What is a financial product?

Following the EU’s introduction of MiCA earlier this year and legislative developments in the US with the GENIUS Act, other major jurisdictions around the world are steadily working to put in place clear rules of the road, intended to give both the cryptoasset sector and traditional finance clear guidance on how to make the most of blockchain technology. British politicians and regulators are working hard to develop regulation for the UK’s cryptoasset sector. Following a long-term political commitment to develop the UK into a ‘global crypto hub’, the regulatory pieces are beginning to fall into place to make this happen. When this regulatory framework has been implemented, the UK will (if all goes to plan) have rules that support the steady growth of the sector and innovation in finance and technology - alongside stronger consumer protection and market stability.  In this Owl Explains post we outline the different recent milestones the UK has passed, and look ahead to what is coming next. HM Treasury: Draft Statutory Instrument for a Regulatory Regime for Cryptoassets HM Treasury (the UK government’s Ministry of Finance) published its so-called Secondary Legislation for cryptoassets on 29 April 2025. Secondary Legislation (via a ‘Statutory Instrument’) is a piece of more detailed legislation that follows on from higher-level, overarching legislation that has already been passed by both Houses of Parliament; in this case, comprising the 2023 amendment to the Financial Services and Markets Act (FSMA), which now brings. cryptoassets into UK financial legislation.  The proposed Statutory Instrument defines ‘qualifying cryptoassets’ and ‘qualifying stablecoins’ as regulated ‘specified investments’and brings under FCA oversight key activities such as running crypto exchanges and custody services, dealing, arranging, staking, and issuing stablecoins. The proposal also amends money‑laundering and financial‑promotion rules, and ensures that stablecoins don’t unintentionally fall under other categories like e‑money or collective investment schemes. Decentralized systems without a controlling party are broadly exempt, and there would be a transition period to allow firms to apply for authorisation.  FCA DP 25/1: Regulating cryptoasset activities Shortly after HM Treasury published its proposals for the Statutory Instrument, the UK’s main financial regulator, the Financial Conduct Authority (FCA), published its related Discussion Paper (DP) 25/1 on Regulating cryptoasset activities.  The discussion paper builds on existing financial market rules, proposing that crypto trading venues follow similar standards to traditional trading venues, with strict transparency requirements, conflict-of-interest rules, and protections for retail clients. It also suggests that intermediaries should follow best-execution rules, that payment-for-order-flow is banned, that lending and borrowing to consumers may be heavily restricted, and proposes a prohibition on the purchase of cryptoassets using credit cards. With respect to staking, clear disclosures, customer consent, separate wallets, and liability safeguards are proposed. Truly decentralised systems without a controlling party remain outside the framework, but any service deemed by the FCA to have a central operator would be included.  FCA CP 25/14: Stablecoin issuance and cryptoasset custody Later in May 2025, the FCA launched Consultation Paper (CP) 25/14, proposing rules for the issuance of fiat-referenced stablecoins and the safe custody of cryptoassets. Issuers would need to fully back every stablecoin with high-quality, liquid assets held in a statutory trust via an independent custodian, honor redemptions at par value within one business day, and regularly publish transparency reports on reserves and redemption policies. Meanwhile, crypto custodians would be required to segregate client tokens from their own, maintain accurate records and governance, and hold assets in trust. This adapts established FCA protections from traditional finance for the digital asset sector.  FCA CP 25/15: A prudential regime for cryptoasset firms At the same time as CP 25/14, the FCA published CP 25/15 to propose a dedicated prudential rulebook for crypto firms that issue fiat‑backed stablecoins or safeguard cryptoassets. It proposes two new rulebooks: COREPRU, which covers general capital, liquidity, and risk standards, and CRYPTOPRU, which is tailored to crypto activities. Firms will have to hold the greater of three capital measures: a permanent minimum (£350,000 for stablecoin issuers, £150,000 for custodians), a buffer equal to 25 % of fixed overheads, or an activity‑based “K‑factor” (equivalent to the market value of 2 % of stablecoins issued or 0.04 % of cryptoassets safeguarded). On top of that, liquidity rules require crypto firms to set  aside enough in high‑quality liquid assets to cover short‑term obligations and ensure resilience, plus safeguards on concentration risk to avoid over‑reliance on any single counterparty or asset.  Further proposals by the FCA are expected in the coming months, following its clear and scheduled ‘Crypto Roadmap’. Taken together, the Roadmap aims to build trust and stability in crypto markets ahead of final rules that are expected to be published in 2026. The rules will then come into effect some time in 2027. What does Owl Explains think about these proposals? Owl Explains strongly supports the UK’s efforts to develop its regulatory regime for cryptoassets. As we consistently argue, a clear, stable and proportionate set of rules is needed  - right around the world - to allow the long-term development of blockchain technology and ensure that its benefits can be fully realized. Piece by piece, policy-makers are laying the groundwork for this in the UK.  For us, the key thing is that regulators recognise that infrastructure providers on blockchain networks are not in themselves financial intermediaries, including but not limited to when they use native DLT Tokens to perform technology functions integral to the operation of the blockchain. The recent proposals put forward by HM Treasury and the FCA go some way to acknowledging this, but it will benefit everyone to have that point clarified more explicitly.  You can read Owl Explains’ Response to the FCA’s DP 25/1 here. And be rest assured, as the FCA follows its Crypto Roadmap, we’ll keep on highlighting what it means and making the case for a clear, stable and proportionate regulatory framework for cryptoassets in the UK - and around the world.

What better place to explore the future than a setting steeped in the past? Against the backdrop of the Dorchester Hotel—an iconic London venue rich with history and elegance—the first Owl Explains Crypto Summit brought together a dynamic mix of policymakers, technologists, legal minds, and industry leaders to tackle some of the most forward-looking questions in crypto and digital markets. The turnout was strong, the energy high, and the conversations —both on and offstage — were substantive. This wasn’t a day of soundbites or sales pitches! So in between the delicious food (miniature vegan lemon meringue pie, yes please), getting your new complimentary professional headshot from Van Scoyoc Associates, and enjoying the contents of your OE tote swag - our owlet attendees were able to enjoy a range of panels, delving into topics including privacy, liquidity, global commerce, autonomous code, anti-money laundering and tokenization. Big Picture Perspectives Sprinkled delightfully among our roundtables we were able to hear from three keynote speakers whose leadership continues to shape digital policy at the highest levels: Lord Holmes (UK House of Lords), Peter Kerstens (European Commission), and MEP Ondřej Kovařík (European Parliament). While occupying very different roles in the policy ecosystem, they all spoke to the power of blockchain and digital assets to enhance the global financial world of tomorrow. Lord Chris Holmes emphasized the need for thoughtful regulation of emerging technologies and called for a cross-sectoral AI framework—highlighting both innovation and social inclusivity, especially for sensory-impaired communities. Peter Kerstens, “the father of MiCA”, used his keynote to underline Europe’s new crypto-assets framework and urged developers not to wait for prescriptive regulation, but to innovate, demonstrating in practice how the rules can be shaped and applied. MEP Ondřej Kovařík offered a forward-looking view on MiCA implementation and its broader implications for the European crypto ecosystem, emphasizing the importance of ensuring a smooth and coordinated rollout of the new framework. With those big-picture perspectives anchoring the day, we can now zoom into the practical, the technical, and the sometimes provocative. Across six expert-led roundtable sessions, attendees had the chance to get stuck into the details: asking hard questions, sharing lived experience, and debating what’s really needed to take this industry from potential to practice. Roundtable Session 1: Tokenizing It All The summit’s first roundtable, Tokenizing It All, explored the implications of a fully tokenized world where stablecoins are commonplace with panelists Helen Disney, Sean McElroy, Yuliya Guseva, Jannah Patchay, Varun Paul, Isadora Arredondo, and Kene Ezeji-Okoye. The discussion delved into the fundamentals - what does it mean to tokenize something, the practical challenges and opportunities of tokenizing various asset classes (including Sean’s apartment!), the role of regulation, and the potential impact on commerce and trading. Roundtable Session 2: DeFi-ing Liquidity The second session, DeFi-ing Liquidity, examined the dynamics between decentralized and centralized finance in providing market liquidity. Panelists Fahad Saleh, Lavan Thasarathakumar, Joey Garcia, Dan Gibbons, David Wells, Sara George, and Olta Andoni had an animated discussion, highlighting the benefits and risks associated with DeFi, the need for regulatory clarity, and the future of liquidity provision in a tokenized economy. And even a sprinkling of friendly feather ruffling as the question of definitional prowess between academics and lawyers came to a head! Roundtable Session 3: Globalizing Commerce If the audience were hungry, they weren’t letting it show. The high spirits continued into the final panel of the morning, which addressed the complexities of global commercial structures in the context of tokenized assets. Panelists Yesha Yadav, Erwin Voloder, Scott Mason, Sam Gandhi, Emma Pike, Dagmar Machova, Ari Pine, and Amanda Wick discussed jurisdictional challenges, the convergence of commerce and trading, and the legal implications of cross-border transactions in a blockchain-enabled world. Roundtable Session 4: The Chase is On The afternoon discussions kicked off with a great panel looking into enforcement, litigation, and anti-money laundering in the realm of tokenized and decentralized finance. Our expert panel featuring Justin Gunnell, Christopher Mackin, Sayuri Ganesarajah, Joanna F. Wasick, Laura Clatworthy, Isabella Chase, Joe Hall, and Jesse Overall shared insights on tracking illicit activities, the role of international cooperation, and the evolving legal landscape in digital finance. They also touched briefly on the rise of wrench attacks, which involve real-world violence targeted at individuals for their digital assets - reminding our audience that the digital and physical worlds are now inextricably linked. Roundtable Session 5: When We Need Secrets The fifth roundtable raised some interesting Nuggets (!) on privacy and identity in a fully tokenized and decentralized market. Speakers Seema Khinda Johnson, Dr. Agata Ferreira, Adam Jackson, Eugenio Reggianini, Adi Ben-Ari, Peter Freeman, and Chris Grieco debated the challenging balance between giving citizens control and privacy, and combating fraud. They discussed the development of digital identity solutions, and the ethical considerations of data protection in blockchain applications. Roundtable Session 6: Code Running Solo Last but by no means least, the final session, Code Running Solo, explored the intersection of cybersecurity, artificial intelligence, and autonomous code in tokenized markets. Panelists Lilya Tessler, Norma Krayem, Laura Navaratnam, Fabian Schär, Eva Wong, Joni Pirovich, and Caroline Malcolm examined the challenges of securing decentralized systems, the implications of AI-driven decision-making and the role of regulation (on which opinions differed wildly!) within that.  Looking Ahead: A Community with Purpose As Wee Ming Choon took to the stage to close out the first ever The Owl Explains Crypto Summit, the mood was buoyant, especially for a conference ending after 6pm! This wasn’t just a policy event—it was a community coming together to explore real questions about how our digital future is taking shape.  One topic that kept coming up was regulation. Are regulators getting it wrong because they have turned their back on technology and competition? Or is that a mischaracterization of the role of regulation - and in fact the incentives work against regulators, promoting continuity of the status quo? Our panels on liquidity and autonomous codes in particular discussed this at length - and while this is not a discussion that can be solved easily, creating platforms for smart and articulate individuals with a range of views and experience to debate them can only serve to be a step towards answers. As our Owl Explains parliament retired to the drinks reception, brains fizzing with a heady mix of topics - from tokenization to AI, from privacy to liquidity, all conversations that didn’t shy away from complexity. And that’s exactly what made them so valuable. In the words of Owl Explains founder Lee Schneider, “I came away with a really positive sense that we will change the world.” It was a sentiment shared by many in the room: pride in what’s been built, and excitement for what comes next.

“Stablecoins are a type of cryptocurrency that act as a form of cash but sit outside the banking system. They are used to pay for other crypto assets…” Financial Times, 2 April 2025 There are a lot of names in the crypto space. People often use them interchangeably. Different countries, different companies, and different regulators all have their preferred names for what they’re talking about. But it matters that we all know what we’re talking about when we use these words and - as much as possible - use them in the same way. This is particularly true when it comes to regulation because without solid definitions, compliance is difficult.  In this Owl Explains note we’re going to tackle lexicography for commonly used terms for what we prefer to call tokens. And explain why we think ‘tokens’ is the best word to use when talking in a general sense. By the end of the article you should be able to see how the Financial Times quote at the top uses these different terms - and decide whether you think it gets them right. Crypto: Let’s start with the fundamental word: ‘crypto’. The ‘crypto’ in cryptoasset or cryptocurrency comes from ‘cryptography’. That is, the use of codes or ‘encryption’ to provide secrecy. Cryptography is an ancient practice going back many thousands of years, at least to the ancient Egyptians. Modern cryptography has been greatly enhanced by the use of computers and new techniques. Together these allow people to create the public and private keys necessary for blockchain. The use of ‘crypto’ essentially just means that some information has been ‘encrypted’ using these modern cryptographic techniques. And in practice it is used to refer to something on a blockchain - or the whole blockchain-based sector itself. Cryptocurrency: A cryptocurrency is, naturally enough, a type of currency utilizing  ‘crypto’. But what is a currency? A currency is a type of money widely used in a particular area. It is a form of ‘money’. So by calling something a ‘cryptocurrency’, its founders are implying that it has the characteristics of money: the dollars, pounds, euros or yen that you use every day. The three fundamental characteristics of money are: That it is a store of value. That is, that what you hold today will be worth the same amount tomorrow. That it is a means of exchange. That is, that other people will be happy to take it in exchange for goods or services they provide. That it is a unit of account. That is, that you can price a good or service in it.  While ‘cryptocurrency’ was one of the first ways of describing these blockchain-based units, it is now largely out of favor since many (or even most) don’t fulfil these three characteristics. When was the last time you heard someone price something in Dogecoin? Cryptoasset: More popular nowadays is the term ‘cryptoasset’ (and note that there are different ways of spelling this: all one word, with a hyphen, or as two separate words). But what’s an asset? An asset is something that has (financial) value. So a cryptoasset is something on the blockchain that holds (or represents) value. This makes sense as a term, given that many people buy or sell ‘cryptoassets’ as speculation (to make money) or because it offers them access to something else that has value (like a blockchain protocol or a good or service in the real world). But while this is a useful term that is in wide use, it does also have one issue with it: it implies the crypto ’asset’ does have some sort of value. Which they don’t always. For example, a tokenized digital record, such as a diploma, might not ever have (or be intended to have) a value. So calling them ‘cryptoassets’ would imply a use - and therefore a form of regulatory treatment - that doesn’t make sense.  This is one of the reasons we stress token classification, including in our submission to the SEC Crypto Task Force. This terminology matters when it comes to thinking about the correct regulatory treatment for things on the blockchain. Nowadays when a regulator or government official says ‘crypto’ they’re referring to a cryptoasset - and probably including the idea of a ‘cryptocurrency’ within it. Stablecoin: Stablecoins are a unique type of ‘cryptoasset’ that attempt to maintain a stable value against a reference asset. Usually today this reference asset will be a so-called ‘fiat currency’: in other words, the normal currency of any given country (dollars, pesos, etc.). In this sense they are a ‘crypto’ or on-chain representation of normal money that already exists, and they fulfil the three functions of currency by ‘piggybacking’ on the underlying existing fiat currency. Previously (around 2018-2019) the term was used more loosely to mean something that tried to reduce volatility in the value of a cryptoasset - either through its backing asset or via an algorithm. Now, largely driven by regulation, ‘stablecoin’ tends to only refer to a token that is pegged one for one to a single fiat currency, or perhaps sometimes to a group (a ‘basket’) of different fiat currencies. So depending who you’re talking to, ‘stablecoin’ could be referring to the whole universe of ‘stablecoins’ that attempt to minimise volatility or just to those, more common now, that maintain a stable value against the reference asset or fiat currency. Central Bank Digital Currency (CBDC): A CBDC is very similar to a stablecoin, in that it is the ‘digital’ version of a fiat currency, except that it is created by a government’s Central Bank or other monetary authority. That is, a CBDC is issued by a country’s public sector and is a direct liability of that authority. There is therefore no private sector company responsible for it, or which could go bankrupt or fail to provide it. That makes it very safe, in an economic sense, for people who hold it. Many countries are still exploring developing a CBDC, and there are significant ongoing political discussions around questions like privacy rights and the ability of governments (or Central Banks) to control how a CBDC might be used by citizens and businesses. Digital [currency/asset/cash]: As you’ll have seen in the term CBDC, this is not called ‘crypto’ but ‘digital’. That’s because ‘crypto’ implies something on a blockchain, as we’ve seen, and through its meaning about the wider sector still sometimes has a negative connotation. Central Banks don’t want to be associated with that - and anyway may not issue on a blockchain. So they used ‘digital’. That makes sense as far as it goes, but has one major problem: the overwhelming majority of ‘traditional’ money is also digital because it exists as commercial bank deposits (and indeed as Central Bank reserve deposits). These deposits are purely digital in that the value solely exists as information inside bank computers. Calling something blockchain-based as ‘digital’ does not really help distinguish it.  In other words, digital is a much broader category that includes crypto. Virtual [currency/asset/cash]: Some people use the term ‘virtual’ in an attempt to get around this confusion, though it’s now a little less used than it used to be. ‘Virtual’ covers basically the same ground as ‘digital’ but without the confusion about existing bank deposits. In this sense it’s really used as a synonym for ‘on-chain’: that is, something based on a blockchain.  Virtual has more traditionally been used to mean anything on the internet, such as people referring to a “virtual meeting” when they do a video call.  For these reasons, by and large the term ‘crypto’ is winning out as the main usage for something on-chain. All these terms are in use, but all have problems. So what does Owl Explains use?  Well, we prefer the term ‘Token’. This word refers to something that is used to represent an asset, item, bundle of rights or thing. It does not necessarily imply financial value (like ‘asset’) or money (like ‘currency’). It is technology neutral, so does not imply something has to be blockchain-based (like ‘crypto’) or not (like a CBDC) - and indeed it even applies to non-digital/virtual representations like those that are based on paper (like old time stock certificates or tickets to an event) or metal (like subway tokens). A ‘token’ can refer to all these things without implying any characteristic, and therefore without prejudging any regulatory treatment. And the word ‘token’ allows anything to be ‘tokenized’ or ‘represented by a token’, which is  a major growth area for the blockchain sector at the moment. In an upcoming post, we’ll explain how tokens themselves can be classified from a regulatory and market point of view.