Financial instruments entail liabilities : ether, bitcoin, and litecoin do not

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Availableonlineatwww.sciencedirect.com

journalhomepage:www.elsevier.com/locate/CLSR

Financial instruments entail liabilities: Ether, bitcoin, and litecoin do not

Evariest Callens

¹

FinancialLawInstitute,GhentUniversity,Belgium

a r t i c l e i n f o

Keywords:

Financialinstruments Transferablesecurities MiFIDII

Intrinsicv.extrinsicassetvalue Cryptocurrencies

Stablecoins Bitcoin Ether Litecoin Ripple

a bs t r a c t

ThefinancialassetsthataresubjecttomajorEUfinanciallegislation(i.e.(designatedtypes of)financialinstruments)havetraditionallybeendefinedinalargelyexemplaryandcircular manner.Therecentproliferationof‘non-traditional’financialassets,suchascryptocurren- ciesandstablecoins,isincreasinglychallengingtheviabilityofthesepragmaticfinancial assetdefinitions.Throughtheanalysisofthetechnologiesandfunctionalitiesunderpin- ningnon-traditionalfinancialassets,legalscholarshiphasaimedtocategorizenovelassets withintheexistingframeworkoffinancialassetdefinitions.Althoughasolidunderstand- ingofe.g.distributedledgerapplicationsandcryptographyappearsaprerequisiteforfuture policyandlegislativeinterventions,contemporaryEUfinanciallegislationismostlyindif- ferenttothetechnologiesonwhichfinancialassetsmaybewired.Categorizationsbasedon thepurposesthatnon-traditionalassetsmayserve(i.e.payment,utility,andinvestment)are morerelevanttofinanciallaw,butsufferfromsubjectivitybecausetheydependontheasset usagebytheassetholder.Againstthisbackdrop,thispaperproposesanovelsystematiza- tionofnon-traditionalassetsthatisbasedupontheconceptualsubstructureoftheassets withinthescopeofEUfinanciallegislation.Morespecifically,thispapersubmitsthat,irre- spectiveofunderlyingtechnologiesandfunctionalities,allassetsthataresubjecttomajor EUfinanciallegislationhaveaconceptualcommondenominator:theyentailtheliabilityof anentityand,hence,haveintrinsicvalue.Theproposedcategorizationsinglesoutawell- definedgroupofnovelfinancialassetsthatisnotsubjecttoEUfinanciallaw(i.e.assetsthat onlyhaveextrinsicvalue).Differentfromfunctionality-andtechnology-basedcategorizations,thesuggestedapproachallowstoeradicatesomeambiguitiesthatarepresentinthe existingtaxonomies.By exploringtheconceptualcommondenominatorofthefinancial assetsthataresubjecttoEUfinanciallegislation,thispaperaimstofosterdebateonthe circularandexemplarycharacteroffinancialassetdefinitionsinEUfinanciallegislationin generalandtherelationofthesedefinitionstonoveltypesoffinancialassetsinparticular.

E-mailaddress:[email protected]

1PhDCandidate,FinancialLawInstitute,GhentUniversity;VisitingResearcherandResearchAssistant,HarvardLawSchool2019-2020 (BAEFFellow).Iamgratefultotwoanonymousreferees,SimonGeiregat,NielsRogge,ReinhardSteennot,LiselotteVanCoillie,andthe participantsattheEuropeanBankingInstituteYoungResearchersGroupVirtualWorkshopSession(July2020)forhelpfulcommentson earlierdraftsofthispaper.

https://doi.org/10.1016/j.clsr.2020.105494

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1. Introduction

1.1. Intrinsicandextrinsicassetvalue

Inlinewithcommonparlanceandfinancialmarketsjargon, this paperemploystheterm‘asset’torefertoanytangible ornon-tangibleitemthathasvalue(e.g.goldorcontractual rights).²Thevalueofanassetmaybederivedfromdetermi- nantsthatareeitherintrinsicorextrinsictotheconsidered asset.

Theintrinsicdeterminantsofassetvaluearetheparam- etersthatdefinetheverynatureofanassetandfromwhich theassetholdermaydirectlyorindirectlyderiveutility,even ifthereexistsnomarketdemandfortheasset.Forinstance, soybeansandgoldmayeachprovidedirectutilitytotheasset holder(respectivelythroughe.g.foodconsumptionandusage insmartphones),evenifnooneiswillingtobuytheseassets from theassetholder.Similarly,butindirectly,plainvanilla governmentbondsmayprovideutilitytothebondholder,even inabsenceofprospectivebuyersinthebondmarket.Indeed, agovernmentbondentailsthebondholder’slegallyenforce- ablerighttoreceiveapredefinedamountoffundsfromthe governmentatthebond’smaturity.Thereceivedfundsmay inturnprovideutilitytothebondholderand,hence,agovern- mentbondhasacertainintrinsicvalue.Intheexampleofthe governmentbond,thebondholderderivesvaluefromthecon- tractthroughthebondholder’srightvis-à-visthegovernment andthecorrespondingliability³ofthegovernmenttoperform vis-à-visthebondholder.⁴Naturally,fromtheperspectiveof theissuinggovernment,thecontractcannotberegardedas anasset,sinceithasanegativenetvalueforthegovernment.

However,inordernottocompromiselegibilityandsinceright andliabilityareinthiscontexttwosidesofthesamecoin,I willhereinafterrefertothesetypesofcontractsas‘assetsthat entailtheliabilityofanentity’.⁵

Besides intrinsic value, assets may also have extrinsic value.Theextrinsicdeterminantsofassetvalueareparam- etersthatareexogenoustotheasset,butneverthelessinflu- enceassetvalue.Inamarketeconomy,extrinsicassetvalue willresultfromtheinteractionbetweenassetsupplyandde- mand.Hence,extrinsicassetvaluedoesnotonlyaccountfor intrinsicassetvalue,butalsofore.g.thebeliefthatothersmay atafuturedatewanttoacquiretheassetatafavorableprice.

2Hence,anitemwithno(intrinsicorextrinsic)valueisnotcon- sideredanasset.

3Anobligationmayalsoexistinabsenceofanyentityderivinga rightfromit.Therefore,intheremainderofthispaper,Iwillem- ploytheterm‘liability’,whichreferstotheobligationofanentity towardsanotherentity.Thisliabilitymustnotnecessarilybeali- abilitytodeliverlegaltender.Itmaye.g.alsotaketheformofan obligationtorefrainfromactionortodeliverservices.

4Seeonthedistinctionbetweenrightsinpersonamandrights inrem:PeterBirks,‘Rights,Wrongs,andRemedies’(2000)20OJLS 1,21.Insomejurisdictions(e.g.Belgium),acreditoristechnically theownerofhisclaimvis-à-vishiscounterparty.However,thefact thatacreditorhasarightinremonhisclaimdoesnotalterthedis- tinctionbetweenassetsthathavedirectintrinsicvalueandassets thatderivetheirintrinsicvaluefromarightinpersonam.

5Thewordchoiceinthispaperthustakestheperspectiveofthe assetholder.

Forinstance,withregardtoascarcetangibleasset(e.g.gold), thelawofsupplyanddemandmayresultinatotalassetvalue thatsupersedestheintrinsicassetvalue.Forassetsthatentail theliabilityofanentity(e.g.governmentbonds),thedistinc- tionbetweenintrinsicandextrinsicvalueconstitutesafine line.Intrinsicvalueisthevaluethatonemayderivefromthe assetasasubject(i.e.therightsandliabilitiesthatoriginate fromtheassetitself),whereasextrinsicvalueisthevaluethat onemayderivefromtheassetwhenitservesastheobject(or singleleg)inatwo-leggedtransaction.Forexample,therights andliabilitiesbetweenabondholderandthegovernmentthat originatefromthemereexistenceofagovernmentbond(e.g.

paymentatmaturity)contributetothebond’sintrinsicvalue.

Thedegreetowhichthegovernment—oranyotherentity—

agreesorcommitstoacceptgovernmentbondsinexchange fore.g.services,goods,orlegaltendercontributestothebond’s extrinsicassetvalue.

Inthegoldexamplementionedabove,intrinsicandextrin- sicassetvaluepartlyoverlap.However,assetsmayalsohave extrinsicvalueinabsenceofanyintrinsicvalue.Thevalueof abitcoin,forinstance,issolelybasedonthelawofsupplyand demand(seemoreindetailinfrano.2.1).Iftherewerenomar- ketdemandforbitcoins,itwouldbeimpossiblefortheholder ofthecointoderiveanyvaluefromit.Inthisrespect,bitcoins fundamentallydifferfromgold,soybeans,governmentbonds, andotherassetswithintrinsicvalue.

1.2. Thesis:assetsthatonlyhaveextrinsicvaluearenot financialinstruments

ThefinancialassetsthataresubjecttomajorEUfinancialleg- islation(i.e.(designatedtypesof)financialinstruments)have traditionallybeendefinedinalargelyexemplaryandcircu- larmanner.Therecentproliferationof‘non-traditional’financialassets,suchas cryptocurrenciesand stablecoins,isin- creasinglychallengingtheviabilityofthesepragmaticfinan- cialassetdefinitions.Throughtheanalysisofthetechnolo- giesandfunctionalitiesunderpinningnon-traditionalfinancialassets,legal scholarshiphas aimedtocategorizenovel assetswithintheexistingframeworkoffinancialassetdefini- tions.Althoughasolidunderstandingofe.g.distributedledger applicationsandcryptographyappearsaprerequisiteforfu- turepolicyandlegislativeinterventions,contemporaryEUfi- nanciallegislationismostlyindifferenttothetechnologieson whichfinancialassetsmaybewired.Categorizationsbasedon thepurposesthatnon-traditionalassetsmayserve(i.e.payment,utility,andinvestment)aremorerelevanttofinancial law,butsufferfromsubjectivitybecausetheydependonthe assetusagebytheassetholder.Againstthisbackdrop,thispa- perproposesanovelsystematizationofnon-traditionalassets thatisbasedupontheconceptualsubstructureoftheassets withinthescopeofEUfinanciallegislation.Morespecifically, thispapersubmitsthat,irrespectiveofunderlyingtechnolo- giesandfunctionalities,allassetsthataresubjecttomajorEU financiallegislationhaveaconceptualcommondenominator:

theyentailtheliabilityofanentityand,hence,haveintrinsic value.Theproposedcategorizationsinglesoutawell-defined groupofnovelfinancialassetsthatisnotsubjecttoEUfinan- ciallaw(i.e.assetsthatonlyhaveextrinsicvalue).Different fromfunctionality-andtechnology-basedcategorizations,the

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Value? Items w/o value

Asset value? Extrinsic

Intrinsic asset value? Representation of a liability Other Items

Assets

Intrinsic

Fig.1– Avalue-basedcategorizationofitems(ownwork).

suggestedapproachallowstoeradicatesomeambiguitiesthat arepresentintheexistingtaxonomies.Byexploringthecon- ceptualcommondenominatorofthefinancialassetsthatare subjecttoEUfinanciallegislation,thispaperaimstofosterde- bateonthecircularandexemplarycharacteroffinancialasset definitionsinEUfinanciallegislationingeneralandtherela- tionofthesedefinitionstonoveltypesoffinancialassetsin particular.

1.3. Relationtoexistingliteratureonfinancialasset categorization

Thesystematizationofnon-traditionalassetsproposedinthis paperisnopanaceaforinterpretationalissuesinrelationto thefinancialassetswithinthescopeofEUfinanciallegisla- tion.Thatistosay,toconcludethatagivenassetisgoverned byEU financiallaw,various parameters ofthe assetunder considerationhavetobeassessedinlightofthecriteriaset forth inthe specificlegislative act.Theapproachproposed inthispaperfocussesontheconceptualpropertiesthatthe assetswithinthescopeofEUfinanciallawhaveincommon and,hence,onlyestablishesaminimumthreshold.Accord- ingly,theobservationthatacertainassetentailstheliability ofanentityandthushasintrinsicvalueisinsufficienttocon- cludethattheassetisgovernedbyEUfinanciallaw.However, theproposedcategorizationdoesshedlightonanimportant groupofassetsthatisdefinitelynotcoveredbyEUfinancial law:theassetsthatonlyhaveextrinsicvalue.AsIwillarguein theremainderofthispaper,thisnegativedemarcationispar- ticularlyusefulfordeterminingthequalificationundercon- temporaryEUfinanciallawofmanynon-traditionalfinancial assets,sincemanynon-traditionalfinancialassetsonlyhave extrinsicvalue.

Theassetcategorizationproposedinthispaperiscomple- mentarytotheacademicliteraturethathasemergedinthe wakeofthedevelopmentofnon-traditionalfinancialassets.

Inrecent years,legal scholarshiphasextensively described thefunctioningofcryptographyanddistributedledgertech- nology.⁶ Suchtechnology-centeredperspectiveishelpfulfor

6Seee.g.TychoDeGraaf,‘TheQualificationofBitcoinsasDocu- mentaryIntangibles’(2019)27ERPL1051;SimonGeiregat,‘Cryp-

gainingadeeperunderstandingofthetechnologiesthatmay underpin financial assets, but is notnecessarily useful for categorizingnon-traditionalassetswithintheexistingframe- workoffinancialassetdefinitionsinEUfinanciallaw.Thisis becausetheexistingfinancialassetsdefinitionsinEUlaware largelyindifferenttothetechnologiesonwhichfinancialas- setsmaybewired.Asecondstrandofliteraturehasfocusedon thefunctionalitiesofnon-traditionalassets.Intheseclassifi- cations,authorsessentiallydrawadistinctionbetweennon- traditionalassetsthatareusedforpurposesof(i)payment;

(ii)utility;or(iii)investment.⁷Althoughsuchfunctionaldivi-

tocurrenciesare (smart)contracts’ (2018)34CLSR1144;Renato Mangano,‘BlockchainSecurities,InsolvencyLawandtheSand- boxApproach’ (2018) 19 EBOR 715;AlexanderSnyers andKarl Pauwels,‘ICOsin Belgium: downthe rabbit hole intolegal no man’sland?Part1’(2018)29ICCLR483;RobbyHouben,‘Bitcoin:

therearetwosidestoeverycoin’(2015)TBH-RDC139.Consider- ingthetechnology-insensitivecharacterofEUfinanciallaw,this paperpresentsadifferentnarrative.Therefore,thispaperwillnot discuss technologiesthatmayunderpinnovelfinancialassets.

Interestedreadersmaywish toconsulttherelevantonlinere- sourcesorthesynopsesoftheseprimarysourcesthathavebeen publishedelsewhere.Seeforprimarysourcese.g.LibraAssocia- tionMembers,‘AnIntroductiontoLibra’(WhitePaper,lastrevised 21January2020),availableviahttps://libra.org/en-us/whitepaper; SatoshiNakamoto,‘Bitcoin:APeer-to-PeerElectronicCashSys- tem’(2008),available viahttps://bitcoin.org/bitcoin.pdf,andthe Bitcoinwebsite(https://bitcoin.org/en/).Cryptographyhasexisted forthousandsofyears.Seee.g.Donald.Davies,‘ABriefHistory ofCryptography’ (1997) 2:2Information Security Technical Re- port14,14.Torenderdoublespendingvirtuallyimpossible,cryptography can be combined with a distributed ledger technology application. Cf.Satoshi Nakamoto, ‘Bitcoin:A Peer-to-Peer ElectronicCashSystem’(2008)2,availableviahttps://bitcoin.org/

bitcoin.pdf.SatoshiNakamotoismostlikelyapseudonymcon- cealingtheidentityofoneormorepersons.TheBitcoinwhitepa- perwasfirstreleasedonFriday31October2008throughthefol- lowinglink http://www.metzdowd.com/pipermail/cryptography/

2008-October/014810.html.

7 See e.g. European Commission, ‘Consultation document on an EU framework for markets in crypto-assets’ (Decem- ber 2019) 3, available via https://ec.europa.eu/info/sites/info/

files/business_economy_euro/banking_and_finance/documents/

2019-crypto-assets-consultation-document_en.pdf; FCA, ‘Guid-

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sionsareinstructiveandmorehelpfultofinanciallawasset qualificationsthan technology-basedtaxonomies,theyalso sufferfromdrawbacks.First,non-traditionalassetsthathave beenconceivedforonepurpose(e.g.payment)mayverywell beusedforanotherpurpose(e.g.investment).⁸Hence,inprac- tice,assetclassificationsbasedonassetusagewillleadtosub- jectiveandhybridassetqualifications.Theassetvaluecatego- rizationthatissuggestedinthispaper,ontheotherhand,pro- videsanobjectivecriterionthatexcludesawell-definedgroup ofassetsfromthescopeofapplicationofEUfinanciallaw(i.e.

assetsthatdonotentailtheliabilityofanentityandthusonly haveextrinsicvalue).Secondly,andmoreimportantly,asset categorizationsbaseduponassetfunctionalitiesdonot(aim to)identifyacommondenominatorthatisinherenttoallas- setswithinscopeofEUfinanciallegislation.Noneofthemen- tionedassetfunctions(payment,utility,andinvestment)ap- pearstobeaprerequisitefortheapplicationofEUfinancial law.Consequently,itisnotimmediatelyclearhowtheidentifi- cationofassetfunctionalitycouldleadtodeterminativestate- mentsaboutthescopeofapplicationsofEUfinanciallaw.For instance,notalltheassetsthatfallundertheapplicationof EUfinanciallawhaveaninvestmentfunctionality.

1.4. Contents

Theremainderofthispaperisstructuredasfollows.First,I proposeaconceptualcategorizationofnon-traditionalassets basedonwhethertheseassetsentailtheliabilityofanentity andthushaveintrinsicvalue(no.2).⁹Theproposedsystem- atizationaimstoofferasupplementarynarrativetothecur- rentlyprevailingtechnology-andfunctionality-focusedclas- sificationsofnon-traditionalfinancialassets.Forillustrative purposes, Iwill apply the value-based asset categorization tothetennon-traditionalassetsthathavethelargestmar- ketcapitalization,aslistedonthemajordatarepositoryfor crypto-assets.Inthesecondpartofthispaper,Iaimtodemon- stratethatthefinancialinstrumentnotionasemployedinEU financiallawrestrictstheapplicationofEUfinanciallawtofi- nancial assetsthatentailtheliabilityofanentityandthus haveintrinsic value(no.3).Inline withthisthesis,I argue thatnon-traditionalfinancialassetsthatonlyhaveextrinsic valuearenotcoveredbyEUfinanciallawandbrieflyexplore thepolicyimplicationsofthisfinding.Inno.4,Itentatively explorewhetherthecentralthesisofthispapermayalsobe

anceonCryptoassets’(ConsultationPaperCP19/3,January2019) 8, availablevia https://www.fca.org.uk/publication/consultation/

cp19-03.pdf;PhilippMaumeandMathiasFromberger,‘Regulation ofInitialCoinOfferings:ReconcilingU.S.andE.U.SecuritiesLaws’

(2019) 19 Chic.J. Int.Law 548,558etseq.; Marlinde Nannings,

‘Kwalificatie van crypto-assets als effect’ (2019) TFR 623, 623 et seq.; Philipp Hacker and Chris Thomale, ‘Crypto-Securities Regulation: ICOs,Token Sales and Cryptocurrencies under EU FinancialLaw’(2018)15ECFR645,649etseq.;AlexanderSnyers and KarlPauwels,‘ICOsin Belgium:downthe rabbitholeinto legalnoman’sland?Part1’(2018)29ICCLR483,488etseq.

8Cf.e.g.AlexanderSnyersandKarlPauwels,‘ICOsinBelgium:

downtherabbitholeintolegalnoman’sland?Part1’(2018)29 ICCLR483,498.

9Giventheconceptualapproachemployedinthispaper,pecu- liaritiesrelatedtonationallawshallnotbecovered.

ofimportancetotheanalysisofnon-traditionalassetsunder thedifferentlegalconceptualizationsof‘money’.Finally,Iwill concludeinno.5.

2. Recently developed types of financial assets

2.1. Novelfinancialassetsthathaveintrinsicvalue

Equities,securitizeddebtinstruments,andderivativesareex- amplesof‘traditional’financialassets. AsIaimtodemon- strateinfrainno.3,theseassetsentailtheliabilityofanentity.

Equityinstruments,forinstance,mayentailtheliabilityofa companyvis-à-visitsshareholdertodistributeprofitsorliq- uidationproceeds.Inrecentyears,financialmarketshavewit- nessedthedevelopmentofnoveltypesofassetsthatequally entailtheliabilityofanentity.Thesenovelassetsmayem- ploycryptographyand/ordistributedledgerapplications(e.g.

blockchain)tofacilitate(disintermediated)transferabilityand security.Nevertheless,thistypeofnovelassetsmimicstradi- tionalfinancialassetsinthattheyalsoderiveintrinsicvalue fromthelegallyenforceablecontractualrightsthattheybe- stowupontheassetholder.¹⁰

Iftherelevantliabilityisbeingcreatedforthepurposeof financingtheissuingentity’sbusinessactivities,theprocess throughwhichthenoveltypeoffinancialassetisconceived isoftenreferredtoasaninitialcoinortokenoffering(ICOor ITO).¹¹However,itshouldbestressedthattheterminologyat handisnotstandardizedand,hence,differentauthorsand policymakersmayattributedifferentmeaningstotherefer- encedterms.Someauthorsmay,forinstance,reservetheterm

‘coin’torefertoassetsthathavebeenconceivedforpayment applicationpurposes.Similarly,somecommentatorsmayun- derstandthenotion‘token’toalsocaptureassetsthatdonot merelyaimtoserveasanalternativetotraditionalfundrais- ingchannels.¹²Mostimportantly,thetermsICOandITOdo notnecessarilyimplytheestablishmentofarightfortheas- setholdervis-à-visanissuingentity.¹³Indeed,theconcepts areinpracticeoftenusedtodescribethegenesisoffinancial assetsthatdonotentailtheliabilityofanentity(seeinfrano.

2.3).

Insteadoffinancing(risky)businessactivities,fundsraised throughthecreationofliability-representingassetsmayalter- nativelybeinvestedinlow-riskassets.Suchusageoftheaccu- mulatedfundswillstabilizethevalueoftheissuedassets,re- gardlessofthetechnologiesthatmayunderpinthem.Byback-

10Typically,anon-traditionalassetthatentailsanentity’sliabil- ityiscreatedinexchangeforapaymentbythe(prospective)asset holder.

11Seee.g.AlexanderSnyersandKarlPauwels,‘ICOsinBelgium:

downtherabbitholeintolegalnoman’sland?Part1’(2018)29 ICCLR483.

12See e.g. Skander Bennis, ‘Consumentenbescherming bij blockchain en smart contracts’ in Reinhard Steennot and Gert Straetmans (eds), Digitalisering van het recht en con- sumentenbescherming(Intersentia2019)235,258(footnote137).

13Cf.thedescriptionoftheterm‘ICO’inRyanCoffeyv.Ripple LabsInc.,etal.,333F.Supp.3d952(Dist.Court,NDCalifornia2018), at955.

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ingtheconceivedassetswithastablepooloflowyieldassets (e.g.bankdepositsorliquidshorttermgovernmentbonds)¹⁴or assuringthestablevalueoftheassetsthroughothermeans,¹⁵ theprotagonistsofthisnewtypeofassetsaimtoofferanal- ternativetoexistingcurrencies.¹⁶Sincethepublicationofthe LibraWhitePaperinJune2019,¹⁷thistypeofassetshasgrav- itatedtowardsthecenterofpoliticalandpublicattention.¹⁸ Theseassetsarecommonlyreferredtoasstablecoins,butalso inthiscontextthereisnogenerallyaccepteddefinition.Al- thoughstablecoinsaredeliberatelydesignedtomaintaintheir intrinsicvalueandthusshieldtheassetholderfromriskex- posure,¹⁹theyresemble,forourpurposes,assetsthatarecre- atedwithaviewtofundingbusinessactivities.Thatistosay, regardlessofthepurposesforwhichfundsarecollected,the conceivedfinancialassetsentailtheliabilityofanentity.For stablecoins,theliabilityoftheissuingentityvis-à-vistheas- setholderwilltypicallyconsistofanobligationtoredeemthe assets atissuance price.Thisredemptionmay eitheroccur throughdirectinteraction betweentheissuerandtheasset holderor,asisthecasewithLibra,²⁰viaanetworkofdealers, towhomtheissuerwillinturnbeliableforredemption.²¹

14Seee.g.ChristianCatalini,OliverGratry,J.MarkHou,Sunita Parasuraman, Nils Wernerfelt,‘The Libra Reserve’ (paper con- tributed to theLibra Association,last revised 14 August2019), available via https://libra.org/en-US/about-currency-reserve/

#the_reserve.

15Seeforotherstabilizingmechanisms:G7WorkingGroupon Stablecoins,‘Investigatingthe impactofglobalstablecoins’(G7 Report,October2019),24,availableviahttps://www.bis.org/cpmi/

publ/d187.pdf

16Seee.g.LibraAssociationMembers,‘AnIntroductiontoLibra’

(WhitePaper,lastrevised21January2020),availableviahttps://

libra.org/en-us/whitepaper.

17LibraAssociationMembers,‘AnIntroductiontoLibra’(White Paper,lastrevised21January2020),availableviahttps://libra.org/

en-us/whitepaper.SinceitslaunchinJune2019andaftersevere regulatorypushback,severalofthefoundingmembershaveleft theLibraAssociation.Seee.g.HannahMurphyandKiranStacey,

‘PennydropsforFacebook’spaymentspartners:Zuckerbergem- pirehitasregulatoryfearsonLibracurrencytriggerexodus’Fi- nancialTimes(London,16October2019)17.

18Seee.g.DenisBeau,‘Stablecoins– agoodorabadsolutionto improveourpaymentsystems?’(StablecoinConference"Which ambitionsforEurope?",Paris,15January2020),availableviahttps:

//www.bis.org/review/r200115c.htm;G7WorkingGrouponStable- coins,‘Investigatingtheimpactofglobalstablecoins’(G7Report, October2019),availableviahttps://www.bis.org/cpmi/publ/d187.

pdf;YvesMersch,‘Moneyandprivatecurrencies– reflectionson Libra’(ESCBLegalConference,FrankfurtamMain,2September 2019),availableviahttps://www.bis.org/review/r190902a.htm.

19LibraAssociationMembers,‘AnIntroductiontoLibra’(White Paper,lastrevised21January2020),3,availableviahttps://libra.

org/en-us/whitepaper.

20ChristianCatalini,OliverGratry,J.MarkHou,SunitaParasur- aman,NilsWernerfelt,‘TheLibraReserve’(papercontributedto theLibraAssociation,lastrevised14August2019),2,availablevia https://libra.org/en-US/about-currency-reserve/#the_reserve.

21InthecaseofLibra,theLibraAssociationistheissuingentity.

2.2. Novelfinancialassetsthatonlyhaveextrinsicvalue

2.2.1. Conceptual

Inrecentyears,financialmarketshavealsowitnessedthede- velopmentofasecondnoveltypeoffinancialassets.Critically differentfromtheassetsdiscussedinno.2.1,thissecondtype ofassetsdoes notentailtheliabilityofanyentity.Justlike novelassettypesthathaveintrinsicvalue,theseassetsmaybe wiredoncryptographyand/ordistributedledgerapplications.

However,fortheassetsdiscussedinthisparagraph,thereisno entitythathascommitteditselftoanobligationofanykind vis-à-vistheassetholder.Inthisrespect,theseassetsresem- bleassetssuchasgoldandsoybeans,whichequallydonot derivetheirvaluefromtherepresentationoftheliabilityofan entity.Naturally,thesimilaritydoesnotgobeyondthispoint, sincecommodity-likeassetshaveintrinsicvalue,whereasthe assetsdescribedinthisparagraphdonot.Prominentexam- plesofnovelfinancialassetsthatdonotentailtheliabilityof anentityareBitcoinandLitecoin,butasIaimtodemonstrate inno.2.3,manyofthenon-traditionalassetswithlargemar- ketcapitalizationsfitwithinthiscategory.

Muchlike anyothertypeoffinancialasset,bitcoinsand litecoinsare beingpurchasedbyinvestors,who thusattach valuetotheseassets.However,unlikemanytraditionalfinan- cialassets,bitcoinsandlitecoinsexclusivelyderivetheirvalue fromtheinteraction betweensupplyand demand.²² Inthis context,marketdemandexpressesthedegreetowhichmar- ketparticipantsarewillingtotransfere.g.goods,services,or eurosinexchangeforbitcoinsorlitecoins(seesuprano.1.1).²³ Iftherewerenomarketdemandforbitcoins orlitecoins,it wouldbeimpossibleforthecoinholdertoderiveanyvalue fromit.²⁴

Onestrand in legal scholarship has suggestedthat bit- coinsmayderivetheirvaluefromthereciprocalobligationfor bitcoin-userstoacceptpaymentinbitcoins.²⁵Inmyview,this notionisincorrect.²⁶First,intheEU,noentityisobligedtoac-

22Marketforceswillofcourseaccountforfactorssuchassecu- rity,transferability,andavoidanceofdoublespending.However, thisdoesnotchangethefactthatanyassetvaluefortheasset holderiscontingentonoutsidebuyinginterestintheasset.See alsoAdrianD.Lee,MenglingLi,andHuanhuanZheng,‘Bitcoin:

Speculativeassetorinnovativetechnology?’(2020)67J.Int.Financ.

MarketsInst.Money,forthcoming.

23Viceversa,thewillingness ofabitcoinor litecoinholderto transferhisbitcoinsorlitecoinsinexchangeforgoods,services, euros,dollars,etc.constitutesthemarketsupplyfortherelevant asset.

24Thefactthatthevalueofthistypeofassetsissolelydeter- minedthroughthecontinuousbutturbulentinteractionbetween supplyanddemandmaybeoneofthereasonswhytheseassets haveinthepastbeensubjecttostrongpricevolatility.

25See Simon Geiregat, ‘Eigendom op bitcoins’ (2018) 81 RW 1043,1047.Cf.SimonGeiregat,‘Cryptocurrenciesare(smart)contracts’ (2018) 34 CLSR 1144, 1146. See, however, Simon Geire- gat,‘Cryptovaluta’sinhetvermogensrecht:Poging totgemeen- enconsumentenrechtelijke kwalificatie’ in Mark Delanote and PatrickWaeterinckx(eds),Cryptomuntenjuridischontsloten (Inter- sentia2020)15,20.

26Seemore indetail: EvariestCallens andLiselotteVan Coil- lie, ‘Cryptomunten in het financieel recht: geen regulering in afwezigheid van enige aanspraak jegens een aanwijsbare

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ceptapaymentinbitcoins,unlesssuchobligationhasbeen contractuallyagreedupon(seeinfrano.4).Inanycase,theex- istenceofsuchobligationcannotbedeductedfromthemere factthatapersonise.g.holdingbitcoins orhasusedthese coinsinthepast.Secondly,andmoreimportantly,whetheren- titiesacceptpaymentsinbitcoinsorhaveanobligationtodo so(quodnon)doesnotdeterminethevalueofthesebitcoins.

Asexplainedabove,thevalueorpurchasepowerofbitcoins isdeterminedbythedegreetowhichmarketparticipantsare willingtotransfergoods,services,euros,dollars,etc.inexchangeforbitcoins.Bitcointhusderivesexternalassetvalue fromthepurchasepowerthatentitiesarewillingtoprovidein exchangeforbitcoins,notfromthemereobligationtoaccept bitcoins.

2.2.2. Virtualcurrencies,digitalcurrencies,cryptocurrencies, andcrypto-assets

ThenovelassetsthatIhavethusfardescribedinno.2.2as havingonlyextrinsicvaluemayinmoretechnology-sensitive categorizationse.g.belabeledvirtualcurrencies,digitalcurrencies,cryptocurrencies,orcrypto-assets.Oncemore,however,theterminologyathandisnotstandardizedand,hence, differentcommentatorsmayunderstandthesetermstomean differentthings.Moreimportantly,theseconceptsdonotdraw acleardivisionbetweenassetsthatentailtheliabilityofan entityandassetsthatonlyhaveextrinsicvalue.

Theterm‘virtualcurrency’hasbeendefinedbytheEUleg- islatorintheanti-moneylaunderingdirectivesas“adigitalrep- resentation ofvaluethatisnotissuedorguaranteedbyacentral bankorapublicauthority,isnotnecessarilyattachedtoalegally establishedcurrencyanddoesnotpossessalegalstatusofcurrency ormoney,butisacceptedbynaturalorlegalpersonsasameansof exchangeandwhichcanbetransferred,storedandtradedelectron- ically”.²⁷Thisdefinitionreflectsquiteadequatelywhatinter- nationalpolicymakersgenerallyunderstandtobevirtualcur- rencies.TheEuropeanCentralBank(ECB),forinstance,has definedavirtualcurrencyas“adigitalrepresentationofvalue, notissuedbyacentralbank,creditinstitutionore-moneyinstitu- tion,which,insomecircumstances,canbeusedasanalternativeto money.”²⁸Similarly,ontheothersideoftheAtlantic,theUS CommodityFuturesTradingCommission(CFTC)hasdefined avirtualcurrencyas“[…]adigitalrepresentationofvaluethat mayfunctionasamediumofexchange,aunitofaccount,and/ora storeofvalue[andis]generallyrunonadecentralizedpeer-to-peer network.”²⁹Comparabledescriptionsordefinitionshavebeen

(rechts)persoon?’inMarkDelanoteandPatrickWaeterinckx(eds), Cryptomuntenjuridischontsloten(Intersentia2020)39-71.

27Art.3(18)Directive(EU)2015/849oftheEuropeanParliament andoftheCouncilof20May2015onthepreventionoftheuse ofthefinancialsystemforthepurposesofmoneylaunderingor terroristfinancing,amendingRegulation(EU)No648/2012ofthe EuropeanParliamentandoftheCouncil,andrepealingDirective 2005/60/ECoftheEuropeanParliamentandoftheCounciland CommissionDirective2006/70/EC(textwithEEArelevancy),OJL 141,5June2015,73.

28ECB,‘Virtualcurrencyschemes– afurtheranalysis’(February 2015)25,availableviahttps://www.ecb.europa.eu/pub/pdf/other/

virtualcurrencyschemesen.pdf.

29J. Christopher Giancarlo, ‘Written Statement of J. C. Gi- ancarlo, Chairman of the CFTC, Before the US Senate Com-

formulatedbytheEuropeanSecuritiesandMarketsAuthority (ESMA),theEuropeanBankingAuthority(EBA),theEuropean InsuranceandOccupationalPensionsAuthority(EIOPA),and thestaffoftheInternationalMonetaryFund(IMF).³⁰Allthese policydescriptionsofvirtualcurrenciesdonotdefinevirtual currenciesintermsofintrinsicorextrinsicassetvalue.

Similarly,theterm‘digitalcurrency’doesnotclearlydiffer- entiatebetweenassetsthatderivetheirintrinsicvaluefroma liabilitytowardstheassetholderandassetsthat onlyhave extrinsicvalue.AccordingtotheCommitteeonPaymentsand MarketInfrastructures(CPMI)fromtheBankforInternational Settlements(BIS),digital currenciesmay includemoneyis- suedbyacentralbank.³¹Inearlierwork,however,theCPMI hadstatedthat“inmostcases,[…] digitalcurrenciesareassets withtheirvaluedeterminedbysupplyanddemand”,whichhave nointrinsicvalue.³²

mittee on Banking, Housing, and Urban Affairs’ (6 February 2018) 101, 101, available via https://www.govinfo.gov/content/

pkg/CHRG-115shrg28854/pdf/CHRG-115shrg28854.pdf. See also CFTC, ‘An Introduction to Virtual Currency’, available via https://www.cftc.gov/sites/default/files/idc/groups/public/

@customerprotection/documents/file/oceo_aivc0218.pdf. Cf. CFTCv.McDonnell,287F.Supp.3d213(Dist.Court,EDNewYork 2018),at218.

30EBA, ‘EBA Opinion on virtual currencies’ (EBA/Op/2014/08, 4 July 2014) 11 (no. 19), available via https://eba.europa.

eu/sites/default/documents/files/documents/10180/657547/

81409b94-4222-45d7-ba3b-7deb5863ab57/EBA-Op-2014-08%

20Opinion%20on%20Virtual%20Currencies.pdf?retry=1, in which the EBA stated that a virtual currency is a “digital represen- tation of value that is neither issued by a central bank or public authority nor necessarily attached to a [conventional fiat currency], but is used by natural or legal persons as a means of exchange and can be transferred, stored or traded electronically.”.

Cf. ESMA, EBA, and EIOPA, ‘ESMA, EBA and EIOPA warn con- sumers on the risks of Virtual Currencies’, 1, available via https://www.esma.europa.eu/sites/default/files/library/esma50- 164-1284_joint_esas_warning_on_virtual_currenciesl.pdf: “[virtualcurrencies are]adigitalrepresentationofvaluethatisneither issued nor guaranteed by a central bank or public authority and does nothave thelegalstatus of currencyormoney.” Seealso the descriptionadvancedby agroup ofIMF staff:“[virtualcurrencies]aredigitalrepresentationsofvalue,issuedbyprivatedevelopers and denominated in their own unit of account” and “[t]he con- cept of [virtual currencies] covers a wider array of “currencies,”

ranging from simple IOUs of issuers (such as Internet or mobile coupons and airline miles), [virtual currencies] backed by assets such as gold, and “cryptocurrencies” such as Bitcoin.” Dong He et al.,‘VirtualCurrencies andBeyond:InitialConsiderations’(IMF Staff Discussion Note 2016/03, January 2016) 7, available via https://www.imf.org/external/pubs/ft/sdn/2016/sdn1603.pdf.

31Work fromthe CPMI shows thatcentral banks have inre- centyearsexaminedthepotentialofdigitalcurrenciestoserve asa new formof digitalcentral bank money.SeeCPMI, ‘Cen- tralbank digitalcurrencies’(March2018),available via https://

www.bis.org/cpmi/publ/d174.pdf.Cf.alsoChristianBarontiniand HenryHolden,‘Proceeding withcaution – asurvey oncentral bankdigitalcurrency’(BISPapersno.101,January2019),available viahttps://www.bis.org/publ/bppdf/bispap101.pdf.Critics,onthe otherhand,claimthattherecentattentionfromcentralbanksfor digitalcurrencieshasnotbeengenuine.Seee.g.MartinArnold,

‘Centralbankers’talkoflaunchingdigitalcurrenciesisallbluff’

FinancialTimes(London,5December2019)14.

32CPMI, ‘Digital currencies’ (November 2015) 4, available via https://www.bis.org/cpmi/publ/d137.pdf.

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Finally,alsothetermcryptocurrencydoesnotallowtodraw abrightlinebetweenassetsthatrepresenttheliabilityofan entityandassetsthatonlyhaveextrinsicvalue.Thereiscur- rentlynogenerallyacceptedcryptocurrencydefinition.³³Al- thoughthetermistypicallyassociatedwithassetsthatare similartoBitcoin,therearenoreasonstoassumethatcryp- tographicassetsthatrepresenttheliabilityofanentitymay notbecoveredbytheterm.Indeed,conceptually,a‘currency’

mayrefertoanyrepresentationofvaluethataimstoservea monetaryfunction,³⁴and,hence,thenotionisnotnecessar- ilylimitedtoassetsthatonlyhaveextrinsicvalue.Similarly, theconceptofcrypto-assetsisequivocalinthisrespect,since assetsthatareunderpinnedbycryptographymayormaynot entailtheliabilityofanentity.³⁵

Muchoftheambiguitysurroundingtheterminologycur- rently used by the industry can be traced back to the technology-orfunctionality-sensitivecharacteroftheterms thathavebeenemployed.Theresultingproliferationofdefini- tions,interpretations,anddescriptionshampersmutualun- derstanding.³⁶ Furthermore,a categorization inspired upon the usedtechnologybearslittlerelationtothe technology- insensitiveassetdefinitionsemployedinEUfinanciallegis- lation(seeinfrano.3).

2.3. Assetvaluecategorizationofthenon-traditional financialassetswiththelargestmarketcapitalization

Atthe timeofwriting,themarket capitalizationofBitcoin equaled $185.4billion.³⁷ Theother 5108 cryptographic and distributedledger applicationsdisplayedonCoinMarketCap (CMC)—sometimesreferredtoas‘altcoins’—hadacombined market valueof $107.9 billion,³⁸ bringing the total market

33For an overviewof thedescriptions formulatedbythe various relevant international policy makers, see Robby Houben and Alexander Snyers, ‘Cryptocurrencies and blockchain: Le- gal context and implicationsfor financialcrime, money laun- dering andtax evasion’ (study requestedby the "TAX3" com- mittee of the European Parliament, July 2018) 20-23, available via http://www.europarl.europa.eu/cmsdata/150761/TAX3%

20Study%20on%20cryptocurrencies%20and%20blockchain.pdf.

34SeeLexicobyOxfordUniversityPress,https://www.lexico.com/en/

definition/currency,whichdescribesa‘currency’as“[a]systemof moneyingeneraluseinaparticularcountry”,ormorebroadly“[t]he factorqualityofbeinggenerallyacceptedorinuse”.

35Differently:ECBCrypto-AssetsTaskForce,‘Crypto-Assets:Im- plicationsforfinancialstability,monetarypolicy,andpayments andmarketinfrastructures’(ECBOccasionalPaperSeriesno.223, May2019) 3and7,availableathttps://www.ecb.europa.eu/pub/

pdf/scpops/ecb.op223^∼3ce14e986c.en.pdf.

36Cf.ECBCrypto-AssetsTaskForce,‘Crypto-Assets:Implications forfinancialstability,monetarypolicy,andpaymentsandmar- ket infrastructures’ (ECBOccasional Paper Seriesno. 223,May 2019) 7,availableathttps://www.ecb.europa.eu/pub/pdf/scpops/

ecb.op223^∼3ce14e986c.en.pdf.

37https://coinmarketcap.com/currencies/bitcoin/, consulted on 11February2020.

38CMCreferstoalltheapplicationslistedonitswebsiteas‘cryptocurrencies’.However,manyoftheapplicationsshowlittlere- semblancetocurrencies(e.g.Ethereum).Iftheapplicationoper- atesindependently,CMCcallsita‘coin’.Iftheapplicationcannot functionindependently(e.g.becauseitusesacoin’sblockchain), CMCreferstoitasa‘token’.

Fig.2– ThetenassetslistedonCMCwiththelargest marketcapitalization(11February2020).¹⁶⁸

valueofallreportedapplicationsto$293.3billion.³⁹Forcom- parison,thiscombinedmarketcapitalizationroughlyequals themarketcapitalizationofasinglelargemultinationalcom- pany(e.g.themarketcapofTaiwanSemiconductorManufac- turingCo.Ltd.is$304.3billion)⁴⁰orafractionofthemarket capitalizationoftheUScompanywiththelargestmarketcap- italization(themarketcapofAppleInc.is$1398billion).⁴¹

2.3.1. Non-traditionalassetsthatonlyhaveextrinsicvalue ThetenassetslistedonCMCthathavethelargestmarketcap- italizationcontainasubsetofassetsthatresembleBitcoinin thattheyonlyhaveextrinsicvalue(Ether,Ripple,BitcoinCash, BitcoinSV,EOS,Litecoin,BinanceCoin,andTez).Someofthese assetsstronglyresembleBitcoinintheirfunctionalities(Bit- coinCash,BitcoinSV,andLitecoin)andwillthereforenotbe discussedindetailinthispaper.⁴²Inthefollowingparagraphs, IdiscusswhyEther,Ripple,EOS,BinanceCoin,andTezonly haveextrinsicvalue.

Binancecoin:BinanceCoinisanassetthathasbeenissued byoneofthelargestcrypto-exchangesintheworld(i.e.the BinanceExchange)and runsontheEthereum blockchain.⁴³ TheBinanceWhitepaperstipulatesthattheBinanceExchange acceptsbinancecoinsaspaymentforanyfeesrelatedtothe

39Ibid.Although alternativedata repositories exist (e.g. https:

//onchainfx.com/),CMCisbyfarthemostdominantproviderof marketdatainthecryptosphere.ItismyunderstandingthatCMC providesthemostcomprehensiveoverviewofthemarket.Foran overviewofnon-traditionalfinancialassetsthathavefailed,see https://deadcoins.com/.

40See https://ycharts.com/companies/TSM, consulted on 11 February2020.

41https://ycharts.com/companies/AAPL/market_cap, consulted on11February2020.

42BitcoinCashandBitcoinSVhavedirectlyoriginatedfromBit- coinandaimtooffermorescalablealternativestoBitcoin.Bitcoin wassplit(‘forked’)intoBitcoinandBitcoinCashandBitcoinCash wasinturnsplitintoBitcoinCashandBitcoinSV.Litecoinalso stronglyresemblesBitcoin’sfunctionalities,despitethemanydif- ferencesinthetechnologiesunderpinningbothassets(e.g.theal- gorithmsintheminingprocess).Seehttps://litecoin.org/.

43See Binance Exchange, ‘Binance Whitepaper v.1.2’, available via https://www.binance.com/resources/ico/

Binance_WhitePaper_en.pdf.

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servicesprovidedbytheplatform.⁴⁴Nevertheless,themere factthatanentityhascontractually agreedtoacceptacer- taintypeofasset(e.g.binancecoins,gold,orsoybeans)inex- changeforapredefinedsetofservicesdoesnotmeanthatthe designatedassetentailsaliabilityorhasintrinsicvalue.Criti- callydifferentfromassetsthatentailtheliabilityofanentity, anyvaluethatacoinholdermayderivefrombinancecoins presupposestheexistenceofaliabilityvis-à-vistheBinance Exchange.⁴⁵Inotherwords,theBinanceExchangeisobliged toacceptbinancecoinsasapaymentifservicesaredelivered, butnoobligationtodeliverservicesarisesfromabinancecoin.

Hence,theliabilitytoacceptapaymentinbinancecoinsisex- ogenoustothecoinand,consequently,binancecoinsassuch donothaveintrinsicvalue.Instead,thecontractualcommit- menttoacceptbinancecoinsasameansofpaymentismerely anexpressionofthemarketdemandforbinancecoins(i.e.the degreetowhichmarketparticipantsarewillingtoexchange services,goods,legaltender,etc.forbinancecoins).Thismar- ketdemandcontributestotheextrinsicassetvalueofbinance coins.

Ether,Ripple,andTez:Ethereumisablockchain-basedplat- formthatoffersthecodeandsoftwareforthedesignofawide varietyofdecentralizedapplications,whichcanall bebuilt upontheEthereumblockchain.⁴⁶Ether,ontheotherhand,is theassetthatthedevelopersofapplicationscan(andmust) usetopaythefeeschargedbyminersfortheprocessingof Ethereum transactions(e.g.forthe executionofsmartcon- tracts).⁴⁷Aswithbinancecoins,ethersdonotentailthelia- bilityofanentityvis-à-vistheassetholder.⁴⁸ Naturally,the factthatethersmaybeexchangedfore.g.servicesinrelation tosmartcontractsgivesethersasubstantialexternalvalue.

RippleLabs Inc.isacompany thathasdevelopedadis- tributedledgerthataimstofacilitaterapidandcheapcross- borderpaymentswithreal-timesettlementbetweenfinancial institutions.⁴⁹Ripple(XRP)istheasset(sometimescalledthe

‘centralcurrency’)thatentitiescanusetoexecutethecross-

44Binance Exchange,‘Binance Whitepaper v.1.2’, available via https://www.binance.com/resources/ico/Binance_WhitePaper_ en.pdf.

45Indeed,therighttopayinbinancecoins(e.g.foradelivered service)isconceptuallydifferentfromtherighttoreceiveaservice fromtheBinanceExchange.

46Vitalik Buterin, ‘A Next Generation Smart Contract &

Decentralized Application Platform’ (Ethereum White Pa- per), available via https://pdfs.semanticscholar.org/0dbb/

8a54ca5066b82fa086bbf5db4c54b947719a.pdf?_ga=2.175027233.

2030949799.1581617651-192866814.1581617651.

47Vitalik Buterin, ‘A Next Generation Smart Contract & De- centralized Application Platform’ (Ethereum White Paper) 13 and 30, available via https://pdfs.semanticscholar.org/0dbb/

8a54ca5066b82fa086bbf5db4c54b947719a.pdf?_ga=2.175027233.

2030949799.1581617651-192866814.1581617651.

48InOctober2019,CFTCChairmanHeathP.Tarbertstatedpub- liclythatthe CFTCconsidersEther toqualify as acommodity underUSlaw.SeeCFTC,‘ChairmanTarbertCommentsonCryp- tocurrency Regulationat Yahoo! Finance All Markets Summit’

(Press Release,10 October2019),available viahttps://www.cftc.

gov/PressRoom/PressReleases/8051-19.

49https://ripple.com/.

borderpaymentsviathedistributedledger.⁵⁰Itismyunder- standingthatRippledoesnotentailtheliabilityofRippleLabs Inc.oranyotherentityvis-à-vistheassetholder.IntheUS, classactionshavebeenbroughtagainstRippleLabsInc.for allegedviolationsofUSsecuritieslaws.⁵¹Thusfar,thereisno decisionthathasdeterminedthatRippleconstitutesasecu- ritywithinthemeaningoftheUSSecuritiesActof1933.⁵²In anycase,theinterpretationoftheUSsecuritiesnotiondoes noteasilytranslatetotheEuropeancontext(seeinfrano.3.2.3).

Tezosisaself-amendingdecentralized ledgerthat,simi- larlytoEthereum,hasbeendevelopedtoallowentitiestocon- struesmartcontracts.⁵³Tezistheassetthatallowsentitiesto payforservicesrelatedtothedistributedledger.⁵⁴Tomyun- derstandingandsimilartotheotherassetsdiscussedinthis section,Tezdoesequallynotrepresenttheliabilityofanen- tity.

EOS: the Cayman Islands-incorporated company named

‘block.one’hasdevelopedsoftware (‘EOSIO’)that can func- tion as an operating system forone or more EOSIO-based blockchains.⁵⁵Comparablytootherdecentralizedledgersdis- cussedabove,EOSIO-basedblockchainsaredecentralizedsys- temsthataimtofacilitatetheconstrualofdecentralizedap- plications.⁵⁶ Fundamentally different from the blockchains discussedabove(e.g.Ethereum),cryptographictokensissued inrelationtoEOSIO-basedblockchainsarenotneededtopay transactionfees.Instead,thecryptographictokensrelatedto anEOSIO-basedblockchainexpressthedegreetowhichthe holdercanusetheresourcesoftheblockchain(i.e.essentially bandwidth, storage, and computational power).⁵⁷ In other

50https://ripple.com/.Unlikeothernon-traditionalfinancialassets,Rippleisnotmined.All100billionXRPhaveexistedsince thedevelopmentofRipplein2013.RippleLabsInc.andthedevel- opersofRipplestillholdlargeportionsofthesecoinsandperiodi- callysellpartsoftheirreservestootherentities.SeeRyanCoffeyv.

RippleLabsInc.,etal.,333F.Supp.3d952(Dist.Court,NDCalifornia 2018),at954and955.

51See Vladi Zakinov, et al., v. Ripple Labs, Inc., et al., 369 F.Supp.3d 950 (Dist. Court, ND California 2019); Avner Green- waldv.RippleLabs,Inc., etal.,Caseno.18-cv-04790-PJH (Dist.

Court, ND California 2018); Ryan Coffey v. Ripple Labs Inc., et al., 333 F.Supp.3d 952 (Dist. Court, ND California 2018).

Seealsohttps://www.courtlistener.com/recap/gov.uscourts.cand.

334410/gov.uscourts.cand.334410.70.0.pdfThe District Court has notansweredthequestionwhetherRippleconstitutesasecurity.

52Pub.L.No.73-291,48Stat.74(1933).

53L.MGoodman,‘Tezos— aself-amendingcrypto-ledger’(White paper,2 September2014),availableviahttps://tezos.com/static/

white_paper-2dc8c02267a8fb86bd67a108199441bf.pdf.

54L.MGoodman,‘Tezos— a self-amendingcrypto-ledger’ (White paper,2 September2014),availableviahttps://tezos.com/static/

white_paper-2dc8c02267a8fb86bd67a108199441bf.pdf.

55SEC,‘Order Instituting Cease-and-DesistProceedings in the MatterofBlock.one’(AdministrativeProceedingFileno.3-19568, 30September2019),at2.

56block.one, ‘EOS.IO Technical White Paper v2’ (16 March 2018), available via https://github.com/EOSIO/Documentation/

blob/master/TechnicalWhitePaper.md; Ian Grigg, ‘EOS– An In- troduction’ (EOSWhite Paper,5 July 2017),available via https:

//whitepaperdatabase.com/eos-whitepaper/.

blob/master/TechnicalWhitePaper.md.

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words,theholderoftenpercentofthetokens mayuse(or rent-out)tenpercentoftheblockchain’sresources.⁵⁸Thissys- temisknownintheindustryasthe‘ownershipmodel’.⁵⁹The resourcesoftheblockchain areprovidedbyso-called‘block producers’ (BPs). Theseare entitiesthat are being selected throughacontinuouselectionprocessinwhichtheentities holdingthecryptographictokenslinkedtotheblockchaincast votes.AnyonecansolicitvotestobeelectedasaBPandthe BPsarerewardedthroughthecreationofadditionaltokens(i.e.

aninflation-likerewardsystem).

According to the US Securities and Exchange Commis- sion (SEC),‘block.one’has sold 900 millionof the 1billion created ‘ERC-20Tokens’(i.e.tokensdistributed viatherele- vant Ethereum smartcontractor ‘EOSTokens’),⁶⁰ retaining 100million‘foundertokens’.Thetokenpurchaserspaid$4bil- liontoblock.onefortheacquisitionofthesedigitalassets.⁶¹ A substantial amount,consideringthat the relevant‘token purchaseagreement’ stipulatedinno uncertainterms that noneofthe assetswouldgranttheassetholderanyrights, uses,purposes,functionalitiesetc.⁶²TheERC-20Tokenswere not eventokens that could potentially be usedon any fu- tureEOSIO-basedblockchain.⁶³Instead,thepubliclyavailable andfreelyadaptablestandardversionoftheEOSIO-software merelydeterminedthatthe holdersofERC-20Tokens were toreceiveothercryptocraphictokensforuseonEOSIO-based blockchainsinproportiontotherelativeamountofERC-20To- kensthattheyheld.However,theagreementalsodetermined thatblock.onewouldnotdevelopanyEOSIO-basedblockchain andthatanyEOSIO-basedblockchainwouldthushavetobe developedbyathirdparty.⁶⁴Evenifathirdpartyweretode-

59Cf.e.g.https://blockgeeks.com/guides/eos-blockchain/.

60SEC,‘Order Instituting Cease-and-Desist Proceedingsin the MatterofBlock.one’(AdministrativeProceedingFileno.3-19568, 30 September 2019), at 2; SEC, ‘SEC Orders Blockchain Com- panytoPay$24MillionPenaltyforUnregisteredICO’(SECPress Release, 30September 2019),available via https://www.sec.gov/

news/press-release/2019-202.

61See e.g. Kate Rooney, ‘A blockchain start-up just raised $4 billion without a live product’ CNBC (31 May 2018), available via https://www.cnbc.com/2018/05/31/

a-blockchain-start-up-just-raised-4-billion-without-a-live-product.

html.PaymentoccurredinEther.Atthetimeoftheacquisition, themarketvalueoftheethersusedtofinancethepurchaseof theERC-20Tokenswasequivalentto$4billion.

62EOS Token Purchase Agreement (Last updated: 4 Septem- ber 2017), available via https://d340lr3764rrcr.cloudfront.

net/purchase_agreement/block.one+-+EOS+Token+Purchase+

Agreement+-+September+4%2C+2017.pdf.

Agreement+-+September+4%2C+2017.pdf. Cf. SEC, ‘Order Insti- tutingCease-and-DesistProceedingsintheMatterofBlock.one’

(AdministrativeProceedingFileno.3-19568,30September2019), at3(no.7).

Agreement+-+September+4%2C+2017.pdf.

cidetodevelopanEOSIO-basedblockchain,thereexitedno guaranteethatdeveloperswoulddistributethetokensforthe EOSIO-basedblockchaininproportiontotheholdingsofthe relevantERC-20Tokens.AlthoughthefirstdevelopedEOSIO- basedblockchain(the‘EOSBlockchain’)didindeeddistribute theEOSIO-blockchaintokens(called‘EOS’or‘EOSTokens’)ac- cordingtothevolumeoftherelevantERC-20Tokensthatmar- ketparticipantshadacquired,morerecentinitiativeshavede- viatedfrom,orintendtodeviatefrom,thedivisionofpowers determinedbytheERC-20Tokensdistribution.⁶⁵

TheSEChasarguedthattheERC-20Tokensqualifyasse- curitiesunderUSlawand,hence,thatblock.onehasviolated its obligationunder US lawto obtain registrationwith the SECforsellingthesetokens.However,theSEChasagreedto settlewithblock.oneinexchangeforthepaymentofacivil moneypenaltyof$24million.⁶⁶ Inanycase,theERC-20to- kensthatweresoldbyblock.onedonotentailtheliabilityof block.oneoranyotherentity.Totheextentthatablockchain uses(anunamendedversionof)theEOSIO-software(e.g.the EOSblockchain),thesoftwarewillonlyallowthe holderof therelevantcryptographictokens tousehisorherpropor- tionalpartoftheblockchainresources.⁶⁷Tomyunderstand- ing,theholderofacryptographictokenlinkedtoanEOSIO- basedblockchain(e.g.‘EOS’)hasnorightvis-à-visaBPora centralentity.BPsmaydecidetostopprovidingservicesatany time.Naturally,byestablishingarighttousetheresourcesof theblockchain(ifany),cryptographictokenslinkedtoEOSIO- basedblockchainsmayobtainasignificantextrinsicvalue.

2.3.2. Non-traditionalassetsthathaveintrinsicvalue Inmyview,onlyoneassetwithintheCMC’stoptenofnon- traditionalassetswiththelargestmarketcapitalizationen- tialstheliabilityofanentity:Tether.So-called‘tethers’are cryptographictokensthatare“backedinaone-to-oneratio[…]

bythecorrespondingfiatcurrencyunitheldindepositbyHongKong basedTetherLimited.”⁶⁸Verifiedentitiesholdingtethersmayre- deemtheircoinswithacentralcustodian(i.e.TetherLimited) inexchangeforbitcoins orthefiatcurrencyunderlyingthe tethers(i.e.USdollars,euros,oroffshoreChineseyuan).⁶⁹A tetherthusrepresentstheliabilityofTetherLimitedvis-à-vis thetetherholdertoredeemthecoinforthereserveassetsheld

65Seee.g.BradyDale,‘Everyone’sWorstFearsAboutEOSAreProv- ingTrue’(19September2019),availableviahttps://www.coindesk.

com/everyones-worst-fears-about-eos-are-proving-true.

66SEC,‘Order InstitutingCease-and-Desist Proceedings in the MatterofBlock.one’(AdministrativeProceedingFileno.3-19568, 30 September 2019), at 6; SEC, ‘SEC Orders Blockchain Com- panytoPay$24MillionPenaltyforUnregisteredICO’(SECPress Release,30 September2019),availablevia https://www.sec.gov/

news/press-release/2019-202.

68Tether, ‘Tether: Fiat currencies on the Bitcoin blockchain’

(White Paper, June 2016), at 4, available via https://tether.to/

wp-content/uploads/2016/06/TetherWhitePaper.pdf.

wp-content/uploads/2016/06/TetherWhitePaper.pdf; Tether,

‘TetherLimitedTermsofService’(lastupdated26February2019), atno.3,availableviahttps://tether.to/legal/.

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byTetherLimited.⁷⁰AlthoughtheprotagonistsofTetheraim toprovideuserswiththefunctionalitiesofso-calledstable- coins(seesuprano.2.1),interaliabyguaranteeingthatthebal- anceofreservefiatcurrencieswillremainequalto(orgreater than)thenumberoftethersincirculation,⁷¹itappearsthat TetherLimitedmighthavedefraudedits investorsandthat Tetheris(nolonger)backedbysufficientreservestoallowfull redemptionforallinvestors.⁷²Naturally,thisdoesnotchange thefactthattethersentailtheliabilityofTetherLimited.

3. Assets that only have extrinsic value are not financial instruments

3.1. EUfinanciallawgovernsassetsthatentailliabilities

EUfinanciallegislationemploysmultipleanchorpointstode- termineits scopeofapplication.Inmany legislativeacts,a pivotaldeterminantpertainstothepropertiesofthefinancial assetsthataree.g.beingoffered,traded,advised,cleared,or settled.Forinstance,theprospectusobligationintheProspec- tusRegulationonlyappliestocertainsecurities,⁷³theclearing obligationintheEuropeanMarketsInfrastructureRegulation (EMIR)onlyappliestocertainclassesofOTCderivatives,⁷⁴and allrulesintheMarketAbuseRegulation(MAR)onlyapplyto certainfinancialinstruments.⁷⁵Theseexamplesmerelypro- videaflavorofthewidevarietyoffinancialassetsthatmay

70Tether, ‘Tether Limited Terms of Service’ (last updated 26 February2019),atno.3,availableviahttps://tether.to/legal/.

wp-content/uploads/2016/06/TetherWhitePaper.pdf.

72In the Matter of the Inquiry by Letitia James, Attor- ney General of the State of New York v. iFinex Inc. et al., Docket no. 450545/2019 (Supreme Court, New York County), all 126 documents in relation to the case are available via https://iapps.courts.state.ny.us/nyscef/DocumentList?

docketId=npvulMdOYzFDYIAomW_PLUS_elw=&&display=

all&;courtType=New%20York%20County%20Supreme%

20Court&resultsPageNum=1; New York State Attorney General,

‘AttorneyGeneralJamesAnnouncesCourtOrderAgainst“Crypto”

CurrencyCompanyUnderInvestigationForFraud’(PressRelease, 25April2019),availableviahttps://ag.ny.gov/press-release/2019/

attorney-general-james-announces-court-order-against-crypto- currency-company; Michael Patterson and Eric Lam, ‘Cryp- tocurrencies Lose $10 Billion on Tether Cover-Up Allega- tions’ (Bloomberg, 26 April 2019), available via https://www.

bloomberg.com/news/articles/2019-04-26/cryptocurrencies-lose- 10-billion-on-tether-cover-up-allegations.

73Art.1(1)Regulation(EU)2017/1129oftheEuropeanParliament andoftheCouncilof14June2017ontheprospectustobepub- lished whensecuritiesareofferedtothepublicoradmittedto tradingonaregulatedmarket,andrepealingDirective2003/71/EC (textwithEEArelevancy),OJL168,30June2017,p.12(Prospectus Regulation).

74Art.4(1)Regulation(EU)No648/2012oftheEuropeanParlia- mentandoftheCouncilof4July2012onOTCderivatives,central counterpartiesandtraderepositories(textwithEEArelevancy),OJ L20127July2012,p.1(EMIR).

75Art.2(1)Regulation(EU)No596/2014oftheEuropeanParlia- mentandoftheCouncilof16April2014onmarketabuse(mar- ketabuseregulation)andrepealingDirective2003/6/ECoftheEu- ropeanParliament and ofthe Council andCommission Direc-

beusedbythelegislatortodeterminethescopeofapplica- tionofdifferentEUdirectivesandregulationsinthefieldof financiallaw.Furthermore,additionalrequirementswilltypi- callyhavetobefulfilledinorderforacertainfinancialassetto becoveredbythescopeofalegislativeact.Withregardtothe prospectusobligation,forinstance,itisonlythesubsetofse- curitiesthatareofferedtothepublicoradmittedtotradingon aregulatedmarketsituatedoroperatingwithinaEUmember stateforwhichaprospectusmustbepublished.⁷⁶

Thecentralthesisofthispapermaintainsthatthelarge majority,ifnotall,financialassetssubjecttoEUfinancialleg- islationhaveatleastonecharacteristicincommon:theyen- tailanentity’sliability.Acomprehensiveverificationofthis proposition would require the assessment ofall rules pre- scribedinEUfinanciallegislation.Inlightoftheimpracticality ofsuchstudy,Iwillonlybeabletoprovidenarrativeevidence, whichIwillconstruearoundthefinancialinstrumentnotion asdefinedinthesecondmarketsinfinancialinstrumentsdi- rective(MiFIDII).⁷⁷Tomyunderstanding,MiFID’sfinancialin- strumentnotionisoneofthebroadestEUconceptionsoffi- nancialassets.Thisfinancialinstrumentnotionhasalsobeen referencedbymanyotherEUlegislativeactsinthesphereof financialmarkets.Furthermore,forthepurposesofthispa- per,non-MiFID definitionsoffinancialinstrumentsstrongly resembletheMiFIDnotion.

3.2. Financialinstruments

3.2.1. Relevancyoftheconcept

FinancialinstrumentsasdefinedinMiFIDII:MiFIDIIcontainsnu- merousrulesthatattachtheirscopeofapplicationtothe‘financialinstrument’notion.Forexample,theconductofbusi- nessrulesthatinvestmentfirmshavetoobserveindealings withtheirclientsonlyrelatetofinancialinstruments(arts.24–

30MiFIDII).⁷⁸OtherpiecesofEUfinanciallegislationreference thefinancialinstrumentconceptasdefinedinMiFIDIIwhen definingthescopeofcertainrules.Thisis,forinstance,the caseintheMarketsinFinancialInstrumentsRegulation(Mi-

tives2003/124/EC,2003/125/ECand2004/72/EC(textwithEEArel- evancy),OJL173,12June2014,p.1(MAR).

76Art.1(1)ProspectusRegulation.

77‘Financialinstrument’isdefinedinart.4(1)(15)junctoAnnexI, PartC,toDirective2014/65/EUoftheEuropeanParliamentandof theCouncilof15May2014onmarketsinfinancialinstruments andamendingDirective2002/92/ECandDirective2011/61/EU(re- cast)(textwithEEArelevancy),OJL17312June2014,p.349(MiFID II).MiFIDIIisthesuccessortoDirective2004/39/ECoftheEuro- peanParliamentandoftheCouncilof21April2004onmarkets infinancialinstrumentsamendingCouncilDirectives85/611/EEC and93/6/EECandDirective2000/12/ECoftheEuropeanParliament andoftheCouncilandrepealingCouncilDirective93/22/EEC,OJL 145,30April2004,p.1(MiFIDI).Iuse‘MiFID’torefertoMiFIDIand IItogether.MiFIDIcontainedasimilardefinitionofthefinancial instrumentnotion(seeart.4(1)(17)junctoAnnexI,PartCMiFIDI).

78Therelevantprovisionseitherdirectlylimittheirscopeofap- plicationtofinancialinstrumentsorrefertonotionsthathave beendefinedinrelationtofinancialinstruments(e.g.‘investment advice’(art.4(1)(4)MiFIDII)and‘investmentservicesandactivi- ties’(art.4(1)(2)MiFIDII)).

(11)

FIR),⁷⁹which,amongotherthings,imposesareportingobliga- tiononinvestmentfirmsfortransactionsinfinancialinstru- ments(art.26MiFIR).Similarly,allrulesembeddedintheMAR onlyapplyto(certain)financialinstruments,asdefinedinMi- FIDII.⁸⁰^,⁸¹

Other EUfinancial legislation refers tospecific types of the financialinstruments defined inMiFIDII. For instance, theProspectusRegulationonlyrequiresthepublicationofa prospectusforsecuritiesthatareofferedtothepublicorad- mittedtotradingonaregulatedmarketsituatedoroperat- ingwithintheEU.⁸²Thetermsecurities,asemployedinthe ProspectusRegulation,referstotheterm‘transferablesecurities’asdefinedinMiFIDII(art.2(a)ProspectusRegulation).⁸³ Aswillbedescribedinmoredetailinfra(no.3.2.3),transferable securitiesareoneofthesubtypesoffinancialinstruments.

MiFIDII providesanexhaustive listofinstruments that qualifyasfinancial instrumentswithin themeaningofthe Directive.⁸⁴Thefollowingelementshavebeendesignatedas financial instruments: (i) transferable securities; (ii) money marketinstruments;(iii)unitsincollectiveinvestmentunder- takings;(iv)certainderivatives;⁸⁵and(v)certainemissional- lowances.⁸⁶Theformallyexhaustivenatureofthelistdoes

79Seeart.2(1)(9)Regulation(EU)No600/2014oftheEuropeanPar- liamentandoftheCouncilof15May2014onmarketsinfinancial instrumentsandamendingRegulation(EU)No648/2012(textwith EEArelevancy),OJL173,12June2014,p.84(MiFIR),whichrefersto thefinancialinstrumentnotionasdefinedinMiFIDII.

80Seesuprano.3.1.Seealsoart.3(1)MAR,whichreferstoMiFID IIfortheinterpretationofthefinancialinstrumentsnotion.

81Thealternativeinvestmentfundmanagersdirective(AIFMD) alsodefines‘financialinstrument’byreferencetoMiFIDII.Seeart.

4(1)(n)Directive2011/61/EUoftheEuropeanParliamentandofthe Councilof8June2011onAlternativeInvestmentFundManagers andamendingDirectives2003/41/ECand2009/65/ECandRegula- tions(EC)No1060/2009and(EU)No1095/2010(textwithEEArel- evancy),OJL174,1July2011,p.1(AIFMD).However,thefinancial instrumentnotionisnotusedtodeterminethescopeofAIFMD rules.

82Art.1(1)ProspectusRegulation.TheformerProspectusDirec- tivealsoimposedthisobligation.Seeart.1(1)Directive2003/71/EC ofthe EuropeanParliamentand oftheCouncilof4 November 2003ontheprospectustobepublishedwhensecuritiesareof- feredtothepublicoradmittedtotradingandamendingDirective 2001/34/EC(textwithEEArelevancy),OJL34531December2003, p.64(ProspectusDirective).On21July2019,themajorityofthe ProspectusDirective’sprovisionswerereplacedbytheProspectus Regulation(seeart.46junctoart.49ProspectusRegulation).

83Morespecifically,thedefinitionof‘securities’intheProspec- tusRegulationreferstotheMiFIDII‘transferablesecurities’notion andexcludesmoneymarketinstruments(asdefinedinMiFIDII) withamaturityoflessthantwelvemonths.Thelattercomponent ofthedefinitionissomewhatodd,asunderMiFIDIImoneymarket instrumentsdobydefinitionnotqualifyastransferablesecurities becausetheyaretradedonthemoneymarketandnotonthecap- italmarket.

84SeeAnnexI,PartC,MiFIDII.

85MiFIDIIdefines‘derivatives’inapeculiarway.Art.4(1)(49)Mi- FIDIIdefinesderivativesbyreferencetoart.2(1)(29)MiFIR.How- ever,art.2(1)(29)MiFIRinturnrefersbacktoMiFIDII.Morepre- cisely,MiFIRstatesthatderivativesarethefinancialinstruments thatare(i)definedinart.4(1)(44)(c)MiFIDII;and(ii)listedinAnnex I,SectionC,(4)to(10)MiFIDII.

86Morespecifically,AnnexI,PartC,MiFID II containsthefol- lowinglistoffinancialinstruments:"(1)Transferablesecurities;(2)

notmeanthatthefinancialinstrument notionhasbeen de factoexhaustivelydefined.Someofthelistedfinancialinstru- mentsarethemselvesdefinedopen-ended,whichmeansthat thefinancialinstrument conceptisnotasexhaustively de- finedasonemayinitiallysuspect.

FinancialinstrumentsasdefinedinotherEUlegislation:Besides theEUlegislativeactsthatliterallyreferenceMiFIDIIforthe interpretationofthefinancialinstrumentsnotion,thereex- istsalsolegislation thatestablishesanindependentdefini- tionoffinancialinstruments.Forinstance,theFinancialCol- lateralDirective(FCD),whichwasadoptedin2002andthus precededtheadoptionofMiFIDI,providesastandalonedef- initionoffinancialinstruments.⁸⁷Thisdefinitionstronglyre- semblestheMiFIDIIdefinitioninthatitessentiallycovers—

in MiFID-terminology—transferable securities, units in col- lectiveinvestmentundertakings,andmoneymarketinstru- ments.MorerecentadditionstotheMiFIDnotionoffinancial instruments(e.g.emissionallowances)⁸⁸are notcoveredby theFCD-definition.Inanycase,theargumentsthataredevel- opedbelowinthecontextoftheMiFIDIIfinancialinstrument definitionequallyapplytothedefinitionintheFCD.

Money-marketinstruments;(3)Unitsincollectiveinvestmentundertak- ings;(4)Options,futures,swaps,forwardrateagreementsandanyother derivativecontractsrelating tosecurities,currencies,interest ratesor yields,emissionallowancesorotherderivativesinstruments,financial indicesorfinancialmeasureswhichmaybesettledphysicallyorincash;

(5)Options,futures,swaps,forwardsandanyotherderivativecontracts relatingtocommoditiesthatmustbesettledincashormaybesettledin cashattheoptionofoneofthepartiesotherthanbyreasonofdefault orotherterminationevent;(6)Options,futures,swaps,andanyother derivativecontractrelatingtocommoditiesthatcanbephysicallyset- tledprovidedthattheyaretradedonaregulatedmarket,aMTF,oran OTF,exceptforwholesaleenergyproductstradedonanOTFthatmustbe physicallysettled;(7)Options,futures,swaps,forwardsandanyother derivativecontractsrelatingtocommodities,thatcanbephysicallyset- tlednototherwisementionedinpoint6ofthisSectionandnotbeingfor commercialpurposes,whichhavethecharacteristicsofotherderivative financialinstruments;(8)Derivativeinstrumentsforthetransferofcredit risk;(9)Financialcontractsfordifferences;(10)Options,futures,swaps, forwardrateagreementsandanyotherderivativecontractsrelatingtocli- maticvariables,freightratesorinflationratesorotherofficialeconomic statisticsthatmustbesettledincashormaybesettledincashatthe optionofoneofthepartiesotherthanbyreasonofdefaultorotherter- minationevent,aswellasanyotherderivativecontractsrelatingtoas- sets,rights,obligations,indicesandmeasuresnototherwisementioned inthisSection,whichhavethecharacteristicsofotherderivativefinan- cialinstruments,havingregardtowhether,interalia,theyaretradedon aregulatedmarket,OTF,oranMTF;(11)Emissionallowancesconsisting ofanyunitsrecognisedforcompliancewiththerequirementsofDirective 2003/87/EC(EmissionsTradingScheme).”

87Art.2(1)(e)Directive2002/47/ECoftheEuropeanParliamentand oftheCouncilof6June2002onfinancialcollateralarrangements, OJL168,27June2002,p.43(FCD).

88Emissionallowanceswereonlyincludedinthelistoffinancial instrumentsaftertheadoptionofMiFIDII.