Kiffmeister’s #Fintech Daily Digest (20221020)

October 20, 2022October 20, 2022 ~ kiffmeister

BoE looking for help with its offline CBDC research and PoC work

The Bank of England is looking for a specialist supplier to help them with their offline central bank digital currency (CBDC) research and proof of concept (PoC) work. The process of applying is a bit wonky because thy’ve delegated it to the UK government’s digital supplier procurement system, and if you or your firm are not already on their supplier list, tough luck. And tough luck for the Bank too, because the “supply” of offline digital currency experts is rather thin, and most probably aren’t already be on the list. [Read the RFP here and the list of suppliers here]

Israeli government to trial blockchain bonds with stock exchange TASE

The Israeli Ministry of Finance and the Tel Aviv Stock Exchange (TASE) announced plans for a proof of concept to issue government bonds using blockchain. Protocol developer VMWare and custody provider Fireblocks will be part of this Project Eden. The blockchain system will be developed by TASE and involve live tests with local and international banks, with settlement using digital currency in an Israeli state e-wallet. [Read more at Ledger Insights]

Nubank launches its own cryptocurrency running on Polygon

Brazil’s Nubank is launching Nucoin, its own cryptocurrency on the Polygon blockchain network in the first half of 2023. It will be distributed free of charge to customers as the basis for the creation of a rewards program in Brazil. Polygon is an Ethereum scaling blockchain that enhances the functionality of Ethereum while retaining the base layer’s security and decentralization. [Read more at Nubank]

UK to introduce legislation conferring legality on digital documents on blockchain

The UK government has introduced has introduced a new bill into Parliament that bestows legal status on paperless documentation used in international trade. Under the Electronic Trade Documents Bill, digital trade documents will be put on the same legal footing as their paper-based equivalents to give UK business more choice and flexibility in how they trade. The Bill will reduce admin costs, make it easier for British firms to buy and sell internationally, and cut processing times for electronic documents to 20 seconds. [Read more on the UK government website]

API standards for data-sharing (account aggregator)

This BIS Consultative Group on Innovation and the Digital Economy (CGIDE) report presents three models for data sharing: centralised, decentralised and trust – and develops the user interactions and their data flows. Additionally, the report presents account aggregator functionality and possible arrangements for implementation in the open finance ecosystem. Finally, it shows the successful implementation of a demo based on a microservices architecture that promotes high availability, scalability and resilience. [Read more at the BIS]

Tornado Cash Is not free speech. It’s a Golem

Henry Farrell and Bruce Schneier argue that tying free speech arguments to the cause of decentralized autonomous organizations (DAOs) like Tornado Cash imperils some of the important free speech victories that were won in the past. But the risks for everyone might be even greater if that argument wins. A world where democratic governments are unable to enforce their laws is not a world where civic spaces or civil liberties will thrive. [Read more at Lawfare]

Kiffmeister’s Global Central Bank Digital Currency Monthly Monitor

Just a reminder that I produce a monthly digest of central bank digital currency (CBDC) developments exclusively for the official sector. So for any of you out there who work for a central bank, ministry of finance or international financial institution who would like to receive it by email on the first business day of every month, please DM me on LinkedIn or email me at chronicles@kiffmeister.com.

Kiffmeister’s #Fintech Daily Digest (20221019)

October 19, 2022October 19, 2022 ~ kiffmeister

Central Bank of Eswatini partners with Giesecke+Devrient to further explore CBDC issuance

The Central Bank of Eswatini (CBE) has partnered with Giesecke+Devrient (G+D) to research and explore the development of a central bank digital currency (CBDC). G+D’s appointment stems from the completion of the 1st phase of the CBDC Diagnostic Study conducted in 2020 which found that a retail CBDC presented the strongest and direct opportunity for the adoption of a digital currency in Eswatini. [Read more at the CBE]

JP Morgan to tokenize euro deposits soon

“JP Morgan already enables tokenized U.S. dollar deposits with JPM Coin. Now it plans to enable blockchain-based Euro deposits ‘soon’… Most blockchain financial applications sit under JP Morgan’s Onyx division. This includes Onyx Digital Assets with an intraday DLT repo application, Liink for messaging around conventional payments and JPM Coin. It’s also experimenting with using JPM Coin on a public blockchain as part of Project Guardian, its Singapore DeFi experiments with the Monetary Authority of Singapore.” [Read more at Ledger Insights]

Towards a composable standards-based CBDC implementation

This paper by Vipin Bharathan and Mani Pillai proposes a CBDC implementation approach based on two reference standards; the Token Taxonomy Framework (TTF) and the International Swaps and Derivatives Association (ISDA) Common Domain Model (CDM) for contracts. The proposal’s basic pattern is a contract network linked to a token network, bridging the gap between business contracts and the corresponding exchange of value. [Read more at SSRN.com]

Here’s why Silvergate is delaying its planned stablecoin launch

Silvergate Capital no longer plans to launch its own payments-focused, dollar-pegged stablecoin this year. Company executives said the delay is related to regulatory compliance, not technical issues, underscoring that the technology was ready when Silvergate acquired it from Diem. [Read more at the Block]

Kiffmeister’s Global Central Bank Digital Currency Monthly Monitor

Kiffmeister’s #Fintech Daily Digest (20221017)

October 17, 2022 ~ kiffmeister

Macau proposes to make digital currencies legal tender

The Executive Council of Macau, a special administrative region (SAR) of greater China, has completed discussing a draft bill proposing to include digital forms of currency as acceptable legal tender. Macau has relatively strong legal tender laws. Anyone who rejects or refuses to accept legal tender in payment will be fined between $123 and $1,237 (1,000 and 10,000 patacas). The bill will now be forwarded to the Legislative Assembly for further deliberations. [Read more on the Macau government website]

ISDA readies contractual standards for crypto derivatives space

The International Swaps and Derivatives Association (ISDA) is collaborating with the digital asset industry to establish contractual standards for crypto derivatives. In a DerivSource Q&A, Mark New, senior counsel, Americas at ISDA, discusses what the forthcoming standards will look like, how they will cope with digital asset-specific events such as forks and airdrops and what to expect next from the trade association. [Read more at DerivSource]

Kiffmeister’s Global Central Bank Digital Currency Monthly Monitor

Kiffmeister’s #Fintech Daily Digest (20221016)

October 16, 2022 ~ kiffmeister

The real reason Circle de-risked its USDC reserves?

“Back in 2020-21, Circle was investing USDC’s reserves in all sorts of riskier assets. Then it shifted to a 100% Treasury bill policy. Why? Circle feared being classified as an ‘investment company’ as defined in the Investment Company Act of 1940.” (HT @jp_koning) [Read more below and on page 70 here]Stablecoins, meet 3% interest rates

“The global rise in interest rates is finally beginning to percolate into the stablecoin sector. One of the effects of this rise is that centralized stablecoins, which by default pay 0% to holders, are introducing backdoor routes for paying interest to large customers. While large stablecoin holders may be benefiting from this trend, small holders of stablecoins are being ignored. Small stablecoin holders need to unite. By working together through a StablecoinDAO, their bargaining power vis-a-vis the big stablecoin issuers improves. They may be able to negotiate the same interest payments that large stablecoin customers are getting.” [Read more at JK Koning’s Moneyness]

Central bank digital currencies: An active role for commercial banks

McKinsey & Company published a report that pitches active commercial bank involvement in central bank digital currency (CBDC) decision-making processes. But more interestingly for me, the report advocates central banks taking a more “agile” approach to CBDC research and development. “By adopting an agile approach, central banks can deploy a CBDC within three years, compared with five years or more using a traditional waterfall development model (see first infographic below). Although adoption and realization of scale will likely prove to be longer-term efforts, lessons from early launches and a set of best practices (second infographic) can help foster early market acceptance. [Read more at McKinsey & Company]

Kiffmeister’s Global Central Bank Digital Currency Monthly Monitor

Kiffmeister’s #Fintech Daily Digest (20221014)

October 14, 2022 ~ kiffmeister

European Data Protection Board statement on the digital euro

The European Data Protection Board (EDPB) reiterated the importance of ensuring digital euro privacy and data protection by design and by default. The EDPB cautioned against the use of systematic validation and tracing of all transactions in digital euros. In this respect, the EDPB recommended that the digital euro be made available both online and offline, along a threshold below which no tracing is possible, to allow full anonymity of daily transactions. [Read more at the EDPB]

Tether Slashes Commercial Paper to Zero

Tether has completely eliminated commercial paper from its USDT stablecoin reserves, replacing them with U.S. Treasury Bills. [Read more at Tether.io]

Digital yuan transactions volume crossed $14B mark

China’s central bank digital currency (CBDC) project has reached the roughly 100 billion yuan ($14 billion) transaction mark during its pilot phase. “Multiple e-government service platforms have opened digital renminbi payment services, supporting online and offline channels to handle various public utility payments, using digital renminbi to issue tax rebate funds, special funds for monthly medical insurance payment, funds for helping people in need, and ‘specialized, special and new’ enterprise support funds, etc.” Going forward, the People’s Bank of China (PBOC) plans to launch the cross-border payments between Hong Kong and mainland China, following the principle of “anonymity for small amounts and traceability of large amounts” to protect the user’s personal data. [Read more on the PBOC’s WeChat page]

Canada’s real-time payments system’s launch delayed

The launch of Canada’s Real-Time Rail (RTR) payments system has been pushed back from the middle of next year to an as yet undetermined date. Payments Canada says an extension will “provide additional time to validate and test the components and end-to-end integration”. RTR will allow Canadians to initiate payments and receive irrevocable funds in seconds, 24/7/365. The system will tap the ISO 20022 messaging standard to support payment information traveling with every payment. [Read more at Payments Canada]

Kiffmeister’s Global Central Bank Digital Currency Monthly Monitor

Kiffmeister’s #Fintech Daily Digest (20221013)

October 13, 2022 ~ kiffmeister

The Central Bank of Namibia is actively exploring CBDC issuance

The Bank of Namibia is exploring issuing a Namibia Dollar central bank digital currency (CBDC), and will reportedly soon publish a public consultation paper on the topic. The main motivation would be to “ensure that individuals operating in an increasingly digitalized economy continue to have access to central bank money”. [Read more at the Bank of Namibia]

Private digital crypto-assets as investment? Bitcoin ownership and use in Canada, 2016-2021

The Bank of Canada published a study of the dynamics of Bitcoin awareness and ownership from 2016 to 2021. In 2021, Canadians’ awareness of Bitcoin remained stable at about 90%, while ownership increased to 13% from the 5% observed in 2018-2020. Canadian Bitcoin owners in 2021 were more likely to be male, aged 18 to 34 years old, with a university degree or high income. They largely see Bitcoin as an investment. The increase in Bitcoin ownership was driven by widespread increases in savings and wealth by Canadian households during the pandemic, coupled with Fintech firms providing accessible and user-friendly platforms for buying Bitcoin. [Read more at the Bank of Canada]

Kiffmeister’s Global Central Bank Digital Currency Monthly Monitor

Kiffmeister’s #Fintech Daily Digest (20221012)

October 12, 2022October 12, 2022 ~ kiffmeister

My posts this week may get a bit spotty, as I’ll be in Washington DC for the Georgetown University DC Fintech Week, the CBDC Think Tank Summit, and various activities around the International Monetary Fund / World Bank Annual Meetings.

CBDC Manifesto: Design recommendations for a retail CBDC

The Digital Euro Association (DEA) and the CBDC Think Tank (CBDC TT) announced the CBDC Manifesto at the CBDC Summit 2022 in Washington DC. The document was developed by the DEA, the CBDC TT, and world-leading CBDC experts. The Manifesto proposes five major central bank digital currency (CBDC) design recommendations which can be used as a guide by central banks to devise an optimal CBDC development plan. [Read more at CBDCManifesto.com]

BIS Innovation Hub and Bank Indonesia announce winners of G20 TechSprint

The Bank for International Settlements (BIS) and Bank Indonesia today announced the winners of the G20 TechSprint 2022 challenge. This year’s competition was launched in April to catalyse new technologies that would better enable the development and future use of CBDC. From 21 shortlisted teams the three winners were: [Read more at the BIS]

Team Dragonfly Fintech Pte Ltd from Singapore won the “Effective and robust means to issue, distribute and transfer CBDCs” category for their solution End-to-End CBDC Solution, which is a proprietary blockchain ledger with unique in-built features and includes a mobile wallet and digital identity platform.
Team Bitt-IDEMIA from the US won the “Enabling Financial Inclusion” category for their solution Secure Offline CBDC Payment Solution, which is a platform that allows monetary authorities to launch interoperable CBDCs while also leveraging on a layer-2 solution to enable offline payments.
Team Partior from Singapore won the “Improving interoperability” category for their solution Project Naucratis: Enabling Connectivity & Interoperability for mCBDC, which is a blockchain-based multi-CBDC network that supports both account-based and token based CBDC models.

European Parliament Ratifies MiCA Framework in Landslide Vote

“The long-awaited Markets in Crypto Assets (MiCA) regulation has just scaled through the European Parliament as MPs voted massively in favor of the bill. the bill received a 28:1 vote to scale, completing the tripartite deal needed to push the bill into its next implementation phase.” [Read more at Blockchain News]

Banque de France participates in a new wholesale central bank digital currency experiment with SWIFT

The Banque de France has joined a consortium of 14 banks and market infrastructures launched by SWIFT, to conduct a new central bank digital currency (CBDC) experiment for interbank settlement purposes. The objective of the experiment is to issue cross-border payments in a test environment to study the interoperability between different distributed ledger technologies (DLTs) and existing payment systems. These payments will be made in simulated CBDC issued by the participating central banks. [Read more at the Banque de France]

SEC Rejects WisdomTree Bitcoin Spot ETF Application—Again

The U.S. Securities and Exchange Commission (SEC) rejected Cboe BZX Exchange’s latest application for a spot Bitcoin exchange traded fund (ETF) launch, on grounds similar to those cited in multiple applications before it. The decision follows two previous delays on the company’s application decision, and the denial of a former application from WisdomTree in December on the exact same grounds. [Read more at Decrypt]

Grasping De(centralized) Fi(nance) Through the Lens of Economic Theory

The Bank of Canada published a paper that uses a simple stylized model of collateralized lending to analyze the value proposition and limitations of decentralized finance (DeFi). DeFi uses a decentralized ledger to run smart contracts that automatically enforce the terms of a lending contract and safeguard the collateral. DeFi can lower the costs associated with intermediated lending and improve financial inclusion. Limitations are the volatility of the crypto collateral and stablecoins used for settlement, the possible incompleteness of smart contracts and the lack of a reliable oracle. A proper infrastructure reducing such limitations could improve the value of DeFi. [Read more at the Bank of Canada]

US Treasury Fines Bittrex Exchange $29m for Multi-Year Sanctions Violation

U.S.-based cryptocurrency trading platform, Bittrex Has been fined $29 million by the U.S. Treasury Department through the Office of Foreign Assets Control (OFAC) and the Financial Crimes Enforcement Network (FinCEN). According to the OFAC announcement, the trading platform “failed to prevent persons apparently located in the Crimea region of Ukraine, Cuba, Iran, Sudan, and Syria from using its platform to engage in approximately $263,451,600.13 worth of virtual currency-related transactions between March 2014 and December 2017.” [Read more at Blockchain News]

Kiffmeister’s Global Central Bank Digital Currency Monthly Monitor

Kiffmeister’s #Fintech Daily Digest (20221011)

October 11, 2022 ~ kiffmeister

FSB warns stablecoins aren’t ‘stable’, recommend action around crypto assets

The Financial Stability Board (FSB) released two crypto-related reports, one on high-level recommendations for crypto-asset regulation that prescribes a “same activity, same risk, same regulation,” approach to digital assets, and the other an assessment of how broadly stablecoin issuers would meet the “high-standard” criteria set by the group in 2020. Citing limits on redemptions, including the ability to delay or deny them, the FSB found that most users have to sell stablecoins on exchanges in order to liquidate them, and the price could drop below the value of the currency that the coin is pegged to. The FSB also cast doubt on how most stablecoins would be able to maintain their pricing under market stress. [Read more at the FSB]

Ensuring adoption of central bank digital currencies – An easy task or a Gordian knot?

The European Central Bank (ECB) published a paper that surveys the key elements involved in the adoption new means of payment and discusses failed and ongoing initiatives with public digital money. It concludes that ensuring the desired level of adoption of retail central bank digital currency (CBDC) may impose significant constraints on central bank design choices and policy goals. In fact, in some settings, central banks may find themselves on the horns of a dilemma in seeking to balance the needs to (i) preserve the central bank’s hierarchy of policy goals, (ii) increase the chances of adoption and use of retail CBDC by consumers and retailers, and (iii) avoid any adverse economic effects. [Read more at the ECB]

OECD Releases New Global Tax Reporting Framework for Crypto Assets

The Organization for Economic Co-operation and Development (OECD) released its new tax reporting framework, the Crypto-Asset Reporting Framework (CARF). [Read more at the OECD]

Kiffmeister’s Global Central Bank Digital Currency Monthly Monitor

Kiffmeister’s #Fintech Daily Digest (20221010)

October 10, 2022 ~ kiffmeister

FSB outlines next steps for enhancing cross-border payments

The Financial Stability Board (FSB) published the priority themes for the next phase of work under the G20 Roadmap for Enhancing Cross-Border Payments. The FSB also published a report on the progress made during the second year of the Roadmap. Three priority themes have been identified to focus on in the next phase; (i) payment system interoperability and extension, (ii) legal, regulatory and supervisory frameworks, and (iii) cross-border data exchange and message standards. The plan includes steps to strengthen external engagement during this next phase. [Read more at the FSB]

Here are some specifics of the next steps from the progress report:

The Bank for International Settlements (BIS) in collaboration with International Monetary Fund (IMF) and World Bank will organize a conference to share information and encourage collaboration on cross-border payments across (planned) CBDC implementations by March 2023. Additionally, the IMF and World Bank will provide technical assistance on how to facilitate cross-border use of CBDC if requested.
The Committee for Payments and Markets Infrastructure (CPMI) will consider whether and how the use of well-designed and risk-managed stablecoin arrangements could enhance cross-border payments by addressing existing frictions, what opportunities and challenges this would entail, and how this could impact central banks’ core functions.

ECB seeks scheme rulebook manager for the digital euro

The European Central Bank (ECB) Directorate General Market Infrastructure and Payments is looking for a senior expert from the payments industry to coordinate the group that will draft a potential digital euro scheme rulebook, i.e. a set of rules for payment transactions with a digital euro. [Read more at the ECB]

EU tenders for blockchain data and DeFi project

The European Commission has reportedly put out a tender for a study on embedded supervision of decentralised finance. The study will entail a six month pilot project to develop, deploy and test a technological solution that would enable regulatory bodies to automatically monitor compliance by reading public blockchain data. [Read more at FinExtra]

First Digital Securities Issuances Go Live in Germany

Clearstream created the first digital instrument on D7, Deutsche Börse’s digital post-trade platform. The first automated issuances were performed by LBBW and Vontobel. D7 is fully integrated within Clearstream’s global infrastructure and works as a connector between established networks and digital capabilities. This will provide a fully digital alternative to conventional physical issuance for about 80% of German securities. [Read more at MarketsMedia]

Kiffmeister’s Global Central Bank Digital Currency Monthly Monitor

Kiffmeister’s #Fintech Daily Digest (20221009)

October 9, 2022October 9, 2022 ~ kiffmeister

Understanding Stablecoin Technology and Related Security Considerations

The US National Institute of Standards and Technology (NIST) published a technical paper on the ways in which stablecoins are architected and implemented. This includes a descriptive definition, commonly found properties, and distinguishing characteristics, as well as an exploration of stablecoin taxonomies, descriptions of the most common types, and examples from a list of top stablecoins by market capitalization. This document also explores related security, safety, and trust issues with an analysis conducted from a computer science and information technology security perspective as opposed to the financial analysis and economics focus of much of the stablecoin literature. [Read more at NIST]

Hackers Feast on Crypto Weak Link and Even Binance Isn’t Spared

“There’s a gaping hole in the crypto industry’s security architecture, and even the most deep-pocked players haven’t figured out how to plug it. The weakness in question is what’s known in industry parlance as cross-chain bridges — software that allows crypto tokens to move between different blockchains. On October 6, 2022, a hacker made off with about $100 million via a bridge used by Binance… Chainalysis estimates that $2 billion worth of tokens have been looted from 13 separate attacks, the majority of which was stolen this year.” [Read more at Bloomberg]

Global VC Pullback Is Dramatic In Q3 2022

“Venture and growth investors in private companies scaled back their investment pace significantly as the slump in the public markets stretched into the third quarter. Venture funding for the third quarter of 2022 totaled $81 billion, down by $90 billion (53%) year over year and by $40 billion (33%) quarter over quarter, according to a Crunchbase News analysis. While funding for the most recent quarter will increase a little in the coming months as stealth fundings are announced, this is a huge drop in funding compared to prior quarters.” [Read more at Crunchbase]

Kiffmeister’s Global Central Bank Digital Currency Monthly Monitor