According to a study published by Chainalysis earlier this fall, Ukraine was ranked as the world leader in the Global Crypto Accreditation Index 2020. Despite this, cryptocurrencies remain a gray area in the economy. Since 2014, Ukrainian authorities have attempted to implement crypto legislation that would make the country a competitive jurisdiction to create cryptocurrency-related businesses, but this effort yielded no results. Finally, just a few months ago, the Ukrainian government introduced a new bill on digital assets to legalize the sector – and this time, the attempt may succeed.
The Fintech strategy of the Central Bank of Ukraine or NBU promised to legalize activities with cryptocurrencies. According to the document, in 2025, cryptocurrencies will fully enter the field of legislation, and a transparent infrastructure will be created that will allow them to operate in the market.
The first steps on this path were taken in late 2019. Since then, MPs have passed legislation to implement the FATF standards on money laundering and terrorist financing. Among other things, the standards contain the term digital asset.
New attempts to legalize the cryptocurrency
The new bill appears to contain a robust roadmap and delegation of responsibility. It is clear that the Ministry of State for Digital Transformation will be the primary regulator, monitoring and tracking all activities using crypto assets. When it comes to tracking suspicious currency transactions, the division has already agreed to partner with blockchain analyst firm Crystal Blockchain BV, which was developed by the Bitfury Group.
As expected, the digital assets are not treated as legal tender in the new account. Instead, it is described as an intangible asset, which is a type of power of attorney for property, through which any transaction other than payment can be made.
The document’s authors attempted to provide advice on all areas of the use of digital assets, from the first coin offering to the original (and albeit too late) exchange offer of coins and other possible symbolic assets. For example, but not limited to, the new law outlines all rights and requirements associated with digital asset managers, including exchanges, multi-signature wallets, and any organization that currently operates and thrives in a crypto environment.
Given that the adoption of cryptocurrencies in Ukraine is growing rapidly, especially in the infrastructure of decentralized financing and decentralized autonomous organizations, it is very important that the new legislation emphasizes the difference between the two areas. Of particular interest is the ability to regulate the work of decentralized autonomous organizations, or DAOs.
However, if the new Ukrainian rules do not cover the functions of the DAO, then the voting rights granted to decision-makers within the DAO may be considered illegal. This illustrates the importance of why processes like voting to monitor protocol are created in law.
Digital assets as a new opportunity for the Ukrainian capital market
As it is now a well-defined concept with a secure digital resource, the drafters are interested in developing symbolic ecosystems. This may also include token securities under the jurisdiction of the National Securities and Exchange Commission, a government agency that will also have the authority to regulate digital asset transactions.
The most interesting projects will be related to bonds. Since Ukraine is actively involved in issuing government bonds, a large number of brokers sell and spend them to their clients as a substitute for deposits – the main investment tool available to Ukrainians.
Given that the NBU is the securities manager for government bonds, this body would also participate in the lawsuit if these bonds were token. Such cooperation will allow the creation of infrastructure projects, thus revitalizing the stock market, making it more transparent and accessible to individuals.
Although the bill is awaiting a vote, this is the first step towards making Ukraine a competitive country for crypto businesses and at least creating an enabling environment for the development of the domestic market. Thanks to the new regulatory environment, legal entities focused on digital assets will now be able to open bank accounts and operate freely and exchange and / or issue digital assets.
In addition to the possibility of launching a symbolic stock market, the NBU’s strategic development of the financial technology market also suggests how to develop national infrastructure projects. According to the document, by 2025, the regulator will release the central bank’s digital currency, which is called the e-hryvnia. This idea is already included in the Payment Services Act, and unlike current digital assets, CBDC will be considered legal tender.