Understanding the crypto market and how different business models aligns with the existing regulatory framework
Completion requirements
This lesson provides a holistic overview of the evolution of the various business models (and services) and considers how these align with the existing regulatory framework (by considering them against existing regulated activities).
Much of the information in this lesson is informed by:
Regulation of Cryptoassets - How robust is the UK government’s plan? (dacbeachcroft.com)
Types of business models
There are various types of business models to be aware of. We classify them into seven categories and provide a regulatory context to understand the likely applicable rules.
| Model | Regulated Activity |
|---|---|
| Cryptocurrency as a payment method | Many businesses accept cryptocurrencies as a form of payment. Electronic money regulations may apply in the future. The most 'natural' type of crypto asset (in connection with payments) is stablecoins, though some stable coins blend investing and thereby assume some risk. See DP23-4 |
| Cryptocurrency exchanges | These are platforms that allow users to buy, sell, and trade cryptocurrencies. This is a form of retail (trading venue) activity. |
| Initial Coin Offerings (ICOs) as a form of fundraising/investing | ICOs are a way for companies to raise funds by issuing their own cryptocurrency tokens. Typically, this is a form of investing (or raising capital). Arranging deals in investments is probably the most aligned permission. |
| Cryptocurrency mining | This is the process of verifying transactions on a blockchain network and earning cryptocurrency as a reward. This is a form of issuance or manufacturing. |
| Cryptocurrency wallets | These are digital wallets that allow users to store, send, and receive cryptocurrencies. This is a form of custodian service. |
| Blockchain as a service (BaaS) | This is a cloud-based service that allows businesses to develop, host, and use their own blockchain applications without having to set up and maintain their own blockchain infrastructure. This is akin to white-label infrastructure technology and therefore unlikely to become regulated. However, there could be some overlap with Operating an Electronic System in Relation to Lending (OESRL) or Public Offer Platform. |
| Crypto as a loyalty programme (often referred to as 'Utility Tokens') | Many communities, such as online games will use an internal currency to create an economy, which may be monetised. This includes games where players can 'earn' as they play. |
| Smart contracts / Other Intermediation |
These are self-executing contracts with the terms of the agreement between buyer and seller being directly written into lines of code. Smart contracts allow for the automation of complex financial transactions and can be used in various industries 3. From a regulatory perspective, this is likely to fall under 'other intermediation' activities. |
| Lending / Borrowing | Crypto assets may be staked as collateral allowing holders to access liquidity without selling the asset. This activity is potentially most aligned with OESRL. |