Future of Finance


Go to Liechtenstein and use the Blockchain Law

Go to Liechtenstein and use the Blockchain Law

The principality of Liechtenstein provides the most welcoming environment on the planet for the entrepreneurs of the token economy. Thomas Nägele, managing partner at the Nägele law firm in Vaduz and a software developer as well as a lawyer, was a member of the government working party that drafted the Liechtenstein Trusted Technology Law (TVTG) or Blockchain Act.

He spoke to Future of Finance founder Dominic Hobson about the difficulties of capturing novel, technology-based concepts in law and implementing them in regulation, the need for forms of reintermediation as well as disintermediation in digital asset issuance and investing, and how Liechtenstein can capitalise on its leading position before the Markets in Crypto-Assets Regulation (MiCaR) of the European Union becomes part of the law of Europe.

Questions that are being asked

  1. Liechtenstein was not at the epicentre of the ICO boom in 2016-18.  Can the TVTG be understood as a reaction by the government to concern that new business opportunities for Liechtenstein might be missed?
  2. It is emphasized that the TVTG is not aimed at financial services only, but at all areas of the economy (what is called the “token economy”). Was this a conscious attempt to capture assets that are illiquid or untraded or based on a belief that any and every type of asset can be digitized?
  3. What precedents did the framers of the TVTG draw upon in terms of the concepts it expresses? 
  4. What proportion of the content of the TVTG is genuinely de novo, i. e. has no precedents and had to be defined for the first time in law?
  5. The name of the law eschews the term Blockchain in favour of “trusted technologies.” How hard is it to make a law about tokenization, which is so tied up with blockchain technologies, technology-neutral?
  6. “Trusted technology” does imply that trust is intrinsic to the technology, and not provided by intermediaries such as banks. Did the threat of disintermediation not concern existing intermediaries, such as the private banks?
  7. Law is one thing, and regulation is another. How has the Financial Market Authority (FMA) interpreted its role in making the TVTG effective – especially given that the law envisages trust stemming from technology rather than regulation of intermediaries?
  8. Does the law distinguish between crypto-currencies, stablecoins, security tokens, payment tokens, utility tokens and non-fungible tokens?
  9. What is the significance of the “Token Container Model” (TCM)?
  10. What is the role of the “Physical Validator” (e. g. to check tokenized assets exist and/or are exchanged) and does it include assuming liability for assets that are lost?
  11. How does the TVTG prescribe the obligations of token issuers?
  12. How does the TVTG describe the rights of token investors?
  13. Where are rights of token investors enforceable (i. e. which courts)?
  14. Tokens are effectively bearer assets (i. e. the investor owns only the keys to the asset), so the rights belong to whoever holds the keys. How does the TVTG accommodate that risk?
  15. How are ownership rights (i. e. private keys) safekept or custodied under the TVTG law (I .e. who fulfils the role of custodian or depositary)?
  16. EU law prescribes the use of a central securities depository (CSD). Does TVTG enable issuers to get round that requirement?
  17. Does the law envisage assets being serviced (e. g. the payment of entitlements) by smart contracts only?
  18. How does the law manage conflicts of interest (e. g. a firm providing exchange, trading and custody services as in the crypto-currency markets)?
  19. How are bad actors excluded (i. e. how are issuers and investors checked for KYC, AML, CFT and sanctions screening purposes)?
  20. Would it not help if Liechtenstein set up an exchange or other type or trading platform for tokens to be listed and exchanged?
  21. Do the framers of the TVTG monitor developments in tokenization law in other jurisdictions?
  22. Because Liechtenstein is a member of the EEA, the Markets in Crypto-Assets Regulation (MiCaR) of the EU will presumably replace the TVTG. If so, what will be lost?
  23. Are there any other developments in the market which will necessitate the updating of the tokenization law?
  24. Is your firm working with token issuers making use of the TVTG and, if so, (a) what attracted them to do so (b) what types of issuers are they (e. g. SMEs, HNWIs, real estate owners etc.) and (c) where do they come from (Liechtenstein or abroad)?
  25. And where are the investors coming from – Liechtenstein or abroad?