This week the New York Department of Financial Services (“NYDFS”) announced approval of significant new activities for its two licensed FinTech-oriented state trust companies, Gemini Trust Company LLC and Paxos Trust Company LLC (formerly known as itBit Trust Company), engaged in blockchain and virtual currency activities. Significantly, the approved activities demonstrate both the continuing importance of virtual currency trading and the expansion into permissioned blockchain trading and settlement services. These announcements represent the first substantive expansions in the approved activities of the two trust companies since their formation in 2015.
As background, Cleary Gottlieb has served as counsel to Paxos Trust Company throughout its history, from its formation and licensing through development of the legal frameworks for its permissioned blockchain trading and settlement platform.
On Monday, May 14th, NYDFS announced approval for Gemini Trust Company LLC to expand its bitcoin exchange operations to include Zcash, Litecoin and Bitcoin Cash. While Litecoin and Bitcoin Cash are well-known Zcash is less so. The Zcash network supports two kinds of transactions, transparent and shielded. Transparent transactions operate similarly to Bitcoin in that the balance and the amounts of the transaction are publicly visible on the blockchain. Shielded transactions utilize z-addresses and are entirely private.
On May 17, NYDFS announced its authorization for Paxos Trust Company LLC to expand its FinTech offerings to operate a permissioned blockchain platform for the settlement of gold bullion trading conducted through the London over-the-counter market. Paxos’s post-trade platform, Bankchain Precious Metals, will facilitate the trades through physical settlement with precious metals housed in vaults recognized by the London Bullion Market Association. Paxos was the first virtual currency company to receive a charter from NYDFS. The approval of the Bankchain Precious Metals settlement platform now enables an expansion of Paxos’s authorized FinTech offerings, and opens the door to providing settlement services in broader commodities trading markets in the future.
As part of its work with Paxos Trust Company, Cleary Gottlieb assisted the firm in developing a legal framework for the Bankchain platform to address the commercial, intellectual property, commodities, securities, and other regulatory law issues considered in establishing the platform.
If you have any questions regarding these developments please contact your Cleary Gottlieb FinTech contacts: Daniel Ilan, Michael Krimminger, Colin Lloyd, Pamela Marcogliese, or Sandy Rocks.