The Coinbase website now states that USD Coin is “backed by fully reserved assets,” contrary to the now-removed claim of “backed by U.S. dollars in a bank account.” More specifically, “each USDC is backed by one dollar or asset with equivalent fair value, which is held in accounts with US regulated financial institutions.” Bloomberg News took screenshots of Coinbase’s USDC website on August 5 (left) and August 10 (right) and highlighted the section that changed in yellow:

Ghana to Pilot CBDC With German Banknote Printer Giesecke+Devrient

The Bank of Ghana plans to test a general purpose central bank digital currency (CBDC) in partnership with German banknote printer Giesecke+Devrient (G+D). G+D is providing the technology and will adapt their Filia CBDC solution adapted to Ghana’s requirements, which will be tested in a pilot with banks, payment service providers, merchants, consumers and other relevant stakeholders. Filia enables secure, consecutive offline payments in case no network connection is available.

Nigeria’s E-Nairu Central Bank Digital Currency Details Leaked

The Central Bank of Nigeria (CBN) will reportedly launch a pilot of its e-nairu on October 1 that will be run on the “two-tier” model whereby the central bank designs and distributes the CBDC and regulated financial institutions provide it to individuals and businesses. The CBN hopes that this strategy will help it “address interoperability risks that might be associated with the implementation.” The CBN reckons the risk of financial disintermediation can be addressed via the imposition of limits on e-naira holdings.

National Bank of Cambodia, Maybank launch real-time funds transfer service

The National Bank of Cambodia (NBC) and Malaysia’s Maybank Group reportedly launched the Maybank-Bakong Cross Border Funds Transfer — a real-time funds transfer service between Malaysia and Cambodia through the NBC’s Bakong e-wallet and Maybank’s MAE app. In the first phase, customers will be able to transfer funds from Malaysia to Cambodia, while transfers from Cambodia to Malaysia will be rolled out at a later date. There is a minimal service fee. Maybank customers can transfer funds up to US$2,500 (or RM10,000 equivalent) daily via their mobile devices.

Poly Network attacker starts returning the $611 million in stolen cryptocurrency

“The attacker of the $611 million Poly Network exploit has started returning the stolen crypto assets. The attacker’s move came less than a day after the initial exploit, which was the largest DeFi hack to date. But hours after the heist, blockchain security firm Slowmist claimed that they already tracked down the attacker’s IP and email information while the investigation on other ID intel relating to the attacker continued. Slowmist suggested that the attacker used a little known Chinese crypto exchange Hoo when putting together the funds for the attack, hinting at how their digital footprint was trailed at the beginning. Other crypto sleuths also found details relating to other exchanges that may help to identify them.”

Venmo enables users to automatically buy crypto with ‘cash back’ rewards

Venmo announced Cash Back to Crypto, a new way for Venmo Credit Card customers to automatically purchase cryptocurrency from their Venmo account using cash back earned from their card purchases. The new feature will not have any transaction fee associated with the purchase, with a cryptocurrency conversion spread built into each monthly transaction.

BitMEX Settles Civil Charges With CFTC, FinCEN for $100 Million

BitMEX has reached a $100 million settlement with the Commodity Futures Trading Commission and Financial Crimes Enforcement Network (FinCEN) for illegally operating a cryptocurrency trading platform and anti-money laundering violations. In addition, the company will be required to hire an independent consultant to conduct a historical analysis of its transactions to determine if it failed to properly report suspicious activity. The consent order bars BitMEX from selling certain types of crypto investment contracts in the U.S. without registering with the CFTC.

What Is and Isn’t a *Wholesale* Central Bank Digital Currency?

In previous posts I’ve discussed what is and isn’t a retail CBDC and in this post I extend the discussion to wholesale CBDC and launch a new tabulation of wCBDC experiments. Basically I conclude that when people say “wholesale CBDC” they really mean “distributed ledger technology (DLT) based wholesale CBDC, because wholesale CBDC itself is no novelty.

*To get these updates sent to your inbox, please email me at kiffmeister@protonmail.com. Also, for those interested in intra-day updates and news that didn’t make the Daily Digest cut, please check out my Diigo fintech bookmarks: https://www.diigo.com/user/kiffmeister/Fintech.

2021)*

August 10, 2021 ~ kiffmeister

What Is and Isn’t a *Wholesale* Central Bank Digital Currency?

In previous posts I’ve discussed what is and isn’t a retail #CBDC and in this post I extend the discussion to wholesale CBDC and launch a new tabulation of wCBDC experiments. Basically I conclude that when people say “wholesale CBDC” they really mean “distributed ledger technology (DLT) based wholesale CBDC, because wholesale CBDC itself is no novelty. And here’s the link to the “live” version of my tabulation of wholesale CBDC experiments. Please let me know if I’m missing or misrepresenting any. https://kiffmeister.blogspot.com/2021/08/dlt-based-wholesale-cbdc-experiments.html

Bank of Jamaica Mints First Batch of Central Bank Digital Currency

The Bank of Jamaica (BOJ) minted Jamaica’s first batch of central bank digital currency (CBDC). A total of J$230 million in CBDC will be issued to deposit-taking institutions and authorized payment service providers during the CBDC pilot exercise which ends in December. Minister of Finance and the Public Service, Nigel Clarke, said that legislative amendments to accompany CBDC will be in place before March 31, 2022, the end of the current fiscal year.

Crypto compromise dies in the Senate due to last-minute defense spending proposal

“A late-game attempt to make changes to controversial cryptocurrency tax reporting requirements included in the Senate’s infrastructure bill died [when it didn’t get the required unanimous consent]… Alabama Senator Richard Shelby motioned to add his own amendment to the broader infrastructure bill: a $50 billion earmark for defense. The combined package was subsequently shot down by an objection from Bernie Sanders… The Senate is expected to vote today on a final bill, which will then need to go through the House.”

The bill that will go the House will include the contentious tax reporting provision that will expand the definition of “brokers” to include those dealing in digital assets, such as miners, validators, wallet providers, and DeFi protocol developers. Senators Ron Wyden, Cynthia Lummis, and Pat Toomey had offered an amendment that would exempt non-custodial actors. That was followed by a competing amendment from Senators Mark Warner and Rob Portman that would only explicitly exempt proof-of-work miners and wallet providers from the requirement. That was followed yesterday by the compromise amendment that was ultimately shot down.

Hackers stole at least $600M in Poly exploit across three chains

Hackers allegedly breached blockchain-based platform Poly Network and extracted more than $600 million in cryptocurrencies, marking the biggest hack ever in the decentralized finance space. The network said it would be pursuing legal action against the hackers and urged them to return the pilfered funds. It also requested that miners on the aforementioned chains and crypto exchanges blacklist tokens coming from the affected addresses.

What Is and Isn’t a Wholesale Central Bank Digital Currency?

August 10, 2021December 4, 2024 ~ kiffmeister ~ 4 Comments

In a previous post I discussed what is and isn’t a retail central bank digital currency (rCBDC): A broadly available general purpose digital payment instrument, denominated in the jurisdiction’s unit of account, that is a direct liability of the jurisdiction’s monetary authority, and subject to the same rules and regulations as imposed on the jurisdiction’s other units of account. The gist of this is summarized in the following table.

I then went on to describe wholesale central bank digital currency (wCBDC) as being like an rCBDC, but being restricted to wholesale, financial market payments. But some will notice that I never mentioned the technology platform – whether it runs on a centralized or decentralized ledger, or whether there is even a ledger at all (i.e., “token” based). And that’s because discussions around rCBDC are generally agnostic about the platform type. However, it’s my sense that that is not the case for wCBDC.

And that may be because wCBDC is not really anything new. For example, a 2018 IMF staff discussion note characterized central bank reserves as a “wholesale form of CBDC used exclusively for interbank payments” which has been around for ages. And in 2020, ECB legal staff noted that “the issuance by central banks of digital liabilities and the corresponding holding, by third parties, of intangible money claims against the balance sheet of the digital liability-issuing central bank would not represent a genuine novelty.”

And a 2020 paper that surveyed wCBDC research found that “the overarching motivation for CBDC research by CBs is to assess the impact of distributed ledger technology (DLT) on financial market infrastructures (FMIs). Which all implies to me that when people say “wholesale CBDC” they really mean to say is “distributed ledger technology (DLT) based wholesale CBDC. This may be a trivial discussion but when we say “retail CBDC” we encompass all platforms (centralized, distributed and token-based) and as everyone knows I’m a stickler on definitions!

And although I don’t follow wholesale CBDC developments closely, I’ve tabulated below the experiments that have popped up in my Daily Digest. If I’ve missed any, please let me know in the comments! FYI I plan to keep the table updated on my Kiffmeister Chronicles blog. That’s also the best version of the table to use if you want to follow the live links in the “references” section.

Kiffmeister’s #Fintech Daily Digest (08/09/2021)*

August 9, 2021 ~ kiffmeister

Tether Is Backed by Nearly 50% Commercial Paper

Tether has released an assurance report that provides a breakdown of the company’s consolidated assets on June 30, that shows that its $62.7 billion outstanding USDT stablecoin were fully backed. The report was conducted by Moore Cayman, a Cayman Islands-based auditor.

Tether’s latest attestation report provides much more detail on the composition of its assets, including its certificates of deposit and commercial paper (most of which is rated A-1 or A-2). The majority of these holdings (66%) had a maturity of 91–365 days. Also, its allocation to Treasury Bills has grown to around 24% from the 3% three months ago. It’s very well footnoted, too.

Unchanged crypto tax bill will be put to a vote on Tuesday

Senate talks over the controversial cryptocurrency tax provisions to the U.S. infrastructure bill stalled over the weekend, so an unamended version of the bill may be put to a vote on Tuesday. However, on Monday, Senators Cynthia Lummis and Pat Toomey announced a compromise on the contentious crypto-related tax provisions. But unless the Senate can achieve unanimous consent on the compromise before the final vote on Tuesday, the unamended bill will be put to a vote on Tuesday, although the legislation would still need to clear the House, giving further opportunity for revisions. Stay tuned!

Angela Walch: “The reason it’s so difficult to come up with an amendment that includes crypto exchanges and excludes miners from the definition of ‘broker’ is that both parties do transfer digital assets for third parties in exchange for payment. In order to [do that] you need to articulate a policy rationale for why their behavior is different, and then you can write the language. There are reasons why they are the same and why they are different. Congress needs those comparisons to be put on the table so that it can weigh them, and decide what to do.”

Circle plans to file to become a bank

Circle, the fintech company behind the USDC stablecoin, intends to become a US Federally-chartered national full-reserve commercial bank, according to its S-4 special-purpose acquisition company (SPAC) filing with the U.S. Securities and Exchange Commission. The firm said that a banking framework could reduce the risks around its business, including its reliance on third-party payment systems.

Kiffmeister’s #Fintech Daily Digest (08/08/2021)*

August 8, 2021 ~ kiffmeister

What Is and Isn’t a Retail Central Bank Digital Currency (CBDC)?

I’ve updated my discussion on what is and isn’t a retail central bank digital currency (CBDC). My current definition is that it is a broadly available general purpose digital payment instrument, denominated in the jurisdiction’s unit of account, that is a direct liability of the jurisdiction’s monetary authority, subject to the same rules and regulations as imposed on the jurisdiction’s other units of account, that can be used for peer-to-peer transactions.

Notice that I never mentioned the technology platform – whether it runs on a centralized or decentralized ledger, or whether there is even a ledger at all (i.e., “token” based). And that’s because discussions around retail CBDC are generally agnostic about the platform type. However, it’s my sense that that is not the case for wholesale CBDC, and that may be because it is not really anything new. For example, a 2018 IMF staff discussion note characterized central bank reserves as a “wholesale form of CBDC used exclusively for interbank payments”.

Which implies to me that when people say “wholesale CBDC” they really mean to say “distributed ledger technology (DLT) based wholesale CBDC”. Later this week I’ll elaborate on this, and post a first draft of a summary of all DLT-based wholesale CBDC projects.

Kiffmeister’s #Fintech Daily Digest (08/07/2021)*

August 7, 2021 ~ kiffmeister

Central Bank of Venezuela Digital Bolivar: CBDC or Not?

“The Central Bank of Venezuela announced a redenomination plan for its fiat currency called the “Digital Bolivar.” This proposal seeks to simplify transactions by slashing six zeroes from the current value of the currency.” Earlier this week I jumped to the conclusion that it was a central bank digital currency (CBDC), but it may be more about the development of a private sector digital economy. Juan Gutiérrez‘s translation of the central bank’s press release seems to concur:

“Recently, the new Financial Messaging Exchange System, made in Venezuela and by Venezuelans, began operations, promoting the independence from foreign systems for national banking operations and consolidating the use of the Bolivar. The modernization of payment systems aims to immediately expand the use of the digital bolivar, enabling transfers between clients of different banks to be received in a few seconds with the highest international quality standards.”

Maybe it will turn out to be CBDC, but we need more details to back that up.

Senate on the Brink of Passing Bill That Threatens Crypto. Here’s What Happens Next

The Senate is gearing up to vote on a $1 trillion infrastructure bill, but first, it’s got to figure out what to do about cryptocurrency. To pay for part of the bill’s proposals, its authors included a provision that will expand the definition of “brokers” to include those dealing in digital assets, such as miners, validators, wallet providers, and DeFi protocol developers. Senators Ron Wyden (D-OR), Cynthia Lummis (R-WY), and Pat Toomey (R-PA) offered an amendment that would exempt non-custodial actors. That was followed by a competing amendment from Senators Mark Warner (D-VA) and Rob Portman (R-OH) that would only explicitly exempt proof-of-work miners and wallet providers from the requirement. This Decrypt article runs through the various scenarios that could unfold over the weekend.

Kiffmeister’s #Fintech Daily Digest (08/06/2021)*

August 6, 2021 ~ kiffmeister

Venezuela Will Launch Digital Bolivar in October

Banco Central de Venezuela is rolling out a central bank digital currency (CBDC) in October and will launch an SMS-based exchange system to facilitate its use.

Cryptocurrency brawl bogs down infrastructure bill, as Yellen and White House fight changes

The Biden administration is reportedly pushing back against a last-minute effort by a bipartisan group of senators to limit a proposal in the infrastructure bill to increase federal regulation of crypto-assets. The original version of the bill sought to help pay for itself by boosting information reporting requirements and broadening the definition of a “broker” for tax purposes to include any parties that might interact with crypto, including miners, node operators, software developers or similar parties. Then Senators Ron Wyden (D-OR), Cynthia Lummis (R-MT), and Pat Toomey (R-PA) introduced an amendment that would exempt miners and validators, which was followed by the latest amendment from Senators Rob Portman (R-Ohio) and Mark R. Warner (D-Va.) that exempted only proof of work miners. The debate will now likely stretch into the weekend.

On the Economic Design of Stablecoins

According to this paper co-written by the Diem Association’s Christian Catalini, fiat-backed stablecoins must rely on reserves of high-quality, liquid assets and be subject to a framework that protects coin holders from credit risk, market risk, operational risk, as well as the insolvency or bankruptcy of the issuer. Although decentralized stablecoin designs eliminate the need to trust an intermediary, they are either exposed to death spirals, or highly capital inefficient, as they must be highly over-collateralized to account for the lack of an intermediary. While these trade-offs might be acceptable for narrow use cases within the cryptocurrency space, without a breakthrough in decentralized stablecoin design, they are likely to limit the usefulness of these coins for mainstream adoption.

The international dimension of a central bank digital currency

According to this article by European Central Bank (ECB) staff, some advanced economy CBDC would not only have domestic macroeconomic and financial implications for the issuing economy; it would also have implications for the rest of the world. The authors’ simulations suggest that if such a CBDC is available to non-residents, additional volatility in capital flows, exchange rates and interest rates resulting from its presence can be mitigated through holdings limits on transactions by foreigners or through flexibility in the CBDC’s remuneration rate. Of the two policy tools, the authors’ simulations show the latter is the most powerful – price flexibility dominates quantitative restrictions. That a CBDC increases asymmetries in the international monetary system by reducing monetary policy autonomy in foreign economies, but not domestically, suggests in addition that introducing a CBDC sooner, rather than later, could give rise to a significant first-mover advantage.

Final Report – Canadian Government Advisory Committee on Open Banking

The Government of Canada’s Advisory Committee on Open Banking recommends moving forward quickly to implement a hybrid, made-in-Canada system of open banking; founded on collaboration, with distinct but appropriate roles for government and industry. This should be done in a phased manner, with an initial phase including the design and implementation of the initial low risk open banking system and a second phase involving the evolution and ongoing administration of the system. Financial inclusion should be considered in the design and be complemented by financial education policies, programs, and resources.

Cambodia aims to wean off US dollar dependence with digital currency

The National bank of Cambodia’s (NBC’s) Chea Serey, who leads the central bank’s Project Bakong blockchain-based retail interbank payment system, said Bakong’s electronic wallet reached 200,000 users in June, doubling from three months earlier. Project Bakong, launched in October 2020, allows Cambodians to pay at stores or send money through a mobile app in riel or U.S. dollars. Serey said that the mission of Bakong is to “increase the usage of the local currency,” with the long-term goal to “solely use our local currency.” NBC is also exploring cross-border transactions through Bakong. Currently it is working on this with Malaysia’s Maybank as well as Thailand’s central bank.

Kiffmeister’s #Fintech Daily Digest (08/05/2021)*

August 5, 2021 ~ kiffmeister

Fed Governor Waller ‘Highly Skeptical’ of a Fed Digital Coin

Federal Reserve Governor Christopher Waller said he is “highly skeptical” about a U.S. central bank digital currency (CBDC). He remains “skeptical that a [it] would solve any major problem confronting the U.S. payment system.” Waller also said he saw no reason why the dollar wouldn’t continue to dominate the international payment system even if other nations started using digital currencies for cross-border contracts. He also found it “implausible… that developing a CBDC is the simplest, least costly way to reach the [unbanked].”

US Senators Move to Exempt Bitcoin Miners From Tax Provision in Infrastructure Bill

U.S. Senators Ron Wyden (D-OR), Cynthia Lummis (R-MT), and Pat Toomey (R-PA) have introduced an amendment that would exempt Bitcoin miners and validators on other blockchain networks from a provision aimed at raising $28 billion in tax revenue to help pay for the bill.

Ethereum London hard fork goes live

“Ethereum’s London hard fork arrived almost on schedule at 12:33 pm UTC on August 5, 2021 at block height 12,965,000, ushering in Improvement Proposal (EIP) 1559.” With the upgrade triggered, Ethereum will now undergo a significant overhaul of the network’s transaction fee market and other parameters that should make the network more stable, and make fees more predictable to users. Under EIP-1559, each transaction on Ethereum will involve burning the base fee, which automatically decreases the ETH circulating supply and reduce the profitability of mining ETH.

Binance’s Insurance Fund

On 19 May, Binance customers using leverage found positions automatically liquidated as the crypto price drop wiped out all the collateral in their margin accounts before they could transfer extra funds onto the exchanges. This blog post examines another side of the story – the actual value of Binance’s insurance fund and its ability to meet the potential pay-outs on 19 May, had the platform not been closed. It claims that, if the futures platform had not closed, Binance would have had to subsidise its insurance fund by a billion USDT or more. Also, the post speculates that there is a rather incestuous relationship between Binance and Tether, and in fact, a big chunk of the commercial paper that Tether holds against its outstanding USDT is issued by Binance.

Kiffmeister’s #Fintech Daily Digest (08/04/2021)*

August 4, 2021 ~ kiffmeister

U.S. SEC Chair Gensler calls on Congress to help rein in crypto ‘Wild West‘

U.S. Securities and Exchange Commission (SEC) Chair Gary Gensler called on Congress to give the agency more authority to better police crypto-asset trading, lending and platforms, a “Wild West” he said is riddled with fraud and investor risk. He said the crypto market involves many tokens which may be unregistered securities and leaves prices open to manipulation and millions of investors vulnerable to risks. He also focused on stablecoins and how they “may facilitate those seeking to sidestep a host of public policy goals connected to our traditional banking and financial system: anti-money laundering, tax compliance, sanctions, and… national security, too… Further, these stablecoins also may be securities and investment companies. To the extent they are, we will apply the full investor protections of the Investment Company Act and the other federal securities laws to these products.”

Samsung confirms support for central bank digital currency

Samsung Electronics will reportedly participate in the Bank of Korea’s central bank digital currency (CBDC) proof-of-concept (PoC) work reportedly co-managed by Ground X, a blockchain affiliate of messenger platform, Kakao. Ground X has partnered with ConsenSys to create the Klaytn Ethereum-based public-permissioned blockchain that the PoC will be run on. Ground X will start work in August, with the first phase to be completed by December.

Kiffmeister’s #Fintech Daily Digest (08/03/2021)*

August 3, 2021 ~ kiffmeister

China’s Central Bank Says It Will Keep Pressure on Crypto Market

“The People’s Bank of China (PBOC) vowed to maintain heavy regulatory pressure on crypto-asset trading and speculation after escalating its clampdown in the sector earlier this year. The central bank will also supervise financial platform companies to rectify their practices according to regulations. It will also act to prevent major financial risks and push to lower the number of high-risk financial institutions in key provinces.”

Miami Set to Launch Its Own Cryptocurrency, Reward Users in Bitcoin

“Miami launched its own crypto-asset, MiamiCoin, which will be used to fund infrastructure projects or events in the city. The idea is that people will support Miami by buying or mining MiamiCoin, and funds will be diverted to the city’s treasury. MiamiCoin will be the first CityCoin released. CityCoins is a project that allows people to invest in a city by buying tokens. It works with local governments so those who invest are rewarded in Bitcoin or Stacks. MiamiCoin additionally benefits holders by allowing them to Stack and earn yield through the Stacks protocol.”

Stacks is an open-source network of decentralized apps and smart contracts built on Bitcoin, and on which apps, smart contracts, and digital assets can be built. Stacks has a native token called stacks (STX) and a language for programming smart contracts called Clarity.

Month: August 2021

Kiffmeister’s #Fintech Daily Digest (08/11/2021)*