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• November 26, 2019

Telegram Founder Durov Should Testify in SEC Case Over Gram Token: Judge

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Telegram’s founder and CEO Pavel Durov, as well as two other employees, should give testimony in the SEC vs. Telegram case, a judge has ordered.
According to a document signed by District Judge P. Kevin Castel at the New York Southern District Court on Monday, Durov’s deposition should take place on Jan. 7 or 8, 2020, at a location “agreed upon by the parties.” That would be a little more than a month before Telegram is scheduled to meet the SEC in court to dispute the legal status of the gram token, which the SEC considers an unregistered security.
Telegram vice president Ilya Perekopsky, who was reportedly responsible for communications with investors during Telegram’s $1.7 billion token pre-sales last year, should also be questioned on Dec. 16 in London, the order states.
The third person listed to provide pre-trial testimony is Shyam Parekh, a Telegram employee who’s name was on Telegram’s letters to investors that were leaked after the SEC sued the company, one of the investors told CoinDesk. Parekh’s deposition will be held on Dec. 10, also in London.
The SEC sued Telegram in October, demanding that the messaging app company’s blockchain project TON be halted and the tokens allocated to the project’s investors not be distributed. The regulator said that Telegram woul flood the U.S. market with unregistered securities and make them available to retail investors.
Telegram disagreed with the SEC, arguing that it properly registered the token sale under Regulation D, and the token itself, once issued, “will merely be a currency or commodity,” not a security. It has recently asked the court to drop the SEC action, rejecting all the allegations by the agency.
However, the company agreed to postpone the project’s launch, previously scheduled for the end of October, until April, 2020, so the SEC case can be resolved. TON investors approved the delay, refusing an offer of a partial refund.
The project has been still been progressing in the background, however, releasing the code for the TON blockchain nodes in early September and instructing the investors to generate their public keys and send them to the company for the scheduled gram token distribution. The team has also released a desktop wallet app for grams, running so far on its test network.
Several exchanges have previously signaled their readiness to list grams, including Coinbase. According to court filings, a major custody provider for grams, Gram Vault, has also filed paperwork for listing the token on Poloniex.
Binance CEO Chanpeng Zhao (CZ) recently told CoinDesk he believed projects like Libra and TON cannot be stopped by regulatory actions.
The next New York court hearings on the case have been scheduled for February 18–19, 2020.
Deposition Order by CoinDesk on Scribd

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• November 26, 2019

Another Crypto Exchange is Dropping Privacy Coin Monero Over Compliance Risk

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A Northern European digital assets exchange is to delist the privacy-focused monero cryptocurrency to align with international anti-money-laundering standards.
Estonia-based BitBay announced Monday that monero (XML) will no longer be tradeable from Feb. 19, 2020. However, the crypto exchange is to cease deposits of XML as of this Friday, Nov. 29, and will block withdrawals temporarily from Friday to Dec. 5 around the time of a planned monero hard fork.
All users must withdraw any remaining XML by 20 May, 2020, according to the notice.
Explaining the move, BitBay said monero is being delisted due to its privacy features. The cryptocurrency uses tech called ring signatures that jumble up small groups of transactions to obfuscate individuals’ identities.
The decision was made to block the possibility of money laundering and inflow from external networks, the firm said, adding that other crypto exchanges have dropped monero over the same concern.
As a licenced exchange, BitBay has to follow the market standards. Compliance with market standards and regulations allows us to provide our clients with legal security and convenience of using the exchange, with the participation of a friendly banking system and the availability of payment operators, BitBay said.
As mentioned, monero’s privacy protections have led to other trading platforms halting support in recent months. For example, OKEx Korea dropped XML, as well as horizen (ZEN) and super bitcoin (SBTC), in October. It said at the time it was reviewing a decision to delist zcash and dash as well.
Other privacy coins have been seen as too risky by some exchanges too. Coinbase dropped zcash from its U.K. platform in August. The move was likely a compliance push related to building a new banking relationship after being dropped by Barclays.
The flurry of delistings has developed since global money-laundering watchdog, the Financial Action Task Force, released international guidance on crypto assets in July.

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• November 26, 2019

Ripple Finalizes $50 Million MoneyGram Investment

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Payments startup Ripple has completed the acquisition of its $50 million stake in remittance platform MoneyGram, the companies announced Monday. 
According to a filing with the U.S. Securities and Exchange Commission (SEC), Ripple, in its final payment, bought $20 million of MoneyGram equity at a price of $4.10 per share, more than a dollar per share over the stock’s current price of around $3.00. Monday’s investment completes a deal first begun in June 2019.
With the completion of the deal, Ripple owns just under 10 percent of MoneyGram’s outstanding common stock, “and approximately 15 percent on a fully-diluted basis including non-voting warrants held by Ripple,” the filing said. 
Under the original deal, Ripple made an initial $30 million investment, while MoneyGram in turn agreed to utilize Ripple’s products for cross-border settlements.
According to the filing, MoneyGram intends to use this capital inflow to support its operations, in particular as it expands its use of Ripple’s On-Demand Liquidity product, the renamed xRapid payment system that utilizes the XRP cryptocurrency.
Since June, MoneyGram has begun using XRP to conduct transactions in Europe, Australia and the Philippines, and currently transacts roughly 10 percent of its Mexican peso foreign exchange trading volume, the filing said. 
In a statement, MoneyGram chairman and CEO Alex Holmes said the partnership was “transformative,” noting that the company could settle transactions “in seconds.” 
“This initial success encourages us to expedite expanding our use of On-Demand Liquidity,” he said. “I anticipate furthering our growth into new corridors and exploring new products and services.”
Brad Garlinghouse, Ripple’s CEO, added that his firm would support MoneyGram’s “further expansion” into the European and Australian payment corridors. 

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• November 26, 2019

As Bitcoin Bounces Back Above $7K, Popular Analysts Say Monthly Close Is Pivotal

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Bitcoin has charted a relief rally in the last 24 hours, yet it still needs to rise by more than $1,000 in the next three days to invalidate bearish pressures, according to prominent analysts.
The recovery from six-month lows around $6,500 had been expected, with key indicators reporting extreme oversold conditions and intraday charts flashing signs of seller exhaustion.
While the bounce is encouraging, a bullish reversal is likely still a way off.
Bitcoin needs to close above $8,300 by the end of the month or we’ll likely have a bearish December to test new lows, popular market analyst and Adaptive Fund partner, Willy Woo, tweeted during the Asian trading hours.

The
top cryptocurrency is currently changing hands at $7,200 on Bitstamp, representing
a 10.5 percent rise from the six-month low of $6,515 registered on Monday.
Essentially, bitcoin needs to rally more than 15 percent and print a UTC close above $8,300 on Nov. 30, or a bearish engulfing candle will be created on the monthly chart.
A bearish engulfing pattern consists of a green candlestick, representing a price gain, followed by a large down (black or red) candlestick that eclipses or engulfs the previous candle, as seen in the chart below.

On the monthly scale, BTC opened at $8,300 on Oct. 1 and closed at $9,150 on Oct. 31, forming a green candle. The follow-through has been dismal this month. Prices opened at $9,158 on Nov. 1 and are currently trading near $7,200.
Essentially, November’s price drop has engulfed the October candle’s body – the spread between open and close.
The bearish setup will be confirmed if bitcoin ends November below $8,300 (October’s opening price). That would imply a resumption of the sell-off from the June high of $13,880 and could invite stronger selling pressure, possibly yielding a deeper drop below $6,000.
That said, bearish engulfing patterns have trapped sellers in the past, according to Woo. So, sellers should observe caution even if the bearish pattern is confirmed – more so, as BTC has already dropped by more than 50 percent in the last five months and could recover some ground ahead of the miners reward halving, due in May 2020.
While Woo is citing $8,300 as the level to beat for the bulls, Michael Novogratz, the billionaire CEO of Galaxy Digital, feels bitcoin needs to break above $7,500 to avoid being stuck in the less pleasant $6,000–$7,400 range.

A move above $7,500 in the next couple of days could be seen and may yield rise to $8,000. The outlook, however, will remain bearish as long as the cryptocurrency is trapped in a five-month falling trendline seen below.
Weekly chart

A weekly close (Sunday, UTC) above the upper edge of the falling channel, currently at $8,990, is needed to confirm a bullish breakout, which, if confirmed, would mean a resumption of the bull market from lows near $4,100 seen in early April.
Realistically, bitcoin is more likely to form a bearish engulfing candle, as prices usually consolidate near lows for some time after a notable sell-off. This is because investor confidence tanks during a bear market and takes time to recover.
All-in-all, the crypto is likely to trade in the range of $7,500 to $6,500 over the next few days. Any gains above the descending 10-day moving average, currently at $7,628, will likely be short-lived.

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• November 26, 2019

Ex-DOJ, Capital One Exec to Lead Compliance at Crypto Payments Startup C Labs

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The company working on mobile-friendly cryptocurrency payments tool Celo has hired a former U.S. government official and bank executive to head up its global regulatory, risk and compliance matters.
C Labs has recruited Jai Ramaswamy to bring his extensive anti-money-laundering (AML) and financial crime detection experience to the firm, the company announced today.
Ramaswamy was most recently the head of enterprise risk management at Capital One, where he focused on the bank’s international risk exposure. Before that, he was managing director and global head of AML compliance risk management at Bank of America. 
“I’m interested in helping [C Labs] understand its overall risk profile,” Ramaswamy said. 
Prior to his stint in the private sector, Ramaswamy was the chief of asset forfeiture and money laundering at the U.S. Department of Justice, where he led the prosecution of financial institutions for money laundering and sanctions violations.
He represented the DOJ on illicit financial issues affecting national security, including engagement with the U.S. Treasury Department, law enforcement, the intelligence community and financial regulators. 
He also led the DOJ’s efforts to monitor virtual currency use by transnational criminal organizations and to prosecute the facilitation of criminal activity by exchanges.
This experience gives C Labs the advantage of being able to understand not only the DOJ but also the many different U.S. financial regulators that work with the DOJ to tackle financial crime, Ramaswamy said. 
“The industry is trying to figure out how to deal with this technology in ways that traditional regulation has potentially not thought about or where principles have to be extended in areas that are somewhat novel,” he said. There’s always a give and take in extending rules that exist over new tech versus thinking through a new regulation that‘s required.
C Labs has attracted notable talent before. It added Circle’s former head of financial institution partnerships Chuck Kimble in February as head of strategic partnership, and former Ripple general counsel Brynly Llyr joined in the same role in September. 
There are more than 60 contributors to the Celo project internationally, including the World Bank Group and the UN; tech firms like Google, Square, Microsoft and Apple; financial companies such as PayPal and Morgan Stanley; and academics from MIT, Stanford, Harvard and Berkeley.
The company has raised $25 million from venture capitalists.

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• November 26, 2019

Tokenized Real Estate Falters as Another Hyped Deal Falls Apart

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The Takeaway:
Removing the friction from real estate deals with tokens was expected to instantly attract institutional money and liquidity, but things are moving slowly. 
A high-profile joint venture between technology startup Fluidity and broker-dealer Propellr was quietly shelved in the summer. Both are now working on separate tokenized loan projects involving multi-collateral Dai.
A $20 million tokenized real estate deal derailed earlier this year, was down to the issuer, trading giant DRW Holdings, not seeking permission from the senior debtholder to transfer ownership.
The SEC closely reviewed Factor 805, a tokenization of Brooklyn condos which incorporated MakerDAO’s stablecoin Dai, and later gave the project the all-clear.
Here’s a reality check – or realty check, as it were – for tokenization evangelists. 
The idea of combining blockchain tokens and U.S. real estate was peaking at the start of this year, with college dorms, ski resorts and swanky Manhattan apartment blocks lined up to redefine the commercial mortgage market. 
Following 2017’s initial coin offering (ICO) circus, a second wave of grown-up investors would raise capital and issue loans using blockchain-based tokens, and in the process disintermediate an army of middlemen and bankers.  
A regulated approach, offering so-called security tokens to select groups of investors, would breathe frictionless liquidity into real estate’s legacy system of finance. 
Such high expectations (and hype) were epitomized in a joint venture between technology providers Fluidity (backed by Consensys chief Joe Lubin and Galaxy Digital’s Michael Novogratz) and digital asset-focused broker-dealer Propellr. 
Extensive media coverage at its launch included a video on Bloomberg featuring celebrity real estate broker Ryan Serhant (star of the cable television show “Sell It Like Serhant”) discussing the fresh pastures tokenization might bring.
However, the seismic disruption of the multi-trillion dollar real estate market so hotly anticipated hasn’t happened.
Underscoring the disappointment, the Fluidity and Propellr project was quietly shelved earlier this year. The joint venture was never officially consummated and the firms have since gone their separate ways. 
Neither side would discuss the specifics of the venture’s cancelation. But both agree that the tokenized market wasn’t ready for the real estate use case.
“The market was just too young at the time,” said Sam Tabar, a co-founder at Fluidity. “It didn’t have sufficient institutional appetite.” 
He described the Propellr partnering as “a contemplated joint venture” in which Fluidity was to be a minor shareholder.
Adverse selection
As it stands, trading of private placements and structured transactions in assets like real estate is infrequent and the price is typically lower than net asset value. 
Tokenization was seen as a way to remove friction around the transfer of ownership and stimulate liquidity in secondary markets. 
Security token offerings (STOs), which are regulated financial instruments, are a workable fit for the tokenization of real-world assets such as real estate – at least on paper. 
Making use of an exemption in U.S. securities law called Regulation D, STOs operate like private placements, typically allowing smaller companies to raise capital by selling equity or debt securities to select investors without going through the arduous registration process.
The only thing missing from this brave new token economy was institutional capital to come piling in.
“Tokenized real estate came with an embellished promise,” said Todd Lippiatt, CEO at Propellr. “It came from a place where people were actually mixing verbiage. From my personal perspective, what they were claiming as liquidity, is really market access.”
Institutions want to see liquidity before they will go ahead and re-engineer their entire back office. Meanwhile, issuers have to get tokens into the market to prove their thesis, leading to a chicken-and-egg problem.
Instead of institutional participation, the hype led to a kind of “adverse selection” phenomena, said Lippiatt, attracting people who didn’t have a better option to raise funds, or who had spent a lot of money building blockchain token infrastructure and wanted to follow through with one of their own projects.   
“I think at one point we had $3 billion worth of interest in tokenization,” Lippiatt said. “But once you started to sift through it all, there was a bunch of people who wanted to raise money for really bad deals.”
Harbor’s hiccup
Fluidity and Propellr are in good company when it comes to hiccups and rethinks. 
Also earlier this year, a deal to tokenize $20 million worth of student housing put together by blockchain startup Harbor and the real estate arm of Chicago-based trading firm DRW Holdings fell apart, as was first reported by the Block. 
According to one person familiar with the situation who spoke to CoinDesk, a basic goof derailed the deal. 
The parties overlooked a no-transfer clause that was written into the mortgage on the property, and the holder of the senior debt, Minneapolis-based U.S. Bank, did not grant permission to transfer ownership.
A spokesman for Harbor, which has since pivoted from crowdfunding to a pure technology provider role, confirmed that “the lender would not assent to transfer of the loan,” but added that “the issue was not related to tokenization.” 
Neither DRW, the would-be token issuer in the deal, nor U.S. Bank, the lender, replied to requests for comment by press time. 
(In April, Evan Lapiska, a spokesman for the bank, told CoinDesk it no longer had “a current or active interest” in the property, known as the Hub at Columbia in South Carolina.)
Depending on how you look at it, enthusiastically charging out into the market armed with a subscription book and some blockchain technology, speaks to the immaturity of this new investment paradigm and the ongoing clash between the old ways and the new. 
OK boomer
Since turning its attention away from tokenizing apartment blocks, Fluidity has shifted its focus to other areas where traction is happening, Tabar said.
It has been working on a Tokenized Asset Portfolio, exploring decentralized loans using the MakerDAO multi-collateral Dai system and pledging U.S. Treasuries as collateral. A new Fluidity product is expected to come out next month.
In the end, Tabar’s prognosis on the calcified nature of the real estate market comes down to a broad generational impasse. 
“Baby boomers who are still in the seats of power don’t want change at this point in their careers. They just want the system to remain the same so they can extract as much value out of it and have a nice retirement,” he said.
During the time their firms worked together, Lippiatt and Fluidity co-founder Michael Oved co-authored a white paper analyzing the problem tokenization was trying to solve around private placements, and a possible solution, dubbed the Two Token Waterfall. 
The proposal involved two separate tokens: one senior in priority of payments replicating debt and the other junior in priority of payments replicating equity. The idea was to bring a complete accounting of a transaction to the token layer so that a security could really be valued.
“It’s not just equity in real estate,” said Lippiatt. “You own the real estate minus whatever debt is owed plus whatever cash flow comes in, the history of payment and so forth. All of this goes into how one might want to evaluate something.”
Looking back, this close attention to detail (plus having compliance requirements encoded into smart contracts), availed the firms when the Securities and Exchange Commission (SEC) came knocking. 
Lippiatt recalls the tokenization of a loan on a Brooklyn-based apartment block called FACTOR-805, which was the first real-world asset to incorporate Dai, the MakerDAO stablecoin.  
Accepting Dai as well as fiat and distributing Dai as interest payments, attracted the attention of the SEC, which visited Propellr (a registered broker-dealer) and spent several hours interviewing the team and reviewing the transaction. 
“Middle of August we had another interview with them [SEC] and they said, ‘we take no exception in the way that you did this deal.’ In other words, ‘we approve.’ So hopefully we helped create policy,” said Lippiatt.
Hope springs eternal
Looking ahead, Propellr remains focused on MakerDAO and the potential of multi-collateral Dai, working on a tokenized mortgage pilot with Berlin-based Centrifuge (“the sort of blockchain partner I was looking for,” said Lippiatt). 
“I think we are at the end of Act 1. Act 2 will bring better protocol layers; it will solve some of the privacy issues that people are concerned with, especially in the mortgage landscape,” Lippiatt said. “It’s a long play and hopefully it won’t turn out to be a tragedy.”
There are still a number of interesting projects chipping away at real estate, including the likes of Securitize, AssetBlock, Fundament, Smartlands, Bits of Property to name just a few. 
Having evolved from its earlier crowdfunding model, San Francisco-based Harbor has recently helped tokenize $100 million worth of real estate funds in conjunction with the manager of those funds, iCap Equity. 
“There is stuff in production,” said Harbor CEO Josh Stein. “We have clients with tokenized securities and there have been some trades in real estate. Is it flying off the shelves? The answer is no.”
Stein acknowledged there might be some disappointment when compared to all the hype, but said the situation is not actually bad at all and rather resembles the look of normal technology adoption.
“We’ve moved on from where people could just yell the word ‘token’ and investors would throw money at it,” he said.
UPDATE (Nov 26, 16:15 UTC): A passage in this article was changed to clarify which entity received a visit from the SEC.