SEC - Page 42

Paxos, a prominent crypto infrastructure company, has achieved preliminary approval from Singapore’s regulatory authority for the establishment of a new entity dedicated to launching a stablecoin backed by the U.S. dollar.

In an announcement made on November 15th, Paxos revealed that it had received an initial endorsement from the Monetary Authority of Singapore (MAS) for its newly formed entity, Paxos Digital Singapore Pte. Ltd.

This new entity is authorized to provide digital payment token services and has intentions to introduce a stablecoin denominated in U.S. dollars, which will comply with MAS’ forthcoming stablecoin regulations.

Upon obtaining full regulatory approval, Paxos intends to collaborate with enterprise clients to facilitate the issuance of the stablecoin within Singapore.

Walter Hessert, Paxos’ head of strategy, emphasized the increasing global demand for the U.S. dollar while acknowledging the challenges faced by consumers outside the United States in accessing dollars securely, reliably, and with regulatory safeguards.

He noted that the in-principle approval from MAS would enable Paxos to extend its regulated platform to a broader international user base.

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The Monetary Authority of Singapore previously outlined its regulatory framework for stablecoins on August 15th.

This framework is designed to oversee stablecoins linked to the Singapore dollar or major G10 currencies like the euro, British pound, and U.S. dollar, provided their circulation exceeds 5 million Singapore dollars ($3.7 million).

On August 7th, PayPal launched its own USD-backed stablecoin, PYUSD, which was issued by Paxos.

It’s worth mentioning that Paxos had previously minted Binance’s BUSD stablecoin, but it was compelled by the New York Department of Financial Services to cease issuing the token due to the agency’s classification of it as an unregistered security.

Paxos clarified that all of its stablecoins are fully backed by U.S. dollars and cash equivalents, underscoring their commitment to compliance.

They further highlighted their practice of issuing monthly attestations and reserve reports to ensure transparency and regulatory adherence.

This commitment to regulatory compliance aligns with Paxos’ mission to provide a reliable and secure platform for the issuance of stablecoins, catering to the growing global demand for the U.S. dollar.

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Blockchain security firm CertiK recently released a video that raised concerns about a potential security vulnerability in Solana’s crypto-enabled Saga phone.

CertiK claimed that the Saga phone contained a “critical vulnerability” known as a “bootloader unlock” attack, which they suggested could allow malicious actors to install a hidden backdoor in the device.

They further asserted that this could compromise sensitive data, including cryptocurrency private keys.

In response, Solana Labs disputed CertiK’s claims, stating that the video did not reveal any legitimate threat to the Saga device.

According to Solana Labs, unlocking the bootloader and installing custom firmware would require multiple steps, which can only be performed after unlocking the device with the user’s passcode or fingerprint.

Additionally, unlocking the bootloader would result in the device being wiped, a process that users are made aware of through multiple warnings.

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This means that the process cannot take place without the user’s active participation and awareness.

The Solana Saga phone, initially priced at $1,099 when it was released in April 2022, aimed to provide users with a Web3-native decentralized application store, integrating cryptocurrency applications into the device’s hardware.

However, four months after its launch, Solana reduced the phone’s price to $599 due to a decline in sales.

It is essential to note that CertiK’s claims and Solana Labs’ response highlight the ongoing debates and discussions within the blockchain and crypto industry regarding security vulnerabilities and their potential impact on users.

While concerns about security should not be dismissed, Solana Labs has argued that the claimed vulnerability is not as straightforward to exploit as initially suggested by CertiK.

As the industry continues to evolve, maintaining robust security standards and addressing potential threats remains a priority for both companies and users in the crypto space.

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Hong Kong-based institutional cryptocurrency asset custodian, Hex Trust, has received approval to offer virtual asset custodial services to institutional clients and investors in Dubai.

The company, which established its Dubai office in June 2022, obtained a full virtual asset service provider (VASP) license from Dubai’s Virtual Asset Regulatory Authority (VARA) on November 15.

Initially, Hex Trust had received a minimal viable product (MVP) operations license in February 2023, and this recent approval allows the firm to fully operate in the jurisdiction.

Hex Trust’s MENA regional director, Filippo Buzzi, highlighted that this approval places the company among a select group of cryptocurrency exchanges and service providers allowed to operate in Dubai.

Buzzi expressed Hex Trust’s commitment to expanding into the Middle East, citing the region’s progressive regulations, supportive governments, and thriving crypto ecosystem as factors contributing to its growth potential.

Alessio Quaglini, Hex Trust’s co-founder and CEO, emphasized that Dubai offers an ideal environment for businesses in the cryptocurrency sector to thrive, thanks to its progressive regulatory approach.

In addition to Dubai, Hex Trust has also received regulatory approval in France to provide its services to companies in the country, marking another milestone in its global expansion.

The company currently has offices in Hong Kong, Singapore, Vietnam, Dubai, Italy, and France.

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Furthermore, Hex Trust recently gained recognition as one of the four major cryptocurrency custodians integrated into MetaMask Institutional’s wallet and browser extension, enabling it to offer custodial services to institutional clients.

This announcement coincided with Crypto.com’s Dubai entity receiving its VASP license, which is still pending operational approval from the city’s regulator.

Hex Trust joins a list of prominent cryptocurrency exchanges and firms that have obtained MVP or VASP licenses in Dubai, including Binance, Bybit, Laser Digital Middle East, BitOasis (currently suspended), OKX, Crypto.com, FTX (license revoked), and Huobi.

Komainu, a joint venture involving Nomura, and crypto companies CoinShares and Ledger, also secured a full VASP license in August 2023, offering custodial and staking services to institutional-grade clients.

The United Arab Emirates’ continued attraction to cryptocurrency ecosystem participants is driven by its role in providing federal grants and fostering crypto-friendly regulations.

To obtain a VARA license in Dubai, crypto exchanges must go through a three-step process, which includes qualifying for provisional approval, obtaining an MVP license, and finally securing a full market product license.

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Despite undergoing multiple security audits, Raft, a decentralized U.S. dollar stablecoin protocol, recently fell victim to a security breach resulting in a substantial loss of $6.7 million.

The incident, detailed in a post-mortem report released on November 13th, involved a hacker who had borrowed 6,000 Coinbase-wrapped staked Ether (cbETH) from the decentralized finance platform Aave.

This borrowed cbETH was then transferred to Raft, where the attacker exploited a smart contract glitch to mint an astonishing 6.7 million R tokens, which constitute Raft’s stablecoin.

The ill-gotten funds were promptly funneled off the platform through liquidity pools on decentralized exchanges Balancer and Uniswap, ultimately yielding the hacker $3.6 million in gains.

The attack had a detrimental impact on the R stablecoin’s peg to the U.S. dollar.

The post-mortem report identified the primary cause of the incident as a precision calculation issue when minting share tokens, enabling the attacker to amass extra share tokens.

The attacker capitalized on the amplified index value, significantly boosting the value of their shares.

This security lapse went unnoticed despite the smart contracts having undergone audits by blockchain security firms Trail of Bits and Hats Finance, highlighting the unfortunate inability of these audits to detect the vulnerabilities that led to the breach.

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In response to the incident, Raft has taken a series of measures.

They have filed a police report and are collaborating with centralized exchanges to trace the flow of the stolen funds.

Currently, all of Raft’s smart contracts remain suspended. However, users who had minted R tokens still have the option to settle their positions and recover their collateral.

This event serves as another sobering reminder of the ongoing challenges and risks associated with decentralized stablecoins.

It underscores the critical importance of implementing robust security measures and maintaining vigilance within the DeFi space.

This incident is not an isolated case within the decentralized stablecoin realm.

In December 2022, the decentralized stablecoin HAY also experienced a depegging from the U.S. dollar due to a hacker exploiting a smart contract glitch, enabling them to mint 16 million HAY tokens without proper collateral.

HAY has since managed to reestablish its peg, partly due to the protocol’s requirement of a collateralization ratio of 152% at the time of the exploit, which served as a risk management safeguard.

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Attorney John Deaton, who represents XRP holders in the ongoing legal battle between Ripple and the U.S. Securities and Exchange Commission (SEC), has presented a compelling argument suggesting that the expected $770 million disgorgement penalty against Ripple is highly unlikely.

Deaton’s case is built on several key factors that could influence the court’s decision in favor of Ripple.

A critical point in Deaton’s argument is the Supreme Court’s Morrison ruling, which restricts the SEC’s jurisdiction to sales conducted within the United States.

This is particularly significant as Ripple’s XRP sales in various international markets, including the United Kingdom, Japan, and Switzerland, are currently under scrutiny. Importantly, the legal status of XRP in these foreign jurisdictions supports Ripple’s position.

For instance, regulatory authorities such as the Financial Conduct Authority (FCA) in the United Kingdom and the Financial Services Agency (FSA) in Japan have not classified XRP as a security.

This classification is crucial because it allows for the legal continuation of XRP sales in these regions, presenting a significant challenge to the SEC’s pursuit of disgorgement for global transactions.

Furthermore, Deaton emphasizes that the legal action against Ripple is primarily a regulatory dispute rather than a fraud case.

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This distinction is essential as it shifts the focus away from punitive measures towards regulatory compliance.

Since a substantial portion of XRP sales occurs outside the United States and involves accredited investors, the potential for disgorgement decreases significantly.

By excluding non-U.S. sales, which may account for more than 90% of total sales and sales to accredited investors, Deaton predicts a substantial reduction in the potential disgorgement amount.

Additionally, Deaton points out that most institutional XRP sales have not resulted in investor losses, as the current XRP price surpasses the levels during those sales.

This suggests that investors have not suffered harm. Deaton also highlights the rapid nature of On-Demand Liquidity (ODL) transactions involving XRP, which occur within seconds, further reducing the potential for investor harm.

Interestingly, accusations of harm are more directed towards the SEC than Ripple, especially among the 75,000 XRP holders involved in the legal action.

In conclusion, Attorney John Deaton’s argument underscores the complexities of the Ripple vs. SEC case, highlighting legal precedents, international regulatory differences, and the nature of XRP transactions.

His persuasive case raises doubts about the likelihood of the SEC securing the anticipated $770 million disgorgement penalty against Ripple, potentially reshaping the outcome of this legal saga.

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