"Nothing particularly ground-breaking": Crypto industry reacts to token mapping regulation

The federal government is currently taking submissions into its regulation of the crypto industry to develop appropriate regulatory settings for the sector.

The industry has reacted with some leaders saying the regulation won’t do much and with thousands of crypto tokens, they question how the regulation will work but others have hope in the government's plan.

In August 2022, the Australian government announced ‘token mapping’ – a foundational step in its multi‑stage reform agenda that it said commits “to inform a fact‑based, consumer conscious and innovation-friendly approach to policy development.”

Lachlan Feeney, Founder and CEO of blockchain consultancy Labrys said there is nothing within the consultation paper that is “particularly ground-breaking”.

“But how the government engages in the process and with the industry over the coming months will provide far more clarity. Presently, the consultation paper doesn’t provide that,” he said.  

“For example, there are tens of thousands of crypto tokens today. Is the government mapping every single one? If not, how will it draw a distinction between those it does and doesn’t look at? That’s just one of many questions that will impact the process and the regulations that follow." 

Barney Tan, head of information systems and technology management school, UNSW Business School explained that regulation will have implications for new and existing token-based assets that fall outside the current regulatory framework, which is already quite encompassing.

“Token mapping is a stock-taking exercise to get a sense of the array of token-based assets that are out there in the current crypto landscape,” he said.

“It is a pre-emptive measure to prevent new token-based assets from emerging out of the blue and taking everyone by surprise as NFTs did between 2020-2021.”

Off to a good start

Leigh Travers, CEO of Binance Australia said this is a “great start” to the crypto regulatory agenda.

“With Australia already being home to major players and innovators within the crypto ecosystem, businesses, traders, and policymakers alike believe the long-awaited consultation paper is a great start to the 2023 crypto regulatory agenda,” he said.

“Token mapping is a positive development for the industry and will enable it to mature and develop so new opportunities will emerge, in turn creating jobs and growth, while providing a platform for innovation.”

Travers said token mapping is a “fantastic resource for education”.

“Particularly for policymakers and institutions working to understand the technical aspects of the crypto industry. We look forward to providing our feedback to this important consultation from the Treasury,” he said.

Feeney at Labrys said he looks forward to engaging with the government during the process and working together to devise progressive policies that foster the immense potential the sector has.

Regulation not a surprise

Feeney at Labrys said for the crypto industry regulation is inevitable, and part of the industry’s maturation process.

He said, “All serious players, like Labrys, welcome regulation, provided it’s thorough, pragmatic and founded on a sound understanding of the technology; and implemented only after a genuine and open consultation with the industry.”

Determining whether this is good or bad news depends on the government’s intention, Feeney said.

“Does Australia want to be a crypto-friendly market that welcomes innovation and tech talent? I wholeheartedly believe that in 10 years, the blockchain industry that underpins cryptos, will employ millions and add billions to the economy,” he said.

Feeney wants the federal government to ensure the regulation is clear for both consumers and those who work in the industry.

“At Labrys, we build solutions for our clients - from start-ups to ASX-listed companies and government departments - using blockchain technology, it has incredible potential to breathe life into archaic processes and industries,” he said.

“However, many businesses that could gain immensely from it are deterred by the lack of regulatory clarity. For example, relating to what they can and cannot build on, or what protocols they’re required to engage with.”

Current concerns

One of the biggest universal concerns is whether policymakers will see tokens as securities or commodities, Feeney said.

“Securities are far more heavily - and potentially harshly - regulated, than commodities. It remains to be seen which way policymakers go, or whether they create another asset class entirely,” he said.

“At Labrys we’re also concerned about the speed of the process, and the impact knee-jerk policies could have on the broader blockchain ecosystem, where the real innovation is happening. It’s crucial we don’t rush the process, influenced by events like FTX’s collapse.”

Feeney said it is important the government takes its time to truly understand the technology and the industry; and implement policies that are pragmatic.

“We’re at a crucial period for the industry, both globally and in Australia, and it’s essential we don’t rush regulation through for the sake of regulation,” he added.

Tan said because crypto platforms are based on libertarian ideals that they shouldn’t be controlled by any entity, so regulation may be a violation of those ideals.

He said, “Beyond that, it also means that they would likely require a license for what they are offering. But this to me is a good thing because it will help to weed out some of the sketchier crypto products and prevent them from being brought to the market.”

Hope ahead

Looking at what has happened in some international markets, Feeney has hope for the Australian crypto industry.

“We’ve seen other markets like Singapore, Hong Kong and recently South Korea adopt a very progressive approach. At the same time, though, jurisdictions like China and the US have implemented knee-jerk policies that stymied innovation without a sound understanding or thorough process.

“My hope is that Australia does its due diligence without influence from other markets. The next few years will create the hierarchies that will last for decades, and Australia can be at the forefront of that if we create fair, flexible and clear regulatory frameworks today.”

Tan at UNSW Business school said while regulation brings constraints, it also brings legitimacy for the platforms that abide by the rules.

He explained, “Legitimate platforms have little to fear, and if anything, government endorsement, possibly in the form of a license, could be welcome because it is legitimating for the platform.”