Category: Banking

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Banking Crime Payments Regulation

Brazil Legalises Crypto as a Payment Method

The Brazilian Chamber of Deputies, the equivalent of Australia’s House of Representatives, has approved legislation to legalise the use of cryptocurrencies as a payment method throughout the South American nation. Before the legislation becomes law, however, it must be approved by the executive branch of the Brazilian government. 

The new law will not recognise Bitcoin or any other cryptocurrency as legal tender, as was done in El Salvador last year. Instead, it adds cryptocurrencies to the definition of legal payment methods within the country, along with air mileage rewards programs.

Details of the New Legislation

The bill containing the new legislation, which was authored by Aureo Ribeiro, was passed by Brazil’s senate in April of this year but has been stuck in the nation’s lower house for several months.

In addition to recognising crypto as a legal payment method, the new law will allow for the creation of licenses for cryptocurrency exchanges, crypto custody providers and virtual asset managers. 

The law will also require that exchanges avoid the commingling of company assets and their customer’s assets, in what appears to be an attempt to avoid a repeat of the FTX collapse.

Legislation Creates New Crime

The bill also establishes the new crime of fraud involving virtual assets with a minimum penalty of two years in prison and a maximum of six years, plus a monetary fine.

It also adds to Brazil’s regulatory framework around crypto, declaring that any virtual assets defined as securities will be regulated by the nation’s securities watchdog, the CMV. Assets not defined as securities will be regulated by a body yet to be determined by the executive branch but expected to be the central bank.

Companies will have 180 days to comply with the new legislation after it passes into law.

What it Means for Crypto’s Growth

Once the new legislation is signed off by the executive branch, banks in Brazil could start allowing customers to pay for goods and services using crypto as an alternative to credit and debit cards, which may lead to significant growth in the use of cryptocurrencies.

Already, some banks in Brazil have begun offering crypto-based services — in October, the Warren Buffet-backed neobank, Nubank, announced its plan to launch its own cryptocurrency in the first half of 2023. 

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Banking Crypto News FTX Markets

Crypto Lender Genesis Warns Potential Bankruptcy

The fallout from the FTX fiasco could also topple crypto brokerage Genesis, which has warned customers it may need to file for bankruptcy unless it can urgently secure additional funding, according to reports published by Bloomberg and the Australian Financial Review.

An unidentified person cited in reports claims Genesis has been in talks with companies including crypto exchange Binance, in an attempt to raise US$1 billion in new capital for its lending arm, but with no success so far. 

While FTX and its disgraced CEO Sam Bankman-Fried had a broad footprint of associated ventures, Genesis’ troubles seem to have arisen as a consequence of the overall market turmoil caused by the exchange’s collapse.

Bankruptcy Warning Lending Liquidity Issues  

Genesis offers digital asset trading, derivatives, lending and custody services and posted third-quarter results in 2022 showing it had US$2.8 billion in total active loans. 

On November 16, Genesis tweeted it was temporarily suspending redemptions and new loans for its lending business because FTX’s collapse and reduced market confidence had led to “…abnormal withdrawal requests which have exceeded our current liquidity.” 

Genesis had previously clarified that while it had around US$175 million in locked funds in its FTX trading account, “our operating capital and net positions in FTX are not material to our business.” Upon halting loans it reiterated that its spot and derivatives trading and custody businesses remained operational.

It said at the time it was working on a plan for its lending arm, including sourcing new liquidity:

It’s clear those efforts have not paid off yet. While it seems there’s no immediate plan to file for bankruptcy, Genesis’ shaky position has further destabilised crypto markets — Bitcoin’s price dipped briefly immediately following the news.

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Banking Blockchain Crypto News Polygon

Buffet-Backed Neobank to Launch Its Own Crypto Token

nubank app on a smartphone

Warren Buffet-backed Nubank, Brazil’s largest digital bank by market volume, has announced it will launch its own cryptocurrency in the first half of 2023. The cryptocurrency, which is to be known as Nucoin, will run on the Polygon blockchain.

In a press release posted Wednesday October 19, Nubank explained that Nucoin will provide discounts and other perks to holders and will function as, “a new way to recognize customer loyalty and encourage engagement with Nubank products.”

Nubank Goes Deeper into Crypto

This isn’t Nubank’s first foray into crypto. Earlier this year, the bank started to dabble in Web3 by offering crypto trading services to its customers in partnership with the crypto trading platform Paxos. 

The announcement that Nubank now plans to launch its own cryptocurrency marks a significant deepening of its interest in crypto. 

Before the launch of Nucoin next year, Nubank plans to select 2,000 customers to test the token and provide feedback and guidance on its development.

Nubank Believes in Blockchain

Nubank’s General Manager for Nucoin, Fernando Czapski explained that the bank believes blockchain has excellent potential, saying:

“This project is another step ahead in our belief in the transformative potential of blockchain technology and to democratize it even more, going beyond the purchase, sale and maintenance of cryptocurrencies in the Nu app.” 

Fernando Czapski, General Manager for Nucoin at Nubank

Other large players in the finance sector have also been making announcements recently which demonstrate their belief in crypto’s potential. Just days ago, Mastercard announced its new Crypto Secure program in partnership with Paxos, which aims to make it easier for banks and other financial institutions to offer crypto trading services to their customers, a move that could potentially boost mainstream adoption of crypto.

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Banking Crypto News DeFi Payments

Mastercard and Paxos Team up to Help Banks Offer Crypto Trading

Mastercard and Paxos

Mastercard announced Monday that it is extending its partnership with cryptocurrency trading platform Paxos to create a program to make it easier for banks and other financial institutions to offer crypto trading services to their customers.

The program, called Crypto Source, will see Mastercard act as a bridge between Paxos and banks, with Paxos providing cryptocurrency trading and custody services on behalf of the banks.

Partnership Aims to Increase Retail Confidence in Crypto

Mastercard said its role in Crypto Source is largely about creating a secure, trusted bridge between crypto markets and traditional banking. By providing this bridge Mastercard hopes to increase both banks’ adoption of crypto trading services and retail investors’ confidence and willingness to engage with crypto markets. Mastercard’s President of Cyber & Intelligence Ajay Bhalla explained:

“At Mastercard, trust is our business. What we are announcing today is a connected approach to services that will help bring users safely and securely into the crypto ecosystem. Our recent investments in this space, such as the acquisition of CipherTrace and Ekata, are providing us with a unique set of capabilities to help provide our customers and consumers with the most technically advanced solutions available in the market.” 

Ajay Bhalla, President, Cyber & Intelligence at Mastercard

Mastercard’s role centres around verifying transactions, ensuring security and regulatory compliance, and helping banks implement the technology into their existing systems. Mastercard said banks would also be able to offer additional functionality, such as digital receipts and loyalty programs, to augment the core functionality. 

Program Deepens Mastercard’s Links With Paxos

Paxos is a blockchain-focussed company perhaps best known for their gold-backed cryptocurrency PAX Gold (PAXG), which has worked with numerous large finance companies, including PayPal, on crypto-related projects. 

Last year, Mastercard worked with Paxos to enhance its payment card offerings, making it easier for its partners, such as banks and crypto exchanges, to convert cryptocurrencies into fiat currency.

Crypto Source builds on Mastercard’s pre-existing relationship with Paxos and deepens its involvement in crypto ecosystems. Speaking about the relationship, Mastercard’s Chief Digital Officer, Jorn Lambert said:

“We’re excited to build on our long-term partnership with Paxos – co-innovating to bring safe and secure technology to financial institutions. Our crypto product innovations will provide choice at scale and continue to bring one-of-a-kind opportunities to financial institutions as they seek to offer new, advanced services to their customers”

Jorn Lambert, Chief Digital Officer, Mastercard

According to Mastercard, Crypto Source is currently in a pre-pilot phase, the company has not yet announced a date for a broader rollout of the program.

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Banking Celsius Crypto News DeFi

Celsius Has a $2 Billion Hole, on Track to be Out of Cash by October

Crippled crypto lending platform Celsius, which filed for bankruptcy in July, appears to be in an even worse financial position than previously thought, with papers filed this week revealing it may run out of money completely by October:

The papers filed in the US Bankruptcy Court for the Southern District of New York also showed that the lender holds US$2.8 billion less in crypto assets than it owes to depositors, leaving many users of the platform worried they may lose their deposits.

Celsius’ Books Don’t Make For Pleasant Reading

Celsius’ latest financial disclosure showed it had an opening cash balance of just under US$130 million in early August. The filing forecasts operating expenses and other costs to run to US$137 million over the next three months, meaning the lender will be in the red by the end of October.

The filing also showed that Celsius’ crypto liabilities to depositors exceed US$6.6 billion, while it only actually holds US$3.3 billion in crypto assets. 

The US$2.8 billion shortfall is largely due to deficits in the lender’s holdings of BTC, ETH and USDC. According to its financial disclosure, Celsius is more than US$2 billion short of BTC, over US$1 billion short of ETH and US$666 million short of USDC. These deficits are partially offset by its holdings of stETH, WBTC and its governance token, CEL:

Details of Celsius’ budget including its liabilities, deployment and assets, sourced from documents filed as part of US bankruptcy proceedings.

Could Celsius Sell CEL to Help Itself?

Celsius’ financial disclosure shows the lender holds 658 million of its CEL token of which 279 million are owed to customers, which leaves the lender with 379 million tokens. 

In the document CEL is valued at US$1 but the token has recently been the target of a social media-driven short squeeze, resulting in its price increasing significantly. According to CoinGecko, CEL was changing hands at US$2.45 at the time of writing – meaning Celsius’ CEL assets are notionally worth a lot more than the filing suggested.

So, what’s stopping Celsius selling its CEL tokens to help raise funds to pay its liabilities? Well, almost all circulating CEL is locked on Celsius itself. If the lender were to sell large quantities, the token’s value would likely collapse, leaving Celsius’ books in an even more dismal state.

In a cynical twist, crypto security firm Arkham Intelligence has evidence that it believes shows Celsius CEO Alex Mashinsky sold sizeable quantities of CEL via multiple transactions throughout May and August of this year. If true, this would mean the Celsius chief executive was actively dumping against the community-driven short squeeze to serve his own interests.

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Banking Crypto Exchange Crypto News Surveys

One Billion Crypto Users Predicted by 2030: Global Research Report

A joint report published by Boston Consulting Group, Bitget and Foresight Ventures predicts global crypto adoption could surge to 1 billion by 2030, with the US leading the adoption wave:

‘Plenty of Growth to Come’

Only 0.3 percent of US individual wealth is held in crypto, which is significantly lower compared to 25 percent held in equities. This suggests there’s still room to drive substantial crypto adoption and cryptocurrency exchanges will play a key role in that growth, according to the report:

Crypto exchanges play a key role in the Web3 ecosystem by providing access, liquidity, and infrastructure. With competition intensifying, crypto exchanges must adapt to the dynamic market situation and transform their strategy to beat the competition.

Crypto adoption report

One of the main drivers of crypto adoption was institutional companies hoarding massive amounts of crypto assets and offering crypto-related products between mid-2020 and early 2021. Since then, investment banks such as Morgan Stanley and JPMorgan have offered clients some form of crypto product/service, such as exposure to BTC funds and blockchain-based assets.

LatAm and APAC Offer High Market Potential

The report also outlines that Latin America and APAC are the two most attractive regions for crypto exchanges to expand on, given their high market potential and regulatory laws.

Australia ranked fifth in a recently published list of countries with the most crypto-friendly economies, while Germany and the US topped the table. Australia made the top five due to its proliferation of ICOs, exchanges and transaction volumes, and universities offering crypto and blockchain education courses.

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Australia Banking Crypto News

Westpac Makes its Tentative First Steps Towards Crypto

After remaining silent on the topic for most of this year, major Australian bank Westpac has indicated its intent to enter the blockchain and crypto space.

This comes as it shared a job post this week advertising the need for a “principal architect” for digital assets and crypto. The successful candidate would aid Westpac in transforming emerging cryptocurrency and digital asset trends into opportunities for the bank and its customers.

Westpac’s Roadmap for Digital Assets

More specifically, the principal duty of the position will involve the development and maintenance of a strategic technology roadmap for digital assets. David Walker, chief technology officer at Westpac, has spoken regarding speculation about its future in crypto:

https://www.itnews.com.au/news/westpacs-new-cto-looks-beyond-mobile-banking-531811

We have been exploring blockchain technologies for some time, recognising the benefits it could have not only for customers, but for streamlining parts of the wider financial system as well … Ensuring the safety and security of our customers remains a critical consideration with the use of this technology.

David Walker, chief technology officer, Westpac

If Westpac continues down this path, it will fall into line with other ‘Big Four’ Aussie banks that have already started catering to crypto.

Other Aussie Banks Banking on Crypto

Australia’s most productive bank when it comes to delving into the crypto industry has so far been the Commonwealth Bank of Australia (CBA). However, CBA was forced to halt its crypto trading pilot in May amid market turmoil. Those who were trialling CBA’s upcoming in-app crypto trading facility were left with no word on when the app was likely to resume trading.

The goals of the Australia and New Zealand Banking Group (ANZ) are set to extend the usage of its cash-backed stablecoin, A$DC, over increased demand for access to it from its institutional customers. At the time (June 2022), ANZ was also looking to target additional use cases through a pilot program, thanks to aid from the federal government and regulators.

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Banking FTX Investing Markets

FTX Finalises Deal with BlockFi, Option to Buy for Up to $240 Million

Embattled crypto lender BlockFi has signed a deal with FTX US, the American arm of Sam Bankman-Fried’s crypto exchange, which will see FTX increase its credit facility to BlockFi with an option for FTX to acquire the struggling lender.

In an extensive Twitter thread, BlockFi co-founder Zac Prince explained the deal was valued at up to US$680 million, including a US$400 million revolving credit facility and the option for FTX to acquire BlockFi for up to US$240 million. According to Prince, as of July 2 the deal was still subject to shareholder approval.

BlockFi Hits Choppy Financial Waters 

BlockFi started to experience financial strain following the May collapse of the Terra blockchain and the subsequent bankruptcy of the highly LUNA-exposed Three Arrows Capital, to whom BlockFi had made sizeable loans.

These events – combined with the recent aversion to centralised lenders sparked by Celsius’ liquidity crisis, and the general market decline – have tested BlockFi’s resilience and forced the lender to shed around 20 percent of its workforce, approximately 170 employees.

In June, FTX extended a US$250 million line of credit to BlockFi to help the lender secure client funds. With this new deal, the credit facility has been extended to US$400 million.

According to Prince, BlockFi has not yet had to draw on the available credit, and the CEO insists the lender is still financially strong despite securing an increased line of credit and agreeing to a sale price far lower than its most recent valuation of US$1 billion:

We have not drawn on this credit facility to date and have continued to operate all our products and services normally. In fact, we raised interest rates, effective today. 

Zac Prince, co-founder and CEO, BlockFi

Deal Protects Client Funds

Prince said the deal was primarily about ensuring BlockFi could protect client funds and that FTX was the ideal partner as it shares the same client-first values:

“As a matter of principle, we fundamentally believe in protecting client funds,” Prince tweeted. “Not only because it’s absolutely the right thing to do, but this also benefits the ongoing health and adoption of crypto financial services worldwide. Therefore, it was important to add capital to our balance sheet to bolster liquidity and protect client funds.”

We were presented with various unattractive options where client funds would take a haircut or be behind a lender in the capital stack … Ultimately, we found a great partner in @FTX_US, who shares our commitment to clients. This represents the best path forward for all @BlockFi stakeholders and the crypto ecosystem as a whole.

Zac Prince, co-founder and CEO, BlockFi

According to Prince, the terms of the deal make repayments to FTX subordinate to protecting client funds, which means if the worst were to happen, and BlockFi couldn’t pay all its bills, priority would be given to cashing out clients.

Not Everyone Is Convinced

BlockFi’s claims of financial strength have been widely questioned on Twitter, with many users wondering why a company in a supposedly strong position would seek an increased line of credit and accept an option to acquire it for a fraction of its valuation:

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Banking Celsius Crypto News

Ailing Crypto Lender ‘Celsius’ Found to Have Double the Traditional Banking Risk

With an alleged assets-to-equity ratio near double that of the average US bank in late 2021, crypto lender Celsius had taken on far more risk than it had previously publicly stated and is now seeking to file for bankruptcy.

CEO Plays Fast and Loose with the Truth

Celsius CEO Alex Mashinsky seems to have been omitting the truth from multiple past statements that his company was not “taking a tremendous risk”. This comes as The Wall Street Journal uncovers evidence illustrating that Celsius had effectively doubled the risk profile of the average American bank.

All North American banks in the S&P 1500 Composite index have a median assets-to-equity ratio of close to 9:1. Information uncovered by the WSJ found that Celsius had US$19 billion of assets and approximately US$1 billion of equity just before October 2021.

This wasn’t the only discovery. Investor documents detailed that Celsius had sold undercollateralised loans in the past, which required business borrowers to post approximately 50 percent collateral for their loans. It is alleged that Celsius then used the collateral from these loans to borrow more:

With industry regulators typically looking at the assets-to-equity ratio as an indicator of risk, economist Eric Budish from the University of Chicago has described the Celsius ratio as “a risky structure”. Budish also stated that “it strikes [me] as diversified in the same way that portfolios of mortgages were diversified in 2006 … it was all housing – here, it’s all crypto.”

In October 2021, Celsius had been offering retail investors the chance to earn yields of up to 18.6 percent on deposited crypto assets. The lender had initially projected that deposits would exceed US$108 billion in 2023. However, this year’s industry lows have hit Celsius hard, with the company now considering filing for bankruptcy.

Celsius’ Recent Raft of Troubles

June was a disappointing month for Celsius with its native token (CEL) falling nearly 70 percent following the June 13 announcement that it would pause all withdrawals to “stabilise liquidity”. However, prior to this declaration, it is rumoured that Celsius had quickly transferred US$320 million in crypto to the Bahamian exchange FTX.

This presumed one-way ticket to insolvency also encouraged crypto services business Nexo to come forward and offer to buy Celsius’ “qualifying” assets. Nexo was believed to be interested in Celsius’ collateralised loan portfolio, yet it has since been reported that no prices were disclosed.

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Australia Banking Ethereum Stablecoins

ANZ Bank Uses Its Stablecoin A$DC to Buy Tokenised Carbon Credits

The stablecoin created by the Australia and New Zealand Banking Group (ANZ), A$DC, has been used by one of its large institutional customers to purchase a tokenised representation of Australian carbon credits, marking a significant milestone for the usage of stablecoins in the Australian economy.

In March, ANZ became the first bank to mint an Australian dollar stablecoin when it created 30 million A$DC, which were used by investment company Victor Smorgon Group (VSG) to significantly speed up and avoid conversion fees on its purchase of crypto assets.

Zerocap Acts as Market Maker

In this latest transaction, ANZ provided the A$DC stablecoin to longtime institutional customer VSG to facilitate the purchase of tokenised carbon credits known as BCAUs from the blockchain-based carbon trading platform BetaCarbon.

Digital asset manager Zerocap was also involved in the transaction, acting as a market maker and providing liquidity to convert VSG’s A$DC, which BetaCarbon doesn’t recognise, into USD Coin (USDC) so it could be accepted by BetaCarbon. Unlike VSG’s previous stablecoin transaction with ANZ, the value of this transaction has not been disclosed.

Using this payment method meant the transaction could be completed entirely on the Ethereum blockchain, removing the need to use any external payment platform such as the Visa network or the new payments platform (NPP), which would have introduced complexity, additional fees and settlement delays.

ANZ Anticipates Big Things for A$DC

ANZ’s A$DC is fully collateralised by Australian dollars and is redeemable at parity with funds held by ANZ in its managed reserve account. 

Unlike algorithmic stablecoins such as Terra-based UST and Tron-based USDD, which have faced huge issues maintaining their pegs to the US dollar, A$DC has no pegging mechanism and there is no risk that it could become de-pegged from the Australian dollar. 

According to Nigel Dobson, ANZ’s head of banking services, the bank’s stablecoin can be thought of more as a “tokenised deposit” than a typical crypto stablecoin.

Speaking to the Australian Financial Review, Dobson said ANZ saw potential for stablecoins like A$DC to help banks and other financial institutions transition to a more efficient blockchain-based infrastructure:

We see this is evolving from being internet-protocol based to one of ‘tokenised’ protocols. We think the underlying infrastructure – efficient, secure, public blockchains – will facilitate transactions, both ones we understand today and new ones that will be more efficient.

Nigel Dobson, head of banking services, ANZ

Ethereum Blockchain of Choice for Now

Dobson added that the Ethereum blockchain was favoured at the moment because it had established a set of de facto standards, including ERC-20 smart contracts. However, he anticipates a possible shift away from Ethereum to other, faster and more sustainable networks, such as Solana or Polygon, as these networks implemented similar standards and matured:

Standards are absolutely fundamental to interoperability, and they will soon allow organisations to transfer assets off expensive, and arguably unsustainable, blockchains to ones with lower cost, faster throughput and sustainability credentials.

Nigel Dobson, head of banking services, ANZ

To date, A$DC has only been used for real-world transactions by VSG, but that’s likely to change soon. Earlier this month, ANZ revealed it was planning to extend access to its stablecoin to a wider range of institutional customers and, in the long term, possibly to retail investors.