Thoughts on AnetaBTC Acquiring a Digital Exchange License in Malaysia
In this article, I’ll explain what are wrapped tokens, what does the anetaBTC platform do, and my concerns on the announcement of them planning to acquire a digital asset license in Malaysia.
1. Definition of “Wrapped Tokens”
Before I start explaining what AnetaBTC does, it’s important for you to understand how wrapped tokens work.
Wrapped tokens are basically:
Digital assets that represent the exact value of an original cryptocurrency from a different blockchain or follow a different token standard to the chain its on.
For example, let’s say you have RM500 in your wallet, and you went to Singapore for a short vacation. Apparently, Singapore only accepts Singaporean Dollars (SGD), but you don’t want to convert your Malaysian Ringgits (MYR) into SGD and insisted on spending with your MYR.
Instead, you deposit your MYR in a vault in Singapore, then they mint a synthetic version of money that is 1:1 pegged to your RM500 value, so you’ll be able to use the minted money that’s worth exactly RM500 in Singapore, which also works within the regulatory framework in Singapore and can be used as a medium of exchange.
Similarly in the crypto world, you can’t directly use your BTC in the Ethereum blockchain as both BTC & ETH have different token standards and run in different blockchains. Thus, one way to keep using your Bitcoin in a different blockchain is to mint a new token that is pegged 1:1 to the value of your Bitcoin and accepted in the Ethereum blockchain, like wrapped BTC (WBTC).
Wrapped tokens can bring a whole lot of use cases especially for people who wants to use another blockchain but does not want to convert their favourite tokens into the blockchain’s native token (such as BTC to ETH) to use them due to reasons such as you believe in the value of BTC and do not want to sell them, but you want to participate in DeFi and earn yields on your BTC.
2. Overview of AnetaBTC
AnetaBTC works similarly where you can wrap Bitcoin into their own version of BTC to be used in the Ergo & Cardano blockchain ecosystems. For comparison, to mint WBTC, you need to request a merchant to mint the wrapped BTC for you, while giving up your identification to perform KYC and your BTC ownership rights to the merchant, which poses centralization & security risks.
However in AnetaBTC, you are sending your BTC into a non-custodial vault in a form of a Bitcoin wallet, then a “bridge” will communicate with a node in Ergo blockchain and mints the amount of anetaBTC equivalent to the BTC you deposited minus a minting fee into your respective Cardano or Ergo wallets.
They also have a native token called NETA where you can earn protocol fees & use them to participate in governance proposals & voting.
In their latest article about Tokenomics 3.0, there’s some added features such as you can earn NETA tokens for minting anetaBTC tokens with BTC deposits, a BTC fund where the platform converts their native tokens NETA into BTC and hold them as a Protocol-Owned Liquidity in their NETA Liquidity Fund (basically letting them hold individual & liquidity tokens to generate revenue for stakeholders.).
Furthermore, they are also announcing that they are going to apply a digital asset exchange (DAX) license from the government of Malaysia, and set to become the 5th licensed digital exchange in Malaysia. You can click here to check the other 4 companies registered with the Securities Commissions of Malaysia (SC). While I think it’s great news that DeFi platforms want to register themselves to operate their businesses within the legal framework, there are many open questions that still need to be clarified before I can confidently support this decision.
Reference:
3. Guidelines on Digital Assets in Malaysia & My Critics on the Move.
According to the Guidelines on Digital Assets published by the SC of Malaysia, the key highlights for Aneta Foundation to obtain a license in Malaysia (with reference to Part D in Page 46: Requirements For Digital Asset Custodian) are:
The services of providing safekeeping, storing, holding or maintaining custody of digital assets for the account of another person is specified to be a capital market services for the purposes of section 76A of the CMSA.
The applicant is from a comparable jurisdiction with whom the SC has regulatory arrangements on enforcement, supervision and sharing of information.
A digital asset custodian must have a minimum paid-up capital of RM500,000 and shareholders’ funds of RM500,000 maintained at all times.
A digital asset custodian must disclose any information or provide any document to the SC as the SC may require.
A digital asset custodian must establish and maintain written policies and procedures to ensure compliance with all relevant laws, regulations and guidelines including the Anti-Money Laundering and Anti-Terrorism Financing and Proceeds of Unlawful Activities Act 2001 and Personal Data Protection Act 2010, and manage clients’ data that covers collection, storage, use, disclosure and disposal of client information.
A digital asset custodian must establish and maintain a sufficiently and verifiably secured storage medium designated to store its clients’ digital assets.
A digital asset custodian must ensure that, at all times, it has up-to-date transactional records relating to the clients’ digital assets including transaction timestamp, details of any transaction including the purpose of a transfer, amount and details of the counterparty, relevant signatories and transaction approval/rejection evidence, account balances, transaction value or any other information as may be specified by the SC.
Overall, I don’t see any problems meeting criterion 1, 3, 6 & 7. However, I wondered how they are going to satisfy criterion 2, 4 & 5 whereby they are obliged to share any information required by the SC and must ensure compliance with AML laws. Does that mean users using the AnetaBTC platform would need to perform KYC and register themselves before using the platform? Does it mean that the SC of Malaysia has the ability to ask AnetaBTC to block access of any user from using the platform services if they deem the users of interest to be breaking the AML law?
For context if you don’t know, all verified user accounts in Malaysia must implemented the Travel Rule. Simply put, if you need to send crypto out of your account, the steps that you need to take are:
You need to complete KYC by submitting your identification and proof of address to get your exchange account verified.
When you send your crypto anywhere (even to your private wallet), they will ask a few questions, such as if you are sending your crypto to your own private wallet, then ask what’s the name of your private wallet. Likewise, if you are sending your crypto to your exchange account, they’ll ask the name of the exchange and you need to make sure that the exchange you sent to is in their so-called “Virtual Asset Service Provider (VASP)”. E.g. if you’re sending it to your Binance account, you need to specify “Binance” when they asked you this.
Another point they mentioned in the Tokenomics v3 is that they think this move is particularly beneficial to anetaBTC users as their v1 platform is centralized and custodial because the BTC you deposited is in their custody, which means if there is an exploit in their vault smart contracts, all BTC deposits may be stolen and there will be nothing backing the value of the minted BTC, therefore rendering the minted BTC value useless.
According to the AnetaBTC docs, there is a roadmap for the protocol to be more decentralized over time when it reaches version 3. Version 3 states that anyone can run a vault (I assume running a BTC vault) by providing collateral, and vault operators have a vested interest in maintaining the protocol security. The vault will be held in the user’s custody, while the collateral will be taken away if any malicious intent is detected on the vault operators.
However, I can’t seem to understand how this can work after AnetaBTC gets the license, because this may also mean anyone who runs the vault may actually need to provide KYC before they can run a vault, therefore it becomes a permissioned protocol, but still decentralized at the expense of giving up sensitive information to the SC.
Likewise, what’s the purpose of the Aneta Foundation? The article nor any other medium articles has stated the purpose of allocating 5% stake to a foundation that is registered as a legal entity in Malaysia, other than my guess is to meet the minimum paid-up capital & shareholders’ funds of total RM1 million. Moreover, are they holding the foundation tokens in NETA or MYR? If holding in NETA, how are they going to meet criteria 3 during price volatility and the NETA token loses a lot of its value?
4. Summary
While all these are based on my opinion, I’ll happily correct myself if the anetaBTC team or anyone can provide some clarity on the situation. Having a DeFi platform registered in Malaysia sounds nice on paper whereby the business can be operated within the regulatory framework, but for Aneta’s case, I don’t see how this is a beneficial move, nor I don’t find anything beneficial especially for the Malaysians too. It’s just a move to tell everyone that “we’re legit”.
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