Ukraine’s Crypto Adoption May Lead Eastern Europe’s Crypto Sector

According to a study published by Chainalysis earlier this fall, Ukraine leads the world in the 2020 Global Cryptocurrency Adoption Index. Despite this, cryptocurrencies remain a gray area in the economy. Since 2014, Ukrainian authorities have been trying to implement crypto regulations to make Ukraine a competitive jurisdiction to operate cryptocurrency-related businesses, but these efforts have not produced any results. Finally, just a few months ago, the Ukrainian government proposed a new bill on digital assets to legalize this industry. This attempt is likely to succeed.

The FinTech strategy of the Central Bank of Ukraine (NBU) promises that activities using cryptocurrencies will be legalized. According to the document, by 2025, crypto assets will be fully included in the legislative sphere and a transparent infrastructure will be created to enable them to operate on the market.

The first step on this path was taken in late 2019. Since then, lawmakers have passed a law, the Financial Action Task Force Standards, to combat money laundering and the financing of terrorism. Among other things, these standards include the concept of digital assets.

A new attempt to legitimize cryptocurrencies

The new bill appears to outline a solid action plan and assign responsibilities. It specifies that the government’s Department of Digital Transformation will be the main regulator to control and supervise any activities using crypto assets. As for tracking suspicious crypto transactions, the department has agreed to work with Crystal Blockchain BV, a blockchain analysis company founded by Bitfury Group.

As expected, digital assets are not considered a means of payment in the new bill. They are described as an intangible asset, a power of attorney for a property, with which any operation can be performed except payment.

The authors of this document seek to provide advice on all areas of digital asset use, from initial coin offerings to initial exchange offerings to stablecoins and other possible tokenized assets. The new bill goes beyond this, describing all rights and requirements related to digital asset custodians, including exchanges, multi-signature wallets, and any organization that now operates and develops in the crypto environment.

Given that the use of cryptocurrencies in Ukraine is growing rapidly, especially in decentralized finance and decentralized autonomous organization (DAO) infrastructure, it is crucial that the new legislation emphasizes the distinction between these two areas. Of particular interest is the potential for the work of decentralized autonomous organizations to be regulated.

However, if the new Ukrainian regulations do not include DAO features, then giving voting rights to users who make decisions in the DAO may be considered illegal. This shows why it is important to establish procedures such as protocol governance voting in the law.

Digital assets offer new possibilities for Ukrainian capital markets

Now that there is a clear concept of a security digital asset, the drafters of the bill have a stake in the development of the tokenized ecosystem. This may also include tokenized securities under the jurisdiction of the National Securities and Stock Market Commission. This government agency will also have the power to regulate digital asset transactions.

The most interesting items are related to bonds. Since Ukraine is actively involved in issuing government bonds, many brokers and banks sell bonds to clients as an alternative to deposits, which are the main investment tool available to Ukrainians.

Given that the NBU is the custodian of government bonds, this institution will also be involved in legal proceedings if these bonds are tokenized. This cooperation will make it possible to create infrastructure projects that will revitalize the securities market and make it more transparent and convenient for individuals.

What's next?

Although the bill is still awaiting a vote, it is the first step towards making Ukraine a competitive country in the cryptocurrency industry, at least creating a favorable environment for the development of the domestic market. Thanks to the new legislative conditions, legal entities engaged in digital asset activities can now open bank accounts and freely exchange and/or issue digital assets.

In addition to the possibility of launching a tokenized securities market, the strategic development of the NBU's fintech market also indicates how the national infrastructure project will develop. According to the document, by 2025, the regulator will issue a central bank digital currency called e-hryvnia. This idea is already included in the Payment Services bill, and unlike today's digital assets, CBDC will be considered legal tender. (Cointelegraph)