A pilot program, sanctioned by the Bank of Russia, was developed, and recently completed, by Russian mining industry giant, Nornickel.
This pilot, which took place within the bank’s regulatory sandbox was structured as a means to test the veracity of the benefits surrounding digital assets, and the potential role they can play in finance.
The pilot saw a platform developed by Nornickel, which provides its clients with various capabilities surrounding digital assets. Through the use of ‘hybrid tokens’ the platform provides, but isn’t limited to, tokenization of…
The goal hoped to be achieved through offering these services is two-fold, like most tokenization platforms.
- Provide companies easier access to financing opportunities
- Provide investors with an increase palette of investment choices.
The Bank of Russia did not embark on this endeavour for the fun of it. They have noted the potential role that digital assets will play in the future of finance, and are looking to prepare themselves accordingly.
As such, they have now submitted framework surrounding digital assets, in hopes of seeing new amendments made to Russia’s current laws governing crypto – Framework established during Nornickle’s time in the bank’s regulatory sandbox.
We have previously taken a look at a few of the laws governing blockchain in Russia, which the nation’s central bank hopes to see amended. Make sure to peruse the following article to see the areas which stand to, potentially, be altered.
As stated, the Bank of Russia, only today, released a statement on the successful completion of the pilot program. The following is a translation of commentary provide by the bank.
Ivan Zimin, Director of the Financial Technology Department of the Bank of Russia, states,
“It was one of the largest sandbox projects. We have studied in detail the new business model and its compliance with the needs of the market. An important part of the service is the use of hybrid tokens, which make it easy to adapt to the needs of business and consumers and provide flexible solutions to attract investment. As a result of the piloting, the Bank of Russia proposed to include in the draft federal law “On Digital Financial Assets” the provisions necessary for the introduction and development of such solutions in the emerging market of digital assets, which were supported by the government agencies and business.”
Seeking a Friendly Hand
Establishing a clear framework surrounding digital assets is clearly of importance when gauging industry development. As industry participants look to continue expanding their products and services, we have seen many begin seeking out nations which have had the foresight to implement such framework.
One company, recently covered, that is doing just that, is Smartlands – a UK based tokenization platform. Smartlands recently announced that they would be basing their future moves on the Liechtenstein Blockchain act.
While news of a potential implementation of government backed framework is, no doubt, welcome, Russia has remained skeptical of the cryptocurrency industry at large. Tokenization of assets and financial instruments in a regulated manner are one thing, but cryptocurrency transactions are another beast entirely.
Russia has taken a trepidatious stance towards trading cryptocurrencies, as they link them to potential money laundering schemes. This stance has been reiterated as recently as February 17, 2020 by the Bank of Russia, as they look to update ‘Directive 375-P’ – essentially a manual for identifying illicit financial activity.
Central Bank of South Korea to Host 22mth Pilot for Potential CBDC
To date, various nations have not only noted the potential need for a CBDC in the future, but have actually embarked on pilot programs to develop them. The most recent nation to accelerate this process, delving in to a pilot program, is South Korea.
In this recent announcement by The Bank of Korea (also the nation’s central bank), they begin by stating, ‘The need for the introduction of the central bank digital currency (CBDC) by the Bank of Korea will increase.’ It is this recognition that has clearly prompted them to look at the logistics surrounding the creation, dispersion, and usage of such a CBDC.
What Will it Look Like?
While the BOK states that they are looking into the feasibility of utilizing blockchain to underpin a CBDC, usage of this technology is not a given.
Furthermore, the pilot program is expected to look at more than simply the technical requirements behind such a feat. This extended look includes possible legal hurdles, expected cooperation between other central banks, custody solutions, and more.
The pilot program is said to be structured as a 22 month process, with the following breakdown.
- Defining CBDC design and functionality
- 5 months
- Technological requirements
- 5 months
- Business process analysis through external consultation
- 4 months
- CBDC construction and testing in controlled environment
- 12 months
The BOK, notably, refers to Sweden and their CBDC, the e-Krona, with regards to the structuring of their pilot program.
The acronym ‘CBDC’, refers to a ‘Central Bank Digital Currency’. These currencies are digital representations of previously established FIAT – meaning government issued currency.
While their structuring may vary, most believe that CBDCs will be structured as blockchain based tokens; Primarily due to the technologies ability to encode fungibility, while providing easy and cost efficient value transfer.
While digital, because CBDCs are issued by government regulated entities, they would be subject to the same, or very similar, regulations and scrutiny as traditional paper currencies.
If this approach being taken by The Bank of Korea sounds familiar, perhaps that it because The Bank of Canada has recently announced similar intentions.
While there is no firm timetable for the launch of a potential digital dollar, development is in the works. As the adage goes, ‘an ounce of prevention is worth a pound of cure’. Clearly, this is a stance adopted by each of these central banks, as they look to be prepared for the eventual need of a CBDC. When the time comes, and a cure is needed for ailing paper currencies, preventative measures will be ready on the sidelines.
The Bank of Korea (BOK)
The Bank of Korea acts as the central bank for South Korea. Operations are situated in the capital, Seoul.
In operation since 1950, The Bank of Korea is currently spearheaded by Governor, Lee Ju-yeol
In Other News
Recently, we took a brief look at a few ways that COVID-19 is affecting blockchain based endeavours, to date. One of these revolves around issues which plague paper currency, and the need to go digital. Make sure to read the following article to learn more about the perks brought forth by CBDCs.
Japanese Government Introduces New STO Regulations
Japanese regulators officially launched their STO market via amendments to the country’s current securities regulations this week. The new crypto exchange-specific amendments add clarity to the market and introduce a number of important customer protections. As such, analysts predict that the Japanese crypto sector is about to experience rapid expansion.
According to new reports, the amendments will go into effect on May 1. Importantly the changes directly alter the Payment Services Act and the Financial Instruments and Exchange Act. The amendments introduced a variety of new measures ranging from new banking regulations and cold wallet requirements, all the way to, new legal terminology.
Storage Upgrades – STO Regulations
Specifically, the new amendments put new requirements on exchanges. For one, all exchanges must now keep in cold storage an amount equal or greater than the number of users’ funds held online. This regulation ensures that exchanges rely on cold storage whenever possible. Along the same line of thought, exchanges are no longer allowed to keep users’ funds and their funds together. Importantly, this regulation extends across both crypto and fiat reserves.
ICO and STO Amendments
Another important amendment added to the regulations is the legal definitions of initial coin offerings (ICOs) and security token offerings (STOs). For years, blockchain firms struggled to get regulators to clarify the exact differences in terms of regulations. Now, regulators have a clear cut understanding of what type of fundraising campaign is underway, and how to classify it.
Fighting Fake News – STO Regulations
Interestingly, the new amendments go after all forms of market manipulation. There are now stricter fines and punishments in place for spreading rumors or making false statements. This is an important addition as market manipulation is a real concern internationally. Japanese officials hope they can curb these nefarious actors and weed out bad sources of information.
As part of the new enforcement policies, the new regulations place cryptocurrency asset derivatives transactions under the FSA’s jurisdiction. Additionally, there are some terminology changes. Moving forward, cryptoassets and not “cryptocurrencies” is the terminology regulators agreed on.
Importantly, a group of Japan’s top securities firms has been patiently waiting for these regulations to become official. The group includes Monex Group, Rakuten, and one of the largest financial institutions in the country, SBI. In March, the group publicly revealed plans to create a regulated security token exchange.
The group’s wish could have come sooner if the world wasn’t in the middle of the COVID-19 pandemic. Unfortunately, the virus has wreaked havoc on the markets and caused multiple delays for regulators. Notably, Japan was even forced to postpone the 2020 Olympics.
Japan STO Market is Here
Despite the dreary state of the international markets, Japan seeks to be the blockchain capital of the region. This determination, coupled with regulators forward-looking stance, is sure to give the country an advantage over the competition. For now, you can expect to see progress as the Japanese STO market is officially active.
XRP Ripple Lawsuit re-filed, but not as a Security?
This week, news broke that an amended complaint against Ripple has been filed by XRP investors. This news is the latest development in a two-year class-action lawsuit brought against the firm. Interestingly, investors chose to amend this lawsuit in order to add protections in the case that XRP doesn’t fall under securities regulations.
Importantly, the amended suit includes former XRP investor Bradley Sostack as the lead plaintiff. In this go-around, the plaintiffs brought additional claims against Ripple and its CEO, Brad Garlinghouse for violation of California business law. The report alleges the company blurred the differences between its enterprise solutions and XRP to further drive demand in the market.
Hedge Your Bets
Originally, the lawsuit alleged that Ripple raised millions of dollars through the unregistered sales of XRP to US retail investors. Now, according to a court document filed on March 25, investors decided to attempt another approach. Perhaps, fearing that XRP could escape securities regulations, the new suit goes after the firm for violations of California business laws.
To this extent, the sixth claim for relief states that the firm participated in false advertising, while a seventh claim, further accuses the firm of unfair competition in violation of California regulations. Also, the claim states that Ripple reportedly limited the supply of XRP to drive price appreciation.
Garlinghouse Under Fire
Specifically, the allegations claim that Garlinghouse made numerous conflicting claims to investors. In multiple instances, he stated that he was holding XRP for long-term gains. However, researchers pointed out that these statements were false. Throughout 2017, Garlinghouse sold millions of XRP via cryptocurrency exchanges. In fact, a review of the XRP ledger indicates that Garlinghouse sold over 67 million XRP in 2017 alone. Additionally, on multiple occasions, he dumped his XRP within days of receiving it from Ripple.
SEC vs Ripple XRP
The lawsuit cites statements made from Ripple about XRP being a utility token essential for international payments. Additionally, the firm and CEO made statements in which they described the cryptocurrency sales are primarily to market makers. This last point could prove to be a major problem for Ripple as 60 percent of XRP is owned by Ripple, and until now, only saw use solely for fundraising efforts.
The Ripple XRP Saga
The XRP securities saga started when a group of disgruntled investors lodged a complaint with the SEC back in 2018. Since that time, the case has seen numerous amendments as both Ripple and the plaintiffs adjusted their strategies. Ripple hoped to get the case dismissed early on, but U.S. District Judge Phyllis Hamilton in the Northern District of California ordered in February the suit could proceed to trial.
While the news did seem bleak for Ripple, at that time, Judge Hamilton also stated that the company did not violate California state law. Consequently, both the false advertising and personal liability against Ripple’s CEO Brad Garlinghouse were dropped in that instance.
Now, Ripple worries that the plaintiffs will utilize unlimited amendments to falter the XRP market. Given the new legal approach that the plaintiffs have taken to towards the company, there may be some validity to their concerns.