BitPay to Pay $500K to Settle OFAC Sanction Violation Charges

Crypto payments platform BitPay has settled with the U.S. Treasury Department’s Office of Foreign Assets Control (OFAC) on charges of over 2,000 apparent sanctions violations.

According to an enforcement notice published on Feb. 18, BitPay will pay $507,375 on allegations it allowed individuals in Ukraine, Cuba, North Korea, Sudan, Iran and Syria to transact with people in the U.S., in apparent violation of U.S. sanctions law. Roughly $129,000 in cryptocurrencies were transacted.

This is a developing story and will be updated.



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What Happens if All Stablecoin Users Have to Be Identified?

Imagine the following scenario: Sometime in 2021, financial regulators declare that all stablecoin owners must be verified. What would happen to the cryptocurrency ecosystem?

Right now, a large chunk of stablecoin usage is pseudonymous. That is, you or I can hold $20,000 worth of tether or USD coin stablecoins in an unhosted wallet (i.e., not on an exchange) without having to provide our identities to either Tether or Circle, the managers of these stablecoin platforms. We can send this $20,000 along to other users, who can transfer the coins on, who in turn can transfer them on, and no one along this chain needs to unveil themselves.

J.P. Koning, a CoinDesk columnist, worked as an equity researcher at a Canadian brokerage firm and a financial writer at a large Canadian bank. He runs the popular Moneyness blog.

The only point at which stablecoin users have to submit to a Tether or Circle know-your-customer (KYC) process is to redeem stablecoins directly for traditional bank dollars. Or vice versa, to deposit dollars with Tether or Circle and get freshly minted stablecoins.

In a world where traditional non-blockchain based financial institutions like PayPal, Chase, and Zelle link all payments to names and addresses, stablecoin networks have become a rare moat of digital payments privacy. This has led to some fairly exotic uses for stablecoins.

In Moscow, Chinese gray market clothes vendors trade cash for tether to repatriate profits, writes CoinDesk’s Anna Baydakova. Ukrainian companies that import from Turkey use tether to skirt foreign exchange controls, and a multi-million Ponzi scheme relied on Paxos standard (PAX) for payments. Meanwhile, in the world of decentralized finance (DeFi), unidentifiable computer programs are conducting billions of dollars in unregulated financial transactions using USD coin and other stablecoins.  

But will regulators allow this privacy moat to continue to exist? What if, at this very moment, officials working for the Financial Crimes Enforcement Network (FinCEN), the U.S. Treasury’s money laundering watchdog, are plotting how to rein in stablecoin pseudonymity? 

See also: What Are Stablecoins?

Let me speculate about how a potential unveiling might look.

FinCEN could rule that henceforth, if anyone wants to access tether, USD coin, or any other official stablecoin (TrueUSD, Paxos standard, Gemini dollar, Binance USD, HUSD) they will need to apply for a verified stablecoin account. That would mean providing photo ID, proof of address and other information to Tether, Circle or other issuers.

For many existing stablecoin owners, this won’t be a big deal. Professional arbitrageurs who use stablecoins to move value from one centralized exchange to another are probably already KYC’d. And retail clients who keep their stablecoins on an exchange like Binance wouldn’t see any changes because the exchange already verifies their identities anyways.

But given that every transfer would need to have names and addresses associated with it, an unveiling would certainly weigh on gray market uses such as the Chinese traders in Moscow.

With stablecoins getting bigger by the day, regulators probably can’t ignore the issue of pseudonymity forever.

The issuers themselves would be inconvenienced, too. Building infrastructure to collect and verify the identity of all users, and not just the few who redeem or deposit, is expensive. To recoup their costs, issuers like Tether and Circle may consider introducing fees. All of this could render stablecoins less accessible for people who only want to use them for casual remittances.

It is in the world of DeFi that the fallout of a stablecoin unveiling could be felt the most. Real people who own stablecoins can be easily identified. But in DeFi, stablecoins are often deposited into accounts controlled by bits of autonomous code, or smart contracts, which don’t have any underlying owner. It’s not evident how a stablecoin issuer can conduct KYC on a smart contract.

Maker, one of the most popular decentralized tools, contains $350 million USD coins in various user-created vaults. This hoard of stablecoins serves as collateral backing for dai, Maker’s decentralized stablecoin. Another $130 million USD coin is held in a Maker’s peg stability module smart contract. If all stablecoin owners must be identified, it’s not apparent who or what entity would have to undergo a KYC check for this $130 million. 

Compound, another popular DeFi tool, currently holds $1.6 billion USD coin and $350 million tether. Lenders can deposit their stablecoins into Compound smart contracts and collect interest from borrowers who draw from the contracts. 

Liquidity pools, smart contracts underpinning decentralized exchanges like Uniswap and Curve, also hold large amounts of stablecoins. Curve liquidity pools currently contain $1.25 billion worth USD coin and $450 million worth of tether.

See also: JP Koning – What Tether Means When It Says It’s ‘Regulated’

Under the strictest scenario, stablecoin issuers could be required to cut off any entity that can’t provide a verified name or address. Which means Curve, Maker, and Compound smart contracts would all be prevented from receiving stablecoins. 

Given the ecosystem’s reliance on stablecoins, this would come close to breaking it. Compound, Curve and Uniswap might try to adapt by substituting FinCEN compliant stablecoins like USD coin with decentralized ones, say like Maker’s dai stablecoin. Because decentralized stablecoins don’t rely on traditional banks, they are less beholden to FinCEN dictat.

But remember, Maker relies on USD coin collateral to imbue dai with stability. If Maker, like Compound and Curve, can no longer hold USD coin, then dai itself would become less stable. And so the usability of Compound and other protocols relying on dai would suffer.

If we imagine a more dovish scenario, FinCEN might allow for a smart contract exemption. As long as stablecoins are held in a smart contract rather than an externally controlled account, then FinCEN would allow the stablecoin issuer to provide financial services to the smart contract. Much of DeFi could continue on as before.

This option provides a pretty big loophole for bad actors, though. The whole reason for requiring platforms to verify accounts is to prevent them moving illicit funds. If stablecoins held in smart contracts are exempt from KYC obligations, then enterprising individuals will move stablecoins to the smart contract layer and thus stimie FinCEN controls.

See also: Questions About Tether Just Won’t Go Away. Does the Crypto Market Care?

A middle-of-the-road scenario is that FinCEN exempts smart contracts from stablecoin KYC, but only if the smart contract itself verifies the identities of all addresses that interact with the contract. So Curve, in this case, would have to set up a customer due diligence program if it wanted to qualify to use stablecoins. Maker would have to vet all vault owners.

Under this scenario, we could imagine DeFi splitting into two. Purely decentralized protocols would avoid stablecoins altogether to avoid subjecting their users to KYC. Not-so-decentralized finance would start to verify users to maintain access to stablecoins.  

There are many other potential scenarios. As you can see, this is a complex problem. If FinCEN is indeed exploring the question of stablecoin pseudonymity, I wouldn’t want to be the official tasked with trying to design an appropriate response. Too strict and DeFi may no longer function. Too light and DeFi will continue to pose a money laundering threat.

But the clock is ticking. The combination of tether, USD coin, Paxos standard, Binance USD, TrueUSD, dai, and HUSD now regularly surpasses bitcoin in terms of on-chain volume. In January 2021, these stablecoins processed $308 billion in transactions compared to bitcoin’s $297 billion. With stablecoins getting bigger by the day, regulators probably can’t ignore the issue of pseudonymity forever.



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‘Evil VASP’ Simulation Preps Crypto Exchanges for FATF Travel Rule

Getting crypto exchanges across the world to plug into each other and share sensitive customer data is proving to be a complex problem. 

Nonetheless, firms have to show real progress on this by June of this year, according to new anti-money laundering (AML) rules from global AML watchdog the Financial Action Task Force (FATF).

Announced Thursday, the Travel Rule Information Sharing Alliance (TRISA), one of the better-known solutions being proposed, is launching a testnet that includes a directory of virtual asset service providers (VASPs) and scenario testing for inevitable contact with non-compliant firms. 

The FATF rules require crypto companies to share personally identifiable information (PII) for transactions over a certain amount. While a global cohort of compliance-minded exchanges will begin implementing the new rules later this year, there will be many stragglers including smaller firms in far-flung jurisdictions. This is expected to create a so-called “sunrise problem,” as some parts of the crypto world become regulated ahead of others. 

The TRISA testnet begins to address that looming challenge by including a dummy version of an “evil VASP” that will provide false authentication, attempt to steal data and so on.

There are two compliant VASPs as well as the non-compliant exchange on the testnet, explained John Jefferies, co-chairman of TRISA. 

“The evil VASP isn’t part of TRISA and it will try and trick people into sharing information,” said  Jefferies. “So what we are building out gives firms the opportunity to test out domains and do interoperability testing from a security dimension and messaging dimension.”

TRISA is backed by blockchain analytics company CipherTrace and has support from the likes of Paxful’s Lana Schwartzman, Bradley Arant Boult Cummings LLP attorney Carol Van Cleef, and Thomas Hardjono of MIT Connection Science & Engineering. 

The solution leverages battle-tested certificate authority infrastructure that allows VASPs to mutually authenticate one another, Jeffries explained. Post-testnet, TRISA will be issuing know-your-VASP certificates, validated by a registration authority.

“The cool thing about having a proper certificate authority is that it has the concept of revocation,” said Jeffries. “So if a VASP turns evil – say they pull some sort of exit or fraud or their licenses are revoked – that public key infrastructure that sets up the relationship can also take it back if the whole community has to stop communicating with a VASP, at least for a little while.”



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Switzerland’s ‘Crypto Valley’ Has Started Accepting Bitcoin, Ether for Tax Payments

The Swiss canton of Zug has started accepting tax payments in cryptocurrency.

In a previous announcement in 2020, the Swiss authorities said that, from February, citizens and companies based in Zug will be able to pay up to 100,000 CHF (around $111,300) of their taxes in either bitcoin or ether. No partial payments in cryptocurrency will be accepted.

Zug has been dubbed “Crypto Valley” over the many industry companies drawn to the jurisdiction over its friendly blockchain and crypto regulation. 

“As the home of the Crypto Valley, it is important to us to further promote and simplify the use of cryptocurrencies in everyday life,” said Zug’s finance director, Heinz Tannler, when the tax initiative was announced.

Zug-based crypto broker and custodian Bitcoin Suisse has partnered with the canton, converting cryptocurrency payments into Swiss francs for the tax office.

According to the Zug Canton website, residents can request to pay taxes in cryptocurrency and will be emailed a link taking them to the crypto payment option.

Aa CoinDesk reported at the time, the city of Zug started accepting bitcoin payments for tax in 2017.



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Robinhood to Allow Deposits, Withdrawals for Cryptos Including Dogecoin

Online brokerage app Robinhood says it plans to enable withdrawals and deposits of cryptocurrencies including dogecoin.

In a tweet Wednesday, the app provider said it “fully intends” to provide the extra functionality, though not date is provided for when it might be activated. Currently, traders can only buy and sell crypto assets within the app, according to its support page.

The tweet came an hour before Bloomberg published an article alleging Robinhood was the owner of the world’s largest dogecoin wallet. Robinhood stated in the tweet that it “does not currently invest in cryptocurrency or use any customer cryptocurrency” for its own benefit.

Robinhood cited “extraordinary market conditions” as the primary reason, before later saying its clearing firm raised the fees for conducting transactions beyond what Robinhood could afford to pay.

The company raised $3.4 billion in an emergency fund during the volatile period.

The decision to “limit instant buying power for crypto” meant users had to resort to using settled funds for their purchases, as CoinDesk reported at the time.

Robinhood CEO Vlad Tenev is set to testify in front of Congress Thursday about what occurred during the GameStop pump, which was led by Reddit trading group r/WallStreetBets.

In a written introduction, Tenev said his company had “introduced features that have opened the door for many investors who have historically been unable to access the stock market.”



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US Lawmakers Looking Into China’s Role in GameStop Pump: Report

U.S. lawmakers are set to question a trader named Keith Gill and the chief executives of Reddit and Robinhood about their roles in the GameStop frenzy at a congressional hearing later this week. But some have another concern: whether China is involved. 

Several Republican lawmakers on the House Financial Services Committee plan to examine Reddit’s ties to Chinese tech conglomerate Tencent and Robinhood rival Moomoo, according to a Politico report. Moomoo is a wholly owned subsidiary of Futu Holdings, which is also backed by Tencent. 

These Republicans are reportedly concerned about possible manipulation by the Chinese companies in the inflating of GameStop’s stock through the trading app Robinhood and some Reddit day traders.

It is unclear from the report why these lawmakers want to investigate these Chinese companies and what specific questions they plan to ask during the hearing, which takes place Thursday, according to the announcement by Rep. Maxine Waters, (D-Calif.), who chairs the committee.

However, the GameStop hearing comes at a time when techno nationalism is running high in the U.S. and China. Policymakers have imposed – or tried to impose – restrictions that accelerate the decoupling of digital platforms, supply chains and knowledge networks. 

“We are living in a time of increased competition between Chinese tech and so-called western tech,” said James Cooper, an associate dean at California Western School of Law, who served as consultant to the U.S. Department of State, advising on emerging technologies. 

He said investigating whether malicious Chinese actors manipulated GameStop’s price is  “political theater.” Tencent and Moomoo did not respond to requests for comments as of press time. 

China focus

Political theater aside, there may be a few reasons these lawmakers are looking at China. One is the possibility of Chinese retail investors’ eagerness to jump into the GameStop stock frenzy. The other is the continuing influence of Chinese-owned trading apps in the U.S. 

China has some 167 million retail investors who hold over 28.5% total market value of the Chinese stock market (approximately $200 billion). Chinese retail investors are able to trade GameStop stock via Chinese online brokerage platforms with U.S. broker licenses, such as Moomoo and Webull.  Both Moomoo and Webull, which are major Robinhood rivals in the U.S., are founded by former employees of Tencent and Alibaba, respectively.

Webull became the second most popular app in the U.S. around the time when online brokerages were restricted from buying GameStop and AMC Entertainment stocks. Both Webull and Moomoo have become alternative platforms for retail investors as Robinhood grapples with backlash caused by its trading restrictions. 

Webull began offering trading services for cryptocurrencies in 2020. Over the last year it had a ten-fold increase in brokerage clients to more than 2 million users. While its current user base pales in comparison to Robinhood’s 13 million, Webull said it has been peeling off users from its rival, according to a report by Bloomberg Businessweek. 

Read More: TikTok and the Great Firewall of America 

Retail investors appeared to have turned to Webull after Robinhood halted the trading of certain stocks that were being pumped by the Reddit group, including GameStop. However, Webull later ceased such transactions, claiming its clearing firm told it to stop opening new positions in certain stocks. 

The lawmakers’ concerns about Reddit’s ties with Tencent may stem from a $300 million Series D funding round in February 2019, when the Chinese company invested $150 million as the lead investor. 

Tencent’s funding soon drew criticism from Reddit’s users who prioritize privacy and decried censorship. However, some analysts believe it is unlikely Tencent would be able to control content on the platform. 

Robinhood’s rivals

San Francisco-based Moomoo is part of Futu Inc.’s efforts to expand its businesses in the U.S. atop Futu’s success in mainland China. Founded by Hua Li, who was one of Tencent’s earliest employees in 2012, Futu is one of the largest online brokerage platforms in China, and lets retail users in mainland China trade Hong Kong- and U.S.-listed stocks. 

Futu Inc. is a broker-dealer registered with the U.S. Securities and Exchange Commission and is a member of both the Financial Industry Regulatory Association and the Securities Insurance Protection Corporation (SIPC), according to a statement on its website. 

Futu scored one of the biggest Asian initial public offerings of 2019 on Nasdaq and aims to be a major player in online brokerage services for retail investors across the world. 

Li holds 40.2% of Futu’s equity with over 71% voting power, while Tencent owns 30.3% of the firm’s shares with 26.2% voting power, according to a Securities and Exchange Commission filing dated April 27, 2020. 

Webull is a subsidiary of Fumi Technology, which was founded in 2016 by Alibaba alum Anquan Wang in Hunan, China.

Webull complies with the same regulations as any other U.S. brokerage and stores user data locally, with an office in lower Manhattan, according to the Bloomberg report. 

Webull has voluntarily sought a review of its ownership by the Committee on Foreign Investment in the U.S. (Cfius), a panel that tends to prevent some Chinese-owned companies from expanding in the U.S. for national security reasons, the firm’s chief executive, Anthony Denier, said in the report. 



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Why We Should Take Dogecoin Seriously

Nothing says 2021 like dogecoin, a dog-themed cryptocurrency that has recently skyrocketed in value, thanks in part to the support of Elon Musk and other celebrities. For a time it was the 10th largest cryptocurrency. Dogecoin finished 2020 at less than half a penny per DOGE, according to CoinDesk’s dogecoin price index. It now trades at or above 5 cents, putting its year-to-date returns at around 1,000%.

It may be tempting to write this off as a speculative frenzy or just a fluke, but that would be missing the larger picture. We should take note of dogecoin’s rise, if only because it reflects some of the key tensions of this moment in time. 

Emily Parker is CoinDesk’s Global Macro Editor.

Here are just a few things that dogecoin mania says about the world we live in now. 

There is a thin line between absurdity and seriousness

Dogecoin is literally named after a dog, and is represented by a Shiba Inu. The rapper Snoop Dogg recently rebranded himself as Snoop Doge. If this all sounds ridiculous, it’s because it is. Dogecoin’s creators fully intended it for it to be a joke, and absurdity is baked into its very design. 

Today, some of the more serious people in the not-always-serious crypto industry are annoyed by dogecoin’s prominence. They have spent years trying to convince people that cryptocurrency has real technology behind it, even if no one outside of the industry had the slightest idea how it worked. And now, finally, the world is paying attention. Almost every day there seems to be another brand name trying to get in on the action. PayPal. Tesla. Mastercard. Harvard. Morgan Stanley. America’s oldest bank (BNY Mellon). The list goes on, and bitcoin’s price has responded accordingly, passing $50,000 this week. 

See also: Michael Casey – Money Reimagined: Memes Mean Money

But now, you have this punchline of a coin taking up some of the spotlight that bitcoin worked so hard to obtain. What kind of message does that send to the non-crypto world?

It sends a message that we should already know: What once seemed absurd to many can become dead serious. Before 2016, much of the world saw Donald Trump as an outrageous reality TV star who had no chance of winning the U.S. presidency. They saw him as a joke, and many still do. But he still held the most powerful position in the world for four full years. 

This is obviously not a perfect comparison, and the point isn’t to liken dogecoin to Trump. It’s simply to say that dogecoin “joked” its way to a roughly $7 billion market cap, and that’s real money. It also means that if DOGE mania bursts, some people are going to face some very real losses. 

Collective belief can trump ‘fundamentals’

How does this happen? How does something that seems patently absurd become undeniably real? It’s in part because reality seems to be increasingly shaped by collective belief, rather than underlying facts. 

This collective belief can prevail over more practical concerns. Until recently, Dogecoin was essentially abandoned by developers, with its last major software release happening two years ago. Others have pointed out that it lacks its own miners, which makes it vulnerable to attack. Critics will say the recent DOGE boom is driven entirely by speculation, rather than fundamental value. 

Dogecoin is a sentiment-driven asset. But lately, a lot of things feel that way. Value is created by crowd sentiment and powered by the rocket fuel of social media. The most obvious example is GameStop, where Redditers joined forces to drive up the price of a heavily shorted stock. A more recent example is MarsCoin, which shot up over 1,000% after Musk mentioned it on Twitter. 

What’s different now is that social media can translate collective belief into collective action at an unprecedented pace and scale.

Teenagers rise to dizzying levels of fame on TikTok, buoyed by the collective support of fans and the app’s mysterious algorithm. Do those seconds-long videos deserve global acclaim? Are these people deserving of fame? Maybe not, but it also doesn’t really matter. Some are becoming millionaires. This may be harmless, but less so are internet-driven conspiracy theories that don’t have to be based in fact to have real-world consequences. People just have to believe they are true.

Collective belief has always been a powerful force, but it can’t move markets on its own. What’s different now is that social media can translate collective belief into collective action at an unprecedented pace and scale. Celebrities like Musk have been able to leverage their massive fan bases to drive people to make concrete moves like purchasing DOGE and driving up its price. 

People want decentralization, but it remains out of reach

The idea of collective belief is at the heart of money, and thus of crypto culture. Without a shared belief in its value, fiat currency would be little more than paper and metal. But while central governments can print money and have an impact on price, bitcoin is meant to be independent of that system. Bitcoin’s price, to put it simply, is determined by the amount that people are willing to pay for it. In the early days, that was only a few cents. Now, it’s reached over $50,000. 

Dogecoin represents an ideal of what cryptocurrency was supposed to be. It is truly weird, and lives outside of the financial system. Its founders have effectively left the scene, leaving it to community rule. Big banks want nothing to do with it. It seems safe to say that it will be a while before we see a major headline featuring both Goldman Sachs and dogecoin. 

Bitcoin has clearly grown up, and is gaining the respect of more traditional players. That’s good for mainstream adoption, and perhaps for the industry as a whole. But bitcoin’s maturation has also come with a degree of centralization – outsized influence is enjoyed by big investors (known as whales), as well as certain mining pools and exchanges. 

See also: Michael Casey – Money Reimagined: Narratives Wall Street Can’t Control

Musk is a well-known fan of bitcoin and has suggested that dogecoin should become the “people’s crypto” – i.e., a democratic form of money. This taps into the zeitgeist we saw in the GameStop frenzy, which was an assertion of strength by retail investors over big hedge funds. But is GameStop, as entertaining as it may have been to watch, really going to alter the balance of power in the financial world?

Democratization of finance is hard to achieve. So it should come as little surprise that Dogecoin isn’t that decentralized after all. Musk recently pointed out that Dogecoin’s wealth is too concentrated. This claim was backed by Coin Metrics, which noted that the top 100 DOGE addresses hold 68% of its total supply, compared to 13.7% for bitcoin. Put another way, the top 1% of DOGE addresses have 94% of total supply.  

Musk has tried to address this problem by urging big DOGE holders to sell, even offering to pay money for them to void their accounts. But it’s hard to escape the irony here. An unfathomably rich man pumped DOGE’s price and then complained about a concentration of power, which he offered to fix himself.

Dogecoin should be taken seriously, if not literally. Its rise is highlighting tensions that aren’t going away anytime soon. We should pay attention to them. Otherwise, the joke’s on us.



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Bitcoin (BTC) $ 28,091.53 3.88%
Ethereum (ETH) $ 1,728.24 3.20%
Litecoin (LTC) $ 67.77 2.78%
Bitcoin Cash (BCH) $ 243.25 2.53%