A new industry in search of regulatory clarity


Michael juul rugaard, CEO of The Tokenizer reveals to The Paypers readers the ABCs of the asset and security tokenization industry

Most readers of The Paypers probably associate the concept of tokenization with the tokenization of payments. Conceptual confusion is unfortunate but sometimes difficult to avoid, and in this case, a new tokenization industry is emerging around the world alongside the already established payments tokenization industry. This new industry deals with the tokenization of assets, just like this article.

The asset tokenization industry has set out to revolutionize capital markets by representing a wide range of asset types through pieces of computer code called tokens. Tokens on a blockchain can represent stocks, bonds, derivatives, and all kinds of real-world assets. Businesses, organizations, and asset owners can use security token offerings – STOs – as alternatives to traditional means of raising capital.

The potential for asset tokenization is huge and the industry is expected to grow into a trillion dollar global business over the next 5-10 years. However, despite these promising prospects, regulatory uncertainty and the lack of a comprehensive regulatory overview across jurisdictions threaten to slow development. The challenge here is that since security tokens are real financial instruments, real securities, all parties operating in the space must be aware of complying with laws and regulations. But since this is a whole new area, many jurisdictions still lack regulatory clarity.

In July 2021, The Tokenizer, in collaboration with the Office for Financial Market Innovation (SFI), part of the government of Liechtenstein, released a comprehensive report on key regulatory challenges for the asset and token tokenization industry. security. The report was a comparative regulatory analysis of nine countries – Austria, Canada, Germany, Hong Kong, Liechtenstein, Malta, Singapore, Switzerland, and the United Kingdom – all known as token economic pioneers for understanding the current situation, challenges and opportunities for players. of the security token industry in these countries.

The overall very positive conclusion of the report is that although the security token industry is still very young and the concept of security token offering (STO) has still not been tested in most jurisdictions around the world , it is possible to locate a group of progressive countries in which security tokens and STOs are accepted and legally covered by national law.

In all nine countries, it is even possible to carry out an STO without producing a full prospectus, provided the STO aims to raise less than a certain amount in total. The majority of countries are amending existing laws and legal frameworks to include security tokens. Like most European countries, they have qualified security tokens as financial instruments regulated by the European MiFID ll directive.

However, even among this group of supposedly progressive countries, the degree of friendliness towards crypto in general and the security token industry in particular differs relatively. The most innovative countries have an interest and a sincere desire to be far-sighted and at the forefront of development. In contrast, the less progressive countries, more than anything, are interested in controlling what happens in the digital asset space and ensuring that new developments within the token economy industry do not represent not a threat to the status quo and the country’s reputation – Malta is perhaps the best example of the nine countries.

On the more practical side: finding relevant information and support, setting up a business, opening a bank account, carrying out an STO, having a prospectus approved by the local FSA (Financial Supervisory Authority), all of this is possible in everyone. participating countries. Nonetheless, the level of ease, convenience, and cost differ considerably.

The number of SCOs is still low in most countries, including the nine countries participating in the report. However, even though the security token industry is still in its early stages, the very positive result is, as mentioned, that a large group of countries are very enthusiastic on behalf of the security token industry. . Also, there is little doubt that this group will grow a lot soon.

There are many leading expert statements on the promising future of security tokens. One comes from Jonathan Larsen, innovation director of the Ping An group, saying that:

“Tokenization is a really massive trend. It’s a much bigger story than cryptocurrencies, initial coin offerings, and even blockchain. ‘

Another good example comes from German Plutoneo, in this case focusing on European numbers:

“The market volume in Europe will be around 918 billion euros in 2026, covering all kinds of security tokens. For the first time, security tokens will overtake cryptocurrencies by then. Despite the strong growth over the next few years, the tokenized market will still cover only a small part of the total market, which is expected to grow by 259 trillion euros in Europe. The tokenization share will be 0.35%, indicating that the tokenized market will always be premature with attractive growth rates beyond 2026. ‘

However, a certain level of regulatory clarity is a sine qua non for these estimates to be met. This is why The Tokenizer is developing The RegRadar for the sole purpose of collecting data and tracking all news and regulatory changes in jurisdictions around the world. But obviously more initiatives are needed, and we cannot recommend enough that governments, FSAs, universities, financial institutions, businesses and organizations start paying close attention to the security tokens approach of countries such as Singapore, Austria, Switzerland, Hong Kong and Liechtenstein.

Michael juul rugaard

Michael is a founding partner of Norfico and the editor-in-chief of The Tokenizer. Michael has over fifteen years of experience as a strategic communications consultant, author and editor of magazines, books, articles and white papers.

At Norfico, Michael has been responsible for strategic communications advice, editorial services and content for a number of clients in banking, fintech, blockchain and crypto.

Michael holds an MA in Communication, Language and Literature from the Department of Scandinavian Studies and Linguistics at the University of Copenhagen.

About the Tokenizer

The Tokenizer is the premier news and data platform related to the tokenization of real-world assets and the token economy. Visit https://thetokenizer.io


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