Liechtenstein's Supervision of the Blockchain Sector

Financial technology is a chance for Liechtenstein. That which was the purpose of the TVTG?

Continuous further development of innovation is necessary to make sure positive economic development. Due to the higher level of regulation in the financial sector, however, this involves a corresponding resolve for innovation for the government and the authorities. The TVTG defines a legitimate framework for all applications of the token economy to make sure legal certainty for a lot of current and future business models. This will not only strengthen innovation, but additionally protect users from abuse and the reputation of the financial market of Liechtenstein in general.

The legal aspect of tokenized structures and assets was a major challenge for that legislator How so?

Technology is susceptible to constant change and blockchain technology, particularly, is affected by a higher pace of innovation. It was therefore essential for the legislator to locate a solution that was as technology neutral as possible. The legislator, therefore, attempted to abstractly define the term “Blockchain” as “Transaction on systems according to trustworthy technologies” and also the term “trustworthy technology ” is defined as “technologies through which the integrity of tokens, the clear assignment of tokens to TT Identifiers and the disposal over token is ensured”. With the Law on Token and TT-Service Provider , coming into force on 1 January 2021, the legislator introduced the legal entity “token”, which was new to the Liechtenstein law. For this reason, certain fundamental legalities with regard to tokens had to be clarified based on existing law.

In the heart of the TVTG lies the “Token Container Model” which enables a technologically neutral and agnostic token definition. In this model, what constitutes like a 'token'?

The blockchain ecosystem revolves heavily around payment token, but a legitimate definition that revolves primarily around cryptocurrency cannot do justice to the application potential from the entire token economy. In order to cover as numerous possible applications of the token economy, the Liechtenstein legislator defined token like a “container” of a right. This right can include everything that can be used in the legal and economic system, such as the right of ownership of an object, the authority to receive goods , the rights of use , membership and much more. Even the case of the “empty” container is possible and relevant used . Consequently, which means that the token only digitally represents the rights in the blockchain system. The original right and all the associated legal consequences remain intact. Thus, the legislator did not have to draft new laws regarding individual rights, only concerning the transfer of the token, respectively of the right by way of the blockchain, as well as concerning the link between the physical and online world.

How does the TVTG bridge the gap between your physical an internet-based world?

The TVTG states that the token is the disposition from the right represented . However, this legal basis only has a restricted effect, since this can, obviously, only apply to rights or stuff that are susceptible to Liechtenstein law. The law, therefore, imposes on the Token Generator the duty to ensure by appropriate measures the disposition from the token actually also results in the direct disposition of the right represented and that every other disposition of the right represented within the token is excluded. The law does not specify how this obligation should be fulfilled. It depends on the represented right. For example, when it comes to tokenization of rights for an object, the item might be deposited inside a warehouse. When it comes to securities, it should generally be adequate when the the issue stipulate that the disposal of the security happens in accordance with the rules of a VT system.

Moreover, the legislator has introduced the course of the Physical Validator like a person who ensures the enforcement of rights, in terms of property law, to goods represented in tokens on TT systems.

Who must register based on TVTG?

With the creation of the TVTG, ten new categories, which offer services on TT systems , have been introduced. Pursuant to Art. 12 TVTG, natural or legal persons who've registered office or place of residence in Liechtenstein and who would like to provide one of the following services on the professional basis must register with the Financial Market Authority:

• Token Issuers
• Token Generators
• TT Key Depositaries and TT Token Depositaries
• TT Protectors
• Physical Validators
• TT Exchange Service Providers
• TT Verifying Authorities
• TT Price Service Providers
• TT Identity Service Providers

The TVTG makes it possible to bridge the gap between the classic financial industry and distributed ledger technology. What impact could this have?

In the traditional financial market, there's a high amount of regulation when it comes to customer protection, prevention of money laundering and protection from the financial market in general, while FinTechs commonly are not subject to any special regulation; which means that legal certainty for the companies suffers on the one hand, but also the protection of customers and also the financial market can hardly be guaranteed. The development of balanced regulation is supposed to maintain the sector’s capability to innovate, while at the same time providing a particular legal framework for customer protection, protection against money laundering and protection of the financial market, that will may also increase the quality of the FinTech companies. The amount of protection from the existing financial market law isn't affected, as firms that are registered in the sense from the TVTG also require a license based on the classic financial market laws, if they want to provide services according to these laws . Exactly the same pertains to companies that already have permission under traditional financial market law and today wish to offer services under the TVTG. Additionally they require a TVTG registration as well as the existing license.

This regulation thus bridges the gap between the traditional financial market and DLT, whereby companies from the traditional financial market increasingly seek cooperation with regulated companies from the DLT sector, since the regulating these businesses provides a certain amount of security, or these new releases can be found by companies in the traditional financial markets themselves. By bridging the gap, the innovation of the financial market in general is increased without losing its seriousness.

What was the first impact of TVTG on businesses?

As Liechtenstein was one of the first countries to manage companies in the field of DLT, it suddenly became internationally referred to as an ideal location for companies and international inquires rose. Meanwhile, eleven companies are registered using the Financial Market Authority for various services based on TVTG. On the one hand, these include companies in the DLT sector, but additionally companies originally in the traditional financial market, which, as explained above, was also the aim of the legislator. Although the hype surrounding DLT continues to be felt, our law practice has become also receiving progressively more inquiries from companies that have a well-designed product where DLT is the solution to an actual problem.

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I completed my Master's degree in Law at the University of St. Gallen, Switzerland in 2021. During my studies, I worked for the Liechtenstein Financial Market Authority and was thus able to gain firsthand insight into financial market law. Upon my graduation, I gained legal practice in Switzerland and Liechtenstein and passed the Swiss Bar Exam in 2021 and the Liechtenstein Bar Exam in 2021. Since 2021, I've been employed by Ospelt & Partner Attorneys at Law Ltd. in Liechtenstein and advise clients mainly in contract, corporate and financial market law.

Ospelt & Partner Attorneys at Law Ltd. is a law firm in Liechtenstein and offers comprehensive advice in most regions of law. Because of the different backgrounds and experiences abroad, we're also not only able to provide information on Liechtenstein law but additionally to solve cross-border issues of our clients. Along with Legacon Trust Est. and Crowe Horwath Trust Ltd. we can offer comprehensive solutions for our clients.