HM Treasury was directed to spot challenges that may require refinement, but the fundamental principles of its approach were heartily welcomed.

The deadline has near for comments on a consultation paper and calls for evidence released by the United Kingdom’s HM Treasury on an offered crypto asset regulatory framework. The lengthy-awaited paper, issued in February, drew detailed responses from a variety of cryptocurrency industry players. 

Blockchain provider Polygon Labs, venture capitalists Andreessen Horowitz (a16z), the Association for Financial Markets in Europe (AFME), and the Digital Pound Foundation (DPF) released their answers on May 1 to the note for comments. Among these other voices, some common issues were raised.

The Treasury’s call for “ same threat, same regulatory outcome ” was smoothly met, although there was no uniform understanding of what that entailed, away from its base in the Financial Services and Markets Act of 2000. California- grounded a16z aimed out weaknesses in the United States Securities and Exchange Commission’s reliance on the Howey test as the enterprise assessed theU.K. offer. In its response, a16z wrote:

“It is encouraging that the Treasury’s interpretation of this principle recognises that it does not mean it will be appropriate to apply exactly the same form of regulation in all cases to achieve the same regulatory outcome.”

This tied into the offer’s emphasis on regulating exercise, rather than assets themselves. The fundamental differences between centralized finance (CeFi) and decentralized finance (DeFi) were in the middle of this discussion. Polygon wrote:

“The source of risk in DeFi systems is significantly different than that in centralised systems, like CeFi or the traditional financial system. To this end, it may be more accurate to update: ‘same risk, same regulatory outcome’ to ‘different source of risk, same regulatory outcome.’"

The offered framework treated fiat-backed stablecoins and algorithmic stablecoins else, classifying algorithmic stablecoins as an “ unbacked crypto asset. ” Polygon particularly favored the activity-based regulatory approach in this case.

Related: UK Treasury seeks input on taxing DeFi staking and lending

The AFME, which worked with consulting enterprise Clifford Chance on its response, remarked on the significance of a global taxonomy of crypto assets for effective international regulation and the" equal exercise" approach to exclude blockchain-based representations of value similar to loyalty and rewards programs.

The AFME similarly identified the territorial scope of the offered crypto regulations, which are written to refer to companies that give services to U.K. nationals. That's a broader scope than regulations concerning traditional assets have, it noted.

The DPF perceived possible deviations from the “ same threat, same regulatory outcome ” principle in the handling of several forms of crypto assets, and it commented on them in detail. The classification of stablecoins was one of the points it thought required clarification in this regard.

The U.K. government will react to the collected responses it admitted to its paper and engage in additional consultations on specific regulations as its coming step if they're “taken forward.”

(DEREK ANDERSEN, Cointelegraph, 2023)