto Coin Listings
New York State plans to raise standards for coin offerings by regulated cryptocurrency firms and require firms to spell out their policies for delisting coins, the state’s Department of Financial Services announced on Sept. 18.
As part of the changes, the department also removed more than two dozen tokens – including Ripple, Dogecoin, and Litecoin – from its so-called greenlist of coins regulated entities can list or custody without prior approval. The new greenlist includes Bitcoin, Ether, and six stablecoins: Gemini dollar, GMO JPY, GMO USD, Pax Gold, Pax dollar, and PayPal dollar.
Under a proposed new regulatory framework, crypto firms would need to draft policies on their governance for coin listings, their risk assessment of coins, and their procedures for monitoring them. The framework also would require firms to spell out the type of events that would prompt a delisting. The proposed framework is open for public comment for one month.
CBDC Not Required For Tokenizing Wholesale Payments, Report Says
A wholesale central bank digital currency (CBDC) is not a prerequisite for developing a tokenized wholesale payments system, according to a US Federal Reserve research paper published on Sept. 8.
Many central banks are considering creating a wholesale CBDC to modernize their payments systems, but the attributes of the tokenization process “are related to the platform, or transfer mechanism, of a payment, not to the settlement asset itself,” state the authors of the paper, “Examining CBDC and Wholesale Payments.” It should be technically feasible to use existing central bank money, in the form of bank bank reserves, on a tokenized platform, the authors contend.
Some central banks may want to allow private firms to build new functionality, such as programmability, on central bank money, and might consider a wholesale CBDC as a way to prevent risks from spilling over into the existing payments system, the authors say. But even in those circumstances, they argue, the real question is not whether a new digital currency is needed, but how much risk appetite the central bank has for allowing such private-sector innovation.
Legal Briefs
SEC Charges Celebrity-backed NFT Issuer With Securities Violation
The US Securities and Exchange Commission (SEC) on Sept. 13 fined Stoner Cats 2 LLC, the creator of the celebrity-backed animated series Stoner Cats, to settle charges that it conducted an unregistered securities offering through the 2021 sale of non-fungible tokens (NFTs). It was the agency’s second enforcement action against an NFT issuer, following a $6 million settlement with media company Impact Theory in August.
Stoner Cats, an animated web series produced by actor Mila Kunis’ Orchard Farm Productions, is about house cats that become sentient after exposure to their owner’s medical marijuana. The venture sold 10,420 NFTs based on characters in the series for about $800 each in July 2021, and used the proceeds to finance six episodes of the show accessible only to holders of the NFTs. The episodes featured voices of Kunis, her husband Ashton Kutcher, comedian Chris Rock, and Ethereum co-founder Vitalik Buterin, among others.
The SEC alleged the NFTs were a securities offering because they carried specific benefits and the creator led investors to believe the web series would increase the secondary market value of the NFTs. Stoner Cats 2 paid a civil penalty of $1 million and agreed to destroy all NFTs in its possession to settle the charges. The SEC’s two Republican commissioners, Hester Peirce and Mark Uyeda, dissented from the action, comparing Stoner Cats NFTs to Star Wars collectibles and urging the SEC to provide clear guidelines for artists and creators seeking to use NFTs to build fan communities.
Business Developments
Ripple Acquires Web3 Infrastructure Firm
Ripple, the enterprise blockchain and crypto company, announced on Sept. 8 an agreement to acquire Fortress Trust, a provider of licensed Web3 regulatory and technology infrastructure.
The company said the purchase, terms of which weren’t disclosed, would give it a trust license in Nevada and help it develop innovative business-to-business blockchain-based payments solutions. It comes four months after Ripple paid $250 million to acquire Swiss crypto custody provider Metaco.
Tokenization Gets Fresh Push From Crypto And Traditional Firms
Seven cryptoasset firms on Sept. 7 announced the creation of the Tokenized Asset Coalition to promote the institutional adoption of asset tokenization.
The tokenization of real-world assets “represents the best opportunity” for traditional and crypto financial institutions to work together to create “a more inclusive and cohesive financial system,” the coalition said in a statement. The group’s founding members include Aave, Centrifuge, Circle, Coinbase, Base, Credix, Goldfinch, and RWA.xyz.
Separately, South Korea’s Mirae Asset Securities announced on Sept. 7 that it was partnering with Ethereum scaling platform Polygon Labs to develop infrastructure to enable the tokenization of stocks, bonds, and other assets, Coindesk reported.
Blockchain Capital Raises $580 Million With Two Funds
Crypto venture investor Blockchain Capital announced on Sept. 18 that it has raised a total of $580 million for two new funds, TechCrunch reported. About two thirds of the money will go to a new early-stage fund, the firm’s sixth, while the remainder will launch an opportunity fund to invest in more-mature blockchain-based projects.
Citi Launches Tokenized Cash Management And Trade Finance Service
Citigroup on Sept. 18 announced the launch of a tokenized service for institutional clients to use in cash management and trade finance.
Citi Token Services will use a private, permissioned blockchain owned and managed by the bank and employ smart contracts to provide clients with cross-border payments, liquidity, and automated trade finance solutions on a 24/7 basis.
Crime Beat
Former FTX Executive Pleads Guilty In Exchange’s Collapse
Ryan Salame, the former co-CEO of failed cryptocurrency exchange FTX’s Bahamas unit, pleaded guilty on Sept. 7 to conspiring to operate an unlicensed money transmission business and making illegal US political contributions to gain influence in Washington.
Prosecutors alleged that Salame conspired with FTX founder Sam Bankman-Fried to make tens of millions of dollars to “weed out” anti-crypto Democrats and Republicans in favor of pro-crypto politicians. The contributions were financed by loans from FTX’s investment arm, Alameda Research.
Salame’s plea agreement doesn’t require him to testify against Bankman-Fried but he does face up to 10 years in prison and agreed to pay the US government $6 million, hand over real estate and a Porsche, and pay $5.5 million in restitution to FTX debtors.
FTX Sues Parents Of Exchange’s Founder Bankman-Fried
Failed cryptocurrency exchange FTX sued the parents of founder Sam Bankman-Fried on Sept. 18, saying Stanford University professors Joseph Bankman and Barbara Fried used the company to enrich themselves at the expense of its customers.
The lawsuit alleges that Bankman and Fried accepted $10 million in cash and a $16.4 million property in the Bahamas from FTX and pushed the exchange to make millions in charitable contributions to Stanford.
Lawyers for the couple said the claims were false and called the lawsuit a “dangerous attempt” to intimidate Bankman and Fried before their son’s fraud trial, which is scheduled to start on Oct. 3.
Hong Kong Arrests Six In Crackdown On JPEX Crypto Exchange
Police in Hong Kong on Sept. 18 arrested six people on suspicion of “conspiracy to defraud” following complaints about the crypto exchange JPEX.
In a statement, the police said they had received complaints from more than 1,400 people claiming to have lost about HK$1 billion ($128 million) on JPEX. The arrests came five days after Hong Kong’s Securities and Futures Commission (SFC) issued a warning that JPEX was actively promoting its products and services through social media influencers even though it was unlicensed. In June, the authorities launched a new regime requiring virtual asset trading platforms to obtain a license from the SFC and comply with anti-money laundering and counter-financing of terrorism requirements.
Notable Research
Trust Dilemma Limits DeFi’s Utility To Crypto, Report Claims
An inherent trade-off between trust and efficiency makes it likely that pure decentralized finance (DeFi) will remain useful only for cryptoassets and not be adopted for trading real-world assets, according to a research paper published on Sept. 7 by the Bank for International Settlements (BIS).
DeFi smart contracts require real-world data to trigger automated transactions, such as buy and sell orders. That data typically is provided by private companies know as oracles, but they are effectively centralized entities and vulnerable to manipulation, the paper claims, citing an estimate that DeFi protocols lost more than $400 million in 41 oracle manipulation attacks in 2022.
A fully decentralized oracle may not be possible because of potential efficiency losses and the challenge of ensuring truthful data reporting in the absence of a single authoritative source. “Progress can be made by departing from decentralization and by importing trusted actors into the crypto DeFi ecosystem,” the authors write. “However, trust is a notion that is explicitly rejected in crypto,” which was designed to operate in a trustless environment.