Regulating Tokenisation: Current and Future Legal Framework

Introduction

In the world of digital business, innovation is the currency of change and adaptability is the key to success. In this context, tokenisation has emerged as a disruptive force, redefining the way assets are managed and projects are financed, offering new opportunities and challenges for entrepreneurs, digital entrepreneurs and startups. At ILP Abogados, we offer you a guide to understand this complex regulatory environment.

What is tokenisation and why is it relevant to your business?

Tokenisation, at its core, represents a fundamental transformation in the way digital assets are conceptualised and managed. Rather than representing a physical or financial asset in a conventional manner, tokenisation involves the conversion of these assets into unique and indivisible digital tokens, recorded on a blockchain.

Why is this relevant to your business? The answer lies in the versatility and possibilities that tokenisation offers for business innovation. By converting tangible and intangible assets into digital tokens, it opens up new avenues for investment, financing and asset management that were previously limited by geographical and financial barriers.

Tokenisation democratises access to investment by allowing high-value assets to be broken down into smaller units, making it easier for a wider range of investors, including those with limited financial resources, to participate. In addition, tokenisation offers greater transparency and traceability in asset management by recording each transaction immutably on the blockchain.

What types of tokens are there?

• Utility tokens: These tokens grant holders access to products or services within a specific platform or ecosystem. They do not represent ownership rights to the company, but rather a means of interaction within the network.
• Security tokens: Also known as security tokens, they represent financial assets and are backed by tangible assets, future benefits or rights to the issuing company. They are subject to specific securities regulations and may offer investors rights such as dividends, votes in the company, or other financial benefits.
• Equity tokens: These are a form of security token that represents a proportional ownership stake in the issuing company. Holders of these tokens have rights similar to traditional shareholders, such as profit-sharing and voting rights on important matters.
• Fungible and non-fungible tokens (NFTs): Fungible tokens are interchangeable with each other in terms of value and functionality, like cryptocurrencies. On the other hand, NFTs are unique and indivisible, making them ideal for representing unique digital assets such as works of art, collectibles or intellectual property rights.

Current legal framework

• Applicable existing financial regulations: Asset tokenisation is subject to a variety of existing financial regulations, depending on the type of asset tokenised and the jurisdiction in which the transactions are carried out.
• Cryptocurrency and blockchain regulations: As tokenisation involves the use of technologies such as blockchain and cryptocurrencies, it is important to consider the specific regulations governing these technologies in each jurisdiction.
• Investor and consumer protection directives: In many cases, asset tokenisation involves investors and consumers, which makes it necessary to comply with specific regulations aimed at protecting their rights and interests.

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Future perspectives and regulatory trends

• Evolving regulations in different jurisdictions: As tokenisation becomes a more common business practice, we are likely to see further harmonisation and clarification of regulations in different jurisdictions. This could involve the introduction of new laws and guidelines specific to tokenisation, as well as the adaptation of existing regulations to address the unique challenges posed by this technology.
• Implications of tokenisation in emerging markets: As tokenisation expands globally, it is important to consider the specific implications for emerging markets. These markets may face unique challenges in terms of technology infrastructure, access to financial services and local regulations. Regulatory trends in these markets could greatly influence the adoption and future development of tokenisation globally.
• Potential impact of blockchain technology on regulation: Tokenisation relies on technologies such as blockchain, which offer unprecedented levels of transparency, security and efficiency in asset management. As these technologies continue to evolve, they are also likely to influence the way in which tokenisation activities are regulated. This could include the adoption of common technology standards, the promotion of interoperability between different tokenisation platforms, and the creation of regulatory frameworks tailored to the unique characteristics of blockchain technology.
• Innovation in business models and legal structures: Tokenisation is driving innovation in business models and legal structures, enabling new forms of financing, investment and asset management. As these innovations continue to develop, new regulatory issues are likely to emerge that require attention, such as the regulation of smart contracts, the legal liability of token issuers, and the protection of investor and consumer rights.

To ensure success and legal certainty in the tokenisation arena, it is essential to have specialist legal advice to understand and comply with these regulations. Working with lawyers who specialise in this area will help ensure that the legal structures adapted to tokenisation are robust and adaptable to the specific needs of the business.

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