In February 2023, the Australian government launched a one-month consultation on token mapping, marking a significant step towards legitimising the digital asset class and mitigating its risks. The move aims to provide logical and effective regulation for digital currencies, which is regarded as a significant obstacle to their widespread adoption. Australia is the first government to directly and officially address the concerns raised by the collapse of FTX and the subsequent crypto contagion of 2022, putting the country at the forefront of the global race for regulatory oversight.
What is Australia’s Token Mapping Consultation Paper?
The token mapping consultation paper is a document drafted by the Australian Treasury in collaboration with major crypto ecosystem stakeholders, aimed at identifying the various characteristics and functions of digital assets and related ecosystem products. The consultation paper’s ultimate goal is to map these services against current regulatory frameworks for other financial institutions, ensuring a safe crypto ecosystem. The document is the foundational step in the Australian government’s multi-pronged approach to regulating the digital currency market.
The paper focuses on defining key concepts in the blockchain ecosystem, such as “networks” and “smart contracts,” and classifying crypto products and services into separate categories. Unlike previous regulatory attempts, which focused on the function of actual coins, Australia’s approach is more holistic and intends to foster innovation and development.
Related: Is crypto legal in Australia?
What Does the Paper Propose?
The paper provides broad and neutral definitions of key terms in the blockchain ecosystem, such as “crypto network,” “crypto tokens,” and “smart contracts.” The paper proposes a catch-all taxonomy of two token systems, each having two product types.
Intermediated Token Systems:
- Crypto asset services: This includes lending/borrowing platforms, custodial platforms, and token trading.
- Intermediated crypto assets: This refers to a crypto asset with a form of “legal agreement or other arrangement,” such as stablecoins and rewards programs.
Public Token Systems:
- Network tokens: This refers to digital assets that can form a peer-to-peer payment system without an intermediary providing a service or product, such as Bitcoin and Litecoin.
- Public smart contracts: This term refers to products and networks that use smart contracts but don’t require a third party to operate, such as decentralized finance products and applications.
What Are the Next Steps?
The token mapping consultation paper is part of Australia’s initiative to develop a comprehensive regulatory framework for the crypto ecosystem. After the consultation period, the Treasury will focus on drafting regulatory guidelines for crypto licensing and custody, which is of paramount importance to most governments following the FTX collapse of 2022. Once well-rounded frameworks are in place, they may go a long way to improving public sentiment and ensuring investor safety. While the regulation of the blockchain sector is slow work, the Australian government is taking a step-by-step approach to building the foundations for effective regulation.