June 09, 2023

Digital Assets Download - Atomic but not Radioactive (Find out how below!)

Author:

Joseph A. Castelluccio

Similar to parts of North America this week, the digital assets world can sometimes be blanketed with haze, uncertainty and confusion. At the Digital Assets Download, we slice through the smoke in each edition to provide you with a map through the mist. For example, this edition includes a roadmap for investing in distressed crypto businesses in a variety of contexts. We also have a trio of reports from our team in Hong Kong on virtual assets regulation and the legal nature of cryptocurrencies in that jurisdiction. Finally, as foreshadowed above, our “Lingo” for this edition describes a key feature (and benefit) of using distributed ledgers to conduct complex, cross-border transactions.

For the Uninitiated: Digital Assets Download is a curated mix of insights and headlines that provide a Layer 3 Legal Perspective™ on the digital assets multiverse—created by Mayer Brown’s global Digital Assets, Blockchain & Cryptocurrency group. (Check out all of our previous editions of the Digital Assets Download)

The Lead Block

Perspectives and insights from Mayer Brown lawyers and other thought leaders that touch on digital assets, decentralized finance, cryptocurrencies and related fields.

Shopping for Distressed Crypto Assets or Troubled Crypto Businesses? Don’t Leave Home Without This Roadmap
Investing in or acquiring distressed assets can be a lucrative investment strategy for those with a healthy risk appetite and a roadmap for sourcing and evaluating quality assets. For crypto assets and crypto-adjacent businesses, market conditions have resulted in deeply distressed valuations, liquidity crunches and insolvency or bankruptcy proceedings. Opportunities to invest in or acquire these types of assets will present a significant opportunity for those that can navigate the processes, appropriately price the assets and mitigate risk in the businesses themselves. In this piece, members of Mayer Brown’s Digital Assets, EC/VC and Restructuring groups describe three contexts in which these investments can be made: a “down round” of financing by a business, a secondary sale of an investment position, and asset sales in distressed situations either prior to or as part of a bankruptcy proceeding.
Hong Kong SFC Concludes Consultation on Regulation of Virtual Asset Trading Platforms
The Securities and Futures Commission of Hong Kong released the "Consultation Conclusions on the Proposed Regulatory Requirements for Virtual Asset Trading Platform Operators Licensed by the Securities and Futures Commission" (Consultation Conclusions) on May 23, 2023. In this Legal Update, we summarize the key takeaways related to license and dual licenses requirements, implementation timeline, retail access to licensed VATPs, AML/CFT matters, and other aspects of the regulatory requirements.
HKMA Commences e-HKD Pilot Programme
The Hong Kong Monetary Authority (HKMA) commenced its e-HKD Pilot Programme for a retail central bank digital currency (CBDC) on May 18, 2023. As part of its “Fintech 2025” strategy to future-proof Hong Kong in terms of CBDC/e-HKD readiness, the initiative launched with the announcement that 16 firms from the financial, payment and technology sectors have been selected to participate in the first round of pilots for 2023. The HKMA also announced plans to establish a CBDC Expert Group exploring key CBDC policy and technical issues including privacy protection, cybersecurity and interoperability.
Trust in the Crypto-verse: Cryptocurrencies as a Type of Property in Hong Kong
The emergence of cryptocurrency as an investment asset, alongside the proliferation of blockchain technology, has raised important legal questions, particularly regarding the legal status of cryptocurrency. Jurisdictions like Hong Kong have grappled with defining the legal nature of cryptocurrency, though a landmark decision has shed new light on the matter. On March 31, 2023, Justice Linda Chan in Re Gatecoin Limited [2023] HKCFI 91 (“Re Gatecoin”) held that cryptocurrency exhibits all the characteristics of property and could therefore be held on trust in the context of a liquidation (although it was ultimately found that the cryptocurrencies in question were not held on trust). In this Legal Update, we look at the key considerations underpinning the decision in Re Gatecoin.

News Node

Introducing the Canton Network: A privacy-enabled interoperable blockchain network designed for institutional assets that is backed by Microsoft, Goldman Sachs, Broadridge and numerous others. For a deeper dive on the Canton Network, check out its white paper.

SEC Files 13 Charges Against Binance Entities and Founder Changpeng Zhao

SEC Charges Coinbase for Operating as an Unregistered Securities Exchange, Broker, and Clearing Agency

Constellation Network Achieves Scalability, Security and Defense Approval in Executing US Air Force Phase II Blockchain Contract

Congress Introduces Game-Changing Crypto Bill Amid $350 Billion Bitcoin, Ethereum, BNB and XRP Price Pump

Elon Musk Accused of Insider Trading in Dogecoin Lawsuit

JPMorgan to Use Blockchain To Settle US Dollar Forex Trades in India Hub

MUFG to Facilitate Japanese Bank-Backed Stablecoins via Progmat Coin Platform

EU Luxembourg's Antitrust Authority to Probe Blockchain, Web3 Competition

UK Parliament Group Calls for Crypto Tsar, Faster Legislation

US CFTC May Change Risk Rules to Consider Crypto

Treat Crypto as Securities by Default, European Parliament Study Says as European Union Prepares for MiCA

US CFTC Warns About Clearing Derivatives Tied to Digital Assets

Institutional Investors Have Pulled $329 Million From Crypto Funds Since April

Crypto Exchange Gemini to Soon Operate in the UAE

UAE Central Bank Issues AML/CTF Guidance for Dealing With Virtual Assets

Hong Kong Regulator to Issue Crypto Licences With Retail Investor Guardrails

Select Events

Selected events for deeper dives into different parts of the digital assets and DeFi world.

Building Blockchains: Exploring Web3 and Other Applications for Distributed Ledger Technologies
On June 7, 2023, the House Energy and Commerce Subcommittee on Innovation, Data, and Commerce held a hearing on American leadership in blockchain technology.

The Future of Digital Assets: Providing Clarity for Digital Asset Spot Markets
On June 6, 2023, the House Agriculture Committee held a hearing on digital asset spot markets with current and former leaders of the US CFTC and US SEC.

Learn the Lingo

For those new to the digital assets and DeFi world, each edition of the Digital Assets Download will highlight a different term to help you be a part of the conversation.

Atomic Settlement

An atomic settlement is the instant and simultaneous completion of a series of transactions. Often used in the context of cross-currency payments or transfers of assets such as securities, a key feature of an atomic settlement is that no transaction in the series can be completed unless all are completed at the same time. In other words, either all transactions occur or none occurs. The purpose of making transaction settlement “atomic” is to prevent different transactions from interfering with one another.

The ability to use atomic settlements is one of the key potential benefits to using distributed ledger technology to execute transactions with costs and in time periods that are significantly lower and shorter than currently required. As one example, the New York Federal Reserve’s “Project Cedar” tested the viability of atomic settlements of cross-border payments in illiquid currency corridors. In those tests, the settlement time for these payments was reduced from two days to ten seconds. Read the New York Fed’s full Report on Project Cedar.

Writing on the Wall, Translating ‘Crypto’ Terms with Mayer Brown

From Airdrop to Wrapped Token, our illustrated glossary, “Writing on the Wall, Translating Securities with Mayer Brown,” has been updated with additional digital assets and cryptocurrency terms. Check out our “featured” list for the crypto terms and the full list of terms.