A group of researchers from the Oxford University Faculty of Law blog shocked the cryptocommunity this week after putting forth a research paper that lists reasons why the EU should regulate all cryptocurrencies the same. Specifically, the paper focuses on the increased difficulty surrounding making consistent distinctions between utility and security tokens. Also known as Token Taxonomy. Researchers argue that market-wide regulations would alleviate much of the confusion in the market and provide a safer investor experience.
The February 3 Oxford University Faculty of Law blog and subsequent paper put forth a couple of interesting arguments to support the researcher’s findings. The two main points covered in the paper is a lack of consistency in term of token classification and failure on the part of EU regulators to see the true use-case scenarios of these digital assets. Researchers argue that these two factors add to the opaqueness of the market currently.
Oxford University Faculty of Law log
Importantly, the research blog begins with a discussion as to why it’s important for regulators to abandon the concept that token classifications are necessary to regulate the market in the first place. Instead, the post puts forth examples as to why utility tokens actually possess all the characteristics of a capital market instrument. As such, these researchers believe its advantageous to create industry-wide regulations to protect all investors.
Notably, token classification has been at the center of regulatory debates since the very beginning of the ICO/STO market. Currently, there is a multitude of token classifications depending on the country and jurisdiction you are in. A token’s classification can determine a lot, such as how a token can be traded, issued, sold, or stored. Consequently, this puts increased pressure on investors and firms to ensure they incorporate in a region that provides their project the most leniency in terms of investor involvement and regulatory oversight.
SEC Token Taxonomy
For example, the SEC recently prosecuted multiple firms for issuing what they deemed as the unlicensed sale of security tokens over the last year. Many of the firms must now refund all the investment funds raised throughout their crowdfunding campaigns. These cases added to the classification debate and fueled further interests in properly categorizing each token type. Currently, the most common token classifications are utility, consumer, and security tokens.
Oxford University Faculty of Law – Simplify the Process
The three researchers, Dmitri Boreiko, Paolo Giudici and Guido Ferrarini argue that making these distinctions is not as clear as some regulators claim. They explain that the lines between these products blur based on their use scenario. For example, a token can function as a customer payment mechanism, a utility within a platform, and an investment agreement simultaneously, or alternatively.
Oxford University Faculty of Law blog
The second main talking point covered in the blog focuses on regulators’ responsibilities to recognize a financial instrument’s true use. The document states that in the end, all tokens are cryptocurrencies because at some point people intend to trade them and make a profit. As proof, the blog references numerous ICOs and IEOs that took place in the space. Each of these crowdfunding events was followed by periods of high-trading volume
Researches argue that these investors primarily seek to make a profit on their trades, and not to utilize the tokens within the platform. Additionally, researchers explained that many tokens function as both a market-specific mini-currency and as an investment. Furthermore, researches cited the ease in which these tokens can trade for major currencies such as Bitcoin or Fiat as another sign of their intended use.
Oxford University Faculty of Law – Researchers with a New Approach
The three researchers behind the blog are all respected professors in the fields of law and finance. Specifically, Dmitri Boreiko currently is the assistant professor of corporate finance and the Free University of Bolzano-Bozen. Paolo Giudici is a professor of business law at the same institution. Also, Guido Ferrarini acts as the chair in governance of the financial institutions at the Radboud University of Nijmegen and is also an emeritus professor of business law at the University of Genoa.
Oxford University in the Blockchain Sector
As a prestigious and world-recognized learning institution, Oxford remains on the cutting edge of financial developments. As such, the university added a blockchain course to its curriculum last year. The Blockchain Strategy Programme includes a comprehensive understanding of how blockchain works and a study of the potential impact this revolutionary tech could have on the markets moving forward.
According to school documentation, students receive training within Oxford’s unique frameworks. These systems include the Oxford Blockchain Strategic framework, Oxford Blockchain Regulation framework, and the Oxford Blockchain Ecosystem map. Additionally, students learn how to integrate blockchain applications into existing markets. Not surprisingly, these courses give Oxford a unique perspective in the space. The university is home to some of the most respected minds in the market. As such, there is no doubt that there will be a multitude of EU regulators that take these findings to heart.
Oxford University Faculty of Law – A Different Approach
The researchers behind the Oxford University Faculty of Law blog definitely put some time and effort into their findings. While their points do make sense, it would be interesting to see how enforceable they would be. Many cryptocurrencies feature privacy mechanisms and much of the market consists of investors who would fight hard to preserve, say, Bitcoin’s non-regulated status.
Oxford University Faculty of Law – Good Findings, Hard Truths
Despite what could be an uphill battle, these researchers believe these steps are necessary to push full-scale adoption of blockchain technology across the EU markets. For now, the market still needs to digest these findings.
Forex Market Boosted by Record US Jobs Data
- Payroll Data Smashes Expectation for June
- USD/JPY Increases on Optimism
- Asian Markets also Open Strong on Friday
US markets received an unexpected but welcome boost on Thursday. The release of nonfarm payroll numbers showed that the economy added a huge number of additional jobs beyond expectation. Unemployment numbers also fell. The positive ripple from this has been felt in the forex market around the world with early trading in Asia showing the Japanese Yen up slightly, and a positive start to the day in China, where PMIs came in strong, and other parts of Asia.
Largest Single Month Job Gain in US History
The numbers reported yesterday in terms of US nonfarm payrolls have easily eclipsed previous highs in terms of being the largest single month job gain the country has ever seen. Analysts had forecast a still impressive gain of 2.9 million jobs added, though the actual number came in much greater at 4.8m. This was quickly heralded by President Trump as a sign of the “economy roaring back”. Wall Street also reacted positively on the back of the news, with the Dow Jones rising more than 400 points.
The Labor Department also confirmed that unemployment had fallen more than expected, to a number of 11.1%. This is the lowest since the coronavirus pandemic started. Though these numbers may not paint an entirely accurate picture since they fail to capture the period when states started to rollback their reopening measures, they have still provided a timely economic boost.
JPY Moves Slightly Higher but Remains Hampered
The USD/JPY is one of the most traded markets in the world. Forex brokers though have noted that the market has been trading without much direction for some time. The pair was boosted slightly to a high of just below 108 on news that the US jobs data had come in much better than expected. This positive move was tempered with caution though amid the increasing concern with COVID-19 cases increasing across many American states.
As a well-known safe haven currency in times of difficulty itself, it may be some time before those forex trading the Yen feel like moving out of that safety zone. Later today, Japan will publish their own bank services PMIs from June. Should this number come in greater than expected, it may provoke an additional boost in the market.
Chinese and Other Asian Markets Positive
Yesterday’s positive news from the US has extended into the Asian trading session on Friday. Markets opened strongly across the Asia Pacific region. The Shanghai Composite index jumped almost 1.5% in early trading, with major indices in Japan, South Korea, and Australia, also displaying positive signs.
Markets were further buoyed by the release of Chinese PMI data from the services sector which showed a number of 58.4 for June. This would indicate the sector is growing at the fastest rate since 2010 after much of China returned to normal activity in the month of June.
Canada Day Special
July 1st represents Canada Day in the Great White North. As such, we thought that a quick look at a few Canadian companies involved in digital securities would be appropriate today.
To date, Canada has been one of the leading countries surrounding anything blockchain related. We have seen government adoption, the creation of Ethereum, the first Bitcoin fund listed on a major exchange, and rumblings of a potential central bank digital currency. The following are a few examples of Canadian based endeavours.
Bank of Canada
The Bank of Canada is one of the few of its kind to release official statements regarding the release of a CBDC. It has been established that, while there are no immediate plans for the release of a CBDC, the bank fully intends on being prepared for this, eventuality. This was first made apparent through job postings, such as ‘CBDC Project Manager’, but later through direct commentary.
In recent weeks, the Bank of Canada has gone so far as releasing an ‘analytical note’, which discusses the privacy needs of a potential CBDC. While they note that the goal is to attain privacy, akin to what cash affords its users, currently technology, such as zero-knowledge proofs, are not appropriate, and that both maturation and national-scale implementation first need to occur.
While it may be years before a Canadian CBDC is actually launched, the Bank of Canada is at least making sure the nation is ready for that day.
Operating out of Toronto, Blockstation is a young company, rife with potential. The team behind Blockstation has developed a suite of services which leverage blockchain technology. These services were built to allow “…the traditional financial ecosystem to get in on digital assets, including Bitcoin, Ether, and Tokenized IPOs (Security Token Offerings, or STOs)”
The hard work that went in to establishing these capabilities has not gone unnoticed, as Blockstation has successfully partnered with multiple stock exchanges. One such pilot will soon see the launch of at least 4 tokenized IPOs on the Jamaica Stock Exchange.
To learn about Blockstation in more detail, make sure to peruse our exclusive interview with CEO, Marko Hafez.
This Canadian outfit has recently received the greenlight by the regulatory body ‘Ontario Securities Commission (OSC)’, for the launch of a secondary marketplace.
Dubbed FreedomX, this anticipated marketplace will be one of the first of its kind in Canada. It will offer a home for digital securities to actively be traded, providing higher levels of asset liquidity in the process.
Beyond just operating a regulated secondary marketplace, TokenGX is also working to establish, and deploy, a stablecoin. This will be utilized as the primary means of settlement on FreedomX, and would be tethered to the Canadian Dollar.
The first release by Canada Stablecorp is known as QCAD. This is a CAD backed digital asset, which was structured as such for 3 main reasons.
- Provide its users with easy access to a digital asset, which can provide a reprieve from market volatility.
- Give Canadians a ‘home-grown’ variant; A trait which should appeal to Canadian investors looking to support Canadian companies.
- Leveraging the strength, and stability, of CAD. The Canadian dollar is typically accepted on a world stage, and benefits from a nation which typically remains removed from divisive world events.
While QCAD has not established itself to the extent shown by Tether, GUSD, and USDC, the potential is there.
Onwards and Upwards
Unfortunately, not all of the promising companies coming out of Canada could be discussed here today. Those discussed represent a fraction of the activity taking place in the great white north.
If one thing is clear from this activity, it is that Canada has been/is playing an important role in the forwarding of blockchain and the digital securities sector.
Happy Canada Day!
A Month in Review – June 2020
June provided us with a steady stream of developments, surrounding the digital securities sector. We saw new regulations, new platforms and services, and the demise of various others.
Regulatory Advances and Findings
Multiple regulatory bodies made news in June. This was first evident with the anticipated release of findings by the OSC, pertaining to the QuadrigaCX fiasco. South of the border, the SEC was no stranger to making waves. Not only did the Supreme Court weigh in on SEC capabilities, but news broke of the possible exodus of Chairman, Jay Clayton.
Pivots and Bankruptcies
Blockchain and digital securities are both in their infancy. As such, companies developing services around each are still finding their footing. This was on full display throughout June, as multiple companies announced either their imminent closure, or a pivoting focus.
DeFi continues to convince many that it is the first ‘killer app’ surrounding cryptocurrencies. Various companies involved with digital securities are trying to emulate this success, and find the perfect implementation for the technology. A few of these companies are banking on real estate being the perfect avenue for achieving this.
For examples of this, look no further than the recent actions of companies like Vertalo, Tokensoft, and Tokai Tokyo.
In The News
We have touched on the effects of COVID-19 various times since the beginning of the pandemic. While many have been hit hard by its effects, there are those that have made the best of a bad situation. A prime example of this is the recent successes of crowdfunding platform SeedInvest.
“Unlike venture capital firms, online fundraising platforms are perfectly situated to help startups in the current, post-COVID-19 world we are in. Online fundraising platforms are not dependent on capital from a handful of pensions and endowments, but rather a large, diverse network of investors (SeedInvest has had over 350,000 investors register for example).” – Ryan Feit, CEO of SeedInvest
Borys Pikalov, Head of Business Analytics at STOBox, took the time to pen his thoughts on what it will take for security tokens to realize their potential liquidity. This insightful article elaborates on, not only what constitutes a security token, but why they are important, and how true liquidity can be achieved.
Hirander Misra, Chairman of GMEX Group & SECDX
In this exclusive interview, we learn about the bevy of services on offer from each, GMEX Group and SECDX. Whether discussing custodial services, or strategic investments, Hirander Misra sheds light on why, and how, each company is affecting change. Read More
Around the Web
Nasdaq’s New PLatform Backed by R3, Digital Asset, Symbiont and Microsoft May Not Be What Your Think It – Forbes
To date, much of development behind blockchain and digital securities has been achieved by smaller, flexible companies. This is changing with time, though, as we are now seeing adoption among more established companies. Forbes recently touched on this, and the various benefits behind tokenization, which have captivated the imaginations of companies like Microsoft. Read More