Australia's Treasury has released its Consultation paper on Token Mapping as a foundational step in the Government's plans to develop a regulatory framework for crypto-assets. As previously foreshadowed by the Treasurer, the Hon. Jim Chalmers, the paper is intended to assist regulators and policy-makers in formulating regulation of the crypto-asset industry.
According to the paper, token mapping is a process of identifying the key activities and functions of products in the crypto ecosystem and mapping them to existing regulatory frameworks. The paper outlines the concept of the 'functional perimeter', which forms the basis of Australia's financial services regulation and is intended to capture any facility through which a person makes a financial investment, manages financial risk or makes non-cash payments.
While the 'functional perimeter' is designed to be flexible, the paper notes the difficulty of fitting some existing crypto projects within this framework and concedes further regulation is necessary.
In discussing potential opportunities in the space, the paper comments:
To capitalise on these opportunities and ensure consumer and business trust and confidence in the crypto ecosystem, regulation is required. This includes...ensuring that any additional regulation is appropriately robust, fit-for-purpose, and can keep pace with the rapidly evolving ecosystem.
The paper also considers three different concepts which could inform regulation:
A crypto token, which performs a record keeping role for projects;
A token system, which is the business or social protocol of the project; and
A function, which is the product or benefit provided by the token system.
The paper maintains that the process of assessing crypto related products, like crypto tokens, against the functional perimeter is no different than the process of assessing any other product, such as a fiat currency.
Notwithstanding the above, the Treasury has acknowledged that existing regulatory frameworks will undoubtedly fall short in regulating some existing crypto projects, and as such a framework for custody and licensing is set to be released for consultation in mid-2023.
The Treasury's long-awaited consultation paper on token mapping is a step forward in Australia's journey to establish a regulatory regime for cryptocurrencies which supports innovation and safeguards users. Consultation response are due by 3 March. The difficult work of turning the results of this exercise into draft legislation remain to be done.