Digital assets: SEC fines crypto structured product provider

BarnBridge DAO, which runs a decentralised finance (DeFi) protocol, and its founders have agreed to pay US$1.7m to settle allegations from US Securities and Exchange Commission (SEC) that it failed to register its offer and sale of structured crypto asset securities.

The use of blockchain technology for the unregistered offer and sale of structured finance products to retail investors runs afoul of the securities laws - Gurbir S. Grewal, SEC

The protocol and founders Tyler Ward and Troy Murray agreed on the cease-and-desist orders issued by the SEC without admitting or denying the agency’s findings, according to a ligation filing.

According to the SEC’s orders, these alleged crypto structured securities, known as SMART Yield bonds, were marketed as ‘mirror the safety and security of highly rated debt instruments offered by traditional finance…while still providing the outsized return’ through its smart contract protocols based on its whitepaper.

SMART Yield pooled crypto assets deposited by the investors and used those assets to generate fixed or variable returns to pay investors, the US regulators claimed, adding that it attracted more than US$509m in investments from investors.

The SEC also charged the respondents with violations stemming from operating SMART Yield pools as unregistered investment companies. To settle the charges, BarnBridge agreed to disgorge nearly US$1.5m of proceeds from the sales, while Ward and Murray each agreed to pay a US$125,000 civil penalty.

‘The use of blockchain technology for the unregistered offer and sale of structured finance products to retail investors runs afoul of the securities laws,’ Gurbir S. Grewal (pictured), said director of the SEC’s division of enforcement.

‘This case serves as an important reminder that those laws apply to all who wish to access our capital markets, regardless of whether they are, or purport to be, incorporated, decentralised or autonomous,’ he said.

However, the SEC commissioner Hester Peirce disagreed with the orders, calling out on X that the US regulatory agency’s ‘imprecise legal reasoning in crypto cases, (…) only adds to the uncertainty for crypto projects in the US.’

Nexo introduces dual investment product

Crypto lending platform Nexo has unveiled a new dual investment product with two investment strategies – buy-low and sell-high – aimed to address users’ varied market perceptions and individual objectives.

The buy-low strategy allows investors to utilise Tether (USDT) to acquire Bitcoin (BTC) or Ethereum’s ether (ETH) at the specified target and date, targeting those who anticipate a target price lower than the current market value. Conversely, the sell-high strategy is designed for users expecting the target price to surpass the current market value, involving the sale of BTC or ETH for USDT at the target price and date.

‘Dual Investment revolutionises how users engage with BTC and ETH, offering a flexible, intuitive, yet sophisticated platform for predicting asset price movements, all while securing high yields,’ Elitsa Taskova, chief product officer at Nexo.

The latest product development comes after the digital wealth platform Yield App introduced dual currency (buy low) and dual currency (sell high) structured products last November. Crypto exchange giant OKX also offers dual investment and other traditional structures such as shark fin and snowball in its crypto product suite.

HTX adds shorter term shark fin structure to crypto pool

Cryptocurrency exchange HTX has added a three-day shark fin structure to its product suite following the launch of a seven-day product last September.

These shorter-term products offer four investment options: bullish BTC, bearish BTC, bullish ETH, and bearish ETH.

Compared with its seven-day product, the shorter-term product can offer ‘greater flexibility’ if the market experiences ‘significant swings and shows profitable short-term market trends,’ the exchange stated.

HTX has issued 12 phases of the seven-day shark fin as of 30 November, it added. The exchange added that its HTX Earn has been ‘purpose-built to deliver top-tier assets for daily passive income, coupled with a user-friendly interface that ensures a seamless and convenient wealth management experience’.

According to the exchange, Shark Fin products are ideal for risk-averse, conservative investors seeking stable returns.

‘This includes professional investors, high-net-worth individuals, and those focused on diversification,’ it said.

HK regulator sets out requirements for virtual asset spot ETF

The Securities and Futures Commission (SFC) and Hong Kong Monetary Authority have issued a joint circular over authorised funds with exposure to virtual assets.

In the circular, the SFC detailed the requirements under which the securities regulators would consider authorising investment funds with exposure to virtual assets of more than 10% of their net asset value (NAV) for public offerings in Hong Kong.

‘A broader range and a larger number of investment products providing exposure to virtual assets (VA), including VA-related exchange traded funds (ETFs) offered in major overseas markets, are now available to both retail and professional investors, and have become increasingly popular,’ SFC stated. ‘Demand for these products has also increased in Hong Kong.’

The Hong Kong securities regulators noted that the product management companies should have ‘a good track record of regulatory compliance and products are not permitted to have leveraged exposure at the fund level.

Both in-kind and in-cash subscriptions and redemption are allowed for SFC-authorised spot virtual asset ETF, it added.

The latest update followed its circular last November in which the SFC set out requirements for tokenised investment products.

BlackRock, Valkyrie reveal authorised participants for spot Bitcoin ETF

Looking at crypto spot ETF’s progress on the other side of the world, a filing with the SEC shows that US asset management giant Blackrock has named J.P. Morgan Securities and Jane Street Capital as authorised participants for its application of spot Bitcoin ETF, which is yet to be approved in the US.

The authorised participant agreement provides the procedures for the creation and redemption of Baskets and for the delivery of cash in connection with such creations or redemptions, the filing stated.

Valkyrie also added Jane Street Capital and Cantor Fitzgerald & Co. as authorised participants for its application for spot Bitcoin ETF, according to another filing with the SEC.

Besides Blackrock and Valkyrie, a flurry of financial institutes, including Fidelity and Invesco, is awaiting their applications to get greenlighted by the SEC, which could be as early as later this month.