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.