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Applications of blockchain and distributed ledger technology (DLT) in finance have proliferated in recent years, forcing policy makers around the world to step in and formulate rules in regard to asset tokenization.
In a report released in January 2021, the Organisation for Economic Co-operation and Development (OECD) documents and analyses the range of policy responses to the emerging tokenization market, outlining the main strategies that have been adopted by regulators around the world so far.
Stylised representation of asset tokenisation, Regulatory Approaches to the Tokenisation of Assets report
A technology-neutral approach to regulating financial services
According to the study, most regulators around the world, including the European Commission (EC), the UK Financial Conduct Authority (FCA) as well as US regulators, have opted for a technology-neutral approach to policies and risks where existing financial regulations are applied to tokenized assets.
Can the crypto industry ever be regulated in the era of decentralised finance?
The system – known as DeFi – allows people to engage in financial services such as borrowing, lending and investing without intermediaries such as banks. Representational image. | Philippe Lopez / AFP Photo
As stock markets around the world struggle through the pandemic, Bitcoin has seen a steady rise in its price. The cryptocurrency is steadily climbing back towards its all-time high of $20,000 in 2017.
While this growth can be partially explained by investors being spooked by stock markets during the pandemic and looking for better investments, it is also influenced by the new, but evolving, decentralised finance market, also known as DeFi.