Institutional crypto weekly roundup

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

Swiss central bank chair says digital tokens have yet to prove advantages over existing system

It is too soon to answer the question of how best to configure money flows in trading with security tokens. In certain situations, security tokens could be traded and settled just as efficiently if the transfer of funds continued to flow directly via the sight deposits at the central bank. So digital token money for financial market participants is not necessarily a prerequisite for achieving efficiency gains in the trading and settlement of security tokens.

There are a variety of interesting potential uses for digital tokens – including, for example, privately issued digital tokens in the form of stable coins, as well as state-issued digital token money for financial market participants. Stable coins have the potential to achieve broader acceptance than crypto tokens. The associated opportunities and risks have to been seen in a wider context.

The benchmark for assessing utility, efficiency, reliability and security is set by the existing systems and the regulations governing comparable activities. Only once there is competition on equal terms will it become clear whether stable coins can be a useful and efficient complement to today’s cash and book money.

Moreover, if security tokens become established in the financial sector, this will raise the question of whether state-issued digital token money will also be needed for the new financial market infrastructures, as a means of payment for financial market participants. Here, too, it will have to be demonstrated that such tokens offer advantages over the existing system of sight deposits at central banks. The Swiss National Bank (SNB) is following developments closely, and is actively involved in the debate, not least through its future participation in the Bank for International Settlements Innovation Hub.

The aim of the Hub is to study technological developments with the potential to improve the functioning of financial markets and support central banks in fulfilling their mandates. Furthermore, it will provide a network for central banks to exchange knowledge on innovations. Alongside Hong Kong and Singapore, Basel will be one of the Hub’s three regional centers to be operated jointly with the SNB. Additional Hub Centers across the Americas and Europe will be added in a later implementation phase.

Read the full speech

NY financial authority authorizes Paxos for gold-backed virtual currency

Superintendent of Financial Services Linda Lacewell announced that the New York State Department of Financial Services (DFS) has authorized Paxos to offer a gold-backed virtual currency, the first such virtual currency authorized by DFS, as well as BUSD, a virtual currency pegged to the US dollar.

DFS issued a limited purpose trust company charter in May 2015 to Paxos, formerly known as itBit, which operates the itBit Exchange, to offer services for buying, selling, sending, receiving, and storing virtual currency. In September 2018, Paxos was authorized by DFS to offer its first asset-backed token – commonly known as a “stablecoin” – pegged to US dollars, Paxos Standard.

DFS has now authorized Paxos to offer PAX Gold, an asset-backed token that is pegged to gold. In addition, DFS has also now authorized Paxos to offer BUSD, an asset-backed token that is pegged to the US dollar. In total, DFS has approved three asset-backed tokens issued by Paxos: Paxos Standard (PAX), PAX Gold (PAXG), and BUSD.

As part of the approval of both products, DFS has established required conditions to ensure that potential risks associated with the issuance and offering of PAX Gold and BUSD have been adequately addressed, and DFS has applied New York’s high standards regarding anti-money laundering, anti-fraud, and consumer protection, and cybersecurity measures.

Paxos CEO and co-founder Charles Cascarilla said in a statement: “By releasing a regulated product that makes it easy to own or trade gold, we’re using blockchain technology to democratize access to a multi-trillion-dollar market and bring gold into the digital future. With BUSD, we will be introducing the stablecoin concept to even more users in new markets. There is growing interest in regulated, asset-backed tokens and we expect to keep powering more for new uses and applications worldwide.”

Read the full release

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