Blockchain Week in Review – May 2021 | Perkins Coie

Weekly Blockchain Focus

• Crypto Rating Council releases its securities law framework
• Diem Association announces plans to shift operations to the United States
• Tether releases a breakdown of reserve assets
• Bank of England deputy governor calls a CBDC probable in public remarks
• Chainalysis report states that ransomware attacks are becoming more profitable
• Ethiopia to begin using Cardano-based blockchain IDs in its schools

Crypto Rating Council releases its securities law framework

On May 11, 2021, the Crypto Rating Council (CRC) released the securities framework it developed to assess the likelihood of a digital asset being deemed a security.

The CRC was launched in 2019 by members including Coinbase, Anchorage, Kraken, and Circle, who wanted to assemble industry standards for assessing whether a digital asset is a security. The framework has been used to provide published rankings for 28 tokens, with the most recent assessments taking place in February 2020. The U.S. Securities and Exchange Commission also provided an analysis framework through its “Framework for ‘Investment Contract’ Analysis of Digital Assets,” published in April 2019, though that framework did not include a scoring methodology like the one developed by the CRC.

Diem Association announces plans to shift operations to the United States

On May 12, 2021, the Diem Association announced it was shifting its operational headquarters to the United States and withdrawing its application for a Swiss payment license. Diem’s CEO, Stuart Levey, praised the Swiss financial regulator, FINMA, while explaining that Diem no longer requires a license in that jurisdiction.

The Diem Association’s new headquarters will be based in Washington, D.C. Diem plans to launch a stablecoin pegged to the U.S. dollar using a public ledger system.

Tether releases a breakdown of reserve assets

On May 13, 2021, stablecoin issuer Tether released a breakdown of its reserve assets, revealing over 75% of its holdings are in what it called “cash, cash equivalents and other short term deposits, and commercial paper,” and less than 2% are in other assets such as digital tokens.

Tether further stated that of its secured loans, none are to affiliated entities, and that the small percentage of digital assets held are exclusively in Bitcoin.

These details were presented in the chart below, and are also available on the Tether website. This follows an $18.5 million settlement with the New York attorney general’s office in a lawsuit that included allegations Tether was misrepresenting its reserve backing. Tether admitted to no wrongdoing in that settlement and Stuart Hoegner, general counsel of Bitfinex and Tether, stated the settlement should be viewed “as a measure of our desire to put this matter behind us and focus on our business.”

Tether further agreed to provide the attorney general’s office with quarterly updates on Tether backing, and committed to making those disclosures to the public as well.

Bank of England deputy governor calls a central bank digital currency (CBDC) probable in public remarks

On May 13, 2021, Sir Jon Cunliffe, deputy governor of the Bank of England, called issuance of a CBDC “probable . . . if we want to retain public money capable of general use and available to citizens,” noting that digital money would be a necessity for modern-day life. The statement came in a speech to the Official Monetary and Financial Institutions Forum titled “Do we need ‘public money’?”

The Bank of England has not reached an official decision on whether to launch a CBDC but has been weighing that possibility in a joint task force with Her Majesty’s Treasury. This task force is still exploring both risk and use cases; however, the Bank of England has established a CBDC unit, engagement forum, and technology forum.

In the speech, Cunliffe also noted the prospect of stablecoins from sources other than the central bank, including “big techs” achieving dominance relative to the status quo.

Chainalysis report states that ransomware attacks are becoming more profitable

Chainalysis, a blockchain tracing firm, reported that ransomware attacks are rapidly becoming more sophisticated and profitable in extracting digital asset payments. Chainalysis identified ransomware-linked addresses as amassing at least $81 million in digital asset payments, and roughly quadrupling 2019 totals for a record $406 million in 2020.

This comes shortly after the Colonial Pipeline was struck with an attack by a hacker group called DarkSide that shut down Colonial’s network and fuel pipeline in the Eastern United States until a nearly $4.5 million digital asset payment was made. The Chainalysis blog provides additional information around its ransomware findings here.

Ethiopia to begin using Cardano-based blockchain IDs in its schools

In a video stream on April 29, 2021, Getahun Mekuria, Ethiopia’s Minister of Education, announced a partnership with IOHK, the company behind Cardano. Mekuria stated that “the initiative is about bringing technology to improve the quality of education.”

This initiative will provide 5 million students with Cardano-based blockchain IDs to allow tracking of their academic performance. Additionally, 750,000 teachers will get access to the system. To facilitate the program, the ministry will also run a full Cardano node, provide tablets, and build out internet infrastructure to 3,500 schools. IOHK indicated it would be working with a wide network of partners to implement the program, which ultimately aims to provide matriculating students with cards that contain their education credentials.

John O’Connor, director of Africa operations for IOHK, indicated that lack of reliable credentials poses a significant barrier to Ethiopian students attempting to obtain education at foreign universities. Reporting on the program can be found here.

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