Russian officials took some important steps this month towards the creation of a regulatory framework for security tokens. In the past, Russia has been on the fence of how to exactly handle the new technology. This undecidedness hurt the country’s blockchain community and slowed adoption.
Now it appears that lawmakers recognized the importance of staying relevant in the sector. Consequently, officials continue to usher in new laws pertaining to the use and ownership of digital assets. Now, Moscow wants to give its entrepreneurs the opportunity to compete on the global stage.
Legislation in the Works
Russia currently has three main crypto-related bills going into enforcement in the coming months. These bills are part of the “Open Russian Digital Economy” campaign. This campaign is about helping Russian develop alternative sources of revenue and finance through innovation.
Of the three bills set to activate in the coming weeks. Two of the bills fail to mention cryptocurrencies directly. However, the bills do cover crypto activities. The third bill does explicitly name cryptocurrencies.
Unfortunately, officials delayed the third bill three times already. This bill is known as “On Digital Financial Rights.” Many in the country consider this bill to be the most important piece of crypto legislation at this time and for good reason.
The “On Digital Financial Rights” bill finally breaks digital assets down into three categories – Virtual Assets (crypto), Technical (utility), and Digital Financial Assets (security tokens). This legislation is a critical first step to increased adoption. Primarily, it would help build confidence in the crypto economy.
Notably, the bill has seen multiple amendments since its introduction, mainly because of strong support from the local business sector and the Finance Minister. The Chairman of Russia’s Financial Market Committee, Anatoly Aksakov introduced the first two drafts of the bill on March 20, 2019.
A co-sponsored third draft of the legislation went in front of lawmakers on March 26. The bill was filed by the head of the parliamentary Legislation Committee, Pavel Krasheninnikov and the Speaker of Duma, Vyacheslav Volodin. Interestingly, this version of the bill focuses on the use of self-executing contracts, or smart contracts.
Use of smart contracts
Regnum, Russian lawmaker Pavel Krasheninnikov, head of the parliamentary Legislation Committee stated that smart contracts are very similar to reoccurring payments systems currently in place. He believes that this FinTech is essential in the development of the Russian digital economy.
Russia Central Bank Doesn’t Like Bitcoin
The main reason for the postponement of “On Digital Financial Rights” is the fact that Russia’s Central Bank is still opposed to the entire concept of decentralized cryptocurrencies.
Not surprisingly, the central bank doesn’t support any other form of currency, other than the ones it issues personally. At one point, the bank’s deputy governor, Sergei Shevtsov went as far as to call cryptos a “high-tech pyramid scheme.” The statement highlights some of the blockades the Russian cryptocommunity must overcome in order to succeed.
On Digital Rights
On October 1, the second piece of legislation – “On Digital Rights” entered into force. This is the first piece of legislation to enter service. It’s similar in nature to the “On Digital Financial Rights” legislation but differs in many key ways. Mainly, the legislation doesn’t use the word “cryptocurrencies.”
The bill established basic legal definitions in the sector and the status of each. For example, Digital Rights is now a legally recognized term in the country.
Amend the Civil Code
The new law amends the Russian civil code. The addition now states that the use of information technology is legal for the fulfillment of obligations in certain circumstances. Basically, self-executing contracts are legally binding moving forward.
ICO Laws on the Way
In January, the third crypto-related bill will go into enforcement. This bill deals exclusively with crowdfunding campaigns such as security token offerings (STO). The law is called the “On Attracting Investment Using Investment Platforms” and its ramifications are far-reaching.
Russian President Vladimir Putin signed the bill on August 2019. The new law places investor protections, as well as, restrictions in the ICO and STO sectors.
For example, unqualified investors can only invest up to 600,000 rubles ($9000) per person. This law is meant to protect uneducated investors from taking large losses. Unfortunately, it can also limit normal investors from maximizes their ROI.
The legislation will also restrict what firms can host crowdfunding events. Not surprisingly, only parties registered with the country’s central bank can engage in crowdfunding activities at this time. Basically, any STOs in Russian need the blessing of the central bank to proceed.
Not Easy Being a Russian Crypto Investor
This law showcases Russia’s efforts to allow only the elite to utilize the blockchain sector, while at the same time, making it nearly impossible for the average person to do so.
This pattern of neglect toward the civilian investor isn’t anything new. Back in 2017, Russia hinted towards banning crypto at the same time the central bank announced plans to issue its own native cryptocurrency in the coming 2 years – the cryptoruble.
Russian Association of Blockchain and Cryptocurrency
Despite the country’s history of cloudy crypto legislation, Russia continues to see further blockchain expansion. The country already has numerous firms working together to help add transparency to the sector – the Russian Association of Blockchain and Cryptocurrency.
This group provides investors with a rating system to better gauge the validity of an ICO or STO. The firm seeks to create an international standard to rate crowdfunding campaigns. In this manner, investors can accurately assess the risks associated with these investments more consistently.
Sanctions Result in Change
Russian officials took the monumental steps to further the local blockchain sector after dealing with a host of crushing sanctions imposed by the US. US lawmakers insisted on the sanctions for what they deemed as election meddling in the 2016 presidential elections.
Since the start of the sanctions, Russian President Vladimir Putin has criticized the US’s decision. He stated that the US’s move weaponized the dollar. Consequently, this strategy makes it difficult for competing countries to keep faith in the currency. Essentially, the move forced Russia to consider alternatives.
Russia Goes Crypto
Russia is now ready to turn towards blockchain solutions. The country possesses the network and technical skills to be a dominating force in the crypto sphere. Considering that the country is set to launch its own native cryptocurrency in the coming year, it makes sense that lawmakers start to promote a more blockchain-friendly business environment.
Telegram’s TON Blockchain Officially Halted
This week, the messaging giant Telegram conceded its year-long battle against SEC regulators over the TON blockchain. According to reports, the company officially filed a stipulation withdrawing their appeal days ago. The news symbolizes the death of one of the most highly anticipated projects in the crypto space. Additionally, it represents continued pressure from regulators towards large social media-backed crypto projects.
The heartbreaking news came via a company blog post. In the notification, Telegram’s CEO Pavel Durov makes his first public statement regarding the ongoing SEC trial. He explained the firm’s choice to abandon the hard-fought project. Durov tells TON investors that the choice centered on the SEC judgment blocking the issuance of Gram tokens. It left the company unable to fulfill its responsibility to investors.
TON Blockchain – Play the Long Game
However, the abandonment may not be forever. The filing is simply an agreement by the SEC and Telegram to stop the court proceedings without judgment. It could be that Telegram seeks to play the long game now and let other companies fit the regulatory bill to set precedents in the market.
Telegram’s woes originated from its record-breaking 2018 ICO. The company was able to secure $1.7 Billion in the crowdfunding event. Notably, this is the largest ICO to ever launch. As such, it wasn’t a huge surprise to learn that regulators wanted more control over the project given the market response. Importantly, the funding was to go towards the constructions of the TON blockchain ecosystem.
Shortly into the venture, regulators took aim at the project. In October of 2019, the issuance of GRAM tokens was frozen after an SEC judgment halted any actions. Notably, Telegram appealed the decision but the appeal was dismissed by Judge Kevin Castel of the Southern District Court of New York.
TON Blockchain – Investor Options
Following the injunction, Telegram provided investors with two options. Investors that wanted a refund could receive 72% of their initial investment back. In the past, Gram investors were hesitant to take the refund options because the upside potential of the project was great. However, as the SEC trial began to degrade their hopes, more investors caved to the pressure.
The second option was a bit more unique. Telegram offered to allow investors to convert their funds into a loan to the company. For their flexibility and patience, investors would receive 110% repayment. Telegram never mentioned publicly how many investors went this route.
Hard Forked TON Blockchain
Surprisingly, there is still some hope for the TON concept to live on. This month a group of advantageous developers released a hard fork of the project. The new blockchain goes by the name of Free TON and has the support of TON Labs. Importantly, TON Labs worked directly on the original TON ecosystem.
A TON of Bad News
It’s sad to see Telegram forced to drop the TON concept for the time being. However, it will be interesting to see what route the firm takes now. Given the new hard fork, it appears that the market already has a TON community ready to brave the storm. For now, the news doesn’t bode well for other major tech firms involved in SEC litigations.
Kin Releases its Transparency Report
In response to SEC pressure, KiK’s Kin Foundation released a transparency report this week. The data includes Kin’s structure, processes, and budget. Kin has been enthralled in a legal battle with the SEC for months for their 2017 $100 million ICO. Importantly, the report provides regulators and the public new insight into the firm’s inner-workings. Company executives believe the information clarifies the true token taxonomy of Kin.
The news showcases continued SEC pressure on the ICO community. Regulators continue to pump the breaks on large tech companies’ crypto projects. This year has seen the SEC halt Facebook’s Libra, Telegram’s TON, and a host of other high-profile projects. Additionally, the maneuver highlights KiK’s determination to fulfill their blockchain aspirations in the face of intense regulatory push-back.
According to the report, the Kin Foundation is an informal community of 10 members and a representative, The member’s tasks include reviewing kin rewards and disagreements in the community. Interestingly, the report reveals that Kin representatives are to act as communication points between developers and token holders. Notably, Kin only has one representative, Matt Hannam, at the moment. However, the report explains that plans are underway to add more representatives in the coming weeks.
The foundation lists Ted Livingston, the CEO of Kik Interactive and William Mougayar, author of “The Business Blockchain” as it’s directors. Importantly, Kin members decide on their board yearly. This decision happens prior to budget drafting. Here, executives configure spending for every aspect of the business including developers, node incentives, marketing, and operational costs.
Surprisingly, the report revealed some previously unknown information regarding Kin’s usage and adoption. To date, Kin already registers over 28 million users. This community averages around 300 million kin in daily transaction volume. This information demonstrates an impressive rate of adoption for the token.
With their transparency report in hand, Kin prepares to make their case yet again. Importantly, executives pointed to the recent miss-handling of the Telegram case as evidence that changes must take place. Specifically, Kin believes regulators need to avoid correlating Grams to Kin.
SEC Seeks Early Judgement
In March, regulators believed they had Kin on the ropes. The SEC requested an early summary judgment against the firm. The judgment was to seek a permanent injunction against the project. Additionally, regulators wanted a variety of fines and penalties placed against the firm.
The Kin Foundation is the non-profit organization for the hugely popular messaging app Kik. Kin entered the sector officially in 2017 with the goal to promote and help build the Kin ecosystem. Since its inception, Kin has made major headway within the blockchain sector.
Despite having logic on their side, Kin still faces an uphill battle. To date, the SEC has shown no signs of budging on their refusal to approve any crypto projects originated from major social media platforms. Hopefully, regulators will take the time to evaluate each of these cases separately and understand that innovation is at the doorstep. Its time to let him in.
Raiffeisen Bank in Cooperation with FinTech Billon to Pilot Digitized National Currency
The transformation of the payments industry is in full swing. Driven by FinTechs, the payments technology innovation brings new ways of transacting on a global scale, with easier on-boarding, reduced waiting times and lower fees.
It’s no surprise that FinTechs also experiment with blockchain-based platforms that allow for tokenized representation of assets. One such platform is being developed by Billion, a British-Polish FinTech that is currently working with Raiffesen Bank on end-to-end digitized national currency transfers.
Raiffeisen to Pilot Digitized National Currency Project
According to a report, the Austrian banking giant successfully tested Billon’s tokenization platform, dubbed RBI, and moved the project from a proof-of-concept to a pilot project.
Borne out of Raiffeisen Bank International’s (RBI) Elevator Lab acceleration program, the tokenization platform is based on Billon’s distributed ledger technology (DLT) with the goal to enable tokenization of national currency.
Billon was founded in 2015 and is a FinTech company working on integrating national currency transactions, document and identity management tools into a single architecture.
The goal is to bring blockchain capabilities into the regulated world. This is in line with the global trend of commercial and central banks building blockchain-based infrastructure that comply with payment and data regulations.
FinTechs Augmenting Banks
The system from Billon enables banks to complete transactions that have higher settlement speeds, accurate payment status, reduced exception handling and as a result reduce customer inquiries.
Transactions with this system can have additional data or documents attached to them, accelerating the verification and validation process for e.g. the source of funds. Consequently, transfers are quickly settled and cleared while maintaining a clean audit trail and full transparency.
Both Billon and Raiffeisen Bank International plan to pilot the digital currency by the end of this year. The trial is set to include RBI’s corporate and institutional clients. Should the test period be successful, the Austrian bank could start using it in Central and Eastern European (CEE) countries where it has an extensive presence.
Stefan Andjelic, blockchain hub lead at Raiffeisen Bank International, spoke of the necessity of banks having to partner with FinTechs to meet new consumer demands:
“Billon is a great example of a fintech that understands how to adapt blockchain to serve the needs of banks and their clients. Specifically, during the COVID-19 situation, banks need to partner with fintechs to innovate faster and help clients with payments processing and liquidity needs.”
The full extent of the benefits from a tokenized platform are yet to be felt when deployed in a full working environment, but Billon expects the bank to improve customer experience, differentiate its offering and achieve cost efficiencies at several steps during the process.
Blockchain and Banking
There is a noticeable trend amongst commercial and central banks to develop new payment rails and exploring blockchain-based solutions.
Among the first household names in the financial world to entertain the idea of a digital currency was JP Morgan with its own JPM Coin that is marked for settling internal transfers for its corporate clients. Nonetheless, up to this day there is no update from the banking giant about fully deploying the JPM Coin.
At the same time, many central banks across the globe are taking decisive steps to launch their own digital currencies, clear examples being People’s Bank of China with the digital Yuan and the Banque de France testing a digital version of the Euro.
At the highest level, institutions are studying the feasibility of digital currencies and how these can be implemented in the current monetary environment.
VISA is another company whose involvement with digital currencies testifies the looming change in how payments are made. The payments giant has also filed for a patent in the United States to develop a digital fiat currency.
The Trend to Go Digital
The willingness to bring forth a digital version of a currency has also been exacerbated by the current COVID-19 pandemic. Transitioning to an almost fully digital experience could become a prerogative for many companies.
In the wake of the pandemic outburst, the Bank for International Settlements (BIS) published a report on how physical cash could transmit viruses, including the COVID-19. As a result, the BIS advised financial institutions to utilize digital methods of payment transactions, while advocating for central bank digital currencies (CBDC).
With this new blockchain-based initiative with Billon, Raiffeisen Bank is definitely on track to bring better digital payment methods to their offering.
- RBI Clarifies Crypto Banking Regulations in India
- Telegram’s TON Blockchain Officially Halted
- Kin Releases its Transparency Report
- Raiffeisen Bank in Cooperation with FinTech Billon to Pilot Digitized National Currency
- Security Token Group Study Reveals Investors Hedging US Markets with Security Tokens