Crypto Products Launch in Payments, Data Management, Wireless Networks; FASB Updates Crypto Accounting Rules; Crypto Enforcement and Hacks Persist | BakerHostetler

Crypto Initiatives Focus on Latin America; New Tether Policy Aligns with OFAC

By Lauren Bass

According to a press release, earlier this month Circle Internet Financial announced a partnership with Nubank, one of Latin America’s largest digital financial platforms, to provide Brazilian users access to the purchase and use of Circle’s stablecoin, USDC. USDC will initially be offered to Nubank’s Brazilian customers through the Nubank Cripto platform.

In related news, Trust Wallet, a decentralized cryptocurrency wallet, has reportedly partnered with Alchemy Pay and Banxa to expand in-app purchase options for Latin American users. According to reports, this partnership will “provide users with greater convenience and flexibility when purchasing crypto, with access to over 10 million crypto assets, more than 600 million NFTs, and support for over 100 blockchains.”

Separately, in an effort reportedly aimed at safeguarding the cryptocurrency ecosystem, Tether recently announced a new initiative to freeze wallets connected with persons listed on the Office of Foreign Assets Control (OFAC) Specially Designated Nationals List. While this policy was previously offered on its main platform, Tether has announced the expansion of the policy to the secondary market. According to a press release, this decision aligns with Tether’s “unwavering commitment to maintaining the highest standards of safety for [its] global ecosystem and expanding [its] close working relationship with global law enforcement and regulators.”

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By Veronica Reynolds

Decentralized oracle network Chainlink deployed version 0.2 of its staking product last week. According to reports, this launch allowed eligible participants early access to stake up to 15,000 of the network’s native token, LINK, four days in advance of the product’s availability to the broader public. (Staking refers to a type of automated yield-generating transaction in which a user agrees to “lock” tokens via smart contracts for a specified amount of time in exchange for the possibility of receiving token rewards.) Chainlink v0.2 supports staking for up to 45 million LINK, which reports indicate represent approximately 8 percent of the token’s circulating supply. General access participants must wait for those who staked during the early access phase to withdraw their staked LINK; however, since all 45 million staking positions were filled during early access prior to the launch of Chainlink v0.2, starting November 28, 2023, “Priority Migration” allowed participants in Chainlink Staking v0.1 to transition their staked LINK and associated rewards to version 0.2.

Also last week, it was reported that Helium Mobile, a service that combines the peer-to-peer Helium Network with a Solana blockchain-based Internet of Things (IoT) project, began offering nationwide access to a 5G network with unlimited access to data, text and talk services for $20 a month. Helium Mobile, which refers to itself as “the world’s first cryptocarrier,” allows subscribers to own and set up “mini cell towers” to expand the network. Reports indicate that 3,831 Helium mobile hotspots are live on the network, along with 357,087 hotspots for IoT devices. Helium Network was founded to provide “a peer-to-peer wireless network for internet of things devices,” and the project raised approximately $111 million via a token sale led by Andreesen Horowitz, according to reports.

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FASB Updates Crypto Accounting Rules; Basel Addresses Bank Crypto Exposure

By Christopher Lamb

According to a recent press release by the Financial Accounting Standards Board (FASB), FASB has published an Accounting Standards Update (ASU) that is intended to “improve the accounting for certain crypto assets by requiring an entity to measure those crypto assets at fair value each reporting period with changes in fair value recognized in net income.” The ASU amendments are also intended to “improve the information provided to investors about an entity’s crypto asset holdings by requiring disclosure about significant holdings, contractual sale restrictions, and changes during the reporting period.” According to the FASB press release, the ASU amendments are effective for all entities for fiscal years beginning after December 15, 2024, and they apply to all assets that meet the following criteria: (1) meet the definition of “intangible assets” as defined in the FASB Accounting Standards Codification; (2) do not provide the asset holder with enforceable rights to or claims on underlying goods, services or other assets; (3) are created or reside on a distributed ledger based on blockchain or similar technology; (4) are secured through cryptography; (5) are fungible; and (6) are not created or issued by the reporting entity or its related parties.

In another recent press release, the Basel Committee on Banking Supervision announced that it has published a “consultative document to propose targeted adjustments to its standard on banks’ exposures to crypto assets.” The document addresses reviews conducted during 2023 and “flesh[es] out the criteria on the composition of the reserve assets that back stablecoins, covering issues such as the credit quality, maturity and liquidity of the reserve assets.” According to the press release, the proposal, among other things, would require banks “to perform due diligence to ensure they have an adequate understanding of the stabilisation mechanisms of stablecoins to which they are exposed and how effective they are.”

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DOJ, OFAC, IRS and New York State Bring Multiple Crypto Enforcement Actions

By Robert A. Musiala Jr.

According to a recent press release by the Office of the New York Attorney General, the state of New York has entered into a consent order with the KuCoin cryptocurrency exchange to settle charges against KuKoin for “failing to register as a securities and commodities broker-dealer and for falsely representing itself as a crypto exchange.” According to the press release, the consent order “requires the company to refund over 150,000 New York investors more than $16.7 million and pay more than $5.3 million to the state.” The consent order also prohibits KuCoin from making its platform available to New York customers.

A recent Enforcement Release published by the U.S. Department of the Treasury’s OFAC announced that OFAC has entered into a settlement agreement with CoinList Markets LLC (CLM). According to the Enforcement Release, CLM “agreed to pay $1,207,830 to settle its potential civil liability arising from processing 989 transactions on behalf of users ordinarily resident in Crimea between April 2020 and May 2022, in apparent violation of OFAC’s Russia/Ukraine sanctions.”

According to a recent press release by the U.S. Department of Justice (DOJ), Shakeeb Ahmed has pled guilty “in connection with his hack of two separate decentralized cryptocurrency exchanges.” In a quote from the press release, U.S. Attorney Damian Williams said, “Ahmed used his technical knowhow to steal over $12 million and tried to cover his tracks by swapping stolen crypto for Monero, using cryptocurrency mixers, hopping across blockchains, and utilizing overseas crypto exchanges. Today’s conviction shows that no matter how sophisticated the methods used, fraud is fraud, and we will swiftly catch and convict you.” Separately, another recent DOJ press release announced that Michael Robert Osborn was sentenced to 188 months in prison for perpetrating a scheme to distribute controlled substances and use bitcoin and other cryptocurrencies to launder proceeds of the illicit sales.

In a final notable item, the U.S. IRS Criminal Investigation recently published a press release announcing its top 10 cases of 2023. Of the top 10 cases, four involved cryptocurrencies.

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Ledger Wallet Suffers Exploit; Data Published on Mixers, 2023 Crypto Hacks

By Joanna F. Wasick

According to a recent blog post by Ledger, a leading crypto hardware wallet provider, on Dec. 14, 2023, “Ledger experienced an exploit on Ledger Connect Kit, a JavaScript library to connect Web sites to wallets.” According to reports, the exploit enabled the theft of more than $600,000 in cryptocurrencies. The Ledger blog post notes that the exploit “did not and does not affect the integrity of Ledger hardware or Ledger Live” and “was limited to third party DApps which use the Ledger Connect Kit.”

According to CertiK, a blockchain/crypto audit company, a third of the losses from 50 of the largest crypto exploits in 2023, valued around $300 million, ended up being transferred to the Bitcoin Network. The head of CertiK’s response team is quoted as stating, “The Bitcoin ecosystem hosts a variety of privacy mixers that serve both privacy-conscious users and those with nefarious intentions. … While this scenario presents a challenge, it’s important to recognize it as an intrinsic aspect of decentralized systems.” According to reports, these numbers may reflect that Bitcoin mixers (which obfuscate the history and ownership of crypto) are fast becoming an alternative to Tornado Cash, an Ethereum Network crypto mixer that had been a prominent choice for hackers. In August 2022, OFAC added Tornado Cash to OFAC’s Specially Designated Nationals List, making it illegal for U.S. citizens, residents and companies to use the mixers.

According to a recent report from TRM Labs, a crypto risk management and compliance company, in 2023, crypto hack volumes fell by more than 50 percent compared to last year’s. While the number of attacks (160) has remained relatively stable since 2022, the $1.7 billion stolen by cybercriminals through November 2023 is less than half the nearly $4 billion lost to hacks in 2022. According to the report, three factors contributed to the decline: (1) improved security measures, (2) increased law enforcement actions and (3) greater industry coordination. TRM Labs acknowledges that data for December is still being collected but notes that such data will probably not impact its 2023 conclusions.

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