Blockchain Week in Review – March 2020 | Perkins Coie

Weekly Focus:

  • Hawaii Launches Digital Currency Sandbox
  • Coinbase CLO appointed to Office of the Comptroller of the Currency
  • DHS Critical Infrastructure Memo Includes Blockchain Managers
  • Bank of Russia Reluctant to Legalize Cryptocurrencies
  • Approved Smart Contract Certification for Argentinian Gas Distributor
  • Thai Remittance Platform Uses Ripple
  • Bakkt Launches Partnership with Starbucks
  • Huobi Exchange Implements Liquidation Halt

US Developments

Hawaii Launches Digital Currency Sandbox

On March 17, Hawaii’s Department of Commerce and Consumer Affairs announced the launch of its Digital Currency Innovation Lab pilot program in conjunction with the Division of Financial Institutions and the Hawaii Technology Development Corporation. The program allows digital currency issuers to do business in Hawaii without obtaining a state money transmitter license—Hawaii will take a “no action” stance with respect to the program’s participants’ unlicensed money transmission activities. Applications are being accepted until May 1, 2020. Program participants will have two years to engage in digital currency transactions in Hawaii. This program is similar to “sandbox” programs in other states, such as Wyoming and Arizona.

Hawaii’s sandbox program is also an important step in easing the burden on licensed money transmitters. Coinbase pulled its operations from Hawaii in 2017 because the Hawaii Division of Financial Institutions required Coinbase to maintain liquid asset reserves equal to the aggregate face value of its digital asset holdings. The requirement to keep redundant collateral at such levels has kept many cryptocurrency businesses out of Hawaii.

A press release from Hawaii’s governor, the Department of Commerce and Consumer Affairs, and the Hawaii Technology Development Corporation is available here.

Coinbase CLO appointed to Office of the Comptroller of the Currency

On March 16, the U.S. Office of the Comptroller of the Currency (OCC) announced that Brian Brooks, chief legal officer of Coinbase, had been designated by Treasury Secretary Steven Mnuchin as the OCC’s chief operating officer.

Mr. Brooks is a former executive vice president and general counsel at Fannie Mae, and before that was a vice chairman at OneWest Bank and the managing partner of the Washington, D.C., office of O’Melveny & Myers LLP. Mr. Brooks joined Coinbase as chief legal officer in September 2018. Mr. Brooks has been a public advocate of tokenization, including with respect to the U.S. dollar.

The OCC announcement can be found here.

DHS Critical Infrastructure Memo Includes Blockchain Managers

In a March 19, the director of the Cybersecurity and Infrastructure Security Agency (CISA) issued a memorandum identifying “essential critical infrastructure workers” to help state and local officials make public health decisions in response to the spread of COVID-19. Broken down into sectors of the economy, the memorandum includes food and agriculture workers, such as “employees and firms supporting food, feed, and beverage distribution, including warehouse workers, vendor-managed inventory controllers and blockchain managers.”

CISA is a federal agency created in 2018 as an operational component under the Department of Homeland Security. The memorandum can be found here.

International Developments

Bank of Russia Reluctant to Legalize Cryptocurrencies

Alexey Guznov, head of the legal office for the Bank of Russia (BoR), has said BoR is reluctant to legalize the issuance and circulation of cryptocurrencies. Although a digital asset bill is still being drafted in Russia’s parliament, Guznov told Russian news agency Interfax that the draft bill would prohibit “issuing and organizing the market for cryptocurrencies” and add punishments for violating the ban. Although Guznov acknowledged that cryptocurrencies are “not drugs or arms,” their legalization was still considered an “unjustified risk.”

Russia’s digital asset bill has been in process for several years. For example, a draft of a law regulating digital assets and initial coin offerings was released in January 2018 and was originally scheduled to be passed by that summer.

The BoR’s stance on cryptocurrency issuance and trading stands in contrast to its stance on stablecoins. For example, Russian metal company Norilsk Nickel is planning to tokenize batches of metals and sell a metal-backed stablecoin, which the BoR sees as within the framework of the draft digital asset bill. Russia’s central bank has also recently proposed a tokenization platform.

A CoinDesk article about Guznov’s interview can be found here.

Approved Smart Contract Certification for Argentinian Gas Distributor

Gasnor, an Argentinian natural gas distributor serving two million people, has received approval from Enargas, Argentina’s natural gas regulators, to pilot a smart contract-based certification platform. The platform is called Gasnet, was built by IOV Labs and Grupo Sabra, and runs on a version of the RSK smart contract network.

Gasnor hopes to make the process of certifying new gas connections more efficient by removing paperwork and simplifying verification. Gasnet will register, on one platform, all transactions that are processed when Gasnor certifies a customer’s gas service installation or reconnection.

A Yahoo! Finance article about Gasnor can be found here.

Thai Remittance Platform Uses Ripple

DeeMoney, a currency settlement service based in Bangkok, Thailand, has partnered with Ripple to process live transactions through RippleNet, a global financial payment network. According to Ripple, DeeMoney is using Ripple’s platform to process inbound payments into Thailand, mostly from Asian and Middle Eastern countries. The platform is expected to expand in the near future to include outbound transactions from Thailand as well. According to Aswin Phlaphongphanich, CEO of DeeMoney, the goal of the platform is to “democratize finance in Thailand by bringing a new level of efficiency and accessibility for cross-border transactions and to and from [Thailand].”

RippleNet is currently being used by banks in 40 countries, including from MUFG Bank (Japan), Santander (Spain), Westpac (Australia), and Standard Chartered (England).

DeeMoney is the first non-bank institution in Thailand to implement RippleNet. However, it is not the first Thai institution to work with Ripple. In 2018, Siam Commercial Bank, the oldest bank in Thailand, partnered with Ripple to implement RippleNet for international payment processing.

Ripple’s press release on the launch can be found here.

Industry Developments

Bakkt Launches Partnership with Starbucks

Bakkt, which recently raised $300 million in a Series B round of funding, announced on March 16 on Twitter that the company is beginning early access to an integration with Starbucks. The new program will allow users of the Starbucks app to pay with Bakkt Cash. It is part of Bakkt’s larger plans to build systems allowing the mingling of many kinds of digital assets, such as loyalty rewards points, merchant stored value, and cryptocurrencies. The Starbucks integration rollout is taking place amidst global market disruption, which has caused Bakkt to see no BTC options trading since February 27.

Huobi Exchange Implements Liquidation Halt

On March 18, the Singapore-based cryptocurrency exchange implemented a mechanism to halt liquidation in its cryptocurrency derivatives marketplace (Huobi DM) during periods of extreme volatility. This change comes after turbulent cryptocurrency trading and increased liquidations. For example, BitMEX, the Bitcoin Mercantile Exchange, registered over $700 million in liquidations in a matter of minutes on March 12.

Liquidation mechanisms like the one Huobi has implemented are commonplace in securities markets. Recent market turbulence in the United States has triggered so-called “circuit breakers” on the New York Stock Exchange multiple times, temporarily halting trading when certain indices decrease by high percentages in one day.

One way in which Huobi’s liquidation mechanism is effective is its ability to gradually liquidate positions instead of completely stopping the liquidation. Bybit, a cryptocurrency derivatives exchange, also has a similar sliding mechanism.

A CoinDesk article about the liquidation “circuit breaker” can be found here.

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