Kiffmeister’s #Fintech Daily Digest (05/31/2021)*

Marshall Islands reconsiders issuing SOV crypto-assets as legal tender

International Monetary Fund (IMF) staff concluded that the issuance of the SOV crypto-asset by the Republic of the Marshall Islands (RMI) as a second legal tender (in addition to the US dollar) would raise risks to macroeconomic and financial stability as well as financial integrity. Also, SOV issuance could jeopardize the RMI’s last US dollar corresponding banking relationship. This combined with anti-money laundering and combatting the financing of terrorism risks, could disrupt external aid and other important financial flows, resulting in significant economic drag. Now, as a result, the government has conducted a comprehensive due diligence study on the SOV based on which the Parliament is considering repeal of the 2018 SOV Act under which the SOV would be issued. 

US Court Denies SEC Access to Ripple’s Legal Communications

Ripple received another favorable ruling in its legal battle against the Securities and Exchange Commission (SEC). The regulator filed a motion seeking access to ‘all communications constituting, transmitting, or discussing any legal advice Ripple sought or received as to whether its offers and sales of XRP were or would be subject to federal securities laws’. Ripple successfully challenged the motion saying that the SEC’s requested communications are protected by the attorney-client privilege, which has not been waived. Judge Sarah Netburn elaborated that the attorney-client privilege should be ‘strictly confined within the narrowest possible limits consistent with the logic of its principle’. 

Cardano rebounds 15% as Alonzo smart contact testnet launches

Cardano launched the first testnet for its smart contract platform, Alonzo, that will be rolled out in three phases, each named after a different color. The current blue phase will be followed by Alonzo White and Alonzo Purple, each aiming to include more users and add functionality to the network. The phases are to be rolled out at 30-day intervals, with Alonzo Purple expected to launch by the end of August. Alonzo also will support an ERC20 converter, allowing ETH tokens to run on Cardano, making its proof-of-stake network a serious competitor to Ethereum. 

FSB seeks feedback on its proposals for quantitative targets for enhancing cross-border payments

The Financial Stability Board (FSB) published a public consultation on global targets for addressing the four challenges of cross-border payments. The quantitative targets proposed are a foundational step in the G20 Roadmap for Enhancing Cross-border Payments, which was endorsed by G20 Leaders in November 2020. The proposed targets set goals for improving cost, speed, transparency and access for cross-border payments in the coming years through the actions taken under the Roadmap. They will play an important role in defining the ambition of the work and creating accountability. They are intended to provide a common vision for the improvements that are being sought in cross-border payments services through the collaborative work of the private and public sectors. 

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Kiffmeister’s #Fintech Daily Digest (05/30/2021)*

Bitcoin’s Volatility Spawns New Crypto Balance Sheet Alternatives

Circle announced that it will be offering investors the opportunity to deposit USDC and earn as much as 7% annually through high-yield accounts with locked-in terms ranging from one month to a year. The interest is paid out in USDC, generated by Circle lending the digital dollars to a network of institutional investors that are willing to pay an interest rate for access to additional capital. The service will launch imminently in the U.S. and Switzerland. The Gemini exchange offers a similar scheme called “Gemini Earn” based on Gemini Dollars (GUSD) that promises returns of up to 7.4% annually.  

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Kiffmeister’s #Fintech Daily Digest (05/29/2021)*

Bank of Japan’s Approach to Central Bank Digital Currency

Thanks to the Bank of Japan’s Masaki Bessho, here’s a very nice slide deck explaining the Bank of Japan’s approach to central bank digital currency (CBDC) and providing some detail on the proof of concept work started in April.  

What’s Going on with Circle’s USDC Attestation Reports?

It has been previously reported that the publication of Circle’s USDC stablecoin attestation reports have become very tardy. However, JP Koning also notes that between February and March 2021, the reports have gotten a bit less transparent. Circle no longer discloses the precise amount of U.S. dollars it holds in custody. Whereas they used to say “US Dollars held in custody =…” in March they started saying “US Dollars held in custody accounts are at least equal or greater than the USDC tokens outstanding…” One possibility is that Circle is investing in assets that cannot be easily valued, and going down the same slippery slope as Tether. 

US Convenience Store Chain Sheetz to Accept Cryptocurrencies for Payments

Sheetz will be accepting crypto payments via the digital payments network Flexa. The company, headquartered in Altoona, Pennsylvania, operates 622 convenience stores and coffee shops in Ohio, Virginia, North Carolina, Pennsylvania, West Virginia, and Maryland. 

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Kiffmeister’s #Fintech Daily Digest (05/28/2021)*

Riksbank begins cooperation with external participants in e-krona pilot

The Riksbank announced the next phase of its R3 Corda-based distributed ledger technology-based e-krona pilot. This phase will move on from having only simulated participants, to involving external actors (Handelsbanken and TietoEVRY) as participants in the test environment, making it possible for the Riksbank to evaluate the integration between the participants’ existing systems and the technical platform for the e-krona pilot. The Riksbank will, for instance, be testing an integration of the payment flows developed during the first year of the pilot with the participants’ internal systems. 

Bank of Mauritius Plans CBDC Pilot in 2021

The Bank of Mauritius (BoM) is reportedly targeting a year-end rollout for the island nation’s central bank digital currency (CBDC) pilot. It is in the midst of finalizing its position papers and would publish “concrete examples” of its initiatives in the near future. The International Monetary Fund (IMF) has been helping the BoM with its tentative digital currency plans, including advising on possible CBDC designs. Governor Harvesh Seegolam said that while CBDCs come with their advantages, they aren’t likely to replace cash but rather complement the existing monetary system. 

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Kiffmeister’s #Fintech Daily Digest (05/27/2021)*

PayPal Will Let Customers Withdraw Crypto

PayPal plans to let users withdraw crypto-assets to third-party wallets. At present, PayPal does not let users move crypto-asset holdings off-platform, though it has let customers buy bitcoin and other crypto-assets since October 2020. 

Whom do consumers trust with their data? US survey evidence

A Bank for International Settlements (BIS) paper reports on a recent survey of US households, finding that they say they are more likely to trust traditional financial institutions than government agencies or fintechs (and especially bigtechs) to safeguard their personal data. Respondents from racial minorities have less trust in financial institutions, while younger respondents trust fintechs relatively more. Female, minority and younger respondents are more concerned about implications of data-sharing for their personal safety. 

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Kiffmeister’s #Fintech Daily Digest (05/26/2021)*

FYI I’ve updated my central bank digital currency (CBDC) explorer tabulation for the latest developments out of Indonesia and South Africa. 

Iran bans cryptocurrency mining for 4 months amid power cuts

Iran banned the mining of crypto-assets after a series of blackouts across major cities. The ban is effective immediately and will last until September 22. Iranian officials blame a surge in mining — as well as increased manufacturing and a drop in hydroelectricity supply — for blackouts that are playing havoc with businesses and daily life. 

Crypto banking legislation signed into law in Nebraska

The Nebraska Financial Innovation Act was signed into law. The legislation creates a new state banking charter for digital asset depository institutions, modeled after similar legislation passed last year in Wyoming, that paved the way for Kraken to become the first official state-level crypto bank in the US. Japan-based Telcoin, a blockchain-based fintech, drafted the legislation as it seeks to bring its digital asset-backed financial services to US consumers. 

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Kiffmeister’s #Fintech Daily Digest (05/25/2021)*

Elon Musk Convinces Miners to Form ‘Bitcoin Mining Council’ to Promote Renewable Energy Usage

Elon Musk has spoken with North American bitcoin miners and they have committed to forming a Bitcoin Mining Council to “promote energy usage transparency & accelerate sustainability initiatives worldwide.” They have also agreed to publish their current and planned renewable usage. The meeting was hosted by Microstrategy CEO Michael Saylor. 

USDC Attestations Run Late, Raising Alarms in the Crypto Community

Centre is late in releasing USDC reserves attestations, with the March 31 report finally being posted on their website on May 24. Meanwhile, the stablecoin’s market cap has soared from $11 billion to almost $21 billion since March 31, raising concerns that they’re following Tether to the dark side (see graphic). Adding to those concerns is that the reports remain vague about how the reserves are invested: “held…at federally insured US depository institutions and in approved investments” whatever they are.  

China’s Inner Mongolia set to impose eight measures on crypto mining ban

“The Inner Mongolia Development and Reformation Commission issued a proposal that outlined eight areas that could be deemed as illegal that relate to crypto mining activities. Any corporation or individual found engaging in crypto mining activities could also put onto China’s Social Credit Dishonesty List, which would bar them from “social” activities such as getting banked, booking air or train tickets, among other activities.”

South Africa’s central bank begins preliminary study for retail CBDC

The South African Reserve Bank (SARB) has embarked on a study to investigate the feasibility, desirability and appropriateness of issuing retail central bank digital currency (CBDC) as electronic legal tender. The feasibility study will include practical experimentation across different emerging technology platforms, taking into account a variety of factors, including policy, regulatory, security and risk management implications. The CBDC feasibility study is expected to be concluded in 2022. 

Bank Indonesia joins global central bank push for digital currencies

The Governor of the Bank Indonesia (BI) reportedly said that the central bank is planning to launch a digital rupiah and is assessing which platform it will use. BI is also examining how a central bank digital currency (CBDC) will help it meet its monetary policy and payment systems objectives, including by assessing the readiness of the financial infrastructure. The Governor said the rupiah will remain the only legally accepted currency for payment, and BI will regulate the digital rupiah the same way it regulates banknotes and card-based transactions.

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Kiffmeister’s #Fintech Daily Digest (05/24/2021)*

Banco Central do Brasil guidelines for the potential development of the digital real

Banco Central do Brasil published its guidelines for the potential issuance of retail central bank digital currency (CBDC). The project will focus on an unrenumerated digital real that will operate on a two-tier business model, with an eye towards cross-border interoperability and integration.

South Korea’s central bank moves to develop pilot digital currency

The Bank of Korea launched an open bidding process to select a technology supplier partner to research the practicalities of launching a distributed ledger technology-based two-tier central bank digital currency (CBDC) in a test environment. It’s slated to begin in August and continue through June of next year.  

China crypto mining business hit by Beijing crackdown

Crypto-asset miners have halted all or part of their China operations after Beijing intensified a crackdown on bitcoin mining and trading. Huobi suspended both crypto-mining and some trading services to new clients from mainland China to focus on overseas businesses. BTC.TOP, a crypto mining pool, also announced the suspension of its China business citing regulatory risks, while crypto miner HashCow said it would halt buying new bitcoin mining rigs. 

*For those interested in intra-day updates and news that didn’t make the Daily Digest cut, please check out my Diigo fintech bookmarks:

Kiffmeister’s #Fintech Daily Digest (05/23/2021)*

A New Report From JPMorgan Shows Just How Big Tether Has Become

Tether is now one of the biggest money market funds in the world, holding more commercial paper than companies like Amazon and Google. According to JP Morgan analysts, although Tether might prefer the simpler solution of holding their USDT reserves with US banks, they have been pushed into a corner because of their limited access to such banks caused by their reputation for shady behavior, including, in the past, misrepresenting the sufficiency and quality of those USDT reserves. The kind of big banks that could accommodate a material portion of these reserves, including JP Morgan themselves, would likely steer clear of Tether due to reputational risk concerns. 

Are some stablecoins becoming “untethered”?

And speaking of stablecoins, some may be finding it challenging to maintain their fiat (i.e., USD) pegs. I’ve had some discussions on LinkedIn about how real some of this “untethering” (in the case of USDT) is, given that some data sources show that everything is business as usual. In any case, JP Koning has pointed out that the TerraUSD algorithmic stablecoin is one of them that is struggling (see first figure below). It’s currently #5 on the stablecoin league table. Also, USDT has been struggling (see second figure).

Commerzbank was involved in a joint blockchain project with chemical firms BASF and Evonik, who frequently trade with each other. Supply chain payments were verified, paid and logged in a fully automated manner using smart contracts. In other words, it used programmable money or cash on ledger. At a legal level, the digital cash was e-money. 
Iran is using Bitcoin mining to circumvent and lessen the effect of the economic sanctions that the U.S. and other countries have applied to the country since 2006, according to a new study by Elliptic. The country is indirectly using bitcoin mining to export part of its energy reserves, whose exports are being hampered by the said sanctions. 

*For those interested in intra-day updates and news that didn’t make the Daily Digest cut, please check out my Diigo fintech bookmarks:

Kiffmeister’s #Fintech Daily Digest (05/22/2021)*

Bank of Canada Looking to Hire a CBDC Project Architect

The Bank of Canada is looking to hire a central bank digital currency (CBDC) Project Architect to lead the design “a digital currency product and services to meet both the Bank of Canada’s policy goals and the needs of millions of users, merchants and other stakeholders.” I very much like the way they lay out its minimum CBDC design objectives. They’re a model for all central banks to follow: 

  • Universally accessible: Regardless of their circumstances, CBDC should be usable by all Canadians, even by those without a bank account or access to a cellular phone, in remote communities not well served by cellular networks, and/or those with sensory, motor and cognitive impairments. 
  • Resilient: CBDC should have extremely high availability and best in class Service Level Objectives (SLOs) such as Recovery Time Objective (RTO) and Recovery Point Objective (RPO). 
  • Secure: CBDC must have the highest levels of security so Canadians can use it with confidence, as they do our banknotes.
  • Private: While not aiming for cash-like anonymity, CBDC should be highly private yet meet the obligation to be compliant with anti-money laundering and other regulations. 

We will design an architecture into which these properties that are coherently embedded, with a potentially multi-decade evolving lifespan, supporting a business model designed to achieve CBDC policy goals.

China vows to crack down on bitcoin mining, trading activities

China’s State Council Financial Stability and Development Committee called for a crack down on bitcoin mining and trading activities as part of efforts to fend off financial risks. This is the first time the State Council has explicitly targeted crypto mining activities. The statement, which comes just days after three Chinese industry bodies tightened a ban on banks and payment companies providing crypto-related services, marks a sharp escalation of moves against virtual currencies. 

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