Open Review of Management, Banking and Finance

«They say things are happening at the border, but nobody knows which border» (Mark Strand)

The public intervention on cryptocurrencies between innovation and regulation.


by Valerio Lemma

Abstract: This paper concerns the recent public interventions for the regulation of cryptoassets, considering the evidences arising from current development of cryptography and telecommunication technologies and focusing on the importance of a resilient market for money for the sustainable growth of the real economy.

The research moves from the regulatory perspective assumed by the European Commission in its digital finance package and then goes straight to the proposals on crypto-assets and digital resilience, in ordet to asses their contribution for a competitive EU financial sector that gives consumers access to innovative financial products, while ensuring consumer protection and financial stability.

Focusing on the market for cryptos and the relevant industry, the paradigm of the shadow banking system comes to mind for its alternative nature in respect of the role of credit institutions, as well as its tendence to avoid the public controls for capital adequacy and risk mitigation. However, the shadow banking has driven the financial industry to cross the territorial, governmental, and personal boundaries, but remains linked to sovereign money.

Focusing on the content of the current proposals, it is worth considering both the current application of cryptography and distributed ledger technology to substitute money and the perspective of applying the cryptography’s innovation to the activity of issuing sovereign money performed by central banks. Thus, it is possible to identify the need for protection related to any kind of crypto-asset and then the reason for a public intervention aimed at ensuring an effective form of supervision.

Summary: 1. Introduction. – 2. Escaping from sovereign money. – 3. Dissonances between the cryptocurrencies to the shadow banking system. – 4. The digitization of money and the need for public intervention over private autonomy. – 5. The proposal for regulating the market in crypto-assets (MICAR) as a form of public intervention. – 6. The interferences of the proposal for a Digital operational resilience act (DORA) on the market for cryptocurrencies. – 7. New opportunities raising from the proposal for an EU Regulation on a pilot regime for market infrastructures based on distributed ledger technology. – 8. The opening towards stablecoins. – 9. Concluding remarks.

1. Current trends in the wired-society calls for research over the public intervention that will regulate and control the financial activities based on innovation, focusing on tools, procedures and sanctions that can be effective and efficient in driving this industry towards the maximization of social welfare by protecting individual rights. [1]

In this respect, the evidences arising from current development of cryptography and telecommunication suggest to focus on the assets and services based on these technologies and in particular on the cryptocurrencies, as a leading case for considering a first example of fintech applied to the market for money, in order to proceed in the regulatory analysis of an apparatus (of rules and authorities) that is intrinsically complex, being – among other risks – required to supervise a reality (that of cryptocurrencies) subject to a continuous process of transformation due to changes in the underlying technology.

It is worth considering that the strategy for intervening in this industry has been designed by the European Commission, which adopted on 24 September 2020 a digital finance package, including a set of legislative proposals on crypto-assets and digital resilience.[2] In this respect, the EC seems overcomingthe limits of its original purpose to harmonize the domestic legal framework of the Member State, to reach the goal of setting up a competitive regulated environment that gives consumers access to innovative financial products, while ensuring the protection of individual rights and the financial stability. Furthermore, this strategy may go far beyond from these limits because it is expressly oriented towards a recovery that embraces the digital transition (or rather a modernisation of the European economy).[3]

Considering all the above aim and assuming an approach of law and economics, the public intervention is called to – analyse, understand and then – regulate the demand and supply of services and goods that people are willing to pay, as it occurs in the case of cryptos.[4]

Utility, efficiency and risk aversion are used to describe the need to promote or ban the use of cryptos, provided that the individual propensity for recognizing them a value (of usage or of storage).

Indeed, the reference (or rather ‘expected utility’) to the utility of a legal framework refers to the expected value of the public intervention for an individual that is not risk-neutral. Certainly, the aim of regulation is protecting individuals, however risk aversion is not a coherent or consistent phenomenon (depending on personal behavior) and risk preferences shows the opposite. In any case, it is clear that the approach of the EU regulator assumes that most of the EU citizens are risk adverse most of the time, so that the current wave of rules is introducing limits and safeguards aimed at ensuring a minimum level of safety in this industry. In any case, as it will be shown below, the pieces of hard law and soft law (that are regulating the market for cryptos) aims at putting in place a comprehensive framework enabling the uptake of distributed ledger technology (DLT) and cryptos in the financial sector and in supporting the circulation of capital and risks.[5]

It is worth also considering the realism of the EU’s regulator assumptions, as crypto-assets and their associated blockchains can bring significant opportunities in improving the functioning of finance: potentially cheap and fast circulation of money may reduce transactional costs and them open new funding possibilities for small-medium enterprises, as well as support a more efficient market for investing savings.

There is no doubt that the regulator has not had a free choice of assumption, provided that the rise of new technologies involves risks, and their application should therefore be properly regulated and supervised. Indeed, the public intervention must deal with a vast number of market and non-market phenomena, considering the attitude of an intermediary to link people in surplus with others in deficit that are able to pay for a temporary transfer of money, and then the utility of this activity (which goes beyond the individual profit to benefit the real economy). Thus, the public intervention does not result in a mere defense of the current international monetary system, but it leads to set the level playing field for applying innovations in payments, finance and commerce.[6]

Besides, and coming back to the for protecting individual rights and financial resilience, the focus goes on the transparency, stability, solvency and competition. This recalls the need for aligning the current regulation in order to oversight the aforesaid innovations and to provide legal certainty as regards cryptos, by achieving the objectives of strengthening digital operational reliability and by adequately and comprehensively addressing digital risks in the provision and consumption of financial services.[7]

2. “The Logic of Collective Action: Public Goods and the Theory of Groups” may provide a solid background for understanding the movementism of cryptos (namely the widely shared conviction that significant popular usage of crypto assets will undoubtedly achieve a benefit in the individual welfare of each end-user).[8] Indeed, the American economist Mançur Lloyd Olson Jr. has theorized that members of large groups do not act in accordance with a common interest unless motivated by personal gain (economic, social, etc.). That is, consequently, the conclusion that only a benefit strictly reserved for group members will motivate someone to participate and contribute to the group, and then individuals will act collectively to generate private goods (or rather capital gains and the relevant profit), but not to provide public goods (as money has been considered[9]). And this consequence as influenced the current regulatory trends aimed at providing incentives to align private actions and the increase of social welfare.[10]

Nevertheless, the regulatory perspective assumed by the European Commission in its digital finance package goes straight to the paradigm of hard law and then presents legislative proposals on crypto-assets and digital resilience, for a competitive EU financial sector that gives consumers access to innovative financial products, while ensuring consumer protection and financial stability.

Furthermore, implementing hard law for regulating innovation may seem an oxymoron, but it is acceptable that strict regulation and wide innovation are not opposite, as both tends to improve the social welfare (by protecting individual rights, the first, and promoting easier operational paradigms, the second). Anyway, it is clear that these acts of hard law are aimed at supporting the digital transformation of finance in the coming years, while regulating its risks[11]

At Union level, nowadays, the requirements related to information communication technology (ICT) and its risks for the financial sector are currently spread over several directives, and – in some of them – ICT risks themselves have only been implicitly addressed as part of the operational risk, whereas in others it has not been addressed at all.[12] Therefore, it is clear that the current priorities – set forth by the EU bodies for the public intervention – put forward a set of amendments that appear necessary to bring legal clarity and consistency in relation to the application of innovations by credit institutions, financial intermediaries and insurance companies (considered as entities that are authorised and supervised).

Concluding on this point, it is worth considering that the new millennium waves of global crises may have jeopardized the trust of the citizens in the value of sovereign money. Indeed, from the point of view of the private money holder – of those who were subject to the effects of the fight between failure of the financial markets and the execution of the monetary policies – the first foundation of the duties of obedience would have laid in their common belonging to the same order to which the dominant subject also belonged: obeying to the sovereign monetary policies should have meant – first of all –  that the order within which all were concretely embedded was confirmed and preserved, and not that – has it occurred – it ended up fatally in those crisis showing limits on the exercise of the monetary powers themselves.

Hence, there are lack of trust in the capacity of the Government to preserve values and the will for escaping from the sovereignty and its ineffective limits, which result in a negative dialectic that intends to free the market from the rigid dictates of the system, and the and thus the adherence of certain operators to a scattered, conflicting and fragmented totality that accepted to accept payments made by means of assets different from the sovereign money and characterized by the application of tech-fueled instruments.[13]

3. Focusing on the market for cryptos and the relevant industry, the paradigm of the shadow banking system comes to mind for its alternative nature in respect of the role of credit institutions, as well as its tendence to avoid the public controls for capital adequacy and risk mitigation.

Anyway, it is commonly recognized that the shadow banking system refers to the circulation of capital and risks in the “economic space” that lies between the business of banks and the illegal circulation of capital. Hence, this is a residual field, with limits marked by the choices of the public intervention in the liberalization of the credit intermediation activities (or rather in the ending of their monopoly in raising capital and lending). In any case, the capital refers to sovereign money and then the underlying need for exchanges is related to the sovereignty that backs-up the currency used to support the circulation of wealth.[14]

On the contrary, the market for cryptos refers to the digital representation of the reality, and in particular the first application of this technology referred to values that are not related to any sovereign money, nor by any obligation by the relevant issuer. In other terms, it is worth considering that cryptography and communication technology have been applied to create a kind of asset that is immaterial (as it is represented by a certain amount of cryptographed data) and does not incorporate any right or obligation (due by the issuer or any other third party): the pure cryptocurrencies.[15]

Under a regulatory approach, it is worth recalling the definition of the shadow banking system and its basic elements.[16] It has been shown that this system is based on a network of legal relations that took place without an authoritative system of supervision of the relevant stability (by means of prudential controls dedicated to these relations).[17] In this respect, the difference between the market for cryptocurrencies and the shadow banking system lies on the functional definition of the latter, which is referred to any operation executed out of any supervised trading venues that is part of a chain that connects the demand and the supply of money.[18] Therefore, this recalls the shadow operations, considered as the activities that occurs allows the movement of capital across the world, through the channels of an integrated global network, dynamic and innovative, formed by interactive components consisting of intermediaries, securities (products/instruments), markets, derivatives, regulation and supervision, payment, clearing, and settlement systems.[19]

In light of the above, the banking qualification of this system highlights, from one side, that it is alternative to credit institutions and, from the other, that the relevant transactions let subjects with a surplus in their assets enter into a relationship with other ones that, to meet their needs, are willing to remunerate a temporary transfer of such resources (provided that these resources are usually denominated and transferred by referring to the sovereign money). Indeed, the usage of this alternative way enable the circulation of capital under conditions that are not compliant with the parameters of the prudential supervision applicable to credit institutions. Thus, in a nutshell, the importance of the shadow banking system refers to the possibility of managing certain asynchronies of the deadlines, the asymmetries of the risk profiles or other impediments, including ones of geopolitical nature.[20]

However, both shadow operations and cryptocurrencies result from the effects of financial liberalization, which do not prevent economic operators (i.e., companies and investors) from negotiating with subjects that intermediate capital without applying the safeguards provided by supervision, nor to base their exchanges on a reference that is not the sovereign money. Indeed, it is useful to refer to the Italian Civil Code of 1942, whose art. 1278 stated that a debt denominated in a currency that is not endowed with legal tender can be fulfilled by the debtor with the sovereign

money (provided that such obligations be converted at the exchange rate set forth at the date and place set forth for the payment).[21]

Going further in considering the effects of the liberalization, it is worth considering the monitoring of the shadow banking pointed out the chains of transactions that conduct maturity, credit, and liquidity transformation without explicit access to central bank liquidity or public sector credit guarantees.[22] Indeed, in analyzing the economic determinants for the growing of shadow banking and of the relevant need for supervising,[23] it is worth considering also that the shadow credit intermediation process can provide further funding to the real economy, which will be an additional source of financing in respect of the volume due to banking (which is subject to the constraints of prudential regulation).

In this respect, it should be noted that the usage of cryptocurrencies (and the velocity of such usage) may produce the same effect of increasing the resources available to meet the demand for financing made by the enterprises.[24] Anyway, from a law and economics perspective, this alternative source of funding does not rise from the overcoming of the limits set by the prudential supervision but rely on assets that are not referrable to the sovereign money and then to the general safeguards dur to the presence of the State.

It is clear that the market for funding is competitive, and competition generate information (about the relevant exchanges).[25] However, it is also clear that the public intervention over this market refers to both credit institutions and market operators, and this intervention goes far beyond the protection of the rights of the depositors, to minimize negative repercussions by preserving the systemically important functions of the institution that runs into a crisis.

Significant, in this parallelism, is the fact that the supply of capital – due to both the shadow banking and the cryptos – requires (operating) expenses that are lower than the ones related to banking, because of the flexibility of the organizational structure of the entities that operate in the shadows or in cryptos (as less transaction costs come into consideration). Even on the capital demand side, individuals may benefit in accessing the shadow banking system or in operating in cryptos, by simplifying the access to funding sources (with respect to both the counterparties and the instruments).[26]

However, there are differences, as the shadow banking refers to a new process and cryptos are a new product, so that the innovation in the process (related to the circulation of sovereign money) remains under the scope of the public intervention, even if it refers to the standards set forth for the market transaction (rather than those set forth for credit institutions).[27]

Indeed, the access to shadow banking leads to an increase in the levels of financialization of the capital structure of the debtors, who is called to implement new business functions in its governance, being them responsible for the monitoring of the funding sources and, therefore, for the measurement and the management of the risks associated with debt obligations that underly the shadow credit intermediation process.

Concluding on this point and focusing to the main topic, the transactions that give content to market-based financing are based on innovations (of process) that raise issues of a new type, while the operation in cryptos are related to new products that refers to new risks (related to the absence of a public baking of such assets). That said, it is clear that the shadow banking has driven the financial industry to cross the territorial, governmental, and personal boundaries (to which the financial markets were subjected in the twentieth century, when the role of national states and their sovereign powers were predominant). To date, it is worth considering the idea that the liberalization process started in the 1990s is now going to overcome the last limit of capital market, related to the presence of sovereign money in order to operate in an environment where everything is possible (or rather allowed).

4. The digitization of finance is placing new challenges to policy makers, who are called upon to choose whether and how to direct the movement of capital in a market that has taken on a global dimension and very high frequencies in exchanges, out of the scope of prudential supervision.[28] Today, in fact, the public intervention is engaged in seeking regulatory solutions aimed at maximizing the welfare of operators while avoiding asymmetries to the detriment of weaker players (consumers, savers, debtors, …).[29]

Moving from the results achieved in the previous paragraphs, it comes into consideration that the promotion of a new phase of economic growth requires an efficient application of the evolution of financial technology to improve capital market dynamics. We are not referring exclusively to the gains due to the new platforms that are replacing traditional banking – whose relations are based on the possession of a device or are the result of the usage of an application (in a sort of tech-fueled shadow banking) – nor to the solutions arising from the direct access of individuals to new forms of interconnection (due to the disintermediation of finance).[30] It is also necessary to consider the effects of certain technological solutions that make it possible to reduce the operating costs related to the circulation of money.[31]

In particular, nowadays, the fintech industry is offering solutions that can improve the quality and efficiency of monetary exchanges. It is clear that central banks can leverage the latest innovations to improve the functioning of the sovereign currency, aiming at reaching a configuration compatible with the need of an economy that relies both on a natural and a digital environment. Hence, an opportunity for the public intervention to foster economic growth. [32]

All the above, of course, does not question the importance of the sovereign currency and of the sovereignty, but suggests analyzing the success of private cryptocurrencies (alternative to sovereign money), and – with regard to the Italian case – by considering the limited legal base linked to the approach developed by our regulator as far back as the ‘Commerce Code’ of 1882, which provided for the possibility of payment in ‘currency not being legal tender,’ subject to the obligation to also accept exchange in sovereign currency, provided that this rule has survived over time and – it is worth repeating – is still present today in Article 1278 of the Civil Code.

Assuming that the success of private cryptocurrencies has made it possible to gain experience from high-tech solutions that seems to be suitable for sovereign currencies as well, the policy makers are now called to analyse such experience and assess the scope and the rules of the public intervention in order to protect individual rights and financial stability.[33]

Indeed, on closer inspection, policy makers should be interested in cryptocurrencies because of the specificity of their technological medium more than because of the way in which they entitle their users with rights or obligations.[34] Even if the tolerance of the authorities with respect to this phenomenon is surprising, this does not bewilder us since the acceptance of the new private currencies has so far corresponded both to the expansive monetary policy and the choice not to intervene in marginal episodes (compared to the overall volume of the world money market). However, it should be noted that it took central banks a few years before starting to face the role of fintech with respect to monetary dynamics. Only recently, in fact, are they considering the technological development of the instruments used as an alternative to banknotes and other mechanisms for let sovereign money circulating into the economy.

In assuming such a prospective, it is necessary to dwell on the legal analysis of the new opportunities offered by a sovereign, digital and cryptographic currency. There is no doubt that, technological innovation would enable such a currency to speed up the execution of payments, eliminating (or at least descaling) the central counterparty of transactions and, at the same time, ensuring the certainty of transactions occurring in the capital market.[35]

Obviously, the sovereign cryptos would be designed to be a perfect substitute for money both in economy and in the bank’s balance sheets. And the effects of this design will affect the accounting of such currencies, provided that cryptography is able to track and identify any piece of the relevant money, so that the typical effect due to the confusion of assets (in the juridical sphere of the intermediary) could not always occur. Thus, the risk of jeopardizing the functioning of the deposit’s multiplier.

At the same time, the application of cryptography can also facilitate the traceability of exchanges by being able to add to the data related to each coin the identifier of the person who held it (as if a banknote can record the fingerprints of anyone who touched it), with obvious positive effects on the prevention of money laundering and terrorist financing.[36]

In this perspective, the application of cryptography and distributed ledger technology (DLT) is going to raise new legal issues, as well as it is amplifying the scope of issues addressed only marginally in recent years. Hence, it is clear the need for monetary authorities to proceed with the construction of a dedicated infrastructure to support sovereign cryptocurrencies in order to facilitate their rapid deployment in a direction that support economic growth without overriding the traditional banking mechanisms that benefit the real economy. This is the foundation for a public intervention that will be in the position to set increasingly effective operational innovations, in order to improve the way capital circulates and risk is managed in the infosphere.

5. Comparisons between innovators, traditional operators and legal advisors can reveal new ways of developing the insurance, banking and finance markets. This assumption seems to lie under the current approach of the EU regulator that has developed the current proposal of an EU Regulation aimed at establishing a market in crypto assets (MICAR). Indeed, such proposal refers both to the innovative products named crypto-assets (including the relevant rights and obligations, if any of them is backed in such immaterial asset) and the trading venues whereby the demand and supply of these products would meet. [37]

This is an economic policy action – performed by the European public entity – that seems to be traceable to a long-standing approach, even if limited to remedying or market failures. In fact, EU intervention already appears necessary to define and enforce the rules of the game within which economic actors make their decisions, produce and trade in crypto-assets. These assets are the subject of a market (in crypto assets) which is represented by a complex set of highly articulated technical rules.

In this respect, the EU approach refers to the setting up of specific limits to private autonomy (in dealing and storing these products) and public supervision to protect investors and preserve financial stability, while supporting innovation in the development of assets based on the cryptography. It now seems clear that the intent is to foster the rise of a market in which digital solutions will be part of its operating formula, with the obvious consequence that supervisors will be increasingly interested in the relationships established with providers of the technological innovations that support this phase of financial evolution.[38]

Certainly, the EU regulator has clearly stated that the aim of MiCAR is the protection of consumers against some of the risks associated with the investment in crypto-assets, in order to help them avoid fraudulent schemes.[39] So that, the new rules are introducing strong requirements to protect consumers wallets and to set the liability of crypto-asset service providers in case they lose investors’ crypto-assets.

What regulatory solutions can best help meet the challenge of digitization and add value to the market for money? There is now a widespread belief that the most pronounced innovations concern the structure of individual products, but not the rights contained therein (assuming there are any). At present, the European regulator is called upon to work with private parties to develop a coordinated legal strategy to guide the development of the industry toward a balance point that ensures its resilience and sustainability (and, thus, to introduce rules that can avoid market failures and align business solutions with the need for financial stability and customer protection).[40]

In this regard, it is clear that the public intervention has to deal with the technical features of the products and then with the rights and obligation provided there in. This means that the regulation of the risks related to crypto-assets refers both to the use of cryptography (and of decentrated networks to circulate) and the rights that a consumer obtains with the investment in crypto-assets.

Focusing on the approach underlying the MICAR, it is evident that the EU regulator has not clearly distinguished among infrastructure, product, rights and obligations. Indeed, the lack of this distinction, does not reflect the foundations in the current regulatory approach, whereby the infrastructure is regulated in order to reduce transactional costs, increase information and ensure its operational resilience, while the product is regulated to have a minimum level of quality and usability, as well as rights and obligations related to money (and savings) are set in order to protect the weak party of a contract (the borrower, the saver, the consumer). [41]

Definitely, there is no doubt that public intervention must aim at protecting the weaker party, and we can easily assume that fintech is not the environment for advocating a less interventionist model against those who remain wedded to the virtues of protection.[42] Thus, this approach would require a significant effort to the European Securities and Markets Authority (ESMA) in developing regulatory technical standards on the functioning of this market, as well as an increased focus on personal data protection, cybersecurity robustness, and ultimately resilient organizational choices (due to the possible acceleration that will follow this new regulation).

At a regulatory level, in fact, the content of the MICAR refers to uniform rules for: (a) transparency and disclosure; (b) the authorization and supervision; (c) the operation, organisation and governance (of issuers and service providers); (d) consumer protection; (e) market abuse. It looks like a self-standing global set of rules, that would set up a regulated market for products that does not qualify as financial instruments (as defined in Article 4(1), point (15), of Directive 2014/65/EU), nor electronic money (as defined in Article 2, point (2), of Directive 2009/110/EC, except where they qualify as electronic money tokens under this regulation); deposits (as defined in Article 2(1), point (3), of Directive 2014/49/EU); structured deposits (as defined in Article 4(1), point (43), of Directive 2014/65/EU); securitization (as defined in Article 2, point (1), of Regulation (EU) 2017/2402).[43]

Not surprisingly, the European Commission has supported a proposal focused on exploiting the opportunities offered by innovative products that lay out of the scope of the current financial regulation, and this seems to be aimed at making the market for money more competitive and efficient. It is clear that the single market provides a useful regulated environment to allow innovation to serve the welfare of citizens, as far as supervisors are in the position to control that the use of algorithms and big-data does not align intermediaries’ behavior to the detriment of competition, just as they can check that the structure of the network is resilient and the design of new products does not affect conduct to the detriment of sound and prudent management.

In this respect, there are evident difficulties in classifying a product as a digital representation of value or rights (which may be transferred and stored electronically, using distributed ledger technology or similar technology, i.e., crypto-asset) by considering that its subscription does not provide any of the rights and obligations that leads to the qualification as a financial product. The same practical difficulties goes with (i) the type of crypto-asset that can be used as a means of exchange and that purports to maintain a stable value by referring to the value of a fiat currency that is legal tender (i.e. e-money token), which shall not be considered electronic money; (ii) the type of crypto-asset that purports to maintain a stable value by referring to the value of another asset (e.g. several fiat currencies that are legal tender, one or several commodities or one or several crypto-assets, or a combination of such assets, i.e. asset-referenced token), which shall not qualify as derivatives.[44]

Although the above, early guidance and practices suggest that the supervision of issuers, market managers and service providers (including custodian and exchanger) is a key feature of a public intervention that aims to let consumers enjoying the benefits of fintech. Hence, the need for question whether it is necessary also to supervise the programmers of the algorithms that gather information and support managerial choices (i.e., cognitive algorithms) or, at the very least, the producers of the algorithms that supports the self-executing transaction in cryptos (provided that certain exchanges are the result of autonomous responses to customers’ demands, so-called decision-making algorithms). [45]

From a regulatory standpoint, it is remarkable the public intervention made by means of the MiCAR on the issuers that offer such crypto-assets to the public or seek an admission of such crypto-assets to trading on a trading platform for crypto-assets. Based on the subjective qualities of the issuer itself (art. 4), on the presence of an informative ‘white-paper’ (art. 5) and a minimum content for marketing communications (art. 6), the MiCAR is building the pillars for seeking to prevent the most common information asymmetries, as well as the provision of the right of withdrawal would protect consumers from their own irrational decisions (art. 12).

All the above leads us to recall the principle of ‘same activity, same risk, same rules and same supervision’, which imposes a clear commitment on policy makers to promote a regulation for a market that effectively supports negotiations based on high-tech mechanism, in order to ensure that such market will reach an equilibrium that complies with the levels of safety, stability, transparency and protection that qualifies the EU internal market.

6. Bearing in mind the importance of voluntary exchanges in allocating resources in the most efficient players and noting the various obstacles to value-maximizing exchanges, it is worth considering that the digitation of finance has increased the velocity and the volume of the transactions. In this respect, it is necessary to verify the hypothesis on the reliability of the self-executing process of exchange (that qualify the exchanges of cryptos), which was assumed to operate reliably without legal intervention when the relevant parties perform their obligations under the contract simultaneously, provided that opportunism and unforeseen contingencies are excluded from that assumption.[46]

It comes in first consideration the interference between the functioning of the market and the reliability of the rights related to the subscription of a crypto-asset. Both are integrated in a digital complex that gives content to the system described above as a market.[47] This, of course, is a market that has been included in the scope of the public intervention (by means of the safeguards provided set by MiCAR), but it is required also to control the technology with respect to the possibility to ensure the exercise of individual rights in order to ensure that the choice of a technology does not affect the public safeguards and backstops.[48]

This requires a specific intervention to ensure the resilience for the financial sector, as the Commission pointed out in setting the priorities to make Europe fit for the digital age and to build a future-ready economy that works for the people.[49] Indeed, policy-makers have increasingly focused on risks stemming from reliance on cryptography and information technology, as well as on the continuous functioning of the communication protocols and infrastructures.[50]

All the above has led to the Proposal for an EU Regulation on digital operational resilience (DORA), to prevent financial instability stemming from the materialization of specific ICT risks.[51]

Considering the impact of this proposal, it is clear that the public intervention for setting minimum quality requirements for ICT systems would reduce the need for strengthening capital buffers in financial intermediaries, as additional capital requirement would be only able to increase supervised entities’ ability to absorb losses (that could arise due to a digital misfunctioning).[52] Indeed, a set of rules aimed at regulating the digital operational resilience combined with centralized supervision of critical elements of the technological infrastructure – would realize a proactive form of defense against the danger due to the intensive use of technology (and the full reliance on its effective running), even if this would require the establishment of a new authority (or at a least new departments in the current European Supervising Authorities) [53]to supervise the production of technology and the provision of services that are functional to the market for money.[54]

As far as DORA aims to create a regulatory framework in order to prevent and mitigate cyber threats, its scope seems to look for a homogenous and coherent application of all components of the risk management on ICT-related areas, while safeguards the level playing field among supervised in respect of their capital adequacy requirements (art. 2). Obviously, the resilience of the market for money would require a broader scope for these rules because we cannot assume that consumers (and other operators) would prevent to be intertwined with un-regulated infrastructures.[55]

In other words, the strengths are also the weakness of DORA. Indeed, Governance related requirements (Article 4), ICT risk management requirements (Articles 5 to 14), Digital operational resilience testing (Articles 21 to 24) and Information sharing (Article 40) refers to a paradigm that can improve the safety of supervised entities but does not extend its direct effects to any entity that deals with the digital products and infrastructures. This approach is not in line with the idea that the use of cryptography (as well as the leverage of decentralized communication and the access to unregulated platforms) broadens the scope of public intervention beyond the marks made during the twentieth century (during which the movement of capital was mainly executed within the assets and liabilities of a supervised credit institutions).

Indeed, in a ‘digital single market’, the market is based on a form of competition due to the matching of supply and demand by means of ICT tools that are alternative to the services provided by supervised entities, and to the offering of assets that are different from the sovereign money (i.e., the cryptos) to support the circulation of wealth.

It is essential to underline that a coherent legal framework requires that any entity (including those that are outside the scope of the prudential supervision) must be obliged to build, assure and review its operational integrity from a technological perspective, as well as any provider must address the security of its offering (in terms of products, services, network and information systems). This is the ground for supporting the safe and sound production and circulation of cryptos and suggest remarking one of the first recitals of the DORA, which provides that the use of ICT has gained a pivotal role in finance, assuming today critical relevance in the operation of typical daily functions of all financial entities. However, such consideration should have supported a significant intervention to regulate and control all the firms that deals with new forms of supply and demand of capital in the EU internal market.[56]

In this respect, it is worth recalling the directions provided by international bodies (FSB, G20, etc.), which have suggested to consider the impact of fintech in setting up the public intervention aimed at correcting market failures and protecting individual rights and then the opportunity to fosters a public intervention centered on a principle-based legislation and automatized mechanism of regulation and control (i.e., regtech and suptech).[57]

7. Supervising the market for money and its products or alternatives requires policy-makers to consider the features of both fintech and money, provided that the supervision should be able to control the algorithms and modify their essence by introducing self-executing constraints, limits, controls and security measures. From a mere regulatory perspective, this may be considered as a form of protection of individuals from any fraud or misconduct, even if it is executed by means of machines or if it comes out a misfunctioning of the latters.

From this perspective, it comes into consideration the proposal for pilot regime for controlling the markets that rely on infrastructures based on distributed ledger technologies (DLT).[58] It refers to the need for increasing the legal certainty of transactions that results from multilateral matches of offerings and acceptances that does not converge to one center, by removing obstacles to the application of new technologies in the financial sector (that can also come from the actual terms and conditions set forth by the operators) and ensuring the protection of individual rights (together with the market integrity) and the overall financial stability (by selecting the type of products that can circulate under this regime).[59]

Hence, at this stage of the analysis, it is worth investigating whether the policy-makers that draft this proposal has considered fintech as a mere technological shift (able to affect the EU internal market for capital) or they are starting in considering the chains – made outside the scope of prudential supervision or central-banking backstops – that take places by means of DLT and other innovations. Obviously, it comes into consideration also the need for understanding the opportunities for the cryptos and the other opportunities due to the application of fintech to the market for money.

Provided that this ‘Pilot Regime’ is part of the EU digital finance package, it is clear that the set-up of a markets in cryptoassets, the regulation of digital operational (in order to increase its resilience) and a proposal to clarify or amend the current rules on banking and finance aim at driving any individual or enterprise to the safe and sound management of capitals. However, as far as cryptos are one of the major applications of blockchain technology in the capital market, the regulation of the use of DLT would impact on this sector rather than on supervised entities.

It is important to move from the consideration that this proposal aims to allow for experimentation through derogations for the use of DLT in the trading and post-trading of crypto-assets that qualify as financial instruments. Nowadays, such a qualification would lead to a duplication of activities related to the circulation of such assets, provided that the issuer, the seller and the buyer must comply with the obligations set forth by MiFID regime and the requirements requested by the underlying technology.

In turn, from a legal perspective, cryptos refer to blockchain, which consists in a mere instrumental attribute of a new (generally) accepted way to fulfil obligations by means of a device and an infrastructure laying down certain decentralized databases, maintained by distributed networks of computers.[60] From a purely economic point of view, cryptos have represented one of the most popular digital products to be included in investors’ portfolios. Anyway, this part of the analysis is interested in recalling that the cryptos has been treated as cash (e.g., for the acquisition of a land in the metaverse) and, thus, whether these proposals – and the whole EU digital strategy – are adequate to protect the individual rights involved in the exchange of cryptos, rather than the possibility that these would influence the effects of monetary policies.

At this stage of the analysis, the ground for the supervisory intervention does not refer to the possibility that (in certain cases) cryptocurrencies can be an alternative product that fulfil – by means of the blockchain and distributed ledger technology – the traditional functions of sovereign money, and then they can be considered as a substitute of money. On the contrary, it refers to the costs and the benefits of setting up a pilot regime for supporting the transaction of the current market infrastructure from a centralized design to the effective use of distributed ledger technologies.

In other terms, the proposal for a pilot regime does not support the use of cryptos in alternative to money, but it promotes the experimentation of DLT market infrastructures, so that the current supervised entities would be able to exploit the full potential of the existing technologies, allowing supervisors and legislators to monitor this experimentation and to identify the potential dangers and market failures.[61]

Considering the impact of this pilot regime, it is worth mentioning that its alternative regulatory approaches would rely on the soft law (i.e., the publication of non-legislative measures to provide guidance on the applicability of the EU framework on financial services to crypto-assets that qualify as financial instruments) or on the hard law (by enacting targeted amendments to the EU framework on financial services). Provided that a strict interpretation of the current regulatory framework could prevent the use of new technologies, the soft law cannot be an effective tool. On the contrary, the use of hard law could have promoted a fast reaction of the industry, that could have led to the increase of operational risks. In any case, the option for a pilot regime seems to be aimed at providing flexibility for market participants who wish to operate a new market infrastructure.

In particular, the uniform requirements for operating these DLT market infrastructures leads to the provision of permissions to make use of ‘DLT market infrastructure’, ‘DLT multilateral trading facility’ or ‘DLT MTF’, ‘DLT securities settlement system’ and ‘DLT transferable securities’ (as defined by article 2) and to limitations in terms of DLT transferable securities that can be admitted to trading on, or recorded by, DLT market infrastructures (article 3). Specific requirements apply also to CSD that aims at operating a securities settlement system. All the above is under the duty of cooperation among the DLT market infrastructure, competent authorities and ESMA (in accordance with article 9). Indeed, it is clear that the EU financial services legal framework was not designed by exploiting the opportunities connected with DLT and crypto-assets, however the lack of a secondary market for cryptos (able to provide liquidity and to enable investors to buy and sell such assets), the relevant industry will never engage in full competition, nor will be able to evolve to an effective market for the allocation of resources in an efficient and sustainable way.

An asset class of cryptos (so-called ‘stablecoins’) have attracted much attention, due to their potential to achieve widespread adoption. Indeed, according to the ECB statistics, the market capitalization of stablecoins has risen from USD 5 billion to USD 120 billion since 2020 and they are serving increasingly different functions in the infosphere.[62]

Like other cryptos, the stablecoins come in many forms, some of which may fall outside the current regulatory framework, that is the main reason why this asset class has been recently considered as a threat to financial stability, because of its features aimed at stabilizing a sort of value.[63]

It is clear that the fintech industry has always aimed at preserving cryptocurrencies’ value, and this aim is in line with the general need for protection of consumers that holds cryptos, provided that the form of storage may involve services for preventing their usage, whereas other concerns refer to the safety of platforms that provide the storage service, notwithstanding the reassuring properties of blockchain technology (which is specifically designed to prevent any fraud).

Indeed, the Commission also assessed specific options for the stablecoins, where these would also be considered crypto-assets not covered by existing EU financial services legislation.[64] At the same time, this stream of intervention is inherently connected with the need to overcome the limits due to the absence of any intermediary providing payment services, whose intervention would clearly mean that the counterparties have been identified, and then they are known not only to the intermediary itself but to supervisors too. In turn, this intervention deals also with the ‘counterparty risk’, being actual the risk of the other side’s solvency.

Indeed, it is worth considering that the proposal of MiCAR imposes more stringent requirements on ‘stablecoins’, which are more likely to grow quickly in scale and possibly result in higher levels of risk to investors, counterparties and the financial system. It is also important to avoid regulatory arbitrage between ‘stablecoins’ and traditional electronic money, provided that – in certain transactions – the first can be a substitute of the second.[65] Thus, the European intervention is called to regulate a complex structure underlying the product, aimed at gaining the trust of the consumers. In particular, the design of stablecoins comprises many interdependent functions and legal entities, even if this product does not fall within the scope off the existing EU financial services legislation, and then it is not subject to safeguards and backstops established to protect individual rights and to mitigate the financial stability risks.

Focusing on the lines of the public intervention, a first direction should refer to the organization and the chains that lies under the crypto itself (i.e., governance body, asset management, payment and customer-interface functions), and would regulate any interactions with the supervised entities (in order to avoid any possible domino effect).

It is clear that this would have led the EU regulator towards an intervention aimed at addressing the risks posed by ‘stablecoins’ and ‘global stablecoins’ and then at establishing prudential backstops that would have reduced (or rather, zeroed the affordability of any transaction of the supervised entities in cryptos). Indeed, a public intervention based on a strict risk-based approach would have segregated the banking industry and this part of the fintech environment, preventing any direct vulnerability to financial stability of the credit institutions, but reducing the development of different types of ‘stablecoin’ business models.

From another perspective, it should be considered that today the Electronic Money Directive regulates a product that has a stable-value (referred to the sovereign money) and certain ICT features. It is clear that e-money and stablecoins are two different products, provided that the e-money is linked to the power of the State, and that it is also based on the centralization of the information in the records of an intermediary. Anyway, it is possible to contemplate that – in certain scenarios – these two products may be considered as substitutes.

According to this hypothesis, it comes into consideration the aim of creating a “means of payments” by issuing a stablecoin that is reliable because it is – directly or indirectly – backed by a reserve (provided that the relevant contractual structure does not fall within the scope of the MiFID rules). Yet it could be argued that ‘stablecoin’ issuers should comply with existing rules on electronic money and payment services. So, the establishment of a level playing field is one problem with which the public intervention must cope.

In any case, the focus goes to the legal aspects of operational risk related to the use of stablecoins, provided that such use is due because of a widespread trust in the value of such cryptos. It is clear that a way of public intervention would have limited the use of ‘stablecoins’ within the EU, by simply to restricting the issuance of ‘stablecoins’ or the provision of information about an intrinsic value of these cryptos. Anyway, it is necessary to consider that the blockchain infrastructure underlying cryptocurrency transactions differs from trading venues and such kind of ban may be very difficult to enforce.

In light of the above, it is possible to remark the role of private law in supporting both the agreements related to the use of stablecoins and the environment whereby the latters circulate, provided that such cryptos qualify for both (i) the main purpose to be used as a means of exchange (and that purports to maintain a stable value by referring to the value of a fiat currency that is legal tender, i.e. the so-called ‘electronic money token’ or ‘e-money token’) and (ii) the possibility to provide digital access to a good or service, available on DLT (i.e. the so-called ‘utility token’). It comes into consideration also the ‘algorithmic stablecoins’, the aim of which refers to a stable value maintained via protocols (in response to changes in demand or supply).[66] Indeed, such kind of stablecoins may refer to a group of qualified issuers (rather than an open community) and then its value is linked to the technical capabilities on which the relevant platform is based (to ensure the execution of such transactions).

According to the above, it is worth recalling the public intervention based on monetary policy choices, provided that it is necessary for the policy-makers to assess what should be meant by money, to choose the entity delegated to carry out monetary policy, and to define the rules for payments and financial transactions. As the management of monetary policy is delegated to a supranational central bank (as it is in the case of ECB), the Member States must consider the fundamental role of this institution while designing the market for money.

9. Tulips are one of the first few flowers to bloom in the spring—when temperatures are just starting to rise and snow still occasionally falls. This is a consideration that both recalls the tulpenmanie (1634 – 1637)[67] and the timeliness with which cryptocurrencies have given financial substance to the latest technological innovations (in the year 2009)[68].

This remark helps in considering the current regulatory choices as the reply to the need for protection of both stability (of financial operators and credit institutions) and individual rights (of investors acquiring these cryptos).[69]

Considering all the previous paragraph as a sole light beam, it highlights the impact of the evolution of financial technology on the market for money and supports the understanding the role of fintech with respect to the effects on monetary trends, by considering the development of tech-fueled instruments used as an alternative to sovereign money.[70]

From a monetary perspective, the tolerance of non-sovereign cryptocurrencies by policymakers and central banks seems to refer to the assumption that ‘throughout history, the nature of money has evolved in response to socioeconomic changes … but the functions of money – as a means of exchange, a unit of account and a store of value – have remained the same for centuries’.[71] In this context, there are no objections to the will of exploring the opportunities related to the operational features of the cryptocurrencies and, in particular, the current setup of their networks and verification mechanisms.[72]

Considering both the current application of cryptography and distributed ledger technology to substitute money and the perspective of applying the cryptography’s innovation to the activity of issuing sovereign money performed by central banks, the need for a supervisory intervention over any crypto would represent a requirement for innovating the systems developed in the twentieth century for the circulation of money (based on central banks, banknotes and banks as well as electronic money and payment services provided by regulated intermediaries).[73]

All the above clarifies the direction of the public intervention, provided that the Christine Lagarde, President of the ECB, has expressly stated that ‘Our work aims to ensure that in the digital age citizens and firms continue to have access to the safest form of money, central bank money’.[74] Thus, we are not at the end of the sovereign money, although in recent years considerable consensus has emerged towards the legitimacy of cryptocurrencies as a key element of a system for supporting the circulation of wealth, winning out in relationships among operators who fully adhere to the wired-society. Also, these operators – not infrequently – have argued that such alternatives to sovereign money could have constituted the end of the technological and ideological evolution of the network, as well as the definitive form of freedom among private operators, presenting cryptos as an escape from the sovereignty and its problematic crises. Anyway, the aforesaid forms of public intervention over cryptos shows that we are not facing the end of the money (or rather the monetary system) as a unique and coherent evolutionary process that takes into account the experiences of all economies in all times.

[1] It is worth clarifying that the use of the term efficiency denotes that the allocation of resources shall maximize the relevant value, by introducing possible thoughts related to the application of an ethical criterion of social decision-making; see Posner, Economic Analysis of Law, New York, 2006, p. 11

[2] See on this point the precedent EC, Resilience, Deterrence and Defence: Building strong cybersecurity for the EU, Joint communication to the european parliament and the council, 13 September 2017

[3] See Communication from the commission to the European Parliament, the Council, the European Economic and Social Committee and the Committee of the Regions on a ‘Digital Finance Strategy for the EU’, Brussels, 24.9.2020

[4] In this context, we will use the term ‘cryptos’ to refer to goods that are immaterial, individually identifiable by means of the cryptography and able to circulate in the infosphere. In this respect, this term can include both cryptocurrencies and cryptoassets, by considering the latter as ‘a digital representation of value or rights which may be transferred and stored electronically, using distributed ledger technology or similar technology’, in accordance with Article 3, Proposal for a Regulation of the European Parliament and of the Council on Markets in Crypto-assets, Brussels, 24.9.2020 COM(2020) 593 final.

In any case, we are considering the tool rather than its content, provided that the current approach of banking and financial regulation aims at regulating the rights and the obligations arising from public duties or private agreement despite of the support in which they are incorporated.

All the above, leads us to focusing on the risks of market failures, the efficiency new ways of supporting the circulation of value and then the possible utility of these new crypto-tools; see Lemma, Fintech Regulation, Cham (SW), 2020, p. 363.

[5] See Avgouleas, E. and Kiayias, A., 2018. “The Promise of Blockchain Technology for Global Securities and Derivatives Markets: The New Financial Ecosystem and the ‘Holy Grail’ of Systemic Risk Containment”, Edinburgh School of Law Research Paper No. 2018/43

[6] See Bank of England 2020 “Central Bank group to assess potential cases for central bank digital currencies”, 22 January

[7] See Proposal for a Directive of the European Parliament and of the Council amending Directives 2006/43/EC, 2009/65/EC, 2009/138/EU, 2011/61/EU, EU/2013/36, 2014/65/EU, (EU) 2015/2366 and EU/2016/2341, no. 2020/0268 (COD)

[8] See Olson M., Logic of Collective Action: Public Goods and the Theory of Groups, Harvard (UK), 1974, which suggests considering what is not taken for granted in collective action: the individual incentives. Indeed, our reference to the original theory of group and organizational behavior made by Olson that cuts across disciplinary lines and illustrates the theory with empirical and historical studies of particular organizations. Applying economic analysis to the subjects of the political scientist, sociologist, and economist, Mancur Olson examines the extent to which the individuals that share a common interest find it in their individual interest to bear the costs of the organizational effort.

The theory shows that most organizations produce what the economist calls public goods, and then goods or services that are available to every member, whether or not he has borne any of the costs of providing them. Economists have long understood that defense, law, and order were public goods that could not be marketed to individuals, and that taxation was necessary. They have not, however, taken account of the fact that private as well as governmental organizations produce public goods.

The services the labor union provides for the worker it represents, or the benefits a lobby obtains for the group it represents, are public goods: they automatically go to every individual in the group, whether or not he helped bear the costs. It follows that, just as governments require compulsory taxation, many large private organizations require special (and sometimes coercive) devices to obtain the resources they need. This is not true of smaller organizations for, as this book shows, small and large organizations support themselves in entirely different ways. The theory indicates that, though small groups can act to further their interest much more easily than large ones, they will tend to devote too few resources to the satisfaction of their common interests, and that there is a surprising tendency for the “lesser” members of the small group to exploit the “greater” members by making them bear a disproportionate share of the burden of any group action.

[9] See Rossi G., Denaro e finanza, un bene pubblico, in, 18 November 2012, which moves from the evidence raised by the protests that – at that time – were sweeping through most Western democracies – ranging from “Occupy Wall Street” to “Indignados” to marches and clashes in Greece, Spain and Italy. Indeed, the Author recalls both Ricardo and a scholarly and updated perspective for a new global political economy that considers money and finance as ‘supranational public goods’ (referring to a book of Riccardo Fiorentini and Guido Montani, The new global political economy, UK, 2012).

[10] It is worth recalling the Italian approach to the regulation of money, in this respect see Ascarelli, La moneta, Padua, 1928; Savona, La sovranità monetaria, Rome, 1974; Stammati, Moneta, Enc. Dir., vol. XXVI, Milan, 1976; Capriglione, MonetaEnc. dir., Milan, 1999, p. 747 ff. In h respect, please see also the approach of Keynes, A Treatise on Money, London, Macmillan, 1930, I, chapter 1; Kelsen, Il problema della sovranità e la teoria del diritto internazionale, Milan, 1989

[11] See Bollen, R. A. 2013. “The Legal Status of Online Currencies: Are Bitcoins the Future?”, Journal of Banking and Finance Law and Practice.

[12] It refers to Directives 2006/43/EC, 18 2009/66/EC, 19 2009/138/EC, 20  2011/61/EC, 21 EU/2013/36, 22 2014/65/EU, 23 (EU) 2015/2366, 24 (EU) 2016/2341 25 of the European Parliament and of the Council, as mentioned the Proposal no. 2020/0268 (COD)

[13] See Capriglione, F. 1975. “I surrogati della moneta nella vigente normativa del T.U. n. 204 del 1910 sugli Istituti di emissione”, Banca borsa titoli di credito.

[14] See Committee on the Global Financial System and Financial Stability Board. 2017. “FinTech credit: Market structure, business models and financial stability implications”.

[15] See Pellegrini, 2021, Transparency and Circulation of Cryptocurrencies, Open review of management, banking and finance

[16] In this context, a complete definition of the shadow banking system must take into account the subjects not included in the scope of government supervision and the operations aimed at achieving a (regular, synthetic, or derivative) circulation of capital outside of any regulated market, without the involvement of supervised intermediaries; see Lemma, The Shadow Banking System, London, 2016, p. 15

[17] See See Masera, La (non) proporzionalità della sorveglianza bancaria nell’UE: problemi e prospettive, in Rivista Trimestrale di Diritto dell’Economia, 2020, fasc. 1, pt. 1, p. 40 ff.

[18] See Chatterjee, S. and Jobst, A. A. 2019. “Market-Implied Systemic Risk and Shadow Capital Adequacy”, Bank of England Working Paper No. 823

[19] See Schneider-Williams (2013) “The Shadow Economy”, Institute of Economic Affairs Monograph, Hobart Paper, no. 172

[20] See Consob 2018. “Lo sviluppo del FinTech. Opportunità e rischi per l’industria finanziaria nell’era digitale”, 1st March.

[21] Provided that the use of alternative sources of liquidity in private transactions is subject to the dominance of the sovereign money (as legal tender issued by the competent public authority), as the former is the ultimate instrument able to satisfy any obligation of payment (art. 1278 of the Italian Civil Code).

[22] See Pozsar, Adrian, Ashcraft, and Boesky (2013) Federal Reserve Bank of New York Staff Reports – Shadow Banking, Federal Reserve Bank of New York Economic Policy Review, December 2013, p. 1.

[23] SeeECB 2019, “Crypto-assets – trends and implications”, Bruxelles

[24] See ESMA. 2017 “ESMA alerts firms involved in Initial Coin Offerings (ICOs) to the need to meet relevant regulatory requirements”.

[25] See Posner, Economic analysis of law, cit., p. 481

[26] See ESMA “Guidelines on securitisation repository data completeness and consistency thresholds”. 17 January 2020

[27] See Wright, A. and De Filippi, P. 2018. “Blockchain and the Law: The Rule of Code”, Harvard Cambridge (MS).

[28] See Van Loo, R. 2018. “Making Innovation More Competitive: The Case of Fintech”,UCLA Law Review. See also Davola, Bias cognitivi e contrattazione standardizzata: quali tutele per i consumatori? in Contratto e impresa, 2017, no. 2, p. 637 ff.

[29] Let us recall EC, FinTech action plan: For a more competitive and innovative European financial sector, 8 March 2018 with respect to Fintech impacts on the way financial services are produced and delivered, as this document clarifies that FinTech sits at the crossroads of financial services and the digital single market

[30] See Canepa, Il dilemma della regolazione delle piattaforme., in AA.VV., I servizi pubblici. Vecchi problemi e nuove regole, Torino, 2018, p. 143 f.

[31] See Burchi, A. – Mezzacapo, S. – Musile Tanzi, P. – Troiano, V. “Financial Data Aggregation e Account Information Services. Questioni regolamentari e profili di business”, Quaderno FinTech n. 4, 2019; March; Sciarrone Alibrandi, A. – Borello, G. – Ferretti, R. –  – Lenoci, F. –  – Macchiavello, E. –  Mattassoglio, F. – Panisi, F. “Marketplace lending, Verso nuove forme di intermediazione finanziaria?”, Quaderno FinTech n. 5, 2019

[32] See Mersch, Y. “Money and private currencies: Reflections on Libra. Speech by Member of the Executive Board o f the ECB”, at the ESCB Legal Conference, Frankfurt am Main, 2 September 2019

[33] See Troiano, 2021, The evolving European regulatory framework of banking groups, Open Review of Management, Banking and Finance.

See also Minto, A. 2017. “FinTech and the Hunting Technique”: How to Hit a Moving Target”, Open Review of Management, Banking and Finance.

[34] See Rabitti, 2021, Internet Of Things, intelligenza artificiale e danno: l’incerta attribuzione della responsabilità, in AA.VV., Tech Law. Il diritto di fronte alle nuove tecnologie, Napoli, p. 161 ff.

[35] See Manaa, M. and others. 2019. “Crypto-Assets: Implications for Financial Stability, Monetary Policy, and Payments and Market Infrastructures”, ECB Occasional Paper No. 223.

[36] It goes without saying that this capability would include in any cryptos a set of highly personal information, that must be protected and made accessible only to the competent authorities and for the sole purpose of countering criminal actions. Furthermore, if high-tech data management techniques can record all the information that emerges in the use of virtual currencies and cryptography allows for the protection of sensitive information.

[37] See Nelson, B. 2018. Financial stability and monetary policy issues associated with digital currencies, Journal of Economics and Business.

[38] See Savona, 2021, Features of an economics with cryptocurrencies, Lectio Magistralis at the University of Cagliari, Oct. 5

[39] See Rossano D., 2019, Il Robo advice alla luce della normativa vigente, in AA.VV., Liber Amicorum Guido Alpa, Milano, p. 365 ff.

[40] See Ammannati, 2018, Regolare o non regolare, ovvero l’economia digitale tra ‘Scilla e Cariddi, in AA.VV., I servizi pubblici. Vecchi problemi e nuove regole, Torino, p. 101 ff.

[41] OECD “How to deal with Bitcoin and other cryptocurrencies in the System of National Accounts?” Meeting of the Working Party on Financial Statistics, 5 November 2018

[42] See Hondius, The Protection of the Weak Party in a Harmonised European Contract Law: A Synthesis, in Journal of Consumer Policy, 2004, p. 245 ff.

[43] See art. 1 and 2 of the Proposal for MICAR

[44] See IMF. 2016. “Virtual currencies and beyond: Initial considerations”, IMF Staff Discussion Note.

[45] See Lopucki, 2017, Algorithmic Entities, in UCLA School of Law, Law-Econ Research Paper No. 17-09

[46] See Posner, Economic analysis of law, cit., p. 93

[47] See Lener, La “digitalizzazione” della consulenza finanziaria. Appunti sul c.d. robo-advice, in AA.VV:, Fintech: Diritto, tecnologia e finanza, Roma, 2018, p. 45 ff.

[48] See Lemma, Fintech regulation, cit., p. 5

[49] See EBA “The EBA’s fintech roadmap. Conclusions from the consultation on the EBA’s approach to financial technology (fintech)”, 15 March 2018

[50] See Houben, R. and Snyers, A. 2018. “Cryptocurrencies and blockchain. Legal context and implications for financial crime, money laundering and tax evasion”, European Parliament – Policy Department for Economic, Scientific and Quality of Life Policies – Directorate-General for Internal Policies.

[51] See Alpa, 1998, Cyber law. Problemi giuridici connessi allo sviluppo di internet, in Nuova giurisprudenza civile commentata, fasc. 6, II, p. 385 ff.

[52] See Pellegrini, 2021, L’intelligenza artificiale nell’organizzazione bancaria: quali sfide per il regolatore? in Rivista Trimestrale di Diritto dell’Economia, I, p. 422 ff.

[53] See Siclari, 2016, “European capital markets union” e ordinamento nazionale, in Banca borsa e titoli di credito, I, p. 481 ff.

[54] See ECB 2019, “Crypto-assets – trends and implications”, Bruxelles

[55] See Benanti – Darnis – Sciarrone Alibrandi, 2020, Per una resilienza con la tecnologia. Appunti per il post Covid-19, in AA.VV., Pandemia e resilienza, p. 113 ff.

[56] See SCHERER, 2016, Regulating Artificial Intelligence Systems: Risks, Challenges, Competencies, and Strategies, in Harvard Journal of Law & Technology, Vol. 29, No. 2

[57] See Arner, D. W., Barberis, J. N.and Buckley, R. P.. 2016. “FinTech, RegTech and the Reconceptualization of Financial Regulation”, University of Hong Kong Faculty of Law Re-search Paper No. 2016/035;

[58] See Davola, 2020, Algoritmi decisionali e trasparenza bancaria, Torino, p. XII ff.

[59] See Alpa, Competition of legal systems and harmonization of European private law, Munich, 2013, p. 51 ff.

[60] See Lemma, Fintech Regulation, cit., p. 374

[61] Indeed, the pilot regime would allow for real use cases and help build the necessary experience and evidence on which a permanent EU regulatory regime could be inspired, as stated in the Proposal for a Regulation on a pilot regime for market infrastructures based on distributed ledger technology, Brussels, 24.9.2020 COM(2020) 594 final 2020/0267 (COD), p. 6

[62] See The expanding functions and uses of stablecoins, prepared by Mitsutoshi Adachi, Alexandra Born, Isabella Gschossmann and Anton van der Kraaij, published as part of the Financial Stability Review, November 2021.

[63] See Explanatory memorandum of the Proposal for MICAR, p. 2

[64]  See McCormick – Minto, Governance of Banks in an Era of Regulatory Change and Declining Public Confidence, in Law and Economics Yearly Review, 2014, Vol. 3, I, p. 6 ss

[65] See Sciarrone Alibrandi, A. 2008. “L’adempimento dell’obbligazione pecuniaria tra diritto vivente e portata regolatoria indiretta della Payment services directive 2007/64/CE”, “Il nuovo quadro normativo comunitario dei servizi di pagamento. Prime riflessioni”, Quaderni di Ricerca Giuridica della Banca d’Italia n. 63; Olivieri, G. 2001. “Appunti sulla moneta elettronica. Brevi note in margine alla direttiva 2000/46/CE riguardante gli istituti di moneta elettronica”, Banca borsa titoli di credito.

[66] See Mattassoglio, 2019, Algoritmi e regolazione: mito o realtà, in AA.VV., I luoghi dell’economia. Le dimensioni delle sovranità, Torino, p. 57 ff.

[67] See McClure – Thomas, Explaining the Timing of the Tulipmania Boom and Bust: Historical Context, Sequestered Capital, and Market Signals, in Financial History Review, 2017, according to which it is worth to framing Tulipmania in terms of sticky consumption and sequestered capital (i.e. capital whose quantities, usages, and future yields are hidden from market participants). In a nutshell, the Authors try to show that the tulip bulbs planted in 1636 were sequestered capital. Planting them (underground) blindfolded 17th century Dutch speculators regarding the planted quantities and their development and future yields. Indeed, he price-boom began in mid-November of 1636, coinciding with the time of planting, while the price-collapse occurred in the first week of February 1637, coinciding with the time of bulb sprouting (signaling bulb quantities, development, and future yields). The evidence to confirm this theory are gained from the initial price-collapse location, in the Dutch city of Haarlem, where temperature and geography favored early sprouting and sprout-visibility.

[68] See Peterson, Hal Finney received the first Bitcoin transaction. Here’s how he describes it, in, January 3, 2014

[69] See Lemma, Fintech Regulation, Spam (CH), 2020, provided that such part of the research moves from the hypothesis that the protection of savings invested in such ‘crypto-instruments’ refers to individual rights; therefore, it was required a specific law and economics analysis aimed at understanding the convenience to set specific safeguards able to guarantee their capacity to preserve their value and support payments, along with further backstops for avoiding thefts, plagiarisms and frauds.

[70] Let us highlight the law and economic approach of this analysis, in line with the approach of a CAPRIGLIONE – SEPE, 2021, Rilessioni a margine del Diritto dell’economia. Carattere identitario ed ambito della ricerca, in Rivista Trimestrale di Diritto dell’Economia, I, p. 385 ff.

[71] See, Lagarde, The future of money – innovating while retaining trust, in L’ENA hors les murs magazine, Paris, 30 November 2020

[72] See Savona, P. 1974. “La sovranità monetaria”, Rome

[73] See ECB, “Central bank group to assess potential cases for central bank digital currencies”, Bruxelles 21 January 2020

[74] See Eurosystem launches digital euro project, press release,14 July 2021


Valerio Lemma is Full Professor of Law and Economics at the Law Faculty of Università degli Studi Guglielmo Marconi in Rome, and Coordinator of the Master programme in «Financial market regulation» at Luiss University.

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