Banks to Use Blockchain for FX; Avalanche Adds USDC; NFT Boom Continues; Regulators Address Crypto Ads, Derivatives; Reports Address Crypto Threats | BakerHostetler


Banks to Use Blockchain for FX Settlement, Avalanche Network Adds USDC

By Jordan R. Silversmith

In a recent press release, two major banks announced an agreement to implement a new blockchain-based solution for the netting and settlement of matched foreign exchange (FX) transactions. The two banks will jointly use a shared settlement ledger to process USD, Canadian dollar, British pound sterling and euro transactions. They plan to extend the platform to settle other currencies soon.

Also this week, Avalanche, a smart contract blockchain, announced that it is adding a native version USDC – the stablecoin pegged to the U.S. dollar – to its platform. According to reports, this will allow native USDC to be minted and printed on the Avalanche network rather than requiring users to find alternate and less efficient methods. Avalanche will be the seventh blockchain to incorporate USDC into its network.

According to reports, as of Monday morning, Dec. 13, 90 percent of all bitcoins have been mined, which means that 18.89 million bitcoins out of a maximum of 21 million are now in circulation. The first bitcoins were mined in January 2009, but the remaining supply is not expected to be mined until February 2140, based on network activity estimates and Bitcoin’s halving schedules.

In a final notable development, according to reports, two key open-source Bitcoin developers recently announced they were stepping back from their work on the Bitcoin Core software. The developers left their roles working on Bitcoin Core, an implementation of the Bitcoin Network code that connects to the blockchain and keeps the Bitcoin Network running. The report notes that after the departures, the maintainers who have commit access to Bitcoin’s code now number just three people.

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From Auctions to Venture Capital, NFTs Continue to Generate Millions

By Lauren Bass

One of the top auction houses recently reported that its sale of nonfungible token (NFT) works in 2021 accounted for $100 million in revenue. According to reports, the venue attributes this “meteoric rise” in interest to its new “Metaverse” platform that allows clients to view available digital artworks prior to auction and learn about the artists in a “seamless digital and physical experience.”

In related news, last week an NFT-focused crypto startup announced a $27 million Series B fund raise, which reportedly attracted investments from major technology and entertainment backers. According to a company statement, the raise will enable the platform to scale its technology, launch additional NFT projects, and continue to be a “transformative force across entertainment, fine art, gaming, and creative culture.” The technology platform has reportedly attracted supporters due to its focus on environmental sustainability and market accessibility.

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IMF Calls for Crypto Regs, UK Bans Ads, ISDA Addresses Crypto Derivatives

By Robert A. Musiala Jr.

A recent blog post by the International Monetary Fund underscored the need for “comprehensive international standards that more fully address risks to the financial system from crypto assets, their associated ecosystem, and their related transactions, while allowing for an enabling environment for useful crypto asset products and applications.” Among other things, the blog advocates for a “global regulatory framework” that includes a license requirement for “crypto-asset service providers”; requirements that account for the different use cases of “crypto assts,” including as investment products and payment products; and “clear requirements on regulated financial institutions concerning their exposure to and engagement with crypto.”

In other regulatory developments, according to recent reports, this week the U.K.’s advertising regulator issued seven rulings finding violations involving advertisements by six different cryptocurrency firms and a seventh firm that operates a pizza chain. The rulings reportedly banned certain cryptocurrency advertisements based on allegations of “irresponsibly taking advantage of consumers’ inexperience and for failing to illustrate the risk of the investment.”

Also this week, the International Swaps and Derivatives Association (ISDA) published a white paper that addresses contractual standards for digital asset derivatives. Among other things, the paper “[i]dentifies novel technology and market-driven events that could disrupt the operation of a digital asset derivatives transaction and provides a framework for dealing with these events; explores how digital assets (and the derivatives that reference them) can be valued and what happens when a valuation cannot be obtained; and analyzes how digital assets might interact with the existing ISDA documentation architecture, including the ISDA Master Agreement and industry standard collateral documentation.”

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Cryptocurrency Exchange Hacked for $77M; Reports Discuss Crypto Threats

By Keith R. Murphy

A cryptocurrency exchange recently suffered a hack resulting in approximately $77 million in losses, according to a report this week. The company reportedly noticed unauthorized activity in one of its hot wallets over the weekend and has since moved unaffected assets to cold wallets while an investigation is undertaken. The lost funds were spread among three chains: Ethereum, Binance Smart Chain and Polygon.

In related news, a decentralized finance platform revealed how it was hacked earlier this month for $120 million. The company reportedly experienced a phishing incident in early December as a result of a “maliciously injected snippet” from its content delivery network. According to a report, the hacker used a compromised API key to periodically inject malicious code that affected a subset of the platform’s customers, but the platform has since patched the exploit and is working to recover the funds.

A recent update to a global technology firm’s annual cyberthreats report included significant findings involving cryptocurrencies. Among other things, the report noted that ransomware losses are expected to exceed $20 billion by year-end. The report also notes that more attacks are expected to be focused on smart contracts and Web 3.0 apps in 2022, and that “new and increasingly sophisticated attacks, such as flash loan attacks, will allow attackers to drain millions of dollars from cryptocurrency pools.”

This week, Chainalysis released a blog post with a preview of its 2022 Crypto Crime Report. According to the blog, in 2021, “[s]cams were once again the largest form of cryptocurrency-based crime by transaction volume, with over $7.7 billion worth of cryptocurrency taken from victims worldwide,” which represents a rise of 81 percent compared with 2020.

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