Learn more about the risks and safeguards you need to know regarding Non-Fungible Tokens (NFTs)

FTA Online News

With the growing popularity of NFTs, it is essential that users understand the risks and safeguards.

The rights embedded in an NFT

An NFT is a non-fungible token which collects a set of digital information within a blockchain and confers ownership rights on a given person.

The tokenisation process converts rights to a real or digital asset, such as a work of art, into a digital token recorded on a blockchain, through a smart contract that connects the asset to the token and creates a verifiable digital scarcity of digital ownership.

Blockchain ensures that each token is not replicable or modifiable and “certifies” the ownership declaration of the token, but not of the real work of art. It is therefore crucial to understand which rights you are buying with a given NFT.

Infringement of intellectual property rights

A smart contract is included in the design of NFTs, and is executed when certain requirements are met. In this way, the intellectual property and the authenticity of the work represented through the NFT are protected: this happens when the author or artist of the work creates an NFT connected to the work. By virtue of NFTs, it is possible to grant a certificate of authenticity and to trace subsequent exchanges.

It may nevertheless happen that the person who mints the NFT does not have the permission of the artist or the creator of the work. A recent example is the case of Nike suing the reselling platform StockX for the unauthorised sale of 500 NFTs depicting Nike sneakers.

Before acquiring an NFT, it is therefore necessary to verify the “match” between the identity of the artist who created the work and the person who is selling it. This test can be provided by linking a certificate of originality to the smart contract included in the NFT.

The resale right for NFTs

The resale right is the right of the artist to benefit from the works they created even after selling or assigning them, participating in any increase in their value over time and in subsequent assignments.

Including a smart contract within an NFT that provides for the application of percentages on subsequent sales, allows the original author to monetise these over time. At the same time, the presence of this clause implies potential lower revenue for the buyer of the asset at the time of a future sale.

Ultimately, therefore, a buyer of an NFT will have to take into account all typical problems relating to copyright and resale rights which are typical of works of art and which are analysed in more detail in the article on taxation of NFTs.

Wash trading of NFTs

Another risk when buying a NFT is related to illegal price manipulation practices: this is the phenomenon of wash trading, a transaction carried out by some sellers to increase the value of an NFT artificially. In practice, the seller sells the digital asset to themself, transferring it to another wallet which they own, thus illegally inflating the value of the NFT and leading interested users to believe that it is an object with speculative potential. For a market that, while declining, registered transactions of more than $44 billion in 2021, the danger is real. According to Chainalysis, during 2021, around $8.9 million in profit was made from “wash trading” activities on NFTs.

Buying and selling NFTs safely

The lack of regulation of the NFT market also means that there can be fraudsters and speculators among NFT investors. Investors approaching the world of NFTs for the first time should therefore follow certain rules:

1. The value of NFTs fluctuates over time: do not let yourself be carried away by the market, but always remain aware of the objective of the investment.
2. Choose Marketplaces that are considered to be safer and more regulated.
3. Open secure wallets and be sure to store NFTs in multiple secure wallets with advanced encryption systems.
4. Seek documentation on NFTs of interest, checking out communities of fans.
5. Be aware of phishing, links, emails or fraudulent messages that lead users to share sensitive information that can lead to theft of NFTs from the wallet.

NFTs: the risk of Ponzi schemes

Like all investments in markets with little or no regulation, NFT investments carry several risks. In particular for NFTs, many of these risks can be compared to those typical of investments in works of art: from the problem of authenticity to that of copyright and resale rights, from the value of the investment over time (often linked to unforeseeable and subjective factors) to any concrete relationship with the work of art linked to the token, whether digital or physical. Various observers have also highlighted the risk of pyramid schemes, better known as Ponzi schemes, which could create asset bubbles and significant losses.

There is indeed a risk related to pyramid schemes, but it is not too specific due to some typical features of NFTs. The typical Ponzi scheme works more or less as follows: an entity creates a fund and issues its units on the market, which are subscribed by various investors. Instead of paying investors back with investment outcomes, the pyramid scheme uses resources received from new subscriptions. The more successful the fund is, the more new investments rain down, remunerating old investors, starting at the top of the pyramid and then gradually trickling down to the most recent ones.

When subscriptions drop or some real investment goes badly, however, the game breaks down and the truth emerges overwhelmingly, as in the famous case of Bernie Madoff. Even the crypto world has witnessed giant Ponzi schemes, such as that of OneCoin, with which the Bulgarian criminal Ruzha Ignatova stole as much as $5 billion before fleeing. There were also the cases of BitConnect and PlusToken. There are many more cases of fraud and the Washington Post has even listed six warning signs: implausible returns (e.g. 1% a day), promoters flaunting an affluent lifestyle, proprietary secrets that block transparency on tools, proselytizing drives, participants who boast of large gains, the difficulty of liquidating investments at a given point.

In fact, NFTs have some features that make them favourable for the creation of Ponzi schemes, but have other features that hinder this. NFTs are difficult to value (like a work of art in many cases), can initially deliver very high returns, still have vague and uncertain regulation, are new and therefore less well known and easier to use to devise scams. At the same time, however, NFTs are by definition unique (although the buyer must carry out all the necessary checks), so they are not as fungible as the shares of a fund which conceals a Ponzi scheme. The life cycle of an NFT normally goes from the creator (artist) to the seller (auction house and similar) to the buyer (investor), with each NFT having its own path, so that it is difficult to include it within a pyramid scheme which provides for a close link between all NFTs and their owners over time.

NFTs: the risks of MLM (multilevel marketing)

Another controversial selling practice is that of multilevel marketing (MLM), which is legal in Italy within certain limits, unlike Ponzi schemes or chain letters, but is often compared to and merges into Ponzi schemes. This consists of a distribution system in which a company not only sells its products to customers, but also encourages them to sell their products in exchange for profits. A chain is thus constructed in which a large proportion of profits move upwards, while greater pressures persist on the base.

This can happen in the world of NFTs, such as in the case of special collectible NFT PFPs. PFP is the acronym for Photo for Profile, and recently, several such images, real avatars, have absorbed an important part of the NFT market, as in the case of the CryptoPunks and Bored Ape Yacht Club series. The success of these profiles has generated a strong market which, as often happens, has fed on the prestige associated with certain successful NFTs or the fear of being cut off from a trend (fear of missing out, or FOMO). This has triggered mechanisms similar to multilevel marketing in the purchase and sale of these NFTs.

Every time a fashion is created and spread, there is a danger of multilevel marketing mechanisms, pyramid schemes, speculation and fraud. The world of NFTs evidently also faces these dangers.

Learn more about NFTs

NFT (Non-Fungible Token): cosa sono e come funzionano - Borsa Italiana

NFT: qual è la differenza tra token fungibili e token non fungibili - Borsa Italiana

La fiscalità degli NFT - Borsa Italiana

Find out more about the role of the European Central Bank (ECB), its activities and its decision-making bodies.

FTA Online News, Milan

Role and headquarters of the European Central Bank

The European Central Bank (ECB) is the Eurozone’s monetary policy institute, formed of the 19 EU member states, which decided to abandon their national currency in favour of the euro. Croatia will adopt the euro from 1 January 2023 onwards.

The ECB is located in Frankfurt am Main, Germany. Its headquarters, designed by the company Coop Himmelb(l)au, was completed in November 2014.

The main aim of the ECB is to maintain price stability within the single currency area. This target is essentially identified as an inflation level of around 2%. More recently, the ECB has also been assigned banking supervisory tasks, which it performs in coordination with national central banks.

The independence of the ECB

The European Central Bank, sometimes also known as the Eurotower, has its own legal personality on the basis of Article 282 of the Treaty on the Functioning of the European Union and, together with the national central banks, constitutes the European System of Central Banks (ESCB). The ESCB is governed by the decision-making bodies of the ECB. Member states of the ESCB that are not members of the Eurosystem will have an autonomous monetary policy until they decide to join the euro system.

A legal personality strengthens the ECB’s decision-making independence in achieving its goals and objectives, above all that of maintaining price stability.

The ECB has the exclusive right to authorise the issuance of euros.

The memorandum on the charter of the European System of Central Banks and of the ECB further specifies that: “Neither the ECB, nor a national central bank, nor a member of their decision-making bodies shall seek or take instructions from European Community institutions or bodies, from the governments of the Member States or from any other entity. The Community institutions and bodies and the governments of the Member States undertake to respect this principle and not to seek to influence the members of the decision-making bodies of the ECB or the national central banks in the performance of their tasks”.

It should nevertheless be noted that, within the above limits, the ECB reports directly to the European Parliament in an annual report, with four annual comparisons to the EU Parliament’s own (customary) annual Committee on Economic and Monetary Affairs, with the right of EU MPs to submit written questions to the Central Bank and the EU Parliament playing a role in the procedure for appointing members of the ECB’s Executive Board.

The ECB was established in 1998 by the Treaty on European Union. At the institution’s base [AH1] in Frankfurt, more than 3,500 people work in close collaboration with the national central banks and on banking supervision. The main function of the ECB is to manage the euro, the single currency of the Community. The ECB also plays a role in shaping and implementing monetary policy within the EU.

Scope and functions of the ECB

Since 1 January 1999, the date of irrevocable fixing of the exchange rates of the first 11 member states, the European Central Bank has become responsible for the monetary policy of the Eurozone.

The principal objective of the institution is to maintain price stability by safeguarding purchasing power within the Eurozone through the control of inflation. Inflation is considered to be under control if it moves towards a symmetric 2% target over the medium term.

The main functions of the ECB on the basis of the Treaty establishing the European Community include:

• defining and implementing the monetary policy of the Union;
• carrying out foreign exchange operations;
• holding and managing the official reserves of the Member States;
• promoting the smooth functioning of payment systems.

As stated, the ECB also has the exclusive right to authorise the issuance of banknotes within the Eurozone.

How does the Central Bank achieve its objectives?

In order to implement its monetary policy, the ECB has a toolbox with various tools, some of which have been developed to meet specific needs.

The main instrument of the ECB’s monetary policy is the interest rate, or rather three interest rates:

• the interest rate for principal refinancing operations (the rate which is generally cited); 
• the marginal refinancing rate;
• the deposit rate with the central bank. 

By acting on these three rates, which primarily set financing conditions for the banking world within the Eurozone, and consequently, general financing conditions for the economy, the central bank acts on the cost of money in order to stabilise the price level by defending it against excessive rises or falls.

To guide interest rates and control the liquidity in the financial system, the ECB and national central banks make use of open market operations. “Open Market Operations” are conducted with various instruments by the ECB, which decides on instruments and methods of intervention, from standard auctions to bilateral procedures, from debt certificate issues to foreign exchange swaps and more.

The ECB also offers lending institutions two main types of credit lines (marginal lending and deposit facilities), which provide or absorb short-term (overnight) liquidity and have specific interest rates.

The ECB also requires Eurozone lending institutions to hold accounts with their national central banks, where minimum or required reserves must be deposited.

The ECB may, if it considers it appropriate, make use of “forward guidance”, i.e. a brief prospective guide to the central bank’s future rate intentions. In general, this is a specific sentence included in the communiqué attached to periodic monetary policy decisions. Its aim is to provide greater clarity to operators when needed.

The financial and economic crises of recent years have led the ECB to add new instruments, termed unconventional monetary policy instruments, to these “tools”. These include forward guidance, which was introduced in June 2013.

Also of note are the introduction of negative rates, to encourage banks to finance the real economy, the OMT asset purchase programme (never used) for preventing the potential exit of member countries from the Eurozone and corporate bond purchases.

The 2014 APP (asset purchase programme), the 2020 PEPP (pandemic emergency purchase programme) and the 2022 TPI (transmission protection instrument) (also based on purchases of assets) are also well known.

TLTRO (targeted longer-term refinancing operations) are a slightly different case: these are long-term loans to banks at very favourable rates, although these are conditional on targeted investments in favour of people and businesses.

The decision-making bodies of the European Central Bank

The Governing Council

The Governing Council, which is chaired by the President of the ECB, is the main decision-making body of the European Central Bank. It consists of six members of the Executive Board, and the governors of the 20 central banks of the Eurosystem countries. It defines the guidelines, formulates monetary policy and adopts framework resolutions to incorporate supervisory decisions. In particular, every six weeks, it takes the monetary policy decisions which are then communicated and explained in depth during a press conference held by the President and Vice-President of the Council. Since 2015, a system of rotation of voting rights has been implemented.

The Executive Board

This consists of the President of the ECB, a Vice-President and four other members, chosen every eight years by the European Council by a qualified majority from persons with recognised authority and experience in monetary or banking matters. The Committee is concerned with the implementation of monetary policy, in accordance with the decisions and guidelines of the Governing Council, issuing instructions to national central banks. The Committee is also tasked with the preparation of meetings of the Governing Council and the ongoing handling of ECB business.

The General Council

Within the European System of Central Banks (ESCB), only eurozone countries participate in ECB decisions. Member countries of the ESCB that are excluded from the Eurosystem operate together with the other States in the General Council. In other words, the General Council includes the President and Vice-President of the ECB and all of the governors of the central banks of the European Union. The General Council is regarded as a transitional body with a view to the adhesion of all countries to the Euro. It works on the future enlargement of the single monetary area and collects statistical data, also carrying out consultative functions and drawing up the annual report of the central bank.

The Supervisory Board

Since 2014, a Single Supervisory Mechanism (SSM) has existed in Europe, comprising the ECB and national banking supervisory authorities. The aim is to defend the security and soundness of the European banking system, enhancing its integration and ensuring consistent supervision. This includes the Supervisory Council, the fourth decision-making body of the ECB, which consists of a President, a Vice-President (member of the Executive Board of the ECB), four representatives of the ECB and representatives of national supervisory authorities. The Supervisory Board is assisted by a specific Steering Committee.

Mid-June highlights

• World durum wheat prices remained steady with few sellers in the market
• June Coceral report is out
• Sowings completed in North America with favourable conditions
• Concerns about new crop quality due to excessive rainfall in Italy, Greece and southern France

Durum wheat prices across the world  

Durum wheat prices in Europe remained steady in the beginning of June yet market participants continue to buy hand to mouth as they await harvesting developments on the continent, still slowed by frequent rains in Italy, southern France and Greece.

In North America, durum wheat prices remained unchanged, and the market has few sellers, still cautious to offer on the new crop.

Price volatility in the SEDWI index has fallen sharply to the 15-point level, as shown in the chart below, returning close to 2020-2021 crop year levels, just as prices themselves in Europe may also be trending back to 2020-2021 crop year levels due to the likely low quality of the new crop.

US durum ending stocks for the 22-23 marketing year are estimated by the USDA at 24 million bushels or about 650,000 MT, at the lowest levels in 10 years. In Canada, 300 to 500,000 MT are forecast also at minimum levels in the past 10 years.

In contrast, the world market outlook for soft wheat seems divergent from that for durum wheat. In fact, large ending stocks from the 2022-2023 marketing year in Russia, the Black Sea countries and the EU will keep the market well supplied ahead of the new crop, which already has excellent production potential.

In summary, decorrelation between durum wheat prices and soft wheat prices seems likely due to completely divergent S&D fundamentals.

The spread between CWAD No. 1 and Canadian soft wheat CWRS No. 1 prices for the new 2023 crop for September 2023 delivery has narrowed in recent weeks, reaching 0.34 CAD/bu, equivalent to about 9 USD/MT. At Canadian primary elevators for September '23 delivery, CWAD No.1 quotes 9.53 CAD/bu equivalent to 262 USD/MT and CWRS quotes 9.19 CAD/bu equivalent to 253 USD/MT.

In Canada, spot old crop prices for July-August 2023 delivery at origin were unchanged on week 23 at 10.69 CAD/bu - (departure primary elevator in Saskatchewan) corresponding to today's CAD/USD exchange rate at about 294 USD/MT, to which the basis value of about 60-65 USD/MT must be added to get the FOB Vancouver price, equivalent to today at about 355 USD/MT. Considering a Panamax vessel freight rate from Vancouver to a Mediterranean port, for shipment in June, of about 30 USD/MT we reach a C&F basis price equivalent to about 385 USD/MT.

In Canada, prices for the new crop 2023 for delivery September 2023 (primary elevator departure in Saskatchewan) are quoted today at 9.53 CAD/bu corresponding to today's CAD/USD exchange rate at about 262 USD/MT, to which we need to add the basis value estimated today at about 65-70 USD/MT to get the FOB St. Lawrence price, today equivalent to about 330 USD/MT. We estimate the charter value of a Handymax from St. Lawrence to Italy at about 30-35 USD/MT, yielding a Mediterranean CIF price of 370-375 USD/MT. From Vancouver Mediterranean CIF price for Panamax vessels for shipment Sept-Oct 2023 is equal to 360-365 USD/MT.

In Italy, old crop durum wheat offers are now nearly exhausted due to farmers' retention of the few remaining available lots that are carried over to the new crop for blending.

Source: Sitagri

Focus on durum wheat prices in Italy

In Puglia, Italy, new crop durum wheat prices for delivery from July 2023 are indicatively quoted at €320-€325/MT delivered to mill. In Central Italy the market is not yet formed due to the continuous rains and does not yet show any trade, while in Sicily durum is traded at about €310/MT delivered to mill for standard quality, although the local market remains very difficult to interpret due to the constant rains expected until the end of mid-June with potential further quality damage.

In our opinion the potential for any further decline in durum wheat prices, in Italy and the rest of Europe, should not exceed 10-15% of current value despite potential quality problems.

Durum mills in Italy remained very cautious in communicating new semolina prices while waiting to assess the quality of the new crop. Nominal prices for standard quality durum wheat semolina per delivery in the June-December 2023 period remained unchanged in the area of €440-€445/MT per delivery in Northern Italy, €435-€440/MT in Puglia and Central Southern Italy.

Crop vegetative conditions in Italy are deteriorating due to constant rains in most Italian regions, particularly in Latium, Marche, Sicily and Apulia. Concerns about quality and yields of the new crop are increasing.​

In Sicily, early harvesting shows wheat with test weight and protein below standard levels. ​

In Puglia, harvesting has begun in the Tavoliere in the province of Foggia. The first cuts show very heterogeneous quality with test weight ranging between 80 and 72 kg/hl and protein content is regular between 12 and 13%. However, harvesting operations are expected to start in full swing from 20 June 2023 due to the expected entry of high pressure in Italy starting the second part of June. 

Canadian durum wheat exports

In Canada and the US, durum wheat conditions are good and almost all sowings have been completed with wheat already emerged as of 13 June.​

Agriculture Canada released its May budgets. For durum wheat, it increased the acres sown by 388,000 acres compared to April to 6.06 million acres. This brought production to 5.82 MMT (5.44 MMT previously) and total supply to 6.3 MMT (5.97 MMT previously). The AAFC also increased its 2023/2024 export forecast by 350,000 MT to 4.75 MMT. The increase in projected exports means that the 2023/2024 ending stocks remain relatively limited at 600,000 and 800,000 MT.​

Total shipments (actual exports) of Canadian durum wheat from the time of harvesting - late August 22 to present (44 weeks) - have reached about 4,600,000 MT. Agriculture Canada expects durum wheat exports for 2022/2023 to reach 4.8 MMT, which would leave only 300,000 MT to be shipped in the next 8 weeks, maintaining an average pace of 28,000 MT per week.​

According to StatsCan data, Canadian durum wheat exports in April were good, reaching 567,100 MT, for a seasonal total of 4.2 MMT. Algeria was the main buyer in April, importing 215,5000 MT during the month. Algeria imported a total of 527,700 MT from August to April, two and a half times more than last year. Italy remains the top customer of Canadian durum. The country imported 83,000 tons in April, a seasonal total of 1.2 MMT, compared to 223,000 tons imported at this time last year.​

Coceral’s June report

Coceral, the European association, for the grain and oilseeds trade, has released its June crop report. The 2023 European durum wheat crop is still seen upward at 7.5 MMT from last year's production of 7.2 MMT and despite declines in production in Spain and France, offset by Italy and Greece.​

According to some analysts, in Spain, the prolonged drought has had a devastating impact on the country's durum wheat crop, with some forecasting as low as 250,000 and 350,000 MT. ​

According to the Kazakh Ministry of Agriculture, Kazakhstan is forecasting a 2023 crop of durum and soft wheat of 16 MMT. The 2022 crop was 16.4 MMT so there may be a 2.4% drop in production in the coming marketing year.

World durum wheat production 2022-2023 vs 2023-2024 estimates

Article provided by Intergrain in partnership with FinanceAgri

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Interview for John Lothian News - 20 June 2023, London
@FIA IDX - International Derivatives Expo

Charlotte Alliot talked about:

• Euronext's next major milestone with the migration to Euronext Clearing
• The Euronext CAC 40 Total Return Future evolution
• How Euronext Trader, the web-based trading GUI is transforming the group derivatives distribution network

Watch the full interview

Learn more about the Sustainable Economy and its underlying principles. Discover what Sustainable Finance means, and the provisions of Italian law on this point.

FTA Online News, Milan

The term sustainable economy refers to a type of economy focused on the broader concept of sustainable development.

This economic model requires development based on a rational use of natural resources so that it also permits use by future generations. To ecological and generational responsibilities, new and related social responsibilities have been added over time, including objectives such as combatting poverty and inequality or promoting decent working conditions.

What is sustainable development?

The first official definition of sustainable development is based on the Brundtland report, a document issued in 1987 by the World Commission on Environment and Development (WCED), which introduced the concept of sustainable development for the first time.

“Sustainable development”, the definition subsequently adopted by the UN’s World Conference on Environment and Development, “is development that meets the needs of the present without compromising the ability of future generations to meet their own needs”. 

This is the basis for a model for society and economic development that integrates environmental, economic and social aspects in a long-term global perspective for the development of a more equitable, healthy and harmonious society for all, including future generations.

Another fundamental step was taken in 2015, with the United Nations’ approval of the 2030 Agenda, with its 17 Sustainable Development Goals (SDGs), subdivided into 169 associated targets, to be achieved by 2030. The Agenda is an essential reference for combatting climate change, poverty, inequality and promoting peaceful societies that respect dignity and human rights.

For example, the UN targets are used as a reference for corporate reporting, national and international policy makers, think tanks, institutions, and agencies engaging in economic and social topics.

One of the pillars of this new paradigm of sustainable development is the observation of the contradiction between the objective limits of Planet Earth’s resources and the desire for continuous and constant economic growth, based on material consumption of goods and services. The objective of the rational use of environmental resources was immediately linked to the objectives of equity and social inclusiveness and harmonious development of the economy.

What is understood by sustainable finance?

The Global Sustainable Investment Alliance (GSIA) has defined the financial side of sustainable development as follows: “Sustainable finance is the set of investment strategies that consider Environmental, Social and Governance (ESG) factors in portfolio composition and management.”

Like sustainable development, sustainable finance has a long history and challenges the goals and ends of the financial system in a new way. As early as 1928, the Pioneer Fund was born in the United States with an ethical vocation, and in the 1970s, American religious funds and university foundations refused to invest in companies involved in the war effort in Vietnam.

The United Nations has also played a key role here. In 2005, UN Secretary General Kofi Annan summoned the world’s largest investors to develop the six principles of responsible investment.

The first principle requires environmental, social and administrative issues to be incorporated into investment analysis and decisions. This is the famous ESG (Environmental, Social, Governance) paradigm, which still serves as a benchmark for the entire global financial industry today. The financial world is essentially being asked to invest not only from a risk/return perspective, but also taking account of obligations and limits linked to respect for the environment, society and good administration.

Between the great financial crisis of 2008 and the Covid-19 pandemic, sustainability principles became increasingly widespread in corporate reporting and in the body of legislation of major national and international jurisdictions. Europe’s most significant response to the pandemic was NextGenerationEU, a pact of responsibility for future generations and European society, which also aims to establish the megatrends for development in the coming decades, while the financial universe of sustainability already raises several tens of trillions of dollars globally.

Links

ESG | Empowering Sustainable Growth

Sustainable Finance @ Borsa Italiana