Coindesk Weekly
for the week ending September 8, 2019
Coindesk Weekly

The state of stablecoins in Asia
Since the cryptocurrency boom and initial coin offering craze of 2017, many countries in Asia have taken steps to clarify their regulations surrounding cryptocurrencies and security tokens.

Read more in THE TAKEAWAY below.

TOP TRENDS ON COINDESK

Here are some of the biggest stories this week on CoinDesk.com...

PAXOS TWO-FER: Paxos has received approval for two new crypto assets from the New York State Department of Financial Services, one of the market’s toughest regulators. One, issued by Paxos itself, is backed by gold, the other by U.S. dollars held in trust at the New York trust company. And the latter is issued by – wait for it – Binance, the Malta-based crypto exchange, which was once known for pushing the regulatory envelope but lately has played nice ahead of its U.S. affiliate’s launch. Full stories  here and  here.

CRYPTO RAP: “I myself hold bitcoin,” Reid Hoffman, co-founder of LinkedIn and a member of the PayPal Mafia, told CoinDesk as he described his reasons for releasing a new hip-hop video about central banks competing against cryptocurrency.  “I am a pro-government and well-run society guy,” he said, and yet Hoffman also believes a small handful of global cryptocurrencies will arise, inevitably, because they will enable things the world wants and needs. “So that’s why I have this [rap], to elevate the discourse,” he told CoinDesk.  Full story

FUNDING SHORTFALL: Open-source cryptocurrency projects require funding for developers to contribute. That’s a problematic proposition in the rollercoaster markets that make up open blockchains. Indeed, both Zcash and Litecoin are experiencing difficulties funding development and other expenses, and have pointed the finger at the market doldrums. Contributor Daniel Cawrey looks the issue.  Full story 

SIDE-DOOR ETF: While the U.S. Securities and Exchange Commission (SEC) has so far blocked a number of proposed bitcoin ETFs, two firms aim to launch a more limited option this week. Announced Tuesday, VanEck Securities and SolidX Management – which have previously had a decision on their proposed bitcoin ETF postponed by the SEC – revealed they are using an SEC exemption that will allow shares in their VanEck SolidX Bitcoin Trust to be offered to institutions such as hedge funds and banks, but not to retail investors.  Full story

HOT SPOT: Russia’s abandoned Soviet-era factories are enjoying a second life as cryptocurrency mining facilities as Siberia’s big hydropower plants (another legacy of the USSR) lure miners with cheap electricity. The favorable costs and naturally cold climate are turning Siberia into an international mining hub with miners from Europe, Asia and the U.S. placing their rigs in local farms.  Full story

SECRET WORK: The People’s Bank of China (PBoC) is charging full speed ahead with its digital currency plans, hoping to beat Facebook’s Libra to market. A dedicated team from the central bank’s Digital Currency Research Lab is now developing the system in a closed-door environment, away from the PBoC’s downtown Beijing headquarters, a person close to the bank told CoinDesk. The team has been working in this separate location since early summer so they could fully concentrate on the project, the source said.  Full story

TRUMP FALLOUT: As the Chinese yuan falls in value due to factors like the ongoing trade war with the U.S., there are signs that locals are increasingly moving funds into bitcoin. According to a Bloomberg analysis of prices over 30 days, the negative correlation between the yuan and bitcoin has fallen to a record low in the last seven days. The piece added that further evidence of the trend lies in the fact that bitcoin prices on exchanges such as Huobi that cater more to Chinese traders are trading at a premium.  Full story


 
 
SEE ALL COINDESK STORIES

QUOTE OF THE WEEK

Blockchain has given us the opportunity to finally acquire monetary independence in a way that reflects Marshallese values. We intend to grasp that opportunity, innovatively and responsibly."

– David Paul. Minister In-Assistance to the President and Environment for the Marshall Islands, detailing a plan to issue a sovereign cryptocurrency.
 

The Takeaway

 

This essay is presented as a part of No Closing Bell, a series leading up to Invest: Asia 2019 focused on how the Asian crypto markets are interacting with and impacting global investors. To keep the conversation going in person, register for Invest: Asia 2019 coming up in Singapore on Sept. 11-12.


Since the cryptocurrency boom and initial coin offering craze of 2017, many countries in Asia have taken steps to clarify their regulations surrounding cryptocurrencies and security tokens.

In this article, we focus on the three countries that have the clearest regulations in place regarding digital assets, though there is still more work to be done.

Thailand

Within Asia, Thailand has by far the most well-defined legislation in place to govern security token offerings and exchanges.

In May 2018, the Thai government published its Digital Asset Decree  that establishes the necessary requirements for a business to offer or provide operations for digital assets. The decree covers both cryptocurrencies as well as digital tokens and is overseen by the Securities and Exchange Commission of Thailand (SEC Thailand). The decree clearly segments between primary issuance activities (ie fundraising), applicable to token offerers and issuers, and secondary market activities (i.e. trading), applicable to token exchange and trade-related intermediaries.

With the decree enacted, Thailand has also established three types of licenses:

  • Digital Asset Exchange License;
  • Digital Asset Broker License; and
  • Digital Asset Dealer License.

These licenses lay out the specific activities that businesses can participate in. The exchange license is applicable to a centre or network established for the purposes of trading or exchanging of digital assets. The broker license is applicable to any person who provides services as a broker or an agent with respect to the trading or exchange of digital assets. The dealer license is applicable to any person who provides services with respect to the trading or exchange of digital assets for its own account outside the digital asset exchange.

Separately, the Digital Asset Decree has restricted token issuances to be done only through approved ICO portals. Thailand has also specifically set out a list of approved cryptocurrencies that may be accepted as investment capital for ICOs, and to be paired with other assets on digital asset exchanges: BTC, ETH, XRP and XLM.

Presently, Thailand’s Ministry of Finance, under the recommendation of SEC Thailand, has approved five, three brokers Digital Asset Brokers, one dealer, and three ICO portals.

There is more work to be done: Thailand hasn’t established clear guidelines regarding custody requirements for digital asset and cryptocurrency businesses. Today it is unclear as to whether existing standards applicable to securities should be applicable to digital assets, or if new guidelines and regulations will be established in future.

Singapore

Singapore’s de facto central bank, the Monetary Authority of Singapore, issued a set of guidelines last November entitled “A Guide to Digital Token Offerings”.

This clarifies what type of digital assets fall under Singapore’s Securities and Futures Act (SFA). If the digital tokens constitute capital markets products as defined in the SFA (ie securities, derivatives contracts etc), they are regulated under the SFA. In these cases, the existing relevant licenses apply, based on the activities performed by the businesses: whether as a token issuer, exchange platform, advisor or otherwise.

For example, a security token issuance platform must operate under a Capital Markets Services (CMS) license for the purpose of dealing in capital markets products (which includes securities). A digital asset exchange that facilitates trading in security tokens must operate under a license as either an approved exchange or a recognized market operator.

Unlike Thailand, the SFA in Singapore only applies to digital assets that fall under the definition of capital markets products. Other digital tokens may be classified as payment tokens (eg bitcoin, ether), and fall under the Payment Services Act (PSA), which is estimated to take effect in late 2019 and has a separate set of licenses.

With both the SFA and PSA active, we can expect that digital asset companies will have a clearer set of regulations to comply with, in line with securities and payment regulations. However, just like Thailand, custody requirements are still unclear at the moment. Given that the existing CMS license covers custodial services for securities, we expect that digital asset custodians will need to operate under a CMS license.

Singapore’s government and related entities have further shown commitment and enthusiasm for developing the industry. In particular, last November, MAS granted a recognized market operator (RMO) license to 1exchange, Singapore’s first private securities exchange that facilitates digital token trading. Singapore’s flagship stock exchange SGX is an investor in 1exchange.

The MAS is currently working with fintech businesses in a regulatory sandbox environment to figure out the missing pieces, and we expect to see updates within the next six months. It is clear that the Singapore government is supportive of the growth of the digital assets industry, and it continues to build the ecosystem.

Hong Kong

Serving as one of Asia’s key financial hubs, Hong Kong is also establishing its regulations for the crypto scene. In September 2017, the Hong Kong Securities and Futures Commission (HK SFC) released a statement on ICOs, then lastNovember, it published a statement and a circular on the regulatory framework for virtual asset portfolio managers, fund distributors, and trading platform operators. The HK SFC uses the terminology  of “virtual asset”, which it defines as a digital representation of value, which is also known as “cryptocurrency”, “crypto-asset” or “digital token”.

The new publications provide more regulatory clarity with respect to investment and management of funds investing in digital assets.

In March 2019, the HK SFC released a “Statement on Security Token Offerings”, reminding operators that where security tokens are securities, unless an applicable exemption applies, any person who markets and distributes security tokens (whether in Hong Kong or targeting Hong Kong investors) is required to be licensed or registered for Type 1 regulated activity (dealing in securities) under the Securities and Futures Ordinance (SFO).

However, Hong Kong is still conceptualizing how it should regulate digital asset exchange platforms. Through its November 2018 publications, SFC called for exchange operators to come forward and join its regulatory sandbox in order to determine the type of license to be granted to exchange operators. Exchange operators may need to be regulated by the SFC and require SFO Type 1 (dealing in securities) and Type 7 (provision of automated trading services) licenses.

Per current regulations, custodial activities are not regulated by the SFC but entities acting as custodians have to be set up as a Public Trust Company and apply for the Trust or Company Service Provider (TCSP) license, issued by the Hong Kong Companies Registry.

It still remains unclear as to whether there will be separate guidelines for digital asset custodians, or if today’s regulations, applicable to traditional custodians, shall be applicable to digital asset custodians as well.

Conclusion

Other governments in the Asia-Pacific region have also taken various steps towards defining a clearer scope of regulatory requirements for digital assets.

For example, in the Philippines, the government has set up the Cagayan Economic Zone Authority which oversees a special economic zone that focuses on fintech and crypto-related businesses. In tandem, in February, the Securities and Exchange Commission of the Philippines issued draft regulations around digital asset and token offerings, and proposed rules for exchanges. Malaysia has regulations similar to those in Singapore, and is also working on adapting these to cover digital assets.

Plenty of ambiguities exist within today’s legal frameworks, often because they were designed for a non-digital world. Yet technology marches on.

Today, larger and larger organizations from finance and technology sectors are building cryptocurrency and blockchain platforms. Such moves have increased the urgency for governments to understand and regulate digital assets, in order to keep up with the ever-changing realities of business.

Although it remains to be seen how the STO and crypto scene will ultimately shape up globally, we expect to see more regulatory developments soon. One thing we can be certain of is that the bulk of the action and innovation will be driven from Asia.

-- Antony Lewis and Xiang Ying Cheng

 

BEYOND COINDESK...

WASHINGTON POST: Modern payment systems (ie credit cards)  leak a lot  of potentially personal and private information today, writes Washington Post technology columnist Geoffrey Fowler. He confirmed this by purchasing a banana using a credit card. He found that the bank backing the card, the card network, the store he went to, the merchant banks processing transactions for point-of-sale systems (and the point-of-sale system providers themselves), and potentially financial apps or mobile wallets all collect data from a single transaction, which may then be used to build a profile of a buyer or for marketing purposes. Opting out of this “surveillance capitalism” is not easy either, though there are certain actions consumers can take to safeguard their privacy.

WHAT WE'VE BEEN UP TO

Confused about crypto custody? You’re not alone.

To help clarify the concept, we’ve written a report that highlights the concerns, addresses the obstacles and paints a picture of the progress in the custody solutions for institutional crypto investors.

You can download our "Intro to Crypto Investment" report for free here.

"Crypto In Context" is part of a series of research papers about the facts and ideas that are drawing institutional investors into crypto. Those new to crypto will find needed resources and a map of future obstacles. Those already active in crypto will find a guide to the path ahead for colleagues and clients.
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