Reg­u­la­tion & Secu­ri­ty Tokens

Reg­u­la­tion

In 2021, the total mar­ket cap­i­tal­i­sa­tion of cryp­tocur­ren­cies has increased by over 250%, from US$780 bil­lion at the begin­ning of the year to over US$2 tril­lion, and the debate among reg­u­la­tors on how to deal with the rise of cryp­to has inten­si­fied. The need to pro­tect con­sumers and min­imise risk should be ensured while not restrict­ing innovation.

On the reg­u­la­to­ry front, glob­al over­sight of cryp­to remains uneven.

While Chi­na bans all cryp­to activ­i­ties, there are oth­er juris­dic­tions such as Dubai, Gibral­tar and Mal­ta that posi­tion them­selves as cryp­to hubs and oth­er coun­tries such as India where the cryp­to start­up ecosys­tem is grow­ing strong­ly that strug­gle to decide between ban and regulation.

The Finan­cial Action Task Force (FATF) pub­lished its updat­ed guid­ance on vir­tu­al assets and vir­tu­al asset ser­vice providers (VASPs) in Octo­ber 2021 to guide how coun­tries imple­ment their cryp­to reg­u­la­tion. In par­tic­u­lar, this is about imple­ment­ing the Trav­el Rule, which requires mem­bers to share data on vir­tu­al asset trans­ac­tions over a cer­tain amount.

The guide­lines touch on some of the most press­ing issues in the cryp­to indus­try , includ­ing sta­ble­coins , peer-to-peer trans­ac­tions, non-fun­gi­ble tokens (NFTs) and decen­tralised finance (DeFi).

Sta­ble­coins and DeFI projects in par­tic­u­lar are square­ly on reg­u­la­tors’ radar for 2022.

Gary Gensler, chair­man of the Secu­ri­ties and Exchange Com­mis­sion, and the Pres­i­den­t’s Work­ing Group on Finan­cial Mar­kets called on Con­gress to sub­ject sta­ble­coin issuers to the same lev­el of reg­u­la­to­ry scruti­ny and legal oblig­a­tions as banks.

There are also calls for broad­er reg­u­la­tion of dig­i­tal assets from the high­est lev­els of eco­nom­ic pol­i­cy­mak­ers, includ­ing the IMF. The IMF’s demands relate to cryp­tocur­ren­cy ser­vice providers offer­ing ser­vices such as trans­fer, stor­age, set­tle­ment and cus­tody of dig­i­tal assets, must be licensed or autho­rised, require­ments should be tai­lored to the spe­cif­ic use cas­es of cryp­tos, and gov­ern­ments and author­i­ties should require that reg­u­lat­ed finan­cial insti­tu­tions pro­vide com­pre­hen­sive rep­re­sen­ta­tions of their cryp­to expo­sure and exposures.

A lot is expect­ed to hap­pen in 2022 in terms of reg­u­la­tion, but there will remain uncer­tain­ty about the reg­u­la­to­ry envi­ron­ment com­pared to oth­er countries.

Secu­ri­ty Token

The last Secu­ri­ty Token Offer­ing (STO) approved by BaFin in Ger­many at the end of 2021 comes from Lux­em­bourg-based game devel­op­er Exordi­um, which wants to raise €8 mil­lion for its game Infi­nite Fleet. The STO on the Liq­uid Net­work, a sidechain of the Bit­coin blockchain, has approved. BaFin has pre­vi­ous­ly approved STOs on the Ethereum blockchain. Alter­ra World­wide kicked off 2022 with one of the world’s lead­ing real estate tok­eniza­tion projects for a new mul­ti­fam­i­ly tow­er in down­town San Jose called Tow­er 27, rais­ing hopes for more to come.

In addi­tion to this STO news, 2022 kicks off with more inter­est­ing announce­ments regard­ing secu­ri­ty token. Lead­ing cryp­to exchange Bit­MEX announced a part­ner­ship with Toke­ny, a lead­ing provider of tok­eniza­tion ser­vices, to sup­port the launch of its BMEX token, which is designed to reward cus­tomers for their loy­al­ty and INX Lim­it­ed (INX), the own­er of dig­i­tal asset trad­ing plat­forms, announced the acqui­si­tion of Token­soft Trans­fer Agent LLC (TTA), an SEC-reg­is­tered trans­fer agent owned by Token­soft Inc. to be able to offer a com­pre­hen­sive solu­tion to pub­lic and pri­vate com­pa­nies seek­ing to raise cap­i­tal and list dig­i­tal securities.

JP Mor­gan also pre­dicts in their lat­est report that 2022 could be the year of finan­cial tok­eniza­tion and could fur­ther dri­ve insti­tu­tion­al adoption.

While many in the cryp­to com­mu­ni­ty summed up 2021 as the year NFTs expe­ri­enced mas­sive growth, ana­lysts at JPMor­gan pre­dict­ed that greater inter­op­er­abil­i­ty among dif­fer­ent blockchains and finan­cial tok­eniza­tion could be the hall­marks of this year.

JPMor­gan Research ana­lysts Ken­neth Wor­thing­ton and Regi­nald Smith believe the evo­lu­tion of cryp­to mar­kets will accel­er­ate this year, par­tic­u­lar­ly for finan­cial ser­vices, as greater capac­i­ty and trans­ac­tion speeds are achieved through upgrades to the Ethereum blockchain or new Lay­er 2 ini­tia­tives, and the tok­eniza­tion seg­ment is still in its ear­ly stages, bring­ing sig­nif­i­cant poten­tial to the finan­cial ser­vices space. “In our future, we see tok­eniza­tion (and frac­tion­al­iza­tion) of loans, equi­ties, por­tions of real estate, and non-trad­ed assets includ­ing pri­vate equi­ty,” they state.

So, if 2020 was the year of DeFi, 2021 the year of NFTs, 2022 could be the year of secu­ri­ty tokens and STOs.