BitGo: Crypto Water Cooler — Feb 15
GM. It’s Wednesday, February 15, 2023.
Newsmakers
SEC proposes expanding rules around qualified custody to include crypto
On Wednesday morning, the U.S. SEC voted 4–1 in favor of proposing a?rule?that would, among other things, expand the types of assets that U.S. regulated investment advisers must hold using qualified custodians to include digital assets that are not securities. The proposal is significant because it addresses digital assets through rulemaking, and, as SEC Chair Gary Gensler noted in his Twitter?explainer video, it is the first update to the custody rule since 2009.
In a press release, Gensler?stated?that “through this expanded custody rule, investors working with advisers would receive the time-tested protections that they deserve for all of their assets, including crypto assets, consistent with what Congress envisioned.” One purpose of these protections is to “ensure client assets are properly segregated and held in accounts to protect the assets in the event of a qualified custodian bankruptcy or other insolvency.”
Qualified custodians typically include certain banks, broker-dealers and other financial institutions. Many crypto platforms and exchanges may not qualify due to operational practices and/or regulatory treatment. Gensler has previously stated that the custody practices at crypto platforms might not meet the legal threshold for keeping customer assets safe in a bankruptcy situation, positing that investors who hold digital assets through these platforms are more or less giving these companies unsecured loans with their assets.
If implemented as proposed, qualified custodians would be subject to surprise examinations and independent audits, heightened recordkeeping requirements, and additional operational and regulatory constraints. The comment period for this proposal will be open for 60 days.
Read more →?Yahoo News
New Regulatory Actions Against Kraken, Paxos
New actions by the U.S. SEC and the New York Department of Financial Services (NYDFS) briefly triggered fears of bans on staking and stablecoins across an industry already increasingly caught in the crosshairs of regulators.
Kraken, the third largest exchange by volume, last Thursday?settled?an?SEC complaint?that it “offered and sold an investment contract to the general public, including United States investors, whereby investors transfer certain crypto assets to Kraken for ‘staking’ in exchange for advertised annual investment returns of as much as 21%.” Kraken agreed to pay $30m in disgorgement and fines and close its U.S. staking operation.
This was the first SEC action involving staking, leading to speculation about a?ban. But, as Noelle Acheson notes in her Feb. 10 Crypto is Macro?newsletter, the action targeted the way Kraken’s staking service was set up — more like a staking “fund” with conditions, returns, and payouts set by Kraken. Per the SEC, Kraken should have registered, disclosing its financial condition and specific and detailed risks of the investment.
On Monday, reports that SEC would?sue Paxos?over its Binance-branded BUSD stablecoin further rattled the industry. What the agency actually did was issue Paxos a Wells notice, informing Paxos of a possible suit. The notice alleges that BUSD, the third largest stablecoin by market cap, is a security. Paxos disagreed and said it will?litigate. Separately, Paxos, a limited purpose trust company licensed and overseen by NYDFS, was ordered by that regulator to cease minting BUSD as part of a?separate investigation.
Read more →WSJ ($)
The Real Fallout of the Not-So-Secret U.S. Government Clampdown on Crypto
The raft of recent enforcement actions from U.S. governmental agencies, along with the January joint statement from the Federal Reserve System, the Federal Deposit Insurance Corporation, and the Office of the Comptroller of the Currency on?crypto risks to banking organizations, have led to hand wringing within the crypto community about a secret governmental plot to hamstring crypto by cutting it off from the traditional banking system.
In reality, most of these actions have been publicly telegraphed for some time — in speeches, writings, budgets, staffing, and legislative proposals. But the events of the latter half of 2022 spurred agencies whose mission it is to protect investors and depositors to take a harder look — and they saw plenty they didn’t like: stablecoins that aren’t; and firms fudging on their reserves, making misleading claims about being FDIC insured, permitting bad actors to launder money, and making off with customer assets. More than a secret plot to ringfence crypto, it appears that the industry’s bad apples depleted any goodwill regulators may have had.
That’s making things a lot more difficult for the?firms that want to work with regulators. Consider the case of?Custodia Bank?whose application to become the first crypto bank to become a member of the Federal Reserve System was?denied?last month. Custodia, already licensed in Wyoming as a special purpose depository institution, aims to act as a bridge between digital assets and the U.S. dollar payment system. It can currently takes days to convert digital assets to dollars through intermediaries so, had Custodia been able to gain direct access to the payment rails, it would have been a big leap forward for the industry.
The?application, which Custodia worked on with regulators for more than two years, appears to have ultimately been killed by exposure to excessive counterparty risk. The Fed?hasn’t shut the door?on crypto-focused banks joining the system in the future, but it has made clear that many risks need to be addressed. Ultimately, that is beyond the ability of any one company, making it likely that wider regulation will be needed for the Fed to feel comfortable.
Read more →Bloomberg ($)
Economic Models and Sustainability of Web3 Gaming
Games are seen as one of the pathways to?mass adoption of Web3?technologies as they bring together core DeFi principles of participation and rewards. Decentralized games give gamers a say in the game through DAOs and let them own, trade, and sell their game assets. Web3 gaming grew rapidly in 2021 before hitting rough waters in 2022. A?new generation of games?aims to address some of the economic problems of early models.
The sector is still robust. On a typical day, roughly three quarters of a million gamers conduct somewhere in the neighborhood of 20 million transactions with a total value ranging from $2m to $10m+, according to?Footprint Analytics. A?September 2022 report?from DappRadar showed Web3 gaming accounting for half of all blockchain usage.
Most Web3 games use a?play-to-earn (P2E) model where gamers get rewards — typically NFTs or native tokens — based on play time and accomplishments. However, the value of these assets is highly dependent on the vibrancy of the game.
Some games are now favoring a reward blend of NFTs and fungible tokens (FTs). FTs come with a limited life, creating an incentive to trade, which could create more robust ecosystems. Other new models include “Get Paid to Play” where players can use native tokens to buy in-game services from each other. Letting players?transfer gaming assets?between themselves instead of buying/selling them could also boost participation.
The industry also needs to attract?casual gamers?and resolve some security issues in order to gain adoption.
Read more →TechCrunch ($)
领英推荐
News In Brief
Regulation and Security
Business of Crypto
DeFi and Web3
Midweek Market Pulse
Total Market Cap:?$1,019,938,228,442–7 day change as of Tuesday 2/14/23 Noon EST -4.7%
Source: Messari
Cryptocurrencies saw their first significant weekly decline of 2023 as total market cap dropped to just above the $1t mark. After red-hot starts,?Bitcoin (BTC, -5.0%)?and?Ethereum (ETH, -7.4%)?cooled as some investors took profits. Major layer-1s and alt coins largely followed them down. The market may also be reacting to regulatory actions against?Kraken?and?Paxos.
Hedera (HBAR, +21.0%)?bucked the trend, buoyed by several developments.?Dell Technologies?will run a Hedera node and join other blue chip companies on the Hedera Governing Council. John Garvin (creator of?Days Gone) and gaming studio Liithos will?launch a new game called?Ashfall?on the network. Hedera also announced a?partnership with AfrofutureDAO?to launch a $1m metaverse fund.?Mina (MINA, +16.3%)?was another notable outerformer as?enthusiasm for ZK (zero-knowledge) proofs?continues to build.
The Last Word
Privacy Coin
noun
: Privacy coins preserve anonymity by obscuring user data on the blockchain
// Most blockchains are transparent by design. Pseudonyms are the main tool for user privacy.
About BitGo
BitGo provides the most secure and scalable solutions for the digital asset economy, offering regulated custody, borrowing and lending, and core infrastructure to investors and builders alike.
Founded in 2013 — the early days of crypto — BitGo pioneered the multi-signature wallet and later built TSS to improve upon other companies’ MPC offerings. Between multi-sig and TSS, BitGo offers the safest technology on the market and safeguards over 600 tokens across a wide variety of blockchains.
Over the years, BitGo has expanded from offering wallets into providing a full-suite solution that lets clients hold assets safely and then put them to work.
BitGo launched BitGo Trust Company in 2018, providing fully regulated, qualified cold storage to complement BitGo Inc’s original hot wallet solution. In 2020, BitGo launched BitGo Prime, which allows its clients to trade, borrow, and lend. Moreover, BitGo also provides access to DeFi, staking, NFT wallets, and beyond, and serves as the world’s sole custodian for WBTC, or wrapped Bitcoin.
Today, BitGo is the leader in digital asset security, custody, and liquidity, providing the operational backbone for more than 1500 institutional clients in over 50 countries — a list that includes many regulated entities and the world’s top cryptocurrency exchanges and platforms. BitGo also processes approximately 20% of all global Bitcoin transactions by value.
For more information, please visit?www.bitgo.com.
?2023 BitGo Inc. (collectively with its affiliates and subsidiaries, “BitGo”). All rights reserved. BitGo Trust Company, Inc., BitGo Inc., and BitGo Prime LLC are separately operated, wholly-owned subsidiaries of BitGo Holdings, Inc., a Delaware corporation headquartered in Palo Alto, CA. No legal, tax, investment, or other advice is provided by any BitGo entity. Please consult your legal/tax/investment professional for questions about your specific circumstances. Digital asset holdings involve a high degree of risk, and can fluctuate greatly on any given day. Accordingly, your digital asset holdings may be subject to large swings in value and may even become worthless. The information provided herein is not intended for distribution to, or use by, any person or entity in any jurisdiction or country where such distribution or use would be contrary to law or regulation. BitGo is not directing this information to any person in any jurisdiction where the publication or availability of the information is prohibited, by reason of that person’s citizenship, residence or otherwise.