Cryptocurrency exchanges who want to use Nasdaq’s proprietary surveillance technology need to have more than money.
A team of about 20 people contribute to helping in an elaborate due-diligence process aimed at ensuring that any exchange who wants to use the technology that scans for fraudulent transaction patterns is both technically capable, and morally inclined to use the powerful software wisely.
For exchanges who pass the test (and can foot the bill) they’ll be granted access to the same surveillance technology Nasdaq itself uses to ensure its clients that trading volume is as free from fraud and manipulation as possible.
So far, seven cryptocurrency exchanges have passed Nasdaq’s muster, according to a Nasdaq representative speaking with Forbes, though only two, Gemini and SBI Virtual Currency, have been publicized. As more cryptocurrency exchanges seek to lure new customers, the assurance of Nasdaq’s technology is already being used to attract institutions and traders used to more mainstream venues.
During a briefing with members of media today, Nasdaq’s head of exchange and regulator surveillance team, Tony Sio, who works within the market surveillance division, shared the questions every cryptocurrency exchange must answer as part of a larger presentation on the state of the industry around the world.
“Historically, we don’t do such a large vetting process for our clients because they are much more well-known,” said Sio. “But as we started working with less well-known names, startups, then we realized we needed to do this check process.”
During the briefing at Nasdaq’s offices earlier today, Sio presented a detailed overview of how the company on-boards its crypto exchange clients, broken down in to three categories: Business Model, KYC/AML, and Exchange Governance & Controls.
While the press briefing was for educational purposes, in an interview following, Sio provided Forbes with further context, explaining how his team of legal and technical experts use the criteria to evaluate possible customers for risk. Not everyone makes the cut, he says.
The first section of a document, titled “Key Questions to Ask When Evaluating a Cryptocurrency Exchange,” was called “Business Model.” Of the questions in that section, one jumped out: “How reputable are the products available to trade on the venue?”
What’s interesting about this is that it shows Nasdaq is concerned about who is using crypto assets, and how they are being used. As questions about the importance of how a crypto asset was used in the past (Was it used to buy drugs? Does that matter?) continue to be sorted out, this point will likely only continue to raise in value.
The second section of the document is called “KYC/AML,” which stands for know-your-customer/anti-money laundering. Like the questions about business models, the most interesting question in this section relates to reputation. “What is the organizational structure and what are the founders’ backgrounds (i.e. tech expertise, financial markets expertise, etc.).”
What stands out about this question is the importance that past experience plays. From the early days of cryptocurrency, and now into other crypto-assets, the industry’s biggest value proposition was that it would democratize finance and a wide range of industries by letting retail consumers build and manage their own financial products.
Instead of innovation coming from the top down, crypto would be grassroots. While Nasdaq has shown a willingness to work with some unusual clients in the cryptospace, the ones we know about support what these questions reveal about Nasdaq’s interest in working with proven entities, something other regulated exchanges and technology providers will likely follow.
In the third and final section of the “key questions” document, “Are crypto asset listing standards in place?” is the most insightful. While some of the largest cryptocurrency exchanges, like Circle (which owns the Poloniex exchange) and Coinbase, publicly post their new asset listing process, others are much more opaque, leaving open the door to pay-to-play allegations and other potentially fraudulent activity.
Most recently, in June 2018 SBI Virtual Currencies run by Japanese financial giant SBI Holdings, announced it was using Nasdaq’s matching system. Before that, in April 2018, the heavily licensed Gemini cryptocurrency exchange run by Tyler and Cameron Winklevoss, announced it was using Nasdaq’s SMARTS surveillance system. “Our deployment of Nasdaq’s SMARTS Market Surveillance will help ensure that Gemini is a rules-based marketplace for all market participants,” said Gemini CEO Tyler Winklevoss in a statement at the time.
Beyond providing technical support to these exchanges, Nasdaq’s interest in blockchain has been largely limited to investing in other non-cryptocurrency applications of the technology. In September 2015 Nasdaq joined a $30 million investment round in Chain, a blockchain startup that eventually partnered with Nasdaq to launch Linq, a platform for issuing private equities. Then, last week Nasdaq led a $20 million investment in Symbiont, another blockchain company building services that eliminate middlemen in traditional financial workflows.
While competitors like the New York Stock Exchange have partnered with Microsoft and Starbucks to launch its own cryptocurrency exchange, Bakkt, later this year, Nasdaq’s cryptocurrency exchange guidelines are likely to be limited to providing technical support for now.
“The objective that we’re trying to work with crypto, is we see this as a growing asset class,” says Sio. “So we’re working to help provide our technology, it could be around matching, it could be around surveillance, to help our customers as they grow their marketplaces.”
–Michael del Castillo Forbes Staff
Climate Investment Funds to Issue $500 Million Green Bond This Year or Next
The Climate Investment Funds (CIF) plans to raise $500 million this year or next by issuing a green bond to finance renewable energy projects, the organization’s head said on Sunday.
The $8 billion fund gets most of its money from development banks and donor countries and finances more than 300 environmentally-friendly energy projects in some 72 countries.
“U.S, European and Japanese investors are interested in green bond offerings,” Mafalda Duarte said in a phone interview, without giving further details on where the CIF plans to issue the green bond.
Green bonds are fixed income securities that raise capital for projects with environmental benefits.
The CIF will use the proceeds to fund projects that could range from promoting the transition to renewable energy and improving resilience to climate change to stabilizing power grids amid the growing use of intermittent sources of power.
The CIF also sees opportunities in electrified transport, Mafalda said.
She also stressed the need to cut the cost of concentrated solar power technology, which uses mirrors or lenses to concentrate a large area of sunlight, and to promote the integration of regional energy markets.
Such issues will be examined at a conference on Jan. 28-29 marking the CIF’s tenth anniversary.
The conference will be held in the south-eastern Moroccan city of Ouarzazate, where the CIF contributed $535 million to building a 580 megawatt (MW) solar power plant, the world’s largest. -Reuters
Ugandan Firm Uses Blockchain To Trace Coffee From Farms To Stores
An Ugandan company has started using blockchain, the technology behind virtual currency Bitcoin, to certify shipments of coffee to try to meet growing demand from consumers for more information about where products have come from.
Carico Café Connoisseur said the move could help to boost farmers’ incomes, as consumers are usually prepared to pay more for goods that can been traced back to their origins.
Blockchain works by providing a shared record of data held by a network of individual computers rather than a single party. Its supporters say this makes it hard to tamper with, and so a secure way to track goods along the supply chain
Carico Café Connoisseur CEO Mwambu Wanendeya told Reuters a blockchain-certified shipment of one of its coffee products, Bugisu Blue, arrived in South Africa last month. He declined to give the size of the shipment, but said it was several tonnes.
Uganda is Africa’s largest coffee exporter followed by Ethiopia, according to the International Coffee Organisation, and has some of the world’s highest quality beans. It predominantly cultivates the robusta variety, but also has extensive fields of arabica trees.
Limited domestic processing capacity means the country exports nearly all of its beans in raw form.
The blockchain certification means consumers can trace the coffee’s journey by using their smartphones to scan the product’s QR codes or via the certification site provenance.org.
Every step of the beans’ journey – from when farmers drop them off at collection centers to warehousing, inspection by regulators and shipping – is recorded.
“The idea is to give the consumer an appreciation of what happens on the journey and also to ensure that there’s more linkages with the farmer,” Wanendeya said.
“Traceability is important because people are increasingly concerned that … farmers get rewarded for their work.”
The process will provide consumers with information such as the type of coffee bean, the year it was harvested, and where it was grown.
Founded in 2016, Carico Café is working with two farmer cooperatives with hundreds of members. Wanendeya predicted the innovation could boost farmers’ incomes by 10 percent.
“Consumers are willing to pay more if they can know where exactly the coffee is coming from,” he said.
Just a phone scan away – website reveals ethically sourced food
Uganda is keen to increase coffee exports from the current level of around 4 million 60-kilogramme bags per year.
However, a seedlings distribution program it hoped would boost production has yielded modest results, in part because of a decline in interest in coffee among farmers due to often low and unstable prices. -Reuters
– Elias Biryabarema
Not So Fast: Can Elon Musk Really Open Tesla’s China Gigafactory This Year?
Elon Musk rarely shies away from setting bold targets for Tesla, despite a mixed record for achieving them when promised. So it was in character when he announced the electric-car company’s first Chinese Gigafactory could be operational in about 11 months.
“We’re looking forward to hopefully having some initial production of the Model 3 towards the end of this year and achieving volume production next year,” Musk said at the Shanghai groundbreaking January 7.
He may be disappointed.
There’s no precedent for building a large, modern auto-assembly plant and starting its production in under a year, manufacturing experts say. In fact, even Tesla’s official goal of ramping up to 3,000 Model 3 electric sedans per week at some point in 2020 won’t be easy.
“Unless he’s mastered some approach that I’m not aware of to do everything in a more effective and efficient way, that lead time to build is going to be really challenging,” said Laurie Harbour, CEO of manufacturing consultant Harbour Results Inc. in Southfield, Michigan. “It definitely seems completely optimistic.”
Musk’s motivation to rapidly localize Tesla’s operations in China is as simple as legendary criminal Willie Sutton’s apocryphal maxim about banks: That’s where the money is. China is the world’s largest electric-vehicle market, where sales of rechargeable vehicles likely reached about 1 million units in 2018. That’s why Tesla’s capacity target for its Shanghai Gigafactory when fully ramped up is 500,000 vehicles annually.
Tesla begins delivering Model 3s to China in March, but its China sales are restrained by a 40% import duty on foreign-built autos (China last month moved to cut that to 15%). Along with the Model 3, the Shanghai plant is also to eventually produce Model Y electric crossovers that can be sold to Chinese customers with no added tariff.
But first Tesla has to build that plant.
It typically takes at least two years to get a large new auto factory ready to churn out vehicles, according to Brian Jones, COO of Lexington, Kentucky-based Gray, an engineering firm that’s built nearly 450 auto and parts plants in North America over the past five decades for companies including Toyota, Volkswagen, General Motors, Mercedes-Benz, Nissan and Volvo.
“From the first shovel in the ground to the first vehicle rolling off an assembly line, the fastest we’ve ever seen is 24 months, which is typically a project you see from one of the more mature, experienced manufacturers,” Jones says. “That schedule can go all the way up to 36 months.”
That includes building the factory structure itself, as well as infrastructure in and around the site, including utilities, roads and exit ramps in place.
Tesla secured the 210-acre site in Shanghai’s Lingang area last year for about $140 million, and Musk said the cost of the initial phase to get the facility up to 250,000 units of annual capacity would be about $2 billion. (Analysts estimate that getting the plant to Tesla’s half-million-unit capacity goal may total $5 billion.) The local Shanghai government is helping expedite the project in terms of permits and supporting infrastructure, and Tesla says lessons learned from Model 3 production at its Fremont, California, plant mean it can accelerate Chinese Gigafactory construction.
Still, Musk’s comments were at odds with those he made in a July statement issued by the Shanghai Municipal Government about the plant’s timetable. Once permits and other preparations were set, “it will take roughly two years until we start producing vehicles and then another two to three years before the factory is fully ramped up to produce around 500,000 vehicles per year for Chinese customers,” he said.
By October 2018, however, he’d begun describing the accelerated timetable. “We’re driving to have Model 3 production for the China market or the Greater China market active certainly next year. It will be happening next year,” he told analysts during Tesla’s third-quarter results call.
“Things work differently in China, so the North American experience (for building a new plant) may not translate exactly there,” said Kristin Dziczek, who studies industry, labor and economics as a vice president at the Center for Automotive Research in Ann Arbor, Michigan. Local government assistance will certainly help, “but this does seem really, really aggressive,” she said.
Reproducing the design and robots used for the Model 3 assembly line in California will speed things up, according to consultant Harbour.
Tesla also has to certify new suppliers in China, which is very time-consuming. Auto-assembly plants are “such a big system, and it’s such a gamble from launch of construction to starting to build (vehicles). Everything has to fall in line as planned in order for it to execute in that kind of timing. And to do it in 11 months, every star in the universe has to align for that to happen,” Harbour said.
Gray hasn’t built any of Tesla’s facilities nor has it built plants in China, but it is exploring consulting opportunities there, Jones said.
So could one of the top auto plant builders in the U.S. get a “greenfield” production site ready in under 12 months?
“We love a challenge, but that would be a stretch,” Jones said.
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