Utility Tokens Now in Our Midst of being accepted
Utility tokens are emerging right in front of governments and regulators across the globe amid the controversies engulfing the crypto industry.
“I want to quash this false narrative that’s been going around for the past two years that you can separate blockchain from crypto. You can’t,” Michael Casey, head of CoinDesk’s advisory board, said in his CoinDesk Weekly column. “No, that’s not a bitcoin maximalist, a HODLer or a crypto-anarchist talking. It’s a regulator.”
This, after Sopnendu Mohanty, chief fintech officer of the Monetary Authority of Singapore (MAS), had said that native tokens are vital to the institution of a decentralized blockchain.
“It was refreshing to hear someone in the official sector take issue with the simplistic “blockchain without bitcoin” refrain that gets sold to corporate and government leaders who don’t always realize that their problems might be better solved with a less cumbersome distributed database,” Casey, who also works as a senior advisor for blockchain research at MIT’s Digital Currency Initiative, said.
Casey said it is important for people to understand how native digital tokens work as it is part of the incentive and security models upon which transaction-recording systems are developed.
While several authorities in the world are opening up to the concept of utility tokens, he said it is better to manage such tokens with existing consumer protection and anti-money-laundering laws. He also urged them to implement policies recognizing the association of digital tokens with certain technologies for the improvement of economic coordination.
Casey acknowledged that many regulators are concerned about investors being duped by dubious initial coin offerings in Wild West token markets. However, their attempts provide an avenue for blockchain to assume a more significant role in the global economy.
Countries that have started to integrate virtual tokens into their system have set its sights on the potential economic gains from the ICO market. Since its inception, the ICO sector has raised about $20 billion. It also has a market capitalization of approximately $275 billion. However, these entities need to be careful as the risk from investing in token offerings may encourage “regulatory arbitrage.”
“Given the inordinate number of scammers in the ICO business, the danger is that the worst players gain too much freedom and, by extension, too much influence over how this industry is broadly perceived,” he explained.
In the past, the United States have managed to overcome these hurdles. However, with the foreign capital markets getting much deeper in the globalization, globally distributed blockchain development teams are asserting that America is not worth giving the shot as ICO firms can earn from Asian investors.
Other countries are making a headway in the digital token sales.
In March, MAS Managing Director Ravi Menon presented a clear rationale for distinguishing good tokens from the bad ones. On the other hand, the Swiss Financial Market Supervisory Authority (FINMA) used a taxonomy dividing tokens into three classifications: payment tokens (bitcoin, litecoin and co.), utility tokens (ether and, in theory at least, various kinds of ERC-20 tokens), and asset tokens. The latter is the only virtual asset subject to securities laws.
Both Malta and Britain-dependent Gibraltar have opened its arms on ICOs and token exchanges. Caribbean countries including Bermuda are crafting regulatory frameworks for tokens which would spur blockchain innovation and maintaining their standing as trusted domiciles for foreign financial institutions.
Wyoming’s parliament, meanwhile, has passed a measure defining utility tokens as a new asset class and exempting those from securities laws.
Despite the growing acceptance on digital tokens, the US Securities and Exchange Commission (SEC) is taking the opposite direction. “I believe every ICO I’ve seen is a security,” SEC chief Jay Clayton said at a Senate hearing in February this year. This prompted ICO issuers to safeguard themselves.
But the SEC softened its stance on virtual tokens, with Clayton saying that bitcoin would not be considered a security. William Hinman, the SEC’s director of the Division of Corporate Finance, had mentioned that ether, which he described as a “crypto fuel,” is no longer a security because of how it is functioning inside the ethereum network.
Casey emphasized that watchdogs across the globe are doing their own due diligence and starting to look at utility tokens from another point of view.
“Whether you’re in the camp that welcomes regulatory clarity to foster public confidence in this technology or among those in the crypto community who see government engagement as anathema to a system of money originally designed to bypass the state, this emerging regulatory awareness represents a seminal moment,” Casey said.