Blockchain Bites: Singapore to curb crypto speculation; State Street on the road to tokenisation; Tether loan to Celsius could be tested; ASX completes blockchain settlement pilot; NFTs shareable on Facebook and Instagram – Fin Tech


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Michael Bacina, Steven Pettigrove, Jade McGlynn,
Luke Misthos, Jordan Markezic and Lola Hickey of the Piper Alderman
Blockchain Group bring you the latest legal, regulatory and project
updates in Blockchain and Digital Law.

“Learning by doing”: Singapore to curb crypto
speculation

In a
wide-ranging speech on Monday, the Managing Director of the
Monetary Authority of Singapore (MAS), Ravi Menon,
reiterated MAS’ intention to develop a thriving digital asset
ecosystem in Singapore while taking steps to curb cryptocurrency
speculation. The speech touched on a number of important topics
including use cases for distributed ledger technology
(DLT), cryptocurrency speculation, stablecoins,
CBDCs, and market manipulation in cryptocurrency markets.

For several years, Singapore has been near the forefront in
adopting digital assets, introducing a licensing regime for digital
payment token services and encouraging a range of digital asset
projects, including
custodial services and
CBDC initiatives. However, more recently, there has also been
significant industry concern about mixed signals from the MAS about
digital assets.

Mr Menon noted these concerns in his speech and stated that
Singapore’s focus on innovation and regulation should not be
viewed as contradictory. He stated:

Our vision is to build an innovative and responsible digital
asset ecosystem in Singapore.

Mr Menon identified a four-pronged approach to achieving this
vision:

  1. exploring the potential of DLT in promising use cases;

  2. supporting the tokenisation of financial and real economy
    assets;

  3. enabling digital currency connectivity; and

  4. anchor players with strong value propositions and risk
    management.

Menon also reiterated the MAS’ recent tough line on
cryptocurrency speculation:

cryptocurrencies have taken on a
life of their own outside of the distributed ledger – and
this is the source of the crypto world’s problems…This
speculation in cryptocurrencies is what MAS strongly discourages
and seeks to restrict.

Menon confirmed that the MAS is considering additional measures
to curb speculation in cryptocurrency markets including:

  1. adding friction on retail access to cryptocurrencies;

  2. customer suitability tests;

  3. restricting the use of leverage and credit facilities for
    cryptocurrency trading;

  4. regulation of market manipulation in cryptocurrency
    markets.

Menon added that there is no use banning retail access to
cryptocurrencies due to the borderless environment in which they
exist but imposing restrictions is more appropriate, similar to how

Canadian crypto exchanges Bitbuy and Newton imposed limitations
on the annual purchases of their customer’s crypto.

He went on to indicate the MAS’ support for projects
involving:

  1. the tokenisation of financial and real economy assets;

  2. the use of stablecoins that are securely backed by high quality
    reserves and well regulated;

  3. wholesale CBDCs, especially for cross-border payment and
    settlements.

Interestingly, Mr Menon stated that MAS does not see a
compelling case for a retail CBDC in Singapore, but is nevertheless
building the technology infrastructure that would permit the
issuance of a retail CBDC should conditions change.

Menon’s speech gave a candid insight into the MAS’
thinking on digital assets and future plans to promote and regulate
digital assets and cryptocurrencies. We expect his comments will be
weighed with interest far beyond Singapore as policymakers and
regulators continue to grapple with a wide range of policy
challenges in relation to digital assets.

State Street on the road to tokenisation

State Street, one of the world’s largest asset management
and custody firms, has
announced plans to work towards tokenising funds and private
assets using distributed ledger technology (DLT).
The strategic move follows its digital arm’s initiative to
offer institutional clients custodial services for digital assets
by the end of this year.

State Street’s intention in tokenising private assets is to
improve efficiency for both the fund issuer and end investor,
accessibility in the secondary market and liquidity in those
assets. State Street’s vice president of digital product
development and innovation, Nicole Olson,
said that:

‘[Tokenization] is exciting
for me because there’s a significant opportunity there for
State Street to play and for State Street clients…it’s
broadly adding digital tech to those more traditional assets and
bringing them into the future.’

Olsen also praised the benefits of asset tokenisation:

‘Tokenization holds the
promise of greater liquidity, more transparency and faster
transactions. If its potential can be exploited fully, the world of
assets will be more accessible than ever.’

In 2021, State Street partnered with Lukka, a cryptoasset data and
software provider, to offer its private clients digital and
cryptocurrency fund management services. State Street Digital has
partnered with Cooper.co on its
digital custody offering for institutions. State Street is also
working on incorporating smart contracts and DLT technology to
automate the process of trade collateralisation.

State Street’s announcement is the latest in a string of
announcements by leading financial institutions, such as
Blackrock,
Barclays,
Santander, and
ANZ, that are looking to leverage the benefits of DLT and
tokenisation and increase their crypto-related offerings to
clients. Despite large sell-offs in cryptocurrency markets since
November 2021, institutional investment and interest in digital
assets has continued to grow unabated.

Tether loan to Celsius could be tested by crypto
creditors

The application of insolvency principles to digital assets has
come under speculation after stablecoin issuer Tether recovered a
USD$840 million loan from Celsius Networks, which is currently
under Chapter 11 Bankruptcy protection in the US.

Tether, the company behind the widely used USDT stablecoin,
recovered the amount before Celsius
filed for bankruptcy last month. This was done by selling a
vast amount of bitcoin that Celsius Network had provided to Tether
as collateral for a loan agreement.

As Bitcoin prices fell, Celsius was apparently unable to post
more collateral to continue the loan agreement resulting in Tether
selling the Bitcoin to cover the loan, which led to further losses
for Celsius.

We will now see whether the Tether loan transaction will be
attacked and if Celsius can recover some of the USD$840 million
which would then become available to pay other creditors, many of
whom have suffered losses
as a result of Celsius’ bankruptcy. A key issue, should an
action arise, could be whether Tether has “perfected” its
security over the Bitcoin which was sold.

In Australia, a security interest is an interest in property
granted to a person as security for a debt or another obligation
and a “perfected” security interest has priority over
“unperfected” interests, meaning parties with perfected
interests will have priority over assets. Should Tether be able to
demonstrate it has perfected it’s security then it may not have
to refund the security taken.

To perfect a security interest in Australia, a secured party
must:

  1. Attach the security interest to collateral property – for
    example by a lender advancing a loan amount to a borrower under
    loan terms, establishing a security interest in the collateral, say
    Bitcoin;

  2. Entering into an agreement documenting the granting of the
    security – such as a properly documented loan agreement;
    and

  3. Register the security interest on the Personal Properties
    Securities Register (PPSR) to perfect the
    interest.

Any action seeking to recover money from Tether raises important
and interesting questions of law over when and how security
interests over crypto-assets can be perfected and if that follows
the same path as traditional security interests.

Any lawsuit will be closely watched by crypto lenders around the
world and may lead to changes in their processes. How it would play
into self executing smart contract lending Dapps is also an
interesting question. In Australia at least a self-executing smart
contract couldn’t perfect a security interest as it would be
unable to register a security interest on the PPSR.

Practical matters around the identification of parties to such
arrangements may pose an initial hurdle, but tracing of crypto
transactions is only becoming more widespread and easier.

ASX completes test pilot of blockchain
settlement

The Australian Securities Exchange (ASX)
recently
won their first victory in their blockchain settlement scheme,
effecting a test-pilot with Zerocap – a Melbourne-based
digital custody provider – to store and trade digital assets
on the exchange.

The
new platform has been touted by ASX as the replacement to the
CHESS platform – the core system that performs the processes
of clearing, settlement, asset registration, as well as other post
trade services which are critical to the orderly functioning of the
market. The replacement platform has been delayed five times since
it was announced in the Summer of 2015.

Earlier in August, ASX chief executive Helen Lofthouse confirmed
the exchange did not expect the platform to be live before well
into 2024. Paul Stonham – DLT Solutions general manager

said:

This in particular is a new
business line for the ASX because it’s not an insignificant
cost to spin up your own blockchain

Last November, the ASX launched its Distributed Ledger
Technology as a service platform called Synfini, and put the call
out to the
private sector to take the initiative with pilots.

The Reserve Bank of Australia (RBA) has also announced their
work with the Digital Finance Cooperative Research Centre to
establish use cases for a central bank digital currency which is
expected to include smart contract functionality, faster
transaction settlement tests, more transparently and potentially
efficiency improvements involving
supply chains.

These new developments are significant for the ASX as they
signal new industry opportunities, and particularly with the CHESS
replacement being a substantial replacement of legacy exchange
technology.

NFTs now shareable on Facebook and Instagram says owner
Meta

Following on from
Meta’s announcement that users of Instagram can now display
and share their NFTs on their newsfeed, the American conglomerate
has now expanded the new functionality to Facebook.

Thanks to this update showing off a digital collectible is now a
matter of connecting their digital wallets and clicking share for
NFT holders.

Meta said in a recent blog post:

As we continue rolling out
digital collectibles on Facebook and Instagram, we’ve started
giving people the ability to post digital collectibles that they
own across both Facebook and Instagram. This will enable people to
connect their digital wallets once to either app in order to share
their digital collectibles across both.

With both social media services clocking billions of users each
(Facebook presently at
2.9 billion monthly users and Instagram estimated to have
over 2 billion monthly users) this development is bound to
increase public awareness of this one-of-kind digital asset.

Not everyone is excited by this announcement, with some
blockchain enthusiasts voicing concerns on the loss of privacy that
will take place if a NFT holder dares to share their digital
collectibles online.

One blockchain professional
tweeted:

While I’m sure there’s
some utility in allowing people to ‘share’ (read: flex)
their NFTs on social media platforms, the underlying requirement is
to connect whichever wallet holds your NFTs. At which point you are
now pairing your public social media profile with your pseudonymous
Web3 profile… And now Meta (and any organisation it shares data
with: private or public sector) has the ability to track any
activities performed with that wallet from public ledger
data.

For those NFT enthusiasts who would prefer to have their cake
and eat it too i.e. to maintain their privacy but also show off
NFTs on FB and or Instagram, perhaps a solution may be a matter of
setting up a separate and dedicated wallet for this special
purpose.

The further integration of NFTs into social media may annoy some
in Web3, but it could also be a valuable bridge between Web2 to
Web3, and maybe show Meta/Facebook a way forward and to evolve
their business model in the face of falling user numbers.

The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.


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