Reserve Bank

Crypto ‘regulatory approach isn’t needed now’ — New Zealand central bank

June 30, 2023 Coin Telegraph

Reserve Bank of New Zealand however said that crypto and stablecoins should be more closely monitored.

The New Zealand central bank is ramping up its monitoring of stablecoins and crypto-assets following public submissions, but has stopped short of calling for a “regulatory approach.”

Ian Woolford, the Reserve Bank of New Zealand’s director of money and cash, said in a June 30 statement that the RBNZ agrees that “a regulatory approach isn’t needed right now, but increased vigilance is.”

Accompanying Woolford’s statement was a summary of 50 stakeholder submissions to an earlier RBNZ paper discussing crypto and decentralized finance.

New forms of money such as crypto and stablecoins create opportunities and risks for New Zealanders and the financial system. Have your say now on these and how we should respond: https://t.co/RE9j0ryjVk #rbnz pic.twitter.com/yvcR2tjd9y
— Reserve Bank of NZ (@ReserveBankofNZ) February 10, 2023

Respondents included the country’s crypto advocacy body BlockchainNZ, tech company Ripple, along with banks such as Westpac and the Bank of New Zealand.

Woolford said the submissions showed crypto had “significant risks and opportunities” along with “uncertainties” about the sector’s development which gave it the need for extra attention:

“We agree that caution is needed, which also reinforces the need for enhanced data and monitoring to build understanding.”

The RBNZ is seemingly waiting to see how other jurisdictions will regulate crypto before it makes its own moves.

“Global harmonization is crucial to ensure effective regulation,” Woolford said. He added best practices may become clearer “as overseas regimes are implemented.”

A Chainalysis report in 2022 ranked New Zealand 108 out of 146 in its 2022 Global Crypto Adoption Index, just behind Austria and in front of Azerbaijan.

*The index ranks all countries by "grassroots cryptocurrency adoption." Source: Chainalysis*

New Zealand’s current laws consider crypto a form of property. Digital assets are governed by various non-crypto-specific financial, money laundering and tax regulations that generally apply.

“Issues raised by cryptoassets and other innovations do not fall neatly within agency boundaries," Woolford said.

He added that consumer and investor protections, along with regulatory barriers to entry, do matter if the country wants to create a “reliable and efficient money and payment system.”

Magazine: Unstablecoins: Depegging, bank runs and other risks loom

Australian central bank to launch ‘live pilot’ of CBDC in coming months

March 1, 2023 Coin Telegraph

Australia

The use cases for the CBDC ranged from offline payments to "trusted Web3 commerce" and financial industry participants were invited to undertake a live pilot.

Australia's central bank is set to launch a "live pilot" of a Central Bank Digital Currency (CBDC) "in the coming months," according to a joint statement from the Reserve Bank of Australia (RBA) and Digital Finance CRC (DFCRC), an Australian financial research institute.

The RBA said on Mar. 2 local time said it was collaborating with the DFCRC on a research project to "explore potential use cases and economic benefits of a central bank digital currency (CBDC) in Australia."

The RBA announced the initial stage of the research project involved the selection of several financial industry participants to demonstrate potential use cases of the CBDC, which will provide possible benefits of a CBDC.

This will involve a"live pilot," which the RBA says will take place over the coming months.

Use cases being piloted will include offline payments, tax automation and a CBDC for "trusted Web3 commerce," while participants of the trial range from banks, such as Commonwealth Bank and Australia and New Zealand (ANZ) bank to payment providers such as Mastercard.

*Selected CBDC use cases and the providers of each. Source: RBA*

Brad Jones, Assistant Governor (Financial System) at the RBA said, "The pilot and broader research study that will be conducted in parallel will serve two ends – it will contribute to hands-on learning by industry, and it will add to policy makers’ understanding of how a CBDC could potentially benefit the Australian financial system and economy.”

This is a developing story, and further information will be added as it becomes available.

India’s central bank outlines digital rupee CBDC plans

October 7, 2022 Coin Telegraph

CBDC

India's Reserve Bank outlined the pros and cons of a digital rupee as it looks to raise awareness around its CBDC project.

The Reserve Bank of India (RBI) has outlined the proposed features and reasoning behind its in-development central bank digital currency (CBDC) in a 51-page note published on Oct. 7.

The country’s central bank is looking to raise awareness of CBDCs, which are being developed by a number of central banks around the world, and to clearly define the objectives and choices as well as the potential positive and negative elements of introducing a digital rupee in India.

The document summarizes the key motivations for the issuance of an Indian CBDC, highlighting trust, safety, liquidity as well as settlement finality and integrity as key components of a sovereign digital currency.

A primary motivator for issuing a CBDC in India is to reduce the operational costs involved in managing physical cash in the country. The RBI also touts improved financial inclusion in addition to an increasingly resilient, efficient and innovative payments system.

Improved cross-border payments and settlements are also underlined through the promise of an offline feature for the CBDC, which would be beneficial in remote locations and in areas without a stable electricity supply or mobile network access.

The RBI has long held public blockchains and cryptocurrencies at arm's length, with the document outlining its continued view that cryptocurrencies pose a significant risk to Indian consumers due to market volatility.

“These digital assets undermine India’s financial and macroeconomic stability because of their negative consequences for the financial sector.”

The RBI also highlighted its concern that the continued proliferation of cryptocurrencies would diminish its ability to regulate monetary policy and the monetary system, which the central bank holds to b a threat to financial stability in India.

A digital rupee CBDC is being touted to have the same benefits as public cryptocurrencies while “ensuring consumer protection” by avoiding what it described as “damaging social and economic consequences.”

The note goes on to outline the differences between a retail and wholesale CBDC, with the former serving the public sector while the latter would have restricted access catered toward financial institutions. The RBI hinted that there may be merit in introducing both forms into the Indian marketplace.

The Indian central bank also touched on the possibility of direct and indirect issuance and management. Direct issuance would see the RBI responsible for managing the entire system, while the indirect model would involve the use of intermediaries like banks and other payment service providers.

The RBI also noted that a token-based CBDC would be preferred for retail use given its similarities in use to physical cash. Account-based CBDC issuance would be considered for wholesale users.

The document also considered the potential infrastructure underpinning the digital rupee, highlighting conventional, centrally controlled databases or distributed ledger (blockchain) technology as the two options on the table:

“While crystallising the design choices in the initial stages, the technological considerations may be kept flexible and open-ended in order to incorporate the changing needs based on the evolution of the technological aspects of CBDCs.”

The note also touches on the role of physical currency in providing anonymity, universality and finality. Given that digital transactions would leave a trail, the degree of anonymity provided is still being assessed while the RBI suggested that reasonable anonymity for small-value transactions like physical cash may be a “desirable option” for a retail CBDC.

The ongoing development of a digital rupee will likely involve further stakeholder engagement and iterative design to produce a CBDC that suits a broad range of use cases. The Indian central bank also stressed its intent for the CBDC to complement current forms of money and provide additional digital payment avenues to users.

Australian pilot CBDC test for eAUD to commence mid-2023: RBA White Paper

September 26, 2022 Coin Telegraph

Australia

The key objectives of the project are to identify and understand innovative business models, use cases, benefits, risks, and operational models for a CBDC in Australia.

Making it to the list of countries that intend to launch an in-house central bank digital currency (CBDC), the Reserve Bank of Australia (RBA) released a white paper outlining an elaborate plan for conducting a pilot project for eAUD.

On Aug. 9, 2022, the RBA announced a collaboration with the Digital Finance Cooperative Research Centre (DFCRC) to explore CBDC use cases for Australia. The joint research resulted in the launch of a project to test a general-purpose pilot CBDC. As outlined in the ‘Australian CBDC Pilot for Digital Finance Innovation’ white paper:

“The key objectives of the project are to identify and understand innovative business models, use cases, benefits, risks, and operational models for a CBDC in Australia.”

The report on Australia’s CBDC pilot project is expected to be released in mid-2023 based on indicative project timelines, as shown below.

*Australia's CBDC pilot project timeline. Source: rba.gov.au*

As a central bank, the RBA will be responsible for the issuance of eAUD, while the DFCRC will oversee the development and installation of the eAUD platform. Industry participants can join the pilot as use case providers once approved for implementation.

*Tasks assigned for all the parties involved in developing eAUD. Source: rba.gov.au*

The white paper suggests the use of Ethereum (ETH)-based private, permissioned instance. “Pilot participants will bear their own costs for the conception, design, development, implementation and piloting of use cases, if selected,” clarifies RBA.

On Sept 6, 2022, Australia’s ministerial department of Treasury approached the general public for their opinion on taxing cryptocurrencies. Assistant Treasurer Stephen Jones revealed the intention to exclude crypto assets from being taxed as a foreign currency.

Australian investors were provided with a window of 25 days to share their opinion on this decision, which expires on Sept. 30 — in the next four days. The legislation, if signed into law, will amend the existing definition of digital currency in the Goods and Services Tax (GST) Act to exclude it as a foreign asset.

South African Reserve Bank encourages friendly behavior with crypto

August 18, 2022 Coin Telegraph

Coin Telegraph

The banking authority said avoiding risk by cutting off crypto-involved clients may pose a “threat” to financial integrity.

The Prudential Authority of the Reserve Bank of South Africa sent out guidelines to its subsidiaries in an effort to prevent illicit activities, encouraging banks not to cut all ties with cryptocurrency.

It suggested that such an act could cause greater risk in the long run.

The official notice was signed by the Prudential Authority CEO, Fundi Tshazibana. In the past certain South African banks cut ties with what is called in the document, “Crypto Asset Service Providers” (CASP), due to unclear regulations or a high risk factor.

However, the notice highlights that risk assessment doesn’t mean dropping crypto entirely:

“Risk assessment does not necessarily imply that institutions should seek to avoid risk entirely (also referred to as de-risking), for example, through wholesale termination of client relationships which may include CASPs.”

It goes on to say such a move could even be a “threat” to general financial integrity, as it may limit the possibilities of treating issues such as money laundering.

In late July, the Reserve Bank released an assessment of risks within the local banking sector. According to the report, included in the top 10 threats identified by top local banks were cryptocurrencies and virtual assets.

Prior to the report, the South African government released a plan that entailed the classification of crypto as a financial asset for regulatory purposes. The laws pertaining to the classification are expected within the next 12 months.

Crypto exchanges in South Africa reacted positively to this announcement. Many believe this move will drive adoption in the country. The country has seen major signs of interest and innovation in the crypto community, including IRL crypto use cases.

South Africa is home to crypto projects such as Bitcoin Ekasi, a township that introduced Bitcoin as a means of bolstering financial independence to local underserved communities and Unravel Surf Travel, a South African-based travel pro-crypto travel company.

US Federal Reserve Board Unveils Final Guidelines Used When Reviewing Requests for Access to Master Accounts

August 18, 2022 Bitcoin.com

South Africa finishes technical PoC for wholesale CBDC settlement system

April 8, 2022 Coin Telegraph

CBDC

The South African Reserve Bank stated further work would be undertaken to study the findings from the project and used to inform policy and regulatory responses to DLT and CBDCs.

South Africa has taken another step closer to implementing its central bank digital currency (CBDC) as the South African Reserve Bank (SARB) concludes a technical proof-of-concept for the project.

The project, titled Project Khokha 2 (PK2), is the second phase of SARB’s Project Khokha (PK1), launched in 2018. It experimented with distributed ledger technology (DLT) for interbank payments' settlement, successfully replicating the banks’ “SAMOS” real-time gross settlement system.

This second phase, PK2 was launched in February 2021 and tested DLT with clearing, trading and settlement within the proof-of-concept environment with industry participants Absa, FirstRand, JSE Limited, Nedbank and Standard Bank who form the Intergovernmental Fintech Working Group (IFWG).

Using the technology, SARB tested the issuance of debt instruments and enabled two payment options for settlement, a wholesale central bank digital currency (wCBDC) and a wholesale settlement token (wToken), a commercial bank issued form of private money.

The proof-of-concept developed two DLT platforms, one which served as a decentralized trading platform and the other which managed the CBDC.

A bidirectional bridge similar to those used in DeFi when sending cryptocurrencies across different blockchains was also built, allowing portability of the CBDC between the two platforms.

The results of the project highlighted the regulatory, business, and operational implications that DLT would have in the market. A statement by SARB summarized that the technology would streamline functions carried out by separate infrastructures onto a single platform, potentially reducing cost and complexity.

In the report, SARB does point out that the new DLT platforms will need to be integrated with legacy systems, with the costs of implementing the new platform placed on the banks.

New standards, updated best practices and new support systems would need to be established for the DLT infrastructure, according to SARB. The reserve bank mentioned that legacy and DLT systems might always have to run side-by-side, stating:

“A transition to a DLT-based system requires careful planning and execution and may involve running a DLT-based system in parallel to the existing system for a while, perhaps indefinitely.”

Technical risks related to the reliability and security of the software bridge between platforms were also noted, and the use of the CBDC on networks outside of the two used in the proof-of-concept was also flagged as topics for further consideration.

SARB says further work will be undertaken to study the findings from this phase of the project and the legal status of the wCBDC, which will be used to inform policy and regulatory responses to DLT and CBDCs in the financial markets.

It also hinted that another phase of Project Khokha may be started to “build on the work of PK2, performing live transactions in a sandbox environment in a different use case”.

Since May 2021, South Africa has also been engaged in a preliminary study on a retail CBDC focused on its “desirability and appropriateness” no exact date is set for the conclusion of the study, but SARB says it will be sometime in 2022.

Reserve Bank of New Zealand Seeks Public Opinion on Central Bank Digital Currency

October 1, 2021 Bitcoin.com

Altcoin roundup: There’s more to DeFi than just providing liquidity

September 24, 2021 Coin Telegraph

bitcoin options

Bitcoin price is down but crypto investors still have a plethora of yield opportunities thanks to DeFi.

The growth of the decentralized finance (DeFi) sector has been a recurrent headline throughout 2021 and to date, hundreds of billions of dollars in crypto assets are locked on protocols across numerous blockchain networks and earning a yield for their holders.

What started off as a simple Ethereum-based swap interface that allowed ERC-20 tokens to be exchanged in a decentralized manner, called Uniswap, has exploded into a vast ecosystem full of decentralized exchanges, yield farms, lending protocols and staking platforms.

As development continues and older protocols become more established, newer projects have emerged to incorporate more pieces from the traditional financial realm into the DeFi arena as digital technology slowly transforms the global financial system.

Here’s a look at some ways for users to get involved with DeFi outside of simply staking in liquidity pools or depositing to a lending protocol.

Decentralized derivatives trading

Cryptocurrency derivatives exchanges have long been a target for regulators, and once defiant exchanges like BitMEX and Binance have found themselves bending to the will of the law and modifying their operating practices as they seek a more legitimate standing.

This has furthered the necessity for crypto traders to have a decentralized option and led to the creation of protocols like dYdX and Hegic, which offer similar services without the target that is a centralized structure for regulators to come after.

DYdX is a non-custodial perpetuals trading platform built on a layer-two protocol that operates on the Ethereum network and offers users access to up to ten times leverage on futures contracts for more than twenty cryptocurrencies.

Hegic is an on-chain options trading protocol that utilizes hedge contracts and liquidity pools to offer options contracts that last up to 90 days and can payout in Ether (ETH), Wrapped Bitcoin (WBTC) or USD Coin (USDC).

The maximum period of holding options on Hegic has been lowered from 90 to 30 days . All previously acquired options are not affected by this change.

The max. period will be adjusted based on the current volatility in order to protect active LPs from selling vol too cheap. pic.twitter.com/JiVBVH5xD2
— Hegic (@HegicOptions) September 8, 2021

Both of these platforms offer users access to these advanced trading products without the need to divulge their identities, as is required on the centralized counterparts.

Bonding, rebase and ultra-high APY tokens

One topic that is increasingly popping up more in financial discussions is the concept of how to create a decentralized reserve currency that is free of the control of any government or centralized financial institution.

Olympus aims to address this issue through a decentralized autonomous organization (DAO) platform which offers staking and various bond offerings including the ability to bond Ether, MakerDAO (DAI), Liquidity USD (LUSD) and Frax (FRAX).

We just launched our third reserve bond, $LUSD! Welcome @LiquityProtocol to the Olympus Treasury. pic.twitter.com/34IKpTFG5l
— OlympusDAO (@OlympusDAO) September 22, 2021

The bonding process on Olympus is basically a cross between a fixed income product, a futures contract and an option. Bonders are provided with a quote outlining terms for a trade at a future date and include a predetermined amount of the protocol’s native OHM token that the bonder will receive once the vesting period is complete.

Funds that are raised by bond offerings go into the Olympus treasury as collateral to back the OHM tokens that were minted, helping to provide the underlying value behind the OHM token which allows it to be used as a reserve currency or medium of exchange.

The only other projects that have a treasury that provides the underlying value for each token are stablecoins, but as the name implies their price is fixed whereas the price of OHM can increase, offering a new avenue of yield for users.

Once bonding is complete, users can sell their OHM on the open market or stake them on the Olympus protocol for a current yield of 7,299%.

Crowd loan participation on Polkadot and Kusama

Another way crypto holders can put their assets to work while also helping the cryptocurrency ecosystem expand is through participating in the parachain auctions in the Polkadot and Kusama ecosystems through a process known as a crowd loan.

In the auction process, different projects vie for one of the limited parachain slots that connect the project directly to the main Kusma or Polkadot network, facilitating the interconnection of all parachains in the ecosystem.

With crowdloans, users who hold the native KSM and DOT tokens can “contribute” them towards the pool that a project uses to secure a parachain slot, and they will have their tokens returned after a specified lock-up or bonding period that can last for up to one year.

Current #Kusama crowdloan stats:
☛ ~995k $KSM contributed to 16 projects
☛ ~88% (~875k $KSM) contributed to the 5 leading projects which means ~175k $KSM in average so far.
☛ This 88% equals ~78% of KSM contributed to the first 5 parachains.

These auctions are a huge success!
— Fabs (@fabsbags) September 21, 2021

In exchange for their contribution and inability to earn staking rewards for the period that the tokens are locked up, users receive a specified number of tokens for the new protocol which can then be used in the ecosystem or sold on the market.

This approach offers a less risky yield opportunity for token holders, as all principal contributions are locked in a smart contract and returned after the stipulated lock-up period. And by the nature of the parachain auction process, there have been well-developed projects with larger communities that have secured parachain slots, increasing the chance that their tokens will maintain or increase in value as long development for the protocols stays active.

Aside from the threat of regulation, the DeFi ecosystem is showing few signs of slowing its integration of the best parts of the traditional financial system and developing innovative protocols that level the playing field for retail investors.

Want more information about trading and investing in crypto markets?

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The views and opinions expressed here are solely those of the author and do not necessarily reflect the views of Cointelegraph.com. Every investment and trading move involves risk, you should conduct your own research when making a decision.

Decentralized derivatives trading

Bonding, rebase and ultra-high APY tokens

Crowd loan participation on Polkadot and Kusama

Want more information about trading and investing in crypto markets?

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