SWIFT INSTITUTE
BRIEFING PAPER

DEFINING DIGITAL ASSETSALISTAIR MILNE
School of Business and Economics, Loughborough University

PUBLICATION DATE: APRIL 2022

The views and opinions expressed in this paper are those of the authors. SWIFT and the SWIFT
Institute have not made any editorial review of this paper, therefore the views and opinions do notnecessarily reflect those of either SWIFT or the SWIFT Institute.

1

Executive summary
This briefing paper examines digital assets. Examples include cryptocurrencies, stablecoins,central bank digital currencies (CBDC) and the possibility of bonds and equities held directly
and exchanged through shared ledgers. It reviews the main developments and discusses what
is really new about digital assets.
This discussion highlights the following points:•

The key drivers of the recent emergence of digital assets are as much social andeconomic as technological. The supporting technologies have been around for many
years, some can be traced back more than four decades. These drivers include the‘cypherpunk’ philosophy of extreme distrust of all institutions, both government andprivate; enthusiasm for trading new, lightly regulated crypto assets; technoenthusiasm for new technologies and also the opportunity to address gaps inmainstream financial services provision.

•

A defining feature of digital assets is that – unlike commercial bank money or securities
accounts held with custodian banks – they are directly held, rather than indirectly heldon the balance sheets of financial intermediaries. This means there is no need forsettlement in completing the transfer or exchange of a digital asset. This is also afeature of e-monies, where transfers are ‘closed loop’, i.e. simply a movement fromone account to another provided by the same e-money provider. Digital assets proper
are based on shared cryptographically secured ledgers (also known as distributed
ledgers or blockchains) with access provided by several competing intermediaries.
This similarly allows closed loop transfer without settlement.

•

A central distinction is between ‘permissionless’ and ‘permissioned’ digital assets.
Permissionless digital assets are the ‘crypto assets’ held and exchanged using purely
software-based architectures in line with the cypherpunk vision of fully
disintermediated financial exchange. Anyone with internet access can acquire, holdand transfer them. Other digital assets, developed by regulated mainstream
institutions, are permissioned in order to support, for example, confirmations ofidentity required by KYC regulation.

•

Regulatory compliance currently limits the ability of mainstream regulated
intermediaries to engage with these largely unregulated investment opportunities.
How this plays out is still unclear because of uncertainty about the ‘regulatory
perimeter’ i.e. the extent to which institutions offering transactions in permissionlesscrypto assets will be regulated and the requirements on regulated institutions whenengaging with permissionless crypto assets. Still, it is likely that the majority oftransactions in digital assets will be conducted through regulated financial
intermediaries, with unregulated permissionless exchange a fringe of activity outsideof the regulatory perimeter.
2•The most advanced developments in permissioned regulated digital assets are various
new forms of digital money. These include: e-monies; wholesale distributed ledger
money supporting liquidity management by financial institutions; initial experimentswith retail digital ledger money; and rapidly increasing interest of central banks in
issue of central bank digital currencies with some already launched and more
expected to follow. Alongside these monetary digital asset developments have beenvarious experiments with using digital assets and their supporting distributed ledger
technologies to improve operations in financial markets and financial services.

•

The rise of digital assets poses challenging questions for the business models of
regulated intermediaries in banking, capital markets and asset management. This ismost obvious for commercial banks if a shift to holding digital asset money forcesthem to replace funding from core retail deposits with borrowing from money andbond markets. Similarly, a shift in capital markets to transfer of ownership of securities
and foreign exchange held on distributed ledgers with trade execution followed by an
immediate ‘closed loop’ transfer of ownership without need for subsequent
settlement, challenges existing capital market business models based on delayed
settlement and netting of offsetting trades. A broader challenge for all financial
intermediaries is financing the investments in new systems and interfaces required tomeet customer demand for holding digital assets and to benefit fully from theapplication of digital ledger technologies in their financial operations.
.

3Introduction
This briefing paper tells the story of digital assets: where they came from, what they are now
and what they may become in the future. This is a social and a human story. Digital assets areunderpinned by the powerful tools of modern public key cryptography. It is not though thistechnology that makes digital assets so interesting. They are indeed technology-based, butwhat really matters about the new digital assets is their impact, now and in the future, on
social, financial, business and economic relationships.
A further goal of this paper is to distinguish the main forms of digital assets. Since theappearance of cryptocurrencies, the first digital assets, there have been many subsequentinnovations. These fall into three broad categories:
I.

decentralised finance and crypto asset trading with minimal involvement offinancial intermediaries and currently relatively little regulation
the emergence of new forms of digital money
the use of distributed ledger technologies to improve operations across financial
servicesII.
III.

An underlying question is also addressed here: what is actually new about digital assets?
Financial assets have been held in digital form for many years, so to some degree the new
digital assets are simply the presentation of ‘old wine in new bottles’. Yet there is something
genuinely novel: a shift from holding assets indirectly through financial intermediaries todirect holding on shared distributed ledgers. This can be expected to have a growing influenceon mainstream finance in the years ahead.
The key points are summarised in the Executive Summary. The main body of the paper
consists of four sections:••••

Section 1 examines the emergence of cryptocurrencies, the first digital assets
Section 2 considers what distinguishes digital from conventional financial assets
Section 3 provides an overview of the principal digital asset developments
Section 4 assesses implications for business models and regulation

A brief conclusion is followed by four annexes (Annex 1 – Annex 4) each providing further
detail and discussion of material in the correspondingly numbered main section.

1. The first emergence of digital assets
The emergence of the first digital assets was as much a social as a technological movement.
This social dimension is represented by the ‘cypherpunk’ movement. This was a loose
coalition of computer scientists and coders – connected through an online mailing list – who
debated politics and developed new encryption tools for defending personal privacy fromgovernment and corporate encroachment. Active participants included Eric Hughes, authorof A Cypherpunk’s Manifesto, and Julian Assange, founder of Wikileaks.
From the 1980s onward, very much in the spirit of the cypherpunks, computer scientists used
the newly available tools of public key cryptography to develop a number of instruments(Digicash, Bit Gold and others) for direct online financial exchange. These were the virtual4equivalent of banknotes or coins, transferred directly from one holder to another. Underlying
these architectures was an extreme concern – amounting almost to paranoia – about security.
Governments and commercial institutions such as banks cannot be trusted to act honestly
and reliably. Therefore, the design and operation of these new online forms of money had to
be entirely software based. Moreover, this software should make it impossible for any malignactor or actors to manipulate the record of transactions to their own benefit.
Bitcoin was a breakthrough because it was the first internet money to fully achieve this goal
– albeit at the cost of massive expenditure of energy on the consensus mechanism that
ensures that no participants can manipulate the system. This consensus mechanism is the socalled ‘proof of work’ or ‘mining’ that underpins Bitcoin and other cryptocurrencytransactions (see Annex 1).
Proof of work is complicated as well as expensive. Fortunately, engaging with the new digitalassets does not require understanding proof of work. This is for two reasons:
(i)

(ii)

As technology advances validation through proof of work will, over time, be
supplanted – in the cypherpunk world of decentralised finance with nointermediaries – by other less expensive consensus mechanisms. The likely
replacement is ‘proof of stake’, effectively a voting system based on shares ofownership in the digital asset.
There is an even stronger reason for not worrying about the details of proof ofwork. The cypherpunk world of decentralised finance with no intermediaries is not
the mainstream future. The mainstream future of digital assets will be one inwhich institutions continue to play a central role. In this context validation can be
carried out by a group of trusted intermediaries. Neither proof of work nor proofof stake are needed.

Alongside this mainstream adoption of digital assets, there will be a continuing fringe of direct
exchange of crypto assets without intermediaries. There will also be mainstream investmentin these directly exchanged decentralised crypto assets. This mainstream investment willthough be closely regulated, to prevent its use for evasion of law and regulation, in turnrequiring mainstream investors to rely on regulated institutional providers.
In short, for most users and investors, assurance about the validity of transactions in digitalassets will ultimately be provided in the same way as for conventional financial assets,through trust in regulated institutional providers, their systems, and their employees.

2. What is new about digital assets?
Cryptocurrencies were the first digital assets. A wide range of subsequent further
developments has followed, summarised in the following Section 3. Before looking at these
subsequent developments, it is though helpful to address a prior question: what is really new
about digital assets? The answer is that digital assets, unlike conventional financial assets, aredirectly rather than indirectly held.
To understand this distinction, contrast the examples of a bank account and a banknote:
5

•

•

A bank account is an example of indirectly held money. It is a liability of a private
institution, with legal obligations both to return money to the holder on demand andto transfer money to settle payments, when a payment is made from a customer’s
account to an account held with another institution.
A central bank issued bank note, e.g. a $50 bill, is an example of directly held money.
While intermediaries may be involved in transfers, for example a security company
transporting banknotes from one location to another, the money itself is not theliability of any private institution.

Historically, the majority of money and financial assets were held directly and transferred asphysical objects, for example: precious metal, coins, bank notes or security certificates (thelatter for ‘bearer securities’ whose legal ownership was based on physical possession of thecertificate).
In the course of the past century and a half there has a been a broad shift from direct toindirect holding, both of money – from banknotes and coin to commercial bank deposits –and of securities – from security certificates to security accounts held with custodian banks.
Now, with new powerful tools of public key cryptography, something new has emerged, thepossibility of direct virtual holding of ownership claims on a shared cryptographically secured
ledger. This is what digital assets are:

DEFINITION: Digital assets are virtual records of value directly held on andtransferred across a shared cryptographically secured ledger.
These ‘shared cryptographically secured ledgers’ are what is often referred to as blockchainsor distributed ledgers. These terms are more widely used than they are understood. It is
helpful therefore to spell out their key features:
1. the ledger is not controlled by a single operator, rather several operators share
responsibilities for validating ledger transactions
2. the ledger provides a permanent or ‘immutable’ record of transactions and asset
holdings.
3. public-key cryptography underpins the execution of transactions on the ledger,
ensuring that only owners can instruct transfers of their assets.
A shift to holding digital assets directly on distributed ledgers, instead of indirectly as liabilitie sof institutions such as commercial or custodian banks, changes the process of ownershiptransfer. A digital asset, unlike an indirectly held financial asset, is no longer fully controlled
by a single intermediary. Transfers are instead first initiated through the automatedverification of an asset owner’s ‘digital signature’ and then accepted by the ledger operators.
This shift to direct holding of digital assets with transactions validated using digital signatures
is a material change in the role of intermediaries. As Section 4 discusses, this has a significant
impact on business models.

6

Although a fundamental change for financial intermediaries, in the day-to-day managementof their finances and investments, holders need not necessarily see any difference between
holding digital assets directly and conventional financial assets indirectly. Customer interfaces– whether online web access, mobile apps or through agents at telephone call centres -- canbe much the same as the existing digital channels customers already use for accessing andtransferring deposit money or in managing conventional investment portfolios.
There are though some impacts for customers from a direct holding of digital assets. These
impacts depend on the form of digital asset they are acquiring:
1. For permissionless cryptoassets – cryptocurrencies and also ‘stablecoins’ – that haveemerged directly from the cypherpunk vision of exchange of assets without
intermediaries or regulation, customers are likely to hold them through a newintermediary specialising in crypto investments. Commercial banks, custodian banks
and e-money providers have been looking closely at providing their customers w ith
direct holding of cryptoassets, but regulatory approval is needed and to date only a
few established mainstream institutions have been able to do this.
2. For other forms of digital assets, those being developed through co-operation
between mainstream regulated institutions, regulatory approval is built in from theoutset. As a result, access to these digital assets can be more easily provided byexisting commercial banks, custodian banks or e-money providers. But these digitalassets are still immature, at a relatively early stage in their development, and so they
do not yet fully substitute for existing conventional indirectly held assets.
As an example, consider a central bank digital currency (CBDC) held by a retail customer withaccess provided by a commercial bank (a likely outcome for many forms of retail CBDC). Unlikea bank deposit, in excess of deposit insurance limits, there is no risk of loss of CBDC from thedefault of the provider. The functionality of CBDC may though be more limited than that ofexisting commercial bank accounts. It will be easy to transfer CBDC from one CBDC holder toanother. But without substantial further investment to support interoperability with existing
payment schemes, it will be difficult to provide all the familiar payment services such as batch
payment processing of salaries and invoices, direct debits, card payments and direct credit
transfers both to and from conventional bank deposit accounts.

3. Digital assets comparedThis section compares the principal developments in digital assets, summarised in Table 1.
Here the focus is on broad comparison (with fuller discussion in Annex 3). The columns,
reading from the right, distinguish key features underpinning different digital assets:•••

Technological design. The choices about who has access to and control of the sharedledger in which holdings of digital assets are recorded.
Social and behavioural drivers. Digital assets are fundamentally social innovations.
Economic value. What digital assets offer to holders that is not available from holding
conventional financial assets.

7

Table 1: the main developments in digital assets

Operations in financial
markets and services

New forms of regulated
digital money

DeFi (decentralised
finance) and crypto

Development

ExamplesEconomic value

Cryptocurrencies

Bitcoin

Stablecoins

Tether, USD coin, Binance
USD, DAI, PAX and others.

Programmableblockchain and DeFi

Ethereum

Wholesale DL money

Improved liquidity
management
Addressing gaps in services

Guaranteed retail DL
money
CBDC, wholesale
and/or retail

Fnality Utility Settlement
Coin
Paypal accounts, MPesa,
Alipay, WeChat Pay
Diem might have adopted
this design.
e-CNY, Bahamian Sand
Dollar, Digital Euro

Financial inclusion; competitionin payments services

Meeting user needs,
techno-enthusiasm
Policy goals, technoenthusiasm

Programmable DL

Quorum, Hyperledger

DL issued securities;
Fractionalised
security holdings

World Bank bond-i
Thai government savings
bonds, BondEValue, SIX
digital exchange
ISDA automated interest
rate derivative clearing

Addressing gaps in services;supporting automation.
Facilitating direct retail bondand equity investment

Meeting user needs,
techno-enthusiasm
Meeting user needs,
techno-enthusiasm

Lowering operational costs andrisks

Meeting user needs

e-money

Automation offinancial transactions

Use in private transactions;avoiding currency controls
Facilitating crypto trading;decentralised finance without
intermediaries
Decentralised finance without
intermediaries

Social and behaviouraldrivers
Cypherpunk philosophy,
trading culture.
Cypherpunk philosophy,
trading culture

Addressing gaps in services

Cypherpunk philosophy,
trading culture, technoenthusiasm
Meeting user needs,
techno-enthusiasm
Meeting user needs

Technological design
Permissionless DL
Permissionless DL

Permissionless DL

Permissioned DL
Conventional
centralised databases
Permissioned DL
Permissioned DL
Conventional
centralised databases
Permissioned DL
Permissioned DL

Permissioned DL
Conventional
centralised databases
Notes: DL = Distributed ledgers (aka blockchains), cryptographically secured shared ledgers with many operators, contrasted with single-operator
conventional centralised databases. DLT = supporting distributed ledger technologies. The double lines distinguish three main groups of developments.
8

The three panels in Table 1, reading from the top, distinguish three categories of digital assets:•••

The largely unregulated trading in cryptoassets and DeFi (decentralised finance).
New forms of regulated digital money.
Applications of digital ledgers (DL) in financial operations.

There are two main choices for the technological design: (i) between a pe rmissionless andpermissioned ledger; and, for a permissioned ledger, (ii) between a shared cryptographicallysecured ledger i.e. a distributed ledger or a conventional database with a single operator.
The digital assets in the top panel of Table 1, those held and exchanged using purely softwarebased architectures and hence coming closest to the cypherpunk vision, are all
permissionless. Anyone with internet access can acquire, hold and transfer them. The digitalassets in the remaining two panels of Table 1 are all permissioned. These have beendeveloped by mainstream institutions with regulatory compliance in mind. These must be
permissioned to support, for example, confirmations of identity required by KYC regulation.
Permissioned assets developed by mainstream institutions face a second technology choice:–using a permissioned shared digital ledger or a conventional database. For example e -monies
use conventional institutionally controlled databases. Strictly, according to the definition ofSection 3, these are not digital assets. There are though many common features with digitalassets proper, justifying their inclusion in the table.
A similar point applies to CBDC. Early discussions of CBDC design by the major central banks
indicates that some central banks are considering issuing CBDC on a conventional centralised
database with a single operator, not on a distributed ledger with many operators. This choice
will depend on considerations of cost and security. For holders of CBDC or intermediaries
providing CBDC services, it does not much matter if the ledger entries are validated by a single
operator or by many. Some applications of digital asset technologies in financial operations,the third panel of Table 1, can also use conventional databases.
The social and behavioural drivers of digital assets vary substantially from one digital asset toanother and over time. Cryptocurrencies are a good example of change over time, with thecypherpunk philosophy now largely replaced by a trading culture and speculation.
Another social driver is ‘techno enthusiasm’: faith in the impressive capabilities of theunderlying distributed ledger technologies and expectation that they will eventually supplant
conventional arrangements. This is the motivation for many experiments with digital assets,
demonstrating some of the possibilities from holding financial assets on shared ledgers,
conducted by banks and central banks to ensure they are abreast of the technology.
Table 1 refers to two other drivers of digital assets. One is meeting hitherto unmet user needs.
Examples, labelled here as wholesale DL money. An example is Fnality Utility Settlement Coin.
These provide financial institutions with a form of money that gets around constraints on
holding and transferring central bank money, such as the limited opening hours for RTGS large
value payments. Another driver, in the case of CBDC, are achieving policy goals including
financial inclusion and competition in payments services.
9

Reading down the rows of Table 1 highlights four principal digital asset developments.
i.
Cryptocurrency wallets and crypto exchanges
Interest in cryptocurrencies has spread far beyond their original cypherpunk origins and theiruse in private transactions to avoid regulatory scrutiny and currency controls. Increasingly,
investment in cryptocurrencies is speculative, with perceived profitable short-term trading
opportunities and long-term benefits, both protection against inflation and potentiallysubstantial capital gains, compensating for the substantial short-term price volatility.
ii.
Stablecoins and decentralised finance (DeFi),
Stablecoins, like cryptocurrencies, are permissionless traded assets traded on crypto
exchanges. Unlike cryptocurrencies, market transactions are used to maintain their market
value close to par against an underlying fiat currency, most often the US dollar. These market
transactions can be undertaken by an institution holding reserve assets or can be purely
software based. Stablecoins allow investors to rapidly take or extinguish cryptocurrency
exposures. The most widely used stablecoin is Tether, but there are ongoing concerns about
the opaqueness of Tether and the quantity and quality of its reserve assets.
Decentralised finance or DeFi is the rapidly growing exchange of cryptoasset exposures
without any intermediaries, most actively pursued on the Ethereum blockchain. There are
now a remarkably wide range of DeFi software solutions, mimicking the opportunities forleverage and exchange of risk provided by derivatives in mainstream markets.
Further support for trading of cryptocurrencies and stablecoins, and for DeFi, is coming fromthe increasing interest of mainstream financial institutions in crypto investments: “crypto as
a new asset class”. This is though not straightforward, both because of the absence of any
consensus on the fundamental value of cryptocurrencies, which should determine pricing
over the long-term, and the practical difficulties for regulated institutions in engaging withlargely unregulated crypto wallets and crypto exchanges,
iii.
Regulated digital money and e-monies
For mainstream institutions, it is easier to engage with other new forms of regulated digitalmoney, those in the second panel of Table 1, developed from the outset to comply withfinancial regulations. These include the wholesale digital ledger money (described above) andalso the various regulated non-bank e-monies. Regulation gives holders much stronger
assurance than for stablecoins about the quality of the assets backing them. This in turnmakes it easier to use them for day-to-day purchases and monetary transfers (though they
are still different from bank money because these purchases and transactions are ‘closed
loop’ taking place immediately on a single balance sheet without need for subsequent
settlement).
The need to comply with regulation has meant that, unlike the stablecoins, these regulated
forms of digital money cannot as yet be used for trading on crypto exchanges.
This distinction between stable coins and new forms of regulated digital money may wellerode over time. One stablecoin, Paxos (or PAX), has focused on achieving regulatory approvalallowing it to be used both for crypto trading and for day-to-day purchases and transactions.
10It has been selected by Facebook as the currency of choice for an early proof of concept ininternational transactions for its Novi wallet. Some e-money providers – an example is Paypal– allow their customers to buy and sell cryptocurrencies.
The rapid developments in stablecoins and regulated digital money have prompted central
banks, concerned amongst other things with potential loss of monetary sovereignty, toactively explore the issue of central bank digital currencies (CBDC). CBDC is new regulated
digital money exchanging on the central bank balance sheet. Early examples include the eCYN in China, the Bahamian Sand Dollar and the launch of a digital Naira in Nigeria.
iv.
Growing use of digital ledger technologies in financial operations.
A further digital asset development has been the growing application of distributed ledger
technologies to improve operations in mainstream financial services. The se varied
developments are not discussed in detail in this paper. Table 1 gives examples of some of themost prominent initiatives. A possibility attracting particular attention is the issue of bonds
or other securities on distributed ledgers, sometimes called ‘tokenisation’.

4. Intermediary business models and the regulatory perimeter.
This section completes the paper with a brief look at the challenges posed by digital assets
for intermediary business models and the role of regulation. The widespread adoption ofdigital assets in mainstream finance offers substantial benefits, including greater crossindustry standardisation of financial operations, enhanced security based on public key
cryptography and avoiding the need for subsequent settlement when transferring ownershipof digital money or securities. While these benefits are substantial there are also significant
adoption costs. Internal systems will have to be adapted to deal with digital assets, including
where required guaranteed secure management of a customer’s private keys.
Digital assets pose further fundamental challenges to existing business models. This is mostobvious for commercial banks. Consider a customer shift from indirect holding of money incommercial bank deposits to direct holding of digital money on distributed ledgers, e -monies
or CBDC. Commercial banks will still provide customers with access to these new forms ofmoney, either themselves or through commercial partners, but this will be fee -based
servicing of digital assets held on shared distributed ledgers rather than offering fractionallyreserved deposit liabilities on their own balance sheet. This in turn means that commercial
banks will have to replace funding from core retail deposits with borrowing from money andbond markets. Shifting to real time settlement would be a major change to the businessmodels used in foreign exchange and securities markets, where much of the liquidity fortrading is currently based on delayed settlement and the resulting opportunity to net
offsetting transactions and hence economising on capital and funding.
The emergence of digital assets also poses major challenges for regulators. Their biggest
challenge is regulation of the permissionless distributed ledgers that support decentralised
finance and the trading of crypto assets. Their cypherpunk origins mean that this exchangetakes place virtually, outside of established legal and regulatory jurisdictions, with noidentified individuals nor institutions to regulate.

11This in turn creates regulatory uncertainty – how will financial regulation evolve to meet thechallenges of digital assets? There are several controversies: some of the major players incrypto asset trading, for example the exchange Binance and the stablecoin provider Tether
Ltd., are coming under intense regulatory scrutiny. There are also considerable differences in
the attitudes of regulators – some want to encourage innovations in crypto and digital asset
trading and are imposing a light touch regime on digital asset innovation; others are much
more cautious and concerned to limit these activities in order to protect customers and limit
prudential risks. There is also uncertainty about the legal powers of regulators to intervene in
new products and services that currently fall outside of the existing regulatory perimeter.
Consistency of regulation of digital assets is still a long way off.

Conclusion
This paper describes the emergence of digital assets, distinguishing three broad categories:(i) decentralised finance and crypto asset trading; (ii) new forms of digital money; and (ii)the use of digital ledger technologies to improve operations across financial services. It
offers a definition of digital assets – assets directly held on a shared cryptographicallysecured ledgers – reviews the main developments in digital assets and comments on thechallenges they pose for intermediary business models and regulation.
Six main points emerge from this analysis, as set out in the Executive Summary.
One further concluding reflection is relevant. In one important respect digital assets arelittle different from conventional mainstream financial assets. Most holders will rely on
regulated intermediaries for managing their ownership and exchange. This in turn meansthat the full commercial exploitation of the opportunities from digital assets will require
several further developments: (i) industry wide adoption of shared cryptographicallysecured ledgers for recording and transferring digital assets holdings; (ii) the evolution ofbusiness models to support direct rather than indirect asset holdings; and (iii) a consistent
approach, across institutions and jurisdictions, to the regulation of new digital asset
services. These developments will not happen overnight. As a result, digital assets are still
relatively immature. It will be some years yet, before their full impact on financial markets
and services is clear.

12Annex 1: The emergence of Digital Assets
For many, the first thing that comes to mind with the mention of digital assets are thesubstantial prices rises and volatility of cryptocurrencies such as Bitcoin and Ethereum. Stories
of fortunes being made and lost, and “FOMO” (fear of missing out”) understandably dominate
the social and traditional media coverage of digital assets.
These dramas though are just the surface (some might say the froth) of fundamental financial
innovation. The dramatic price increases of Bitcoin and other cryptoassets may well prove to
be a bubble. Whether it is a passing fad or has a permanent place in the menu of financial
assets is not so important. What is important is that aspects of the new distributed ledger
technologies for holding and transferring digital assets are finding increasing application
across money, banking and capital markets. Even if interest in Bitcoin disappears, andcryptofortunes evaporate, the technologies supporting Bitcoin are transforming, and willcontinue to transform, the way we hold financial assets and execute financial transactions.
A helpful way to understand these new assets is to dig a little bit into their history: how did
we get here? It is commonplace to link the birth of digital assets to the 2008 publication of
the pseudonymous white paper Bitcoin: A Peer-to-Peer Electronic Cash System by ‘Satoshi
Nakamoto’ (not as far as we know a real person, but a pseudonym adopted by a computerscientist or group of computer scientists) and the subsequent 2009 release of the open -source
Bitcoin software.
Impressive as this innovation was, it was simply an incremental step, building on several
earlier innovations that can be traced back a further thirty years, to the military research of
the 1960s and 1970s that also underpinned the development of the internet.
A major milestone in the emergence of digital assets, as these new technologies foundapplication beyond their original military origins, was the 1977 publication of RSA (theacronym refers to the surnames of its three creators Ron Rivest, Adi Shamir and Leonard
Adleman). This was the first published algorithm for public-key encryption. Public-key
encryption is the foundation of internet security as well as of the new digital assets.
The basics of public-key encryption are simple. The public key is a very large number that canbe used to encrypt a message or file. There is a corresponding private key, another very large
number, which is required for decryption. RSA was the first publicly available algorithm forcreation of pairs of public and private keys. The recipient first creates a public-private key
pair. They then make the public key public, e.g. through a link on a webpage. The sender of amessage or file can then securely encrypt using this public key. The outcome is that only therecipient can decrypt and read the message and file (provided have kept the private key
secure). The publication of RSA and then of other related encryption algorithms of was thestarting gun for the three decades of computer science research that has led us t ocryptocurrencies and digital assets.
Bitcoin mining. The proof of work used in Bitcoin is known as mining. Network participants
search for an unusual number that mathematically matches the most recently publishedtransactions and links them to previous transactions. The software makes these numbers so
13

rare that this search requires burning large quantities of electricity i.e. work. Finding such anumber confirms the addition of a new block to the Bitcoin blockchain. Successful mining isremunerated by transaction fees and the award of new Bitcoin.
How does this proof of work protect the system? To create a false, alternative transaction
history based on hidden unpublished transactions, malign network participants would haveto use even more electricity than the miners engaged in the legitimate proof of work search.
Moreover, even if they succeeded occasionally in attaching false transactions to the Bitcointransaction history, final confirmation requires them to do this several times in succession, so
the best they can do is create one of two competing versions of history.
The legitimate miners then have a further iron-clad defence. The software resolves any
discrepancy between two competing versions of transaction history through automatedvoting based on past legitimate mining activity. So, to break the system, the malign actors
have to recruit a majority of the miners making profit out of Bitcoin to help them. In thelanguage of economic theory, this is not “incentive compatible”, because miners will not want
to destroy their own source of revenues.

14Annex 2: What is new about Digital Assets?
Over the centuries there has been a shifting balance between the two forms of asset
holding, direct and indirect, depending on the available technology of the time. Both arefound in the very earliest historical developments of money and finance, in fourth
millennium BC Uruk and the other cities of ancient Mesopotamia. One of the earliest known
forms of money were accounts denominated in grain held with the palace temples (anindirect holding). Another was uncoined silver (a direct holding).
Moving swiftly through five millennia of history, by the second half of the twentieth century,with the rise of computerised processing, the balance swung substantially towards indirect
holding of money and other financial assets. Nowadays the large majority of bothcompanies and household money is held with commercial banks. Similarly, since the ‘paper
work crisis’ of the 1960s that marked the death knell of bearer securities and thesubsequent dematerialisation of securities in the 1970s and 1980s, investors hold publicly
traded securities such as bonds and equities indirectly through custodian banks.
The principal difference for the holder is that moving their assets from one provider toanother provider is more straightforward for directly held digital assets than for indirectly
held conventional financial assets. Their asset holding recorded on the distributed ledger isunchanged. Moving their directly held digital assets to a new provider means only a change
in the institution responsible for managing their private keys and providing supporting
account services (an issue, for which technical solutions are not yet fully developed, is the
secure transfer of these keys along with historical accounting information from the old to the
new account provider).
Securities could, historically, also be directly held assets in the form of bearer bondcertificates. Nowadays securities are always held indirectly in accounts with custodian banks.
Custodians are then in turn obliged to transfer the holding as requested by the owner fordelivery against payment in settlement of security transactions.
Underpinning the direct holding of digital assets are the use of digital signatures to ensurethat only asset owners can instruct asset transfers. A digital signature is a form of reverse
encryption. A public key for decryption is unambiguously linked to e very individual asset
holding. An instruction to transfer some or all of this asset holding consists of two copies of
the transfer instructions: one the original, the other encrypted using the corresponding
private key. Using the public key to decrypt the encrypted message and confirming that it is
the same as the original message, in turn demonstrates that the instruction has a valid digital
signature. Only then does the software of the shared ledger execute the transfer.
Crypto assets like cryptocurrencies can, if the holder prefers, be exchanged directly without
any intermediaries and entirely outside the framework of law and regulation (because they
are held on permissionless ledgers with no real world identities or restrictions on who canbuy, sell or hold). Exchange of crypto assets in this way is likely to have some enduring appeal:
to devoted cypherpunks, to computer nerds, to criminals and terrorists, and also to those
who wish to avoid currency controls and other state restrictions on economic exchange.

15

While transfers of permissionless digital assets on distributed ledgers do not necessarily
require an intermediary, individuals will not typically maintain digital asset software on theirown computers themselves, rather they will rely on investment institutions for their key
management on their behalf and to ensure compliance with law and regulation, just as they
do with conventional financial assets.
An illustration of this last point is the emergence of ‘cryptocurrency wallets’ as an additional
wrapper to support the ‘institution free’ holdings of cryptocurrencies. As holding of
cryptocurrencies has become more widespread, most holders do not want to manage theprivate keys of their cryptocurrency holdings themselves. They instead want support indoing this. There are technology based solutions that provide this service without relying ona financial intermediary – so called soft and hard wallets which support cryptocurrency key
management (hard wallets are regarded as the most secure, because the keys are stored on
media unconnected to the internet; soft wallets in the form of download software onto
computers or mobile phones create a risk of hacking). Users could use soft or hard wallets
to manage their own key software and hardware and avoid any reliance on intermediaries.
In practice though the vast majority of holders of cryptocurrencies turn to an intermediaryto manage their cryptocurrency keys on their behalf, either by providing soft wallet services
in the form of local applications or directly holding keys on their behalf.
Institutional investors are in a similar position. They will need to use established digital asset
intermediaries in order to demonstrate to their clients that they have done everything they
can to ensure the safety of assets they hold for others. They are used to outsourcing theoperational support for holding financial assets to custodian banks or in the case of hedge
funds to prime brokers. So as crypto and other digital assets grow out of their early
cypherpunk origins we can expect them to be overwhelmingly held through intermediaries.

16Annex 3: Further discussion of the Table 1 comparison of digital assets
The jury remains out on the long-term importance of the various developments in digitalassets. There are both enthusiasts and sceptics about these various opportunities from sharedarrangements for holding and transfer based on the tools of cryptographic security. While itseems safe to assume that mainstream finance will increasingly use cryptographically secured
shared databases for the simplification and automation of operations in both conventionaland digital assets, the extent to which digital assets, held on shared ledgers, supplant
conventional assets remains unclear.
Crypto assets and decentralised finance (DeFi)
The first category of digital assets, presented as the top panel of Table 1, are based on
permissionless distributed ledgers. These were developed in line with the cypherpunk
philosophy, avoiding any role for government of private sector intermediaries. Because of
their origins, these are furthest removed from conventional financial assets with somefeatures that have no parallel in mainstream finance, and transaction arrangements that
continue to evolve rapidly. Still, to fully understand digital assets, it is worth some effort tounderstand this category of digital asset developments.
Developments in decentralised finance and trading of crypto assets have been fuelled in thepast two years by the increasing interest of mainstream investors in crypto as a newinvestment asset class. This interest drove the most recent bull run in cryptocurrency prices
in the second half of 2020, with the price of Bitcoin doubling in late 2020 to surpass its
previous 2017 peak of 19,000 and rising further to around $61,000 in March 2021. Prices
though have continued to be highly volatile, falling in July 2021 to below $35,000, climbing
above $64,000 in Nov 2021, and then subsequently falling again in Dec 2021.
Alongside the increased interest in crypto investment has been a rapid growth of holdings ofstablecoins, cryptographic money held and exchanged on unpermissioned shared ledgers, inthe same way as cryptocurrencies, but designed to maintain a stable value against the $US.
These stablecoins are used as the reference assets for trading on crypto exchanges (much as
the $US itself is the reference asset for conventional foreign exchange market trading,currencies trading against the dollar much more than they are traded against each other). The
two largest in terms of value of holdings, illustrating some of the variety of different
stablecoin arrangements, are Tether and Dai.
A key feature of the stablecoins used in cryptotrading is that their values are not guaranteed,rather they are market determined with either an operator or software buying and selling thestablecoin against other crypto assets to maintain the value close to par (and acquiring or
disposing of collateral to maintain underlying support for the value of the stablecoin). As aresult, values can and do fluctuate somewhat from the stated par of 1 unit = 1 $US. The mostwidely used stablecoins such as Tether and DAI maintain values close to par. The price ofTether has remained within about 0.5% of par since late 2019, but did fluctuate more in earlier
years. Other less actively traded stablecoins exhibit more substantial price fluctuations.
Tether, the stablecoin most widely used for crypto-trading on exchanges such as Binance,somewhat contrary to the cypherpunk philosophy, is institutionally operated by Tether
17

Limited which is in turn controlled by the owners of the Hong Kong based crypto exchange
BitFinex. Tether Limited state that Tether is fully collateralised by underlying dollar deposits
and loans (though there are continuing investor and regulator concerns about the q uality ofthis collateral). Tether Limited redeem and issue Tether to stabilise its $US value. Two othermajor stablecoins, Pax dollar and USD coin issued by Circle, are similar, with a central operator
and backed by a mix of commercial bank money and US Treasury bills. DAI, unlike these otherstablecoins, has a more decentralised structure and is not 100% collateralised 1:1 by holdingsof fiat currency. Instead it is 150% collateralised by DeFi loan contracts, in turn collateralisedby holdings of cryptocurrency, with automated software that alters the interest on loan
contracts to attract required collateral.
There is active round the clock trading of cryptocurrencies, and also of stablecoins on many
virtual crypto exchanges, such as Binance and Coinbase. Because cryptocurrency andmanaged stablecoin ledgers are permissionless the servers supporting these exchanges canbe established anywhere and accessed by holders of these digital assets from all around theworld (Binance is well known for its claim to have no legal jurisdiction). While the details of
operation vary, typically users first transfer their holdings of cryptocurrencies or stablecoins
on to the exchange, from where they can directly execute trading transactions against prices
offered by other exchange participants.
A related development is DeFi (short for ‘decentralised finance’ ). This is the emergence oftrading of a wide range of new crypto based financial contracts, relying on the
programmability of the Ethereum or other cryptocurrency blockchains which allows
automated transactions to be built into financial contracts. An example of this automation:
DeFi loans are all collateralised and the software automatically terminates the loan and sells
the collateral if the collateral value falls below a trigger percentage of the loan amount. Like
the transactions in the underlying cryptocurrencies on which it rests, DeFi is purely software
based with no institutional involvement. It provides the crypto equivalent of repo lending andborrowing, swaps, futures and options; all accompanied by its own new strange language(yield farming, oracles, perpetual swaps… to name just three).
The views of the industry on this new crypto trading remain very divided. They offer new andattractive opportunities for those with good trading skills. Some hedge funds are taking large
positions. A number of payments providers – Paypal, Revolut and others – are giving theircustomers the opportunity to hold cryptocurrency balances and initiate payments that draw
on these balances. Others, understandably, are cautious. The possibility of a market collapse
cannot be ruled out. There is much internal debate within major banks about the extent andnature of their involvement in crypto, in no small part because of the associated regulatory
risks. At the same time, it is difficult for institutions to avoid involvement altogether because
there is client demand to hold crypto assets and a shareholder pressure to not miss out on
the opportunities for earnings based on meeting this client demand.
The following comparison puts all this crypto trading activity into perspective. The global
market value of the world’s equity and debt markets is approximately $250trn. The market
value of cryptocurrencies and the stablecoins traded on the various crypto exchanges was$2.5trn (as of end October, 2021; source Coinmarket cap) together with a further $0.14 trn
18

market value of stablecoins. Taking account of private equity and debt, these crypto assets,
despite their stellar performance over the past year or so, still have a market value that is lessthan 1% of conventional financial assets.
New forms of money
The second category of digital asset developments, presented as the middle panel of Table 1,
are the variety of new forms of money held on permissioned distributed ledgers or in somecases on conventional centralised databases. This category is more similar to conventional
finance. All these new forms of digital money are based on permissioned ledgers (in contrast
to the unpermissioned ledgers used in decentralised finance and crypto exchange).
There is a similarity between these new forms of money held on cryptographically secured
shared ledgers and non-bank e-moneys also covered by Table 1. Like non-bank e-moneys (ofwhich there are many examples including MPesa in East Africa, AliPay and WeChat Pay in
China, and Paypal deposits) these new forms of money are held as entries on a single ledger
and therefore can be transferred directly from one holder in a ‘closed loop’. This contrasts
with indirectly held bank deposit money which, if transferred from a holder in one bank to aholder in another bank, requires subsequent settlement.
All these new forms of digital money are fully reserved, not fractionally reserved likeconventional commercial bank money. Some – including Alipay, WeChat Pay and Utility
Settlement Coin – are fully reserved in central bank money. Others are also fully reserved but
either in commercial bank money (e.g. MPesa) or by a portfolio of high quality money market
and fixed income securities (e.g. PayPal). The now abandoned plans of Facebook and its
partners for a digital retail currency – first Libra with its own novel unit of account based onbasked of fiat currencies and then its successor Diem, intended to be offered in major fiat
currencies first in US dollars – were similarly to be fully reserved with high quality money
market and fixed income instruments.
A different example of a new digital money designed to meet unmet user needs is the Utility
Settlement Coin, issued by Fnality, which will allow banks to make 24-7 instantaneousinterbank large value monetary transfers in several currencies, thus getting around thelimited opening hours and potential delays of transfer when using central bank RTGS systems
and in this way supporting more efficient liquidity and collateral management in money,
foreign exchange and capital markets for large international banks. For these bank users,
unlike retail users of e-money, a shared ledger is required, because no major internationalbank will want to rely on a ledger operated by a competitor.
The distinction made in Section 3, between directly held digital assets and indirectly held
conventional assets, is clear for the case of digital money fully reserved in central bank money.
This distinction is less clear for digital money fully reserved in commercial bank money or inmoney market instruments. These are mixed cases: some transfers, those between holders,
are direct without requiring settlement. But because the underlying reserves are indirectly
held money, transfers out of the digital money, exchanging into other forms of money ortransmitting a payment to a non-holder, require a subsequent settlement in the same way as
a transfer of commercial bank money.

19

A feature of all these digital moneys in the Table 1 second category of digital asset
development is that their values are institutionally guaranteed (though typically subject tofees when withdrawn for exchange into other forms of money). This contrasts with thestablecoins employed in crypto asset exchanges, whose values are not guaranteed. In thisrespect stablecoins are more like money market mutual funds, with fluctuating market values
that are managed within a small range but can potentially fall below their stated par.
The boundaries between these categories are not watertight. There is interest in using
stablecoins, developed for crypto asset trading (i.e. the first category of digital asset
development), as new forms of retail money (i.e. the second category of digital asset
development). An example is the recently announced Facebook supported Novi wallet willoffer no-fee person to person payments using the managed stablecoin Pax , initially in a pilot
targeting payments between the US and Guatemala. While the choice of stablecoin is unlikely
to matter for initial pilots of this kind, there are obvious problems. Such a system could be
difficult to scale given the risk that the value of the managed stablecoin is not guaranteed andcould fall substantially below its fiat currency par value.
An open question, at this point in time, is whether there will be any successful retail stablecoinwith a guaranteed value that complies fully with the Section 3 definition of a digital asset, i.e.
operating on a distributed ledger. The recent decision by Facebook and its partners toterminate the Diem project illustrates that adoption of distributed ledger technology, alone,
is no guarantee of success as a retail money. Other forms of digital money held on distributed
ledger are not designed for retail use, either the stablecoins held on permissionless
distributed ledger for crypto exchange or wholesale digital money for use by financial
institutions such as Utility Settlement. In contrast, several non-bank e-money platforms suchas AliPay, WeChat Pay, MPesa and Paypal have proved successful for person to person andretail purchase without being held on a distributed ledger. The use of a conventional
centralised database with a commercial operator has not limited their adoption.
The final nascent example of a new form of digital money is Central Bank Digital Currency(CBDC). Before 2019 there were a number of technical experiments by central banks withissue of central bank money on shared cryptographically secured money, primarily driven bytechno-enthusiasm and a need to keep abreast of these technological developments. The
development of stablecoins – along with the considerable publicity surrounding the Facebook
Libra now Diem project – have somewhat spooked the world’s central banks, leading them toanguish about loss of monetary control. Since 2019, they have been driven to explore thedevelopment of new regimes for the regulation of stablecoins and also to a much fuller
extent, to examine the launch of central bank equivalents to stablecoins i.e. CBDC.
Some central banks have already issued CBDC on a commercial scale, notably the e -CNY in
China and the Bahamian Sand Dollar. The ECB is also in the forefront, leading detailed
investigation by the Euro system of central banks into the potential issue of retail digital
Euro (though it is unclear whether this will rely on a conventional centralised database or apermissioned distributed ledger).
Unlike crypto assets and decentralised finance, these development of new forms of digitalmoney are primarily motivated by a desire to address previously unmet user needs. This is20

true of e-moneys, which have been most widely adopted in jurisdictions where a large
proportion of the population were unbanked or where banks failed to provide effe ctive noncash payment solutions for retail spending and person to person monetary transfers. It is also
a key motivation for the introduction of CBDC and for the development of wholesale digitalmoney such as Utility Settlement Coin.
Operations in financial markets and financial services
The third category of digital assets in Table 1 is a variety of developments employing
distributed ledgers to support more efficient automated operations in security and derivative
markets, in commercial and international banking, in asset management and in insurance.
There are a large number of exploratory applications of this kind, usually employing sharedcryptographically secured ledgers or in some cases combining cryptographic security together
with conventional centralised databases. Again, as with the new forms of digital money, these
are always permissioned ledgers, not the unpermissioned ledgers employed in decentralised
finance and crypto asset trading.
A full list of such initiatives would be extremely long. It could also include many non-financial
as well as financial applications, all cases with perceived benefits from holding agreed dataon shared cryptographically secured ledgers. Table 1 is limited to a few illustrative examples.
The first of these are the commercial versions of programmable permissioned distributed
ledgers, including Quorum (a permissioned version of the Ethereum blockchain employed ina number of proprietary distributed ledger financial applications for example those offeredby Consenys) and HyperLedger Fabric (which supports a number of non-proprietary
opensource financial and non-financial applications). Many proof of concept projects havenow been developed for financial applications using these tools (the Consensys andHyperledger Fabric webpages give many examples).
The second development under this third category included in Table 1 are some of the mostprominent experiments with issue of conventional securities, such as bonds and equities, as
digital assets on permissioned shared cryptographically secured ledgers. One user need thatthese developments meet is facilitating low cost retail bond investment, e.g. this is theobjective of both the Thai government savings bonds and the Hyperledger BondEValue
projects. In other examples the user need is less clear, these seem to be more based ontechno-enthusiasm, examples are the World Bank bond-i issue or the creation of the Six digitalexchange. The final example in Table 1 is the increasing use of cryptographic security andsharing of data to automate financial operations, even though this may often be more easily
pursued employing a conventional centralised database rather than a sharedcryptographically secured ledger. The example given in the table is that of ISDA automatedinterest rate derivative clearing, which is based on DAML, the “digital asset meta language”
developed by the technology firm Digital Asset. Here the key elements that support
automation are the use of public-key cryptography together with unambiguous contract
description.
The potential of such digitisation of conventional financial assets is substantial, but how far
and how quickly this will be pursued is unclear. Arguably this could substantially simplify
operations, putting all operational systems for both trading and servicing of financial assets
21

on a common basis, dramatically increasing operational transparency, hence supporting
substantial cost savings in asset management and in capital markets. A difficulty though, as
discussed in Section 4, is that this could potentially require quite substantial changes in thebusiness models of financial intermediaries.

22Annex 4 Intermediary business models and the regulatory perimeter.
The reason that transactions in digital assets do not require clearing and settlement isbecause, they are directly held. The transaction execution – whether a physical transfer of anote, or the debiting of one digital asset account on the shared ledger and the crediting ofanother – also serves the transfer of ownership. Not only does this make settlement
immediate, so a newly acquired digital asset is immediately available for re -use, it also
eliminates the possibility of settlement fails, when money or securities are not delivered aspromised. At times of stress in funding markets these settlement fails can spike sharply,
creating systemic risks. A shift to digital assets could eliminate this systemic risk.
It would require an industry wide standardisation of transaction messaging and processing offinancial assets, hence promoting near universal automation of operational processes andsubstantially reducing operation costs. Think ISO20022, but extended to the entire universeof finance. It would also promote much greater transparency of financial intermediaries, tothe benefit of investors and customers in asset management. A further benefit, often
mentioned in relation to digital assets, is moving from delayed settlement, typically T+2 inequity and foreign exchange markets, to immediate real time settlement.
There are moreover substantial additional business model challenges from any shift from thecurrent convention of T+2 settlement in securities and foreign exchange markets toimmediate instantaneous exchange without any need for subsequent settlement. Typically, aforeign exchange or security trade is settled by the beginning of the second trading day
following the initial agreement to exchange. During this period trades are first netted,
reducing the volume of trades that must be settled through exchange of cash and securities
by up to 97% or 98%. Then participants must prepare for settlement, accessing repo andsecurities-lending markets as necessary, in order to position the cash and securities f or
exchange. Finally, settlement takes place.
Supporting all of this is a legal and regulatory framework that has developed over the courseof many decades to support the required netting and ensure the predictability of contracts
that commit to sale of assets that are not already owned or purchase of assets without having
pre-arranged financing already in place.
These arrangements, while operationally complex, provide market participants withconsiderable savings of both capital and liquidity. T+2 settlement is not perfect. There is
scope for contracting the cycle to T+1 providing further savings in capital and liquidity. Still,
capital and liquidity committed to trading operations are already small, when compared to
the value of transactions, so a contraction of the settlement cycle from T+2 to T+1 would
provide only modest benefits.
In the case of custodian banks, a shift from indirect to direct holding of securities substantiallychanges the business models of securities lending. The loan would now have to be made fromthe shared ledger instead of from custodian managed security accounts. A shift from indirect
to direct asset holding would also substantially change the business models of brokers,
dealers and traders participating in securities and foreign exchange markets.

23Despite this uncertainty it is possible to anticipate how the regulatory framework for digitalassets will evolve in the years ahead. A central point is that regulation of the first digital asset
development of Table 1 – DeFi and trading of crypto assets – must be very different from theregulation of the second and third digital asset developments– new forms of digital money
and the use of digital ledgers to support operations in financial markets.
For DeFi and trading of crypto assets, all that regulation can do is to control the regulatory
perimeter, the boundary between decentralised and mainstream finance. This is not,ultimately, a major barrier to regulation because the large majority of transactions even in
crypto assets will be through regulated intermediaries. We can expect to see increasing
oversight and regulation of the intermediaries that support crypto asset trading, including
even the crypto asset exchanges. The tools at the regulator’s disposal, should they choose to
use them, are powerful. They can insist that mainstream financial institutions, handling crypto
asset investment on behalf of institutional investors, transact only through adequately
regulated crypto exchanges. They can police the boundary between the established payments
systems – both conventional bank and card payments and the new forms of digital money –ensuring that KYC and AML obligations are met by all regulated institutions who offer. They
can, if they wish, do more to promote the protection of retail customers who chose to invest
in crypto assets through regulated intermediaries.
Stablecoins are a particular concern for regulators, especially their potential use outside of
their original application in crypto asset trading. Like cryptocurrencies these can be used formaking payments outside of the oversight of regulatory, law and tax authorities, but with theadded advantage that their values are stable so they work better than cryptocurrencies as
stores of value. Here the focus can be expected to be two pronged. Those stablecoins thatare institutionally managed such as Tether and Pax can expect to come under increasingly
close regulatory scrutiny, though this will require improved international co-ordination to beeffective. At the same time there will be increased regulatory focus on mainstream financial
services, for example payments wallets, that employ stablecoins as their digital money. Hereregulators may require institutional guarantees, backed by the same regulations thatcurrently cover commercial bank deposits and e-money. Reliance on stablecoins, without
guarantees and not reserved in central bank money, may eventually be prohibited in retailand business payments solutions, to ensure customer protection and systemic stability.

24