Crypto mayhem continues; more EU crypto rules?; € and £-backed stablecoins by Circle and Tether; frontrunning by blockchain miners; can we avoid a centralized metaverse?

Hello everyone,

TLDR:

• Circle and Tether announce EUR- and  GBP-linked stablecoin days apart

• Calls for more crypto lending regulation continue as crypto mayhem broadens

• Frontrunning by blockchain miners: BIS suggests new rules needed

• Before EU’s big crypto law is approved, ECB’s Lagarde calls for new rules on staking, lending & DeFi

• Is a centralized metaverse the default?

• WeChat bans NFT-linked accounts

Key developments this week:

• Next stop for stablecoins: Europe. US-based Circle announced a euro-backed stablecoin. Shortly after, Tether announced a British pound-backed stablecoin.

• Crypto mayhem continues. Several US state regulators are investigating crypto lending firm Celsius over its decision to halt withdrawals. Current and former regulators weighed in on the debate of regulating crypto lending. What Celsius did is similar to what BlockFi does and recent mayhem shows DeFi lending should be more strictly regulated “as if they were more standard financial institutions”, says former CFTC Chairman Timothy Massad. US Federal Reserve Chair Powell isn’t worried about macroeconomic implications of the recent turbulence on crypto markets, but still wants stricter regulation too. Meanwhile, the mayhem in crypto markets continues: Three Arrows Capital is on the brink of default, crypto lending platforms Babel Finance and Maple Finance are in financial difficulty, while Bancor paused its impermanent loss protection feature. SEC Commissioner Peirce opposed crypto bailouts, however, asking to “let these things play out” and learn.

• Frontrunning spotlighted by the BIS. We may need new rules for market manipulation by blockchain miners, according to a new report by the Bank for International Settlements. Since blockchain miners “can choose which transactions they add to the ledger and in which order, they can engage in activities that would be illegal in traditional markets such as front-running and sandwich trades. The resulting profit is termed “miner extractable value” (MEV). MEV is an intrinsic shortcoming of pseudo-anonymous blockchains. Addressing this form of market manipulation may call for new regulatory approaches to this new class of intermediaries,” the authors concluded. The first comprehensive study on MEV was published in 2019 in the Flashbots 2.0 paper.

• More crypto rules for EU? The EU’s flagship crypto regulation MiCA will “most definitely” include NFTs, but European lawmakers are “not on track to regulate DeFi”, according to European Commission advisor Peter Kerstens. While the EU is finalizing the draft MiCA Regulation, European Central Bank President Christine Lagarde was already calling for a MiCA 2.0. According to Lagarde, the  current MiCA text will only be implemented in 2024, which is “a long way away” considering the speed at which markets develop. MiCA 2.0 should add rules on crypto staking, lending and DeFi, she suggested.

Patrick Hansen @paddi_hansen

Today, the EU pilot regime for market infrastructure based on DLT comes into force. This regulatory sandbox aims at developing the trading & settlement of tokenized securities, introducing certain regulatory exemptions (e.g. wrt central depository).

eur-lex.europa.euEUR-Lex - 32022R0858 - EN - EUR-Lex

Want to read more crypto & law insights? Check out Around the Blockchain by Christopher Foreman and Kyler Wandler. Their awesome compilation of legal crypto news in the US and around the world is available for free, every Monday. This week they cover the Bear Market of '22; the "Crypto Bill", Elon & Doge v. Investors; Crypto Tax Evasion and the EU Regulatory Debate. Have an interesting topic to share? Are you a student looking for an opportunity to publish? Contact Kyler (@KylerW56) or Chris (@CryptlessInSEA)!

And also…

• Crypto exchange FTX.US proposal to allow direct-to-consumer derivatives trades has its fans, but Bank of England official Cunliffe isn’t one oft hem. Cunliffe warned that rule changes cutting out intermediaries risk a repeat of the 2008 financial crisis.

• The US Labor Department strongly advised against crypto in 401(k) pension schemes. One group challenged the move in court, while Fidelity went ahead with its crypto pension offering regardless. Now the Department plans to assess whether to turn the guidance into an industry-wide rule.

• China’s WeChat updated its policies, banning NFT- and crypto-related accounts.

• Two excellent podcasts with US regulators: the Law of Code’ Jacob Robinson spoke to US SEC Commissioner Peirce about securities law, NFTs, DAOs and more…

• … while Unchained’s Laura Shin talked to CFTC Commissioner Caroline Pham:

  Laura Shin @laurashin

  On @Unchained_pod, CFTC Commissioner @CarolineDPham discusses the role of U.S. regulators in the broader crypto ecosystem.  Topics: *whether the SEC & CFTC should merge *classifying algorithmic stablecoins *Is Terra “shadow banking 3.0”? + more Listen: unchainedpodcast.com/cftc-commissio…

  

• Punk6529 called for an open Metaverse

  6529 @punk6529

  17/ My view is that the default outcome of the metaverse will be centralized. Big tech has the money, talent, massive reach and, interestingly, the full support and encouragement of nation-states to exercise more control, not less control. 🧐

• Panama’s President Cortizo partially vetoed a draft law recognizing crypto as a payment tool, arguing the current text goes against money laundering guidance by the Financial Action Task Force.

• Dogecoin is increasingly linked to criminal activity, according to blockchain analytics firm Elliptic. Meanwhile, Dogecoin-fan Elon Musk is being sued in a class action in the US for deceptively promoting Dogecoin as a legitimate investment, as discussed in Around the Blockchain.

• China’s Shanghai Fengxian Court invalidated a car sale contract involving crypto, arguing crypto payment breached the government’s crypto ban which “overrides” the car sale contract.

• Singapore will allow three more firms to operate digital token payment services. Meanwhile, the country’s financial regulator approved a license for Crypto.com.

• Crypto exchange Huobi accuses a former senior manager of making $5M by trading against a company account under his supervision. Its Thai subsidiary will close, after the Thai Securities & Exchange Commission revoked its trading license citing non-compliance. However, the exchange obtained a (non-trading) license in Dubai and a trading license in New Zealand.

• Bank of Israel tested the privacy and smart contract features of a potential digital shekel through an experimental car sale.  

• Qatar’s central bank is also moving ahead with CBDC plans: it is in the foundation stage of launching a digital coin.

• Iran is cutting off electricity to its 118 crypto miners once again in light of power shortages.

• CBDCs, not crypto, have the potential to fuel the future monetary system, according to the BIS.

• The Code3X compiled crypto regulatory info for various US authorities.

  TuongVy Le @TuongvyLe12

  UK’s @hmtreasury says self-hosted wallet transactions should not be automatically viewed as higher risk; “many persons who hold cryptoassets for legitimate purposes use unhosted wallets due to their customisability and potential security advantages (e.g. cold wallet storage),…”

Thanks for reading!