In this issue
- Is India’s central bank greenlighting crypto?
- Thailand’s SEC tries to rein in DeFi with new rules
- Bitcoin transaction fees plummet to new lows
- Cardano rolls out Alonzo upgrade in prep for DeFi
- Will China’s future digital yuan offer smart contracts?
From the Editor’s Desk
In Asia, “face” — maintaining one’s outward dignity — counts for a lot. And this week, many faces were on display.
At India’s central bank, red faces might have been the order of the day. On Monday, the Reserve Bank of India was busy trying to keep face while covering the opposite part of its anatomy. The RBI appeared finally to have been compelled to admit that its crypto banking ban, imposed back in 2018, was no longer the law of the land. It issued a circular conceding — 14 months after the Supreme Court struck it down — that the ban was “no longer valid.”
The central bank’s volte-face appeared to have been prompted by a backlash among commercial bank customers angered by warnings not to trade cryptocurrencies, in some cases accompanied by threats to suspend or close customers’ accounts.
As the RBI stopped the banks’ embrace of its earlier stance on crypto, it nonetheless managed a parting shot, reminding lenders to pay careful attention to due diligence — presumably lest the crypto community get the impression that they had chalked up a victory.
Who says there’s no grace — or face — in defeat?
Face of a different sort has been on display elsewhere in Asia in the past week.
In China, former central bank director Yao Qian addressed comments by U.S. Federal Reserve Chairman Jerome Powell, who said the country’s prototype digital currency was another means by which Beijing would surveil its own population.
In a brave-faced response strong on defense but perhaps ironic, Yao noted that Chinese authorities could snoop on individuals’ financial affairs already, courtesy of the ubiquitous use of payment platforms such as Alipay and WeChat Pay.
And in Thailand, the securities regulator put on its game face as it limbered up to bring order to the field of decentralized finance.
Although Thailand’s Securities and Exchange Commission may share a name with its U.S. counterpart, that may be as far as comparisons go, given the respective institutional muscle of the two regulators. It’s even been suggested that the Thai watchdog may have bitten off more than it can chew as it tries to regulate DeFi — a sector already notorious for its amorphous qualities.
Thailand’s “land of smiles” visage may slip once its SEC begins to grapple with a sector that can’t always be taken at face value.
Until the next time,
Founder and Editor-in-Chief
1. Is India’s central bank greenlighting crypto?
By the numbers: RBI crypto — over 5,000% increase in Google search volume.
Just recently, Indian banks were refusing to service crypto-related transactions, citing a crypto banking ban imposed by the nation’s central bank back in 2018. But the Reserve Bank of India — which has long been perceived as being anti-crypto — unequivocally reminded banks this week that the nation’s highest court had struck down the crypto banking ban more than a year ago.
- The notice from the RBI also said that banks may continue to take necessary action to ensure that transactions complied with regulatory guidelines such as know-your-customer, anti-money laundering and combating of financing of terroristm.
- The Indian Parliament has yet to make a decision on proposed legislation that would virtually ban cryptocurrencies in the nation. But Finance Minister Nirmala Sitharaman has hinted that India would not be shutting down crypto transactions and that it’s leaning towards regulation.
Forkast.Insights | What does it mean?
India has a checkered history with cryptocurrency, New Delhi having oscillated between either banning or regulating virtual currencies such as Bitcoin. Although the latest development in the Indian cryptocurrency market is being celebrated, it may be necessary to take a step back and examine what actually happened and perhaps put the champagne back on ice.
Just after several major Indian banks — including the State Bank of India and HDFC Bank — issued warnings to customers against using their services to trade cryptocurrency, the RBI stepped in to clarify that financial institutions could not cite a legally defunct circular it had issued in 2018 for such communications.
Did the RBI act because it’s now endorsing cryptocurrency trading? No. It did so because the circular in question — which prohibited India’s banks from providing services to crypto exchanges and businesses dealing with digital assets — was ruled invalid by the country’s Supreme Court in March 2020.
The RBI has in fact not taken any position indicating that it recognizes the legality of cryptocurrency transactions in India. In this instance, it’s important to understand that when the Supreme Court threw out the crypto banking ban in 2020, the opponent in the case was the central bank itself, and that the RBI’s clarification to Indian banks on May 31 may simply be a way of ensuring it avoids legal hazard.
If the central bank were to remain silent as SBI and HDFC Bank leveraged an invalid circular it issued in 2018, it could court renewed attention from the Supreme Court and perhaps spur further judicial action. The RBI is merely safeguarding its position by issuing the clarification, most likely on the advice of its legal counsel.
So, has the RBI given the green light to cryptocurrency in India? Not at all. It is likely just protecting itself.
2. Thailand’s SEC tries to rein in DeFi with new rules
By the numbers: TukTuk finance — over 5,000% increase in Google search volume.
Thailand’s Securities and Exchange Commission is making an attempt to regulate the Wild East’s decentralized finance (DeFi) sector following the launch of decentralized exchange TukTuk Finance on Thailand-based blockchain Bitkub Chain. The launch saw the protocol’s native crypto, TUK, surge to a valuation of hundreds of U.S. dollars before tanking to US$1 in a matter of a few minutes.
- The SEC issued a statement to DeFi developers in Thailand, requesting that those issuing DeFi tokens obtain licenses. Failure to do so, the SEC warned, would result in punishment under the country’s Digital Assets Act.
- TukTuk Finance has more than US$15 million of value locked in its platform, and TUK is currently trading at around US$1. The liquidity pool of TUK to KUB — Bitkub’s cryptocurrency — had an APR upwards of 1,300% as of press time.
Forkast.Insights | What does it mean?
The decentralized finance ecosystem has enjoyed a phenomenal rise over the past year, building on the momentum of cryptocurrencies such as Bitcoin and Ethereum, with the blockchain technology that supported them decentralizing the computing work needed to support their networks. These blockchain networks have allowed users to transact on a peer-to-peer basis, supporting smart-contract functionality that has eliminated the need for central intermediaries. However, the boom in cryptocurrency trading still requires centralized exchanges such as Coinbase and Binance, which allow users to trade crypto using fiat onramps, and, as such, these exchanges can be subject to regulation because fiat deposits and withdrawals require the use of credit cards and bank accounts.
Global regulators are having a difficult time imposing legal frameworks and parameters on new forms of financial technology such as Bitcoin and the exchanges that intermediate them, but Thailand’s SEC is now attempting to confront DeFi — a sector that takes decentralization to an entirely new level.
DeFi services go beyond the work begun by cryptocurrencies. Decentralized exchanges are faceless protocols that leverage smart contracts to recreate traditional financial instruments and generate new ones. They promise a dynamic, disintermediating revolution in finance, replacing exchanges, market-makers, asset managers and financial institutions such as banks and lenders with software. And because they employ decentralized, permissionless blockchains as their settlement layer, DeFi platforms are open to anyone, anywhere, who can gain access to cryptocurrencies.
To the tech savvy crypto faithful, DeFi represents new and innovative democratized access to financial products, easier access to liquidity, improved market efficiency, and enhanced financial privacy. But, as seen far too often over the past year with DeFi, the ecosystem can also be seriously risky for its users.
A far too common occurrence in DeFi is the “rug pull” — a malicious tactic of bad actors in the crypto industry in which crypto developers abandon a project and simply run away with investors’ funds, hidden in the anonymity of cyberspace.
The reality is that when it comes to DeFi, the ecosystem’s observers are split on regulation. Although many believe that regulation could greatly boost the industry, others believe it simply cannot be put in place without crippling it.
In essence, all financial regulation must assume the presence of intermediaries, and regulatory frameworks are imposed on these intermediaries, such as is currently occurring with crypto exchanges like Coinbase and Binance. But the question remains for Thailand’s SEC: How can it possibly find a way to regulate decentralized financial markets and related activities? Its route, at least according to its statement, appears to be pushing the task onto the traders who dabble in DeFi. But Thai regulators and policymakers may find DeFi carries them into uncharted waters that…
Read More: RBI clarifies crypto law | Bitcoin fees drop