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Home | BakerHostetler

What to Expect and How to Prepare: A Guide to Employing Foreign Workers in the Age of Trump

Teresa Goody Guillén Supports New SEC Nominee in Institutional Investor Article

Carolina Alonso Shares Her Journey to the Legal Profession with High School Students

​Bill Bergmann Elected Treasurer of Court of Federal Claims Bar Association; Continues Role on Advisory Council

In this issue:<a></a>



• <a href="#New">New Crypto Products Launch; Singapore Completes DeFi Pilot with Major Banks</a> • <a href="#Report">Report Provides New Data on NFT Royalties and Explores Related Issues</a> • <a href="#Ethereum">Ethereum Efficiency Data Published; Blockchain Infrastructure Projects Launch</a> • <a href="#IRS">IRS Updates Digital Asset Guidance, CFTC Commissioner Warns of Crypto Risk</a> • <a href="#Crypto">Crypto Exchange Hacked for $28M; Reports Address Ransomware, Crypto Scams</a>



New Crypto Products Launch; Singapore Completes DeFi Pilot with Major Banks



By <a href="https://www.bakerlaw.com/AmosKim">Amos Kim</a>



In a press release published this week, a major U.S. cross-border payments and money transfer company announced a new service in its existing mobile application, allowing customers to trade and hold three major cryptocurrencies: bitcoin (BTC), ether (ETH), and litecoin (LTC). The press release noted that the service was made possible through a partnership with a U.S. cryptocurrency exchange.



In another recent press release, the Monetary Authority of Singapore (MAS) announced “that the first industry pilot under MAS’ Project Guardian that explores potential decentralised finance (DeFi) applications in wholesale funding markets has completed its first live trades.” According to the press release, the DeFi pilot involved several major global banks that “conducted foreign exchange and government bond transactions against liquidity pools comprising of tokenised Singapore Government Securities Bonds, Japanese Government Bonds, Japanese Yen (JPY) and Singapore Dollar (SGD)” and included the successful completion of a “live cross-currency transaction involving tokenised JPY and SGD deposits.”



Several other notable developments were announced in Singapore this week during the Singapore Fintech Festival. In separate press releases, U.S. stablecoin issuers Paxos and Circle Internet Financial both announced that they had received approval from the MAS to offer digital payment token products and services in Singapore. In another press release, a major multinational bank announced its investment in Partior, a blockchain-based payment and settlement platform. According to the press release, the bank will “serve as the first Euro settlement bank for the Partior platform” and the investment will accelerate the bank’s “deployment of blockchain technology across its global wholesale payments and settlements network, scaling the utility of Partior’s technology in global capital markets.”



For more information, please refer to the following links:



<ul><li><a href="https://www.sc.com/en/media/press-release/standard-chartered-makes-strategic-investment-in-partior-accelerating-transformation-of-the-global-financial-network/">Standard Chartered makes strategic investment in Partior, accelerating transformation of the global financial network</a></li><li><a href="https://www.prnewswire.com/news-releases/moneygram-introduces-new-crypto-service-enabling-customers-to-buy-sell-and-hold-cryptocurrency-via-the-moneygram-app-301664682.html">MoneyGram Introduces New Crypto Service Enabling Customers to Buy, Sell and Hold Cryptocurrency via the MoneyGram App</a></li><li><a href="https://www.mas.gov.sg/news/media-releases/2022/first-industry-pilot-for-digital-asset-and-decentralised-finance-goes-live">MAS: First Industry Pilot for Digital Asset and Decentralised Finance Goes Live</a></li><li><a href="https://www.circle.com/en/pressroom/circle-earns-in-principle-regulatory-approval-in-singapore">Circle Earns In-Principle Regulatory Approval in Singapore</a></li><li><a href="https://paxos.com/2022/11/02/paxos-secures-major-payments-institution-license-from-monetary-authority-of-singapore/">Paxos Secures Major Payments Institution License from Monetary Authority of Singapore</a></li></ul>



Report Provides New Data on NFT Royalties and Explores Related Issues



By <a href="https://www.bakerlaw.com/RobertAMusiala">Robert A. Musiala Jr.</a>



A recent report by Galaxy Digital provides new data on non-fungible token (NFT) royalty payments. Among other things, the report provides the following notable statistics:



<ul><li>Over $1.8 billion worth of royalties have been paid out to creators of Ethereum-based NFT collections.</li><li>The average royalty percentage paid out to creators on OpenSea, the platform that has paid out the most royalties to creators by far, has doubled from 3 percent to 6 percent over the past year.</li><li>Ten entities accounted for 27 percent of all NFT royalties earned to date.</li><li>482 NFT collections accounted for 80 percent of all royalties earned to date.</li><li>Eight major brands have collectively earned almost $100 million in NFT royalty payments to date.</li></ul>



The report notes that NFT royalties “are not actually programmed at the token/smart-contract level,” and it provides an analysis of the technical and business reasons that make this difficult and impractical. Among other topics, the report also explores “two leading schools of thought” on NFT royalties, with those in favor of NFT royalties pointing “to the potential for creators to earn more money over time as their projects become more popular” and opponents claiming “that enforcement mechanisms are not possible on-chain without severe trade-offs that negate many of the advantages of permissionless blockchains in the first place.” The report closes by offering potential solutions to the problem of NFT royalty enforcement at the smart contract level.



For more information, please refer to the following links:



<ul><li><a href="https://www.galaxy.com/research/insights/nft-royalties/">NFT Royalties: The $1.8bn Question</a></li><li><a href="https://blockworks.co/nft-royalties-top-1-8-billion-galaxy-digital/">NFT Royalties Top $1.8 Billion: Galaxy Digital</a></li></ul>



Ethereum Efficiency Data Published; Blockchain Infrastructure Projects Launch



By <a href="https://www.bakerlaw.com/JoannaFWasick">Joanna F. Wasick</a>



New data is out regarding the amount of energy saved by Ethereum’s move from a Proof of Work to Proof of Stake consensus mechanism known as the “Merge,” which occurred on Sept. 15. Cointelepgraph reports that post-Merge, Ethereum’s network power consumption is down by over 99 percent, and the network’s carbon footprint now stands at 0.1 million tonnes of CO2 (MtCO2) per year, meaning that the electrical consumption for single Ethereum transactions “is equivalent to the energy used when watching two hours of YouTube.”



Earlier this week, Protocol Labs and Filecoin Foundation, together with other founding members, announced the launching of the Decentralized Storage Alliance (the Alliance), a first-of-its-kind, member-led industry organization to drive awareness and adoption of decentralized technologies such as Filecoin, IPFS and libp2p, and help Web2 participants make the transition to Web3 through education, advocacy and best practices. According to a press release, decentralized storage networks promise to enable more efficient, robust and secure storage at lower costs than traditional data storage. “With top-tier leaders across Web2 and Web3 coming together to explore the unrealized potential of decentralized technology, this Alliance has the power to transform the foundation of the internet,” said Stefaan Vervaet, Head of Network Growth, Protocol Labs. “Decentralized storage can provide assurances of data integrity, avoid data lock-in, meet data sovereignty requirements, and offers many significant advantages over traditional Web2 data solutions.”



Last week, a major U.S. technology company announced its Blockchain Node Engine, a fully managed node-hosting service that can minimize the need for node operations, allowing developers to spend more time building product and less time managing their nodes, which may help strengthen blockchain infrastructures. According to an announcement by the company, the new Blockchain Node Engine boasts low-latency networking that can scale seamlessly as developers need it, proprietary digital asset security, and simplified node deployment with real-time data and insights from the company’s cloud service. Ethereum will be the first blockchain supported by the Blockchain Node Engine.<a href="https://www.bakerlaw.com/VeronicaReynolds"></a>



For more information, please refer to the following links:



<ul><li><a href="https://cointelegraph.com/news/the-merge-brings-down-ethereum-s-network-power-consumption-by-over-99-9">The Merge brings down Ethereum’s network power consumption by over 99.9%</a></li><li><a href="https://www.businesswire.com/news/home/20221031005042/en/Decentralized-Storage-Alliance-Launches-to-Bridge-Chasm-Between-Web2-and-Web3">Decentralized Storage Alliance Launches to Bridge Chasm Between Web2 and Web3</a></li><li><a href="https://cloud.google.com/blog/products/infrastructure-modernization/introducing-blockchain-node-engine">Google Blog: Introducing Blockchain Node Engine: fully managed node-hosting for Web3 development</a></li></ul>



IRS Updates Digital Asset Guidance, CFTC Commissioner Warns of Crypto Risk



By <a href="https://www.bakerlaw.com/TeresaGoodyGuillen">Teresa Goody Guillén</a>



The U.S. Internal Revenue Service (IRS) reportedly released guidelines that state that digital assets, which now explicitly include stablecoins, NFTs and cryptocurrencies, are taxed pursuant to the same rules. This is a change from last year’s guidance, which included a virtual currency section defining a digital token as “a unit of account, a store of value, or a medium of exchange.” According to reports, taxpayers who have “disposed of any digital asset in 2022” – whether as a sale, exchange, gift or other transfer – are required to report this income and pay capital gains tax. Notably, capital gains are taxed at a lower rate than the tax rate applied to the disposition of collectibles such as collectible art, antiques or gems.



The Office of the Comptroller of the Currency (OCC) recently announced that it will establish an Office of Financial Technology, which will build on and include the Office of Innovation. According to an OCC press release, the Office will be created in early 2023 to “provide strategic leadership, vision, and perspective for the OCC’s financial technology activities and related supervision.”



Commodity Futures Trading Commission (CFTC) Commissioner Christy Goldsmith Romero recently gave a speech in which she stated that “crypto presents many similar financial stability risks as the traditional financial system, with parallel themes to 2008, and the potential for that risk to become systemic.” She stated that the 2008 financial crisis was so severe because of “unchecked risk-taking by financial institutions that were highly interconnected to each other,” and that interconnectedness caused contagion risk and run risk. Commissioner Romero ran through a series of events that she posits have caused larger financial distress in the crypto market overall due to these risks, such as stablecoins breaking the buck and triggering redemptions to mass liquidation of bitcoin causing a general crypto sell-off and to companies defaulting on loans and causing other companies to file for bankruptcy or go into financial distress. She contended that similar “[o]paque, complex, leveraged, and unregulated products” that led to “underappreciated risk” in the 2008 financial crisis are present in the crypto market. Commissioner Romero advocated for a “same risk, same regulatory outcome” approach, which begins with an assessment of risk, particularly financial stability risk. The Commissioner stated her belief that the crypto markets need regulation that will limit vulnerabilities to contagion risk and run risk.



For more information, please refer to the following links:



<ul><li><a href="https://www.mediapost.com/publications/article/378916/the-irs-includes-nfts-in-2022-tax-language.html">The IRS Includes NFTs In 2022 Tax Language</a></li><li><a href="https://www.occ.treas.gov/news-issuances/news-releases/2022/nr-occ-2022-133.html">OCC Announces Office of Financial Technology</a></li><li><a href="https://www.cftc.gov/PressRoom/SpeechesTestimony/oparomero3">Remarks of CFTC Commissioner Christy Goldsmith Romero before the International Swaps and Derivatives Association’s Crypto Forum 2022, New York: Financial Stability Risks of Crypto Assets</a></li></ul>



Crypto Exchange Hacked for $28M; Reports Address Ransomware, Crypto Scams



By Sydney Park



According to recent reports, cryptocurrency exchange Deribit has been hacked, with hackers draining $28 million from the company’s hot wallet. In a tweet, the company reportedly stated that “client funds are safe, and loss is covered by company reserves.”



This week, the Financial Crimes Enforcement Network (FinCEN) issued its most recent Financial Trend Analysis of ransomware-related Bank Secrecy Act (BSA) filings for 2021. According to a FinCEN press release, the report indicates that ransomware continues to pose a significant threat to U.S. critical infrastructure sectors, businesses and the public. Among its notable findings, the report found that (1) ransomware-related incidents have substantially increased from 2020, (2) ransomware-related BSA filings in 2021 approached $2.1 billion and (3) roughly 75 percent of the ransomware-related incidents reported to FinCEN during the second half of 2021 pertained to Russia-related ransomware variants.



According to a recent report by Chainanalyis, following Ethereum’s switch from proof of work to proof of stake (the Merge), Merge-related scams took $1.2 million worth of cryptocurrency before, during and after the Merge. The report found that the day of the Merge saw a massive spike in scam revenue, with scamming activity collecting over $905,000 worth of cryptocurrency, compared with just under $74,000 for other scams. Based on data collected and analyzed by Chainanalysis, scammers were able to take advantage of consumers’ lack of understanding of the Merge “to fleece unsuspecting users.”



For more information, please refer to the following links:



<ul><li><a href="https://www.coindesk.com/business/2022/11/02/crypto-exchange-deribit-loses-28m-in-hot-wallet-hack/">Crypto Exchange Deribit Loses $28M in Hot Wallet Hack, Pauses Withdrawals</a></li><li><a href="https://www.fincen.gov/news/news-releases/fincen-analysis-reveals-ransomware-reporting-bsa-filings-increased-significantly">FinCEN Analysis Reveals Ransomware Reporting in BSA Filings Increased Significantly During the Second Half of 2021</a></li><li><a href="https://blog.chainalysis.com/reports/ethereum-merge-scams/">Ethereum Merge Scams: How Scammers Took Advantage of The Ethereum Merge to Make Millions</a></li></ul>

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Robert A. Musiala Jr.

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Crypto Products and DeFi Pilot Launch; Reports Address NFT Royalties, Ethereum PoS Efficiency; IRS, CFTC, Address Crypto; Exchange Hacked for $28M

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