With the blockchain and crypto space multiplying in leaps and bounds, many regions around the globe are exploring ways to leverage the adoption of digital assets for their economic progress. Accordingly, Liechtenstein, one of the smallest countries in the world, situated in central Europe and bordered by Switzerland, has continued to attract the crypto community’s attention.
A History Of Crypto-Related Regulations
In 2019, the central European country was one of the first jurisdictions in the world to create laws targeted at the crypto and blockchain ecosystem. The Token and Trusted Technology Service Providers Act (TVTG) has been the most active piece of legislation since 2020, paving the way for establishing the world’s first regulated landscape for crypto-related services.
Since 2020, the number of digital asset services providers in Liechtenstein has doubled, with companies seeing the country as a destination to operate their crypto businesses. The high level of regulatory certainty that comes with implementing the TVTG and the Financial Market Authority (FMA) activities contributed to the crypto-friendly environment in Liechtenstein.
Liechtenstein’s First Comprehensive Token Regulations
Thomas Dunser, the director of Liechtenstein’s Office for Financial Markets Innovation and Digitization, revealed the steps Liechtenstein’s government took to promote blockchain development. According to him, 2016 to 2018 was the most challenging time for the blockchain and crypto industry.
Amid the uncertainty, the Liechtenstein government released its plans for the fledgling industry. With this came the publication of the draft law on how the country would treat digital tokens.
Liechtenstein became the first jurisdiction in the world to regulate crypto tokens as a legal instrument with its Token Container Model (TCM). In addition, the TMC also categorized tokens based on their use cases.
Dunser noted that the classification model on which tokens can be considered financial instruments had created positive feedback from the crypto community.
Why Innovation Is Critical
Furthermore, Dunser explained that the Blockchain Act was developed in 2016 and passed into law in 2019. However, as of then, there were no large-scale decentralized finance applications (dApps) or non-fungible tokens (NFTs).
The official stressed that neither the dApps nor NFTs trends were expected. However, Liechtenstein’s national token laws have created a basis to accommodate a broad range of other developments in the crypto ecosystem.
According to him, Liechtenstein has strategically planned to look beyond blockchain’s current use cases. As a result, the country will not re-regulate the space for some time, Dunser added.
Furthermore, in the Blockchain Act, the country’s regulators have taken decentralization into account, given that all activities are subject to regulatory scrutiny. As a result, service providers must consider risk mitigation, no matter the technology involved.
The MiCA Comparison
The Market in Crypto Assets (MiCA) regulations are the game-changer for Europe’s quest for unified and comprehensive digital asset guidelines. Therefore, MiCA has adopted the TMG draft of Liechtenstein’s TVTG, the licensing requirement for blockchain-based services.
That said, Dunser noted that Liechtenstein’s token law will remain the same once MiCA comes into effect in 2024, as both legislations are compatible. Digital asset service providers licensed under MiCA will no longer be required to be approved under Liechtenstein’s Blockchain Act.
Dunser reiterated that Liechtenstein’s unique experience was relevant to the European Union’s (EU) decision-makers. They believe both MiCA and TVTG reflect the region’s regulatory leaning concerning cryptocurrency.
Still, Dunser admitted that there might be certain necessary adjustments in the future due to some jurisdictions’ non-regulations of crypto borrowing and lending. In his response to the question as to whether the central European country will further double its scrutiny of the crypto space following the FTX collapse last November, Dunser revealed that the best way is to avoid over-regulation of the sector.
Meanwhile, Liechtenstein’s Blockchain Act is designed to oversee tokens custody and set legal separation plans in the event of bankruptcy.
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