Crypto regulation in the world: weekly digest #32

USA

In our previous news review we mentioned about NYDFS claims to the largest stablecoin issuer Paxos, the company behind the issuance of the third-largest stablecoin, Binance USD (BUSD).

The NYDFS subsequently ordered Paxos to stop issuing new BUSD coins. This was reported by The Wall Street Journal (WSJ) with reference to the regulator's decision.

At the same time, SEC accused Paxos of violating the investor protection law. According to the SEC, its main claim against Paxos is related to BUSD, as the SEC considers the stablecoin to be an unregistered security.

In this regard, the outflow of funds from the BUSD, according to some estimates, has already exceeded $1 billion. This problem may affect not only Paxos, but all companies issuing and offering stablecoins for U.S. citizens, since it is not clear what future will await them.

Uzbekistan

We continue to follow Uzbekistan, where the process of setting up regulatory framework for cryptocurrencies is still on its way. In 2022, the country has completely changed its approach to regulating cryptocurrencies keeping pace with its neighbor Kazakhstan.

Last week, we mentioned that the Uzbekistan’s authorities passed a law establishing requirements for companies issuing cryptocurrencies, as well as requirements for issued tokens themselves.

This time, the Central Bank of Uzbekistan banned foreign companies that carry out operations with cryptocurrencies from spending received income on the country’s domestic market. Operations on Uzbek cryptocurrency exchanges remain an exception.

The new law states that all funds received by foreign companies as an income from cryptocurrency trade can be spent only to buy new crypto or transferred to the company’s account its home jurisdiction.

In Uzbekistan cryptocurrencies are not a legal tender but trading can only be carried out through licensed platforms. At the moment, there are few of them in the country including the UzNEX Exchange and four crypto shops, which have not yet started operations.

The amendments made are intended to mitigate risks associated with money laundering using cryptocurrencies. Since the source and legal origin of cryptocurrency is more difficult to verify, Uzbekistan probably decided to shut the possibility to launder illegal cryptocurrency on its territory.

International scope

The G20 Financial Stability Board (FSB) has issued a new report aimed at the world of decentralized finances. The FSB has long been concerned about the risks associated with cryptocurrencies. In October 2022, the organization has already released two reports dedicated to virtual assets service providers’ regulation and supervision in the industry.

The wide-ranging report touches on the similarities with traditional finance, as well as pays attention to risks associated with crypto bridges and vulnerabilities found in the smart contracts that underpin DeFi's applications.

The report:

• describes the DeFi ecosystem, its key elements and players, as well as the main products;
• discusses DeFi’s financial vulnerabilities, including those stemming from its specific features;
• sketches possible scenarios for DeFi and the implications for financial stability; and
• sets out additional work to analyze, monitor and address vulnerabilities in the DeFi ecosystem.

It is said in the report that DeFi is mainly self-referential, meaning its products and services interact with other DeFi products and services rather than with the traditional financial system and the real economy, but traditional market players are beginning to enter the market.

In addition, DeFi has integral connections to centralized crypto-asset trading, lending and borrowing platforms, through which participants exchange crypto-assets for one another or for fiat currency, often using stablecoins.

Although the service processes are new in many cases, DeFi does not differ substantially from traditional finance in the functions it performs.

News from other countries:

• The Central Bank of Russia is planning to start its retail CBDC pilot on April 1.
• U.S. lawmakers reintroduced bill to remove barriers for crypto investments in retirement accounts. The bill proposal could be the reason of Bitcoin’s pump this Thursday.
• The U.S. SEC sues Terraform Labs and its founder Do Kwon, who is hiding in Serbia, for misleading investors on TerraUSD stablecoin.
• Canada’s financial watchdog, the Canadian Securities Administrators (CSA), will tighten requirements for VASPs in the country. The CSA said that new rules are developing now and more details will be published later.
• There are rumors that in Hong Kong retail customers will be allowed to carry out operations with cryptocurrencies starting June 1. Current rules limit cryptocurrency trading to professional investors — individuals with a portfolio of at least $1 million.

We continue to highlight the news of the world of crypto regulation worldwide. Please stay with us!