Widely touted as “the Blockchain Island,” Malta took the lead in regulating cryptocurrency. But in the enthusiasm they seem to miss the basic premise of tokenomics.
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By totally abolishing tradable “utility tokens” they transformed all exchange-listed tokens into regulated security tokens, thereby excluding all Maltese crypto startups from being exchange-worthy, as exchanges list only the proven utility tokens. There are lessons to be learned from the Malta blunder.
Recently global media reported Indian regulators’ intent to ban all cryptocurrencies. We recently published a report debunking the myths surrounding cryptocurrencies particularly in the Indian regulatory context. Blockchain an integral part of cryptocurrency is a trillion dollar opportunity that the world cannot afford to miss.
Taking the lead in this mega opportunity apparently is Malta. According to a tweet by the Maltese Minister for financial services, on 4th, July 2019, Maltese Parliament enacted 3 bills to regulate DLT / cryptocurrency / blockchain claiming to become the first world jurisdiction to provide legal certainty to the crypto space.
Global Capital Of Crypto?
While a total blanket ban on cryptocurrencies would be a blunder, an ill-conceived crypto regulation, such as the one enacted by Malta, wouldn’t be less than a crypto catastrophe.
Malta’s new Virtual Financial Asset Act (VFAA) is indeed a crypto catastrophe that virtually drives the $300 billion utility tokens marketplace out of Malta.
While the world is campaigning to further relax the Howey test for supporting innovation, Malta’s Virtual Financial Assets Act (VFAA) is stifling the innovation by completely abolishing the concept of “utility token” and eventually killing the Howey standard.
Under Malta’s VFAA, every utility token that trades on a cryptocurrency exchange becomes a regulated security token. If any Maltese crypto startup releases a utility token with an intent to list on an exchange it automatically becomes a regulated security token (Section G1–3.3.1 of the VFAA leaves no ambiguity in concluding that if there is even an intent to list a token at any of the crypto exchanges it would be considered as a regulated token).
Therefore, as a consequence of VFAA’s definition every exchange-tradable token whether utility or not, under Malta law, becomes a security token. And, no crypto exchange will list it as every exchange out there requires a token to be verified and proven to meet the Howey test of utility token.
Technically, exchanges will not be able to operate in Malta as all the tokens they list are utility tokens.