The Regulatory Challenges of Blockchain Digital Assets

The influence of blockchain digital assets in mainstream financial markets is increasingly growing, and their decentralized characteristics pose new challenges to the financial regulatory systems of various countries. How to adapt traditional regulatory frameworks to the characteristics of this new type of asset, and how to effectively control risks, has become the focus of attention for all parties.

According to data from a certain international anti-money laundering regulatory agency, among 130 jurisdictions worldwide, 88 allow the provision of virtual asset services, while 20 explicitly prohibit such services.

The Regulatory Attitude of the United States

As one of the jurisdictions that allow virtual asset services, the United States clearly states that virtual assets do not qualify as legal tender and adopts a multi-departmental joint regulatory model. In the United States, the blockchain digital asset industry encompasses various businesses, including wallet services, exchanges, ICOs, mining, smart contracts, staking services, and NFTs.

However, there is still controversy regarding the regulatory classification of some blockchain digital assets represented by ETH, with the core issue being whether they should be considered commodities or securities. Relevant regulatory agencies in the United States have been actively assessing the applicability of existing regulations, such as using the Howey test to determine whether digital assets fall under "investment contracts."

Haowei Test

The Howey Test originated from a legal case in 1946, providing a framework for determining whether an investment contract should be subject to securities regulation. Taking ETH as an example, the key points of the Howey Test include:

1. Does it involve capital investment?
2. Does the user have profit expectations?
3. Is there a joint investment entity?
4. Is the profit primarily dependent on the efforts of the initiator or third parties?

The Impact of Digital Assets Being Considered Securities

If digital assets are deemed securities, they will be subject to strict regulation. Regulatory authorities may take the following actions:

1. File a civil lawsuit against relevant companies, founders, and executives.
2. Administrative penalties for violations of securities laws

These measures may lead to a significant increase in compliance costs, affect retail investment opportunities, and may suppress market sentiment.

digital asset as a commodity

In the United States, certain regulatory agencies consider digital assets such as BTC and ETH to fall under the category of commodities, possessing characteristics like substitutability, market tradability, and scarcity. This classification may not significantly increase compliance costs and may benefit the development of the derivatives market, but it may not fully reflect the unique properties of decentralized digital assets.

The Impact of the New Legislation

A recently passed bill provides a new framework for digital asset regulation, categorizing digital assets into two types:

1. Restricted digital asset: Regulated by securities regulatory authorities.
2. Digital assets: Regulated by commodity futures regulatory agencies.

The determination of the asset type depends on factors such as the degree of decentralization of its underlying Blockchain, the method of acquisition, and the relationship between the holder and the issuer.

Conclusion

The regulatory characterization of digital assets will have a profound impact on the market. If viewed as securities, it may bring strict compliance requirements; if regarded as commodities, it might promote market development but overlook its uniqueness. The game among regulatory agencies may also lead to regulatory arbitrage, making the market environment more complex. In the future, finding a balance between promoting innovation and protecting investors will be an ongoing challenge for regulatory agencies.