Crypto Custody Providers Launch Institutional Focused Offerings

By Christopher Lamb

According to a recent press release by BitGo, a major U.S. cryptocurrency custody provider, BitGo’s GoNetwork and Copper’s ClearLoop have entered into a partnership giving users access to off-exchange settlement through their combined networks. The partnership will allow institutional clients to “trade on leading global exchanges while assets are held within a regulated custody ring-fenced environment” and provide an “institutional environment … challenging the existing model of holding assets directly on individual exchanges.” The press release also notes that the “English law governed trust structure” will give “[b]ankruptcy remote protection” and will seek to solve issues that have plagued the industry.

According to recent reports, the largest Europe-based bank by total assets has partnered with a Swiss-based institutional digital asset custody, trading and decentralized finance firm and announced plans to offer custody of digital assets, including tokenized securities. The new service will reportedly complement the banking giant’s new tokenized gold system, which leverages distributed ledger technology to digitize gold ownership.

In other recent reports, Custodia Bank has announced a bitcoin custody service targeting businesses including fiduciaries, investment advisers, fund managers and corporate treasurers. The bank reportedly received approval from the Wyoming Division of Banking to launch the new offering.

And a recent press release by SEBA Bank, “a fully licensed Swiss crypto bank,” announced that the bank’s subsidiary has received a license from the Securities and Futures Commission (SFC) in Hong Kong. The license will permit the subsidiary to “conduct regulated activities in Hong Kong to deal in and distribute all securities, including … OTC derivatives and structured products with underlying virtual assets.”

For more information, please refer to the following links:

• BitGo and Copper Join Forces to Enable Institutions to Access Top Spot and Derivative Exchanges Directly from Regulated Cold Storage
• HSBC to launch tokenized securities custody service with Ripple-owned Metaco
• Caitlin Long’s Custodia Bank launches Bitcoin custody platform
• SEBA Hong Kong Awarded Licence by the SFC to Conduct Regulated Activities in Traditional Securities and Crypto-Related Services
• DZ Bank, third-largest German bank, to start crypto custody for institutional investors

Crypto Firms Launch Web3 Wallet, Crypto Debit Card Integration, USD Stablecoin

By Diana C. Milton

Last week, cryptocurrency exchange Binance announced the launch of its Web3 wallet, a self-custody crypto wallet in the Binance app. The CEO of Binance reportedly said the Web3 wallet is designed to “empower[] individuals with the ability for self-sovereign finance.” According to a Binance blog post, the Web3 wallet “offers users a secure and streamlined method to manage their cryptocurrencies, execute token swaps across multiple chains, earn yields, and interact with a variety of blockchain platforms.” The Web3 wallet will reportedly use multiparty computation to produce three independent key shares split across three different locations – the first held with Binance, the second stored locally on the user’s mobile phone, and the third encrypted by recovery password and backed up to the user’s personal cloud storage. Two of the three key shares will be controlled by the user for the purpose of accessing their wallet. The Binance Web3 wallet is not currently available in the United States.

In a recent press release, cryptocurrency exchange and Web3 innovator Gate announced a new integration between Gate Card – its debit card that rewards the stablecoin USDT for spending with 1 percent back on eligible transactions – and a major U.S. mobile payments service. Following the integration, Gate Card holders can connect their cards with the payments service to make in-person or online payments.

In another recent press release, Horizen Labs and Stably introduced the ZEN USD (ZUSD) on the Horizen EON network. According to the press release, ZUSD is a fully backed U.S. dollar stablecoin and the first natively issued USD stablecoin on the EON network. The press release notes that “[t]he collateral for ZUSD is held in liquid USD-denominated assets by a designated trustee for the benefit of verified ZUSD token holders” to ensure that each ZUSD token can be minted or redeemed at a 1-to-1 rate with U.S. dollars or U.S. dollar coins by users who passed Stably’s know-your-customer verification process.

For more information, please refer to the following links:

• Binance launches Web3 wallet for its 150M registered users
• What Is Binance Web3 Wallet and How Does It Work?
• Gate Announces Google Pay Integration for its Gate Card Crypto Visa
• Horizen Labs and Stably Launching ZUSD Stablecoin on the Horizen EON Network

BOE, European Banking Agency and BIS Address Stablecoins

By Keith R. Murphy

The Bank of England (BOE) issued a discussion paper setting forth its proposed regulatory framework for systemic payment systems using stablecoins and related service providers, according to a recent news release. As noted in the release, the two parts of the paper outline the BOE’s role in ensuring the safety of money and payments and scope of the regime and the BOE’s proposed requirements of the regime. The discussion paper focuses on sterling-denominated stablecoins based on the view that they are the most likely digital settlement assets for widespread application to payments, according to the release.

The European Banking Agency (EBA) separately issued draft guidelines for establishing common reference parameters for liquidity stress testing with respect to “[i]ssuers of significant assets referenced tokens … and e-money institutions issuing significant e-money tokens,” according to a recently issued consultation paper. According to the consultation paper, the purpose of the stress testing is to “help issuers of tokens better manage their reserve of assets and generally their liquidity risk.” The consultation paper notes that “[b]ased on the outcome of the liquidity stress testing the EBA or, where applicable, the relevant competent authority/supervisor, may decide to strengthen the liquidity requirements of the issuer.”

A paper recently published by the Bank for International Settlements (BIS) reviews the evolution over the past 10 years of the stablecoin market and whether that market has actually been “stable.” According to the BIS paper, the authors have found that while stablecoins backed by fiat currency, commodities or other cryptoassets may be less volatile than traditional cryptoassets, not one has succeeded at maintaining parity with its peg for all periods. According to the BIS paper, “[t]here is currently no guarantee that stablecoin issuers could redeem users’ stablecoins in full and on demand.” For this reason, the authors conclude that current stablecoins “do not meet the key criteria for being a safe store of value and a trustworthy means of payment in the real economy” and that significant data gaps still exist that prevent a full understanding of the uses and risks of stablecoins.

For more information, please refer to the following links:

• Bank of England: Regulatory regime for systemic payment systems using stablecoins and related service providers: discussion paper
• European Banking Authority: Draft Guidelines establishing the common reference parameters of the stress test scenarios for the liquidity stress tests referred in Article 45(4) Regulation (EU) 2023/1114
• BIS Papers No 141 Will the real stablecoin please stand up?

OFAC Adds Crypto Money Launderer and Related Public Keys to OFAC List

By Joanna F. Wasick

On Nov. 3, the U.S. Department of the Treasury (Treasury) issued a press release announcing that its Office of Foreign Assets Control (OFAC) had sanctioned a Russian national, Ekaterina Zhdanova, for her role in money laundering for Russian oligarchs. Treasury found that Zhdanova moved and laundered money for elite clients through a scheme involving virtual currency, cash, traditional businesses (including a luxury watch company), other money-laundering associates and crypto entities lacking anti-money laundering/combating the financing of terrorism (AML/CFT) controls. The release specifically references Zhdanova’s use of OFAC-designated Russian cryptocurrency exchange Garantex Europe OU, which was designated by OFAC in 2022 and “was known for blatantly disregarding AML/CFT obligations and allowing its platform to be used by illicit actors.” According to the release, the recent sanctioning is part of OFAC’s “expansive economic sanctions on the Russian financial system” imposed in response to Russia’s “illegal invasion of Ukraine” in early 2022. As part of the action, OFAC added three cryptocurrency public keys associated with Zhdanova to the OFAC Specially Designated Nationals list.

For more information, please refer to the following links:

• Treasury Designates Virtual Currency Money Launderer for Russian Elites and Cybercriminals
• Russia-related Designation

DOJ Seizes $54 Million in Crypto; CFTC Releases 2023 Crypto Enforcement Stats

By Robert A. Musiala Jr.

A recent press release by the U.S. Department of Justice (DOJ) announced that the DOJ had “filed a civil forfeiture action … to recover $54 million of cryptocurrency that it previously seized and is traceable to the proceeds of an illegal narcotics distribution scheme operating in and around New Jersey.” According to the press release, from 2010 to 2015, the defendant “began to sell narcotics on darknet sites in exchange for Bitcoin” and “used some of the Bitcoin he had earned from narcotics sales to purchase 30,000 Ether in Ethereum’s Initial Coin Offering in July 2014.” While incarcerated as a result of convictions for his narcotics sales, the defendant allegedly “plotted from prison to avoid taxes and to move the 30,000 Ether outside of the United States.” According to the press release, the DOJ “learned of [the defendant’s] efforts to launder the cryptocurrency through recorded prison telephone calls in 2021, intervened, and seized [the defendant’s] cryptocurrency holdings traceable to his drug trafficking crimes.” The press release states, “Today, the value of the 30,000 Ether is approximately $54 million.”

The U.S. Commodity Futures Trading Commission (CFTC) recently released its enforcement results for fiscal year 2023. According to a CFTC press release, “In FY 2023, the CFTC brought 47 actions involving conduct related to digital asset commodities, representing more than 49% of all actions filed during that period.” The press release provides details on some of the largest CFTC digital asset enforcement actions in 2023 and states, “In FY 2023, the CFTC cemented its reputation as a premier enforcement agency in the digital asset space.”

For more information, please refer to the following links:

• United States Seized and Files Forfeiture Action to Recover over $54 Million of Cryptocurrency Traceable to Narcotics Distribution Scheme
• CFTC Releases FY 2023 Enforcement Results

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