Australia is potentially a significant and influential market for crypto. To date, uptake has been sporadic and regulation practically non-existent, but the nation’s government is taking a long-term view and can see the way the wind is blowing. Widespread adoption is more a question of “when” than “if” and the Treasury wants to be prepared.
There has been no shortage of media chatter about token mapping, and the consultation paper that the Australian treasury released in February 2023. But what exactly is token mapping, why is it so important to Australia’s gradual adoption of crypto and what exactly is going to happen next? Three good questions, let’s find some answers.
What does token mapping mean, exactly?
Let’s hit the big question first. Everyone’s been talking about token mapping over recent weeks. Ask them to explain it, and you’ll elicit a lot of mumbling and little else! Straight from the horse’s mouth via Gareth Kerr, a senior associate at Russell Kennedy in Melbourne, the Australia Treasury describes token mapping as a process by which it “seeks to build a shared understanding of crypto assets in the Australian financial services regulatory context”. It does this by classifying different types of crypto-asset tokens and then ensuring these regulatory classifications for are fit for purpose.
Token mapping uses a framework in which three core concepts are of fundamental importance:
- A crypto token acts as a record keeper and can be compared with a physical token or a registry entry. It is further defined as “a unit of digital information that can be exclusively used or controlled by a person.”
- A token system is the mechanism or protocol by which functions are performed on crypto tokens.
- The function is the product provided or benefit derived for the token holder by the token system.
Gareth goes on to point out that identifying the function is particularly important to the token mapping process as it helps solidify the main frame of reference, connecting the abstract to the equivalent existing financial services framework.
This is achieved by mapping crypto facilities against the “functional perimeter.” Those that fall within this predefined perimeter of general financial functions (in the sense of functions as defined above) are considered to be financial products.
Crypto assets that fall within the functional perimeter are captured by existing financial services regulations. Those, in fact, constitute the easy part. The bigger challenge is considering the ones that fall outside the existing framework deciding what to do with them. Specifically, is a new regulatory framework appropriate to regulate them?
Why it matters – from casino games to real estate deals
Ostensibly, token mapping is a weighty and time-consuming task for financial instruments that are only used by a minority of people. This is why we are not seeing governments undertaking similar initiatives the world over.
It is tempting to ask whether it is really worth it, but take a step back, and it is plain to see how crypto use is trending. 90 percent of businesses have been studying potential use cases for crypto over the past two years, and the government has been clear in its aim to be part of the discussion ever since it released its blockchain roadmap in 2020.
Since then, crypto use has increased, mostly in niche areas. iGaming is the most obvious example, even though it is a politically contentious one. Let’s set aside, for a moment, the specific regulatory issues surrounding online casino gaming in Australia. The reality is Australian consumers love their gambling games and will flock to play the Australian online pokies with the highest payouts wherever they can find them. Crypto is an increasingly attractive option for online pokie players for a whole host of reasons, and more players using crypto drives more casino platforms to accept it, which drives more gamers to use it and so on.
The casinos might have been among the first movers, but others are poised to follow. The real estate sector looks likely to be the next to blink. There have already been a handful of real estate transactions with crypto, each of which was noteworthy enough to hit the press. But soon, buying a house in Australia with Bitcoin will be old news. Sydney-based Forsyth bills itself as Australia’s first crypto property agent. That’s a record nobody can ever take away, but it certainly won’t be the last.
In short, while it still seems marginal at a glance, Crypto’s user base is broadening and gradually expanding. At some point, usage is going to accelerate and reach critical mass. When it does so, the Australian Treasury wants to be absolutely certain that it is ready.
So what next in the token mapping process?
That is the easiest question to address, at least in the short term. Right now, the Australian Treasury is awaiting feedback on the consultation questions posed last month. These are expected back by the end of the second quarter and will inform policy development.
The Government will then propose a framework for custody and licensing later in the year, which will be made public for further debate.