Banks using DeFi for forex trades, Japan's DAO, Hong Kong open to ETFs, SWIFT x Chainlink, BIS looking at DeFi AMMs to automate forex, meaning of decentralization,

CryptoLaw Newsletter #68

Hello everyone,

Traditional Finance x crypto was the theme of the week.

Top-5 this week:

1. JPMorgan and other banks use public blockchain for forex trade under Singapore MAS project.

2. BIS to look into DeFi automated market makers to automate forex transactions.

3. Binance considering buying banks to bridge crypto and traditional finance.

4. SWIFT partners with Chainlink for token transfers and cross-chain messaging.

5. Hong Kong open to crypto ETFs.

And Japan will experiment with its own DAO

Blockworks @Blockworks_

The Japanese government has created its own DAO in order to understand its potential use cases

In depth:

• JPMorgan, DBS Bank and SBI Digital Asset Holdings successfully executed a live cross-curency transaction on a public blockchain (Polygon), using Aave and Uniswap. The pilot was part of Project Guardian, conducted under the auspices of the Monetary Authority of Singapore (MAS). Tokenized Japanese Yen (JPY) and Singapore Dollar (SGD) deposits were transferred live on Polygon using Aave Arc, which offers institution-focused whitelisted pools, Uniswap, a decentralized exchange, and verifiable credentials. The pilot also involved a simulated exercise buying and selling tokenised government bonds. The announcement came just days after MAS published draft rules on digital payment tokens and stablecoins.

• Binance’s CZ is considering buying banks as a way to bridge crypto and traditional finance.

• SWIFT, which provides the messaging system that facilitates inter-bank payments, is partnering up with blockchain analytics company Chainlink. Chainlink will help SWIFT to make token transfers and communicate across all blockchain environments.

• The Bank of International Settlements (BIS) announced plans to “investigat[e] the use of AMMs to automate foreign exchange markets and settlement, potentially improving cross-border payments”. The BIS described Automated Market Makers (AMMs) as “one of the main activities in DeFi”. Central banks “need to understand their impact for cross-border payments, the BIS added, since DeFi and its applications “have the potential to become systemically important parts of the financial ecosystem”.

• Hong Kong will step up "preparatory work for a new licensing regime" for digital asset service providers. “[W]e are ready to engage with global VA [Virtual Asset] Exchanges and invite them to set foot in Hong Kong for new business opportunities.”  Its market regulator plans "public consultation on how retail investors may be given a suitable degree of access to [virtual assets], and Hong Kong will be open to the possibility of having Exchange Traded Funds (ETFs) on VA in our market".

And also…

• India’s Central Bank started its digital rupee pilot. The pilot allows nine banks to settle secondary market transactions in government securities. India’s Finance Minister confirmed crypto is 1 of 8 priority topics for its G20 presidency starting next month.

• The SBF-Voorhees debate on crypto regulation was reverberating on crypto twitter and apparently also on Capitol Hill in the US.

Ron Hammond @RonwHammond

This week in Congress and Crypto: It is not too often a podcast is the talk of the town in DC, but the @BanklessHQ debate between @SBF_FTX and @ErikVoorhees was just that. As a former Hill staffer who worked on crypto legislation and current lobbyist, here are some thoughts...

• The US CFTC action against OokiDAO saw an amicus curia brief from a16z, emphasizing their previous argument on regulating applications, not protocols.

• Pre-DAO and post-DAO, US-focused legal risk assessment:

DAO Research Collective @DAOResearchCo

The Challenge: understanding DAO legal risk management. Luckily @anothrkevinchen has some guidance for us in the framework for Pre-DAO and Post-DAO Legal Risk Assessment he drafted in collaboration with @DAOResearchCo. A thread on his findings 🧵

• Crypto exchange Coinbase asked to join Ripple’s case against the US Securities and Exchange Commission.

Jacob Robinson @JacobRobinsonJD

Earlier this month, @Coinsquare became the first registered crypto Investment Industry Regulatory Organization (IIROC) marketplace in Canada 🇨🇦

• A record US$760 million was stolen in „Hacktober“ exploits.

• Thailand and Hungary are exploring blockchain technology together to boost their financial sector.

• The US Department of Justice reportedly is investigating whether Tether executives committed a crime.

• Zimbabwe looks at lessons from Nigeria as it considers its own central bank digital currency.

• Gibraltar is considering regulating DeFi and stablecoins.

• Stablecoin issuer Paxos obtained an operating license in Singapore under the Payment Services Act. Circle, which issues the USDC stablecoin, also gained an in-principle approval to operate in Singapore.

• The EU’s Markets in Crypto Assets Regulation will require crypto influencers shilling crypto projects to be transparent about their financial interests.

• The Swiss market regulator FINMA says it stands by an anti-money laundering ordinance that imposes identity checks for crypto transactions above 1,000 Swiss francs.

• Action will be taken against crypto companies marketing risky, complex products to a broad retail audience, warned the chair of Australia’s market regulator ASIC. Meanwhile, Australia announced it will continue to impose capital gains tax on crypto transactions.

• Sushi DAO, which governs decentralized exchange SushiSwap, voted in favour of creating three DAOs in Panama and Cayman in an organisational restructuring.

• Crypto exchange Huobi plans to move its HQ from the Seychelles to a Caribbean destination.

• Crypto adoption across various EU member states: Cointelegraph summarizes the EU Blockchain Observatory’s EU Blockchain Ecosystem Developments report.

• South Korea is preparing a bill to increase penalties for unfair trade acts in the crypto industry.

• Around the Blockchain latest' edition: Costa Rica meets crypto; DAO risk assessment; UK's new pro-crypto PM; Sushi's new legal framework; and a new IRS digital asset definition.

• Law firm Davis Polk discusses US FSOC report on financial stability risks of digital assets.

• Academic corner: The Meaning of De/Centralization: A Theoretical Review, Towards a Conceptual Framing, by Rossi and Sorensen: the authors “review how centralization and decentralization (de/centralization) are understood across academic discourses, i.e., the architectural, logical, hierarchical, market, moral, political, and legal perspectives” and challenge a mono-disciplinary, mono-dimensional treatment of the concept.

  Thanks for reading!