Successfully reported this slideshow.
We use your LinkedIn profile and activity data to personalize ads and to show you more relevant ads. You can change your ad preferences anytime.

Regulations and tokens: regulatory support


Published on

"Cryptocurrencies future/regulation" conference held in Gibraltar (on 9th May 2017). Speaker: Adam Vaziri from Diacle

Published in: Law
  • Be the first to comment

  • Be the first to like this

Regulations and tokens: regulatory support

  1. 1. Regulations & Tokens Regulatory Support DIACLE.COM
  2. 2. Introduction ● Blockchain applications and regulatory matters ● First application digital currency ● Second application crowdfunding Initial Coin Offerings (ICOs) ● Blockchain Securities ● Tellochain Method ● Compliant ICOs ● ICOs and Policy making
  3. 3. From currency to crowdfunding ● First application is digital currency ● Bitcoin is the first ● Success meant replication, the so-called Alt-coin explosion ● Pre-mining of tokens. Ripple as an example ● New protocol layers - Counterparty. ICOs started to become commonplace ● Mastercoin ICO, Maidsafe raising millions
  4. 4. Types of tokens ● You have the ‘access token’ this is to access services or software provided via a network ● Virtual Securities token. This: ○ Share of profits or revenue stream or clear investment proposition ○ Not actual shares on a blockchain ○ Nor structured as a traditional financial instrument ● Virtual Securities subject to tighter regulations
  5. 5. Substance over form ● Ethan Burnside set up a ‘Virtual’ Stockmarket ● It was intended as a game ● Bitcoin accepted ● Could issue ‘virtual’ securities on the site ● The securities were not supported by a legal structure ● Shut down and SEC fined Ethan
  6. 6. Virtual Securities regulations ● In the US securities are required to be registered with SEC ● In the EU there is the Prospectus Directive ○ Requirements of registration of a prospectus for a security offering under certain conditions ● Virtual Securities are also ‘bearer assets’. ERC20 a standard Ethereum token is completely transferable. Regulations prohibit bearer assets in many countries
  7. 7. 2 Types of Virtual Securities ● Model 1: not defined by Issuer as a security ● Model 2: explicitly acknowledged by the Issuer as a security ● Lykke and Blockchain Capital had done best efforts to issue a Model 2 Virtual Security
  8. 8. Virtual to Blockchain Securities ● Shares are typically issued in ‘certificated’ form ● There is a share register and share certificate ● For stock market trading paperwork would be impractical ● Regulations introduced to make legal transfer of a security possible without paperwork ● Uncertificated Securities Regulations 2001 (USR2001) ● Uncertificated Securities can only be held by approved Operator
  9. 9. Blockchain as an ‘Operator’ ● In Delaware proposal to allow for the issuance of Blockchain shares ● For the EU it would require an existing Operator such as CREST to use blockchain ● Cannot dispense with role of Operator without primary legislative change ● Euroclear who owns CREST is fairly keen and have been advised that no further permission is required for them to use a blockchain
  10. 10. Blockchain Companies ● The direction we are heading that companies will be incorporated on the blockchain ● Model Articles exist today to facilitate incorporation of companies ● Model Incorporation, Issuance and Transfer Smart Contracts will be created by a country for download ● Once the incorporation published on-chain the company now exists ● Sounds ambitious but only from a legal point of view. May take a while before the law can catch up
  11. 11. Immediate Leverage of blockchain ● Factom uses blockchain’s feature of immutability to make records immutable. Strong business model. ● My thoughts are that you can leverage immutability to make counting immutable ● This would have no regulatory consequences whatsoever and so can be done today ● Tellochain Method: numbers are abstract. Originally counting was done with physical tokens. With blockchain we revive the use of tokens for counting.
  12. 12. Tellochain & Share Registers ● Issue 10 tokens representing shares ● They now existing onchain and are permanent and can never be destroyed ● Create addresses for the shareholders in your blockchain share register ● Transfer the tokens to them ● Allow them to transfer the tokens to other people ● Tokens would be completely valueless ● Just an administrative tool for counting ● No need to wait for the law to catch up
  13. 13. Regulation of ICOs ● Regulation of ICOs ● US requires a licence with FinCEN ● Ripple fined for issuing XRP without a licence ● EU - ICOs likely to be regulated by 4AMLD. Exchanges and custodian activity regulated ● Japan digital currency are now regulated completely
  14. 14. ICO Havens ● Switzerland and Singapore are the hotspots ● Swiss route is non-profit foundation ● Singapore route is the perceived pragmatism of MAS
  15. 15. Trends in regulation ● There is NO AML on ICOs at the moment ● Position is unsustainable ● 4AMLD will force registration requirements ● Singapore and Switzerland will most likely follow suit ● Swiss authorities made clear that blockchain companies should enter SRO and comply with AML ● In Singapore, DigixDAO has since suggested that they will do KYC on their clients ● ICOs will be subject to standard AML
  16. 16. Towards a Compliant ICO ● Reviewed a lot of the ICO contracts ● No compliance whatsoever ● Freeze function added due to theDAO loss ● Simply need to add a ‘Whitelist’ function in the smart contract ● This is not complicated ● Purchasers pre-register their ETH address and does basic KYC. ICO then starts and they have a pre-allocation in the ICO.
  17. 17. Policy making ● Doing an ICO will be the equivalent of setting up a Wordpress ● In the next 2 months there will be 2 ICOs that will make ICOs easier. I love the irony of this industry. ● We suggest a basic AML registration framework for ICOs ● In the Isle of Man this is already in place ● This should apply to digital currencies and also Virtual Securities ● Virtual Securities should NOT be regulated
  18. 18. Policy should be proportionate ● Scaled regulation is important ● Define all the Virtual Securities as digital currency and require AML ● When the industry reaches critical mass then enhance the framework ● This is the stance of Singapore
  19. 19. Conclusion ● Crowdfunding is the biggest application of blockchain at the moment ● So many tokens ● Needs lighttouch AML laws imposed ● Sufficient for both ‘access tokens’ and Virtual Securities ● Use the tech - Tellochain Method no regulation required whatsoever ● Work on long term policy - Blockchain Companies and Blockchain Shares