What happened this week around blockchain and cryptocurrencies? The most relevant local and international events as well as appealing background reports in a pointed and compact weekly review.
Selected articles of the week:
The FTX scandal is considered to be the temporary low point of the “contagion effect” of the crypto industry, which has been ongoing since mid-2022. In this case, the lack of liquidity that led to the collapse of what was once the second largest crypto exchange is joined by misappropriation of customer funds and other potentially illegal conduct. A day before FTX founder Sam Bankman Fried’s (SBF) scheduled hearing before the U.S. Congress, U.S. law enforcement officials initiated the arrest of the self-proclaimed altruist in the Bahamas. Fried is charged by multiple entities with wire fraud, conspiracy to commit wire fraud, securities fraud, conspiracy to commit securities fraud, and money laundering. The actions by the Department of Justice, the Securities and Exchange Commission (SEC) and the Commodity Futures Trading Commission (CFTC) could result in a maximum sentence of 115 years in prison if Fried is convicted. A requested bail was denied by the local court in Nassau. Ultimately, extradition to the United States is expected.
A month after FTX filed for bankruptcy, authorities in the Bahamas arrested founder and former CEO Sam Bankman-Fried.
The market participants’ trust in crypto exchanges and other central crypto service providers has understandably been greatly shaken after the FTX insolvency. As a result, trading platforms are forced to restore the lost trust through so-called “Proof-of-Reserves”. The blockchain-verified proof of assets is a start towards better transparency, but it lacks the liability to customers, making it an insufficient level of transparency. Binance, the undisputed market leader in terms of trading volume, took a step toward expanded transparency in collaboration with auditing firm Mazars. However, the endeavor left quite a few questions unanswered, which was reflected in subsequential customer withdrawals amounting to over $5 billion in assets.
Financial experts and competitors doubt the completeness and credibility of Binance’s proof of reserves.
Confessed crypto opponents in the US Congress are using the FTX debacle to reinforce their stance. Senator Elizabeth Warren is attempting to pass bipartisan legislation against money laundering in the crypto industry. According to her own statements, her efforts are aimed at creating equal competitive conditions. The legislation would instruct the Financial Crimes Enforcement Network (FinCEN) within the Department of Treasury to designate providers of digital asset wallets (custodians), miners, validators, and NFT marketplaces as money service businesses. This in turn would expand the responsibilities under the Bank Secrecy Act to the crypto industry, including the requirements for customer identification (KYC). FinCEN would also be required to maintain records, monitor markets, and prepare reports on digital asset transactions involving “non-hosted” wallets.
Senator Elizabeth Warren is trying to push a bipartisan approach to money laundering in the crypto industry in the U.S. Congress.
Blockchain technology has the potential to drastically improve existing financial infrastructure in terms of transparency and efficiency. Major players of the Swiss financial sector (UBS, Credit Suisse, Vontobel, Pictet & more) have successfully developed and tested a novel settlement mechanism for tokenized investment products on a public blockchain infrastructure. The proof of concept includes the issuance of tokenized investment products carried on an Ethereum test blockchain. A novel settlement mechanism enables trading and settlement of the products on a regulated Swiss stock exchange through a smart contract. A milestone for the financial hub Switzerland.
The CMTA company is testing a new settlement mechanism for tokenized investment products with several Swiss banks.
In addition: The United Kingdom wants to establish itself as a “stablecoin hub”. To this end, the British Treasury is set to issue a legal framework for the use of stablecoins. The newly announced “FSM Bill” seeks to expand the current regulations for crypto assets and create clear rules for the new technology. The move is part of the efforts of the incumbent Prime Minister to position the United Kingdom in the global competition in the sector.
The United Kingdom plans to introduce a new reform for further stablecoin regulation to protect consumers from fraud and mismanagement.
