EU Digital Finance Package��Cryptoassets & Markets: an Overview
Agenda
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About crypto-assets
A new assets class with tremendous potential
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Crypto-assets
A new asset class with specific characteristics
4
Securities
DAO tokens
Utility tokens
Stablecoin
Synthetic assets
Digital objects (NFTs)
Other
Protocol tokens
Very diverse range of assets
What they have in common is that they are all registered on a blockchain, which allows, under some conditions:
Crypto-assets
Proposed Taxonomy
MiCA and Pilot Regime
Illustration of the scope - Assets
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Crypto-assets
Key components
Virtual machine
Consensus protocol
Blockchain
Crypto-assets
The game-changer: programmability & autonomous execution (“smart-contracts”)
Simple transaction
Transfer X crypto-assets to Ms. B
Smart-contracts
=> “Decentralized” use cases
Lending platform
Token
Exchange platform
Stablecoin
About the crypto-assets market
Booming newcomers, looming incumbents
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Crypto-assets
Constant growth and opportunities
Source: Coinmarketcap
�7,500+ crypto-assets
$400 billion marketcap
�300+ exchanges
Numbers: October 2020
Crypto-assets
Crypto-assets market vs. traditional markets
Source: Coinmarketcap
S&P 500
Bitcoin
Ethereum
Total Crypto
Crypto-assets
Crypto-assets remain marginal compared to other financial assets in terms of total cap
Source: SLIC
Crypto-assets
The biggest crypto-exchanges are located out of the EU
Source: Kaiko
Bitflyer
BTC/USD - Traded volume and market share �(first 2 weeks of October 2020)
BTC/EUR - Traded volume and market share
(first 2 weeks of October 2020)
Crypto-assets
The absence of the EU on the funding stage of the crypto industry
Source: CB Insights, The Blockchain Report 2020
Crypto-assets
Incumbents’ growing interest
About the crypto-assets use cases
Centralized or decentralized?
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Crypto-assets
Use cases: centralized or decentralized ?
Centralized
Decentralized
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A significant distinction: centralized (“traditional”) and decentralized projects
Crypto-assets
Use cases: centralized or decentralized ?
Centralized
Example:
Decentralized
Example:
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A significant distinction: centralized (“traditional”) and decentralized projects
Crypto-assets
Use cases: what are crypto-assets used for?
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Established
Emergent
Protocols�
Market-related services (primary and secondary market, custody, portfolio management, advice)�
Security hardware and �software�
Data collection and treatment
Mining / Staking
Decentralized Finance
Creation, distribution, sale of NFTs (unique digital assets)
Collective organizations on blockchain (DAOs)
Stablecoin issuance
Payment in crypto-assets
Activities related to security tokens (custody, issuance, secondary markets, etc.)
Digital identity
RegTech
Central Digital Bank Currencies
Privacy preserving protocols
Decentralized data storage
Decentralized computing power
Primitives
Considerations for the policy framework
Crypto-assets regulation as a catalyst for safer innovation
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Encourage the benefits while addressing the risks: staying competitive
Growth and jobs
Citizen empowerment
Cost reduction
Trust and transparencies
Alternative fundings
Benefits
Encourage the benefits while addressing the risks: staying competitive
Security �Infrastructures have been subject to numerous cyberattacks
=> addressed with DORA proposal
Risks
Money laundering & terrorism financing �Limited identification / check requirements of participants, lack of clarity behind compliance, supervision of transactions
=> addressed with 5th AML Directive (extension currently discussed) and FATF recommendations
Investor & consumer protection�Investors/consumers may be exposed to unprotected, speculative and opaque markets & fundraisings
= > addressed by MICA
Financial Stability �The development of this new class of assets and potential alternative means of payments could represent a threat to financial stability
= > addressed by MICA
MiCA and Pilot Regime
Content of the Draft EU regulation
Two foundational texts to regulate crypto-assets in the EU...
MiCA Regulation �(“Markets in crypto-assets”)
Pilot regime for DLT market infrastructures
Scope - Crypto-assets
Utility tokens, cryptocurrencies and stablecoins (asset-referenced tokens & e-money tokens)
Security tokens (= transferable securities on blockchain)
Scope - Activities
Issuance, exchange, custody, and other “investment services”
Trading on an MTF
Authorised actors
All�except for e-money tokens - restricted to credit institutions
Investment firms
Delivery-�settlement
Central Security Depositories
Regime
Mandatory bespoke regime
Transitional regime towards definitive rules, granting exemptions to financial regulations under conditions
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MiCA and Pilot Regime
Illustration of the scope - Assets
MiCA and Pilot Regime
Illustration of the scope - Assets
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MiCA and Pilot Regime
Illustration of the scope - Activities
Decentralized
Centralized
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The current scope
MiCA and pilot regime
What’s missing - entirely or in part - for a perfect EU regime?
Allowance for DeFi and other decentralized use cases�Innovation takes place through increasingly decentralised use cases (e.g. so-called decentralised finance, or “DeFi”). Current drafting does hinder or ban those use cases - probably as an unwanted side effect.
Authorization of public blockchains�Public blockchains are not recognized as platform for most innovative use cases.
Equal opportunities between incumbents and newcomers�Barriers to entry high for newcomers, and low for incumbents.
Adapted operational requirements�Certain operational requirements are very costly and out of sync with market practice.
Proportionality�The proportionality is insufficient to cater for different business models in the sector
THANK YOU
Florian Glatz, President, German Blockchain Association
florian@bundesblock.de
Simon Polrot,
President, ADAN
simon.polrot@adan.eu
Amandine Doat, President of EU Affairs Committee, ADAN
amandine.doat@adan.eu
Marina Markežič, Board member, Blockchain Think Thank Slovenia
marina.markezic@�blockchainthinkthank.si