Moving beyond the hype of the blockchain island (1)

Back in 2017, it was becoming amply clearer, for those who wanted to see, that cryptocurrencies were set to take the world by storm and shake the grounds upon which traditional finance was built. It would therefore have been amiss for Malta to let such an opportunity slip right through its fingers, and to the government’s credit back then, a strong initiative was taken in that same year to build the DLT Regulatory Framework. The said framework would set out to regulate crypto service providers, crypto fund-raisers, and setting standards for developers wishing to make use of distributed ledger technology.

It was back then that the moniker of blockchain island was born, a term which became the buzzword of 2018, grabbing the attention of the crypto industry at large which descended like a tsunami onto our shores in the latter half of that same year. Deals were struck, hands were shaken, champagne was popped, and parties were held. I, like many others, did not get to enjoy a single minute of rest throughout both summits that took place in October and November respectively. For the following months, the work of VFA Agents and corporate service providers was well cut out. Over 300 companies were availing themselves of the transitory period under the VFA Act, meaning they could offer their services as exchanges, brokers, and so on for twelve months without requiring a licence. Then: ten percent. Roughly 10% of the companies which were operating under the transitory period submitted their letter of intent to apply for a licence as a VFA Service Provider with the MFSA, and fewer than those actually submitted the final application. What went wrong?

It’s easy to point fingers at an ailing crypto market, back then, or dismiss it as a temporary fad, but in reality, a mixture of other factors led to the downfall of the “blockchain island”. First and foremost, the crypto industry was treated as the iGaming one, in every aspect save the authority regulating it. Law firms and other service providers with experience in gaming tried to assist crypto companies in setting up locally, with varying levels of success; unfortunately, unless you can speak the language of such a nascent industry, it is difficult to cater appropriately for it. The rulebook supplementing the main VFA Act, itself being multiple times more voluminous than the same Act, was published hastily and without adequate time for a thorough analysis and feedback session by the industry at large. The governmental support that was strongly present in 2018 suddenly vanished. And last, but not least – the lack of a driving force to coordinate the efforts of the supervisory and regulatory authorities resulted in overburdening regulations and responsibilities being place on VFA Agents and clients alike concurrently by all such authorities, not to mention the disproportionate costs of compliance with the various applicable frameworks.

Fast forward to May 2021, and out of the hundreds of companies that had expressed their interest in applying for a VFA Service Providers licence, only seven licences have been granted by the MFSA. On a similar note, over at the MDIA, only one innovative technology arrangement (ITA) has been certified by the same authority. Is it for lack of effort on part of these authorities? In my opinion, not quite – I have dealt with the responsible officials within such authorities on multiple occasions, and the will from such officials to support the industry is there. The MFSA, in particular, has a VFA team that is possibly one of the best in Europe when it comes to an understanding of the crypto sector, and the MDIA is the first authority of its kind in the world. However, even the best workers can be stumped with the wrong tools, or lack thereof, in hand. 

Naturally, I am not here as a harbinger of doom, especially after having worked extremely hard at promoting Malta both locally and overseas at over thirty international conferences out of my own pocket, and having been the first local person to organise crypto meetings & seminars in 2014. I still strongly believe in Malta and its ability to regain its position as one of the leading jurisdictions when it comes to this space. However, we have lost too much time twiddling our thumbs, and umming and ahing, on decisive matters that need to be implemented or executed if we are to become relevant again. We have all the ingredients to succeed – and I’ll be sharing the recipe to do so in the sequel article.

To be continued.

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