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CFTC Chairman Heath Tarbert Talks Ethereum, DeFi and the Next BitMEX

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  • After the BitMEX enforcement action, are other noncompliant exchanges on the CFTC’s radar? “Maybe,” said Chairman Heath Tarbert.
  • In an appearance Wednesday, the regulator largely deferred to his colleagues at the SEC on the question of whether ether in a proof-of-stake version of Ethereum would be a security or a commodity.
  • He similarly punted on DeFi.

“Let me just basically say how impressed I am by Ethereum, full stop, period.”

No, that’s not a Silicon Valley investor. That was Heath Tarbert, chairman of the Commodity Futures Trading Commission (CFTC), who flexed a sophisticated understanding of blockchains during a live interview at CoinDesk’s invest: ethereum economy virtual conference Wednesday.

Chatting with CoinDesk Chief Content Officer Michael J. Casey, Tarbert discussed how Ethereum and decentralized finance (DeFi) fit into U.S. securities and commodity laws, as well as the agency’s recent enforcement actions and the potential benefits and risks of migrating financial activities to distributed networks.

The “fireside chat” picked up where a similar conversation last year left off: How Ethereum and its expected shift to a proof-of-stake consensus mechanism might fit into U.S. commodities laws.

“I’m not willing to say necessarily that” governance by staking would definitely put Ethereum 2.0, the coming reboot of the world’s second-largest blockchain, into a securities classification, he said. “It’s still decentralized in a way that your typical company or even a cryptocurrency that really has a company standing behind it” isn’t.

Ether (the blockchain’s native cryptocurrency) right now is considered a commodity, similar to bitcoin, the only other cryptocurrency with a regulated derivatives market in the U.S. However, it’s unclear whether a proof-of-stake network would be treated similarly under U.S. law or if it would more closely resemble a security.

“The more decentralized it becomes over time and the more that it effectively runs itself, the more likely it is it’s going to fall within the commodity category and not the securities [group],” Tarbert said.

This issue is contingent on what the U.S. Securities and Exchange Commission (SEC) says, Tarbert said.

“We usually defer to the SEC’s views on [what is] a security, so if the SEC says, ‘This is not a security,’ then we’re generally confident we can come in at that point and say it’s a commodity,” he said.

Decentralized finance

Tarbert has been an outspoken supporter of the cryptocurrency space since his arrival at the CFTC in mid-2019. Under his tenure, the first Ethereum-based derivatives contracts entered the U.S., validating a view he expressed last year. More recently, he said that “a large part” of the financial system could end up existing in a blockchain format.

It was in that spirit Wednesday that he addressed the burgeoning decentralized finance (DeFi) field, where a dizzying array of complex products have presented novel challenges for regulators. On the one hand, he saw cause for optimism.

“The whole idea of DeFi really is, number one, it’s obviously revolutionary, and I think at the end of the day could lead to a massive disintermediation of the financial system and the traditional players,” Tarbert said. “And ultimately, [it] could potentially even reduce systemic risk in some ways because we don’t have the finance system concentrated in these large globally, systemically important institutions.”

Tarbert does not expect this shift to happen immediately, saying it could be “decades” away, but the potential for this sort of disintermediation does mean that involved parties should be asking questions about network resilience.

“If we think about [if] a large portion of our global financial system winds up on Ethereum, then we have real concerns about the theory … what if Ethereum went down?” he asked.

Tarbert did not provide a firm answer about how assets involved in or issued by DeFi projects might fit into securities or commodities laws, noting it could depend on what the digital contracts do and how tokens are distributed.

When asked about Uniswap’s airdropped UNI governance token, Tarbert said it “has some features” of a security but also “significant differences,” not least of which is the fact the assets were distributed for free.

“If people didn’t necessarily pay for it … then it’s hard to see at what point there would be an economic loss,” he said. Again, however, the CFTC chairman said this would be something for the SEC to consider.

If regulators aren’t bringing actions against potential violators of securities laws, private individuals can still bring their own lawsuits, at which point a court would have to decide, Tarbert said.

So-called fair token distributions like Yearn.Finance’s, where tokens aren’t set aside for the project’s founding team, are also a tough call.

“The issue with fair launch, that takes the founders out of it,” he said. But there are still concerns about market manipulation which the regulators might still have to evaluate.

Going green

Making Ethereum more environmentally friendly would be an additional benefit from shifting to proof-of-stake, Tarbert said during the chat, noting that proof-of-work, the consensus mechanism currently used by the blockchain (and pioneered by Bitcoin) requires energy-intensive machinery.

“There are issues with mining, of course, so number one [is] environmental issues,” he said. “And so I think we were generally supportive as a larger matter in reducing … the environmental footprint, and moving to proof-of-stake clearly does that.”

He likened current transaction costs on Ethereum’s congested network to the cost of flying across the country compared to buying a car in the 1930s.

“At some point, we’ve got to move in terms of scale and efficiency to deal with environmental issues but also to deal with the cost issue,” he said. “I see proof-of-stake as being potentially helpful.”

Book ’em

The CFTC recently brought an enforcement action against BitMEX, one of the world’s largest crypto derivatives exchanges. In charges unveiled this month, BitMEX is accused of allowing U.S. residents to transact on its platform without registering as a futures commission merchant or obtaining other licenses.

BitMEX also failed to comply with the Bank Secrecy Act in conducting know-your-customer and anti-money-laundering procedures, the CFTC alleged alongside prosecutors with the U.S. Attorney’s Office for the Southern District of New York.

“I want the U.S. to lead in digital assets,” Tarbert said, explaining why the agency pursued BitMEX. “What we want, our desire is to create an environment where innovators in digital asset exchanges can grow up here in the United States, they can come to places like the CFTC and get a license and they can benefit from our regulatory regime. What we don’t want to see are offshore exchanges that are effectively flouting U.S. laws.”

The agency has an “obligation” to go after non-compliant exchanges, he said. When asked if the agency is looking at other platforms as well, he answered: “I’ll say maybe.”

CoinDesk’s invest: ethereum economy is a fully virtual event Oct. 14 exploring the Ethereum ecosystem.



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Bank of Spain to Weigh Digital Currency Design Proposals, ‘Implications’ Through 2021

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The leader in blockchain news, CoinDesk is a media outlet that strives for the highest journalistic standards and abides by a strict set of editorial policies. CoinDesk is an independent operating subsidiary of Digital Currency Group, which invests in cryptocurrencies and blockchain startups.



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Strong ODL and XRP Growth, 2020 ‘Was a Success’

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Ripple launched On-Demand Liquidity using XRP in 2018. Since then, the firm now has over 24 clients including Azimo and MoneyGram.

Ripple CEO Brad Garlinghouse insisted that the company is committed to the XRP token as the “key behind RippleNet”. He was speaking in the opening keynote at the 2020 Swell conference. Brad confirmed that in the 3 years that RippleNet has been live, more than two million transactions have been completed with a nominal value of at least $7 billion. Ripple ODL and XRP were utilized in almost 20% of all these transactions.

They represented a nominal value of almost $2 billion. According to Garlinghouse, the two are essential to Ripple’s global expansion and longevity. He commented:

“It’s also clear to me that XRP is the key behind RippleNet. Its speed, its scalability, and its low cost per transaction make it perfect for instant settlement and exchange of value. It was built for payments. It has real utility; that’s why it works.”

Ripple launched On-Demand Liquidity using XRP in 2018. Since then, the firm now has over 24 clients including Azimo, Flash FX, SendFriend, and MoneyGram. These are the high profile clients that are using On-Demand Liquidity in production. Interestingly, Ripple has great pulling power in Asia.

Target Regions for Ripple ODL

As Garlinghouse said, the majority of the RippleNet volume comes from the Asia Pacific region, both receiving and sending. He also highlighted that Ripple’s clients are increasingly attracted to the emerging markets including Africa, Latin America, and the Asia-Pacific region.

Generally, these regions have been ‘largely abandoned’ by the traditional banking systems in the past ten years. Azimo is a highlight in the terms of on-demand liquidity that Garlinghouse focused on. He commented on the ODL partner and reviewed how 2020 has been.

The Ripple CEO said that Azimo has been saving 30% to 50% when arranging various currency transfers between clients in Europe and the UK and those in the Philippines using On-Demand Liquidity. Thus, 2020 has been a fruitful year for Ripple ODL and there is rapid growth witnessed in the second half of the year so far.

Line of Credit Introduced

The interest from clients has not dwindled and Ripple is excited that even during these quarantine times customers still see value from that. Garlinghouse commented on the Line of Credit (LOC) product unveiled several days ago. He said that companies will benefit greatly from it helping them adapt Ripple On-Demand Liquidity (ODL) which will enable their business to thrive.

Ripple has now taken a bold step into the financial services world with LOC striving to help in the adoption of XRP. LOC helps the hyper-scale firms since they do not need to engage in separate credit agreements in various countries in different parts of the world. However, they can concentrate on investing in their business and enable repayment at a later date.

The unveiling of Line of Credit represents a major milestone in the evolution of RippleNet. Ripple is therefore doubling down on XRP and providing financial services powered by the network. It means that cross-border payments remain the core of their business.

Ripple Is Growing

Currently, Ripple has more than 500 employees. Adding that onto a recent restructuring, the company appears to be better equipped than ever to face the future as it comes. Garlinghous is confident that the company has the best team to take it forward. Also with the new streamline business units that include RippleX andRippleNet, the company is gradually evolving but its core DNA remains the same.

Ripple promises to be the builder and not the disruptor. Its success is notable in the growing number of employees especially during the quarantine period where they added 50 people to their payroll.

LOC and the Bank of America Rumor

This year’s Ripple Swell conference was held in private, but some interesting news and comments have leaked. Also, Ripple shared Brad Garlinghouse’s opening remarks at the conference. According to the CEO, the financial sector has not experienced innovations at such high levels in decades. PSPs (Payment Service Providers) and digital banks are putting a lot of pressure on the current system.

Also, digital wallets are seeing a ‘meteoric surge’ and Ripple is at the center of it all with its Internet of Values vision. The company’s Line of Credit product is managed by Barry Joseph. It substitutes a pre-financing process that took 2-3 months previously. Line of Credit streamlines that process to get completed within 48 hours and RippleNet members buy XRP at pre-determined prices.

In attendance at the Swell conference was an On-Demand Liquidity (ODL) panel with 3 partners. These partners include a “new face” with Sigue Group CEO Guillermo de la Vina, Bitso from Mexico, and Flash FX from Australia.

Concurrently, an unconfirmed rumor emerged which confirms previous leaks that there is a possible partnership between Ripple and Bank of America. The XRP community is divided on that issue. But, footage and screenshots have emerged on Twitter showing an ODL demonstration video of the Bank of America. Nevertheless, that presentation is not confirmed with other sources writing ‘Fast Remit’.

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Wanguba Muriuki is a content crafter passionate about putting everything into writing. He is passionate about Blockchain and Traveling. He is also an experienced creative and technical writer. Everything and everyone has a story to tell. What better way to capture the real story than in words.



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Morgan Stanley Reports Profitable Q3, Revenue Hits $11.7 Billion

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Morgan Stanley has made a big jump following its previous quarter reports that were marred by the influence of the coronavirus pandemic.

Investment banking giant Morgan Stanley (NYSE: MS) has posted a better than expected earnings for its Q3 on Thursday. According to Reuters, the Q3 earning Morgan Stanley reported came as a result of the firm’s blossoming trading business.

Per the financials, Morgan Stanley reported an $11.7 billion net revenue surpassing last year’s figures that were pegged at $10 billion. Net income reported came at $2.7 billion or $1.66 per diluted share, a big improvement from the net income of $2.2 billion, or $1.27 per diluted.

Morgan Stanley’s Chief Executive Officer and Chairman James P. Gorman attributed the company’s performance to key business decisions involving targeted acquisitions made within the quarter. He said:

“We delivered strong quarterly earnings as markets remained active through the summer months, and our balanced business model continued to deliver consistent, high returns. The completion of the E*TRADE acquisition, the subsequent ratings upgrade from Moody’s, and the recently announced acquisition of Eaton Vance significantly strengthen our Firm and position us well for future growth.”

Other performance tickers including the record of a pre-tax income of $3,487 as against $2,710 reported in Q3 2019. The reported net revenue does not just express the sound position of the company to investors, it showed that the company’s business has strengthened across all front despite the ravaging effects of the coronavirus pandemic.

Also, Morgan Stanley reported growth in its investment banking sector with revenues shooting up 11% from a year ago while the company’s Trading and Sales net revenue climbed by 20% from a year ago. With good growths seen in most indices showing an impressive performance in the quarter ended September 30th, Morgan Stanley now stands as one of Wall Street’s big names with a positive Q3 outlook.

Morgan Stanley Q3 Results: How Firm Fared Compared to Previous Quarters

Morgan Stanley has made a big jump following its previous quarter reports that were marred by the influence of the coronavirus pandemic. Despite the acquisition of E*TRADE, a leading online broker that has produced stellar results for the greater part of a decade and that has about $360 billion in assets, Morgan Stanley’s Q1 performance turned out low in the first quarter of 2020.

In Q1, the total net revenue reported came at $9.49 resulting in a plunge of about 7.8% compared to the same period last year. The Q2 performance however complimented the Q1 plunge suggesting that the company’s investments in the previous quarter had started picking up the positive momentum. Morgan Stanley’s Q2 revenue surged to $13.4, an increase over 2019 Q2’s $10.2 billion.

The positive momentum the company has gained as shown in both its Q2 and Q3 will make analysts revise their expectations for Morgan Stanley in the current Q4.

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Benjamin Godfrey is a blockchain enthusiast and journalists who relish writing about the real life applications of blockchain technology and innovations to drive general acceptance and worldwide integration of the emerging technology. His desires to educate people about cryptocurrencies inspires his contributions to renowned blockchain based media and sites. Benjamin Godfrey is a lover of sports and agriculture.



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