How to tame the crypto Hydra

Imagine you are a brave hero who has to face a monstrous creature with multiple heads.

Every time you cut off one head, two more grow back. How would you defeat such a beast?

This is the dilemma that governments and regulators around the world are facing with crypto assets.

Crypto assets are evolving at a rapid pace, creating new opportunities and challenges for investors, businesses, and consumers. However, they also pose significant risks, such as fraud, hacking, money laundering, and tax evasion.

How can regulators keep up with this fast-changing and complex crypto ecosystem?

One possible solution is token mapping.

Token mapping is a process of identifying the key features and functions of different types of crypto assets and mapping them to existing regulatory frameworks.        

For example, some crypto assets may be classified as securities, commodities, currencies, or intangible assets, depending on their characteristics and use cases.

Token mapping can help ensure that crypto assets are regulated consistently and technology-neutrally, based on their underlying activities and risks. It can also help avoid creating new and separate rules for crypto assets that may not fit well with the existing system.

The Australian Government is currently exploring token mapping as part of its Digital Economy Strategy. It has released a consultation paper on token mapping.

The consultation paper also provides some examples of how token mapping can be applied to different types of crypto assets, such as:

Stablecoins

Crypto assets that are pegged to a fiat currency or other asset to reduce volatility. They may be regulated as e-money, payment systems, or derivatives, depending on their design and governance.        

Utility tokens

Crypto assets that provide access to a service or platform on a blockchain network. They may be regulated as intangible assets, consumer products, or digital vouchers, depending on their purpose and functionality.        

Security tokens 

Crypto assets that represent ownership or rights in an underlying asset or entity. They may be regulated as securities, financial products, or managed investment schemes, depending on their structure and features.        

Non-fungible tokens (NFTs) 

Crypto assets that are unique and indivisible, representing digital or physical items such as art, music, or collectibles. They may be regulated as intangible assets, intellectual property rights, or cultural heritage objects, depending on their nature and value.        

Token mapping is not a one-size-fits-all approach.

It requires careful analysis and judgment to determine the most appropriate regulatory treatment for each type of crypto asset. It also needs to be flexible and adaptable to accommodate new developments and innovations in the crypto space.

Token mapping is not the only way to regulate crypto assets.

Token mapping is not a silver bullet. It does not solve all the challenges and risks posed by crypto assets. It also does not address some of the broader social and ethical implications of crypto technologies. However, it may be a useful tool to help regulators navigate the complex and dynamic crypto landscape.

If you found this post helpful, please like, comment, and share. I would love to hear your thoughts and opinions on token mapping and crypto regulation. Thank you for reading!

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