Weekly Focus:

  • Libra Association updates white paper with plans to release multiple stablecoins
  • New Wyoming law allows insurance companies to invest in crypto
  • CFTC proposes updates to Part 190
  • Andreessen Horowitz to raise $450 million for second crypto fund
  • ATBCoin settles class action lawsuit for $250k
  • Financial Stability Board releases document on global stablecoins
  • Chinese tech companies file most blockchain patents in 2019
  • China to launch blockchain platform this week

U.S. Developments

Libra Association updates white paper with plans to release multiple stablecoins

In a newly updated white paper, Facebook’s Libra Association is scrapping its original plan to create a global stablecoin directly tied to a basket of fiat currencies and securities. The Libra Association now plans to release several stablecoins that will each be backed by a fiat currency, such as USD, EUR, GBP, and SGD. Libra will also release a “multi-currency Libra Coin.” The multicurrency coin will not be a cryptocurrency per se, but instead, it will be a digital composite of the single-currency stablecoins.

“While our vision has always been for the Libra network to complement fiat currencies, not compete with them, a key concern that was shared was the potential for the multi-currency Libra Coin (≋LBR) to interfere with monetary sovereignty and monetary policy if the network reaches significant scale and a large volume of domestic payments are made in ≋LBR,” the Libra Association states in the updated white paper. “We are therefore augmenting the Libra network by including single-currency stablecoins in addition to ≋LBR, initially starting with some of the currencies in the proposed ≋LBR basket (e.g., LibraUSD or ≋USD, LibraEUR or ≋EUR, LibraGBP or ≋GBP, LibraSGD or ≋SGD).”

The updated white paper also proposes to limit unregulated entities by limiting Libra support to only entities that are Designated Dealers and Regulated Virtual Asset Service Providers (VASPs), such as custodial wallets or exchanges.

Lastly, the white paper also confirms Libra’s intentions to abandon its plan to run on a permissionless blockchain. It appears that only members of the Libra Association will be able to run nodes.

You can read the full white paper here.

New Wyoming law allows insurance companies to invest in crypto

The U.S. state of Wyoming recently passed a bill that allows domestic insurance companies to invest directly in Bitcoin and other cryptocurrencies. The new law comes into effect on July 1st.

According to a press release from the law firm Kramer Levin, the new law “is apparently the first provision of its kind in the nation.” The law defines a “digital asset” as “a representation of economic, proprietary or access rights that is stored in a computer readable format, and includes digital consumer assets, digital securities and virtual currency.” Under the new law, insurance companies are now allowed to invest in “digital consumer assets.”

Just last year, Wyoming passed a bill recognizing cryptocurrency as money, and in 2018, Wyoming passed another bill exempting certain virtual currencies from property taxation.

CFTC proposes updates to Part 190

In a teleconference meeting last Tuesday, the U.S. Commodity Futures Trading Commission (“CFTC”) moved forward on several rulemakings, including proposed amendments to Part 190 of the Bankruptcy Regulations. One of the proposed changes to Part 190 involves the treatment of physical delivery in the context of digital assets, namely that virtual currencies be added to the definition of physically delivered property. In a statement released last Tuesday, Chairman Tarbert noted that “the proposal would acknowledge digital assets as a physically deliverable asset class, in light of the listing of a number of physically delivered “virtual currency” derivatives contracts.” Commissioner Quintenz also noted in a statement that “the proposal’s revised treatment of the “delivery account,” applicable in the context of physically settled futures and cleared swaps, would apply not only to tangible commodities, as is currently the case, but also to digital assets. This amendment will provide important legal certainty to the growing exchange-traded market for cleared, physically settled, digital asset derivatives.”

The proposed rule will be the first major overhaul of Part 190 in 37 years. The proposal was developed in conjunction with a subcommittee of the American Bar Association and motivated in part “by the MF Global and Peregrine Financial Group bankruptcies, and the lessons they revealed on the challenges of liquidating a large futures commission merchant (“FCM”) that is severely under-segregated.”

The proposed rule has a 90-day comment period that started Tuesday, April 14, 2020.

The proposed rule can be read in its entirety here.

Chairman Tarbert’s statement from last Tuesday can be read here.

Andreessen Horowitz to raise $450 million for second crypto fund

The Financial Times reported last week that VC firm Andreessen Horowitz (called “a16z”) is aiming to raise up to $450 million for a second cryptocurrency investment fund. The second crypto fund has not yet been finalized, and a hard cap has not yet been placed on its size.

In 2018, Andreessen Horowitz made headlines when it became one of the first venture capital groups to unveil a large investment fund dedicated to cryptocurrencies. The first fund raised $350 million and was led by former U.S. Department of Justice prosecutor Katie Haun. The VC firm, a16z, first made its foray into cryptocurrencies in late 2013 with an early investment in Coinbase, which has most recently been valued at $8 billion. The VC firm also launched a “crypto school” for crypto entrepreneurs earlier this year.

ATBCoin settles class action lawsuit for $250k

In 2017, ATBCoin’s initial coin offering (“ICO”) raised about $20 million. According to the March 31, 2019, order denying ATBCoin’s motion to dismiss in the Southern District of New York, the company marketed itself as “an innovative decentralized cryptocurrency” that would be “the fastest blockchain-based cryptographic network in the Milky Way galaxy,” capable of delivering “blazing fast, secure and near-zero cost payments to anyone in the world.”

ATB did not register with the Securities and Exchange Commission (“SEC”). Following its ICO, the ATB token value decreased approximately 85%. In December 2017, investors filed a federal class action lawsuit against ATB in New York. At the motion to dismiss stage, ATB argued that it did not need to register with the SEC because ATB’s coin did not qualify as a “security” under the Howey test. The court disagreed and opined that “Defendants encouraged investors to purchase ATB Coins based on the claim that the speed and efficiency of the ATB Blockchain would result in an increase in the coins’ value,” thereby satisfying the last two prongs. As such, U.S. District Judge Vernon Broderick ruled that the complaint adequately showed ATB may have violated securities laws through its ICO, denying ATB’s motion to dismiss and allowing the case to continue.

Last week, a class of investors and ATBCoin agreed to settle the securities class action suit for $250,000. The unopposed motion for preliminary approval of settlement was filed by lead plaintiff Raymond Balestra on behalf of the class of investors. The motion states: “The Settlement provides a recovery of $250,000 in cash to resolve this Action’s claims against Defendants. Lead Plaintiff respectfully submits that the Settlement warrants preliminary approval because it is the result of vigorous arm’s-length negotiations by experienced counsel, represents a favorable recovery that falls well within the range of possible approval, and is likely to meet all of the approval factors required by Fed. R. Civ. P. 23(e) and Second Circuit precedent.”

The case is Balestra v. ATBCoin LLC et al., 1:17-cv-10001-VSB, in the U.S. District Court for the Southern District of New York.

International Developments

Financial Stability Board releases document on global stablecoins

Last Tuesday, the Financial Stability Board (“FSB”) released a consultative document titled: “Addressing the regulatory, supervisory and oversight challenges raised by ‘global stablecoin’ arrangements.” The timing and scope of the consultative document is in line with the FSB’s timing of deliverables to the G20 outlined in the FSB’s chairman’s letter to the G20 Finance Ministers and Central Bank Governors from February. The consultative document outlines ten recommendations for central banks regulating global stablecoins (known as “GSCs” throughout the document). The purpose of the recommendations is “to advance consistent and effective regulation and supervision of GSC arrangements.”

Established after the G20 London summit in April 2009, the FSB is an international body that monitors and makes recommendations about the global financial system. The Board of the FSB includes all G20 major economies, FSF members, and the European Commission. The FSB is based in Basel, Switzerland and is funded by the Bank for International Settlements (“BIS”).

The FSB consultative document stresses the need for global unison in regulating and supervising stablecoins, calling for “comprehensive regulation, supervision, and oversight of the GSC arrangement across borders and sectors,” including providing authorities the ability to “prohibit fully decentralized systems.” The FSB recommendations also imply that only permission-based stablecoins should be permitted to operate, as “[f]ully permissionless ledgers or similar mechanisms could pose particular challenges to accountability and governance…” To support this recommendation, the FSB proposes that “[a]uthorities should be able to obtain timely and complete access to relevant data and information to enable them to implement adequate regulatory, supervisory, and oversight approaches”—a proposal that appears difficult to implement for stablecoins running on permissionless blockchains.

It is unclear what effect the FSB recommendations, if adopted, will have on the global stablecoin market and permissionless systems at this time.

You can read the full consultative document here.

Chinese tech companies file most blockchain patents in 2019

According to research from The Block and Google Patents, Tencent and Alibaba filed the most blockchain patent applications in 2019. Over 5,800 blockchain patent applications were filed last year, with Tencent leading the way with 718 applications and Alibaba with 470 applications.

According to data collected by PatentSight, IBM still holds the largest number of active U.S. blockchain-related patent families as of June 2019 (108 families), with Bank of America in second place with 52 active families.

China to launch blockchain platform this week

China’s government is set to launch its national blockchain platform on April 25th. The platform is known as the Blockchain-based Service Network (BSN) and is led by the Chinese government-backed think tank State Information Center. According to a recent white paper, BSN is aimed at providing a robust, low-cost, high-availability, multi-cloud, “internet of blockchains.” BSN is designed to be cross-platform in order to support Western frameworks like Hyperledger Fabric (already supported), Ethereum, EOS, and Digital Asset’s DAML. This likely means that smart contracts that already exist in the U.S. will be able to be ported easily to BSN. According to the white paper, the BSN members estimate that companies typically expect to spend at least $14,000 USD to build, operate, and maintain a blockchain platform for one year. With BSN, however, companies will be able to build and deploy a blockchain application for less than $300 USD on average.

BSN was launched in October 2019 by the State Information Center, along with five Chinese companies that represent the telecom, financial, and technology sectors. The launch came just a week before President Xi Jinping declared blockchain a national priority. Currently, the BSN has already established nearly 100 public city nodes and aims to increase that number to 200 by the end of 2020.