China Furthers Efforts to Shape the Metaverse

Conflict Identified as Crypto.com Trading on its Own PlatformTrading practices at Crypto.com, the Singapore-based cryptocurrency exchange, have raised questions about potential conflicts of interest within the digital assets industry.Citing a number of unnamed sources, the Financial Times (FT) made the claim in a report published on Monday.Photo by Pixabay on PexelsConflict of interestIn traditional financial markets, exchanges typically match buyers with sellers at competitive transparent prices, while market making and proprietary trading are conducted by separate private companies. However, US regulators have recently cracked down on similar activities at digital asset exchanges. Binance, the world’s largest crypto exchange, faced 13 charges from the US Securities and Exchange Commission (SEC), including allegations of manipulative trading to inflate trading volume.The presence of internal traders at Crypto.com has not been widely known since the company’s launch in 2016. The FT’s sources claim that Crypto.com executives provided sworn statements to external trading houses denying the company’s involvement in trading activities.Employees were allegedly instructed to deny the existence of an internal market-making operation. In response to inquiries, Crypto.com denied that employees were asked to lie, stating that their internal market maker functioned similarly to third-party market makers, ensuring tight spreads and efficient markets on their platform.The majority of Crypto.com’s revenue reportedly comes from its app for retail traders, where the company acts as the counterparty for transactions and operates as a broker model. The company’s trading team hedges these positions on various venues, including their own exchange, to maintain risk neutrality. Crypto.com emphasized that their exchange provides a level playing field for institutional traders.According to insiders, Crypto.com’s proprietary trading desk engages in trading activities on the company’s exchange and other platforms, solely focused on generating profits rather than facilitating an exchange. The market making desk, on the other hand, aims to enhance liquidity on the platform.Not a revenue sourceCrypto.com defended its practices by stating that comparing trading volumes to competitors is common in the industry. It said that the company’s priority is to continuously improve order book liquidity and reduce spreads, benefiting all participants. The firm told Decrypt that trading is not a source of revenue: “While we do have some market making activity, for example, we have internal market makers for our CFTC-regulated product Up/Downs in the United States.”As a private company, Crypto.com publishes accounts in different countries, but revenue breakdown by business line is not disclosed.Closure of institutional tradingFollowing the SEC’s enforcement actions, earlier this month Crypto.com announced the closure of its exchange for institutional US traders due to limited demand in the current market landscape, effective from June 21.In any marketplace transparency and fairness are crucial. It’s fair to say that there has been some level of sharp practice among some actors in the marketplace while regulators have been lacking in getting up to speed with the emergent sector, and moving to protect consumers. With the major crypto platform failures of 2022 has come renewed interest in resolving these issues. That may make for some short-term difficulty, but in the longer term, it should mean greater protections for market participants so long as a common sense approach is pursued.

Cross Trading of LUNA Tokens Uncovered on Three Korean Crypto ExchangesAccording to a report by the Maeil Business Newspaper on Wednesday, it was discovered that cross trading of LUNA tokens took place on three South Korean cryptocurrency exchanges: Bithumb, Coinone, and GoPax.Three crypto exchangesAn indictment by the Seoul Southern District Prosecutors’ Office against Terraform Labs co-founders Do Kwon and Daniel Shin, along with interviews conducted within the cryptocurrency industry, revealed that Bithumb, Coinone, and GoPax were involved in cross trading LUNA tokens with a combined value of $598 million. Specifically, Bithumb accounted for $224 million, Coinone for $299 billion, and GoPax for $74 billion.The prosecution has confirmed that cross trading continued until the end of February 2022, a period marked by significant demands for virtual asset legislation from both the market and academia. Despite widespread calls for regulations to curb unfair trading practices, these instances of cross trading went undetected.Classification of LUNAMoreover, it is reported that legal punishment for the $598 million worth of cross trading is challenging unless LUNA tokens are officially recognized as securities by the court. Under the Korean Capital Markets Act, only cross trading involving tokens identified as securities can be subject to penalties as a form of market manipulation.During a plenary session of the National Assembly’s Legislation and Judiciary Committee on Tuesday, Justice Minister Han Dong-hoon made a statement suggesting that LUNA tokens could be considered securities due to their backing by real-world assets. However, he said that this distinction might not apply to other tokens.On April 25, the Seoul Southern District Prosecutors’ Office indicted Shin and others as accomplices to Kwon, assuming that LUNA tokens were indeed securities. This case now revolves around whether the prosecution can successfully establish the classification of LUNA tokens as securities during the trial, making it the central issue in the case.Photo by Kanchanara on UnsplashCrypto investor protection legislationLast Thursday, the National Assembly’s National Policy Committee approved a bill known as the “Virtual Assets User Protection Act,” signaling an accelerated legislative process. However, there are arguments suggesting that the definition of cross trading should be further clarified in either the legislation or enforcement decree.A representative of a law firm specializing in virtual assets stated that the implementation of the User Protection Act would take another year even after its promulgation, making it challenging to retrospectively penalize cross trading practices that had already occurred.

Laser Digital, the crypto arm of Nomura, Japan’s largest investment bank and brokerage group, in collaboration with WebN Group, has unveiled Libre, an institutional Web3 protocol powered by Polygon technology. WebN Group is an incubation hub for fintech and Web3 innovators. It’s backed by Laser Digital and Alan Howard, the co-founder of alternative investment management platform, Brevan Howard.Photo by Shubham's Web3 on UnsplashFocusing on asset tokenizationLibre leverages asset tokenization and smart contracts, aiming for regulatory-compliant issuance and management of alternative investments. According to a statement, the protocol is built using the Polygon Chain Development Kit (CDK), facilitating the development of purpose-built, zero knowledge-powered Layer 2 blockchains on Ethereum. Dr. Avtar Sehra, the founder of Libre, has been actively involved in real-world asset (RWA) tokenization since 2014. His previous experience includes founding the UK FCA-licensed tokenization platform Nivaura. The protocol's applications extend beyond primary issuance services, with additional use cases such as collateralized lending and automated rebalancing of private investment portfolios. In a press release which was published on Wednesday, Sehra commented on the project:”While our MVP objective is to increase AUM by launching the primary issuance service and driving distributor integrations, we are also working closely with our partners and clients on our 2024 product roadmap, which includes collateralized lending and automated portfolio rebalancing — building the future of wealth APIs.” Libre's anticipated launch is in Q1 2024, with investment management firms Brevan Howard and Hamilton Lane poised to become the first issuers on the platform. The industry has shown growing interest in leveraging blockchain technology to revolutionize the distribution and accessibility of alternative asset funds. Making blockchains ‘mainstay financial rails’Polygon’s Indian co-founder Sandeep Nailwal outlined on a social media post on Wednesday the relevance of a dedicated network relative to real-world assets. He wrote:”RWAs have the potential to make blockchains mainstay financial rails at a global scale. I have always believed that RWAs would need their own regulated, compliant environment. Public shared chains like Ethereum mainnet, or L2 mainnets are intrinsically permissionless and not the perfect for many types of RWAs.” With that outlook in mind, Nailwal believes that Libre showcases the potential of blockchain technology to unlock new opportunities for investors globally. Natalie Smith, Head of Strategy at Brevan Howard, said, “the tokenization of funds allows us to offer investors a new way to access our strategies, providing them with optionality, and further develops our platform to serve client needs.” Competing projectsLibre is not the sole project exploring the tokenization of funds. In November, JPMorgan's Onyx collaborated with asset and wealth managers WisdomTree and Apollo, along with various blockchain technology providers, on a blockchain interoperability proof-of-concept for investment portfolio management. SC Ventures, the Singapore-based investment and innovation arm of Standard Chartered, also entered the tokenization space by launching Libeara, its tokenization platform. The SGD Delta Fund, a tokenized Singapore-dollar government bond fund, recently received an AA rating from Moody's after becoming the first fund to use Libeara. The first tokenization platforms have tended to be run on private blockchains. It will be interesting to watch the development of Libre as it’s the first time a financial institution-focused layer 2 network is being built, with final settlement on the Ethereum blockchain.