Blockchain Bites: Paxos' Banking Play, France's KYC Terreur, FinCEN's Personal Data Honeypot

U.S. lawmakers are asking the nation's financial guardians to clarify crypto custodianship while France wages war on anonymity.

AccessTimeIconDec 10, 2020 at 5:53 p.m. UTC
Updated Sep 14, 2021 at 10:41 a.m. UTC
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U.S. lawmakers are asking the nation's financial guardians to clarify custodianship questions. France is looking to eliminate anonymity in the crypto sector. And an exposé into how FinCEN became a honeypot for personal information. 

Top shelf

Banking play
Paxos is making moves to become a federally regulated bank in the U.S., according to a filing with the Office of the Comptroller of the Currency (OCC). The stablecoin issuer and crypto services firm is seeking to create the Paxos National Trust, which would operate out of New York and incorporate as one of the first crypto-native banks in the U.S. There are two paths to achieving bank status, the state-chartered route through Wyoming (that Kraken and Avanti used) or the federal route, which is also being pursued by BitPay and Anchorage.

La Terreur?
The French Ministry of Finance unveiled sweeping know-your-customer (KYC) requirements Wednesday on all cryptocurrency companies operating in and servicing the country, a move that could ultimately strip the French crypto space of any semblance of anonymity. All virtual asset service providers must immediately begin checking their customers’ identities, verifying “beneficial owners” and prohibit anonymous crypto accounts, according to the press release. The government said the action was taken to prevent terrorist financing, a broadside that has justified the encroachment of centralized powers over many civil liberties.

Data honeypot
In an explosive exposé, CoinDesk privacy report Ben Powers outlines how FinCEN, the U.S. Financial Crimes Enforcement Network meant to track and eliminate criminal activity from the financial system, became a honeypot of personal information. There is little sense of the amount of personal data, what types of data and how long the agency holds on to data or shields it from malicious actors – and the agency wouldn’t answer questions. “You’ve got personal, private information in a database and allegations of conduct,” said Melissa G.R. Goldstein, a former attorney-advisor at FinCEN and now Special Counsel at financial law firm Schulte Roth & Zabel. “Just because someone is named in a SAR doesn’t necessarily mean that they are guilty of something criminal.”

Deposit drag?
Bank of America is warning a digital euro with mass appeal could “reduce costs and complexity for individuals” but negatively affect the region’s banking industry. In a Tuesday report, BofA analysts said a digital euro, a central bank digital currency with accounts and reserves held by the supranational European Central Bank, would cut into commercial bank deposits and reduce the need for third parties. Analysts criticized the ECB’s steadfast attention on China’s digital yuan and Diem’s (formerly Libra’s) multinational stablecoin, as a cause for developing a CBDC. “Money, like internet data, has a strong tendency to monopoly,” they wrote.

Dollar vs. BTC
Morgan Stanley Investment Management Chief Global Strategist Ruchir Sharma said bitcoin is already cutting into the U.S. dollar. "Today, most bitcoins are held as an investment, not used to pay bills, but that is changing," Sharma wrote in a Financial Times op-ed. He further argued that "bitcoin will gain" as its traditional competitors falter – even if the market bubble were to burst.

Satellite of logs
SpaceChain has secured a £440,000 (US$585,800) grant to co-develop decentralized satellite infrastructure, from EUREKA's Globalstars, an initiative active in 45 countries. The funding will pay for development of a “decentralized satellite infrastructure with blockchain payload,” or, in English, a mesh network of low-earth orbit satellites. Blockchain helps "democratize access to the nascent space sector with lower barriers to entry by individual companies," according to the firm.

Quick bites

  • SINGAPORE’S STAKE: DBS Bank’s digital exchange, partly owned by the nation’s stock exchange, to begin trading crypto next week. (CoinDesk)
  • DESTABILIZING ACT? Would the STABLE Act make running an Ethereum node illegal? Preston Byrne digs in. (CoinDesk)
  • PRIVATE DEALINGS: Ukrainian politician discloses $24 million worth of monero. (CoinDesk)
  • REPO TEST: JPMorgan just conducted a blockchain-based repo transaction using jpm coin. (The Block)
  • HOOVERING CRYPTO: Grayscale, sister company of CoinDesk, has added more than $325 million worth of bitcoin and ether to its trusts in just over a week. (Decrypt)
  • CRYPTO CRIME: Human trafficker caught after using bitcoin to launder blood money. (Modern Consensus)

At stake

Custody questions?
In the latest legal gambit seeking to determine how crypto can and will square with existing regulation, nine lawmakers are seeking clarification for how crypto firms can become registered broker-dealers.

CoinDesk’s Nikhilesh De reports nine U.S. lawmakers of both major political parties have written an open letter to Securities and Exchange Commission (SEC) Chairman Jay Clayton Wednesday and the Financial Industry Regulatory Authority (FINRA) seeking clarification. What is crypto custodianship, anyway?

To date, only a few companies in the crypto space have become registered broker-dealers, including Watchdog Capital, Harbor (which was acquired by BitGo) and Prometheum. Though there is reportedly a backlog of applications sitting with FINRA.

“CoinDesk reported in June 2019 FINRA had been sitting on a number of broker-dealer applications from firms that touch crypto, some for over a year. FINRA had taken no actions to approve or disapprove these applications, letting them sit in a sort of limbo,” De wrote.

The most recent letter asks the SEC and FINRA to confirm whether banks can provide custody services for digital securities; asks for a clearer pathway for crypto custodians to register with FINRA; and for FINRA to move on outstanding applications.

Though there are a number of issues that complicate the question. First is the issue of private keys – a special bit of code that confers complete access, control and ownership over a crypto asset – and which party controls them. Second is the ambiguous classification of cryptocurrencies, which depending on intended use, level of decentralization and other considerations could fall along the commodity to security spectrum.

(All securities are commodities, but not all commodities – like gift cards, for instance – are securities.)

This is important, because, as De notes, broker-dealers in the crypto space may also lose Securities Investor Protection Act protections if the crypto assets are deemed not tobe securities, the agencies said.

Three of the lawmakers involved in this bill, plus Rep. Scott Perry, have also sent a letter to Treasury Secretary Steven Mnuchin, “expressing our concern” about rumored self-hosted wallet regulations.

Coinbase CEO Brian Armstrong tweeted last month that Mnuchin was “planning to rush out” these new regulations, which would apparently require crypto exchanges to verify know-your-customer data for self-hosted wallets before they could send cryptocurrencies off of their platforms and into the wallets.

According to Wednesday’s letter, this potential regulation would “hinder American leadership,” preclude U.S. actors from participating in the space and “undermine the Treasury Department from stopping illicit actors from exploiting the financial system.”

Most influential


Art auction
Looking to make someone (or just yourself) happy this yuletide holiday? Give the gift of crypto art. As part of the launch of Most Influential 2020 list, CoinDesk is auctioning off 12 original artworks that accompany this year’s list of honorees. The NFTs were created by leading digital artists including Alotta Money, XCopy, Osinachi, Matt Kane, Sarah Zucker, Yonat Vaks and Olive Allen. They are available at Nifty Gateway and Super Rare (Matt Kane). The artists will donate 50% of the proceeds to charities of their choice, under an arrangement with cryptocurrency donations company The Giving Block. Learn more about the Most Influential 2020 NFT art auction, running to Dec. 31.


The list
Who moved the needle on crypto this year? What were the projects that mattered? Who shattered the glass ceiling and broke the mold? From DeFi to bitcoin's late year surge, 2020 was full of big stories, trends and personalities. We've unveiled CoinDesk’s 2020 Most Influential list, a selection of 12 people who helped push the industry forward this year. See who made the list.

Who won #CryptoTwitter?

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