| Welcome to Chain Letter! Great to have you. Here’s what’s new in the world of blockchains and cryptocurrencies. | Central banks should consider teaming up with stablecoin providers, says the IMF. For years, powerful central banks around the world have claimed to be studying digital currencies, and most have left open the possibility that one day they might launch their own. That day may be dawning—much earlier than anyone expected.
In a recent blog post, IMF economists Tobias Adrian and Tommaso Mancini-Griffoli called on policymakers to take “prompt regulatory action” to address the “notable risks” posed by privately issued digital currencies, called stablecoins, that are designed to maintain a consistent value. More to the point: central banks may need to get into the stablecoin business themselves.
Earlier this year, the possibility that we might see state-backed digital currencies any time soon seemed remote. What’s changed? Well, in June, Facebook revealed plans for its own stablecoin, called Libra. The prospect of a non-sovereign currency that could instantly reach the billions of people across the globe who use Facebook products suddenly has central bankers playing defense.
What are they worried about? According to Adrian and Mancini-Griffoli, stablecoins could undermine financial stability, and stablecoin users risk losing their money. Policymakers will need to do something, they say, whether or not that means issuing central bank digital currencies. The pair suggest that one possible solution would be that governments require stablecoin providers to back their customer’s digital coins with central bank reserves, which they call “the safest and most liquid assets available.” Read more here. | | But what does it mean? Cryptocurrency enthusiasts are scratching their heads at the news that Block.one, the company behind the smart contract platform EOS, will pay $24 million to the US Securities and Exchange Comission as penalty for selling unregistered securities. Hardly anyone is surprised at the SEC’s view that what the company sold during its ICO were securities. But $24 million is minuscule compared with the $4.1 billion the token sale raised before the network had even launched.
What gives? For starters, Block.one prohibited US persons from participating in the sale. Apparently some got through, however, according to the SEC. It’s possible that the $24 million is roughly correlated with the amount of US investment that went into EOS tokens, Stephen Palley, a blockchain-focused attorney in DC, writes for The Block. Palley also notes that this was a negotiated resolution. Unlike Kik, the messaging app maker that took on an expensive and damaging court fight with the SEC over allegations that it sold unregistered securities, Block.one settled.
Still, Palley warns other crypto companies not to read much into the settlement. “The best one can say is that it’s a signal to market participants that they will have a better chance of surviving if they approach the SEC and work out a deal (like Block.one) than if they kick shins and fight a legal fight that they are likely to lose (like Kik).” | | In leaked audio, Mark Zuckerberg downplayed backlash by policymakers against Libra. Facebook’s CEO told his employees not to worry about the backlash the company’s digital plans have received from policymakers. Why? Because the real action is going on behind the scenes, he says. In leaked comments from a July meeting with Facebook employees, published by The Verge, Zuckerberg assured them that despite public resistance from policymakers, Facebook was making progress by meeting with regulators privately.
Zuckerberg said Libra was just one of a number of projects that “touch very socially important aspects of society,” and that the company’s plan is to “have a more consultative approach” with regulators than it has in the past. Finance in particular is a “very heavily regulated space,” and “we kind of expected” the process to be “a long road,” he said. “There’s a lot of important issues that need to be dealt with in preventing money laundering, preventing financing of terrorists and people who with the different governments say you can’t do business with.”
David Marcus, who heads the digital currency project, faced a grilling by skeptical lawmakers during two congressional hearings in July. But those hearings were overly dramatic, according to Zuckerberg. Facebook’s “private engagement” with regulators is often “more substantive and less dramatic,” he is heard saying in the leaked audio. “And those meetings aren’t being played for the camera, but that’s where a lot of the discussions and details get hashed out on things.” He may be right. We already know that Facebook has a strong lobbying force in DC, which it recently bolstered with new hires who will focus on Libra. But he’s also right that it might be a long road. Given all the regulatory issues yet to be ironed out, don’t be surprised if Libra misses its 2020 launch target. | | Loose change Fill your pockets with these newsy tidbits. - Visa, Mastercard, and other firms that signed up to be part of the Libra network are reconsidering their involvement in light of backlash from government officials in the US and Europe. (Wall Street Journal $)
- The company behind Sia, a decentralized data storage service, will pay $225,000 to the SEC as part of a settlement over allegations that it sold unregistered securities during its 2014 token sale, which raised $120,000. (CoinDesk)
- The National Basketball Association will not allow Brooklyn Nets player Spencer Dinwiddie to use his contract as a blockchain-based digital investment vehicle, as he had planned to. (New York Times $)
- Bitcoin developers have fixed a bug in the lightning network, the “layer two” payments network being developed to run on the Bitcoin blockchain, that would have let attackers drain user funds. (CoinDesk)
- Venezuelan president Nicolas Maduro says his government will activate a cryptocurrency-based system for banking transactions and international payments “very soon.” (Bloomberg $)
- A hugely popular Ethereum-based gambling platform called Fairwin appears to be a ponzi scheme. (Decrypt)
- Coinbase will now pay customers interest (1.25% per year) on their holdings of USD Coin, a dollar-pegged stablecoin it developed in collaboration with Circle. (CoinDesk)
| | “I am much more nervous about projects which develop in a dark corner in the financial system somewhere, spread themselves out through cyberspace and one day are too big to be stopped.” —Mark Branson, head of Switzerland’s financial supervisor FINMA, speaking at a conference this week in Zurich. As for the Switzerland-based Libra project, which is being led by Facebook, Branson said: “Here is something which is being done transparently.” (Reuters) | | | | | |
