In this issue:
- USDC Issuer Launches Arc Blockchain; Stablecoin Initiatives Announced
- SEC Issues “Innovation Exemption” for Tokenized Securities Venues, NMS Stock
- Treasury Bulletin Highlights Digital Asset Red Flags Related to Iran
- Paper Addresses Principles for AI in On-Chain Risk Solutions
- BIS Paper Questions On-Chain Indicators as Measures of Economic Activity
- DOJ Seeks Forfeiture of $61M in Crypto; Broker Employees Charged with Fraud
USDC Issuer Launches Arc Blockchain; Stablecoin Initiatives Announced
The issuer of the USDC stablecoin recently announced “the public mainnet launch of Arc, an open Layer 1 blockchain purpose-built for financial markets, real-time money movement, and agentic economic activity.” According to a press release, “Arc launches with native integration into [the company’s] full-stack platform (including USDC, the world’s largest regulated digital dollar, with more than $74 billion in circulation); a founding validator cohort drawn from the institutions that run global finance; more than 100 applications; and more than 100 institutional and ecosystem builders spanning global banks, asset managers, payment networks, exchanges, custodians, [decentralized finance] protocols, wallets, and AI platforms live on day one.”
In more stablecoin news, the largest U.S. crypto exchange recently announced a partnership with Moov, a payments infrastructure provider, to “give community banks stablecoin capabilities: acceptance, settlement, and real-time funding, built directly into the core systems these banks already use.” According to a press release, “Moov is integrating [the exchange’s] stablecoin payments infrastructure into its existing payments platform, giving financial institutions a path to add stablecoin capabilities without building a separate crypto technology stack from scratch.”
In a final notable item, a major U.S. money transfer business recently announced a “stablecoin-backed” payment card that gives customers “the ability to hold a stable-dollar balance, access cash when they need it, or spend … online, in stores and across borders.” According to a press release, the new product was developed in partnership with “Rain, the enterprise-grade infrastructure for stablecoin-powered payments.”
For more information, please refer to the following links:
- Circle Launches Arc Mainnet, an Economic Operating System for the Internet
- Coinbase brings stablecoin payments and custody to community banks and credit unions, in partnership with Moov
- Introducing the MoneyGram Card: Giving Customers More Freedom to Use Their Money, Wherever Life Takes Them
SEC Issues ‘Innovation Exemption’ for Tokenized Securities Venues, NMS Stock
On Sept. 17, the U.S. Securities and Exchange Commission (SEC) issued an “Innovation Exemption” in the form of a 60-page order “granting temporary, conditional exemptive relief to Tokenized Securities Venues (each a ‘TSV’) from the definition of ‘exchange’ in the Securities Exchange Act of 1934 (Exchange Act) to trade tokenized National Market System (‘NMS’) stock using innovative permissioned automated market makers and liquidity pools (together ‘AMM Liquidity Pools’).” According to a fact sheet, the order grants two exemptions:
- TSV Exemption. A five-year conditional exemption from the definition of “exchange” in the Exchange Act to certain TSVs that provide the use of automated market makers and liquidity pools and set standards for persons to access trading to buy and sell tokenized NMS stock.
- Covered Firm Exemption. A five-year conditional exemption from the definition of “dealer” in the Exchange Act to certain liquidity providers that provide liquidity in tokenized NMS stock and may also be engaged in additional activities that are indicia of dealing activity, such as quoting pricing to customers or entering into agreements to provide committed capital.
The fact sheet and order provide the following definitions:
- Tokenized Securities Venues (TSVs): “[A]n organization, association, or group of persons that brings together buyers and sellers in tokenized NMS stock by: (1) providing one or more AMM Liquidity Pool(s) for permissioned participants to interact and agree to terms of a trade and (2) setting standards for persons to access trading on such AMM Liquidity Pool(s).”
- Tokenized NMS Stock: “NMS stock that is (1) a security tokenized by, or on behalf of, the issuer of the underlying NMS stock; or (2) a security tokenized by a third party that is unaffiliated with the issuer of the underlying NMS stock… ‘Tokenized NMS stock’ does not include securities where a third party issues a crypto asset representing its own security that provides synthetic exposure to an underlying security, such as a tokenized linked security or a tokenized security-based swap.”
- Automated Market Maker (AMM): “An AMM consists of a smart contract (or smart contracts) that enforces terms of trading, including setting token prices based on the ratio of the quantities of the assets committed to a liquidity pool. AMM smart contracts act in tandem with liquidity pool smart contracts.”
- Liquidity Pool: “A liquidity pool is a portfolio of crypto assets that is algorithmically bound and traded based on the terms of the smart contracts that compose the AMM Liquidity Pool.”
The fact sheet notes that the exemptions addressed by the order are subject to certain conditions identified in the order, including the following conditions:
- Tokenized NMS stock traded on a TSV is subject to limits on the number of symbols and volume traded.
- A TSV must verify that the tokenized NMS stock made available for trading on the TSV provides holders the same rights and privileges as does traditional NMS stock of an equivalent class.
- Before making available for trading tokenized NMS stock that is tokenized by an unaffiliated third party, the TSV must provide written notice and an opportunity to object to the issuer of the underlying NMS stock.
- Smart contracts used by a TSV must be auditable, public and deployed on a public, permissionless distributed ledger.
- A TSV must provide public notice about its operations, its trading activities and the trading activities of its affiliates on the TSV.
In a statement, SEC Chairman Paul S. Atkins noted that the Innovation Exemption is “designed to resolve challenges that have prevented responsible innovation from taking root in the United States while providing investor protections and market integrity standards.” Atkins also underscored that “without exception, the anti-fraud and anti-manipulation provisions of the federal securities laws apply in full to all securities activities in these markets.”
For more information, please refer to the following links:
- SEC Issues “Innovation Exemption” to Facilitate the Trading of Tokenized NMS Stock and Request for Comment
- Release No. 34-106402; File No. 4-927
- FACT SHEET Order Granting Temporary Conditional Exemptive Relief for Trading of Tokenized NMS Stock on Tokenized Securities Venues
- Statement on the Innovation Exemption: A Bridge Toward Durable Rulemaking
- SEC Issues Innovation Exemption For Tokenized Stock Trading
Treasury Bulletin Highlights Digital Asset Red Flags Related to Iran
The U.S. Department of the Treasury’s (Treasury) Financial Crimes Enforcement Network issued a recent bulletin addressing the existing whistleblower incentive program for members of the public to submit information about potential violations of statutes enforced by Treasury and the U.S. Department of Justice, including those related to Operation Economic Outcast, which is focused on severing remaining economic lifelines sustaining the Iranian regime. Among other things, the bulletin notes the following red flags involving digital assets that may be indicative of Iranian sanctions evasion or illicit finance schemes by Iran’s terrorist proxies:
- Payments to or from digital asset exchanges or service providers located in Iran or that may be front companies for such entities
- Unusual digital asset payments by petroleum, shipping, trading or trust companies
- Unregistered peer-to-peer exchanges, foreign-located money services businesses and nested digital asset exchanges
- Customer transactions with money services businesses, including those involved in digital assets, or other financial institutions that operate in jurisdictions known for, or at high risk for, terrorist activity and are reasonably believed to have lax customer identification and verification processes or opaque ownership or otherwise fail to comply with AML/CFT best practices
- Customers that receive numerous small digital asset payments from many wallets and then transfer the funds to another wallet, particularly if the customers log in using an Internet Protocol based in a jurisdiction known for, or at high risk for, terrorist activity
For more information, please refer to the following link:
Paper Addresses Principles for AI in On-Chain Risk Solutions
A blockchain analytics company, Elliptic, recently published a paper that “sets out eight principles for the responsible design and use of agentic artificial intelligence (AI) in on-chain risk solutions.” According to the paper, “A company evaluating agentic on-chain risk should use these eight principles to assess a vendor and expect a substantive answer for every principle.” The eight principles discussed in the paper are (1) exceptional data quality, (2) model transparency and validation, (3) AI safety, (4) foundation model agnosticism, (5) configurability, (6) human oversight by design, (7) business resilience and (8) empowering the risk professional of the future.
For more information, please refer to the following link:
The Elliptic Standard: Principles for Agentic On-Chain Risk
BIS Paper Questions On-Chain Indicators as Measures of Economic Activity
The Bank for International Settlements (BIS) recently published a paper addressing the reliability of decentralized finance (DeFi) data. According to an abstract of the paper, “Key metrics illustrate that the rapidly evolving DeFi ecosystem introduces unique challenges for economic and financial research in accurately capturing financial activity in DeFi.” According to the abstract, “despite the transparency of public blockchains, widely used indicators of cryptoasset and DeFi activity are highly dependent on methodological choices and underlying assumptions that warrant careful interpretation.” The abstract further notes that the paper’s findings “imply that on-chain indicators should be treated as noisy approximations rather than direct measures of economic activity.”
For more information, please refer to the following link:
DOJ Seeks Forfeiture of $61M in Crypto; Broker Employees Charged with Fraud
By Amos Kim
The U.S. Department of Justice (DOJ) recently announced the filing of a civil forfeiture complaint against approximately $61 million in cryptocurrency. A DOJ press release notes that the funds represent the proceeds of black-market sales of sanctioned Iranian oil allegedly intended to finance the government of Iran and Iranian military components, including the Islamic Revolutionary Guard Corps (IRGC). According to the press release, the government of Iran used a network of cryptocurrency actors to launder more than $1.5 billion in illicit oil money. The complaint alleges that two Chinese companies, Blessed Trust and Hexa Whale, facilitated these transfers through transactions and cryptocurrency addresses designed to obfuscate the nature, source and ownership of the funds, funneling proceeds to IRGC-related money services businesses, IRGC-related cryptocurrency addresses and an Iranian cryptocurrency exchange.
In a separate enforcement action, the DOJ announced the unsealing of complaints charging two engineers at a major U.S. broker-dealer and crypto exchange with commodities fraud and wire fraud. According to a press release, Hefu Chai and Huaisong Xiang allegedly misappropriated confidential business information to trade perpetual futures on Hyperliquid, a decentralized derivatives exchange. Between 2025 and 2026, the defendants allegedly accessed material nonpublic information regarding when their employer would support additional cryptocurrency tokens on its digital asset trading platform and executed trades in advance of public announcements. U.S. Attorney Jamie McDonald stated that the charges made clear that “corporate insiders cannot evade the securities and commodities laws by trading based on misappropriated information in derivatives like perpetual futures, tokenized securities, or other similar financial instruments.” Both defendants are charged with one count of violating the Commodity Exchange Act and one count of wire fraud.
For more information, please refer to the following links:
- U.S. Attorney Seeks Forfeiture Of $61 Million In Cryptocurrency From The Iranian Military’s Black-Market Oil Sales
- Two Robinhood Employees Charged With Fraud
