January 8, 2021
OCC OKs Banking with Stablecoins | DeFi Hack Tally | Offshore Crypto Holdings Come Under Scrutiny | New Year, New CBDCs | What is a VASP?
- National Banks Can Use Stablecoins to Facilitate Payments, OCC Says
- $120 Million Stolen Through DeFi Hacks in 2020
- Americans May Have to Report Cryptocurrency Stored in Offshore Accounts
- Russia, Ukraine, and Turkey’s CBDC Plans in 2021
- ShapeShift Integrates with DEXes to eliminate KYC
OCC Okays Stablecoin Use for National Banks
On January 4, the U.S. Office of the Comptroller of the Currency (OCC) issued an interpretive letter permitting national banks and Federal savings associations to use stablecoins and independent node verification to engage in and facilitate payment activities.
According to the letter, banks can now validate, store, and record payments transactions by serving as a node on an independent node verification network (INVN). Likewise, a bank can use INVNs and related stablecoins to carry out other permissible payment activities. However, any stablecoin arrangements “should have the capability to obtain and verify the identity of all transacting parties, including for those using unhosted wallets.”
Why it Matters:
The use of INVNs has the capability to enhance the stability and effectiveness of real-time payments across banks. The OCC’s guidance is a critical first step towards enabling US banks to provide financial services through stablecoin networks. However, the letter warns that banks thinking of engaging in INVN-related activities must also be aware of the potential risks posed to their institutions, including operational risks, compliance risk, and fraud. New technologies require enough technological expertise to ensure banks can manage these risks in a safe and sound manner.
Read more in American Banker: https://www.americanbanker.com/news/national-banks-may-process-stablecoin-payments-occ-says
DeFi Protocols Suffered 15 Hacks Totaling $120 Million in 2020
2020 was a big year for DeFi, but the billions being poured into the space made it the target of fifteen hacks throughout the year. The hacks totaled more than $120 million in stolen funds, of which $45.6 million was returned. DeFi protocol bZx was hacked twice in February when a hacker was able to use a contract bug to commit a flash loan attack that allowed them to obtain 1,200 ETH.
The largest DeFi protocol hack to occur last year was on the Lendf.me protocol, where $25 million was stolen. The hacker found a reentrancy attack vector, allowing them to “interact with a token contract as if they had lots of collateral, which they didn’t.” Although the hacker was able to steal the entirety of the assets that were listed on the platform, they ended up returning all of them.
Why it Matters:
Although DeFi has provided more people with access to financial services, these protocols are often vulnerable to hacks. When protocols launch without conducting sufficiently rigorous security audits, bugs in the code can be taken advantage of by bad actors. This new year is likely to bring greater regulatory scrutiny to DeFi.
Read more in The Block:
FINCEN May Require Americans to Report Offshore Crypto Accounts
Americans who hold $10,000 or more in cryptocurrency in “offshore accounts” may soon have to report such holdings to the U.S. Financial Crimes Enforcement Network (FinCEN). So far, no deadline to enforce this proposed rule has been announced. The agency said that this change will amend the Bank Secrecy Act (BSA) because the current Report on Foreign Bank and Financial Accounts (FBAR) does not currently include virtual currency as a form of a reportable account. FBAR reporting and record keeping violations can result in civil monetary penalties up to “the greater of $124,588 or 50 percent of the balance in the account at the time of the violation” and/or criminal penalties.
In late December, FinCEN also released a proposed rule change requiring financial institutions to report cryptocurrency transactions over $10,000 to FinCEN when the counterparty is an unhosted wallet. With major changes being proposed during a lame duck administration, it is unknown if the upcoming transfer of power will affect the ultimate fate of these proposals.
Why it Matters:
Though the intention of these proposed changes is to prevent the occurrence of financial crimes using cryptocurrencies, many within the crypto community argue these rule changes unduly burden or even punish cryptocurrency users and businesses. Cash transactions, for example, are not subject to the same rigorous oversight that FinCEN has proposed will be required of un-hosted wallet users.
Read more in The Daily Hodl:
Russia, Turkey, Ukraine Move Toward Establishing Central Bank Digital Currencies
Russia’s central bank is developing a digital ruble, but citizens and banks are not completely on board with making a full transition to the digital currency. The digital ruble would deploy tools like QR codes and contact-free interfaces. It would also be much easier to transfer to those who need essential services like welfare and child benefit payments, but there is concern that local banks will close if the digital ruble is more widely adopted.
Just as the new year began, Turkey announced a trial period of its CBDC, the digital lira, with plans for a pilot launch set for the second half of 2021. The Bank of International Settlements, an organization that tracks which countries are developing CBDCs, received no proposals from Turkey, making this development a surprise to them and to the international community. As of now, Turkey joins the small cluster of countries like China and Sweden in moving toward a soft launch phase for its CBDC. In October, the Bahamas became one of the first countries in the world to officially launch a CBDC beyond just a pilot program.
Ukraine has taken an important step toward developing its CBDC by hiring the Stellar Development Foundation to build it. The country’s National Bank announced in 2017 that they were starting to think about creating a digital currency and even spoke with other countries about what precautions to take and other important details to consider. Ukraine’s Digital Transformation and IT Deputy Minister Oleksandr Bornyakov is very hopeful that the partnership with Stellar will improve the country’s standing in the global digital economy.
Why it Matters:
The CBDC race continues, with the winner primed to gain global economic influence and improved access to financial services for its citizens. The reveal of Turkey’s CBDC development and Ukraine’s partnership with Stellar remind us that the field of competitors is growing and that any predictions as to which nation will ultimately take the lead are likely premature.
Read more in Crypto News, CoinDesk, and CoinGeek:
Quick Read: ShapeShift Integrates Decentralized Exchanges, Removes KYC Requirements
ShapeShift CEO Eric Voorhees said the integration will not only allow U.S. customers to use the platform without needing to perform KYC onboarding, but also will let ShapeShift open up “more jurisdictions, not fewer” as the exchange “removes itself from regulated activity.”