Photo (cropped): 2019 EITI Global Conference by Hervé Cortinat from Flickr (CC BY-SA 2.0)

Asset tokenisation has increasingly found a place in mainstream finance with use-cases in tokenised equities, bonds and commodities. The concept of tokens came to the forefront with the emergence of initial coin offerings (ICOs) and the issuance of DLT-based, cryptography- enabled digital tokens used by start-ups and SMEs for capital raising purposes in the period 2017-18. Today, tokenisation of assets is becoming one of the most explored use-cases of Blockchain in financial markets.

The OECD therefore examines in its latest report different regulatory approaches to the tokenisation of assets. According to the report, policy makers in different jurisdictions have approached tokenisation in different ways, either by applying existing rules to tokenised assets, or by introducing new tailor- made regulatory frameworks to accommodate the tokenisation of assets.

Further, “most regulators dealing with active tokenised markets have adopted a technology-neutral approach to policies and risks, applying existing financial regulations to tokenised assets. Some are introducing new, tailored frameworks for tokenised assets and DLT-based markets, others are defining new roles for new actors participating in such markets, while elsewhere existing regulation is being adjusted to address specific characteristics and risks unique to decentralised networks and systems.”

“In some cases, new regulations are introduced to cover new actors and roles of participants in asset tokenisation markets, such as the ‘digital asset providers’ in France, ‘decentralised crypto security registers’ in Germany, or ‘verifying authorities’ in Liechtenstein.”

Photo: Central Bank by Cafe Credit from Flickr (CC 2.0)

Most central banks are currently exploring central bank digital currencies (CBDCs). CBDC is central bank-issued digital money denominated in the national unit of account, and it represents a liability of the central bank. If the CBDC is intended to be a digital equivalent of cash for use by end users (households and businesses), it is referred to as a “general purpose” or “retail” CBDC. As such, it offers a new option to the general public for holding money. In contrast to retail CBDC, “wholesale” CBDC targets a different group of eligible users. It is designed for restricted access by financial institutions and is similar to today’s central bank reserve and settlement accounts.

According to a recent survey by the Bank for International Settlement, carried out among more than 60 central banks in late 2020 about their engagement in CBDC work, the vast majority of central banks in the survey – 86% – are now exploring the benefits and drawbacks of CBDCs. 2020 also marked the arrival of a “live” general purpose CBDC when the Bahamas launched its Sand Dollar for its residents on 20 October 2020.

The survey further finds that interest in CBDCs around the globe is mainly be shaped by local circumstances. In emerging market and developing economies, where central banks report relatively stronger motivations, financial inclusion and payments efficiency objectives drive general purpose CBDC work. “The central banks not currently involved in any CBDC work are primarily in smaller jurisdictions. This finding is consistent with the results of the previous two surveys. Research also suggests that CBDCs are more likely to be under research and development in jurisdictions with high mobile phone use, innovation capacity11 and internet search interest for CBDCs, albeit with some differences across retail and wholesale CBDCs.“

Photo: Liber Europe on Flickr (CC BY 2.0)

The European Comission has introduced a proposal for a regulation on Markets in Crypto-assets (MiCA). The proposal, which is part of the EU´s new Digital Finance package, will be the most thorough regulatory framework  for crypto-assets, once it is adopted by the European Parliament.

The regulatory proposal aims to cover all crypto-assets falling outside existing EU financial services legislation (such as MiFID II), as well as e-money tokens. The Europan Comission thereby plans to set a legal framework, clearly defining the regulatory treatment of all crypto-assets and to promote the development of crypto-assets and the wider use of DLT, it is necessary to put in place a safe and proportionate framework to support innovation and fair competition, while simultaneously safeguarding financial stability.

The proposal classifies different crypto-assets into a variety of categories in order to apply a suiting set of regulations. For example, the European Commission plans to differentiate between  crypto-assets which are intended to provide digital access to a good or service, available on DLT, and that is only accepted by the issuer of that token (‘utility tokens’). A second category of crypto-assets will be ‘asset-referenced tokens’, which aim at maintaining a stable value by referencing several currencies that are legal tender, one or several commodities, one or several crypto-assets, or a basket of such assets. A third category of crypto-assets will be crypto-assets that are intended primarily as a means of payment aim at stabilising their value by referencing only one fiat currency.

Furthermore, MiCA pays special attention to so-called ‘stablecoins’. According to the Eurpopean Commission, “while the crypto-asset market remains modest in size and does not currently pose a threat to financial stability, this may change with the advent of ‘global stablecoins’, which seek wider adoption by incorporating features aimed at stabilising their value and by exploiting the network effects stemming from the firms promoting these assets.” As such, the proposal introduces a variety of additional regulation for this subset of crypto-assets.

The new regulations include among others, the obligation to draw up a crypto-asset white paper in accordance and the notification of such a crypto-asset white paper to the competent authorities and its publication. Once a whitepaper has been published, the issuer of crypto-assets can offer its crypto-assets in the EU or seeks an admission of such crypto-assets to trading on a trading platform. Furtherm, the proposal sets out information requirements regarding the crypto-asset white paper accompanying an offer to the public of crypto-assets or an admission of crypto-assets to a trading platform for crypto-assets, while it imposes some requirements related to the marketing materials produced by the issuers of crypto-assets. After the notification of the crypto-asset white paper, competent authorities will have the power to suspend or prohibit the offering, require the inclusion of additional information in the crypto-asset white paper or make public the fact that the issuer is not complying with the regulation.

The OECD´s report investigates the development of the Blockchain ecosystem in Israel with a specific focus on small and medium enterprises (SMEs). “The report analyses in particular the characteristics and trends of companies introducing blockchain-based services in the Israeli market, opportunities and challenges to their business development, sectors and firms being targeted, and relevance for enhancing digitalisation and productivity in the SME population at large. The report also illustrates recent trends in regulation and policy, and provides policy recommendations.”