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Russia launches pre-dawn attack on Kyiv, killing at least one resident

At least one person has been killed in a third successive night of drone and missile attacks on Ukraine’s capital city. Although Kyiv’s air defences reportedly shot down most of the incoming missiles, fires were caused by falling debris.

Russia launched a pre-dawn attack on Ukraine’s capital Tuesday, killing at least one person and sending Kyiv’s residents again scrambling into shelters to escape a relentless wave of daylight and nighttime bombardments. Moscow authorities reported a drone attack on the Russian capital.

At least 20 Shahed drones were destroyed by air defence forces in Kyiv’s airspace in Russia’s third attack on the capital in the past 24 hours, according to the Kyiv Military Administration.

The buzzing of drones could be heard over the city, followed by loud explosions as they were taken down by air defence systems.

In Moscow, residents reported hearing explosions and Mayor Sergei Sobyanin later confirmed there had been a drone attack.

Sobyanin said in a Telegram post that the attack caused “insignificant damage” to several buildings and that no one has been seriously hurt, without elaborating.

Residents of two buildings damaged in the attack were evacuated, Sobyanin said.

There was no immediate comment on the attacks from Ukrainian officials.

It was the second reported attack on Moscow after authorities said two drones targeted the Kremlin earlier this month in what was labelled an attempt on President Vladimir Putin’s life.

In the attacks overnight on Kyiv, one person died and three were injured when a high-rise building in the Holosiiv district caught fire. It was not immediately clear what caused the blaze but frequently the falling debris from drones being hit and the interceptor missiles have caused damage on the ground.

The building’s upper two floors were destroyed, and there may be people under the rubble, the Kiyv Military Administration said. More than 20 people were evacuated.

Resident Valeriya Oreshko told The Associated Press in the aftermath that even though the immediate threat was over, the attacks had everyone on edge.

“You are happy that you are alive, but think about what will happen next,” the 39-year-old said.

Oksana, who only gave her first name, said the whole building shook when it was hit.

“Go to shelters, because you really do not know where it (the drone) will fly,” she advised others. “We hold on.”

Elsewhere in the capital, falling debris caused a fire in a private house in the Darnytskyi district and three cars were set alight in the Pechersky district, according to the military administration.

The series of attacks that began Sunday included a rare daylight attack Monday that left puffs of white smoke in the blue skies.

On that day, Russian forces fired 11 ballistic and cruise missiles at Kyiv at about 11:30 a.m., according to Ukraine’s chief of staff, Valerii Zaluzhnyi. All of them were shot down, he said.

Debris from the intercepted missiles fell in Kyiv’s central and northern districts during the morning, landing in the middle of traffic on a city road and also starting a fire on the roof of a building, the Kyiv military administration said. At least one civilian was reported hurt.

The Russian Defense Ministry said it launched a series of strikes early Monday targeting Ukrainian air bases with precision long-range air-launched missiles. The strikes destroyed command posts, radars, aircraft and ammunition stockpiles, it claimed. It didn’t say anything about hitting cities or other civilian areas.

Welcome, Crypto, to the Fiery Cauldron of U.S. Presidential Politics

Before the push for the White House really gets rolling, digital assets – including bitcoins and CBDCs – are being hefted as ideological effigies, but will it matter?

Whether the crypto industry wants the spotlight or not, digital assets are among the earliest talking points in the 2024 U.S. presidential election, with the most prominent of the new candidates even invoking bitcoins in his campaign opener as evidence of President Joe Biden’s missteps.

In an election in which the heaviest fireworks will likely be seen on the side of the Republican challengers, former President Donald Trump – occupying the role as Biden’s leading nemesis – is himself facing an early-days threat from Florida Gov. Ron DeSantis, who immediately staked out crypto as a kind of political shorthand.

“The current regime, clearly, has it out for Bitcoin,” DeSantis said from his campaign’s Twitter Spaces launch pad, using crypto to represent innovation and personal freedom. “Bitcoin represents a threat to them, they’re trying to regulate it out of existence.”

If digital assets keep figuring into presidential politics, they’ll likely feature as a stand-in to illustrate the perceived abuses of the federal government, according to industry insiders and political experts. But the attention may not contribute to the policy progress crypto businesses crave, because the sector is waiting for comprehensive rules, not political sentiments.

So far, Biden’s administration is being accused of squeezing emerging crypto businesses and trying to set up a central bank digital currency (CBDC) to spy on citizens, according to DeSantis and one of Biden’s challengers from his own party, Robert F. Kennedy, Jr.

For DeSantis, his pro-crypto position also separates him from chief rival Trump. The digital assets views of the Republican frontrunner for the 2024 nomination have historically been rooted in distrust, with Trump having declared in 2019 that he was “not a fan” of bitcoin and other cryptocurrencies, “whose value is highly volatile and based on thin air.” However, more recently Trump profited from his own series of non-fungible tokens (NFTs), so his position remains murky.

Two weeks before DeSantis opened his campaign beside tech mogul Elon Musk, he sought to make a political moment out of his state’s “ban” of a U.S. CBDC. Experts in the commercial law Florida used to act against a potential digital dollar have said Florida’s effort isn’t a ban at all, but that might not matter for political supporters impressed by DeSantis’ zeal.

“He seems to understand that private solutions being developed in the crypto markets are likely to be superior, in part because they pose fewer risks to the individual liberty of the public,” said Dave Weisberger, CEO of CoinRoutes, a trading tech startup in DeSantis’ home state.

But DeSantis is generally vague about his defense of cryptocurrencies, and his remarks don’t seem to acknowledge they are online instruments that can operate outside the whims of sovereign states. When he says that Democrats – given another four years – will “probably end up killing it,” it seems to suggest the U.S. lawmakers would have more reach than they do, and that crypto won’t find homes in other global jurisdictions, such as in Europe.

“It’s more about how he’s trying to paint himself as a fresh face,” said Ron Hammond, director of government relations for the Blockchain Association in Washington. “He’s trying to say ‘I’m the younger gun here who’s trying to get something done.’”

In the know

A rival Republican candidate, Vivek Ramaswamy, has argued the Florida governor doesn’t know the topic well. The biotech entrepreneur told CoinDesk he’s pro-Bitcoin because he sees it as a “decentralized alternative” to the U.S dollar, improving the country’s financial infrastructure by presenting “a source of competition to the existing system.” And he says he understands it much more than DeSantis.

Other notable Republican candidates, such as Sen. Tim Scott (R-S.C.) and his state’s former governor, Nikki Haley, have reserved comment on the financial movement. Despite his position on the Senate Banking Committee that could help decide U.S. crypto’s fate, Scott has taken the most neutral possible stance, saying lawmakers should take a “thoughtful, bipartisan and balanced approach” to overseeing the industry in the U.S.

Among the Democratic challengers to standard-bearer Biden, Kennedy – who also holds other views that overlap with Republican positions – is fervently pro-crypto.

“Cryptocurrencies, led by bitcoin, along with other crypto technologies are a major innovation engine,” Kennedy wrote in a tweet earlier this month. “It is a mistake for the U.S. government to hobble the industry and drive innovation elsewhere.”

The most popular of the pro-crypto candidates among voters, DeSantis, still trails well behind Trump in primary polling, but the fact that there are multiple candidates saying nice things about digital assets is a positive for some in the sector.

“We now have three presidential candidates, spanning both political parties, who explicitly support the digital asset industry,” CoinRoutes’ Weisberger said. “While Republicans are trying to make crypto a partisan issue, the industry itself doesn’t believe it should be, which is why the support from RFK Jr. is also potentially important.”

Biden is the only candidate with a federal record on digital assets. So far, his administration hasn’t set down any significant crypto policy, and the financial regulators he picked have taken a staunchly critical view of the industry. His Securities and Exchange Commission chief, Gary Gensler, may be the most antagonistic of the bunch, combating digital assets businesses in courtrooms and with his agency’s rule proposals. And the direct messages from Biden’s Department of the Treasury and his own White House have been increasingly suspicious of the industry.

Though it wasn’t a campaign remark, Biden, who last month formally announced

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Indian Crypto Exchanges Are in Survival Mode, Trying to Extend Their Runways

CoinDCX, CoinSwitch, WazirX and other Indian firms CoinDesk spoke to think they’ll survive the ongoing bear market – here’s how.

Indian crypto exchanges are in survival mode, cutting costs wherever possible, re-negotiating partner contracts, suspending employee pay-hikes, conducting lay-offs, exploring new revenue models and rebranding themselves, all in an effort to extend their financial runways – when they run out of money.

CoinDesk spoke to employees and senior executives at six prominent Indian crypto platforms – CoinDCX, CoinSwitch, WazirX, BuyUCoin, ZebPay and Giottus. Several of these exchanges said their runways range from 21 months to four years, which can, if true, likely take them into the next bull market. CoinSwitch and ZebPay did not share their financial runway timelines.

The survival of India’s crypto exchanges has been a concern since Feb. 1, 2022, when the nation announced stiff taxes – a 30% tax on crypto profits and the more controversial 1% tax deducted at source (TDS) on all transactions. At the time, local industry leaders said they had entered a “period of pain” but that “ultimately, technology always emerges, it always wins.”

Signs of a crypto “brain drain” emerged within weeks. Ten days after the taxes were implemented, crypto trading volumes plummeted, in some cases more than 70%. India’s government then imposed a “shadow ban,” which saw local payment processors cut off banking access to crypto exchanges.

Four months into the imposition of the 30% tax, the industry’s advocacy body was disbanded and enforcement agencies were investigating at least 10 crypto exchanges for allegedly assisting foreign firms launder money via crypto. Soon, the world took note and global industry leaders such as Binance CEO Changpeng ‘CZ’ Zhao claimed India’s taxes would probably “kill the industry” in the country.

By 2023, data revealed crypto traffic in the nation continued its nosedive and that Indians had moved more than $3.8 billion in trading volume from local to international crypto exchanges.

India, as president of the Group of 20 (G-20) in 2023, has prioritized framing globally coordinated rules for the crypto sector. As a result, experts say, it needed to align with the guidelines of the global standard setter, the Financial Action Task Force (FATF) on virtual assets by including Indian crypto business under anti-money laundering rules.

This move, which adds some legitimacy to the sector by way of setting up regulatory oversight, has fueled a little optimism among Indian exchanges on the local industry’s longevity, even if the nation doesn’t change its tax regime, according to several industry officials. But they don’t have an answer to what happens if the tax regime stays the same – and are taking various steps to guard against such a scenario.

CoinDCX

Indian crypto exchange CoinDCX is weathering the storm by diversifying and banking on its recent series D funding of $135 million.

“We have a runway of four years,” under present conditions, said Neeraj Khandelwal, co-founder of CoinDCX and Okto. “Our biggest bet is on our Okto Wallet. We believe DeFi [decentralized finance] will offer 10X value eventually as only 6.5 million DeFi customers exist, while there are 400 million crypto investors.”

CoinDCX has been leading engagement with lawmakers through the industry’s policy advocacy body, Khandelwal said, exemplified by a recent event, and has emerged as a major player in the Indian crypto industry after recent setbacks faced by WazirX, who ostensibly led the industry in policy engagement before CoinDCX.

Its strategy, Khandelwal says, is “investing heavily in innovation and technology,” including hiring in the space “even now” as we “never overhired.”

WazirX

WazirX, India’s biggest exchange by trading volume until recently, continues to survive despite a tumultuous year.

The exchange’s future seemed uncertain when its founder Nischal Shetty moved from India to Dubai to focus on a new project late last year. Later, Indian agencies that were investigating local crypto exchanges raided properties tied to a director of WazirX. Shortly after, Binance CEO Zhao and Shetty were involved in a public spat over who truly controls the exchange – a quarrel that continues to this day.

The events have seen the exchange lay off 40% of its staff. Yet, the exchange has a 21-month runway, said an employee who was not authorized to speak publicly about the company. “But employees who deserve pay hikes won’t be getting them,” he said.

WazirX’s survival strategy is to renegotiate contracts with partners including software vendors, the person said. Unlike some other exchanges, WazirX will not be diversifying. It will stay focused on crypto.

“That’s what the founders enshrined into us,” the person said. “The idea is to survive because [the] Bitcoin halving is going to happen in May 2024 when, we hope, a bull run will come. By then, if things don’t break, we should be around to see it.” The Bitcoin halving is when the total number of bitcoin that miners can potentially win is halved. This happens roughly every four years.

WazirX also plans to “keep chipping away at costs constantly to extend the runway” and capitalize on its 15 million registered users to attract lucrative partnerships, like a recent one with tax solutions provider TaxNodes.

CoinSwitch

CoinSwitch shed “Kuber” from its previous name, CoinSwitch Kuber, and pivoted from being a crypto exchange to a crypto investment platform.

This occurred as India’s taxes, the crypto winter and the ire of Indian agencies all hit the platform hard. CoinSwitch properties were raided by Indian agencies in August 2022.

“CoinSwitch has always been conscious of its expenses,” said Ashish Singhal, the company’s co-founder and CEO. “Today, we are proudly serving more than 19 million registered users, and are excited to grow and evolve with them by providing them with a diverse range of investment options, including fixed deposits (FD), mutual funds, Indian stocks, and more.”

Without giving a timeline on its runway, Singhal said “our healthy runway gives us enough ammunition to invest in our long-term vision – to be a one-stop wealth-tech destination for Indians.”

Singhal also said his company has “strengthened its leadership team by hiring industry experts,” presumably to navigate regulators, even if he added that the recent step to bring crypto businesses under anti-money laundering rules was a “significant positive advancement.”

ZebPay

One of India’s first crypto exchanges, ZebPay, also refused to share a timeline on its runway. But Chief Revenue Officer Nirmal Ranga said it had support from an unnamed subsidiary in Singapore, in the event it loses customers, the bear market extends or things generally go from bad to worse.

“Our internal revenue strategy is to increase the lending value of our customers and concentrate on user growth,” Ranga said. “We are also trying to create interest for institutional investment.”

Given ZebPay’s team has seen crypto’s early up and down cycles, it follows two ways to survive – “use profits made during previous bull runs or use funds from marketing partnerships or investors,” Ranga said. Like WazirX, ZebPay also has a partnership with TaxNodes.

BuyUCoin

Another early player in the Indian crypto space, BuyUCoin, said its runway extends until early 2025.

“By the end of 2024, we will see a good bull run,” said Atulya Bhatt, its co-founder. “Crypto is a seasonal market and every four years bitcoin goes up and down. It will take 10 years for crypto to become completely sustainable.”

Nevertheless, BuyUCoin had to lay off 10% of its 100 people workforce, Bhatt said. At the same time, BuyUCoin has set up sister companies in Estonia and Singapore as part of a global expansion plan.

“Since we have never raised funds, we can now, given interest from partners across the globe,” he said.

Giottus

After FTX’s implosion, crypto entities scrambled to publish proof of reserves. Giottus, a lesser-known Indian exchange recognized for its staking service and multilingual options in the country, said it would provide customers with proof of reserves, while rivals remained silent.

“We have a two-year runway under the current conditions,” said Vikram Subburaj, Giottus’ co-founder and CEO. “Our focus is completely on bringing in operational excellence, building your products right, drastically cutting marketing and acquisition expenses, and reducing perceived risks associated with exchanges.”

In terms of employees, Subburaj said Giottus had a compact marketing team even during bull runs and like others, it partnered with TaxNodes to improve operational support.

Singapore’s Temasek to Exercise Caution in Crypto Space After FTX Nightmare

Temasek wrote down the entirety of its investment in FTX in November.

Singapore’s Temasek Holdings, one of its sovereign wealth funds, has pledged to take “collective accountability” for its failed $275 million investment in collapsed crypto exchange FTX.

In a statement released Monday morning, the fund said there was “fraudulent conduct intentionally hidden from investors, including Temasek.”

“Although there was no misconduct by the investment team in reaching their investment recommendation, the investment team and senior management, who are ultimately responsible for investment decisions made, took collective accountability and had their compensation reduced,” Temasek Chairman Lim Boon Heng said in a statement posted to its website.

Days after FTX collapsed in November, the fund said it had written off the entirety of its investment. In November, Temasek said that the $210 million investment, which accounted for 1% of FTX International, and $65 million for 1.5% of FTX.US, represented 0.09% of the firm’s net portfolio value of $293.5 billion (SGD 403 billion) from last year.

At the time, Temasek claimed that it did eight months of due diligence on FTX, reviewing its audited financial statements, analyzing regulatory risk, and cyber security threats.

Post-FTX, Temasek said that intends to refine its investment appraisal procedure, especially for rapidly growing firms.

Temasek reiterated that it does not plan to invest in cryptocurrencies and said it will be cautious when considering new investments in the blockchain space.

FTX was the only investment Temasek had in a crypto exchange.

During the heydays of FTX it was accessible to users based in Singapore, while Binance, its chief rival, was blocked.

The Monetary Authority of Singapore (MAS) added Binance to the Investor Alert List in September 2021, yet made no such move on Binance. MAS later said this was because Binance directly solicited Singaporean customers, and offered trades in Singapore dollar, which was not the case for FTX.

Coinmint Sues California Chipmaker for $23M, Alleging ‘Elaborate Deception’

The mining firm, which has been embroiled in several legal battles, describes an elaborate fraud scheme for a $150 million contract.

New York crypto miner Coinmint alleged two semiconductor companies set up an “elaborate deception” to lure the miner into a $150 million purchase agreement, in a lawsuit seeking over $23 million in damages.

Coinmint alleged that bitcoin technology firm Katena Computing and semiconductor designer company DX Corr set up a scheme to convince it to buy up to $150 million of bitcoin mining machines that Katena couldn’t and didn’t plan to deliver on, according to a lawsuit filed with a court in California’s Santa Clara County Superior Court on Jan. 26.

Under the scheme, Katena “improperly influenced, bribed or incentivized co-conspirators,” including one unnamed person within the mining firm, for a $150 million purchase of bitcoin mining machines, Coinmint alleged.

The lawsuit alleges fraud, breach of contract and fiduciary duty, as well as aiding and abetting against DX Corr and its executives as well as former Coinmint employees. Coinmint is asking for “actual, compensatory and consequential damages, including but not limited to the $23 million,” that it deposited for the sale, as well as punitive and exemplary damages.

“Katena is in binding arbitration concerning Coinmint’s breach of contract and is seeking damages caused by Coinmint’s failure to pay. Katena is eager to talk openly and factually about this dispute but will honor the arbitration process and its confidentiality requirements. When we can talk more openly, we will,” said a spokesperson for Katena.

DX Corr filed a motion to dismiss the lawsuit earlier this month, saying Coinmint didn’t sufficiently bring any claims to support its allegations against the semiconductor firm.

Coinmint is no stranger to litigation. Its two cofounders fought over the firm’s ownership. Coinmint filed a complaint with the New York Public Service Commission against the utility of Plattsburgh, where it operates, to avoid paying a deposit related to its electricity use. It was also involved in a tax fraud case in Puerto Rico, where it is headquartered, that was settled under a confidentiality agreement, said a source close to the matter.

Coinmint denied the existence of the alleged tax fraud case and declined to comment on this story.

Court records show the municipality of San Juan sued Coinmint in March 2022, and a judge known for their tax expertise was assigned to the case. The court did not respond to CoinDesk’s request for the complaint at the time of publication.

DX Corr did not respond to CoinDesk’s request for comment.

Back in 2021, an unnamed Coinmint employee initiated conversations over the purchase of equipment. “Katena engaged in an elaborate deception” to get Coinmint’s founder and CEO Ashton Soniat on board with [claims] that it ‘truly possessed a revolutionary chip design that would disrupt the Bitcoin mining world,’” the lawsuit said.

The unnamed individual was the Coinmint chief financial officer at the time. According to a filing with the U.S. Securities and Exchange Commission and a LinkedIn, a person named Michael Maloney was Coinmint’s CFO at the time. Maloney declined CoinDesk’s request for comment through LinkedIn.

Katena was dangling an offer for the position of CFO and equity as part of the plot to Maloney, said the lawsuit.

The then-CFO asked Katena to recommend a semiconductor expert to perform due diligence on the machines. But Katena suggested Robert Bleck as an independent observer, even though he was in fact in collusion with DX Corr executive and Katena minority shareholder Sagar Reddy, Coinmint alleged. Bleck was Reddy’s “b***h,” the lawsuit read.

Bleck misrepresented Katena’s semiconductor design and production capabilities to the Coinmint CFO, who then tried to convince CEO Soniat.

Soniat signed a sales contract in May 2021 which “obliged Coinmint to pay Katena $150 million for miners without security or customary protection” according to Katena.

Katena also used the contract to try to get funding from investors, including investment bank JP Morgan, said the lawsuit.

When the CFO left Coinmint, two other individuals took the role of convincing Soniat to continue sending deposit payments. The two were also planning a hostile takeover of Coinmint and eventually parted ways with the miner.

Coinmint ultimately sent deposit payments of $23.4 million to Katena with no contractual protections and allegedly received nothing.

Even Licensed Firms Say Opening Bank Accounts Is Hard in Hong Kong #prizmabet

Hong Kong has said it wants to be a crypto hub but its banks are rejecting account opening applications.

Crypto companies’ applications to operate in Hong Kong following its push to reinstate itself as a crypto hub have been piling up, but these companies are finding it difficult to do something as basic as open a bank account.

Applicants told CoinDesk that just eight officers at the Securities and Futures Commission (SFC) are handling around 80 applications, and even licensed firms are running into difficulties when it comes to bank accounts.

“This probably would have been a different story six or nine months ago,” Amy Yu, APAC CEO for crypto bank SEBA, told CoinDesk.

Hong Kong has become a jurisdiction that companies are considering, after regulators relaxed their opposition to the sector, even as other countries look more critically at crypto. Singapore’s financial regulator has made it clear to the market that it will be less supportive of what it considers to be speculative, and the U.S. looks less than friendly to crypto.

Hong Kong’s de facto central bank knows that banking access is an issue for crypto companies. The Hong Kong Monetary Authority (HKMA) has reminded banks that there’s no ban on offering crypto firms accounts, but a roundtable it organized last month, attended by banks and crypto firms, focused only on easing access for firms that already held or which were applying for licenses, an attendee told CoinDesk.

“It was more like a wish list from the regulator,” he said. “Whether the banks fully embrace it is another matter.”

CoinDesk spoke to a C-suite executive at a crypto firm based in Hong Kong that holds a Type 9 license, which allows the company to carry out asset management activities. The company was still unable to open a Hong Kong bank account and relied on overseas banking partners. This executive said that this made on- and off-ramping difficult for potential investors.

“It’s not clear to us what extra information the banks need,” she told CoinDesk. “Internally, they don’t seem sure about what they want from us.”

Facing rejection

Venture capital firm Braeside founder Tak Lo told CoinDesk that “many crypto companies present themselves as other firms other than asset management firms in order to facilitate bank account opening.”

When companies are upfront about what they do, that can mean their applications are rejected.

Prosynergy managing director Louie Lee told CoinDesk that opening bank accounts is an “acute issue” at the moment, and that banks can be “sensitive and restrictive in their approach.”

Amidone all the talk of licensing and regulations in Hong Kong, “not all crypto-related activities require a license,” Lee continued. “You may be operating in an unregulated space, but this does not mean it’s illegal,” he said.

“The process is you apply and you get rejected,” Jehan Chu, founder of crypto venture capital firm Kenetic, told CoinDesk.

Even if firms manage to get accounts, Chu added, “six months later you get it shut down for no reason.” He said that firms try to stay low-profile.

Sometimes firms opt to buy an expensive insurance or investment product so that their relationship is more valuable for the bank.

It’s considered the cost of doing business since banks are for-profit entities after all. But that kind of decision doesn’t make sense for many startups.

Keeping accounts open

Even players who have successfully opened bank accounts “have a lot of uncertainty on whether or not they can continue having that account going forward,” corporate credit card issuer Reap co-founder Kevin Kang told CoinDesk.

This uncertainty means they’re constantly on the look out for new options and opportunities to set up bank accounts.

“They don’t have visibility on when they’re going to be checked,” Kang said, referring to banks examining transactions.

When transactions are targeted by a compliance team within banks, it can mean the company is unable to use that account. Unless they provide a certain amount of documentation within a period of time on those transactions, their transactions may be stopped and sent back.

Firms are subject to the whims of the bank account providers and end up dedicating resources to opening bank accounts.

It’s not the first time an industry in Hong Kong has encountered issues with bank account opening.

Kang points to money-service operators who held licenses from the Customs and Excise Department that enabled them to exchange funds. Banks were reluctant to serve them due to perceived anti-money laundering and counter-terrorist financing risk.

Policies or actions from the regulator may give the banks more confidence such as having deposit requirements, Kang said.

Lee added that it doesn’t help that another Asian financial hub, Singapore, has had trouble with the collapses of crypto companies which did hold licenses, like Three Arrows Capital.

Some local players have stepped into the space, with virtual bank ZA Bank presenting itself as the go-to bank for Web3 businesses.

Following the collapse of crypto-friendly bank Silvergate, “inquiries have increased enormously,” ZA co-head of retail banking Devon Sin told CoinDesk.

Most players who CoinDesk spoke to were optimistic about future discussions on banking between the industry and the regulators.

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Of the roundtable last month, Lee told CoinDesk, “It’s a step in the right direction whereby people can have a constructive discussion with the regulators on their challenges and the regulators are proactively seeking solutions.”

Edited by Nikhilesh De.

Indian Authorities Asked to Restore Crypto Exchanges’ Access to UPI #prizmabet

An Indian crypto exchange and a policy firm have separately asked the government to let crypto firms access the national Unified Payments Interface (UPI) after it was ostensibly suspended in 2022.

India’s government and central bank have received proposals asking to restore access of the Unified Payments Interface (UPI), a widely popular real-time payment system, to the crypto industry, several sources familiar with the matter have told CoinDesk.

Two proposals have already been made. A third proposal will be made “in the coming few weeks” by India’s newly formed crypto policy advocacy group, the Bharat Web3 Association (BWA), one individual familiar with the decision told CoinDesk.

The proposals, while not coordinated, appear to be the first major push by India’s crypto stakeholders to seek policy changes that govern the burgeoning industry since it suffered a series of blows in the form of harsh taxes, a crypto winter, and a “shadow ban.” The shadow ban saw Indian payment processors cut off banking access to crypto exchanges. UPI services were ostensibly suspended around the same time last year.

Since the pandemic, UPI adoption in India has rapidly increased with approximately 74 billion UPI transactions worth $1.5 trillion conducted in 2022. UPI allows citizens to pay for groceries and other goods using a QR code linked to their bank account. The system is used nationwide because merchants aren’t charged any fee for accepting UPI payments.

How Indian exchanges lost UPI access

The trigger for the payment rail crisis appeared to be Coinbase’s launch in India. On April 7, 2022, Coinbase launched its India operations with executives touting how easy it would be to trade on the company app with payments being processed by UPI. Hours after the event, the National Payments Corporation of India (NPCI) – the entity that governs UPI – tweeted to clarify that it was “not aware of any crypto exchange using UPI.” The NPCI is under the aegis of the nation’s central bank, the Reserve Bank of India (RBI).

One proposal to restore UPI access was made by an Indian crypto exchange that asked not to be identified because the matter hasn’t been made public. “We have submitted a representation with the NPCI, seeking the removal of restrictions on use of UPI services,” the crypto exchange said in a statement shared with CoinDesk.

The proposal was made shortly after India added crypto to anti-money laundering rules (PMLA or Prevention of Money Laundering Act), making crypto exchanges, non-fungible token (NFT) marketplaces and custody service wallet providers legally responsible for monitoring suspicious financial activities in March 2023. The jury on what this meant for India was divided. Legal experts said this gave teeth to the regulators overseeing the industry for the first time. At the same time, advocates of the crypto industry said this gave “more legitimacy” to the sector because “adding crypto to anti-money laundering rules is some semblance of regulation,” a senior industry participant said Monday.

“Our submission highlights that VDA (Virtual Digital Assets) service providers are now covered as ’reporting entities’ under the PMLA and are also registered with the FIU (Financial Intelligence Unit). We believe that these guardrails go a long way in helping secure VDA transactions and arresting malfeasance, if any,” the same crypto exchange’s statement said.

The second proposal, made in tranches over the past few weeks – both before and after India added crypto to anti-money laundering rules to different authorities – came from public policy advisory firm Black Dot, its founder Mandar Kagade told CoinDesk. The firm has previously collaborated with the Indian government. CoinDesk has seen an email from the Finance Ministry acknowledging Black Dot’s proposal and other emails confirming the firm sent the proposal to entities like the NPCI, the RBI and Jayant Sinha, the chairperson for the Standing Committee on Finance.

What Black Dot’s proposal contains

Black Dot’s proposal argues that UPI’s seamless user experience encourages transactions to remain onshore providing a visibility trail for regulators and law enforcement. Citing the Economic Times, it said 80% of digital asset transactions may be conducted on a peer-to-peer basis since the closure of UPI access. The proposal also says “arbitrarily denying a class of investors from accessing instruments of their choice via UPI when another group of investors has access to their choice (e.g., IPO) may also violate Article 14 (equality before the law).”

The proposal asks NCPI to group crypto exchanges based on how they meet agreed norms among banks.

It’s unclear whether authorities will restore UPI access to crypto exchanges but doing so would lend credibility to the space while making it much easier for retailers to start or continue trading on crypto exchanges.

CoinDesk has reached out to the Finance Ministry, RBI, NPCI and BWA for comment.

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Edited by Nikhilesh De and Sandali Handagama.

Tether Says It Will Buy Bitcoin for Stablecoin Reserves Using Realized Profits #prizmabet

The company, which issues the $82 billion USDT stablecoin, reported $1.48 billion of net profits in 2023 Q1 and revealed $1.5 billion in BTC holdings.

Stablecoin issuer Tether will regularly buy bitcoin (BTC) for its stablecoin reserves using a portion of its profits starting this month as part of a new investment strategy focused on the largest cryptocurrency by market capitalization, the firm announced on Wednesday.

Tether said it will allocate up to about 15% of the realized profits from investments – excluding any unrealized price appreciation of its reserve assets – to purchase BTC and will add the tokens to the reserve surplus.

The company will custody the BTC stash on its own, without using any third-party custodians, according to the statement.

The development comes after Tether, the company behind the largest stablecoin on the market, the $82 billion USDT, revealed last week that it holds $1.5 billion of BTC and $3.4 billion of gold among the assets that backs the value of USDT and its smaller stablecoins. Some 85% of the reserves are held in cash and cash-like assets such as U.S. Treasury bonds, according to its 2023 Q1 attestation.

Stablecoins, now a $131 billion asset class, have become a crucial building block of the cryptocurrency infrastructure, facilitating trading and transactions between government-issued fiat money and digital tokens by keeping their price anchored to an external asset, usually to the U.S. dollar.

BTC investments

The firm’s BTC purchase campaign aims to strengthen and diversify the stablecoin reserves, while capitalizing on its price appreciation as an investment, the press release said.

“Bitcoin has continually proven its resilience and has emerged as a long-term store of value with substantial growth potential,” Paolo Ardoino, chief technology officer of Tether, said in a statement. “Our investment in bitcoin is not only a way to enhance the performance of our portfolio, but it is also a method of aligning ourselves with a transformative technology.”

The company said it will exclusively utilize realized profits from its investment operations for buying BTC, disregarding unrealized capital gains. It means that the firm considers “only the tangible gains from its operations,” consisting of the difference between the purchase price and net proceeds from an asset sale or, in case of maturing assets such as Treasury bills, between the purchase price and the reimbursed amount, per the statement.

Tether said that it also focuses on developing communication systems, energy and bitcoin mining infrastructure among its smaller investments.

For years, Tether has been criticized within the crypto industry for its lack of transparency about its reserves and controversial investment decisions.

However, the firm’s flagship token USDT emerged as a safe haven in March as the U.S. regional banking crisis hit Circle’s USDC, the second largest stablecoin. The sudden implosion of Silicon Valley Bank (SVB) left a part of USDC’s cash reserves frozen at the bank over a weekend, and several stablecoins lost their dollar peg temporarily in a knock-on effect.

Tether came out of the calamity as a clear winner by maintaining its price stability due to its perceived disconnection from U.S-based banks, being incorporated in the British Virgin Islands and Hong Kong. USDT’s circulation has grown 24% this year while most rivals have suffered significant outflows.

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Edited by Parikshit Mishra.

Florida’s DeSantis Waging Toothless Campaign Against Digital Dollars, Lawyers Say #prizmabet

The political movement to use state commerce rules to stop central bank digital currencies is based in legal nonsense that has no power to ban anything, experts contend.

The state-level campaign against a U.S. digital dollar made its first foray into established law with Governor Ron DeSantis’ signature on Florida’s effort to block the use of virtual government-backed money in business transactions.

But the Florida governor’s rhetoric that his state is banning central bank digital currencies (CBDCs) as “government overreach and woke corporate monitoring” may not amount to much on paper. Legal experts in this facet of commercial law suggest the state’s effort is nonsensical and potentially harmful for the digital assets sector DeSantis said he’s trying to protect.

“They didn’t ban anything,” said Carla Reyes, an assistant professor at Southern Methodist University’s Dedman School of Law, who has done work in both digital assets law and the Uniform Commercial Code (UCC) that Florida is focused on. “The law does exactly zero of the things that it says that it does.”

The state’s new tweak “expressly prohibits the use of a federally adopted CBDC by excluding it from the definition of money within Florida’s Uniform Commercial Code,” according to the governor’s office. From introduction to his signature last week took just 43 days.

DeSantis – one of the Republican Party’s early favorites as a potential presidential candidate next year – turned his May 12 signing of the law into a political event, claiming it as the start of a potential multi-state push from Republican state lawmakers to counter a digital dollar well before the federal government decides whether to issue it or not. North Carolina has also been considering a measure to oppose a U.S. CBDC, and South Dakota Gov. Kristi Noem recently vetoed a bill to update its UCC in a way she argued would have allowed for CBDCs and “a potential future overreach by the federal government.”

“We’re on offense in the state of Florida,” DeSantis said at a press conference, standing behind a sign reading “Big Brother’s Digital Dollar,” referencing George Orwell’s tale of supreme government control, “1984.” The new law – effective in July – declared digital dollars won’t be considered money in the state’s version of the commercial code.

The UCC represents an accord among states, which have largely adopted this common set of rules for buying and selling of goods and conducting other financial transactions across state borders. Florida has officially thrown its CBDC wrench into that standardization, saying digital dollars aren’t money as defined in the code. But it doesn’t really ban CBDC use in interstate commerce, just puts those assets in another category than money, lawyers say.

“I could still buy a computer using CBDCs if that’s what they wanted me to pay in,” said Reyes, who said the government-backed assets would now fall into the bucket of “general intangibles” under the UCC. “The UCC doesn’t have the power to ban people from using any type of exchange. That’s not what it does.”

CBDC Opposition

DeSantis called the CBDC “a massive transfer of power from individual consumers to a central authority,” and he said the federal government would “have the ability to control where that money is going,” citing a future government’s ability to stop gun purchases or halt somebody from buying too much gasoline.

Though DeSantis and other Florida Republicans suggest the U.S. is definitely heading toward issuing a digital dollar, that view isn’t yet reflected by what’s happening. While the administration of President Joe Biden is under orders to develop the concept of a U.S. CBDC, no federal entity has yet declared support for issuing it.

The Federal Reserve would be in charge of the digital dollar, and officials including Chair Jerome Powell have said the central bank won’t act without backing from the White House and Congress. The Fed also doesn’t want to be in the retail CBDC business, so officials have declared that it won’t administer individual accounts and that people’s transactions would have to be managed by banks or in other outside digital wallets.

DeSantis acknowledged that if Congress eventually authorizes a U.S. CBDC, the state may have to back down. But more than that, Andrea Tosato, a legal scholar who has advised on UCC amendments and teaches at University of Pennsylvania’s Carey Law School, said that any federal law on this point will automatically override state law.

If that happens, though, it won’t have anything significant to override in Florida, he and Reyes suggested.

The UCC Reality

The UCC represents longstanding, battle-tested standards for basic transactions, and they‘re meant to be “super boring” and nonpolitical, Tosato said. The Florida effort to use it as a shield against digital dollars is “painting the UCC as something that it is not.”

The UCC gives both sides of transactions basic legal protections, Tosato explained, but it doesn’t tell them what they can or can’t exchange. That’s the job of regulations or criminal codes.

When one digs into “the rabbit hole and the craziness of what was done with this Florida bill,” Tosato said, “there is no light-bulb moment. It makes no sense.”

The governor’s office didn’t respond to a request for comment on these points. DeSantis suggested during his press conference that he wasn’t just protecting people’s financial privacy but was also seeking to defend crypto from federal government interference.

“I think they want to crowd out and eliminate other types of digital assets like cryptocurrency, because they can’t control that,” he said.

While Florida rewrites its single-state corner of the 50-state standards, though, it’s also rebuffing a set of amendments suggested last year that were meant to set standards for the interstate use of cryptocurrencies, including in such examples as the use of bitcoin as collateral in lending. That could have been a foundation for digital assets in commerce, Tosato argued, and other states have been moving forward to adopt the changes.

Even the way Florida defines a CBDC could be problematic. Its new law says a CBDC is a government-issued digital currency “that is made directly available to a consumer,” but Tosato contends that doesn’t reflect any of the current or planned CBDCs, which generally have service providers manage the accounts or wallets for using the virtual currency.

“There is no CBDC anywhere that is issued directly to consumers,” Tosato said.

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As DeSantis and his allies celebrate their CBDC ban, Tosato says they’ve compromised the UCC’s crypto modernization and are misrepresenting the meaning of their overhaul of Florida law.

“It’s done in a way that makes no sense and is completely broken,” he said.

Ethereum Briefly Stopped Finalizing Transactions. What Happened? #prizmabet

The loss in finality meant that blocks could have been tampered with, and while it isn’t supposed to affect end-user experiences, it did lead to some inconveniences for some applications.

The Ethereum blockchain suffered two brief episodes last week where blocks weren’t finalizing – an unwanted bout of instability that presents risks to the blockchain’s security but isn’t considered dire.

There was a lot of confusion in terms of what the delay in “finality” meant for the functionality of the blockchain, prompting discussions about security concerns. So, it bears unpacking a bit.

You’re reading The Protocol, our weekly newsletter exploring the tech behind crypto, one block at a time. Sign up here to get it in your inbox every Wednesday.

The cause of the temporary loss of block finality remains under investigation, though Prysm, a provider of client software used to run a node on the blockchain, just released a new version, describing it as “the first full release following the recent mainnet issues,” with “critical fixes.”

When data blocks don’t finalize, there isn’t supposed to be any downtime or difference in end-user experience. That said, a loss in finality can lead to some security issues like reorgs.

Reorgs occur when a blockchain produces more than one block at the same time, usually because of a bug or an attack. This means that a validator node temporarily creates a new version of a blockchain, which makes it difficult to properly verify if a transaction has been successful, while the old version of the blockchain continues to exist.

However, snowball effects from this incident led to some end-user jolts. DYdX, a leading crypto exchange platform, had to temporarily pause deposits because of one of last week’s incidents, and Polygon’s zkEVM also experienced some delays with deposits.

So how does finalization work?

In a proof-of-stake blockchain like Ethereum’s, validators first have to propose a block that contains transactions. Once those are proposed, other validators have to sign off on the block to permanently add it to the blockchain, which takes about 15 minutes. Once it is approved, or “attested,” by two-thirds of validators, the block eventually becomes finalized.

Thus, finality is the point where transactions on a blockchain are considered immutable. Finality is supposed to guarantee that transactions within a block cannot be altered.

If finality cannot be guaranteed, the blockchain enters an emergency state called the “inactivity leak,” where validators receive penalties for not reaching finalization. When the state is triggered, it acts as a way to incentive the blockchain to start finalizing again. The incident last week triggered Ethereum’s first-ever inactivity leak.

The Ethereum community has acknowledged that the current timeframe for blocks to be finalized is too long.

“Having a delay between a block’s proposal and finalization also creates an opportunity for short reorgs that an attacker could use to censor certain blocks or extract MEV,” the Ethereum website shared in a blog.

Ethereum co-founder Vitalik Buterin was writing about finality seven years ago, an indication of just how important an issue it is.

When the first loss of finality occurred on May 11, developers immediately shared it over Twitter, saying they were going to deploy extra help to figure out what was going on. After 25 minutes, the issue seemed to have been resolved and the chain resumed finalizing.

Roughly 24 hours later, the chain stopped finalizing again for about an hour, which caused outages for some infrastructure providers.

In the past, finalization has temporarily stopped because of bugs in client software used to run the blockchain. Ethereum has multiple clients in the event that there is a flaw or glitch in the software, so there are other options, and the activity on the blockchain can keep running.

How did this affect the applications?

Tim Beiko, protocol support lead at the Ethereum Foundation, told CoinDesk the incident is “definitely significant, but it’s not something where Ethereum’s security or soundness is at risk or compromised.”

“Within minutes, things were corrected and within like a day or two clients had software patches to make sure that this specific case did not come up again,” he said.

The developers are still looking to understand what caused the blockchain to stop finalizing, and are expected to discuss a post-mortem report in their upcoming Consensus Layer call.

Beiko told CoinDesk that the incident did not get to a point “where we began to test the very extreme fallbacks in the protocol to deal with this stuff.”

The incidents did affect several applications that run on top of the Ethereum blockchain.

Jordi Baylina, technical lead at Polygon, said that the finality stoppage meant that deposits onto the Polygon zkEVM chain were delayed, and since the chain relied on Infura, an infrastructure provider which also temporarily had an outage as a result of the loss in finality, issues for individuals using the zkEVM compounded.

“You need to wait for the finality in layer 1 deposit to be available in layer 2,” Balyina said. “So until you don’t have finality, you cannot use [the chain] or you have the risk of double spending in layer 2.”

DYdX paused its deposits temporarily today due to the lack of Ethereum finality and said it was “continuing to monitor and investigate this issue.”

Despite this, Ethereum developers emphasize that the network did not go down.

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“Today’s incident has been a great fire drill. It looks like two or three issues came together (as is often the case). The chain recovered gracefully and we discovered a few other issues that could be improved to make Ethereum more resilient,” tweeted Marius van der Wijden, a developer at the Ethereum Foundation.

Edited by Bradley Keoun.