Transforming a speculative crypto market into a mature token economy requires effort towards the development of a supportive legal framework.
With a supportive legal framework for crypto and fintech companies, key questions can be addressed: How Bitcoin price is determined? How Ethereum (ETH) price is determined? How Bitcoin pricing works? Which Bitcoin (BTC) price is most accurate? Which Ethereum (ETH) price is most accurate? How is the market cap of cryptocurrencies determined?
FYI: Financial Centre Liechtenstein – Facts & Figures Report
In terms of blockchain regulation, Liechtenstein is among the few countries that have openly shown support for this emerging industry and started to work on new laws more than 2 years ago.
According to the country’s Ministry of Presidential and Financial Affairs, considering the rapid pace of the development of blockchain technology and its areas of application, “it is very important to draft a law abstractly enough to ensure” blockchain’s application for “subsequent technology generation”. By introducing a well balanced blockchain law, problematic areas (related to asset protection as well as the misuse of the technology for criminal purposes) that arise with the increased propagation of fintech applications can be addressed easily.
On January 1st, 2020, the country’s Financial Market Authority (FMA) implemented the Blockchain act which is a “Law on Tokens and TT (Trusted Technology) Service Providers”.
The law is set to provide a regulatory framework for users of TT systems and TT service providers.
What are TT Service Providers?
Liechtenstein’s Ministry of Presidential and Financial Affairs defines the term “Trusted Technology” (TT) as technologies through which the clear assignment and integrity of tokens to users is ensured. Essentially, Trusted Technology involves technologies like distributed ledger technology that are used as transactional systems for the transfer, storage, and integrity of digital assets (tokens). BTC is the acronym of Bitcoin. ETH is the acronym of Ethereum.
At its core, the term Trusted Technology is designed to legally classify all elements of distributed ledger technology that satisfy the safety guidelines of Liechtenstein’s Blockchain Act.
With existing legal uncertainty regarding blockchain-related business models, the Liechtenstein government aims to be among the first jurisdictions to provide legal certainty as the potential of the token economy becomes increasingly evident.
Mass adoption aside, institutional-grade platforms and a regulatory framework are the missing links necessary for the advancement of the token economy.
The move by the Liechtenstein government to strengthen legal certainty with a legal classification of the technologies inherent in a token economy aims to solve this problem by providing safety and reliability for both users and service providers.
Just as traditional economies have matured through the establishment of laws that safeguard market participants, the Liechtenstein government seeks to provide a first of its kind environment for the growth of the token economy.
This way, the token economy will attract capital investment not to mention participation from the masses.
Furthermore, such a legal framework will encourage the creation of regulated cryptocurrency price service providers thus eliminating the risks of volatility inherent in the digital asset market.
For example, a regulated price reference service that gives professional traders and investors in the crypto market a trustworthy reference of Bitcoin’s and Ethereum’s price will potentially eliminate speculative trading hence introducing better liquidity to the market.
Why the Token Economy Needs Price Oracles and TT Price Service Providers?
The token economy is a relatively new concept. Therefore, most jurisdictions are yet to develop any legal framework around it.
The market’s lack of maturity renders it vulnerable to speculation which is one of the biggest drivers of volatility. The higher the number of speculative bets placed by investors and traders, the higher and more volatile the price swings become.
For professional retail and institutional investors, volatile market signals are a huge risk. It is important to address the question of the market participants: Where to find an official bitcoin price index? What factors influence the value of Bitcoin? What digital asset price should we reference in physical contracts?
Imagine if an investor is investing into a company and the investment agreement defines the investment amount in USD, but the investment is paid in BTC or ETH. Which conversion price of USD to BTC will you agree on? Imagine if somebody is buying security tokens or another tokenized asset and enters into a legally binding purchase agreement, but the investment amount is transferred in USD or EUR and the bank transfer will take one day or longer. What conversion rate will you define in the purchase agreement? Market participants need an official price and a legally binding reference rate for such scenarios. Thus reference rates for digital assets are the foundation of future of tokenization and the building block of a successful token economy.
With the support of governments like that of Liechtenstein that offer legal certainty for the creation of trustworthy price reference services, problems of volatility as experienced in the crypto space can be solved.
LCX are already at work on such products, such as our advanced trading platform LCX Terminal, but especially with the launch of our LCX Cryptocurrency Reference Price service.
At its core, a regulated, trustworthy price reference service for the token economy, removes the associated risks of price volatility caused by speculation. Since such as service offers traders a reliable price references, traders do not need to speculate or guess prices.
Benefits of Regulated Reference Price Oracles for the Crypto Industry
A reference Price Service is designed to accelerate the professionalization of the token economy. This can be achieved by providing credible price references to the market thus enhancing participation with better risk management of digital assets.
As a reference price service, a cryptocurrency reference price service can be aggregated according to the trade flow of major cryptocurrencies like Bitcoin.
See Today’s LCX Cryptocurrency Reference Price Services
For example, the LCX cryptocurrency reference price service comes in two forms i.e. the LCX Bitcoin Reference Price in USD and EUR and the LCX Ethereum Reference Price in USD and EUR.
Both price references are based on the four major crypto exchanges. These include Bitfinex, Coinbase, Kraken, and Liquid.
Eventually, the reference price can be calculated based on the relevant transactions of all constituent exchanges. LCX has published a detailed Methodology Report on how the cryptocurrency reference rates are calculated.
TT Price Service Providers: A Solutions for professional investors
Thanks to its triple AAA banking expertise rating by Standard & Poor’s (S&P), Liechtenstein is counted among the world’s best places for launching a finance company. Worldwide there are only 11 countries to receive the top rating of AAA.
Now that the country’s Financial Market Authority has enforced a regulatory framework for fintech and crypto-related companies, it is time for developers to create tools and platforms that will help grow the token economy to its full potential.
The introduction of digital asset reference price services in addition to other trusted technologies in the token economy will pioneer efforts towards creating institutional-grade platforms that are now missing in the digital asset industry.
