Legal Landscape Lagging Behind in the Digital Asset Realm

The Hague Conference on Private International Law (HCCH) has initiated a project to explore digital tokens and clarify legal uncertainties for cross-border businesses. The project aims to define digital instrument taxonomy, focusing on tokenization of real-world assets and fund tokenization. Six categories of tokens are considered: real estate tokens, utility tokens, payment tokens, NFTs, stablecoins, and tokens representing claims. The project excludes securities, CBDCs, and carbon credits, and will collaborate with existing HCCH projects on these topics.

Is Legal Clarity Lagging in the Digital Asset Landscape?

For years, the digital asset industry has grappled with the lingering issue of legal uncertainty, often outpacing the technological advancements. Despite efforts by various jurisdictions to streamline regulations for DLT securities and financial instruments, the legal landscape remains fragmented across borders.

HCCH Delves into Digital Token Exploration

Seeking to address this disconnect, the Hague Conference on Private International Law (HCCH) has launched a comprehensive project dedicated to exploring the complexities surrounding digital tokens. This intergovernmental body aims to provide clarity on applicable laws and the recognition of legal decisions across jurisdictions.

Tackling the Tokenization Taxonomy

The initial phase of the HCCH project focuses on compiling a comprehensive taxonomy of digital instruments across different jurisdictions. This categorization will help identify the various types of tokens in circulation, including real estate tokens, utility tokens, and non-fungible tokens (NFTs).

Beyond Securities and CBDCs

The project deliberately excludes exploring securities, central bank digital currencies (CBDCs), and carbon credits. These topics are already being addressed in separate HCCH initiatives.

Potential Areas for Scrutiny

Last year, the International Institute for the Unification of Private Law (UNIDROIT) adopted a set of principles governing digital assets and private law (DAPL). The HCCH's recent joint meetings with UNIDROIT have highlighted potential areas for further investigation:

Tokenization of Existing Assets

How can existing assets be effectively recorded on DLT? What are the legal implications of "linked assets"?

Custody in Non-Custodial Settings

Can custody rules defined in DAPL be extended to non-custodial situations?

Determining Control in Blockchain

In permissionless blockchains, where lies the legal control over digital assets? How do contractual agreements on permissioned blockchains impact this issue?

Securities and Digital Tokens

While not directly included in the HCCH project, the relationship between securities and digital tokens remains an area of interest. The HCCH will coordinate its work on digital tokens with its ongoing review of the 2006 Convention for securities.

International Harmonization

The HCCH's efforts aim to promote international harmonization of digital asset laws. By providing clarity on legal frameworks, cross-border businesses can operate with greater certainty in this rapidly evolving landscape.

Moving Forward

The HCCH project on digital tokens is a testament to the growing recognition of the need for legal frameworks in the digital asset space. As the industry continues to innovate, collaboration between international bodies is crucial to ensure that the legal system adapts to these technological advancements.