James Cirrone

France’s securities regulator is updating its regulations for digital asset service providers, in anticipation of the European Union implementing MiCA by late 2024.



The changes, which go into effect Jan. 1, 2024, will require certain digital asset service providers (DASPs) in the country to abide by “enhanced” registration requirements, the Autorité des Marchés Financiers (AMF) <a href="https://www.amf-france.org/en/news-publications/news/digital-assets-amf-amends-it-general-regulation-and-its-policy-dasp-light-enhanced-registration-and">announced</a> Thursday.&nbsp;



These enhanced requirements are for DASPs that wish to provide all four crypto-related services enumerated by the AMF: custody, buying or selling for legal tender, trading of digital assets, and the operation of a trading platform for digital assets.



The crypto arm of Societe Generale, SG-Forge, <a href="https://blockworks.co/news/societe-generale-secures-first-french-crypto-license">is the only firm that is licensed for all four services at the moment</a>. Being licensed as opposed to being registered is the highest level of regulatory certification, SG-Forge told Blockworks in July when it was approved by the AMF.



DASPs that offer the four services will need to institute “adequate” security and internal control systems and systems to manage conflicts of interest.&nbsp;



They’ll also have to release public pricing policies and have specific custody provisions, meaning they’ll promise to segregate client assets and company assets and not use client assets without expressed consent.



DASPs that obtained a simple registration before Jan. 1, 2024 are grandfathered in and will “continue to be subject to the framework applicable” before that date, the AMF said.



This new regime also has the added benefit of aligning the requirements for a <a href="https://blockworks.co/tag/france">French</a> DASP license with the European authorization process for crypto-asset service providers (CASPs) under MiCA, <a href="https://blockworks.co/news/eu-parliament-passes-mica-vote">which was approved in April 2023</a>.



The new alignment would “allow a fast track procedure to be implemented towards CASP authorization,” the AMF noted.



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France updates crypto regulations in light of MiCA

Societe Generale&#8217;s crypto subsidiary, SG-FORGE, secured approval on Tuesday as a licensed digital asset service provider in France.



The company registered with the AMF, France’s stock market regulator, in September 2022, which granted it the ability to custody digital assets. The registration also allowed their customers to purchase crypto with legal tender and trade digital assets against digital assets.



The DASP license, however, represents “the highest level of regulatory certification currently possible for operations involving digital assets,” SG-Forge told Blockworks.



Additionally, the license “attests to the enhanced security and reliability of compliance, internal control and cybersecurity systems.”



Now that SG-Forge has gotten the official green light, it appears it can now offer something no other firm is currently offering in the country: The reception and transmission of orders for digital assets.



In other words, SG-Forge can receive and act on buy or sell orders on behalf of clients, according to the AMF <a href="https://www.amf-france.org/en/professionals/fintech/my-relations-amf/obtain-dasp-authorisation#List_of_DASPs_licensed_by_the_AMF">website</a>.



This regulatory requirement for crypto asset providers comes directly from MiCA, <a href="https://blockworks.co/news/eu-parliament-passes-mica-vote">sweeping EU legislation that was first passed in April</a>.



According to <a href="https://data.consilium.europa.eu/doc/document/PE-54-2022-INIT/en/pdf">Article 80</a> of MiCA, crypto providers that receive and transmit orders for clients need to “establish and implement procedures and arrangements” enabling them to promptly execute such transactions.&nbsp;



Additionally, the firms cannot receive “any remuneration, discount or non-monetary benefit in return for routing orders received from clients to a particular trading platform for crypto-assets or to another crypto-asset service provider,” the article states.&nbsp;



SG-Forge will also qualify as a Class 1 and Class 2 crypto asset service provider under MiCA, provided the company meets the minimum capital requirements of 125,000 euros (about $140,000).



Class 1 providers can manage customers&#8217; crypto portfolios and provide investment advice, and execute client orders, among a number of other things. Class 2 providers can do everything Class 1 can do but can also offer custody services.



The license attests to the fact that SG-Forge meets the minimum capital requirements, the company told Blockworks.



However, it will not qualify as a Class 3 provider under MiCA, simply because SG-Forge isn’t operating a trading platform for digital assets in France like other registered providers such as Binance or Bitstamp.



In a <a href="https://www.sgforge.com/first-dasp-license-amf/">statement</a>, SG-Forge acknowledged that it is anticipating the implementation of MiCA, which is planned to fully come into force by the end of 2024.&nbsp;



SG-Forge CEO Jean-Marc Stenger said this license approval cements the firm’s place in the digital assets space and allows it to continue moving forward with its services.



“This step will allow us to continue supporting our institutional clients wishing to benefit from services on digital assets that meet the highest standards of compliance and banking security,” Stenger said in a statement. 



SG-Forge also said the license approval strengthens the development on the firm’s euro-pegged stablecoin, EUR CoinVertible (EURCV), which is designed to offer institutional investors a way <a href="https://blockworks.co/news/euro-stablecoin-societe-generale-ethereum">to bridge gaps between traditional markets and digital assets</a>.



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Societe Generale subsidiary secures first French crypto license, readies for MiCA

Bessie Liu

Societe Generale’s cryptocurrency team FORGE has announced plans for a euro-pegged stablecoin, EUR CoinVertible (EURCV), on the Ethereum blockchain.



The project is designed to offer institutional investors a different way to manage their cash flow and bridge any gaps between traditional markets and the emerging digital asset class.&nbsp;



EURCV will comply with the <a href="https://blockworks.co/tag/european-union">European Union</a>&#8216;s banking, legal and regulatory standards.



“SG-FORGE believes that regulation will bring legitimacy to innovative distributed technologies and will provide consumer protection. We also believe that regulation will not stifle digital innovation and disruptive ideas,” the company wrote in a <a href="https://www.sgforge.com/wp-content/uploads/2023/04/SGF_Coinvertible_White-Paper-v1.0.pdf">white paper</a> outlining the details of EURVC.



SG-FORGE would be the issuer of the stablecoin, and the collateral that backs the token will be managed by a “reputable agent, under a relevant legal framework for fiduciaries based on applicable law.”



Importantly, the collateral will be legally separated from the SG-FORGE team.&nbsp;



In the case that the stability mechanisms are threatened, EURVC holders will be recognized as beneficiaries of the fiduciary and will have the ability to redeem their collateral.&nbsp;



“Stablecoin holders will still be entitled to full conversion of their position in the occurrence of events that would prevent the public Ethereum blockchain from working properly,” the white paper said.



“In other words, our legal structure will protect our clients from technological failures on blockchain in a manner that does not exist in the market today,” the document highlighted.



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Euro-pegged Stablecoin From Societe Generale in the Works

Casey Wagner

French banking giant Societe Generale has used its MakerDAO vault for the first time to withdraw $7 million worth of MakerDAO’s stablecoin <a href="https://blockworks.co/price/dai">DAI</a>.&nbsp;



In August 2022, MakerDAO added the bank’s digital asset-focused subsidiary, Societe Generale–Forge (SG-Forge), to its vaults with a credit limit of $30 million in DAI following a unanimous <a href="https://vote.makerdao.com/polling/QmajCtnG#vote-breakdown">vote</a>. The vault is backed by 40 million euros in bonds in the form of ‘OFH tokens’ — tokenized securities issued on Ethereum and backed primarily by home loans with Moody’s Aaa rankings — making the loans overcollateralized.&nbsp;



It’s the culmination of a process started in October 2021 when <a href="https://blockworks.co/news/major-french-bank-wants-to-back-the-dai-stablecoin-with-40m-in-bonds">SG-Forge laid the groundwork to convert borrowed DAI into US dollars</a> to be loaned to parent bank Societe Generale in exchange for the OFH tokens — essentially a refinancing operation — in a historic use of DeFi infrastructure on public Ethereum.&nbsp;



<h3 class="wp-block-heading">What sets this apart from other MakerDAO vaults?</h3>



Unlike DAI’s other backing assets, the OFH tokens have no liquid market, so the liquidation procedure — in the event the loan becomes undercollateralized — is more manual than generally applies to MakerDAO’s other collateral vaults.&nbsp;



MakerDAO delegate and crypto researcher Mika Honkasalo told Blockworks the process for SG-Forge to make its first withdrawal has been slow, but he expects the bank to withdraw its maximum $30 million in DAI “soon.”



“I&#8217;m not actually sure why it took them so long to use the vault, except that my experience with these real-world asset things is that everything always takes a long time,” Honkasalo added. 



Societe Generale, a global banking behemoth with 138,000 employees across 62 countries, is the first to take on this initiative with Maker. The plans align with MakerDAO’s aims to increase the collateral base of its DAI stablecoin and diversify away from a reliance on volatile crypto assets — namely ether — and the centralized <a href="https://blockworks.co/the-investors-guide-to-stablecoins">stablecoin</a><a href="https://blockworks.co/price/usdc"> USDC</a>.



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Societe Generale Withdraws $7M in DAI From MakerDAO Vault

Macauley Peterson

<div id="highlights-block_616ff78c4051d" class="highlights">
 <ul>
 <li>A consortium of banks and financial institutions including BNP Paribas, HSBC and Société Générale participated, along with Agence France Trésor, the Debt Management Office of the French government</li>
 <li>Goal of the project was to look at how blockchain could reduce the overall cost and increase the efficiency of the capital markets</li>
 </ul>
 
</div>



The French central bank — Banque de France — embarked on a test of a digital euro in March 2020, to learn how a European CBDC could be used in the exchange and settlement of tokenized financial assets using a permissioned blockchain. A consortium of banks and financial institutions including BNP Paribas, HSBC and Société Générale participated, along with Agence France Trésor, the Debt Management Office of the French government.



According to <a href="https://www.euroclear.com/content/dam/euroclear/news%20&amp;%20insights/Format/Whitepapers-Reports/settlement-french-government%20bonds-in-cbdc-with-blockchain.pdf" target="_blank" rel="noreferrer noopener">a report</a> published by Euroclear, a Belgium-based financial services company that led the project, the experiment “showed the capacity of blockchain platforms to coexist and interoperate with existing settlement infrastructures.”



<blockquote class="wp-block-quote">“By attracting more direct market participants on a common ledger for post trade operations, blockchain could also reduce the overall cost and increase the efficiency of the capital markets,” the report states.</blockquote>



An embrace of blockchain, Euroclear concludes, provides opportunities for the market to “change the way it organised so as to reduce trade to settlement cycles, increase direct market participation and reduce reconciliation efforts.”



These are advantages — in short, speeding transaction settlement and reducing costs — that have been long championed by advocates of DeFi, but they can also serve public and private institutions that rely on more centralized infrastructure.



<h3 class="wp-block-heading">A permissioned blockchain</h3>



The French project is not operating on a public blockchain, such as Ethereum, nor do they regard a public blockchain as desirable for the intended use case, where “a framework of control, privacy and confidentiality” were requirements. Instead, with IBM as a technology partner, a <a href="https://cms.blockworks.co/ethereum-steps-up-as-rails-for-new-capital-markets/" target="_blank" rel="noreferrer noopener">permissioned blockchain</a> using Hyperledger Fabric was employed to run the experiment via just three network nodes. (For comparison, Ethereum&#8217;s mainnet has about <a href="https://www.ethernodes.org/history" target="_blank" rel="noreferrer noopener">3,740 nodes currently</a>.)



The parties were aiming to simulate real market activity at scale, with Agence France Trésor issuing securities tokens and Banque de France issuing CBDC tokens using the IBM-built blockchain. The securities’ had an International Securities Identification Number (ISIN) generated by smart contracts, which also managed the auto-collateralization on settlement flows.



In a video <a href="https://www.youtube.com/watch?v=0cSOcoLSBgc&amp;t=36s" target="_blank" rel="noreferrer noopener">posted to YouTube</a> by Eurorclear, Guénolé de Cadoudal, of Crédit Agricole, said, “the tested on-chain business logic demonstrated the benefits of an automatic cash and security liquidity pool by leveraging on-chain portfolios as collateral.”



The participants also found that a token-based approach proved to be just as efficient as an account-based one, with the former better able to facilitate cross-border funds flows.&nbsp;



Euroclear’s Philippe Verriest calls the experiment a success that “demonstrates that a broad range of post-trade operations can be run on blockchain,” adding that, “we believe the blockchain technology could increase the overall efficiency of post-trade operations.”



While blockchain aficionados and industry participants are likely to read this as restating the obvious, it is important to see major public and financial institutions acknowledge the technological merits.



The next step will be to compare these experiments to those running on public infrastructure. Société Générale <a href="https://cms.blockworks.co/major-french-bank-wants-to-back-the-dai-stablecoin-with-40m-in-bonds/" target="_blank" rel="noreferrer noopener">has recently undertaken</a> to embark on one such effort by posting real estate bonds as collateral with MakerDAO.



For now, the reports’ authors conclude:



<blockquote class="wp-block-quote">“It does not seem possible for a public blockchain model to meet all the regulatory requirements to run post-trade activities.”</blockquote>



Perhaps as the technology matures, French institutions can reassess which is more compatible with the principles of liberté, égalité, fraternité.



This story was updated on October 20, 2021, at 10:13 am ET.

French Central Bank Trades Debt Securities on Private Blockchain

<div id="highlights-block_6156f00798d1d" class="highlights">
 <ul>
 <li>MakerDAO, the decentralized organization behind $DAI has been trying to bring real-world assets into collateral mix</li>
 <li>Over 50% of $DAI is currently generated from $USDC collateral, but the Maker Community plans to address centralization risk</li>
 </ul>
 
</div>



MakerDAO, the decentralized autonomous organization behind the $DAI US dollar-pegged stablecoin has received a historic proposal from <meta charset="utf-8"><a href="https://www.sgforge.com/" target="_blank" rel="noreferrer noopener"><meta charset="utf-8">Société Générale-Forge</a> (SG-Forge), an affiliate of French investment banking giant Société Générale (SG). The company wants to onboard tokenized, AAA-rated euro-denominated bonds, into the MakerDAO system.



In DeFi circles, there is a running joke that turns &#8220;the future of finance&#8221; — as though by an auto-correct-mishap — into &#8220;the future of France.&#8221; Now it looks like France&#8217;s future may, after all, include some DeFi dollars.



<blockquote class="wp-block-quote">&#8220;This first experiment at the crossroads between regulated and open source initiatives&#8230;is intended to refinance a Covered Bond Token that has been issued last year on the Ethereum public blockchain,&#8221; <a href="https://forum.makerdao.com/t/security-tokens-refinancing-mip6-application-for-ofh-tokens/10605" target="_blank" rel="noreferrer noopener">wrote</a> Société Générale-Forge in their proposal to MakerDAO.</blockquote>



<meta charset="utf-8">Société Générale is a European banking behemoth, with 138,000 employees in 62 countries. While this initiative is described as experimentation, it is very much in line with the aims of MakerDAO to increase the collateral base of its $DAI stablecoin and diversify away from a reliance on volatile crypto assets (namely ether) and other centralized <a href="https://cms.blockworks.co/the-investors-guide-to-stablecoins/" target="_blank" rel="noreferrer noopener">stablecoins</a> such as $USDC which currently backs about half the $DAI in circulation:



<figure class="wp-block-embed is-type-rich is-provider-twitter wp-block-embed-twitter"><div class="wp-block-embed__wrapper">
<blockquote class="twitter-tweet" data-width="550" data-dnt="true">DAI&#39;s USDC backing has dropped below 50% again. We plan for this trend to continue. Slowly but surely <a href="https://twitter.com/MakerDAO?ref_src=twsrc%5Etfw">@MakerDAO</a> is making steps to diversify the collateral pool. <a href="https://t.co/GyGK35FNaa">pic.twitter.com/GyGK35FNaa</a>&mdash; Sam MacPherson | hexonaut.eth | 🪱🕳ing (@hexonaut) <a href="https://twitter.com/hexonaut/status/1445374266552225793?ref_src=twsrc%5Etfw">October 5, 2021</a></blockquote><script async src="https://platform.twitter.com/widgets.js" charset="utf-8"></script>
</div></figure>



The OFH Tokens are tokenized securities (available on Bloomberg as SIN FR0013510518). They carry a nominal value of €40 million, are issued on Ethereum and are backed by home loans issued by a <meta charset="utf-8">Société Générale-affiliated credit institution. The security tokens are based on the <a href="http://www.cast-framework.com/" target="_blank" rel="noreferrer noopener">open-source framework CAST</a> (Compliant Architecture for Security Tokens), which has previously been employed by Banque de France and the European Investment Bank both on the Ethereum and Tezos blockchains.



SG-Forge plans to borrow up to 20 million $DAI for a period of six to nine months, which it will convert to US dollars and loan to its parent SG in exchange for the use of the $OFH tokens as Pledge — effectively a refinancing of the OFH Tokens.



<h3 class="wp-block-heading">Dealing with a DAO</h3>



Since the Maker Community is organized as a DAO, the proposal requires that the community vote to appoint as a Maker Representative — <a href="https://www.diisgroup.com/" target="_blank" rel="noreferrer noopener">DIIS Group</a> — that will be empowered to execute the legal contracts for the transaction.



Unlike other assets backing the creation of the $DAI stablecoin, the OFH Tokens have no liquid market, so the liquidation procedure — in the event the loan becomes undercollateralized — is rather more manual than generally applies to MakerDAO&#8217;s other collateral vaults.



However, SG-Forge notes in its proposal notes that this just a first step; European regulations are evolving to support security tokens, and they expect that further growth in OTC desks and other trading venues will allow for more automated liquidation possibilities in the future.



The proposal was met with overwhelming support by the Maker Community forum participants with one calling the proposal, &#8220;a new landmark in DeFi and showing how DeFi and TradFi are merging together to create Finance 2.0.&#8221;



Also of note is that the founder of MakerDAO, Rune Christensen, was evidently unaware of the community efforts behind the scenes to bring this proposal to fruition.



<figure class="wp-block-embed is-type-rich is-provider-twitter wp-block-embed-twitter"><div class="wp-block-embed__wrapper">
<blockquote class="twitter-tweet" data-width="550" data-dnt="true">Turns out it was the future of France all along! 😀 Amazed that I had no clue about this at all the whole time. This is one of multiple recent examples in Maker Governance of how the post-foundation model of organization is proving to be more scalable&mdash; Rune Christensen (@RuneKek) <a href="https://twitter.com/RuneKek/status/1443712053273939970?ref_src=twsrc%5Etfw">September 30, 2021</a></blockquote><script async src="https://platform.twitter.com/widgets.js" charset="utf-8"></script>
</div></figure>



The Maker Foundation is <a href="https://www.coindesk.com/tech/2021/07/20/makerdao-moves-to-full-decentralization-maker-foundation-to-close-in-months">expected to be dissolved</a> by the end of this year, at which point the Maker Community will have full control over the DAO.



The proposal will next undergo an extensive review and discussion phase before it can be implemented, but there is clearly momentum behind the initiative to make this experiment a success.