Lynn Johannson, Advisor, Sustainability and ESG
January 4th, 2024
Lynn Johannson, President of E2 Management Corporation and Catalyst for THE Collaboration
In a care[...]
Category Archives: Blockchain, Crypto, Digital Assets, Tokens, CBDCs, Metaverse, NFTs
IRS Crypto Rollback Raises Questions for Canada
Crypto Regulation | April 15, 2025
Image: Freepik/rawpixel.com
Trump Repeals IRS Crypto Reporting Rule. Here's Why Fintechs in Canada Should Pay Attention
On April 10, 2025, U.S. President Trump signed a bill cancelling a key IRS crypto reporting rule that would have required decentralized finance (DeFi) platforms to report customer transactions to the tax agency.
See: UK FCA Plans Full Crypto Licensing Regime by 2026
The IRS' rule was called "Gross Proceeds Reporting by Brokers That Regularly Provide Services Effectuating Digital Asset Sales", which expanded the scope of traditional broker definitions to include DeFi apps like Uniswap and Metamask, and had an effective date of February 28, 2025. However, the IRS provided a transition period given the reporting complexities involved, so the rule was set to apply to digital asset sales occurring after January 1, 2027. But with Trump's bill nullifying the IRS rule, the implementation is now cancelled and the rule is officially gone.
What does this mean for fintechs, crypto startups, and regulators in Canada?
What Changed?
The IRS crypto reporting rule was part of a broader push to increase tax compliance among crypto users but industry argued that it wasn't manageable because DeFi platforms don't control their user's data. Often, there isn't a centralized entity to collect or report it. Develops were also at risk of facing penalties for software they didn't directly operate.
Industry associations and legal experts warned that the IRS's rule would push DeFi innovation offshore, so Congress listened and used the Congressional Review Act, and the House voted to repeal the rule on March 11.
See: Circle Files for IPO as Crypto Firms Eye Wall Street
Then the Senate did too with 70-28 bipartisan support on March 26. Now the bill has been signed into law and you can read it here.
Why It Matters to Canadian Fintechs
The repeal of the IRS DeFi crypto reporting rule signals again that the United States is backing away from aggressive regulation on crypto and decentralized platforms. It puts pressure on other jurisdictions including Canadian policymakers to clarify their own positions. Canada recently implemented it's own crypto reporting rules which the Canadian Revenue Agency (CRA) will start enforcing by 2027.
With the U.S. now seemingly a more welcoming environment for DeFi developers, Canada risks falling behind, especially if companies and capital start shifting strategies and offices to the U.S. for more flexibility and fewer rules. With the IRS rule now gone, DeFi projects based in the U.S. may suddenly look more appealing to venture capital and institutional backers. If that's the case, then Canadian fintechs would be at a disadvantage if local policies become too burdensome or vague.
Canadian users engaging with U.S. DeFi platforms may now face uncertainty over how these transactions should be reported domestically, given that there will be no equivalent enforcement on the U.S. side of the border. As such, the CRA may need to update guidance to avoid future confusion.
See: The Crisis Canada and Fintech Can’t Afford to Waste
With jurisdictions like the UAE, Singapore, Hong Kong, and the UK positioning themselves as global crypto centres, and the U.S. now looking like to be rejoining the global race, Canada will need to decide whether it can keep pace and remain competitive, or risk falling behind. The window to design a more innovation friendly approach to help strengthen Canada's role as a global fintech hub will only be open for a short time.
Outlook
Now is the time to ask tough questions about competitiveness, policy leadership, and how we balance innovation with responsibility. If we want to shape the future of financial services, we need to act quickly—and wisely.
The National Crowdfunding & Fintech Association (NCFA Canada) is a financial innovation ecosystem that provides education, market intelligence, industry stewardship, networking and funding opportunities and services to thousands of community members and works closely with industry, government, partners and affiliates to create a vibrant and innovative fintech and funding industry in Canada. Decentralized and distributed, NCFA is engaged with global stakeholders and helps incubate projects and investment in fintech, alternative finance, crowdfunding, peer-to-peer finance, payments, digital assets and tokens, artificial intelligence, blockchain, cryptocurrency, regtech, and insurtech sectors. Join Canada's Fintech & Funding Community today FREE! Or become a contributing member and get perks. For more information, please visit: www.ncfacanada.org
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SEC Issues Covered Stablecoin Statement, Risks Remain
Regulation | April 10, 2025
Image: Freepik
SEC Says Some Fully Backed, Payment-Only 'Covered Stablecoins' Aren’t Securities
On April 4, 2025, the U.S. Securities and Exchange Commission (SEC) issued a statement that clarified some U.S. dollar-backed stablecoins may not be considered securities. While the statement was welcomed and creates some breathing room for crypto and fintech projects, the announcement ignited an internal debate at the SEC and many are wondering what's next.
Covered Stablecoins
The SEC said certain U.S. dollar-backed stablecoins (referred to as 'Covered Stablecoins') are not considered securities if they have all of the following characteristics:
- Stablecoin must maintain a 1:1 fixed value equal to the U.S. dollar, without fluctuations
- Each stablecoin must be fully backed by an equivalent amount of high quality assets such as U.S. Treasury bills, cash, or cash equivalents that can be redeemed on demand. These assets must be held in custody and verified regularly
- No expectation of profit - cannot be promoted as an investment or marketed in a way that leads buyers to expect profit from simply holding the token
See: U.S. Senate Moves to Regulate Stablecoins
- No voting rights, control over the issuer, or shares in any profit or management decisions (no governance)
- Stablecoin must be designed and used as a method of payment only (no speculation of yield)
- Issuers must make public, regular, and accurate disclosures about the reserves backing the stablecoin, how redemptions work, and any related risks
- Algorithmic stablecoins or stablecoins that offer yield (interest, rewards, or staking returns) are excluded
Basically, a 'covered stablecoin' must behave like digital cash, and used for payment transactions, fully backed, and free of any rights, ownership or expectation of profit. If the token acts like cash (and not a stock) then it likely isn't a security. This offers a clearer path for some stablecoins like USDC or USDP.
Internal SEC Debate
Not everyone at the SEC agrees with the above perspective though. On the same day, Commissioner Caroline Crenshaw published a statement titled "'Stablecoins' or Risky Business" warning that most people acquire stablecoins through intermediaries like a crypto exchange, and in many cases they don’t have the legal right to redeem them directly. This creates a risk for retail purchasers who may think that these coins are safer than the really are. Crenshaw highlighted that these tokens can still break their dollar peg or have liquidity issues, especially in a crisis.
Caroline Crenshaw, SEC Commissioner argued that the statement "downplays the risks associated with stablecoins," saying that "over 90% of these stablecoins are distributed through intermediaries, leaving retail holders without direct redemption rights and exposing them to potential market volatility."
See: Stablecoins Are Growing Faster Than You Think
While the SECs statement on stablecoins helps clarity one area, it leaves many other types of stablecoins that do not meet the 'covered stablecoin' requirements in a legal gray zone. And just because the SEC says it won’t pursue enforcement doesn’t mean other agencies won’t step in. Additionally, there are ongoing discussions in Congress for the STABLE Act and the GENIUS Act that could result in new federal laws that override or change the current stablecoin guidance.
Outlook
It's positive that the SEC has given a green light to a limited type of payment-orientated stablecoins but the final stablecoin rules aren't settled, and there are still many big unknowns up in the air. It's still a work in progress.
The National Crowdfunding & Fintech Association (NCFA Canada) is a financial innovation ecosystem that provides education, market intelligence, industry stewardship, networking and funding opportunities and services to thousands of community members and works closely with industry, government, partners and affiliates to create a vibrant and innovative fintech and funding industry in Canada. Decentralized and distributed, NCFA is engaged with global stakeholders and helps incubate projects and investment in fintech, alternative finance, crowdfunding, peer-to-peer finance, payments, digital assets and tokens, artificial intelligence, blockchain, cryptocurrency, regtech, and insurtech sectors. Join Canada's Fintech & Funding Community today FREE! Or become a contributing member and get perks. For more information, please visit: www.ncfacanada.org
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Win Free Tickets to Consensus 2025! NCFA Pitch the Future Contest
Consenus 2025 | April 7, 2025
🔥 NCFA Ticket Giveaway Campaign 🔥 Win a Free Pro Pass to Consensus Toronto 2025!
NCFA Canada is excited to be an official Community Partner for Consensus Toronto 2025, happening May 14–16 at the Metro Toronto Convention Centre. Produced by CoinDesk, Consensus is the world’s most influential gathering of leaders in blockchain, crypto, Web3, and digital finance—bringing together founders, regulators, investors, policymakers, developers, and creators from around the globe.
See: Consensus 2025 Toronto | Spotlight on Canadian Speakers
With the conference just over a month away, we’re celebrating by launching the “Pitch the Future” Ticket Giveaway Contest — your chance to win a FREE Pro Pass (worth $950 USD) and join the action in Toronto alongside thousands of Web3 innovators.
Have a bold idea, future trend, or big vision? Building something cool and want to share it with the world? Tell us why you should be there, and you just might be!
🚀Pitch The Future Contest Details
1. WHEN
The ticket giveaway runs from now until April 30, 2025
2. ELIGIBILITY
To be eligible to participate, follow both NCFA and @consensus2025 on at least one of our social channels like Instagram, X, Facebook or @CoinDesk #Consensus2025 on LinkedIn, depending on where you post your entry.
3. HOW TO ENTER
Post any one of the following (we’re keeping it flexible and fun!):
- 🔮 A bold idea or prediction about the future of Web3, fintech, or crypto
- 🛠️ A quick description of what you're building or working on
- 🙋♀️ A few words on why you want to attend or why you should win a free ticket
Your pitch can be a short video, text post, image, or attachment—we’re open to creative formats!
➡️ Be sure to tag @ncfacanada and @consensus2025 and use the hashtag #Consensus2025.
4. WINNER SELECTION and DISTRIBUTION
- 🎉 Two winners will each receive One (1) Pro Pass to Consensus 2025
- Winners will be announced on May 1, 2025 via NCFA’s website and social channels
- Winners will be contacted privately and must confirm attendance.
- If unconfirmed within a reasonable time, an alternate winner may be selected.
5. 🔁 Social Sharing Best Practices
Help spread the word and support the community:
- Tag @consensus2025 on X
- Tag @CoinDesk on LinkedIn, Facebook, and Instagram
- Use #Consensus2025 in all contest-related posts
- Encourage your network to follow NCFA and Consensus Toronto for future updates
🔔 Don’t Miss Out!
Whether you're building the future, predicting it, or just hungry to be part of it, this is your shot to join the global Web3 community at Canada’s biggest crypto event of the year. Get your post up before April 30, and we’ll see you in Toronto!
See: 🚀 Join NCFA at Consensus 2025 Toronto May 14-16
The National Crowdfunding & Fintech Association (NCFA Canada) is a financial innovation ecosystem that provides education, market intelligence, industry stewardship, networking and funding opportunities and services to thousands of community members and works closely with industry, government, partners and affiliates to create a vibrant and innovative fintech and funding industry in Canada. Decentralized and distributed, NCFA is engaged with global stakeholders and helps incubate projects and investment in fintech, alternative finance, crowdfunding, peer-to-peer finance, payments, digital assets and tokens, artificial intelligence, blockchain, cryptocurrency, regtech, and insurtech sectors. Join Canada's Fintech & Funding Community today FREE! Or become a contributing member and get perks. For more information, please visit: www.ncfacanada.org
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OSC Green Lights Kraken’s Restricted Dealer Status
Crypto | April 4, 2025
Image courtesy of Kraken's blog post
OSC Approves Restricted Dealer License for Kraken to Operate Nationally in Canada
On April 2 2025, Kraken (Payward Canada Inc.) announced that it officially received approval as a Restricted Dealer, under the new registration framework for crypto platforms. The Ontario Securities Commission (OSC) issued Payward Canada Inc's approval order (63 page PDF) and has updated their live registry of 'Registered Crypto Asset Trading Platforms', which applies nationally under the passport system that allows provinces and territories to recognize each other's decisions, so Kraken is open for business from coast to coast, from B.C. to Newfoundland to Nunavut.
Kraken also announced that based in Toronto, Cynthia Del Pozo, is its new General Manager for North America and will focus on strengthening the firms regulatory, political and commercial partnerships and scale Kraken's growth and brand across North America. To celebrate the registration milestone, Kraken is offering free Interact e-Transfer deposits for Canadians, making it easier and cheaper for users to onboard funds onto the platform.
See: Kraken Acquires Retail Futures NinjaTrader $1.5B
In Kraken's blog post, it acknowledges that Canada has played a pioneering role in crypto adoption by being the first country to install a public Bitcoin ATM (downtown Vancouver) and also the first to launch a regulated spot Bitcoin and Ethereum ETFs in 2021.
Kraken Canada's Achievements
Over the past two years, Kraken has been scaling up its activity and presence in Canada:
- Doubling its Canadian workforce and number of active users
- Surpassing $2 billion CAD in client assets under custody(announced November 2024)
- Launching Canadian dollar trading pairs to help clients avoid foreign exchange fees
- Laying groundwork to serve institutional investors seeking regulated crypto access
Limitations with Kraken's Restricted Dealer License
While obtaining a Restricted Dealer registration status is a clear win, there are some key limitations and safeguards that Kraken Canada must follow, providing a clearer picture of how the OSC and other provincial regulators are tightening crypto rules.
1. Kraken Canada's users' assets aren't insured by the Canadian Investor Protection Fund (CIPF). That means if something goes wrong with the platform, there’s no insurance on your assets. Every user has to agree to this before they can trade.
2. Kraken’s Flexible Staking program that allows users to earn rewards while keeping control of their crypto must shut down within 120 days of April 1 unless regulators grant approval or an extension. New users are already blocked from joining it.
3. Kraken isn’t allowed to help create or promote new cryptocurrencies unless it gets the green light from regulators. This rule helps prevent conflicts of interest between Kraken and the projects/tkens listed on its platform.
See: SEC Drops Yuga Labs Investigation and Kraken Case
4. If a token is labelled a security or derivative by a regulator (in Canada or elsewhere), or if the people behind it have a track record of fraud, money laundering, or other serious violations, Kraken has to stop offering it right away.
5. Canadians can only access Kraken through its local Canadian platform (overseen by Canadian regulators), and not Kraken's global site.
6. Kraken isn’t allowed to include its own crypto holdings (unless those assets are connected to client accounts) when reporting its financial position. This keeps the company from padding its numbers with risky or volatile assets.
7. Kraken isn’t allowed to trade crypto for its own profit (can't be a market maker). It can only trade/fill client orders or manage risk. That means no speculative bets or operating a money making trading desk behind the scenes.
How Kraken’s Current Status Compares to the Next Regulatory Tier
Kraken also plans to apply for full investment dealer registration and join the Canadian Investment Regulatory Organization (CIRO), which would allow it to offer more services including an Alternative Trading System (ATS) for crypto trades.
See: Kraken’s Strategy for Canadian Market Growth
| Feature | Restricted Dealer (Kraken now) | Investment Dealer + ATS (Kraken future) |
| Regulatory Status | Temporary or limited-purpose license | Full dealer registration under securities law |
| Regulator | OSC + CSA with PRUs | CIRO (formerly IIROC) + OSC/CSA |
| Membership | Not a member of CIRO | Full CIRO member |
| Investor Protection | No CIPF coverage | Yes — CIPF protection for client funds |
| Eligible Clients | Retail and institutional | Retail, institutional, advisory, discretionary |
| Crypto Products | Crypto Contracts only (not securities) | Potentially securities, derivatives, asset-backed tokens |
| Trading Venue | Not a formal exchange or ATS | Can operate an ATS |
| Staking Products | Allowed with restrictions | Subject to broader oversight, possibly wider offering with CIRO approval |
| Market Making | Not permitted | May be permitted under ATS/marketplace rules |
| Capital Requirements | Lower — tailored to risk | Much higher; must meet CIRO's ongoing capital tests |
| Surveillance & Audit | Periodic OSC reporting | CIRO-mandated audits, books & records, daily capital reports |
| Risk Assessment | Suitability per trade (retail) | Full KYC, suitability, supervisory systems, conflict management |
Outlook
Kraken’s approval shows that crypto in Canada is moving into a more regulated phase with greater protection, clearer rules, and more accountability/responsibility. Kraken’s next step is to become a full investment dealer, which could lead to new services and even stronger safeguards for users.
The National Crowdfunding & Fintech Association (NCFA Canada) is a financial innovation ecosystem that provides education, market intelligence, industry stewardship, networking and funding opportunities and services to thousands of community members and works closely with industry, government, partners and affiliates to create a vibrant and innovative fintech and funding industry in Canada. Decentralized and distributed, NCFA is engaged with global stakeholders and helps incubate projects and investment in fintech, alternative finance, crowdfunding, peer-to-peer finance, payments, digital assets and tokens, artificial intelligence, blockchain, cryptocurrency, regtech, and insurtech sectors. Join Canada's Fintech & Funding Community today FREE! Or become a contributing member and get perks. For more information, please visit: www.ncfacanada.org
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Support NCFA by Following us on Twitter!Follow @NCFACanada |
Circle Files for IPO as Crypto Firms Eye Wall Street
Initial Public Offering | April 3, 2025
Image: Freepik/rawpixel.com
Circle’s IPO Test Pure Stablecoin Model on Public Markets
The company behind the USDC stablecoin, Circle, has filed to go public on the New York Stock Exchange under the ticker CRCL, looking to raise capital in public markets at a valuation between $7 billion and $12 billion, according to Lex Sokolin’s breakdown.
In 2024, Circle reported $1.66 billion in revenue and $156 million in net income, with details confirmed in its S-1 filing and reviewed by Financial Times. Mostly all of its revenue is earned interest on USDC reserves that is held in safe money market funds managed by BlackRock.
Fortune reports that Circle's IPO is expected to be late April.
Circle Has a Low Risk Model But Rising Costs
This is a low risk, high compliance model which aims to keep all USDC reserves fully backed and avoids higher risk strategies. Its approach has earned credibility with regulators and institutional partners but with lower risks comes tighter margins.
See: Stablecoins Are Growing Faster Than You Think
Last year, Circle paid almost a $1 billion in fees and incentives to distribution partners like Coinbase that help drive adoption. As Sokolin points out in his analysis, these distribution costs are rising fast and now Circle's profitability is under pressure. So despite solid revenue growth, the company is making less profit, not more.
Competitor Tether Is Earning Way More by Taking Risks
These profits were primarily derived from investments in assets like U.S. Treasury bonds, Bitcoin, and gold. This figure places Tether's profitability on par with major financial institutions such as Goldman Sachs. By comparison the revenue gap between Circle and its main rival, Tether (USDT) is wide. Tether generated $13 billion in profit last year by taking on more risk and investing in assets like U.S. Treasury bonds, Bitcoin, and gold.
Pro-Crypto Politics but Trade War Creates Uncertainty
President Trump previously said he wants to make the U.S. “the crypto capital of the planet" and has issued a flurry of pro-crypto executive orders since taking office, such as the U.S. establishing a strategic Bitcoin reserve, and digital asset stockpile. Also, the SEC has slowed down it's regulation by enforcement campaign and is moving to establish a comprehensive framework to regulate stablecoins and digital assets.
So the political environment has opened the IPO window for crypto firms like Circle and crypto exchange Kraken (Payward Inc planning IPO for 2026). However, not all of Trump's policies are benefiting the crypto economy. The broad sweeping universal and country-specific tariffs announced April 2, 2025 for example, of applying import taxes for all goods entering U.S. markets as high as 60% for some countries, have sparked concerns about inflation, trade retaliation, shifting supply chains, and slower global growth, hurting investor confidence.
See: Circle Becomes First Stablecoin to Meet Canadian VRCA Rules
For a company like Circle that depends on interest income for it's revenue, a volatile economic environment poses real risks. Circle has exited its other businesses and is a pure stablecoin operator that is banking on the integrate of its USDC stablecoin into the global financial system and digital commerce markets.
Why It Matters
Since Circle doesn't lend, doesn't diversify, doesn't offer other financial services, it's a pure stablecoin play so it'll be interesting to see how much capital it raises during it's IPO in the current climate. That is, it's a real time case study to see if a low risk, transparent and crypto-native company model can succeed on public markets, especially as it faces rising costs, strong competition, and uncertain global headwinds.
The National Crowdfunding & Fintech Association (NCFA Canada) is a financial innovation ecosystem that provides education, market intelligence, industry stewardship, networking and funding opportunities and services to thousands of community members and works closely with industry, government, partners and affiliates to create a vibrant and innovative fintech and funding industry in Canada. Decentralized and distributed, NCFA is engaged with global stakeholders and helps incubate projects and investment in fintech, alternative finance, crowdfunding, peer-to-peer finance, payments, digital assets and tokens, artificial intelligence, blockchain, cryptocurrency, regtech, and insurtech sectors. Join Canada's Fintech & Funding Community today FREE! Or become a contributing member and get perks. For more information, please visit: www.ncfacanada.org
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Support NCFA by Following us on Twitter!Follow @NCFACanada |
UK FCA Plans Full Crypto Licensing Regime by 2026
UK Crypto Regulation | April 2, 2025
Image: FCA Crypto Roadmap (Financial Conduct Authority)
FCA Confirms UK Crypto Registration to Begin in 2026 Following Legislation this Year
In a recent interview with CoinDesk, FCA Director Matthew Long said that the UK intends to officially start licensing crypto firms under a comprehensive framework in 2026. It's contingent on consultations and final rule-making this year in 2025, and then being approved by Parliament.
Current Registration Landscape
As of April 2 2025, the FCA has registered 51 cryptoasset firms under a temporary anti-money laundering (AML) framework to ensure basic compliance until a more comprehensive framework is developed. Bookmark the above link if interested in tracking and verifying the registration status of crypto firms in the UK. The resource page is managed and kept up-to-date by the FCA. Crypto businesses were given ample time to register for the temporary regime including an extension.
Transitioning to New Comprehensive Framework
The new UK crypto licensing rules will go beyond just anti-money laundering checks. They’re expected to cover areas like how crypto is stored (custody), how tokens are listed on platforms, how market abuse is prevented, and how consumers are protected. This plan builds on two key FCA documents published in late 2024.
First in November 2024, the FCA published a Crypto Policy Roadmap outlining the FCA’s policy direction and timeline for implementing its comprehensive crypto framework. Then, there's a Discussion Paper DP24/4 (December 2024) that evaluated options for regulating cryptoassets with a focus on market abuse rules and establishing disclosure standards. Together, along with numerous updates to industry, its clear that the FCA is aiming to create transparent and fair crypto regs that support innovation while keeping the market safe and trustworthy.
The National Crowdfunding & Fintech Association (NCFA) has tracked and reported the FCA's progress towards crypto regulation by 2026 including initiatives like stablecoin rules and the Digital Securities Sandbox. Learn more: "UK’s Regulatory Crypto Roadmap from Sandbox to Mainstream
Implications
By providing clear regulatory guidelines, the FCA aims to enhance consumer confidence and attract legitimate crypto businesses.
See: UK vs. Canada: A Tale of Two Different Crypto Consumers
It aligns the UK with global efforts to standardize crypto regulation, and continues to position the UK competitively among jurisdictions like the European Union and the United States.
Conclusion
Given that the UK is entering a new phase of crypto regulation, with full licensing expected to begin in 2026, crypto firms looking to operate in the UK should stay engaged with the FCA to prepare for the new rules, and implement the required compliance and governance procedures.
The National Crowdfunding & Fintech Association (NCFA Canada) is a financial innovation ecosystem that provides education, market intelligence, industry stewardship, networking and funding opportunities and services to thousands of community members and works closely with industry, government, partners and affiliates to create a vibrant and innovative fintech and funding industry in Canada. Decentralized and distributed, NCFA is engaged with global stakeholders and helps incubate projects and investment in fintech, alternative finance, crowdfunding, peer-to-peer finance, payments, digital assets and tokens, artificial intelligence, blockchain, cryptocurrency, regtech, and insurtech sectors. Join Canada's Fintech & Funding Community today FREE! Or become a contributing member and get perks. For more information, please visit: www.ncfacanada.org
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Support NCFA by Following us on Twitter!Follow @NCFACanada |
Are Your Tokens Securities? New EU Rules Say Maybe
EU Crypto Guidelines | March 28, 2025
Image: Guidelines - Crypto assets as financial instruments (ESMA)
New EU Guidelines Help Clarify the Line Between Crypto and Securities
Last month, the European Securities and Markets Authority (ESMA) published detailed guidelines (21 page PDF) as part of Markets in Crypto Asset Regulation (MiCAR) that help regulators and crypto companies figure out whether or not a specific crypto asset should be treated like a financial instrument and be regulated under Europe’s traditional investment rules, affecting how it's issued, traded, and supervised. This article provides an overview of the guidelines for your review.
Tokens That Act Like Shares or Bonds Will Be Regulated Like Them
For anyone new to securities laws, one of the first things you'll hear and/or learn is the expression, "If it walks like a duck, and talk like a duck, then it's probably a duck!" This means that regulators aren't necessarily looking how a token is built or which blockchain it runs on. What really matters is how it behaves.
See: 10 Insights from IOSCO’s Report for Crypto Investors
Under MiFID II, a token or crypto asset is probably a tradeable security if all 3 conditions are true:
- the crypto asset functions as a payment tool (i.e. not just used to buy stuff)
- the crypto asset belongs to a group or “class” with identical rights (like dividends or votes)
- the crypto asset is tradeable on capital markets
That includes tokenized shares, debt instruments, and some structured products. So if it walks and talks like a stock, Europe will treat it like one. Having said that, if any one of the above conditions is false then it doesn't qualify as a transferable security under EU rules.
Other Financial Products Can Be Tokens Too
Not every token that’s regulated is a stock or share. Some crypto assets are more like short-term loans (or money market instruments). Other tokens might give you a piece of a shared investment fund, placing them in the pooled fund category. Some tokens are derivatives where the price simply follows the price of something else like a stock or index.
See: Crypto Meets Wall Street as SEC Approves Yield Stablecoin
There’s even the potential for carbon credit tokens, if they enable the right to emit greenhouse gases under Europe’s trading system. Each of these different types of token behaviours has its own legal checklist but generally, if a token offers financial returns and matches one of the above types, it will probably be treated as a regulated investment.
Utility Tokens, NFTs & Hybrids? It Depends.
Some tokens are meant to unlock access to perks like discounts, special features, or premium content. The ESMA calls these utility tokens which aren't treated like investments unless they also come with for profit rights or trade on open markets like stock/shares.
Now, what about NFTs in the EU? Just because an NFT may be considered 'unique' doesn't mean it avoids the rules. If the NFT provides financial benefits or trades like a stock, then it could still be recognized as an investment. This is true even for fractional NFTs but if they act like tiny investments then they could be regulated just like regular securities.
See: Stablecoins Are Growing Faster Than You Think
Some tokens combine utility and investment features together and are considered hybrid tokens. In these cases, the ESMA says the financial part trumps the utility part, and like in all cases, if the token looks like an investment, it needs to follow investment rules, regardless how many other functions it provides.
Conclusion
This new crypto guidance (translated versions in multiple languages) helps reduce the grey area between securities and crypto assets. It also puts pressure on projects to think very carefully when designing a token's feature set, value proposition, and how it's marketed. It also shows that regulators in the EU are trying to adapt and not just crack down.
The National Crowdfunding & Fintech Association (NCFA Canada) is a financial innovation ecosystem that provides education, market intelligence, industry stewardship, networking and funding opportunities and services to thousands of community members and works closely with industry, government, partners and affiliates to create a vibrant and innovative fintech and funding industry in Canada. Decentralized and distributed, NCFA is engaged with global stakeholders and helps incubate projects and investment in fintech, alternative finance, crowdfunding, peer-to-peer finance, payments, digital assets and tokens, artificial intelligence, blockchain, cryptocurrency, regtech, and insurtech sectors. Join Canada's Fintech & Funding Community today FREE! Or become a contributing member and get perks. For more information, please visit: www.ncfacanada.org
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