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Financial and Crypto Firms Explore Integration; NFT Market Expands; FATF/Basel Publish Crypto Guidance; DOJ/CFTC Bring Crypto Actions; DeFi Hacks Continue


In this issue:

Financial Firm Launches Crypto Group, MakerDAO Votes to Integrate with Bank

By Robert A. Musiala Jr.

A major multinational financial institution recently “announced the formation of its Digital Assets and Financial Markets group.” According to a press release, “[t]he new group combines the teams responsible for supporting the fast-growing digital asset markets and those dedicated to providing market access and insights across the traditional securities services markets.”

In another recent development, MakerDAO, the decentralized autonomous organization (DAO) that governs the Maker Protocol, is reportedly voting on a proposal that would bring a traditional bank into the MakerDAO ecosystem. The Maker Protocol governs the DAI stablecoin, which is an algorithmic stablecoin pegged to the U.S. dollar and issued in exchange for user deposits of ether and other cryptocurrencies. According to reports, the proposal would involve allocating 100 million Dai (DAI) for the bank as part of a new collateral type in the Maker Protocol with the goal of allowing the Maker Protocol to begin issuing real-world loans to borrowers through the bank. MakerDAO will reportedly establish a Multi-Bank Participation Trust to facilitate integration with the bank.

A recently published survey commissioned by two cryptocurrency payment processors provides new data on merchants’ willingness to accept cryptocurrencies as payment.. The survey found, among other things, that (1) among businesses with an annual income of $1 billion, 85 percent are adopting crypto payments; (2) 82 percent of survey participants cited elimination of middlemen as the reason for accepting cryptocurrencies; (3) 77 percent of surveyed merchants that accept cryptocurrency cite lower transaction fees as a reason; and (4) 68 percent of merchants surveyed do not accept crypto due to challenges implementing technology.

For more information, please refer to the following links:

NFT Market Continues to Expand with Brand Activations and Infringement Suit

By Keith R. Murphy and Lauren Bass

Major American retailers celebrated the founding of the nation by forging new worlds of their own in the metaverse. One Mission Bay-based franchise reportedly sold non-fungible tokens (NFTs) that paired a digital collectible with a physical consumptive item in the form of a free T-shirt. Another New York-based clothier reportedly incentivized shoppers to engage with the brand on social media by offering its first 10,000 Discord channel users a free NFT.

In related news, an American lifestyle, clothing and accessories retailer recently launched an NFT store, offering limited edition T-shirts and sweatshirts created by several NFT designers, according to a report. Separately, a well-known global fashion brand recently announced that it is joining its first decentralized autonomous organization through a partnership with an NFT marketplace. The partnership is reportedly part of a larger “Vault Art Space,” a virtual space anticipated to showcase and sell artwork from NFT artists.  

According to recent reports, an auto-racing team backed by a major automobile manufacturer announced a partnership with an NFT platform for purposes of certifying parts for the team’s racing cars. The program is reportedly intended to allow the team to monitor and ensure the quality of car parts, and the certification program may eventually be expanded to include official merchandise and other products.

In a final development, the creators of a popular NFT collection have reportedly filed suit against a copycat digital artist for false advertising, trademark infringement, unfair competition and unjust enrichment, among other claims, for the artist’s design and sale of “confusingly similar” NFTs. The plaintiffs have requested injunctive relief and monetary damages.

For more information, please refer to the following links:

FATF and Basel Committee Publish New Guidance on Cryptocurrencies

By Joanna F. Wasick

The Financial Action Task Force (FATF), a cross-border, intergovernmental anti-money laundering organization, recently released a report and update on the implementation of FATF’s standards on virtual assets (VAs) and virtual asset service providers (VASPs), which were originally announced three years ago. The report emphasizes that over the last year, jurisdictions have made only “limited progress” in introducing FATF’s Travel Rule, which requires VASPs to communicate the information of the originators and beneficiaries of crypto transactions that exceed a certain threshold. Specifically, FATF reports that as of March 2022, only 29 out of 98 jurisdictions have represented that they have passed Travel Rule legislation, and only 11 have started enforcement and supervisory measures. The report also finds that threats of ransomware actors misusing VAs to facilitate payments continue to grow, and ransomware cybercriminals are still relying on a small group of noncompliant VASPs and privacy coins to illegally move funds.

Last week, the Basel Committee on Banking Supervision (Committee), an international committee formed to develop standards for banking regulation, published its second consultation on the prudential treatment of cryptoasset exposures. The Committee classifies crypto assets into two groups: Group 1 includes assets that meet the Committee’s classification conditions, including tokenized traditional assets and regulated stablecoins; Group 2 comprises those assets that do not meet the enumerated conditions, including bitcoin and most other cryptocurrencies. The Committee then makes recommendations for the exposure levels for banks based on that asset classification. According to the Committee, banks would subject Group 1 assets to at least equivalent risk-based capital requirements as the corresponding traditional capital assets. The Committee recommends that banks commit only 1 percent of their total equity or net asset value in either long or short positions to Group 2 assets.

For more information, please refer to the following links:

DOJ, CFTC Bring Multiple Enforcement Actions Against Crypto Fraud Schemes

By Christina O. Gotsis

In late June, the U.S. Department of Justice (DOJ) announced criminal charges against six defendants in four separate cases for their involvement in schemes to entice investors into various cryptocurrency and NFT fraud schemes. One defendant allegedly orchestrated an NFT “rug pull” scheme, abruptly ending a purported NFT investment project, deleting its website and absconding with investors’ money. The defendant and his coconspirators allegedly then laundered $2.6 million of investors’ funds through “chain-hopping,” a form of money laundering in which one type of coin is converted to another and funds are moved across multiple cryptocurrency blockchains. The defendant also used decentralized cryptocurrency swap services to obscure the trail of stolen funds.

Another three defendants were charged for their role in a global cryptocurrency Ponzi scheme that generated $100 million from defrauded investors. A fifth defendant was charged for his role in an initial coin offering that raised $21 million by using falsified white papers about the project and blockchain technology, planting fake testimonials on its website, and fabricating purported business relationships with the U.S. Federal Reserve Board and prominent companies to create the appearance of legitimacy. A sixth defendant allegedly solicited $12 million from investors to participate in an unregistered commodity pool, purporting to use a trading bot that could transact high-volume trades to generate 500-600 percent returns on cryptocurrency exchanges. The DOJ has encouraged all victims of the schemes to visit its resource page to identify themselves as potential victims.

Also, in late June, the Commodity Futures Trading Commission (CFTC) filed its largest-ever fraud scheme case involving bitcoin in a civil enforcement action against a foreign currency commodity pool and its operator. The complaint alleges that between 2018 and 2021, the operator engaged in an international, fraudulent, multilevel marketing scheme using websites and social media to solicit bitcoin from investors. The defendant allegedly misappropriated over $1.7 billion in funds from pool participants. The CFTC is seeking full restitution to defrauded investors, disgorgement of ill-gotten gains, civil monetary penalties, permanent registration and trading bans, and a permanent injunction against future violations of the Commodity Exchange Act and CFTC Regulations.

Finally, Rija Ignatova, the so-called CryptoQueen, was added to the FBI’s Ten Most Wanted Fugitives list for her alleged leadership of a massive global cryptocurrency fraud scheme. According to reports, Ignatova founded OneCoin, a Bulgarian-based virtual currency, targeting victims around the world and urging investors to sell multilevel packages to friends and family. A federal warrant was issued for Ignatova’s arrest in 2017, but she has not been seen since.

For more information, please refer to the following links:

North Korean Lazarus Group Suspected in Recent DeFi Hack

By Alexandra Karambelas

The North Korean cybercrime syndicate known as the Lazarus Group is suspected to be behind the recent Horizon Bridge hack, according to recent reports. The Horizon Bridge hackers reportedly stole over $100 million in ether and other cryptocurrencies late last month. According to reports, investigators say that the methods used in the attack and subsequent transfer of funds are consistent with other hacks attributed to the Lazarus Group. This is the latest in a series of high-profile cyberattacks on decentralized finance (DeFi) services, including the $540 million Ronin Bridge hack in March, which is also suspected to be the work of the Lazarus Group.  

For more information, please refer to the following link:


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