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Weekly Update #31

MARK COLLINS & DEMETRIOS TSEAS

Regulatory:

NYDFS issues new guidance regarding listing of virtual currencies: On Nov 15, the New York State Department of Financial Services (NYDFS) issued guidance, setting new heightened standards for virtual currency coin-listing and delisting, for all Virtual Currency (VC) business entities under “BitLicense”. VC Entities that had a previously approved coin-listing policy under the prior Guidance are not permitted to self-certify any coins until they submit to and receive approval from the Department a coin-listing policy that meets the standards of Section (A) of the Guidance, and have an approved coin-delisting policy that meets the standards of Section (B) of the Guidance. Following DFS approval of a coin-listing policy, a VC Entity may proceed with self-certification of coins, thereby making them available for approved virtual currency business activity in New York or to New Yorkers. The Department will not approve a coin-listing policy absent an accompanying coin-delisting policy. For any new coins, the VC entity must perform a comprehensive risk assessment which should include factors such as: Technical design and technology risk; Operational risk; Cybersecurity risk; Market and Liquidity risk; Illicit finance risk; Legal risk; Reputational risk; Regulatory risk. Additionally, VC entities should consider: Conflicts of Interest and Customer protection issues. Under the new guidelines, a VC entity cannot self-certify anonymity enhanced coins, designed to obfuscate the identity of individuals or entities, or any stablecoin that is not included on the Greenlist, which now only includes: Bitcoin (BTC) Ethereum (ETH), and six stablecoins: Gemini Dollar (GUSD), GMO JPY (GYEN), GMO USD (ZUSD), Pax Gold (PAXG), Pax Dollar (USDP) and PayPal Dollar (PYUSD). x stablecoins approved for issuance in New York by VC Entities

Philippines issue DLT based tokenized bonds: On Nov 16, the Philippines Bureau of the Treasury (BTr) announced the country’s maiden offering of Philippine Peso-denominated Tokenized Treasury Bonds (TTBs), in a bid to raise at least P10 billion from the domestic bond market. The BTr saw a strong demand; the size of the book reached P31.426 billion ($560 million), more than three times the target issue size of P10 billion ($180 million) and eventually raised $270 million. The TTBs are one-year fixed-rate government securities that pay semi-annual coupons at 6.5%, issued in the form of digital tokens, which will be maintained in the BTr’s Distributed Ledger Technology (DLT) Registry. The BTr will implement a dual registry structure, with the DLT Registry running in parallel with the National Registry of Scripless Securities (NRoSS), with the NRoSS serving as the primary registry. The TTBs were offered to qualified institutional buyers this time, but over time may be expanded to the wider public.

BIS examines anonymity and privacy considerations of CBDC: On Nov 17, the Bank for International Settlements issued working paper nr. 1147 titled: Central Bank Digital Currency and Privacy: A Randomized Survey Experiment. “ Privacy protection is among the key features to consider in the design of central bank digital currency (CBDC). Using a nationally representative sample of over 3,500 participants, we conduct a randomized online survey experiment to examine how the willingness to use CBDC as a means of payment varies with the degree of privacy protection and information provision on the privacy benefits of using CBDC. We find that both factors significantly increase participants’ willingness to use CBDC by up to 60% when purchasing privacy-sensitive products. Our findings provide useful insights regarding the design and the public’s adoption of CBDC ”.

US SEC charges Kraken for operating an unregistered securities exchange: On Nov 20, the Securities and Exchange Commission (SEC) charged Payward Inc. and Payward Ventures Inc. together known as Kraken, for operating Kraken’s crypto trading platform as an unregistered securities exchange, broker, dealer and clearing agency, without registering with the regulator. The SEC’s complaint also alleges that Kraken’s business practices, deficient internal controls, and poor recordkeeping practices present a range of risks for its customers. As alleged in the complaint, Kraken commingles its customers’ money with its own, including paying operational expenses directly from accounts that hold customer cash. Kraken also allegedly commingles its customers’ crypto assets with its own, creating what its own auditor had identified as “a significant risk of loss” to its customers.

U.S. Treasury announced largest settlement in history with Binance for violations of U.S. AML and sanctions laws: On Nov 21, the U.S. Department of the Treasury (DoJ), through the Financial Crimes Enforcement Network (FinCEN), the Office of Foreign Assets Control (OFAC), and IRS Criminal Investigation (CI), took unprecedented collective action to hold Binance Holdings Ltd. and its affiliates (collectively, Binance) accountable for violations of the Bank Secrecy Act (BSA), U.S. anti-money laundering (AML) and multiple sanctions programs. FinCEN’s settlement agreement assesses a civil money penalty of $3.4 billion, imposes a five-year monitorship, and requires significant compliance undertakings, including to ensure Binance’s complete exit from the United States. OFAC’s settlement agreement assesses a penalty of $968 million and requires Binance to abide by a series of robust sanctions compliance obligations, including full cooperation with the monitorship overseen by FinCEN. Effective immediately, Changpeng Zhao (CZ), steps down as Binance’s CEO, to be succeeded by Richard Teng, until now Binance’s Global Head of Regional Markets, succeeds. Treasury Secretary Janet Yellen said Binance turned a blind eye to its legal obligations in the pursuit of profit. Its willful failures allowed money to flow to terrorists, cybercriminals, and child abusers through its platform. ” Binance announced the resolution with the DoJ via a Binance blog, CZ, Binance’s former CEO shared his decision to step down as Binance’s CEO via an X (former Twitter) post, while FinCEN’s consent order can be found here.

Do Kwon to be expedited from Montenegro: Terraform Labs co-founder Do Kwon faces potential extradition to either the U.S. or South Korea as approved by a Montenegro court. The final decision rests with Montenegro’s minister of justice, following Kwon’s arrest for attempting to use forged documents to flee the country, with charges in both the U.S. and South Korea awaiting him. Court Ruling

Crypto News:

BTC user inadvertently spends $3.1M in fees: A Bitcoin user unintentionally paid a $3.1 million transaction fee for a 139 BTC transfer, marking the eighth-highest fee in Bitcoin’s history. The sender, possibly unaware of the non-cancellation policy for replacement fees, transferred more than half the actual value to the destination address, and speculation suggests a combination of selecting a high fee and the replace-by-fee (RBF) node policy contributed to the incident. Mempool

Binance sees relatively muted outflows post-DOJ decision: Blockchain analytics firm Nansen revealed that despite a $956 million net outflow on Ethereum approximately 24 hours after the U.S. Department of Justice’s $4.3 billion settlement with Binance, there was no “mass exodus of funds.” Binance’s total holdings increased to over $65 billion, and while withdrawals continue, Nansen noted that past events, such as the SEC lawsuit in June 2023, insolvency rumors in December 2022, and the aftermath of FTX, saw higher outflow volumes. Nansen

Bittrex to discontinue operations: Bittrex Global has declared its intention to wind down operations, initiating the suspension of trading activities on December 4. The decision, communicated on November 20, follows its U.S.-based counterpart’s plan to cease operations in response to regulatory uncertainties, with the platform advising users to convert U.S. dollar holdings to euros or cryptocurrency before December 4 to avoid withdrawal issues. Bittrex

Atomic seeks to dismiss class action lawsuit: The company operating Atomic Wallet has requested the dismissal of a U.S. class action lawsuit over a $100 million hack, arguing that the claims should be filed in Estonia, where the firm is headquartered, as it has “no U.S. ties.” In a dismissal motion in a Colorado District Court, Atomic Wallet emphasized its end-user license agreement, which mandates litigation in Estonia, and highlighted that only one user in Colorado was allegedly impacted by the incident. Bloomberg

Hacks and Exploits:

HTX restores functionality after hack: HTX, the crypto exchange formerly known as Huobi, has restored Bitcoin services following a $30 million hack on November 22. In an update, HTX mentioned that deposits and withdrawals for various currencies, including BTC, ETH, TRX, and USDT, are now operational, and founder Justin Sun expects full functionality for other cryptocurrencies to be reinstated gradually by next week. Announcement

Kyberswap hacker: KyberSwap offered a 10% bounty reward to the hacker who stole $46 million on November 22 and left a note for negotiation. KyberSwap has requested the return of 90% of the stolen funds by 6 am UTC on November 25, or the hacker will be urged to “stay on the run,” with the team expressing openness to further discussion via email. Cointelegraph

HECO Bridge: In a recent string of cyberattacks, two projects linked to Justin Sun suffered losses of $86.6 million from the HECO Chain’s Ethereum bridge and $12.5 million from hot wallets belonging to HTX. This comes just twelve days after Sun’s Poloniex lost $126 million, raising concerns about repeated security breaches and potential regulatory scrutiny for Sun, who has seen a total of $233 million in losses across his projects in the past three months. Rekt

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