Many of the regulatory barriers to tokenization have been overcome in recent years, but there is still material to be analyzed, identified and discussed in both the corporate and public spheres. As a result, Brazilian VASPs are still a relatively new subject. Although the subject is controversial, when regulatory barriers to tokenization are finally overcome, they offer more credibility to the entire market. Investors feel more comfortable and supported by the law when it comes to investing and become more likely to contribute to the asset tokenization.
Regulatory Barriers in Global Tokenization
The biggest reason for the existence of regulatory barriers in tokenization is the fact that the technology is relatively new. This is an aspect present in tokenization at a global level, both in Brazil and internationally. In this sense, they are still studying hard how they can make this market more controlled and managed. The financial world in general has always been sensitive to attacks, fraud, scams and other malicious acts that seek to take advantage of the victim. Overcoming regulatory barriers in tokenization is closely linked to acting against these characters and making this environment safer. However, we must remember that blockchain technology still has certain advantages, such as:
- Security;
- Decentralization;
- Copy protection;
- Anti-fraud.
With all this security, it is clear that the token market is very favorable to the application of certain protection systems. And although there are regulatory barriers to tokenization, this sector is far from being completely helpless. Today, it already offers security and control in the issuance of digital assets.
Challenging cases in tokenization regulation
The fact that it is new, has a unique operating format and even its own technologies makes the tokenized asset market very different from what traditional financial regulations are used to dealing with. That’s why the challenges related to the area are so surprising and relevant. Let’s take a look below at the barriers to tokenization in practice, in cases and examples that show how complex this sector can be. Knowing each one of them means understanding the token market in general.
High digitization
The token market operates exclusively digitally, which in itself is a huge challenge for regulators. This difficulty is compounded by the variety and quantity of scams that can be carried out on digital platforms, which make the actions of fraudsters more difficult to trace. Fortunately, blockchain technology is already secure enough to deal with most scams related to the financial world. The tokens are protected with an advanced anti-fraud and copying system. However, there are still certain regulatory barriers to tokenization that seek to make the market even more understandable and protected for the general public.
decentralization
If, on the one hand, the decentralization of the blockchain allows the system to be almost fail-safe, on the other hand it achieves one of the biggest regulatory barriers in tokenization. Because it is decentralized, a token can hardly be traced, which makes it difficult for the government to have more control over these issued assets.
Variety
Tokens can be many things and there are so many versions of this asset on the market that certainly one of the great challenges and regulatory barriers of tokenization is being able to identify, catalogue and then regulate all these securities. One example is NFTs. NFTs are tokens that are convertible into media such as images, music, webinars and even software. Cryptos are also part of this vast universe, such as digital currencies like the Bitcoin ETF, Ethereum ETF and the Brazilian currency, DREX. These are all examples of how varied tokens can be, which makes the conditions for regulating the market extremely atypical and complex. This is a barrier that must be studied seriously and carefully.
Market players
The investment market has several players who also make the issue of regulation much more complex. There are a number of elements that must be analyzed before initiating any act in favor of regulation, such as the situation of investment advisors, investors themselves and asset managers. All of them must receive their fair share of attention from the government and regulatory bodies if they are to have their interests served and rights protected. By understanding and taking into account the needs of each of these agents, the state ends up having to deal with one of the main regulatory barriers.
Unpopularity
Another element that must be taken into account when it comes to overcoming regulatory barriers in this sector is that many measures are in fact unpopular among market players. Often the regulatory effort is seen as just a way of taking advantage of new technology and collecting taxes. Certainly one of the state’s objectives is to make the market more regulated and to propose fair taxation, so it is essential to study how the market works and the fairest way to apply fair regulations.
The Impact of Regulatory Barriers on Innovation and Investment
Regulatory barriers in this market have a direct impact on the way investors, financial agents and asset managers themselves work. Regulations bring credibility to this market and considerably increase investor confidence. The more regulatory barriers are relevant, the worse investors’ confidence will be in dealing with the market, which can harm token trading as a whole. It is very important to raise awareness among the market and its investors in order to mitigate this damage.
Tokenization and Regulation: Finding a Balance for the Future
The future of tokenization is bright, with expectations running into trillions of dollars, but it is essential that a balance is struck between regulating the market and still allowing it to be as versatile, flexible and secure as it already is. This balance must be at the top of the regulatory agencies’ priorities. Much of the fame and reputation that the token market retains comes from the advantages and main features of blockchain, such as its transparency and security. And if your company wants to take advantage of them and stay on top of this universe, contact BLOCKBR and see how the token market can be beneficial for your business.
Migrate to tokenization with BLOCKBR infrastructure, Access Funding with BLOCKBR Plugged-in Investment Advisors.
The unlocking of the capital market, giving access to new types and structures of investments through tokens, is bringing a universe of opportunities every day. Blockchain technology is an environment of high security and transparency, as well as being a backdrop for the creation of new operating models. To understand which tokenization model and infrastructure you can use in your operations, you just need to understand the opportunities you can take on, whether as a structurer, originator or distributor/investor. Become an investment advisor for digital assets (structured tokens) through BLOCKBR. You can also be an asset structurer and use our entire risk analysis, legal, technological and commercial infrastructure for distribution with Station or, if you prefer, just raise tokens by investing in your operations or RWA assets. Count on us.
