Do you know how your crypto token is regulated?
The rise of cryptocurrency has created new challenges for everyone from crypto token designers through to brokers and custodial service providers. The biggest issue is how to characterise a token and whether it’s a financial product.
While ASIC has issued some helpful guidance on what a crypto token is, it’s really only useful for someone who is designing their own token from scratch. For anyone involved in listing tokens or providing a liquid market for them like exchanges, brokers or custodial service providers, ASIC’s guidelines don’t necessarily help determine the character of a specific token already in existence or how it’s regulated.
Common financial products applicable to tokens
When looking at whether a token is a regulated financial or credit product, we often have to undergo complex regulatory analysis. This is because crypto tokens can run the full gamut of regulated financial products, but they’re typically one of the following:
- A payment system
- A derivative (of which there are multiple kinds, some are exempt and some are not)
- A debenture (only some of these are not regulated)
- A share
- A managed investment scheme
- An insurance product
- A consumer credit product
Although less common, a crypto token could also be:
- An interest in a superannuation fund
- A banking product
- A foreign exchange contract
- A purchased payment facility
- A miscellaneous risk facility
Each of these products is regulated in a particular way and has its own specific legal requirements. While you may describe a crypto token in one way, like a currency for example, under the law it may actually be something completely different.
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