Ukraine is ranked as the world’s leader in the Global Crypto Adoption Index 2020, according to a research published by Chainalysis earlier this fall. Despite this, cryptocurrencies still remain a gray area in the economy. Since 2014, Ukrainian authorities have been trying to implement crypto legislation that would transform the country into a competitive jurisdiction for running crypto-related businesses, but the efforts did not yield any results. Finally, just a few months ago, the Ukranian government presented a new bill on digital assets to legitimize the sector — and this time, the attempt may well be successful.
The fintech strategy of the Ukrainian central bank, or NBU, pledged to legalize activities using cryptocurrencies. According to the document, by 2025, crypto assets will fully enter the legislative field and a transparent infrastructure will be created to allow it to operate on the market.
The first steps on this path were taken in late 2019. Since then, parliament members have passed a law on implementing the Financial Action Task Force’s standards for combating money laundering and the financing of terrorism. Among other things, the standards contain the concept of digital assets.
New attempts to legalize crypto
The new bill seems to outline a solid action plan and delegates responsibilities. It clearly states that the governmental Ministry of Digital Transformation will be the main regulator controlling and monitoring any activity using crypto assets. As for tracking suspicious crypto transactions, the department has already agreed to cooperate with blockchain analytics firm Crystal Blockchain BV, developed by Bitfury Group.
As expected, digital assets are not considered as a means of payment in the new bill. It is rather described as an intangible asset, a kind of power of attorney for property with which any operation can be performed, except for payment.
The document’s authors tried to advise on all areas of usage of digital assets, ranging from initial coin offerings to initial exchange offerings (albeit belatedly) to stablecoins and other possible tokenized assets. Not limited only to this, the new bill describes all the rights and requirements related to custodians of digital assets, including exchanges, multi-signature wallets and any organization that now works and thrives in the crypto environment.
Given that crypto adoption in Ukraine is growing rapidly, particularly in the decentralized finance and decentralized autonomous organization infrastructures, it is crucial that the new legislation highlights the difference between these two spaces. What is particularly interesting is the possibility of regulating the work of decentralized autonomous organizations, or DAOs.
However, if the new Ukrainian regulations don’t cover DAO features, the voting rights given to users making decisions within a DAO may be considered illegal. This shows the importance of why processes such as voting on protocol governance should be established in the law.
Digital assets as a new possibility for the Ukrainian capital market
Since there is now a well-defined concept of a secured digital asset, the bill’s authors have a stake in the development of tokenized ecosystems. These may also include tokenized securities under the National Securities and Stock Market Commission’s jurisdiction, a government agency that will also have the authority to regulate transactions with digital assets.
The most interesting projects will be related to bonds. Since Ukraine is actively engaged in issuing government bonds, a large number of brokers and banks are selling them to their clients as an alternative to deposits — the main investment instrument available to Ukrainians.
Given that the NBU is the custodian of securities for government bonds, this body will also be involved in the legal process if these bonds are tokenized. Such cooperation will make it possible to create infrastructure projects, thereby reviving the securities market and making it more transparent and accessible for individuals.
Although the bill is awaiting a vote, this is the first step to making Ukraine a competitive country for the crypto business, and at the very least, a favorable environment for the development of the domestic market. Thanks to the new legislative conditions, legal entities whose activities focus on digital assets will now be able to open bank accounts and work freely by exchanging and/or issuing digital assets.
In addition to the possibility of launching a tokenized securities market, the strategic development of the fintech market from the NBU also suggests how national infrastructure projects will develop. According to the document, by 2025, the regulator will issue a central bank digital currency dubbed e-hryvnia. This idea is already included in the bill “On Payment Services,” and unlike today’s digital assets, the CBDC will be considered legal tender.
The views, thoughts and opinions expressed here are the author’s alone and do not necessarily reflect or represent the views and opinions of Cointelegraph.
Ruslan Kolodyazhnyi is chief technical officer and head of R&D at digital payments platform Wirex. He is also the chairman of the ICC Ukraine Banking Commission. Ruslan has 12 years of experience in fintech, holding expertise in blockchain and cryptocurrencies, start-up development, development of payment solutions, online banking, and creation of technological solutions and products.