Emerging Regulatory Approaches to Blockchain Based Token Economy

Abstract

Blockchain enabled digital scarcity has opened up a whole new dimension of possibilities for the token economy, particularly with regards to rights and assets that have not been traded electronically before. Blockchain based tokenization of rights and assets has also brought a new set of legal and regulatory challenges. Regulators and legislators are yet to address many of the issues raised by blockchain based tokenization, from decentralisation and token characterisation to cross border harmonisation and regulatory compliance with traditional market infrastructure. Lack of regulatory alignment can undermine many of the benefits of the token economy. Lack of legal certainty may not only stifle innovation and slow down mainstream adoption of blockchain based tokenization, but can also raise the risks for investors and harm the reputation of the industry. The emerging regulations vary in approach. Liechtenstein became the first country to have comprehensive technology-neutral regulation of the token economy. Malta and Singapore also represent progressive jurisdictions for blockchain regulation. However, most jurisdictions, including the US and the EU, have not yet formed clear policy for blockchain regulation and many legal questions remain open. The paper examines whether there is an emerging predominant regulatory approach or prevailing regulatory direction for the future of the token economy. It also highlights the existing regulatory void and divergent approaches to blockchain based tokenization. Finally, the paper concludes that there is an urgent need to provide a clear legal and regulatory framework if the potential of the token economy is to be realised.