In each newsletter we will shed some light on one of the many countries profiled by The Token RegRadar. We start out with one of the small Europen frontrunners, the Principality of Liechtenstein.
Liechtenstein was amongst the first countries, which enacted a DLT/Blockchain law, namely the Token and Trusted Technology Service Provider Act (TVTG) in 2020.
Although there is no specific definition for security tokens in TVTG, it accepts the security tokens as real-life securities issued by means of distributed ledger technology. So, instead of regulating each type of token separately – like payment tokens, utility tokens, stablecoins, and security tokens – the Act operates with a relatively high-level and abstract token definition. Moreover, the Act enables tokens to act like a container, on which the rights are codified. Therefore, with the transfer of the token, the rights it represents are also transferred. With this approach, Liechtenstein separates the right, which stands for an asset, from the token, which is logged on a blockchain, so to speak.
Behind the security tokens could be various types of traditional securities, such as registered shares, participation certificates or profit participation certificates (the Swiss and Liechtenstein equivalents of non-voting shares), bonds, collective investment scheme units and also new uncertified securities which could be created using tokenisation. Examples of these new securities include derivatives as rights to future income, rights to future commissions (Neon/Nash exchange), or derivative security with the features of a structured bond (Crowdli project about real estate investments).
One of the advantages Liechtenstein laws provide for security tokens is that they do not require a physical share certificate for their issuance and a written declaration of assignment for their transfer. Additionally, it is possible to tokenize shares in public limited companies directly with including a provision therefore in the articles of association.
Moreover, shares tokenized in Liechtenstein are also recognised as securities abroad. Due to Liechtenstein’s membership in the EEA, it is possible to tokenize rights and passport them as securities sui generis via an approved prospectus with the Liechtenstein supervisory authority (Financial Market Authority, FMA) to other EEA states. This is based on the regulatory requirements of the Prospectus Regulation (Regulation (EU) 2017/1129 of the European Parliament), which are harmonised under European law. For EU passporting, it is necessary that the tokenized rights are first approved with a prospectus at the FMA.
Being one of Europe’s legal frontrunners on blockchain and token economy, Liechtenstein has gained a lot of attention and managed to attract a relatively large number of blockchain companies and companies that want to conduct STOs. It is expected that the token market in Liechtenstein will grow even bigger in the following years with these advantages that attract investors all over the world. With the impact of the enforcement of TVTG, it would not be a surprise that Liechtenstein will stay as one of the frontrunners in this sector and provide a crypto-friendly legislation for the investors.
Image by Oliver Schwendener on Unsplash