Andreas Park PRO
Professor of Finance at UofT
The Crypto Eco-System &
Regulation in 2022
Presenter: Andreas Park
Why are Blockchains challenging for current regulation?
What is blockchain=crypto? Some basic facts
anyone can use it
a open, general-purpose
digital value management tool
that maintains digital scarcity
ownership & control is direct and not intermediated
it's a protocol, not a thing
it does not belong to anyone
practically impossible to prevent the creation of code
borderless and digital
does not require high tech, a laptop is enough
requires use of tokens
What is blockchain=crypto? Some basic facts
anyone can use it
a open, general-purpose
digital value management tool
that maintains digital scarcity
ownership & control is direct and not intermediated
it's a protocol, not a thing
it does not belong to anyone
practically impossible to prevent the creation of code
borderless and digital
does not require high tech, a laptop is enough
requires use of tokens
Blockchain and Investment Contracts
The Investment Process
issuers
investors
- funding
- record-keeping
- instruments
- custody
- advice
- trading
services
needed & provided
- takes care of custody and allows self-custody
- allows instrument creation
- enables record-keeping
- allows circumvention of existing institutions
A general purpose value management infrastructure:
intermediaries
separate institutions
- asset custodians
- broker-dealers
- trading platforms
The blockchain reality:
new institutions
emerged that do all three
tokens are often not intended to be investments!
... and that brought us ...
- wash trading
- pump-and-dump schemes
- Bitfinex-Tether price manipulations
- cyber hacks
- epic thefts, "rug pulls," and fraud
The Work of Regulators on Blockchain
- crypto trading platforms and custody risk
- quibble with CFTC on jurisdiction
- enforcement actions
- "almost all crypto-assets are securities"
Regulators' Focus
MiCA
- whitepaper rule
- platforms as money services businesses
The Regulator's Dilemma
The Regulator's Dilemma
benign
crypto-assets
non-benign crypto-assets or crypto-assets that look like securities but are unregistered
crypto-assets that look like securities and are registered
crypto-assets that regulators feel comfortable to be traded on a platform under their supervision
The Regulator's Dilemma
The Reality of Markets
benign
crypto-assets
non-benign crypto-assets or crypto-assets that look like securities but are unregistered
crypto-assets that look like securities and are registered
crypto-assets that you feel comfortable to be traded on a platform under your supervision
The Regulator's Dilemma
Regulator's Dilemma
save custody onshore and save assets only
unsave custody offshore and unsave assets
save custody onshore and unsafe assets
???
Given what people do, what is the bigger evil?
- tokens are a re-imagination of value, ownership, use, rewards, and can assign ownership to "things" that could not be owned before
-
tokens live on a single infrastructure and can interact with other tokens
- tokens are immediately transferable & immediately usable in applications
- token can be programmed to have many features and have many different uses
- tokens are a very useful and often necessary for network externality-based applications
Crypto Asset: Form and Function
- a blockchain is a protocol in which
- users have direct control and responsibility over their assets
- users can create codes at will
- \(\rightarrow\) any user can create tokens and applications
- a creator need not be a business or single person
Concluding Thoughts
Last Words, The Path Forward, And My Wishlist for Santa
- blockchain as an idea will not become uninvented
- there is continuous research & development, including by universities
- when another hype starts, people will want to get their hands on the assets
- blockchains are borderless by design
- "tough" regulation pushes firms outside of jurisdictions
- no regulation can prevent the bankruptcy of an offshore entity
- jurisdictional battles among regulators have to end
- allow risk but prosecute clear fraud
- create checklists for decentralized token issuers
- force crypto trading platforms into transparency:
- focus on leverage
- publish assets and liabilities in real-time
- enable safe onramps and encourage use of on-chain platforms
- backed-stablecoin supervision
Three Scenarios for the Next Five Years
borderless digital economy \(\to\) blockchain-integrated
blockchains \(\to\) stay niche (gaming)
mass tokenizations \(\to\) likely originates from non-Western world
Crypto Regulation
By Andreas Park
Crypto Regulation
A short overview of crypto regulation
