CoinDesk Crypto

A Japanese cryptocurrency exchange that suffered from a $60 million hack in 2018 is suing Binance for “aiding and abetting” the laundering of some of the stolen funds.

According to a complaint filed by Fisco in the Northern California District Court on Sept. 14, the Japanese exchange alleged that soon after it lost nearly 6,000 bitcoin in the 2018 hack, the thieves sent 1,451 bitcoin to an address belonging to Binance, which was worth $9.4 million at the time.

Fisco – called Zaif at the time of the hack – added that the thieves subsequently laundered the funds on the world’s largest exchange platform, due to its allegedly lax know-your-customer (KYC) and anti-money laundering (AML) protocols that “do not measure up to industry standards.”

Related: DeFi Lender bZx Reclaims $8M Stolen in Sunday’s Attack

The thieves are claimed to have taken advantage of Binance’s policy that allowed new users to open accounts and transact on the platform in amounts less than 2 bitcoins without needing to provide any meaningful identifying information.

“The thieves broke the stolen bitcoin into seven thousands of separate transactions and accounts, all valued below the 2-bitcoin threshold. In this way, the thieves converted the stolen bitcoin into other cryptocurrencies and transmitted the value from the Binance platform,” the plaintiff said.

Fisco alleged that since Binance was notified and had “actual knowledge” that the stolen funds were sent to its platform, it “either intentionally or negligently failed to interrupt the money laundering process when it could have done so.”

As such, Fisco is demanding Binance to pay for its loss of the laundered funds in addition to other punitive damages.

Related: DeFi Lender bZx Loses $8M in Third Attack This Year

Zaif was sold by its then-parent entity Tech Bureau to Fisco shortly after the incident, which compensated users’ who had lost funds in the hack.

$41 million-worth of crypto assets from the hack belonged to Zaif customers including those based within the U.S. and California, according to the court filing.

Biannce has not yet responded to CoinDesk’s request for comment.

The case has the potential to draw further attention to cryptocurrency exchanges’ KYC and AML procedures, as the Financial Action Task Force is working towards bringing global regulators in line with its 2019 anti-money laundering guidance on “virtual asset service providers,” known as the Travel Rule.

Also read: FATF Compliance Effort Adds Huobi, Bitfinex and Tether to Governance Task Force

California claims

Fisco also argued that the case should be brought to trial in the California court not only because there were victims who were based in the region, but also “critical components” of Binance’s business are located in the U.S. state.

For example, Fisco said Binance uses Amazon Web Services (AWS) to host its servers and has the ability to select whichever AWS data center it chooses for its operations.

The argument comes after repeated statements made by Binance that it has no traditional physical headquarters anywhere in the world.

“Upon information and belief, a significant portion if not all of the AWS servers Binance relies on for its operations are located in the State of California. Upon information and belief, the AWS Region and AWS Availability Zones housing Binance’s digital data used to run its technical platform are located in California,” Fisco said.

In addition to Binance having hired half a dozen employees in California, Fisco argued that a significant portion of Binance’s cryptocurrency reserves is also stored in offline hardware facilities located in the San Francisco Bay Area, which are controlled and managed by custodians headquartered in the region.

“For example, on July 7, 2020, Binance acquired cryptocurrency startup Swipe. Binance admits that Swipe uses Coinbase and Bitgo, both of which are located in the San Francisco Bay Area, to custody the cryptocurrency used in Swipe’s business,” the plaintiff said.

Fisco is seeking a jury trial over its allegations.

See the full court filing below:

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In a new twist in Bitmain’s ongoing power struggle, co-founder Jihan Wu has regained the legal representative status of the bitcoin miner maker giant.

China’s business registration record update on Sept. 14 shows Wu has again become the legal representative and executive director of Beijing Bitmain Technology, the operating entity of Bitmain.

Subsequently, Micree Zhan, the rival co-founder who was ousted last October by Wu but regained control earlier this year, is no longer the legal representative and executive director but remains a general manager of the firm.

Related: The Business of Geopolitical Competition

The role of a company’s legal representative in China has broad powers to act on a firm’s behalf and usually also holds the company’s official seal, a crucial element for signing company decisions into effect.

In an announcement published Sept. 15 via the WeChat account of Bitmain’s AntMiner brand, Wu reaffirmed the status update and said the company’s respect for Zhan “remains unchanged.”

Battle for Bitmain

The update suggests Bitmain’s internal power fight may have come to a short-term end although the two sides’ lawsuit in the Cayman Islands – where Bitmain’s parent holding entity resides – is pending for a final judgment.

Wu added in the announcement that Bitmain’s management now aims to work out sustainable solutions to solve all kinds of problems caused for employees, investors and customers due to the co-founders’ war of words.

Related: Bitcoin News Roundup for Sept. 10, 2020

“Since 2020, the management’s feud has damaged Bitmain’s market shares and its brand image. We have lost customers and employees were forced to take sides,” Bitmain said in the post. “Various breaking events and negative news even thwarted our plan to go public. Our equity option promised to employees almost became a useless piece of paper.”

Read more: Leaked Transcript Details Power Struggle Inside Bitcoin Mining Giant Bitmain

In an October coup last year, Wu removed Zhan’s role as Bitmain’s chairman, executive director and legal representative even though Zhan is the biggest shareholder of Bitmain. Wu alleged that Zhan’s leadership during 2019 caused serious issues – including a significant drop in Bitmain’s bitcoin miner market share. Zhan filed a lawsuit in the Cayman Islands in December over the legitimacy of Wu’s move.

The event has quickly escalated to a yearlong power struggle. Earlier this year, Zhan regained his status as a legal representative after winning the local government’s favor and forcing his way into Bitmain’s Beijing office.

Read more: How Was It Possible for Bitmain to Oust Its Largest Shareholder Overnight?

Soon after that, Bitmain’s manufacturing business for bitcoin mining equipment was essentially hard-forked into two with each side trying to establish their own sales arms and factory supply chains.

As a result, Bitmain’s employees were forced to take sides and the stand-off caused significant shipment delays for Bitmain’s customers, many of whom had to turn to rival miner makers such as Shenzhen-based MicroBT.

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The New York Attorney General’s office is losing patience with Bitfinex and Tether.

NYAG senior enforcement counsel John Castiglione filed a letter Monday ahead of a conference between the regulator and the two cryptocurrency firms arguing it is way time they complied with a 17-month-old document production order detailing financial information within the next two months. 

For their part, counsel representing the two firms argue the order is too broad, and the scope should be limited first.

Related: NY AG Asks Court for New Order to Make Bitfinex Turn Over Tether Loan Documents

“As of this filing, the 354 Order has been in place for seventeen months. In that time, Respondents have produced ‘jurisdictional’ documents (as directed by this Court) but failed to produce the core information called for in the Order. The delays must stop, and Respondents should be directed to comply promptly,” Castiglione said.

New York State Supreme Court Justice Joel M. Cohen scheduled the hearing for this Thursday, after receiving a request from the NYAG’s office last week complaining that Bitfinex and Tether had yet to turn over any documents. 

According to Castiglione, the NYAG is requesting all documents be submitted within 60 days and an injunction preventing Tether from loaning funds to Bitfinex be extended a further 90 days. Charles Michael, an attorney with Steptoe and Johnson LLP representing Bitfinex, opposed any extension of the injunction in his own letter.

“The allegedly concealed facts have been out in the open for 17 months, during which consumers have been free to redeem their tethers without restriction,” he wrote. “Instead, they have chosen to buy, with tethers’ market cap growing six-fold (to over $14 billion).”

Related: Bitfinex Invests in Derivatives Exchange Built With Bitcoin’s Lightning Network

In his view, the fact that tether’s market cap has increased this dramatically indicates market confidence in the dollar-pegged cryptocurrency, and negates the justification for the injunction.

“Consumers are well protected today, and do not need OAG’s injunction. The loan transaction supposedly impairing tethers’ reserves was over 25% of tethers’ backing at the time of the injunction, but, thanks to Bitfinex’s repayments and tethers’ growth, the balance now is less than 4% of tethers’ backing,” Michael wrote.

He added that Tether’s assets exceed the amount of tether (USDT) issued by $160 million.

17 months

It has indeed been a long journey. The case began in April 2019, when the Attorney General’s office said Bitfinex had lost access to close to $1 billion in customer funds, and borrowed from Tether’s reserves. The stablecoin issuer shares corporate owners and executives with Bitfinex, though in various legal filings counsel for the companies said the loan and a subsequent line of credit were negotiated independently of each other. 

The NYAG won an injunction preventing Tether from sending any more funds to Bitfinex, and Cohen ordered the firms to share all documentation about the deals, as well as documents about tether issuances, among other concerns.

Bitfinex and Tether appealed the ruling, but lost the appeal in July. Earlier this month, the NYAG’s office asked to schedule Thursday’s conference to request a new production order with a strict timeline. 

Monday’s letter provided more information. The NYAG wants Bitfinex and Tether to produce purchase information for tether, U.S. dollar withdrawal requests, tax documents and account information within one week. 

Read more: NY AG Asks Court for New Order to Make Bitfinex Turn Over Tether Loan Documents

Within a month, the NYAG wants communications about Tether’s loans, loans to third parties and a list of U.S. or New York customers who had funds on Crypto Capital, and within 60 days it wants “full production” of information related to a November 2018 subpoena, a February 2019 letter and jurisdictional documents. 

The original production order from 2019 called for the materials to be ready within a month, Castiglione said.

“Most of the materials called for are core business documents that should exist and be readily accessible: order and trade information, client lists, lists of bank accounts and their balances, tax returns, and other similar material,” the letter said, adding that, “the 354 Order is well over a year old and the appeal was decided two months ago.”

Michael wrote that some of the requests would require Bitfinex or Tether to “generate reports, accountings or answer questions” that do not currently exist.

‘Extensive ties’

The NYAG also preemptively stated its opposition to any narrowing of the judge’s order, noting that “respondents have stated they will move this court” to do so. According to Castiglione, the court’s role in the case is limited beyond the orders already signed, and the production demand is well within the NYAG’s authority under the Martin Act, the law it’s using to conduct its inquiry into Bitfinex.

Michael’s opposition letter wrote that the court could limit the scope to avoid unduly burdening the respondents, in this case Bitfinex and Tether. The court itself has already said that any “unreasonable or not terribly relevant” requests can be opposed. 

Bitfinex is arguing that a request for all documents about all tether transactions is overbroad. Michael likened it to “asking GM for all documents about cars.” The NYAG is also looking for documents outside its jurisdiction, he claimed. 

In his brief, Michael wrote that the proposed timeline should be denied. Instead, he proposed a 30-day period for the two parties to discuss the scope of the request, saying Bitfinex and Tether would produce documents “not subject to dispute” in the meantime.

Read more: Tether, Bitfinex File Motion to Dismiss Market Manipulation Lawsuit

He seemingly pushed back against the NYAG’s claims that insufficient documents have been produced, writing that the crypto firms have produced more than 70,000 documents so far.

“Bitfinex and Tether also voluntarily produced extensive information to OAG, even while the First Department stay was in effect, including via two multihour presentations and a series of other communications aimed at answering directly the questions OAG indicated it was most interested in having answered,” Michael wrote.

He also noted that Bitfinex and Tether announced a ban on all New York customers nearly three years ago. 

Castiglione, in contrast, wrote that an investigation into Tether and tether is proper, “given their [respondents] extensive ties to the state.” 

In his view, the appeals court’s ruling in the NYAG’s favor suggested that the regulator could find additional information that would reveal further violations of the law.

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Paxful is pulling out of Venezuela’s peer-to-peer (P2P) bitcoin scene.

• “Increasingly strict” regulations hampered the P2P bitcoin exchange’s ability to “provide services to Venezuelans,” according to a video tweeted by Paxful Monday.
• A company spokeswoman confirmed the exit with CoinDesk. “Concerns regarding the regulatory landscape around Venezuela and Paxful’s own risk tolerance” prompted the exit, she said.
• New Venezuelan account creation will be disabled and existing users will have 30 days to withdraw, according to an exit plan shared with CoinDesk.
• The departure will deprive Venezuela’s underground crypto scene of its second-largest P2P outlet. Venezuela’s crypto traders heavily favor P2P crypto exchanges like Paxful and market leader LocalBitcoins over government-approved alternatives.
• It also denies Paxful an emerging market it courted for years as the future of bitcoin adoption. Venezuela’s rampant inflation, unbanked population and high mobile phone usage have long appealed to company CEO Ray Youssef.
• But those attractions weren’t enough to overcome the myriad difficulties of operating in an economy as sanctioned and scrutinized as Venezuela’s.
• In addition to Venezuela’s internal cryptocurrency regulator SUNACRIP, the country’s international exchanges also face potential troubles from financial sanctions levied by the U.S.
• Paxful blamed U.S. sanctions when it shut off trades involving the Bank of Venezuela in June.
• It was not immediately clear whether the regulatory uncertainty cited by Paxful was internal or external, perhaps due to U.S. sanctions.

Read more: Chainalysis Report Shows Healthy Crypto Usage in Venezuela

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The Thai central bank, Bank of Thailand, announced on Friday that it has launched a blockchain-enabled platform for the issuance of government saving bonds. 

• According to a press release, the Thai central bank sold 50 billion Baht (approximately $1.6B) worth of government savings bonds over one week’s time.  
  
• The release added that the blockchain-enabled platform will help build a more secure, efficient mechanism for issuing government bonds and also aid in reduction of associated operational costs. 
  
• Thailand has been pivoting its bond market toward blockchain-enabled platforms as the country’s finance ministry had earlier in June announced plans to sell $6.42 million worth of low-face-value government savings bonds using state-owned Krung Thai Bank’s blockchain wallet. 
  
• “In the next phase, the infrastructure will expand to support all different government bonds,” the release said. Thailand’s finance ministry announced last month that the funds obtained from selling $1.6 billion worth of savings bonds would go toward financing the government’s budgetary deficit. 

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New York federal prosecutors charged two men with running a phony bitcoin brokerage service that duped victims of $5 million.

• As alleged in a criminal complaint unsealed Monday, former fugitive Randy Craig Levine and disbarred attorney Philip Reichenthal never bought their two high-rolling investors any bitcoin despite promising to do so.
• One victim, an unnamed “purported cryptocurrency escrow firm,” wired Levine $3 million to fund an over-the-counter desk’s bitcoin buy, according to prosecutors, who said the second victim, a Florida bitcoin investor, wired Levine $2 million.
• Levine allegedly told the victims their funds were moved into an “escrow” service and then stopped responding to the victims’ questions.
• But Levine’s escrow was actually Reichenthal’s money-laundering front, prosecutors allege. They claim Reichenthal wired millions to Russian, Mexican and Guatemalan bank accounts controlled by Levine aliases.
• Levine and Reichenthal allegedly pocketed the money, giving their victims no refunds or bitcoin.
• The pair face allegations of wire fraud, money laundering and commodities fraud in New York federal district court.
• Levine is currently awaiting extradition from Austria; he’s been on the run from U.S. authorities since 2005. Reichenthal was disbarred last October in a Florida court.

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• Bitcoin’s Jump to $10.7K Ends 10-Day Sideways Trend

Bitcoin is making gains Monday and Ethereum usage is hitting record highs in September.

• Bitcoin (BTC) trading around $10,669 as of 20:00 UTC (4 p.m. ET). Gaining 3.4% over the previous 24 hours.
• Bitcoin’s 24-hour range: $10,250-$10,759
• BTC above its 10-day and 50-day moving averages, a bullish signal for market technicians.

The price of bitcoin hit as high as $10,759 on spot exchanges such as Coinbase Monday. That level has not been seen since Sept. 3 and the cryptocurrency is now heading into bullish territory. 

“The trend is indeed higher,” said Darius Sit, managing partner of quant firm QCP Capital. 

Related: RGB Continues Its Work to Bring Better Smart Contracts to Bitcoin

Read More: Bitcoin’s Jump to $10.7K Ends 10-Day Sideways Trend

Buy liquidations, the crypto equivalent of a margin call that wipes out short-sellers on derivatives exchanges such as BitMEX seemed to be helping to push bitcoin’s price up. A total of $19 million buy liquidations were more than double the $9.1 million in sell liquidations over the weekend and into Monday on BitMEX, helping fuel the price upswing. 

In the options market, some traders remained highly bullish that bitcoin can hit new highs. 

“While bitcoin price dabbles around $10,000 now, traders have still priced in a chance that bitcoin will trade at $20,000 by March 2021,” said William Purdy, an options trader and founder of analysis firm PurdyAlerts. 

Related: Bitcoin’s Jump to $10.7K Ends 10-Day Sideways Trend

Indeed, based on how options are currently trading in the market, it appears as if options traders are estimating a 10% chance that bitcoin will be at $20,000 by the March 2021 expiration date. 

Over in the futures market, investor interest seems to have waned somewhat. 

Read More: Some Bitcoin Traders Are Betting on a $36K Price by Year’s End

“Bitcoin futures aggregate open interest has dropped $1 billion, or 20%, since the start of September,” noted Jason Lau, chief operating officer for cryptocurrency exchange OKCoin.

However, Lau said a higher bitcoin price could mean an increase in futures interest. “It seems traders are in a holding pattern,” Lau added. “U.S. markets have had a strong opening this morning, which pushed BTC up 5%, so it will be interesting to see what impact that has on open interest in the coming days.”

Ethereum record gas usage

Ether (ETH), the second-largest cryptocurrency by market capitalization, was up Monday, trading around $375 and climbing 3.2% in 24 hours as of 20:00 UTC (4:00 p.m. ET). 

Read More: Uniswap Takes Over SushiSwap Less Than 24 Hrs. After Rewards Drop

The total amount of “gas” (or costs) used on the Ethereum network to send transactions and interact with decentralized finance (DeFi) protocols hit new highs in September. On Sept. 6, a record 80 billion units of gas was used on the network, and Friday (Sept. 11) was the second-highest usage day ever, at 79,743,954,147 units used.

Read More: SushiSwap Users Ordered Changes, but the Protocol Can’t Deliver

“I have short-term concerns about Ethereum network congestion but it’s a positive for the long term because it shows demand,” said Brian Mosoff, chief executive officer of Eth Capital, which invests in the Ethereum ecosystem. 

The short-term issues could cause pain from a usability standpoint, Mosoff added. “Realistically, until the second and third phases roll out in ETH 2.0, high gas costs or requiring the use of a supporting or competing network are going to be the reality.” 

Read More: The Virtual CoinDesk Invest: Ethereum Economy Event October 14

Other markets

Digital assets on the CoinDesk 20 are all in the green Monday. Notable winners as of 20:00 UTC (4:00 p.m. ET):

• neo (NEO) + 9.9%
• lisk (LSK) + 7.5%
• ethereum classic (ETC) + 3%

Read More: How Bitcoin Correlations Drive the Narrative

Equities:

• Asia’s Nikkei 225 ended the day up 0.65% as investors digested signals that easy money policies would continue in Japan.
• Europe’s FTSE 100 closed flat, in the red 0.10% amid reports industrial production numbers have not returned to pre-coronavirus levels.
• In the United States, the S&P 500 climbed 1.6% with tech leading the way, boosted by Nvidia's $40 billion deal to buy chip designer Arm Holdings from Softbank.

Read More: SEC Charges Rapper TI With Securities Violations for Promoting 2017 ICO

Commodities:

• Oil is flat, in the red 0.01%. Price per barrel of West Texas Intermediate crude: $37.29.
• Gold was in the green 1% and at $1,958 as of press time.

Read More: Iran May Fund Car Imports With Cryptocurrency Mining

Treasurys:

• U.S. Treasury bond yields climbed Monday. Yields, which move in the opposite direction as price, were up most on the two-year bond, in the green 3%.

Read More: The Crypto Firms Collaborating on a Swiss Franc Stablecoin

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The Takeaway

• Under development by the LNP/BP Standards Association, the RGB protocol entered beta in June.
• The second layer network promises to bring smart contracts and tokenized assets to Bitcoin with a Lightning Network-esque technical design.
• RGB could be used to issue tokenize securities and nonfungible tokens (NFT), and to offer a more private means of stablecoin issuance and transfer. 

Smart contracts and Bitcoin. These technical phenomena are rarely associated with each other, often because people believe Bitcoin’s paired-down scripting language can’t support the smart contract applications that have become the darlings of the Ethereum ecosystem.

But as the new smart contract-enabling protocol RGB launches its beta, the folks at the LNP/BP Standards Association are trying to change this perception.

Related: Market Wrap: Bitcoin Passes $10.7K; Ethereum Gas Usage Hits Record September Highs

The group (whose acronym is short for Lightning Network Protocol and Bitcoin Protocol) is building RGB, a smart contract network built on top of Bitcoin. (The protocol is named after the “RGB” additive coloring scheme because it originally started as a project to improve Bitcoin’s colored coins scheme for tokenized assets.)

The “third layer” network, as one of its architects, Giacomo Zucco, calls it, has entered beta and could help outfit Bitcoin with the tokenizing capabilities that have made Ethereum the go-to blockchain for issuing tokenized assets like securities, collectibles, crypto dollars and more.

Read more: A Protocol for Issuing Tokens Launches on Bitcoin’s Lightning Network

The new old thing

RGB was first conceptualized by Bitcoin Core developer and cryptography consultant Peter Todd. With undisclosed funding from Bitfinex/Tether, Fulgur Ventures and Poseidon Group, the protocol entered beta testing at the end of June. LNP/BP head Giacomo Zucco clarified that the “RGB node for the software itself is in beta” but that all RGB-compatible wallets are still in alpha. 

Related: Bitcoin’s Jump to $10.7K Ends 10-Day Sideways Trend

The pursuit of Bitcoin-based smart contracts – and more generally, tokenizing assets on Bitcoin – is nothing new.

Read more: Writing Bitcoin Smart Contracts Is About to Get Easier With New Coding Language

Bitcoin’s OP_RETURN function has allowed for limited smart contract functionality since the coin’s inception. This function set the technical groundwork for Bitcoin-based NFTs/collectibles through the Counterparty protocol, as well as the issuance of the tether (USDT) stablecoin on Bitcoin through the Omni protocol.

For its own part, the Lightning Network’s hash time-lock contracts – the technical parameters that lock bitcoin (BTC) into payment channels on the secondary network – are a form of smart contract. 

Leveraging techniques (and trade-offs) of Lightning

So-called “sidechains” are trusted blockchains in the sense that a federated body of representatives run the nodes that oversee the sidechain’s operations, such as issuing assets and “pegging” bitcoin into the sidechain. These networks, running parallel to a decentralized blockchain like Bitcoin, market smart-contract functions as one of their primary use cases.

RGB, on the other hand, is not a trusted blockchain like RSK or Liquid, nor does it rely on Bitcoin’s main chain to execute transactions like Omni or Counterparty. Instead, its design is taken in the image of its technical cousin, the Lightning Network.

Read more: What Is Bitcoin’s Lightning Network?

The Lightning Network relies on “client-side verification” for its peers to verify the movement of funds. When you send funds to a peer on Lightning, the “state” of the payment channel with this peer is updated on both your Lightning node and your peer’s Lightning node. The final state of the payment channel is not recorded on Bitcoin’s blockchain until the channel is closed. 

This delayed verification allows the Lightning Network to process near-instantaneous payments, but this comes at a cost: You must keep your node running at all times or the peer on the other end of your payment channel may try to cheat you by broadcasting a false channel state to the blockchain (a technical service known as Watchtowers are working to mitigate this attack vector).

Zucco said RGB “leverages the techniques and trade-offs of Lightning,” in that assets will be transferred in the same way.

“The RGB design is a client-side validation design. It means that when I send you something, I don’t publish the transfer on the network; I send it to you, peer-to-peer, and I will just use the public network to prevent double-spending. You should use the blockchain only to prevent double-spending, but not for transferring assets.”

He emphasized that the trade-offs are the same as in Lightning and stressed that each RGB node will need to keep backup data of its entire state.

To issue assets on RGB, the issuer creates a “schema” for the asset that defines parameters like fungibility, circulating supply and inflation rate, among others. The asset and its schema are then anchored to a reference point on Bitcoin’s blockchain, such as a UTXO or an address, to index the token and its schema. 

RGB use cases

The long-term goal is to make RGB compatible with Lightning, but seeing as the project is still in beta this integration will be some time in the making before it is user-ready.

Until that integration happens, one concrete and logical use case for RGB on its own is for NFTs (although Zucco personally doesn’t find this too exciting). NFTs are unique tokens that typically represent a digital collectible such as a piece of art.

Read more: Money Reimagined: Bitcoin and Ethereum Are a DeFi Double Act

The classic example is CryptoKitties, those breedable NFT felines minted on the Ethereum network. Another perhaps less-familiar example comes from the RarePepe cards issued on Bitcoin using the Counterparty protocol.

RGB could have a leg up on these forms of NFTs because RGB would allow you to send the computer file for the NFT in the same transaction as the asset that represents it. When you send a CryptoKitty as an ERC-721 token on Ethereum or a RarePepe “colored coin” on Bitcoin, the file for the actual collectible has to be transferred separately. With RGB, both asset and collectible can be “sent inside the same channel,” Zucco claimed.

A more salient use case for RGB, according to Zucco, would come from issuing tether on the protocol. Since all transactions are handled off-chain, Zucco said RGB carries with it the promise to be possibly more private than even the Lightning Network.

For something like the stablecoin tether, whose on-chain address on blockchains like Bitcoin, Ethereum, EOS and Tron can be easily tracked and, in extreme scenarios, blacklisted, this could bolster tether’s privacy and censorship resistance.

Read more: High Ethereum Fees Push Tether to Its Eighth Blockchain, OMG Network

“RGB is very private. I cannot follow an RGB asset on the blockchain. Only when you receive an asset do you see the history of the asset, but it’s obfuscated cryptographically with Confidential Transactions technology we reused from Blockstream. Once you send an asset, you won’t be able to see where it goes afterwards,” Zucco told CoinDesk.

Battle-testing RGB in beta

Of course, before these use cases can be realized, RGB needs some battle testing in beta. And there’s still Lightning Network integration and wallet design to consider, as well.

The LNP/BP Standards Association won’t be designing a wallet itself, Zucco said, but will work with third-party developers that do.

After all, LNP/BP will have itd hands full hardening the RGB backbone: its source code. As for the protocol’s appendages – its wallets and other integrations – this development will be up to Bitcoin’s distributed community to bring to life.

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Data company DeFi Pulse and investment-minded Set Protocol have created a permissionless index of the very best DeFi tokens, called the DeFiPulse Index.

DeFi Pulse has become the key source of information for assessing which projects are leading and which ones are rising, judged by the total amount of crypto staked on each one, which the company calls Total Value Locked (TVL).

“We want a way that people can get exposure to DeFi without having to go and buy every token individually, because that costs a lot of gas,” Scott Lewis of DeFi Pulse told CoinDesk in a phone call.

Related: DeFi Lender bZx Reclaims $8M Stolen in Sunday’s Attack

Ethereum users can now get exposure to a curated set of DeFi projects by buying one token, called DPI, available now on Uniswap: No staking, rebasing, swapping or composing required. It will also be available on Set’s TokenSets, through Zapper, Argent, Dharma and others. 

Read more: Why DeFi Pulse’s Key Metric Is So Simple It’s Confusing

While there have been questions about the underlying value in the DeFi market, Lewis pushed back.

“Decentralized finance is infrastructure to enable human coordination. Traditional finance is also infrastructure to incentivize human coordination, and when humans work together it produces value,” Lewis said. “It’s still early. We still have to figure out if that’s an experiment that works.”

DeFiPulse Index

Related: Chainlink to Start Supplying Data for Crypto.com’s DeFi Wallet

The index will have 10 DeFi tokens: LEND, YFI, COMP, SNX, MKR, REN, KNC, LRC, BAL and REP. That order is arranged from the largest portion of the index (LEND at 18.3%) to the smallest (REP at 1.63%).

“It’s like a [market] cap-weighted index,” Lewis explained, which he described as “analogous to how the S&P 500 is weighted.”

The team has an extensive list of criteria for tokens included on the list, including always limiting it to Ethereum, eschewing synthetics, options, wrapped tokens and tokens that stand in for real-world assets. Tokens need to have some respectable time in the markets and of course they have to be listed on DeFi Pulse.

Read more: What Is Yield Farming? The Rocket Fuel of DeFi, Explained

Set CEO Felix Feng emphasized that while there are some synthetic options that represent the same exposure, DeFiPulse Index will represent real assets. That means a user could take the DPI token to Set and redeem it for the actual underlying assets.

The index will be rebalanced from time to time, though probably at the beginning more frequently than the quarterly rebalancing more typical indexes use. It will depend on market conditions, both Set and DeFi Pulse noted, with the goal of moving to quarterly shifts eventually.

The initial token is targeting a price of roughly $100 each, though like all crypto it will be divisible so users should be able to buy in at any amount they like.

Not only is DeFi complicated, but as its popularity grows a lot of untrustworthy projects have arisen. A part of the purpose of the DeFiPulse Index is to let buyers know the coins represent vetted projects.

Read more: What Is Yearn Finance? The DeFi Gateway Everyone Is Talking About

“DeFi Pulse makes its reputation from separating authentic projects from inauthentic projects,” Lewis said. “We’ve talked to enough teams all over DeFi to sense which ones are really trying to build quality projects.”

For most users, DeFiPulse Index will be accessible by purchasing on exchanges like Uniswap, though for larger traders and desks they can also mint the token directly through Set Protocol, by depositing the underlying assets directly.

“I think one of the things that’s really exciting about the DeFiPulse Index is we think it’s going to be a pretty key asset in the entire industry. We anticipate that this asset will be used for yield farming,” Feng said.

Set v2

“The crypto market’s changed a lot. The kinds of strategies that people are interested in change depending on the market,” Feng said.

The DeFiPulse Index is the first product coming out of Set Protocol v2.0. Over the period of “crypto winter,” Feng explained, Set focused on two-token sets that gained value through programmatic trades based on technical analysis. It’s what the company had to do, but enabling indexes was always what Set wanted to build the most.

Read more: Set Protocol Launches Ethereum Trading Strategy Bots

This index represents the first offering from v2, Feng explained. Later on, the firm will debut indices that can incorporate the more complicated features of DeFi, such as derivatives.

Tokens with unusual behaviors, such as AMPL’s rebasing mechanism, would not work for the current stage of v2, but that’s coming. Set will be rolling out updates over the coming year.

Within the current DPI array, there are tokens like YFI that earn a small amount of dividend by staking, but YFI in the index won’t be staking and COMP won’t be engaging in governance, at least not at the beginning.

“Currently the initial version will be abstaining [from voting]. But in the future we could enable active participation of the token in governance. Or even to generate additional yield,” Feng said.

Feng described DeFi Pulse as a natural first partner for this product. “DeFi Pulse is one of the main destinations in DeFi,” Feng said. “Given their understanding of all the different projects and their growth, they had really good domain knowledge.”

And as for the target audience, Feng was clear:

“We are pretty excited to give retail access to DeFi.”

Related Stories

• First Mover: As Central Banks Print $1.4B an Hour, Bitcoiners Bet on Federal Reserve ‘Capture’
• DeFi Lender bZx Loses $8M in Third Attack This Year

MicroStrategy is refusing to rule out future bitcoin gambles.

• The business intelligence company told the U.S. Securities and Exchange Commission on Monday it “may increase” its bitcoin (BTC) holdings beyond the $250 million haul purchased in August.
• That blockbuster buy transformed much of MicroStrategy’s cash reserves into bitcoin, placing the Nasdaq-traded firm among Wall Street’s most notable bitcoin bulls.
• Future allocations would continue down the treasury allocation path. On Sept. 11, the board formally recognized bitcoin as MicroStrategy’s “primary treasury reserve asset on an ongoing basis.”

Read more: MicroStrategy Buys $250M in Bitcoin, Calling the Crypto ‘Superior to Cash’

Related Stories

• DeFi Lender bZx Reclaims $8M Stolen in Sunday’s Attack
• Bitcoin’s Jump to $10.7K Ends 10-Day Sideways Trend
• Chainlink to Start Supplying Data for Crypto.com’s DeFi Wallet
• User Profiling Can Help Regulators Identify Illegal Crypto Activity, Says FATF

The Commodity Futures Trading Commission (CFTC) charged four individuals with defrauding victims with a bitcoin investment scheme.

• According to a press release Monday, the CFTC alleged Texas residents Mayco Alexis Maldonado Garcia, Cesar Castaneda and Rodrigo Jose Castro Molina, and Florida resident Joel Castaneda Garcia defrauded 27 individuals through the Global Trading Club, a bitcoin trading business that was said to increase customer deposits.
• The alleged victims deposited at least $989,000 with the defendants.
• The defendants posted “misleading trading statements” to indicate the customers had earned “significant amounts of money” from the trading scheme, when in reality they did not, the CFTC said in a legal filing.
• Customers were unable to withdraw funds.
• The CFTC is looking for a permanent injunction, penalties and disgorgement.

Related Stories

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The inaugural project on ConsenSys’ anti-speculation platform, Activate, has completed a token sale with roughly 4,000 investors from 90 countries, the companies announced Monday.

Around 13,000 investors with a total capital pool of $57 million had expressed interest in the Ethereum scaling project SKALE. Around $43 million of that pool was from 4,300 investors who made it through know-your-customer (KYC) checks. Ultimately, SKALE ended up raising $5 million because of regulatory constraints in Liechtenstein, where the nonprofit focused on promoting the SKALE network, the NODE Foundation, is based.

SKALE is a proof-of-stake (PoS) network that aims to run thousands of transactions per second at low cost. Etheruem’s gas fees have skyrocketed in recent months with the network being overwhelmed by demand.

Related: A Day in the Life of an Ethereum 2.0 Validator

There are more than 50 projects on SKALE that are building and testing, said SKALE CEO Jack O’Holleran. A third of them are decentralized finance (DeFi) projects, another third are gaming projects and the final third are a mixed group.

Activate is part of ConsenSys Codefi, an Ethereum-based operating system for DeFi products. 

Read more: ConsenSys Project Launches ‘Proof-of-Use’ Network to Discourage Speculation

Activate sets standards for the purchase, distribution and use of utility tokens. Its “proof-of-use” protocol requires tokens to be usable at or immediately after being sold to participants and that tokens are used for their intended purpose. 

Related: ‘Boring Is the New Exciting’: How Baseline Protocol Connected With 600 Corporates

Initially, SKALE planned to hold a Dutch auction, but the online auction crashed after it was overloaded by front-running software, according to O’Holleran. SKALE then canceled the auction and had two fixed-price sales that allowed the company to decentralize the network as much as possible. 

Read more: Ethereum Scaling Project SKALE Raises $17.1 Million for Mainnet Launch

“We changed the strategy to focus on fairness and equal distribution,” O’Holleran said.

Starting Oct. 1, SKALE tokens will be locked on the network and users will have to stake their tokens for 60 days before trading them.

Related Stories

• ConsenSys Acquires JPMorgan’s Quorum Blockchain
• Token Sales Are Back in 2020

The floodgates are now starting to open to these retail investors, and the crypto community must embrace the SEC’s regulatory framework to propel its industry into mainstream financial institutions

Hackers hit DeFi protocol bZx again, derivatives traders have placed bets bitcoin will hit $30,000 by year’s end and the latest twist in the SushiSwap saga.

Top shelf

Hacked again
Decentralized finance (DeFi) protocol bZx is the victim of yet another hack – this time costing nearly $8 million. On Sunday, an unnamed attacker apparently tricked bZx into minting iTokens, an interest-earning token that allows users to redeem crypto in the protocol’s lending pools, cashing them out for nearly 220,000 LINK tokens, 4,507 ETH, 1.76 million USDT, 1.4 million USDC and 670,000 DAI, CoinDesk’s Paddy Baker reports. Early this year, attackers drained nearly $1 million from the protocol in two separate attacks – raising questions over a DeFi feature called “flash loans.” The latest bug apparently passed through two audits performed by security firms Certik and Peckshield. bZx co-founder Kyle Kistner said the drained funds will be covered by the protocol’s insurance fund, pending community ratification. 

In a late breaking twist, a spokesperson said bZx was able to track down the attacker using his or her on-chain activity and that the funds were returned as soon as that person was exposed. 

Related: Crypto Long & Short: How Bitcoin Correlations Drive the Narrative

Red flags
The Financial Action Task Force (FATF), an international standards-setting body followed by 200 nations, has recommended regulators profile cryptocurrency users so they can better identify criminal activity. In a Monday report, FATF said regulators should keep an eye out for suspicious behavior including swapping publicly tracked cryptos for privacy coins like monero or zcash, skirting KYC/AML checks and transactions that fall just below the Travel Rule threshold, CoinDesk’s Paddy Baker reports. The watchdog also said a discrepancy between a trader’s transaction history and known wealth is a red flag. 

Auto crisis
Iran may use crypto to fund car imports. Gholam Hossein Mozaffari, CEO of the Kish Free Zone Organization, has queried the nation’s central bank about using cryptocurrencies mined on Kish Island to beat hyperinflation and international sanctions. “If the central bank allows this, it [would be] possible to import cars with digital currency for these three free zones, and the car problem can be solved,” Mozaffari said, according to ArzDigital. In recent months, Iran has loosened regulations to permit crypto mining under certain circumstances.

Diamond ring?
Prosecutors have charged a Washington, D.C., man with running a crypto-backed diamond investment ponzi scheme. Jose Angel Aman was charged with wire fraud on Friday for his alleged role in soliciting $25 million from hundreds of investors to fund a scheme where he and his cadres promised to buy and flip diamonds. Court documents say Aman “rarely” used investments as promised, instead funding a lavish lifestyle and to pay interest to earlier investors. Prosecutors further allege Aman launched a purported diamond-back cryptocurrency called Argyle Coin to solicit more funds as the scheme neared collapse.

ICO targets
Rapper T.I. and seven others were charged with securities violations for their involvement in a pair of initial coin offerings (ICOs). The Securities and Exchange Commission (SEC) said on Friday film producer Ryan Felton misappropriated funds and wash traded cryptocurrencies using the proceeds from the $164,665 FLiK and $282,418 CoinSpark ICOs, while others are said to have recommended investors buy tokens without disclosing they were paid by the projects. The rapper has agreed to pay a $75,000 fine and not participate in any digital asset sales for at least five years; Sparks agreed to pay a $25,000 fine and likewise refrain from participating in any securities sales for five years.

Quick bites

• Coinbase CEO renews critique of Apple, says tech giant preventing its app from enabling DeFi access (Michael McSweeney/The Block)
• Tether is moving 1 billion more USDT coins from TRON to Ethereum blockchain (Yogita Khatri/The Block)
• Private Jets Are Being Sold For Bitcoin to Fire Up Sales (Adriana Hamacher/Decrypt)
• The Crypto Firms Collaborating on a Swiss Franc Stablecoin (Ian Allsion/CoinDesk)
• Money Reimagined: Ending Money’s Distance Trap (Michael Casey/CoinDesk)

At stake

Related: Money Reimagined: Ending Money’s Distance Trap

Uniswap looks to have regained its position as top automated market maker (AMM).

Billing itself a community-driven DeFi experiment, SushiSwap aspired to drain liquidity and users from the dominant, VC-backed AMM Uniswap. It did this by forking Uniswap’s code, instituting a governance token and offering a generous subsidy for liquidity providers (LPs) that migrated over. 

On Saturday, the vampire clone cut its block reward from 1,000 tokens to just 100. And it looks like a number of LPs cut town as well. 

As of this writing, $776 million worth of crypto is held in Sushi’s smart contracts, down 18% from the previous day, according to sushiswap.vision. Meanwhile, Uniswap’s total value locked (TVL) has spiked 70% day-over-day to $971 million, according to DeFi Pulse.

Last Friday, Messari’s Ryan Selkis drew the terms of the confrontation as being about entrepreneurship and full-decentralization. 

“As an entrepreneur I am rooting so f**king hard for uniswap and against everything about sushi. But as a crypto degen, I am loving the ruthless competition and embrace of open source ‘rules,’” he tweeted. 

Market intel

Big bitcoin bets
Hundreds of derivatives investors are betting bitcoin will rally to $36,000 by the end of 2020. Over the weekend, crypto derivatives exchange Deribit saw a rise in call options (bullish bets) with $36,000 and $32,000 strike prices that expire Dec. 25. Calls give investors the option, but not the obligation, to buy an asset at a given time. CoinDesk’s Omkar Godbole reports that the probability of bitcoin reaching a new record high above $20,000 by the end of December is roughly 5%.

Tech pod

Do or dai
Demand for stablecoins has knocked MakerDAO’s dai (DAI) off its peg, reports CoinDesk’s Colin Harper. MakerDAO’s community is now debating some tweaks to its monetary policy to restore the peg, though Maker’s creator believes the only long-term solution is adding additional, varied collateral to the DAO. 

Op-ed

Bitcoin correlations
Bitcoin’s correlation with gold is now at an all-time high, though this may not help us understand what “digital gold” really is any better. In the latest Crypto Long & Short newsletter, CoinDesk Director of Research Noelle Acheson examines the role correlations play in how we think about and utilize an asset – especially in an age where price movements may not be rational. “This grasping for data to back a story reveals our very human need to put bitcoin in context of things we’re already familiar with. … [W]e are searching for a handle on its prevailing narrative. We hope that correlations will give us a clue.

Podcast corner

Validating Ethereum
With Ethereum 2.0’s much anticipated move to Proof-of-Stake getting closer, CoinDesk Research Analyst Christine Kim spoke with Ben Edgington and Vijay Michalik on what would-be validators need to know.

Who won #CryptoTwitter? Related Stories

• Blockchain Bites: Square’s Patent Posse, Binance’s DeFi Bridge, SushiSwap’s Co-Founder Speaks
• First Mover: Ethereum Gets Unplanned Stress Test as DeFi Fever Grows

As some bitcoin options traders bet on new all-time highs and another DeFi protocol is attacked, CoinDesk’s Markets Daily is back for your latest crypto news roundup!

For early access before our regular noon Eastern time releases , subscribe with Apple Podcasts, Spotify, Pocketcasts, Google Podcasts, Castbox, Stitcher, RadioPublica or RSS.

This episode is sponsored by Crypto.com, Bitstamp and Nexo.io.

Today’s stories:

Related: DeFi Lender bZx Reclaims $8M Stolen in Sunday’s Attack

Against the Odds, Some Bitcoin Traders Are Betting on a $36K Price by Year’s End

The Deribit exchange has seen a spike in investors buying the $36,000 December call option despite the market placing low odds on a new record high this year. 

DeFi Lender bZx Loses $8M in Third Attack This Year

An attacker found a way to mint unbacked iTokens that they could then redeem against other cryptos held in lending pools for DeFi lender bZx.

Related: First Mover: As Central Banks Print $1.4B an Hour, Bitcoiners Bet on Federal Reserve ‘Capture’

Iran May Fund Car Imports with Cryptocurrency Mining

An Iranian free trade zone is proposing locally mined cryptocurrency might be a way to fund car imports.

SEC Charges Rapper TI With Securites Violations for ICO

The SEC alleged film producer Ryan Felton misappropriated funds from two separate initial coin offerings, and charged rapper TI with boosting one of them.

For early access before our regular noon Eastern time releases , subscribe with Apple Podcasts, Spotify, Pocketcasts, Google Podcasts, Castbox, Stitcher, RadioPublica or RSS.

Related Stories

• DeFi Lender bZx Loses $8M in Third Attack This Year
• Iran May Fund Car Imports With Cryptocurrency Mining

An analysis of a year’s worth of cyberattacks on “honeypot” servers set up by the cybersecurity firm Aqua Security, shows a majority of the attacks targeted earning revenue through mining crypto on compromised servers. 

These particular cloud servers were deliberately misconfigured to attract cyberattacks in an attempt to learn how such attacks take place and how to stop them. The study covers the period between June 2019 and July 2020.

• According to Aqua’s recent report, of the 16,371 attacks on its decoy servers over the last year, 95% were aimed at mining cryptocurrency through deploying malicious programs to hijack the cloud computing power. 
• The attacks on the firm’s misconfigured servers also registered a sharp rise at the beginning of this year, with attacks per day rising from about 12 in December 2019 to 43 per day in June 2020.
• While honeypot servers can help understand the methods used by attackers, the report by Alpha Security admits the results might be “profoundly biased towards a single initial access point,” indicating that similar studies analyzing multiple compromised access points or a supply-chain attack may reach different conclusions. 
• Although honeypot serves cannot accurately simulate real-world conditions, they can offer insight into the malicious programs used to compromise cloud servers and the motivations driving such attacks. 
• Aqua Security’s study also found the attacks aimed at mining crypto on its decoy servers appeared to prefer mining monero (XMR) over other cryptocurrencies such as bitcoin. “We speculate that they choose monero since it is considered significantly more anonymous than bitcoin,” the report noted. 
• A July report by Microsoft found that while rising volatility and mining difficulties have deterred crypto-mining attacks overall, users in countries such as Singapore, Vietnam and India face a relatively higher risk of being exposed to an attack. 

Read more: Indian Users Almost 5 Times More Likely to Encounter Crypto Hacking: Microsoft Report

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Decentralized finance (DeFi) lending project bZx has been able to recover about $8 million in cryptocurrency from an attacker who stole the funds after exploiting a code bug over the weekend.

• Paris Fotis, a spokesperson for the project, said bZx had been able to track down the attacker using his or her on-chain activity.
• The attacker returned the funds after being exposed, according to Fotis.
• bZx said in an incident report that $8 million worth of cryptocurrency had been stolen Sunday by an attacker who exploited a code bug to mint the protocol’s interest-earning iToken, which was used to redeem, and walk away with, digital assets held in various lending pools.
• bZx’s official Twitter account announced earlier today that funds had been restored.
• This was the third, and the largest, attack on the bZx protocol so far this year.
• bZx’s Kyle Kistner declined to tell CoinDesk anything about the attacker’s identity when we initially wrote about the attack early Monday.
• Fotis reiterated this, telling CoinDesk the project wouldn’t reveal the attacker’s identity for “legal reasons.”

See also: Hacker Drains $500K From DeFi Liquidity Provider Balancer

Related Stories

• Bitcoin News Roundup for Sept. 14, 2020
• Bitcoin’s Jump to $10.7K Ends 10-Day Sideways Trend
• Chainlink to Start Supplying Data for Crypto.com’s DeFi Wallet
• First Mover: As Central Banks Print $1.4B an Hour, Bitcoiners Bet on Federal Reserve ‘Capture’

Bitcoin advanced on Monday, ending a 10-day-long price consolidation, as the U.S. dollar weakened against gold and fiat currencies.

• The number one cryptocurrency by market value printed a high of $10,691 at 14:05 UTC, the highest level since Sept. 4, according to CoinDesk’s Bitcoin Price Index.
• The bulls finally led the price action, having shown little interest in the preceding 10 days when the cryptocurrency was stuck in a narrow range of $10,000 to $10,500.
• On-chain metrics kept improving despite the price pullback from $12,000 to $10,00 earlier this month. Many expected a breakout.
• While bitcoin gained over 3%, gold, a classic haven asset, rose 1% to $1,960 per ounce, according to data source TradingView.
• The 60-day correlation between bitcoin and gold recently rose to a record high above 0.5. Correlations move between 0 to 1.
• Correlations whose magnitude are between 0.5 and 0.7 indicate the two assets are moderately positively correlated. Above 0.7 means a strong positive correlation, meaning the two assets are moving in tandem.
• Meanwhile, the U.S. Dollar Index, which gauges the greenback’s value against a basket of major currencies, fell by 0.4%.
• Bitcoin has evolved as a macro asset since the beginning of the coronavirus pandemic in March and has increasingly taken cues from the action in the forex markets and gold in Q3 2020.

Also read: Against the Odds, Some Bitcoin Traders Are Betting on a $36K Price by Year’s End

Related Stories

• DeFi Lender bZx Reclaims $8M Stolen in Sunday’s Attack
• Chainlink to Start Supplying Data for Crypto.com’s DeFi Wallet
• First Mover: As Central Banks Print $1.4B an Hour, Bitcoiners Bet on Federal Reserve ‘Capture’
• User Profiling Can Help Regulators Identify Illegal Crypto Activity, Says FATF

Already a global hotspot for bitcoin mining thanks to the availability of cheap hydroelectric power, China’s Sichuan Province is now the focus of a changing attitude from the central government, which is actively trying to court more mining operations with a variety of incentives

The folks building the next generation of digital money in Switzerland understand the need to collaborate.

Stablecoins, digital tokens pegged one-to-one to the Swiss franc (CHF) in this case, are a prime example. SEBA Bank and Sygnum Bank, the two B2B players that hold banking licenses from the Swiss Financial Market Supervisory Authority and that specialize in digital assets, are both involved in stablecoin explorations, as is the country’s respected crypto conglomerate, Bitcoin Suisse. 

“Within the Crypto Valley and here in Switzerland, there’s a very good collaboration going on, where everyone’s working together to try to design a Swiss franc stablecoin which has more or less the same definition or is fully interoperable,” said Matthew Alexander, SEBA Bank’s head of asset tokenization. 

Related: ‘No Other Option but More Collateral’: The Short- (and Long-) Term Fixes for Dai’s Broken Peg

“Coopetition” is an ungainly term at the best of times, while “interoperability” is a word that gets bandied about the blockchain world an awful lot. But it appears that’s what’s happening among Swiss stablecoin issuers.

The end goal, Alexander said, is that “you’ve got something which a consumer, or a central bank or a corporate can trade with anybody else because they know they have the same thing on the other side.” 

The Swiss also see the advantage in avoiding the kind of separate and competing currency pairs that have emerged with USD stablecoins like tether (USDT) and USDC.

Swiss stablecoins

Sygnum, which works in partnership with telco giant Swisscom, recently claimed the world’s first e-commerce transaction using a bank-issued stablecoin, the Sygnum Digital Swiss Franc (DCHF).

Related: European Ministers Call on EU Commission to Regulate Stablecoins

“We are absolutely in discussion with other players in the ecosystem,” Martin Burgherr, co-head of clients at Sygnum Bank, said on the topic of stablecoins. “To the clients, it’s a new way to transfer assets via a blockchain and this requires some disruption, and disruption is easier if you not only compete but also team up on certain aspects. We think that there will probably be multiple stablecoins for multiple purposes, but agree that you don’t need 200 stablecoins with a Swiss franc common denominator.”

Read more: Crypto Bank Hopeful Bitcoin Suisse Raises $48M in First-Ever Round

Bitcoin Suisse is no stranger to crypto interoperability, having led the OpenVASP network to harmonize global anti-money laundering (AML) standards. The firm’s Swiss Crypto Tokens AG subsidiary was the first of the three to come out with a Swiss franc stablecoin, the CryptoFranc (XCHF).

“Within the Swiss crypto industry, we are in frequent discussion with partners and other stablecoin issuers to see what cooperation and new use cases may make sense for the XCHF and how we can further adoption of cryptocurrencies in general,” said Armin Schmid, CEO of Swiss Crypto Tokens. 

All three firms praised the support of the Swiss National Bank (SNB). Asked for comment on the growth of stablecoins in Switzerland, a spokesman for SNB referred to a speech by the bank’s chairman, Thomas Jordan.

“We believe that cryptocurrencies and cryptocurrency-based tokens are of only limited use as payment instruments, stores of value and units of account because they are subject to major fluctuations,” he said last September. “The picture may be different for stable coins, however.”

Under the hood

Diving into the nuts and bolts, there are two levels of stablecoin interoperability, said SEBA’s Alexander. On the one hand, there’s the relatively straightforward technological design of the coins; on the other, the legal and regulatory underpinnings. 

Stablecoins, normally built on the Ethereum ERC-20 standard, have an advantage in Switzerland because they tend to be regulated and audited by firms like PwC or Grant Thornton. Starting out with small projects and experiments, an agreed-upon set of rules and auditing capabilities can be defined.

Read more: Swiss Canton Zug to Accept Taxes in Bitcoin, Ether From Next Year

“It literally becomes like an open banking API, and those who prove capable will be allowed to join the network,” said Patrick Salm, SEBA’s head of token platform. “A lack of collaboration will result in five standards and a race for a standard, which is not efficient.”

Standardized common languages are critical. For example, an attempt to implement a stablecoin such as tether (USDT) or USDC within a core banking system would not work, simply because such systems are not capable of handling a four-character currency unit, Salm pointed out. Currencies, according to ISO definition, are supposed to be three characters.

“It starts with stuff like this,” said Salm. “We’re not just talking about using a four-digit stablecoin as a settlement coin. … It’s really about the deep roots of banking.”

Eurocoin?

Naturally, interoperability is front and center when it comes to establishing a euro stablecoin, said Alexander of SEBA. 

“We are trying to help design something that is truly interoperable,” Alexander said, adding: 

“If lots of European countries are doing their own definition of a euro, you destroy the idea of a European Union when you reach a border and have to exchange your currency in your electronic wallet. You’ve got to have one definition and one means of operating; otherwise, what’s the point of having an integrated European banking system?”

Related Stories

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• Swiss Canton Zug to Accept Taxes in Bitcoin, Ether From Next Year