Regulation as a driver for DLT and Digital Assets adoption
Thoughtful regulatory guidance and boundaries are a key driver for further DLT and Digital Assets adoption.
While in the early days of DLT and Digital Assets, the lack thereof hindered the adoption of DLT & Digital Assets among traditional financial institutions, many jurisdictions have now started to put in place respective regulatory frameworks. These allow banks and other institutions to trial use cases in protected environments. Besides, the recent crypto industry turmoil, caused inter alia by the collapse of FTX, Celsius, etc., demonstrated the need for further regulation that protects market participants and investors.
At the same time, it is DLT regulation that sometimes still prevents DLT from living up to its full potential, especially when it comes to smart contract-based execution of transactions. Further regulatory changes are thus likely and necessary if DLT is to prevail. Illustratively, in real estate most jurisdictions currently tie a building’s change of ownership to a visit to a notary and an amendment in the land registry. Thus, the mere exchange of a token does not suffice for a change in ownership. An indirect tokenization via SPVs may serve in a transitional model but contradicts the underlying principle of DLT. The same applies to asset servicing, where the cash leg currently cannot be crypto-based.
Nevertheless, especially in Europe regulators have taken a leading position and regulatory frameworks for DLT & Digital Assets are expanding rapidly. The EU, UK, Switzerland, Liechtenstein and several other European countries have initiated, passed or adopted corresponding legislation. The same of course applies to regulators in, for example, UAE, Singapore or Hong Kong. So, what have regulators focused on so far?