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TurnKey Token Gets to Fly: SEC Issues First No-Action Letter for Token Sale

On April 3, the US Securities and Exchange Commission (SEC) provided important guidance for token issuers. The SEC Division of Corporation Finance issued a No-Action Letter dated April 3 regarding TurnKey Jet, Inc. (the “TurnKey No-Action Letter”) in which the SEC staff confirmed that it would take no action against Turnkey Jet, Inc. (TKJ) for… Continue Reading

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On April 3, the US Securities and Exchange Commission (SEC) provided important guidance for token issuers. The SEC Division of Corporation Finance issued a No-Action Letter dated April 3 regarding TurnKey Jet, Inc. (the “TurnKey No-Action Letter”) in which the SEC staff confirmed that it would take no action against Turnkey Jet, Inc. (TKJ) for selling tokens without registration. This guidance is most relevant to token issuers who are focused on commercial utility and record-keeping benefits in a centrally controlled network and are willing to minimize or eliminate the profit elements of the token. The TurnKey No-Action Letter, taken together with the Framework for “Investment Contract” Analysis of Digital Assets (“Framework”) issued by the SEC’s Strategic Hub for Innovation and Financial Technology on the same date, offers guidance for structuring the elements of a private, permissioned, centralized blockchain token and network.[1] 

The SEC staff emphasized the following elements of tokens sold by TKJ (TKJ Tokens) and the associated network in the TurnKey No-Action Letter:

  • No proceeds from token sales are used to develop the network or related software;
  • The network is “fully developed” and operational before tokens are sold;[2]
  • When sold, the tokens are usable for their stated commercial functionality;
  • Tokens cannot be transferred outside of the network;
  • Tokens are sold by the issuer at a stable price throughout network operation;
  • Each token represents an obligation to supply commercial services valued in a stable amount (i.e., the tokens are stablecoins);
  • The issuer only repurchases tokens at a discount to their face value;[3] and
  • Marketing of the tokens emphasizes their functionality, and not potential for increases in market value.

TKJ’s no-action request contains a lengthy description of the proposed network and tokens. These facts may prove significant to the SEC’s evaluation of any subsequently issued tokens seeking to rely upon the TurnKey No-Action Letter. Some features of the TKJ network and token elements that may prove significant to structuring TKJ Tokens and associated networks include:

  • A network that is a permissioned blockchain, where permission is conditioned upon agreement to contractual terms and conditions;
  • Fees for participation in the network are permissible;
  • Distinctions among network users are possible, and may even be required to the extent individual consumers participate;
  • TKJ Tokens allow the continuing active participation of the token issuer without causing the tokens to be securities, addressing a major focus of the Framework;
  • The network operator satisfies applicable know-your-customer/anti-money laundering and sanctions requirements for network participants (in this case, in concert with stricter security and identity requirements for users of on-demand private aviation); and
  • Token marketing materials emphasize the tokens’ consumptive use, and users represent that their purchases are for commercial use.

Of course, some of these may prove less significant than other elements not emphasized above.

Other interesting elements of the TKJ Tokens could prove significant to future responses from the SEC staff. First, the nominal asset underlying the TKJ Tokens is the US dollar, rather than a commodity or company product or service. The Framework seems to contemplate a greater variety of asset pegs, but pegs of commodities, foreign currencies, or in-kind delivery may raise greater concerns of speculative or investment opportunity and may implicate other statutory regimes.[4] Second, TKJ commits to continuous and open-ended sales, which appears to factor heavily in its argument that TKJ tokens would have future price stability. Third, the US dollars underlying the TKJ tokens will be maintained in escrow with banks on a one-to-one ratio, and escrow balances will be subject to independent audit. The escrow arrangement contractually limits TKJ’s discretion over the use of the escrowed funds, but seemingly subjects network participants to risk of contractual breach by TKJ, and the escrowed amounts to the risk of claims by TKJ’s creditors.[5] Finally, TKJ committed to offer no rebate, reward, bonus, or similar program. This commitment creates greater restrictions than are sometimes observed for prepaid and stored value programs.

As a product of the SEC, the TurnKey No-Action Letter does not address potential issues associated with other applicable regulatory frameworks. For example, the creation and maintenance of a centralized, permissioned blockchain operating in whole or substantial part within the United States may trigger US anti-money laundering (AML) regulations administered by the US Department of the Treasury’s Financial Crimes Enforcement Network (FinCEN) applicable to Money Services Businesses (MSBs). Notably, administrators and exchangers of convertible virtual currency could be viewed as a type of MSB known as a money transmitter.[6] Additionally, use of fiat currency to purchase a digital token of this type may be subject to rules about acting as a provider or seller of prepaid access, a different type of MSB. However, the regulations contain a number of potential exemptions or limitations, which centralized, permissioned blockchain creators may be able to avail themselves of in certain scenarios. Such activity may also trigger money transmitter laws at the state-level, depending on the particular facts and circumstances.

The TurnKey No-Action Letter appears to provide a path for issuing stablecoins with potential widespread applicability as an alternative to stored value and prepaid programs without registration as securities. TKJ Tokens may provide their issuers with the following benefits, among others:

  • Prepayments for products or services that provide positive cashflow (i.e., “float”);
  • Avoidance of wire, credit card, and other intermediary fees;
  • Avoidance of foreign exchange translation costs;
  • Interest income on escrowed balances supporting token redemption obligations;
  • GAAP income as fulfillment obligations are written-off for non-redemption;
  • Records management efficiencies from blockchain recordkeeping;
  • Transaction settlement and auditing efficiencies from blockchain recordation speed, immutability, and multiplicity;
  • Processing of transactions outside of normal banking hours; and
  • Smart contract implementation that may lead to reduced personnel costs and fewer commercial disputes.

On the other hand, the path represented by the TurnKey No-Action Letter may not be attractive to other types of start-up businesses and protocol developers, in particular, those intending to create protocols or networks with decentralized management and governance decision-making. In sum, the TurnKey No-Action Letter brings welcome clarity to one type of token offering—i.e., a token issued in conjunction with a developed private, permissioned, centralized blockchain network—but the Framework and guidance from other regulatory agencies is needed to understand the broader landscape of token offerings.

[1] The TurnKey No-action letter and Framework are expressions of staff views and are not binding upon the SEC. Further, the TurnKey No-action Letter is not formally applicable to any issuer other than TKJ. Nevertheless, no-action letters and staff bulletins reflect substantial deliberation by the SEC staff and in practice are often highly influential on the SEC. We therefore believe that the TurnKey No-Action Letter and Framework provide important guidance to future token issuers.

[2] While the operational element would seem to be satisfied by a network that has reached the minimum viable product stage, it is not clear whether full development is intended to represent some later stage of development.

[3] It appears that redemptions (i.e., “burns”) of tokens in exchange for the underlying value can be made at par, at least to commercial users.

[4] See additional insight from Steptoe on the Framework here.

[5] It is possible that further measures of security could affect the determination of TKJ’s counsel that the tokens are not notes under the Reves test. Reves v. Ernst & Young, 494 U.S. 56 (1990). However, the SEC staff’s response in the TurnKey No-Action Letter makes no mention of this issue.

[6] These regulations generally apply to the creation and issuance of tokens constituting convertible virtual currency, but may also be triggered by engaging in other activities that could be viewed as the administration or exchange of such tokens or currency.

Source: https://www.steptoeblockchainblog.com/2019/04/turnkey-token-gets-to-fly-sec-issues-first-no-action-letter-for-token-sale/

Blockchain

Kraken Daily Market Report for February 24 2021

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Overview


  • Total spot trading volume at $2.43 billion, up 18% from the 30-day average of $2.06 billion.
  • Total futures notional at $742.6 million.
  • The top five traded coins were, respectively, Bitcoin, Ethereum, Tether, Cardano, and Polkadot.
  • Strong returns from Augur (+22%), Icon (+20%), Lisk (18%), and Compound (18%).

February 24, 2021 
 $2.43B traded across all markets today
 Crypto, EUR, USD, JPY, CAD, GBP, CHF, AUD 
XBT 
$50855. 
↑4.0% 
$927.5M
ETH 
$1694.5 
↑7.3% 
$442.0M
USDT 
$1.0009 
↑0.06% 
$308.7M
ADA 
$1.0666 
↑11% 
$140.5M
DOT 
$36.359 
↑5.2% 
$112.8M
USDC 
$1.0002 
↑0.01% 
$58.0M
XDG 
$0.0552 
↑16% 
$46.8M
XRP 
$0.4888 
↑2.7% 
$45.1M
LTC 
$187.16 
↑5.4% 
$44.2M
LINK 
$28.266 
↑8.8% 
$43.1M
BCH 
$546.64 
↑5.9% 
$19.9M
ATOM 
$20.971 
↑4.1% 
$17.4M
XLM 
$0.4278 
↑11% 
$17.0M
FLOW 
$22.203 
↑3.6% 
$14.8M
UNI 
$26.741 
↑7.6% 
$13.7M
GRT 
$1.9695 
↑16% 
$13.2M
AAVE 
$398.38 
↑9.2% 
$9.83M
ALGO 
$1.1312 
↑12% 
$9.67M
KSM 
$259.95 
↑8.0% 
$9.22M
XMR 
$218.18 
↓1.3% 
$9.14M
DASH 
$253.84 
↑9.8% 
$8.88M
EOS 
$4.0463 
↑5.0% 
$8.57M
XTZ 
$3.8502 
↑8.5% 
$8.23M
TRX 
$0.0492 
↑9.5% 
$4.84M
DAI 
$1.0012 
↓0.01% 
$4.78M
ICX 
$1.7515 
↑20% 
$4.63M
QTUM 
$5.5107 
↑7.1% 
$4.55M
SNX 
$20.534 
↑13% 
$4.44M
OMG 
$5.0897 
↑8.7% 
$4.29M
BAT 
$0.5229 
↑9.5% 
$4.29M
SC 
$0.0113 
↑3.3% 
$3.78M
WAVES 
$10.304 
↑10% 
$3.76M
NANO 
$6.0203 
↑16% 
$3.59M
YFI 
$36385. 
↑8.8% 
$3.55M
ZEC 
$131.65 
↑3.6% 
$3.33M
FIL 
$37.762 
↑6.3% 
$3.21M
COMP 
$452.55 
↑18% 
$2.38M
OXT 
$0.5371 
↑8.4% 
$2.12M
ETC 
$12.339 
↑8.4% 
$2.07M
LSK 
$3.1380 
↑18% 
$1.93M
KAVA 
$3.7965 
↑17% 
$1.57M
MANA 
$0.2622 
↑13% 
$1.53M
REP 
$35.637 
↑22% 
$1.49M
CRV 
$2.2995 
↑7.7% 
$1.45M
KNC 
$1.7123 
↑6.8% 
$982K
MLN 
$41.951 
↑12% 
$834K
PAXG 
$1804.9 
↓0.2% 
$778K
KEEP 
$0.3739 
↑10% 
$710K
STORJ 
$0.6370 
↑12% 
$670K
ANT 
$4.7319 
↑10.0% 
$576K
BAL 
$40.659 
↑16% 
$568K
GNO 
$141.23 
↑11% 
$508K
REPV2 
$26.630 
↑8.9% 
$274K
TBTC 
$54060. 
↑9.8% 
$244K


#####################. Trading Volume by Asset. ##########################################

Trading Volume by Asset


The figures below break down the trading volume of the largest, mid-size, and smallest assets. Cryptos are in purple, fiats are in blue. For each asset, the chart contains the daily trading volume in USD, and the percentage of the total trading volume. The percentages for fiats and cryptos are treated separately, so that they both add up to 100%.

Figure 1: Largest trading assets: trading volume (measured in USD) and its percentage of the total trading volume (February 24 2021)

Figure 2: Mid-size trading assets: (measured in USD) (February 24 2021)

Figure 3: Smallest trading assets: (measured in USD) (February 24 2021)


#####################. Spread %. ##########################################

Spread %


Spread percentage is the width of the bid/ask spread divided by the bid/ask midpoint. The values are generated by taking the median spread percentage over each minute, then the average of the medians over the day.

Figure 4: Average spread % by pair (February 24 2021)



.


#########. Returns and Volume ############################################

Returns and Volume


Figure 5: Returns of the four highest volume pairs (February 24 2021)


Figure 6: Volume of the major currencies and an average line that fits the data to a sinusoidal curve to show the daily volume highs and lows (February 24 2021)



###########. Daily Returns. #################################################

Daily Returns %


Figure 7: Returns over USD and XBT. Relative volume and return size is indicated by the size of the font. (February 24 2021)



###########. Disclaimer #################################################

The values generated in this report are from public market data distributed from Kraken WebSockets api. The total volumes and returns are calculated over the reporting day using UTC time.

Source: https://blog.kraken.com/post/8041/kraken-daily-market-report-for-february-24-2021/

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Blockchain

India’s largest crypto exchange adopts decentralized Unstoppable Domains

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India’s largest cryptocurrency exchange, Unocoin, has adopted the blockchain-based Unstoppable Domains, which simplifies crypto transactions by turning blockchain addresses into human-readable web URLs.

Announced on Wednesday, the partnership between Unocoin and Unstoppable Domains — both funded by Silicon Valley investor Tim Draper — is expected to reduce remittance costs and simplify the transaction process for the exchange’s 1.2 million users.

Unstoppable Domains turns crypto addresses into decentralized websites on the Ethereum and Zilliqa blockchains. Instead of sending coins to a 42-character blockchain address, Unstoppable Domains allows users to create simple URLs ending in “.crypto” and “.zil” extensions. Domain names need only be purchased once, and then exist forever on the blockchain without requiring any renewal or maintenance fees.

The decentralized aspect of Unstoppable Domains should be of particular interest to Indian crypto users, especially amid the furor created by the Finance Ministry’s decision to ban the use of Bitcoin (BTC) and other cryptocurrencies.

Pushback against the country’s plan to outlaw cryptocurrency has emerged on social media in the form of the #IndiaWantsBitcoin campaign. Despite regulatory uncertainty, the co-founder and CEO of Unocoin, Sathvik Vishwanath, sees the adoption of Unstoppable Domains as being in line with the maturation of the crypto industry in India. Vishwanath said:

“The cryptocurrency space is maturing. In line with the growth of the industry, Unocoin aims to offer its users the best possible experience. Integrating the .crypto domain is a significant step not only for Unocoin users, but also for additional exchanges in the country exploring simpler and more user-friendly options for their users.”

Unstoppable Domains co-founder Brad Kam referenced the reluctance of the Indian government to allow the spread of cryptocurrency within its borders:

“India’s population has been historically scorned from cryptocurrency. Unstoppable Domains is excited to deliver the seamless sending and receiving of cryptocurrency to Unocoin’s users. Our aim is to simplify cryptocurrency addresses, and establish human readable names as the domain standard across wallets and exchanges.”

On Wednesday, Reserve Bank of India Governor Shaktikanta Das reiterated the central bank’s intention to create its own centrally issued currency, the digital rupee. This follows a common trend that has emerged in recent years as national governments attempt to reign-in the spread of decentralized cryptocurrencies and replace them with digital versions of existing fiat currencies.

As reported by Cointelegraph, Unstoppable Domains was recently integrated into Cloudflare’s Distributed Web Resolver, meaning any web browser can now access the .crypto URL extensions.

A spokesperson for Unstoppable Domains confirmed to Cointelegraph that even if Unocoin were to be shut down in the near future, the addresses and URLs created through the platform would remain unaffected.

Source: https://cointelegraph.com/news/india-s-largest-crypto-exchange-adopts-decentralized-unstoppable-domains

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Blockchain

DEX volumes have already surpassed $120b in 2021

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Ethereum-powered decentralized exchanges, or DEXes, continue to surge despite high transaction fees — with DEXes processing more than $120 billion in 2021 so far.

According to Ethereum market analytics platform Dune Analytics, combined DEX volumes posted a new record of $63 billion in January. February’s volume currently sits at $59 billion and is on track to hit $67 billion at the month’s end.

DEXes have already processed more volume in the first two months of 2021 than during all previous years combined.

Monthly DEX volume: DuneAnalytics

The Ethereum-powered DEX sector is still dominated by Uniswap and Sushiswap, who account for 65% of February’s trade combined. Uniswap currently represents more than double Sushi’s volume, controlling almost 50% of DEX market share.

However, looking at the weekly number of active traders on each platform shows that Uniswap represents more than three-quarters of Ethereum DEX users. Over the last seven days, nearly 142,000 unique wallets traded on Uniswap, followed by decentralized exchange aggregator 1inch with roughly 18,450 traders, and SushiSwap with 8,911.

However, not all DEX trading activity is occurring on Etheruem, with Binance Chain’s Pancake Swap surging to report a daily trading volume behind of more than $1.1 billion.

Despite some users migrating away from Ethereum-based DEXes, confidence in the sector as a whole is at an all-time high, with the total value locked in these exchanges sitting above $40 billion for the first time during recent weeks.

Source: https://cointelegraph.com/news/dex-volumes-have-already-surpassed-120b-in-2021

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