Korean regulators pressured to approve crypto ETFs following ETH ETF approval in the U.S.

Bankruptcy Judge Permits Terraform Labs to Subpoena FTXIn a significant development in the bankruptcy case of defunct crypto exchange FTX, a judge has granted Singapore-based Terraform Labs the authority to subpoena information related to its ongoing case brought by the United States Securities and Exchange Commission (SEC).Photo by Bermix Studio on UnsplashHack allegationsTerraform Labs, the blockchain company that developed the Terra blockchain and failed US dollar stablecoin UST, claims that the failures of its algorithmic stablecoin and governance token were the result of an attack from short-sellers, possibly involving Alameda Research (FTX’s sister company).The order, issued by Judge John Dorsey on Monday, allows Terraform Labs to serve subpoenas to FTX Trading and FTX US, aimed at collecting evidence to support its defense against the SEC’s allegations of fraud. According to court filings, lawyers representing the FTX Debtor have not formally objected to the court order.Terraform Labs’ request for subpoena power stems from its belief that short-sellers connected to FTX entities played a role in the failure of the algorithmic stablecoin and governance token, leading to the collapse of the crypto firm. The ability to obtain information from FTX through the subpoenas could be crucial in bolstering Terraform Labs’ defense against the SEC’s fraud charges.UST collapse falloutThe collapse of the UST stablecoin in 2022 contributed to a major market crash, resulting in a significant drop in the prices of many tokens. As a result, the company filed for bankruptcy in November 2022. The Co-Founder of Terra, Do Kwon, is currently serving a four-month sentence in a Montenegrin prison for using false travel documents. He may also face extradition to the United States or South Korea on fraud charges related to Terraform Labs.Motion to dismiss deniedIn a separate high-stakes ruling, US District Judge Jed Rakoff denied Terraform Labs’ motion to dismiss the securities fraud lawsuit filed by the SEC. The judge’s decision allows the SEC’s case against Terraform Labs and Do Kwon to proceed, rejecting defense arguments that the agency lacked jurisdiction and that Terraform’s TerraUSD stablecoin did not qualify as an unregistered security.Judge Rakoff’s ruling is a significant victory for the SEC as it intensifies its enforcement actions against crypto companies involved in allegedly unlawful token sales. He found the collapse of TerraUSD, which lost its dollar peg and incurred a $40 billion loss last year, plausible as a reason to consider the token as a security that should have been registered.Moreover, Rakoff dismissed Terraform’s claim that the SEC lacked the authority to regulate stablecoins without explicit Congressional authorization, asserting that the crypto industry was significant enough to warrant application of the “Major Questions Doctrine.” This doctrine limits agency overreach into major political issues but does not apply to the crypto asset markets.The judge also rebuffed Terraform Labs’ attempts to draw parallels between the Ripple case and its own. In the Ripple case, a different judge ruled that Ripple’s XRP token sales to retail investors did not violate securities laws due to the manner of purchase on secondary markets. Rakoff firmly stated that such distinctions did not apply under the legal Howey test governing whether crypto assets qualify as securities.

In an effort to safeguard crypto investors from falling prey to misleading advertisements, the Securities and Exchange Commission (SEC) of Thailand has intensified its scrutiny of promotional campaigns within the crypto sphere.  Broker agent eventsOn April 29, the Bangkok Post reported that the SEC has raised concerns regarding the potential violation of local regulations through introducing broker agent (IBA) events. These events, the SEC clarified, may breach regulations as IBAs are only permitted to promote digital token services to deter speculation on cryptocurrencies, categorized as high-risk assets. IBAs, acting as local conduits for partner digital asset exchanges, typically earn commissions by onboarding clients within a specific market. Such practices are common for exchanges or brokers that don't directly operate in certain markets. Deputy Secretary-General Anek Yooyuen conveyed the commission's unease over crypto exchanges offering preferential treatment to onboard users. Yooyuen stated: "When operators organise sales promotions by offering rewards to entice people to use the service, this could encourage use of the service without considering the investment risks. This is especially the case for cryptocurrencies.”Photo by Than Diep on UnsplashWarning of consequencesHe cautioned that failure to adhere to these guidelines would result in “punishment according to the law.” While cryptocurrency exchanges are legal in Thailand, they must secure local approval. Notably, last month, Thailand even greenlit asset management firms to launch private funds, offering Bitcoin exchange-traded funds (ETFs) exclusively to institutional and ultra-high-net-worth investors. Nonetheless, the country recently prohibited the sale of cryptocurrency lending products and mandated that exchanges prominently display risk warning messages. International regulatory trendThis move by the Thai SEC mirrors actions taken by regulators in other major crypto markets. For instance, the United Kingdom's Financial Conduct Authority (FCA) issued 450 alerts for illegal crypto ads in 2023 alone. Similarly, Spain’s principal securities market regulator, the National Stock Market Commission, denounced fraudulent crypto asset promotions in November 2023, emphasizing companies’ obligations to adhere to local laws. Thai advertising guidelines mandate businesses and advertisers to substantiate the “facts” presented in their campaigns, failing which could lead to legal repercussions. A recent incident provides a case in point. Hackers hijacked advertisements on Etherscan, redirecting users to phishing sites aimed at draining crypto wallets. Scam Sniffer, a blockchain investigation firm, attributed the widespread phishing campaign to the inadequate oversight by advertisement aggregators. The company made the following statement on the matter: “Etherscan aggregates ads from platforms like Coinzilla and Persona, where insufficient filtering could lead to exposure to phishing attempts.” The wallet drainer scam involves enticing users to counterfeit websites and coercing them to link their crypto wallets, enabling scammers to siphon funds into their own wallets without user authentication or consent. This is not the first time that the authorities in Thailand have homed in on crypto-related advertising. In August 2023, the southeast Asian country’s Ministry of Digital Economy and Society (MDES) outlined that it had engaged with social media firm Meta, owner of Facebook, informing it that its response to the proliferation of fraudulent platform ads relative to crypto had been inadequate. 

Circle CEO Sees Role for Yuan-Backed Stablecoins in Hong KongJeremy Allaire, the Co-Founder and CEO of Circle, the USDC stablecoin operator, expressed his acceptance of mainland China’s ban on cryptocurrencies. However, he remains optimistic about the development of Web3 technology in Hong Kong and the city’s monetary authority’s move towards regulating stablecoins.Photo by Mitchell Luo on UnsplashYuan internationalizationAllaire believes that Hong Kong must embrace digital assets to remain relevant in the global financial market. While he acknowledges that China is unlikely to open up its markets to cryptocurrencies, he sees potential for stablecoins to contribute to Beijing’s goal of yuan internationalization.During an interview with the South China Morning Post (SCMP), Allaire highlighted that major financial markets worldwide are embracing digital assets and that the biggest financial institutions are adopting them. He mentioned that there is Chinese government support for stablecoins, but he clarified that it doesn’t imply opening up crypto trading on the mainland. Allaire emphasized that stablecoins could be a more immediate solution to the Chinese government’s aim of internationalizing the yuan compared to the central bank digital currency (CBDC) e-CNY.Allaire cited the example of a stablecoin pegged to the offshore yuan (CNH) as a potential tool to facilitate the RMB’s use in global trade and commerce. He mentioned the existence of CNH Coin, a stablecoin team that also offers HKD Coin, pegged to the Hong Kong dollar.Virtual asset hubHong Kong is positioning itself as a global virtual asset hub by focusing on the regulation of stablecoins. The Hong Kong Monetary Authority (HKMA) has committed to implementing stablecoin regulations by 2024, recognizing the potential impact of such assets on financial markets. Additionally, the Securities and Futures Commission (SFC) is working on complementary regulations for stablecoins following the recent implementation of licensing rules for sellers of other cryptocurrencies.Circle’s USDC, the second-largest US dollar-backed stablecoin by market capitalization after Tether (USDT), is considered a “stored-value instrument” in the United States. Allaire expressed Circle’s encouragement regarding the HKMA’s plans and highlighted the positive motivation to expand their business in Hong Kong.While central banks worldwide have expressed concerns about stablecoins’ impact on financial stability, the HKMA has proposed that the value of reserve assets should match the outstanding stablecoins at all times. The HKMA has also been researching the possibility of a digital Hong Kong dollar and is part of a cross-border trial for the e-CNY using a blockchain known as the mBridge.CBDCs alongside stablecoinsRegarding the future role of stablecoins in a well-regulated environment alongside CBDCs, Allaire believes that CBDCs and private coins are complementary. He sees CBDCs as an upgrade to central banks’ systems and views the private sector’s work on innovation in distributed ledger technology as distinct and valuable.Allaire noted that Circle conducts significant business activity in Asia, particularly in Hong Kong, which is its largest non-US market, employing around 125 individuals.While mainland China maintains its ban on cryptocurrencies, Allaire remains optimistic about Hong Kong’s regulatory stance on stablecoins and believes they could contribute to the internationalization of the yuan. Allaire emphasized the importance of digital assets in the global financial market and expressed Circle’s support for Hong Kong’s initiatives.