Karsten Wenzlaff, Advisor
August 26th, 2025
Karsten Wenzlaff is a Crowdfunding and Fintech Expert from Germany. He is Secretary-General of Digit[...]
Category Archives: Blockchain, Crypto, Digital Assets Regulations
BoC and OSC Staff Collaborate on AMM Study
DeFi Report | Regulatory Perspectives | Aug 7, 2024
Image: The Ecology of Automated Money Markets (BoC and OSC, Jul 2024)
Insights from the Bank of Canada (BoC) and the Ontario Securities Commission (OSC) report on Automated Market Makers
A recent collaborative research effort between the Bank of Canada and the Ontario Securities Commission (OSC) to analyze the operating mechanisms, user adoption trends, and regulatory perspectives related to Automated Market Makers (AMMs), at the forefront of Decentralized Finance. The comprehensive staff discussion paper is called "The Ecology of Automated Market Makers" (Research overview, 56 page PDF), and unveils the complex ecosystem of AMMs.
What Are Automated Market Makers?
AMAs are a feature of a decentralized exchange (DEX) model that handles pricing and trading of cryptocurrency assets without the use of middlemen. AMMs use algorithms to set prices for trading pairs of cryptocurrency assets via smart contracts on blockchain platforms. According to the report, AMMs are now the most often used model in DeFi, mostly because of their capacity to supply liquidity for seamless trading.
Key Research Insights
- Despite the bearish downturn of crypto markets in 2022, major AMAs like Uniswap and Curve maintained significant activity levels, displaying their resilience and strong underlying demand for decentralized trading products. Trading volumes suggest AMMs have a strong trading base that could grow with market recovery.
- There are a variety of AMM models, each meeting different needs. Uniswap's broad market coverage and first mover advantage have made it a leader while more risk adverse traders looking for a safer environment may opt for Curve with concentration on stablecoins. Then there's Sushiswap's lending options and Balancer's multi-asset liquidity pools, which are other examples of AMM models for niche markets and trader types.
See: CFTC Publishes DeFi Report for Policymakers and Industry
- There's a risk of market manipulation and governance abuse when the concentration of governance power is held among a small number of significant token holders. This highlights the need for tools to enable greater and more equal participation in AMM governance.
- Incentive systems, such as staking and liquidity mining are needed to sustain liquidity but they can create significant volatility and conflicts of interest.
- Arbitrage activities that match AMM pricing with external market prices pose an impermanent loss risk to LPs. This risk needs strong risk management measures for liquidity providers.
- Although counter-intuitive to some, the research found that because blockchain transactions are transparent and visible onchain, there is a greater chance of market manipulation. Maintaining market integrity requires strict regulation and efficient monitoring.
Recommendations for Regulatory Frameworks
The paper suggests several areas where regulatory frameworks may need to adapt to address the unique characteristics of AMMs.
- To maintain accountability, regulators may require open disclosure of governance arrangements, token holdings, and decision-making procedures.
- Imposing liquidity and capital limits on AMMs could help reduce the risks associated with loss and provide adequate liquidity in times of market stress.
- Creating sophisticated tools to track blockchain transactions and spot questionable activity can assist authorities in spotting and stopping fraud and market manipulation.
See: Inside OMFIF’s Tokenisation Report: New Rails of Finance
- DeFi participants can benefit from a more stable and predictable environment by reducing regulatory arbitrage and establishing clear legal definitions for AMMs and harmonizing regulatory procedures across jurisdictions.
- Enhancing market integrity and investor confidence can be achieved with strong risk management and consumer protection measures in place, such as educating investors about the hazards connected to AMMs.
Conclusion
As AMMs expand and evolve, this study provides a baseline understanding for regulators and stakeholders.
The National Crowdfunding & Fintech Association (NCFA Canada) is a financial innovation ecosystem that provides education, market intelligence, industry stewardship, networking and funding opportunities and services to thousands of community members and works closely with industry, government, partners and affiliates to create a vibrant and innovative fintech and funding industry in Canada. Decentralized and distributed, NCFA is engaged with global stakeholders and helps incubate projects and investment in fintech, alternative finance, crowdfunding, peer-to-peer finance, payments, digital assets and tokens, artificial intelligence, blockchain, cryptocurrency, regtech, and insurtech sectors. Join Canada's Fintech & Funding Community today FREE! Or become a contributing member and get perks. For more information, please visit: www.ncfacanada.org
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Spot Ethereum ETFs Debut in the U.S. (Without Staking)
Investing | Jul 23, 2024
Image: Pixabay/elifxlite
SEC Approves Spot Ether ETFs to Kickstart a New Era for Crypto Investments
The US Securities and Exchange Commission (SEC) has approved multiple spot Ethereum (ETH) exchange-traded funds (ETFs) to begin trading today, marking a watershed moment and regulated channel for investors to obtain exposure to the second-largest cryptocurrency by market capitalization. Specifically, the SEC has approved asset managers such as Grayscale, VanEck, BlackRock, Fidelity, Bitwise, Franklin Templeton, Invesco, and 21Shares. This move is expected to democratize access to Ethereum, allowing institutional and individual investors to participate in its growth without having to physically purchase and manage the cryptocurrency themselves.
Why Invest in Spot Ether ETFs?
With all the hubbub made over the approval of a spot Bitcoin ETF in Q1, why might investors choose to invest in a spot Ether ETF instead?
- Simply put, investors should consider diversification. Ethereum provides a different value proposition than Bitcoin. While Bitcoin is often referred to as "digital gold," Ethereum is considered as a platform for decentralized applications (dApps) and smart contracts, offering a wide range of use cases beyond just a store of wealth.
- The Ethereum network is being constantly upgraded, such as the transition to Ethereum 2.0, which aims to improve scalability, security, and energy efficiency. These changes have the potential to boost Ethereum's utility and adoption, thus increasing its growth potential and value.
- Ethereum serves as the cornerstone for both the DeFi ecosystem and non-fungible token (NFT) markets. This unique position exposes investors to some of the most rapidly rising sectors in cryptocurrency.
See: SEC Approves 3 Spot Ethereum ETFs Trading July 23
All good investment opportunities are not without risks. For your consideration, here are some of the main risks:
- Crypto is a volatile investment and Ethereum is no different. Prices can fluctuate substantially in a short period of time, due to market sentiment, regulatory announcements, and technology improvements.
- The regulatory framework surrounding cryptocurrency is continually changing. Future changes to legislation or regulations may have a substantial impact on the value and legality of Ethereum and related ETFs.
- While ongoing Ethereum network updates are exciting, technical risks such as bugs or vulnerabilities could harm the network and, as a result, the value of these ETFs.
- The security of third-party custodians whether it be Coinbase, Gemini or Fidelity Digital Assets handling the underlying assets is everything. Any breach or failure can cause huge losses.
- Unlike Canadian spot Ether ETFs that allow staking (i.e., 3iQ ETH Staking ETF), U.S. spot Ether ETFs currently do not offer a staking option, potentially limiting returns for investors who want to benefit from staking rewards.
Comparing Canadian vs. US Spot Ether ETFs
| Feature | Canada | United States |
|---|---|---|
| Regulatory Environment | Proactive regulatory framework, early approval of cryptocurrency ETFs | Cautious, focused on investor protection, recent shift towards acceptance |
| Staking Options | Allows staking for additional returns | Currently does not allow staking |
| Accessibility | Traded on the Toronto Stock Exchange (TSX) | Traded on major exchanges like Nasdaq, CBOE, and NYSE |
| Investor Base | Easily accessible to Canadian investors | Broader access to a larger investor base |
See: Unlocking Solana: 3iQ and VanEck Apply for Solana ETP/ETFs
List of Actively Trading Spot Ethereum ETFs
| ETF Name | Trading Symbol | Management Fees | Staking Option | Custodian |
|---|---|---|---|---|
| Grayscale Ethereum Mini Trust | ETH | 0.15% (post-waiver fee) | No | Coinbase |
| Grayscale Ethereum Trust | ETHE | 2.5% | No | Coinbase |
| Franklin Ethereum ETF | EZET | 0.19% | No | Coinbase |
| VanEck Ethereum ETF | ETHV | 0.20% | No | Gemini |
| Bitwise Ethereum ETF | ETHW | 0.20% | No | Coinbase |
| 21Shares Core Ethereum ETF | CETH | 0.21% | No | Coinbase Custody |
| Fidelity Ethereum Fund | FETH | 0.25% | No | Fidelity Digital Assets |
| iShares Ethereum Trust | ETHA | 0.25% | No | Coinbase |
| Invesco Galaxy Ethereum ETF | QETH | 0.25% | No | Coinbase |
Outlook
Do you hear that sound of a door opening to broader acceptance of digital assets in mainstream finance? The approval of the first batch of spot Ethereum ETFs creates new investment opportunities for retail and institutional investors while paving the way for future growth and innovation in the Ethereum ecosystem.
See: CSA Updates on Value-Referenced Crypto Assets Regulation
Investors need be watchful, consider the associated risks, and stay up to date on continuing regulatory and technological developments.
The National Crowdfunding & Fintech Association (NCFA Canada) is a financial innovation ecosystem that provides education, market intelligence, industry stewardship, networking and funding opportunities and services to thousands of community members and works closely with industry, government, partners and affiliates to create a vibrant and innovative fintech and funding industry in Canada. Decentralized and distributed, NCFA is engaged with global stakeholders and helps incubate projects and investment in fintech, alternative finance, crowdfunding, peer-to-peer finance, payments, digital assets and tokens, artificial intelligence, blockchain, cryptocurrency, regtech, and insurtech sectors. Join Canada's Fintech & Funding Community today FREE! Or become a contributing member and get perks. For more information, please visit: www.ncfacanada.org
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Legal Maze of DAOs. UK Law Commissions Scoping Guide
DAOs - Legal Perspective Report | Jul 17, 2024
Image: DAOs A Scoping Report (UK Law Commission)
UK Law Commission Publishes DAO Scoping Report
The UK Department for Business and Trade, sparked by interest from HM Treasury, commissioned a study back in September 2022 to investigate the legal framework surrounding Decentralized Autonomous Organizations (DAOs). A call for evidence on the design, functionality, and legal integration of DAOs was quickly announced in November 2022, which had 27 submissions from academics, technologists, and attorneys offering various perspectives. Combined with follow-up discussions, the contributions culminated in a comprehensive 289 page PDF 'DAO Scoping Report' that examines the legal framework around DAOs today and identifies potential options for legal reform.
What is a DAO?
A Decentralized Autonomous Organization (DAO) is a novel type of online organization that functions by enforcing rules stored as computer programs, usually with the help of blockchain technology. With DAOs, decision-making and governance is managed by a community of participants instead of traditional hierarchical systems or middlemen.
See: The Emergence of Insurtech Solutions for DAOs
Key features include:
- Decentralization --> Rather than being concentrated in the hands of one authority, control and decision-making are shared by all parties.
- Autonomy --> Smart contracts, which are self-executing and automatically enforce rules, control operations.
- Transparency --> Trust and transparency among participants are ensured by the public blockchain, which records all transactions and rules.
- Token-Based Governance --> To vote on proposals and set the direction of the organization, DAO participants usually use governance tokens.
DAOs can be utilized for many different purpose, such as community-driven projects, decentralized application development, and asset management.
A Legal Journey of Decentralized Innovation
Imagine a society in which blockchain technology makes transparent governance, streamlined operations, and collective decision-making possible. Sound great? Yes, but DAOs quickly run up against legal ambiguity and complexities. Some jurisdictions have created their own framework such as Wyoming Passes the DUNA Act, A Legal Framework for DAOs but mostly DAOs are challenging traditional legal practices.
"DAOs represent a paradigm shift in organizational structure, but they also bring unprecedented legal challenges that require careful consideration and innovative solutions."
1. The Birth of DAOs - A New Era of Governance
Introducing Alex, a digital entrepreneur motivated by blockchain's potential. Alex aspires to build a user-driven community platform where choices are made by users, for users. The result of this dream is the formation of a DAO called "CryptoCollaborate" (NB: this is a fictitious story for illustration only)
See: Are DAO governance attacks avoidable?
Although DAOs are innovative, it can be difficult to characterize them legally. Do they fall under a different category entirely, partnerships, or unincorporated associations?
- What are the possible legal classifications for DAOs?
- How does each classification affect the DAO's operations and member liability?
There are various legal classifications for liability and regulatory responsibilities, ranging from unincorporated associations to general partnerships. Understanding the pros and cons of each categorization can guide the organization of the DAO.
2. Who Bears the Burden?
As CryptoCollaborate grows, a security flaw in a smart contract causes significant financial losses. Alex and the team face a daunting question: Who is liable?
See: Court Tests the Liability of DAOs and Their Makers: What You Need to Know
The issue of liability within DAOs is intricate. Participants, developers, and token holders could be held responsible for the DAO’s actions. The report delves into scenarios where liability could arise and suggests the need for clear legal frameworks to protect participants.
- What are the potential liabilities for DAO participants?
- How can DAOs mitigate these liabilities?
Without a defined legal framework, developers, token holders, or the DAO as a whole may all be held accountable. Implementing strong governance systems and establishing legal organizations to restrict liability are examples of mitigation techniques.
3. Crossing Borders - Jurisdictional Challenges
CryptoCollaborate now has members from around the world. A legal dispute arises, and Alex is puzzled. Which country’s laws apply?
See: Research: Ownership of Top 10 Web3 DAOs is Surprisingly Concentrated
DAOs provide serious jurisdictional issues because of their global nature. The decentralized structure of DAOs makes it more difficult to implement national laws. In order to overcome these challenges, the UK Law Commission underlines the necessity of clear jurisdictional standards and international cooperation.
- How do jurisdictional challenges affect DAOs?
- What are the potential solutions for managing these challenges?
Regulatory compliance and legal accountability are impacted by jurisdictional issues. Creating distinct jurisdictional links, forming legal entities inside particular jurisdictions, and encouraging international legal collaboration are some potential remedies.
4. Regulatory Roadblocks - Financial and Tax Laws
Maria, an investor in CryptoCollaborate, receives a notice from her country’s tax authority. Alex needs to be aware of how their DAO's operations affect their taxes.
See: Decentralizing Venture Capital: DAO
DAOs are met with tax and regulatory obstacles. It is difficult to apply current financial standards and tax legislation to DAOs. To address the distinctive characteristics of DAOs and avoid regulatory arbitrage, the report recommends the creation of new regulatory frameworks and more precise standards.
- What are the key regulatory and tax considerations for DAOs?
- How can DAOs ensure compliance with financial regulations and tax laws?
Understanding the relevant financial rules, anti-money laundering laws, and tax requirements are important factors to take into account. By obtaining expert legal counsel, abiding by local laws, and implementing open reporting procedures, DAOs can remain compliant.
5. Governing the Future - Transparency and Accountability
As CryptoCollaborate's operations grow more intricate, Alex and the group put in place a voting system that is token-based. One member, Mark, wonders how they can maintain transparency and equitable governance.
See: Sounds like a DAO, Looks like a DAO: Introducing the Modern Digital Organization
Transparency and good governance are essential to DAO success. The report emphasizes the value of accountability and openness while examining governance techniques including token-based voting. Upholding transparency guidelines similar to those of conventional businesses can improve stability and confidence.
- What are effective governance mechanisms for DAOs?
- How can DAOs ensure transparency and accountability?
Transparent decision-making procedures, frequent audits, and decentralized voting systems are examples of effective governance techniques. Maintaining transparency calls for adhering to governance procedures, reporting actions to the public, and maintaining open lines of communication with members.
Charting the Path Forward
The future of DAOs lies in understanding and addressing their legal challenges. By staying informed and proactive, we can harness the power of decentralized governance and build a more transparent, democratic, and efficient digital world. As DAOs continue to evolve, the need for robust legal frameworks becomes increasingly apparent. The insights from the UK Law Commission’s report provide a solid roadmap for navigating this uncharted DAO territory.
The National Crowdfunding & Fintech Association (NCFA Canada) is a financial innovation ecosystem that provides education, market intelligence, industry stewardship, networking and funding opportunities and services to thousands of community members and works closely with industry, government, partners and affiliates to create a vibrant and innovative fintech and funding industry in Canada. Decentralized and distributed, NCFA is engaged with global stakeholders and helps incubate projects and investment in fintech, alternative finance, crowdfunding, peer-to-peer finance, payments, digital assets and tokens, artificial intelligence, blockchain, cryptocurrency, regtech, and insurtech sectors. Join Canada's Fintech & Funding Community today FREE! Or become a contributing member and get perks. For more information, please visit: www.ncfacanada.org
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Bank of Canada’s Latest on CBDC Implementation
Policy | Jul 17, 2024
Image: The Role of Public Money in the Digital Age (BoC, July 2024)
Bank of Canada Sees CBDCs as Essential for Financial Stability and Inclusion in the Digital Age
The Bank of Canada has released another paper on Central Bank Digital Currencies (CBDCs), called "The Role of Public Money in the Digital Age" (25 page PDF). This paper articulates staff's latest views which is a cautiously positive stance on the potential implementation of a CBDC. For those that have missed some of the previously published BoC reports on CBDCs, check out NCFA's fintech industry reports and research directory for more reading.
BoC's Position on CBDCs
In order to maintain the stability and effectiveness of the financial system in the digital era, the Bank of Canada believes that CBDCs may be essential for the financial system as it relates to the evolution of public money. They think a CBDC would serve as a secure, government-backed substitute for the many, proliferating stablecoins and private digital currencies. Bluntly put, virtual currencies may pose a danger to the Canadian dollar, so a CBDC may be required to preserve monetary sovereignty. The Bank of Canada would have more regulatory authority over the monetary system and be able to better manage economic policies and ensure compliance with financial rules if it were to issue a CBDC.
See: 2023 BIS Survey: CBDC and Crypto Trends Revealed
The report focuses on how a CBDC could improve marginalized people's access to financial services. The Bank of Canada recognizes the significant barriers that Indigenous and rural communities may have when trying to access typical financial services. By offering a safe and convenient digital payment option, a CBDC might lessen the need for cash and close the gap in financial inclusion. Families and individuals with low incomes may turn to pricey alternatives like payday loans and check-cashing services because they frequently struggle to obtain reasonable banking services. A CBDC may provide an inexpensive, widely available mode of payment that can help relieve the burden and financial strain.
Coordinating CBDC implementation with educational programs may increase digital and financial literacy. This plan will enable all Canadians, regardless of socioeconomic status, to benefit from a CBDC and utilize digital financial services effectively, which would lead to increased economic participation.
In order to accommodate people with different degrees of digital competency, the BoC's research highlights the need to develop a CBDC with user-friendly features and interface and strong customer service. It also emphasizes the importance of providing accessibility for individuals with disabilities to guarantee that a CBDC is open to and usable by every user.
Better security features than traditional currency can be provided by a well-designed CBDC, shielding users from fraud and theft. This is especially advantageous for vulnerable groups that are more likely to become victims of financial crimes. In order to maintain user confidence and prevent transaction data from being misused, the Bank of Canada places a high priority on incorporating robust security and privacy measures into the design of the CBDC. This improves overall system security and dependability.
See: The Ripple Effect of CBDCs on Bank Lending and Profitability
All things considered, the Bank of Canada is exercising caution to ensure that any development pertaining to the CBDC is advantageous to both the financial sector and the broader public. They propose a well-rounded approach to innovation that makes use of new technology to boost the economy of Canada's inclusivity and productivity while safeguarding it against emerging threats.
A Few Global CBDC Updates
- The European Central Bank (ECB) has entered a 'preparation phase' for a digital Euro, with an emphasis on basic elements like platform development, thorough testing, and rules finalization. In keeping with Canada's emphasis on efficiency and privacy, this phase is intended to guarantee high levels of anonymity and instantaneous settlements in central bank currency.
- The CBDC development process is guided by the IMF's 5P methodology, which specifies a methodical approach that includes preparation, proof-of-concept, prototypes, pilots, and production. This methodology, like Canada's cautious yet proactive strategy (IMF), is about deliberate and phased adoption.
- For cross-border transactions, interoperability in CBDCs is emphasized by both Swift and the Atlantic Council. Swift's interlinking approach addresses any fragmentation issues by showing how various networks can be connected to streamline and expedite financial transactions utilizing CBDCs. See: IMF Working on Global CBDC Platform to Revolutionize Global Remittances and Trade
See: SWIFT Launching CBDC Solution Within 2 Years (to Compete with BRICS)
- Financial Inclusion: The IMF and other central banks, along with Canada, acknowledge that CBDCs have the potential to advance financial inclusion. The IMF talks about how well-crafted CBDCs can mimic the qualities of cash in order to be accepted by those that are financially excluded and improve access to the formal financial system.
- Central banks globally are navigating tech and regulatory obstacles that CBDCs present. The emphasis is on building strong frameworks that guarantee security, compliance, and user protection.
How About the U.S. Perspective on CBDCs?
The United States remains cautious about the widespread adoption of CBDCs, citing several concerns. Due in large part to worries about financial stability, privacy, and regulatory obstacles, the US is still hesitant to embrace CBDCs widely. Significant privacy concerns are raised by critics who claim that a CBDC might enable unprecedented government surveillance by allowing for the comprehensive tracking of individual financial transactions. Officials in the United States are also concerned that a CBDC may cause widespread withdrawals from bank deposits, upending the banking industry and perhaps resulting in disintermediation and financial instability.
In addition, there are significant technical and regulatory obstacles to take into account, such as the need for a comprehensive regulatory structure to tackle concerns pertaining to cybersecurity and system resilience. It is also the belief of policymakers that current payment systems can be enhanced without requiring a CBDC.
See: Markets React to Trump’s Assassination Attempt
The cautious stance taken by the Federal Reserve, which states that comprehensive public engagement and parliamentary support are required before issuing a CBDC, is indicative of a wider political and economic reluctance to proceed without careful consideration.
Conclusion
With several nations moving forward with their CBDC projects, global trends are constantly changing. Canada is taking a cautious approach to guarantee that it is ready to adapt to new financial landscapes while preserving its monetary sovereignty.
The National Crowdfunding & Fintech Association (NCFA Canada) is a financial innovation ecosystem that provides education, market intelligence, industry stewardship, networking and funding opportunities and services to thousands of community members and works closely with industry, government, partners and affiliates to create a vibrant and innovative fintech and funding industry in Canada. Decentralized and distributed, NCFA is engaged with global stakeholders and helps incubate projects and investment in fintech, alternative finance, crowdfunding, peer-to-peer finance, payments, digital assets and tokens, artificial intelligence, blockchain, cryptocurrency, regtech, and insurtech sectors. Join Canada's Fintech & Funding Community today FREE! Or become a contributing member and get perks. For more information, please visit: www.ncfacanada.org
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SEC Approves 3 Spot Ethereum ETFs Trading July 23
Regulation | Jul 16, 2024
Image: Freepik/benzoix
Three (3) Ethereum ETFs receive preliminary approval from the SEC to begin trading early next week
The U.S. Securities and Exchange Commission (SEC) has given preliminary approval to three asset managers BlackRock, VanEck, and Franklin Templeton to begin trading spot Ethereum (ETH) Exchange-Traded Funds (ETFs) early next week, assuming no hiccups.
- The three companies have until the end of the week to complete their final offering documentation, and if they do, trading is likely scheduled to start on July 23, 2024. Ethereum is now the second cryptocurrency to be approved as an ETF, after the SEC approved a slew of spot Bitcoin ETFs earlier this year.
- Analysts are predicting that similar to the approval of Bitcoin ETFs, which attracted large interest and investment at launch, the approval of Ethereum ETFs will draw a variety of institutional investors who were previously sitting on the sidelines due to regulatory concerns. According to current optimistic trends, Ethereum may hit $4,500 thanks to improved investor confidence and clearer regulations.
See: SEC Approves 19b-4 Forms of First Batch Ethereum ETFs
- As U.S. regulators are paving the way for crypto ETFs, there's increased likelihood of additional cryptocurrencies like Solana ETF being approved in the near future.
- Next week, Ether products from Invesco Galaxy, ARK 21Shares, Fidelity, Grayscale and Bitwise are also expected to launch imminently, as soon as next week based on the timing of their final offering documents.
Update: Nate's instincts were right, hearing SEC finally gotten back to issuers today, asking them to return FINAL S-1s on Wed (incl fees) and then request effectiveness on Monday after close for a TUESDAY 7/23 LAUNCH. This is provided no unforeseeable last min issues of course! https://t.co/D21FD9Qf94
— Eric Balchunas (@EricBalchunas) July 15, 2024
Impact on Future Crypto Regulations
The recent approval of spot Bitcoin and Ethereum ETFs, demonstrates that the SEC is prepared to collaborate with asset managers to introduce novel investment products to the market. This fact incentivizes additional companies to submit applications for approval of ETFs for other cryptocurrencies, which would result in a stronger and and more diversified market.
See: New US Crypto Tax Reporting Rules Starting 2025
Hester Peirce, an SEC commissioner:
“The approval of Ethereum ETFs is a significant step forward in bringing greater transparency and regulatory oversight to the crypto markets. It demonstrates that the regulatory framework can adapt to new technologies while ensuring investor protection.”
Outlook
The legal approval of more digital assets may open the door for institutional investors to embrace them more widely, spurring blockchain innovation and further integration in the financial industry. That would increase public trust, and also longer term, increase market stability and growth.
The National Crowdfunding & Fintech Association (NCFA Canada) is a financial innovation ecosystem that provides education, market intelligence, industry stewardship, networking and funding opportunities and services to thousands of community members and works closely with industry, government, partners and affiliates to create a vibrant and innovative fintech and funding industry in Canada. Decentralized and distributed, NCFA is engaged with global stakeholders and helps incubate projects and investment in fintech, alternative finance, crowdfunding, peer-to-peer finance, payments, digital assets and tokens, artificial intelligence, blockchain, cryptocurrency, regtech, and insurtech sectors. Join Canada's Fintech & Funding Community today FREE! Or become a contributing member and get perks. For more information, please visit: www.ncfacanada.org
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House Fails to Stop SEC’s Accounting Rule SAB 121
Crypto Regulation | Jul 12, 2024
Image: Freepik/pch.vector
US House Fails to Override Biden's Veto on SEC's Controversial Staff Accounting Bulletin 21 (SAB 21)
Recently, a bill to override President Joe Biden's veto of the controversial SEC Staff Accounting Bulletin No. 121 (SAB 121) was not successfully passed by the U.S. House of Representatives. According to SAB 21, businesses that hold digital assets on behalf of clients are required to list those assets on their balance sheets as liabilities.
See: SEC Intensifies Accounting Audits in 2023
The override attempt failed to garner the two-thirds majority required to overcome the presidential veto, even though it was approved by both the House and the Senate with support from both parties.
Background on SAB 121 and Bill to Overturn It
SAB 121, which the SEC released in March 2022, has caused controversy in the cryptocurrency and banking worlds. Through correct accounting for digital assets, the guideline seeks to protect investors and enhance transparency by possibly reducing the risks associated with their volatility. However, opponents contend that this regulation places excessive constraints on companies and may inhibit innovation in the quickly developing crypto markets.
Representative John James (R-MI) proposed the bill to repeal SAB 121, and it received a lot of support, indicating that lawmakers were generally skeptical of the SEC's strategy. The bill's supporters argued that the SEC's guidelines were unduly burdensome and detrimental to companies, particularly those that dealt with digital assets. There was significant bipartisan opposition to the SEC's mandate, as seen by the House's 228–182 vote and the Senate's 60–38 vote.
Biden's Veto and Its Implications
President Biden vetoed the bill emphasizing how crucial it is to uphold strict regulatory standards in order to safeguard investors and consumers. Biden claimed that repealing SAB 121 would weaken the SEC's power and its capacity to impose important financial reporting standards in his veto statement.
See: Canada to Enforce Cryptoasset Reporting by 2027
The House attempted to override the veto after it was issued, but was unsuccessful with a vote of 214–191, falling short of the necessary two-thirds majority. Due to this result, SAB 121 is still in force and will continue to have an impact on how businesses declare their digital assets.
Outlook
More legislative and regulatory hurdles are expected as the sector develops. It will be up to policymakers to strike a balance between protecting investors and maintaining market stability while promoting innovation.
The National Crowdfunding & Fintech Association (NCFA Canada) is a financial innovation ecosystem that provides education, market intelligence, industry stewardship, networking and funding opportunities and services to thousands of community members and works closely with industry, government, partners and affiliates to create a vibrant and innovative fintech and funding industry in Canada. Decentralized and distributed, NCFA is engaged with global stakeholders and helps incubate projects and investment in fintech, alternative finance, crowdfunding, peer-to-peer finance, payments, digital assets and tokens, artificial intelligence, blockchain, cryptocurrency, regtech, and insurtech sectors. Join Canada's Fintech & Funding Community today FREE! Or become a contributing member and get perks. For more information, please visit: www.ncfacanada.org
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SEC Drops BUSD Paxos Trust Investigation, No Enforcement
Enforcement | Jul 12, 2024
SEC Ends Investigation into Paxos Over Binance USD Token with No Enforcement Action Taken
The Securities and Exchange Commission (SEC) of the United States has finished its probe into Paxos Trust Company concerning the stablecoin Binance USD (BUSD) issuance and is not taking any enforcement action over BUSD.
Paxos statement as reported by WSJ:
“Paxos Trust Company has always maintained that its USD-backed stablecoins are not securities under federal securities laws and that the Wells Notice was unwarranted and unjustified. We are proud of our relentless advocacy for stable-value digital assets and that the SEC staff determined it will not bring enforcement action against Paxos in connection with BUSD.”
Background
Since 2019, Paxos, a regulated blockchain infrastructure company, collaborated with Binance to issue a BUSD stablecoin which was authorized by the New York Department of Financial Services (NYDFS) and is fixed 1:1 to the US dollar.
The SEC warned Paxos in a Wells Notice at the beginning of 2023 that there may be enforcement action taken in response to BUSD's classification as an unregistered security. The NYDFS was compelled by this notice to direct Paxos to stop issuing new BUSD tokens, while stablecoin redemptions were still permitted.
See: Paxos International Launches Yield-Bearing USDL Stablecoin
In response to these regulatory demands, Paxos severed ties with Binance in respect to the issuance of BUSD. The business vowed to protect investors and guarantee that all BUSD tokens are entirely backed by US dollar reserves kept in FDIC-insured accounts.
Outlook
The NYDFS is still keeping an eye on Paxos's compliance and redemption procedures, but this case highlights how much regulatory attention is being paid to stablecoins and other digital assets. As seen by recent steps taken against Uniswap and Robinhood as well as the continuous investigation of Coinbase's staking services, the regulatory moves against Paxos are a part of a bigger trend. The crypto industry is likely to face ongoing regulatory challenges as authorities seek to establish clearer frameworks for digital assets.
The National Crowdfunding & Fintech Association (NCFA Canada) is a financial innovation ecosystem that provides education, market intelligence, industry stewardship, networking and funding opportunities and services to thousands of community members and works closely with industry, government, partners and affiliates to create a vibrant and innovative fintech and funding industry in Canada. Decentralized and distributed, NCFA is engaged with global stakeholders and helps incubate projects and investment in fintech, alternative finance, crowdfunding, peer-to-peer finance, payments, digital assets and tokens, artificial intelligence, blockchain, cryptocurrency, regtech, and insurtech sectors. Join Canada's Fintech & Funding Community today FREE! Or become a contributing member and get perks. For more information, please visit: www.ncfacanada.org
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