Institutional crypto weekly roundup

Our weekly list of announcements about how capital markets participants and regulators are engaging with digital assets.

MAS, J.P. Morgan, Temasek develop blockchain-based prototype for multi-currency payments

The Monetary Authority of Singapore (MAS) has led the successful development of a blockchain-based prototype that enables payments to be carried out in different currencies on the same network in collaboration with J.P. Morgan and Temasek.

This development marks the latest milestone for Project Ubin which is into its fifth phase. Building on the work of Phase 4 of Project Ubin, the payments network will provide interfaces for other blockchain networks to connect and integrate seamlessly. It will also offer additional features to support use cases such as Delivery-versus-Payment (DvP) settlement with private exchanges, conditional payments and escrow for trade, as well as payment commitments for trade finance, and is undergoing industry testing to determine its ability to integrate with commercial blockchain applications.

Sopnendu Mohanty, chief fintech officer at MAS, said in a statement: “We hope this development will encourage other central banks to conduct similar trials, and we will make the technical specifications publicly accessible to accelerate these efforts. We look forward to linking up with more blockchain networks to improve cross-border connectivity. This will be a big step forward in making cross-border transactions faster, cheaper, and safer.”

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Bakkt provides institutional custody details available to all clients

Intercontinental Exchange’s digital asset venture Bakkt announced that Bakkt Warehouse, its qualified custodian of bitcoin, is now available to all institutions having received authorization from the New York Department of Financial Services. Previously, it only served clients trading the Bakkt Bitcoin Futures contracts.

Among the first firms signing on are Pantera Capital, Galaxy Digital, and Tagomi. To safely store digital assets, Bakkt said it is providing a number of security features, including: enterprise-grade infrastructure with on-prem data centers, dedicated network connectivity, colocation and third-party data centers; operational controls with 24×7 video monitoring with enforced segregated duties, protected identities, and independent reporting structures to provide insider threat and anti-collusion controls.

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GLI issues 2020 report on global blockchain and crypto regulation 

In a chapter for Global Legal Insights’ crypto regulation guide for 2020, Milbank lawyers write that while the potential applicability of transfer tokens is vast, market participants must carefully review each implementation – especially when highly regulated financial markets are involved – to ensure that the attendant legal issues are properly addressed. The guide covers a variety of issues for financial institutions including custody in the US, security, compliance and risk, among other considerations.

Access the guide

AFME calls for greater supervisory convergence in European crypto asset regulation

The Association for Financial Markets in Europe (AFME) published a new paper setting out five recommendations to deliver supervisory convergence on the regulation of crypto-assets in Europe, developed with expertise from AFME member firms.

Europe has the potential to become a global leader in crypto assets and to facilitate the emergence of safe and innovative products and services at scale. In order to reduce fragmentation and deliver supervisory convergence in the regulation of crypto assets in Europe, AFME proposes:

1. Establish a pan-European crypto-asset taxonomy;
2. Provide clear expectations for market participants on the process for issuing crypto-assets;
3. Apply activities-based and technology agnostic regulation;
4. Apply existing regulation for regulated activities, with any necessary amendments if required;
5. Prioritize convergence of regulatory frameworks with other global and regional initiatives.

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AAX digital asset exchange goes live using LSEG tech

LSEG Technology, London Stock Exchange Group’s technology solutions provider, announced that Millennium Exchange has successfully been deployed as part of the go-live of the AAX digital asset exchange.

The deployment marks the first time Millennium Exchange has been deployed in a cloud-based environment, providing low latency, resilience and scalability for AAX’s 24-hour trading platform, extending Millennium Exchange’s asset class coverage to cryptocurrency pairs and futures on cryptocurrency.

AAX is part of Atom International Technology, a specialist in decentralized blockchain solutions using digital technology. Based in Malta with technology operations in London and Hong Kong, AAX provides trading across a wide range of cryptocurrencies and digital assets.

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Stablecoins on FSB Europe group agenda in Basel

The Financial Stability Board (FSB) Regional Consultative Group (RCG) for Europe met in Basel. The group discussed the wide range of regulatory and supervisory issues raised by stablecoins of potentially global reach, and looked forward to the public consultation report on regulatory issues of stablecoins to be published by the FSB in April 2020. Members also discussed current shortcomings of cross-border payment systems and how these might be addressed.

Other issues discussed at the meeting were regional vulnerabilities, financial benchmark reform and lessons learned from a financial crisis simulation conducted by the Nordic and Baltic authorities in January 2019 to test their preparedness.

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Cyberian launches institutional block trading of digital assets

Cyberian announced its launch of a “trustless” venue for trading blocks of digital assets. The matching system has no central entity and is without any one single has single point of trust, which means investors can buy and sell digital assets with zero information leakage and “superior” prices, according to a company statement.

The company was founded by TORA, a cloud-based order and execution platform and Partisia, a provider of secure multiparty computation solutions (SMC). SMC breaks order data into fragments and distributes them to Cyberian nodes. It can be mathematically proven that even if a node is breached, it is impossible to compromise the order data.

Gerrit van Wingerden, Cyberian’s CEO, said in a statement: “Gone are the days of price leakage and uncertainty of privacy. Cyberian will be the world’s most advanced private network for matching and settling assets – that is completely trustless.”

Cyberian offers three core solutions to institutional investors 1. Matching 2. Settlement 3. Analytics. Users can leverage existing relationships with exchanges, OTC desks, and custodians for settlement. Users may also opt to settle on-chain without a trusted party.

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Japan’s MUFG-led consortium developing automatic settlement on blockchain 

MUFG and 21 partner companies have established the Security Token Research Consortium (SRC) aiming to offer infrastructure for automatic securities settlement and fund settlement, as well as the protection of investors’ rights, based on blockchain technology.

As information technology advances there is an ongoing diversification in financial transaction methods, including expanded circulation of crypto-assets and the rise of ICOs. Meanwhile, with the aim of enhancing trust in financial functions and protecting users, Japan enacted a new law in May 2019 and is working to revise regulations related to crypto-assets and clarify the legal basis of security tokens.

In this environment, the Trust Bank has conducted research on infrastructure related to custody, clearing and escrow of digital assets, including crypto-assets, and has also applied for a patent in Japan and is considering infrastructure and organizational structure for the appropriate management of security tokens.

By putting the ledger information of rightsholders who have existing bonds and/or trust beneficiary securities related to underlying assets on blockchain, each time rights are transferred the information will be automatically updated, with the rights legally claimable. Information about each security will be programmed at the time of issue and fund transfers associated with interest payments and redemption will be implemented automatically.

While developing the service, called Progmat, the following technology verification processes for bond usage cases were performed between July and October 2019:

  • Comparative verification of multiple blockchain infrastructures.
  • Prototype development based on business process workflows such as issuance, buying/selling (transferring rights) and interest payment/redemption.
  • Prototype development based on smart contracts that enables real-time settlement of securities and funds using virtual programmable money and centralized automatic processing of interest payments and redemptions.
Source: MUFG

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