1.1 Background Information
“Digital asset” is a term that has been widely used around the globe in the past few years. However, in particular, a number of related terms that are often used interchangeably, including ‘cryptoasset’ and ‘virtual asset’. This can reflect an unclear definition of the terms. On the basis of official statements issued by regulators across the world, the terms started to be used more frequently during the years of 2017-2018. It should be also noted that to date, there has been no standardization of the terms within regulations issued.
According to the Cryptoassets Taskforce: Final Report, which was jointly produced by the Financial Conduct Authority (FCA), HM Treasury and the Bank of England in October of 2018, a “cryptoasset” can be defined as “a cryptographically secured digital representation of value or contractual rights that uses some type of DLT and can be transformed, stored or traded electronically”. The report also stated though that there is no single, widely-agreed upon definition of cryptoassets.
For example, under the Emergency Decree on Digital Asset Businesses B.E.2561 (2018) that was issued in Thailand in 2018, the Decree defined a “digital asset” as a “cryptocurrency and digital token”. The Decree further illuminated the definition of “digital token” and “cryptocurrency” in a general way, which is subjected to further analysis in the following sections of this article.
In addition, the Guidance on cryptoassets (Policy statement: PS19/22) was issued by the Financial Conduct Authority of the U.K. in July, 2019. This document aims to provide regulatory clarity for market participants and relevant stakeholders. In particular, it is necessary to understand the nature and characteristics of cryptoassets in order to guide regulatory responses to this fast-growing area. It is worth noting that these terms are broader than some others, such as virtual currency, cryptocurrency and/or digital assets, which may be limited to payment or exchange tokens.
According to ING, digital tokens are “…designed to work as a medium of exchange within a limited ecosystem and to offer additional features, such as representing the right to access product or service or ownership of assets (e.g., shares, bonds)”.
1.2 The Utilization of Digital Assets
Digital assets can be used in a variety of ways. To be more specific, this depends on their main intended function or the type of token being considered. For example, digital assets can be used as financial instruments for businesses in the form of alternative fundraising channels. With regard to the fundraising mechanisms of digital assets, there is a so-called “asset tokenisation” process that is worth mentioning. More specifically, asset tokenization is a process relating to digital assets, as it refers to the process of turning rights in relation to a real-world asset into a digital representation. The digital representation in this context takes the form of a digital token. The benefits of such a creation include providing greater liquidity to an asset owner, offering fractional ownership, reducing transaction costs and being an alternative tool for fundraising. Apart from the above-mentioned benefits, digital assets also have the potential to promote financial inclusion, as well as to be used as a means of payment of which transaction fees will likely be lower than those currently charged by banks or traditional financial institutions, as well as providing faster, cheaper and safer transactions.
For example, as specified in the white paper that was issued by the Libra Association, the so-called “Libra coin” is also expected to be utilized in promoting financial inclusion, thus reducing transaction fees. In particular, the main benefit of the Libra coin may not be the provision of alternative fundraising tools, as the coin was proposed as a payment token.
2. Problematic Issues
As per the aforementioned statement, there are a number of potential use cases of digital assets; however, to date, there have been several problematic legal issues potentially arising from their utilization. These include the lack of clarity of the relevant regulatory frameworks, the lack of coordinated activity between regulators, information asymmetries, as well as problematic issues pertaining to the unclear legal rights and obligations of token issuers and token holders. As a result, the advantages of digital assets are potentially undermined unless regulators put in place a proper regulatory framework.
In particular, it is worth noting that regulators in many countries are receptive to the changes. There are laws, regulations and guidance that have been issued by regulators in order to support fast-growing innovation while preventing potential risks. It is important to highlight that regulatory responses regarding crypto-assets can generally be categorized into three main types of regulatory responses: existing regulation; retrofitted regulation; and bespoke regulation. For instance, Singapore’s existing regulations include the Securities and Future Act (SFA), the Financial Advisers Act (FAA), the Payment Services Bill, as well as A Guide To Digital Token Offerings that was issued by the Monetary Authority of Singapore (MAS) in 2017, while Japan retrofitted the Payment Service Act, which defines and introduces a registration system for virtual currency exchange services.
However, in essence, regulators have to date focussed on regulations for cryptoasset businesses, whose activities include initial coin offerings (ICOs). However, the legal status of certain types of digital tokens remains unclear, and this will be analysed in the latter part of this article.
3. Regulating Digital Assets: Digital Asset Categorizations
It is worth noting that to understand digital token categorisation, it is important for regulators and all stakeholders to implement laws and/or regulations for such digital assets. This is also because digital asset can be categorised into a variety of types, hence the differences that may fall within the scope of different laws and/or regulations. More precisely, a token’s legal treatment may depend on its main function or the type of token being considered. The tokens’ categorizations are helpful for capturing the complexities of cryptoassets and in informing regulatory responses in this rapidly evolving domain.
More specifically, digital tokens and cryptocurrencies can be considered types of digital assets. The types of digital assets primarily depend on the assets’ functions and features. This can be explained by reference to the functions and features of traditional financial instruments or financial assets, such as securities. For example, the security characteristics of security (digital) tokens shall be considered in order to properly assess the security of such tokens. However, there are other types of tokens, including payment and utility tokens, which may fall within the scope of different regulatory frameworks. It is worth pointing out that this article only focusses on the regulatory framework for payment tokens. As “Libra coin” was initially proposed as “a simple global currency…”, it is obvious that the coin is aimed to be used as a means of payment. To this extent, the latter part of this article will mainly illuminate information on payment tokens, including cryptocurrencies and stablecoins, in order to provide a basic framework for the legal and regulatory analysis.
However, it is inevitable that there are a number of hybrid-type (digital) tokens that it could be difficult to group as any particular types of tokens, and accordingly, it is difficult for regulators to appropriately regulate such tokens as well as related businesses and intermediaries.
* LLB. (Thammasat University), LLM. in Business Law (English Program)(Thammasat University), LLM in Comparative Law (Received the Japanese Government Scholarship for the Program for Leading Graduate Schools “Cross-border Institution Design”) (Nagoya University), Pawee is a lecturer in law at the Faculty of Law, Thammasat University and a research affiliate at the Centre for Alternative Finance, University of Cambridge.
 Global Cryptoasset Regulatory Landscape Study, Cambridge Centre for Alternative Finance, University of Cambridge, <https://www.jbs.cam.ac.uk/fileadmin/user_upload/research/centres/alternative-finance/downloads/2019-04-ccaf-global-cryptoasset-regulatory-landscape-study.pdf> accessed 1 December, 2019. p.15.
 Ibid. p. 35.
 Cryptoassets Taskforce: final report, HM Treasury, Financial Conduct Authority(FCA) and Bank of England, <https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/752070/cryptoassets_taskforce_final_report_final_web.pdf> accessed 1 December, 2019. p. 11.
 The Emergency Decree on Digital Asset Businesses, <http://www.ratchakitcha.soc.go.th/DATA/PDF/2561/A/033/43.PDF> accessed 1 December, 2019.
 Guidance on Cryptoassets: Feedback and Final Guidance to CP 19/3, Financial Conduct Authority (FCA), <https://www.fca.org.uk/publication/policy/ps19-22.pdf> accessed 1 December, 2019.
 Supra, note 1.
 Cryptocurrencies and Tokens, European Central Bank, <https://www.ecb.europa.eu/paym/groups/pdf/fxcg/2018/20180906/Item_2a_-_Cryptocurrencies_and_tokens.pdf> accessed 1 December, 2019.
 Alicia Adamczyk, “What Consumers need to know about Libra, Facebook’s new cryptocurrency,” <https://www.cnbc.com/2019/06/18/what-is-libra-facebooks-new-cryptocurrency.html> accessed 1 December 2019.
 An Introduction to Libra: White Paper, Libra Association, <https://libra.org/en-US/wp-content/uploads/sites/23/2019/06/LibraWhitePaper_en_US.pdf> accessed 1 December, 2019. p. 12.
 Supra, note 1.
 A Guide to Digital Token Offerings, Monetary Authority of Singapore (MAS), <http://www.mas.gov.sg/~/media/MAS/Regulations%20and%20Financial%20Stability/Regulations%20Guidance%20and%20Licensing/Securities%20Futures%20 and%20Fund%20Management/Regulations%20Guidance%20and%20Licensing/Guidelines/A%20Guide%20to%20Digital%20 Token%20Offerings%20%2014%20Nov%202017.pdf> accessed 1 December, 2019.
 The Payment Services Act, <http://www.japaneselawtranslation.go.jp/law/detail/?id=3078&vm=02&re=02> accessed 1 December, 2019.