US Stablecoin Issuers Announce Bank Charter Application, New L1 Network
By Robert A. Musiala Jr.
Paxos, a blockchain infrastructure and tokenization platform and issuer of the USDP stablecoin, recently announced that it “has filed an application to convert its New York Department of Financial Services (NYDFS) trust charter into a national trust charter under the supervision of the Office of the Comptroller of the Currency (OCC).” According to a press release, “An OCC national trust charter will reinforce Paxos’s commitment to maintaining the highest global standards for safety and transparency.”
In related news, Circle, the issuer of the USDC stablecoin, recently announced the launch of Arc, “a new open Layer-1 blockchain designed from the ground up to serve the next era of stablecoin-native applications.” According to a blog post, the Arc network is “[b]uilt by Circle to stand alone as its own independent ecosystem” and “introduces a new kind of blockchain architecture – one that’s optimized for stablecoin finance from line one.”
Another recent press release announced that Chainlink, a decentralized oracle network, and a U.S.-based financial services company that operates multiple major securities exchanges have entered into an arrangement where “high-quality FX and precious metals rates” from the financial services company “will serve as a contributor to the derived data set that Chainlink Data Streams provides to 2,000+ applications, leading banks, asset managers, and infrastructure in the Chainlink ecosystem.” According to the press release, Chainlink’s integration of the “market-leading data feed, covering a broad array of currencies and important precious metals, brings a new level of reliability to onchain markets and supports innovation of new types of tokenized assets and products.”
For more information, please refer to the following links:
Bank Orgs Publish Statement Addressing GENIUS Act ‘Interest Loophole’
By Robert A. Musiala Jr.
On Aug. 12, a group of U.S. banking organizations published a statement titled “Closing the Payment of Interest Loophole for Stablecoins.” The statement addresses a provision in the recently enacted GENIUS Act that prohibits stablecoin issuers from offering interest or yield, or other financial or nonfinancial rewards, to holders of stablecoins. According to the statement, without an explicit prohibition applying to exchanges, “which act as a distribution channel” for stablecoin rewards, the prohibition “can be easily evaded and undermined by allowing payment of interest indirectly to holders of stablecoins” by exchanges. The statement indicates that allowing exchanges to offer rewards on stablecoins would incentivize “a shift from bank deposits and money market funds to stablecoins” that could result in “deposit flight risk.” According to the statement, “The corresponding reduction in credit supply means higher interest rates, fewer loans, and increased costs for Main Street businesses and households.”
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Digital Asset VC Fund Proposes DeFi Safe Harbor
By Amos Kim
Venture capital firm a16z and the DeFi Education Fund (DEF) have asked the U.S. Securities and Exchange Commission (SEC) to create a safe harbor from broker-dealer registration for certain blockchain-based applications. In an Aug. 13 letter to SEC Commissioner Hester Peirce, the firms argue that non-custodial, neutral software interfaces – such as DeFi front ends and nonfungible token marketplaces – should not be treated as brokers when they allow users to transact directly onchain without intermediaries.
The proposal comes as the SEC explores modernization through initiatives such as Project Crypto and amid broader policy discussions, including the President’s Working Group on Digital Assets and the pending CLARITY Act legislation, which recently passed the U.S. House of Representatives. Both efforts aim to provide clarity for decentralized systems while maintaining anti-fraud and anti-manipulation oversight. Under the framework proposed by a16z and DEF, an app would be presumed not to engage in broker activity if it meets four conditions: (1) it never takes custody of user assets, (2) it does not exercise discretion over transactions, (3) it avoids investment recommendations or solicitation and (4) it integrates only with protocols that are either fully decentralized or actively pursuing decentralization under defined thresholds. According to a16z and DEF, apps meeting these criteria do not perform traditional broker functions and forcing them into a broker-dealer regime could reintroduce intermediaries, increase user risk and impose compliance costs that stifle innovation.
The letter cites prior SEC actions and investigations as evidence of ongoing uncertainty for developers. According to the letter, while some inquiries were dropped, the lack of clear rules continues to leave builders in a regulatory gray zone. The submission urges the SEC to adopt objective criteria that clarify how securities laws apply to blockchain interfaces without compromising investor protection, arguing that such clarity is essential to support responsible decentralization in the U.S.
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NY DFS Enters Consent Order with Digital Asset Company for AML Failures
By Robert A. Musiala Jr.
On Aug. 7, the New York State Department of Financial Services (DFS) announced that Paxos Trust Company (Paxos) will pay a $26.5 million penalty to New York state for failure to conduct sufficient due diligence of its former exchange partner and for “systemic failures in Paxos’s anti-money laundering program.” According to a DFS press release, “In addition to the penalty, Paxos has agreed to invest an additional $22 million to improve its compliance program and remediate deficiencies pursuant to a plan approved by DFS.” The DFS press release and consent order cited the following anti-money laundering compliance failures identified during the DFS investigation:
- Multiple failures related to the company’s relationship with a third-party exchange with which the company had formed a relationship to market and distribute a stablecoin, including failure to effectively monitor for significant illicit activity occurring at the exchange.
- Know-your-customer and customer due diligence program failures enabling customers who shared addresses, corporate documents, beneficial owners and certain behavioral characteristics indicative of potential illicit coordinated activity to open multiple accounts and remain undetected.
- Transaction monitoring deficiencies that prevented the company from detecting obvious patterns of money laundering.
- A lack of defined guidelines regarding when investigations should be opened following receipt of a law enforcement request.
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DOJ Announces Guilty Plea of Terraform Co-Founder
By Robert A. Musiala Jr.
The U.S. Department of Justice (DOJ) recently announced that Do Hyeong Kwon, “the co-founder and former chief executive officer of Terraform Labs PTE, Ltd. (Terraform), pled guilty to one count of conspiring to commit commodities fraud, securities fraud, and wire fraud; and one count of committing wire fraud in connection with fraudulent schemes at Terraform.” According to the DOJ press release, Kwon “touted Terraform as a … decentralized financial world that leveraged proprietary blockchain technology to offer its own cryptocurrencies, payment system, stock market, and savings bank,” but in reality, “the core suite of Terraform products did not work as advertised and had been manipulated to create the illusion of a functioning and decentralized financial system.” The press release notes that as part of his guilty plea, Kwon has agreed to forfeit more than $19 million in proceeds from his illegal schemes.
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Report Provides New Data on Crypto AML Landscape
By Robert A. Musiala Jr.
A digital asset news and statistics company recently published a report with data on the 2025 crypto anti-money laundering landscape. Key statistics from the report include the following:
- $51 billion moved into illicit wallets in 2024, with $40 billion laundered and $2 billion stolen.
- $4.2 billion was tied to crypto money laundering in 2024, a 23 percent rise versus 2023.
- Sixty-nine percent of crypto exchanges fail to meet the Financial Action Task Force (FATF) Travel Rule.
- In the first half of 2025, there were 121 blockchain attacks, causing $2.373 billion in losses, a 66 percent rise in cost despite fewer hacks.
- Stolen funds make up 85.1 percent of all illicit cryptocurrency sent to mixers.
- Only 40 of 138 jurisdictions were largely FATF-compliant by April 2025, highlighting regulatory gaps.
- Stablecoins were linked to 63 percent of identified illicit laundering transactions globally in 2024, while bitcoin continued to dominate ransomware and darknet market payments.
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