What the life of a coin tells us about the crypto-assets

For decades, EY has been active in capital markets and has recently built out its distributed ledger technology (DLT, or blockchain) capabilities.

Our objective in preparing Life of a coin is to demystify crypto-asset capital market regulation and draw references, where relevant, to insights from our interactions with market participants that are at various stages of developing new technologies and attracting investor interest. For the purpose of this paper, our focus is primarily on the European regulatory landscape. The wide-ranging views discussed throughout are supported by reference to a range of familiar concepts from more established capital markets. They cater to a broad audience: from those involved in issuance through to secondary market trading and investment in crypto-assets.

Different types of tokens are being developed in the market; some issued in a token sale or initial coin offering (ICO) and others representing off-chain assets. This report focuses on the tokens that an organization issues to investors and analyzes the various stages of capital markets that may affect this activity. Another recently published EY paper, Initial Coin Offerings (ICOs): The Class of 2017 – one year later also addresses token issuance from 2017 to 2018.

Our intent in publishing this paper is not to offer a formal legal or regulatory analysis, or indeed to identify every possible legal and regulatory consideration, but to highlight key areas where market practice might need to evolve and where regulators could focus their efforts on developing new policies. We aim to highlight the interesting topics and issues that we believe will shape the future of crypto-asset capital markets by looking at:

• Primary markets: token issuance
• Secondary markets: crypto-asset exchanges
• Investors and collective investment schemes

Within these areas, we have identified nine themes that will shape the development of crypto-asset capital markets. Inevitably, there are many other areas of potential interest, including broader issues on technology and expansion of financial services ecosystems.

Overall, we believe there is a good argument to suggest that crypto-assets have an important role to play in the digital global economy. It is our hope that this report will be of interest to regulators, financial services firms, investors and other potential market players as they consider alternative financing models and DLT to drive meaningful innovation.