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"Proof of reserves is all the rage on crypto platforms. The idea is that if the platform can prove to its customers' satisfaction that their deposits are fully matched by equivalent assets on the platform, their deposits are safe. And if the mechanism they use to prove this uses crypto technology, that's even better. Crypto tech solutions have surely got to be much more reliable than traditional financial accounts and audits - after all, FTX passed a U.S. GAAP audit. No, they aren't. Proof of reserves as done by exchanges like Binance does not prove that customer deposits are safe. It is smoke and mirrors to fool prospective punters into relinquishing their money, just like claims that exchanges and platforms are "audited" or have "insurance". There are no audits in the crypto world, there is no insurance, and as I shall explain, proof of reserves proves absolutely nothing." [Frances Coppola]

Coinbase will support for Euro Coin (EUROC) on the Ethereum network (ERC-20 token) and trading will commence as soon liquidity conditions are met, in regions where trading it is supported. The EUROC token will launch with the "experimental" label, designated for new or low volume tokens on the exchange.

Bank for International Settlements (BIS) General Manager Agustín Carstens called for  the development of a  "unified ledger" that would allow different parts of the digital financial ecosystem to work together seamlessly. More specifically, such a ledger could bundled together central bank digital currencies (CBDCs) and tokenized deposits, linked with smart contracts, to create a "money Lego" ecosystem. And Mr. Carstens claimed that all of a unified ledger's potential benefits  could be achieved on permissioned platforms with various degrees of centralization.

"Recent news reports have shone a light on Binance-Peg BUSD ("PBUSD") and how it doesn't always appear to have been completely backed by BUSD issued by Paxos. PBUSD is minted on several blockchain networks including BNB Chain, Avalanche, Polygon, and TRON. PBUSD has always been, and continues to be, 100% collateralized. However, the collateral has not always been stored in a single, dedicated wallet in real time so that the 1:1 backing was not always immediately visible to users. Binance undertook a project to centralize the collateral in a single, dedicated wallet; this was completed on 04 January 2023 so that users have visibility into the 1:1 backing of PBUSD. Minting of PBUSD now only takes place after collateral is added to the dedicated wallet. Centralization of collateral for all Binance-backed tokens into dedicated collateral wallets will be completed by 09 February. This will be visible in the Proof of Reserves system that we are continuing to develop."

Also, according to a Wall Street Journal (WSJ) report, the US Securities and Exchange Commission (SEC) has issued Paxos a Wells Notice for allegedly selling unregistered securities by issuing BUSD. That characterization  typically hinges on the Howey Test, under which an investment contract exists if there is an "investment of money in a common enterprise with a reasonable expectation of profits to be derived from the efforts of others."

"There are long-running boring debates about whether certain sorts of cryptocurrencies are "securities" subject to the SEC's jurisdiction. The SEC tends to think that almost everything in crypto is a security; most crypto companies think that almost nothing is a security. (Very few crypto companies register their token or product offerings with the SEC, and the SEC sometimes sues them for doing unregistered securities offerings.) The general rule - called the "Howey test" - is that a security is "the investment of money in a common enterprise with a reasonable expectation of profits to be derived from the efforts of others." A lot of crypto projects look a lot like that, but you can debate the specifics."

The WSJ is reporting that financial services company Cantor Fitzgerald is helping Tether oversee a $39 billion bond portfolio comprised of United States Treasury securities. The report indicates that some firms on Wall Street are willing to support crypto service providers despite ongoing regulatory concerns facing the industry. "

"Forbes has learned that Tether moved $37 billion of its reserves to an offshore bank called Capital Union in 2021. The move occurred after settling with the New York Attorney General's office over claims it had misrepresented its finances. Tether also enlisted another Bahamian bank, Ansbacher, to hold some of its reserves. Tether has additionally been using New York financial services giant Cantor Fitzgerald as a custodian of U.S. Treasury bills. (Tether recently reported that more than half of its consolidated assets were in Treasuries last quarter.)"

Financial interoperability requires a stable price as means of value exchange. The first implementation of wrapcbdc is Convexity eNaira(CNGN) which is currently available on the Bantu Network as well as Binance Smart Chain. CNGN creates possibilities in payments, lending, investing, trading and trade finance.

Wyoming-based Avanti Financial Group has changed its name to Custodia Bank, and announced plans to launch in Q2 with U.S. dollar deposit accounts for business customers, initially providing ACH and Fedwire services. Its post-launch roadmap includes digital asset custody, Avit™ (a payment instrument akin to a digital cashier's check) and prime services, facilitated by customer-facing APIs to enable the programmability of payments by customers.

Euroclear has invested in Fnality, the blockchain payments consortium formerly known as the Utility Settlement Coin (USC) and owned by 16 major financial institutions. Euroclear operates Central Securities Depositories (CSDs) across Europe, including Belgium, Finland, France, Ireland, the Netherlands, Sweden, and the United Kingdom. In October, Fnality plans to launch its first payment currency with pounds sterling deposited at the Bank of England. That makes it a so-called wholesale synthetic CBDC where the purpose is for institutions to use it for settlement, especially for blockchain-based transactions.

"The lesson might be that there are some industries that are bad to bank. Imagine that it was 2021, and someone was like "do you want to start the Bank of Crypto? What about the Bank of Venture-Backed Tech Startups?" You'd be tempted, right? Those industries had so much money! They seemed cool. If you were their bank - if you were the specialized bank that exclusively focused on those industries - influencers on Twitter would tweet nice things about you, and you'd get invited to fancy parties. Also, as their bank, you'd probably find a way to get a cut of growing industries with lots of potential. Provide banking services to tech startups, get warrants in those startups, get rich when they go public. Provide banking services to crypto exchanges, start some sort of blockchain-based payment network, get rich through the magic of saying "blockchain" a lot. "

"The Silicon Valley Bank failure strikes me as a colossal failure of bank regulation, and instructive on how rotten the whole edifice is. I write this post in an inquisitive spirit. I don't know the details of how SVB was regulated, and I hope some readers do and can chime in. "

"We analyze U.S. banks' asset exposure to a recent rise in the interest rates with implications for financial stability. The U.S. banking system's market value of assets is $2 trillion lower than suggested by their book value of assets accounting for loan portfolios held to maturity. Marked-to-market bank assets have declined by an average of 10% across all the banks, with the bottom 5th percentile experiencing a decline of 20%. We illustrate that uninsured leverage (i.e., Uninsured Debt/Assets) is the key to understanding whether these losses would lead to some banks in the U.S. becoming insolvent-- unlike insured depositors, uninsured depositors stand to lose a part of their deposits if the bank fails, potentially giving them incentives to run. "

"Yes! I think that post ("Why is finance so complex?") from Steve Randy Waldman at Interfluidity is a classic, I cite it often, and it was what I had in mind as I was writing yesterday. Waldman describes banking as, broadly speaking, an opacity mechanism for credit, a way for society to take a lot of credit risk without the people taking that risk quite knowing that that's what they're doing. My point yesterday was that it is also an opacity mechanism for interest rates, a way for society to borrow short and lend long. Sometimes you need to bulk up the opacity though."

"The Swiss Bankers Association (SBA) has published a white paper on a digital Swiss franc, in which it outlines various designs of "tokenised" deposits on the blockchain. If issued by regulated banks, a deposit token could make an important contribution to Switzerland's future competitiveness and innovative power, as well as bolster its sovereignty."

"In principle Tether has a very good and easy business, but in practice it is weirdly difficult, and issuing USDT in exchange for Bitcoin collateral might in fact be easier and safer than issuing USDT in exchange for dollars in the bank. To get dollars in the bank, you need a bank."

"Like bank deposits that make up over 90% of the money in use today, tokenized deposits can support a variety of use cases including domestic and cross-border payments, trading and settlement, and provision of cash collateral. In a token form, commercial bank money becomes a programmable instrument that operates 24/7 and can be transferred instantly, without relying on intermediaries. These technical features allow "deposit tokens" to express sophisticated payment operations and to act as collateral that travels within minutes."

"The current interest rate environment has had dramatic effects on the profitability and risk profile of banks' funding and investment strategies. First, as a result of the higher interest rates, longer term maturity assets acquired by banks when interest rates were lower are now worth less than their face values. The result is that most banks have some amount of unrealized losses on securities. The total of these unrealized losses, including securities that are available for sale or held to maturity, was about $620 billion at yearend 2022. Unrealized losses on securities have meaningfully reduced the reported equity capital of the banking industry. The good news about this issue is that banks are generally in a strong financial condition, and have not been forced to realize losses by selling depreciated securities. On the other hand, unrealized losses weaken a bank's future ability to meet unexpected liquidity needs. That is because the securities will generate less cash when sold than was originally anticipated, and because the sale often causes a reduction of regulatory capital."

The Fed's Board of Governors released its final order on crypto-centric, Wyoming-based Custodia Bank's application to become a member of the Federal Reserve system. The central bank raised strong doubts about Custodia's management team, financial condition and business model in rejecting the application.