November 10, 2020

CipherTrace

DeFi Hacks Make Significant Contribution to Crypto Hack 2020 Landscape
Nearly $1B in Silk Road Bitcoin is On the Move
Progress Made in Wyoming with Two Ocean Trust and Avanti Gaining Regulatory Clarity
TRON Withstands Attack, but Transactions Pause for 3 Hours
Iran Changes Crypto Regulations to Allow for Imports to be Funded by Cryptocurrencies
Australia Joins the CBDC Race

Half of 2020 Crypto Hacks are from DeFi Protocols and Exchanges

On November 10, CipherTrace released an excerpt from the upcoming Cryptocurrency Crime and Anti-Money Laundering Report. Our analysis shows that DeFi has contributed significantly to the rise in crypto thefts and, in particular, is the origin point for half of crypto hacks for the year thus far.

In first half of 2020 DeFi took up 45% of all thefts and hacks ($51.5M or 40% of hacked volume).
In second half of 2020 DeFi took up 50% of all thefts and hacks ($47.7M or 14% of hacked volume).
So far, in 2020 DeFi hacks make up 21% of 2020 hack and theft volume.
Funds from largest hack in 2020 (KuCoin $281M) were laundered through DeFi.
In 2019, DeFi hack volume was virtually negligible.
Rise in thefts likely attributed to recent DeFi boom.

Read our full analysis: https://ciphertrace.com/half-of-2020-crypto-hacks-are-from-defi-protocols-and-exchanges/

Silk Road Proceeds, Dormant Half a Decade, Are on the Move

On November 3, more than 69,370 BTC originating from the Silk Road—one of the first darknet marketplaces—moved for the first time since April 2015. Two days later, the US Department of Justice released a complaint, clarifying that the funds were in fact seized by the US government. The complaint reveals that the individual that moved the funds (Individual X) had hacked into the Silk Road back in 2013. Silk Road founder Ross Ulbricht was quickly able to identify Individual X’s online identity yet, despite threats from the dark market’s creator, the funds were never returned and remained mostly unspent to this day. The identity of Individual X was likely already known to investigators through their initial investigation into the Silk Road. On November 3, 2020, Individual X signed a Consent and Agreement to Forfeiture, releasing the property to the United States government.

For more information, visit https://ciphertrace.com/nearly-1b-from-silk-road-move-for-first-time-since-2015/.

Wyoming Bridges Crypto and Traditional Finance in Two Big Moves

A CoinDesk op-ed, penned by Noelle Acheson, details two major developments in Wyoming that could set new standards for crypto regulations across the US. First, the Wyoming Division of Banking issued a “no-action” letter to Two Ocean Trust, a wealth management company for high-net-worth individuals based in Wyoming, conveying that Two Ocean Trust can offer custodial services for “both digital and traditional assets under Wyoming law.” The “no-action” letter also expressed that Two Ocean Trust will be considered a “qualified custodian.”

Historically, custodians of crypto assets were uncertain as to how they would be treated under the SEC Custody Rule that mandates investment advisors are required to store customer assets with a “qualified custodian.” This no-action letter elucidates that, at least in Wyoming, crypto asset custodian firms need not require their clients to seek out a supplementary manager of their digital assets, smoothing on-ramps to digital asset investments by eliminating the need for a third party to the transaction.

The second development was the Wyoming State Banking Board’s approval of a Special Purpose Depositary Institution (SPDI) charter for Avanti Financial, making Avanti the second company to be recognized officially as a “crypto bank” after Kraken. The approval of the charter enables Avanti to be a custodian for digital assets alongside fiat deposits and will be treated as a bank when it comes to AML, CFT and other compliance standards. Avanti also received approval to issue Avit, its blockchain-based token, further advancing regulatory certainty for stablecoin settlement enforcement for tokens backed by bank assets.

Why It Matters: One of the greatest roadblocks to innovation in finance is a lack of regulatory clarity. The recognition of Two Ocean Trust as a “qualified custodian” and approval of Avanti to accept and custody crypto deposits as well as issue its own token sets a precedent for how firms holding digital assets as custodians will be treated under US law. CoinDesk reported that Avanti, like Kraken, will also have access to emergency federal funding. Treatment of these companies as financial institutions provides further validation of rising acceptance of digital assets as legitimate investments.

No Funds Lost in TRON Attack, But Network Was Down for Three Hours

On November 2 the TRON Network suffered an attack, ceasing block generation and pausing all network activity for three hours. TRON CEO Justin Sun informed the community over Twitter that no funds were lost.

Sun posted: “During the 4.1 version upgrade period, the #TRON Mainnet was attacked by a malicious contract on 2020.11.02 at 06:14 (HKT).” He explained that the attacker hoped to profit from suspending block production, adding, “The data on the chain remains intact and user assets are absolutely safe.”

Amid a Struggling Economy, Iran Amends Regulations to Allow for Cryptocurrency-Funded Imports

On October 25, Iran Daily reported that the government amended previously-enacted cryptocurrency regulations to allow for legally-mined cryptocurrencies to be exchangeable when used to finance imports from other countries. A CoinDesk report on the news suggests that this amendment was made in reaction to the country’s need for an influx of international currencies to help its economy.

Iran Daily cited a report by IRNA, saying, “The miners are supposed to supply the original cryptocurrency directly and within the authorized limit to the channels introduced by the [Central Bank of Iran].” Iran Daily suggests that “[u]sing cryptocurrencies to fund imports could help the CBI evade restrictions imposed by the United States on Iran’s use of the dollar system.”

Why It Matters: Iran has a history of cracking down on cryptocurrencies. Just last year the government punished miners for using subsidized electricity. The nation’s economic duress, however, seems to be leading to a lessening of restrictions. This changed attitude could create a ripe environment for increased cryptocurrency adoption in Iran.

The CBDC Race Heats Up Down Under

The Reserve Bank of Australia announced its intention this week of exploring a central bank digital currency. This news continues a steady drumbeat of developments on the CBDC front, including the launch of the Bahamas’ Sand Dollar, the release of results for China’s Digital Yuan pilot project, and BIS issuing guidelines for CBDCs in an October report. The Reserve Bank is partnering with Commonwealth Bank, National Australia Bank, Perpetual, and ConsenSys Software on the project.

Dive Deeper into CBDCs

Global Digital Finance’s Digital Currencies Working Group has released its report on the current state of digital currencies, with CipherTrace contributing to the sections on AML and Privacy. The report is a comprehensive, digestible account of everything you need to know about issuing digital currencies, whether looking at it from a retail or wholesale perspective. https://www.gdf.io/wp-content/uploads/2020/10/GDF-Digital-Currencies-Report.pdf