Report on the legal situation of Melon-based (d)apps in the DACH region

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25 min readMay 4, 2020

This report is part of our 1 year roadmap based on our Melon funding proposal from April 2019.

1. Introduction

The goal of this document is to give an overview of the legal requirements for blockchain-based business models and specifically Melon-based applications in the DACH region. This is to provide a basis for actors within and around the Melon ecosystem to assess jurisdictions and their regulative approach as well as their compatibility with Melon use cases. The focus is put on the DACH region (including Liechtenstein) since Midas Technologies is a Swiss company and maintains close connections to Germany and Liechtenstein. The conclusions drawn in the report derive from consulting and conversations with experts from all of the three regions. The report is supposed to help readers to get a better understanding of what jurisdiction currently provides the highest grade of legal certainty and guidance for blockchain-based businesses. It is important to note that the situation worldwide is continuously changing. This is why the report can only represent a snapshot of legal developments in the global crypto industry.

This document is no legal advice

…and should only serve as a source of orientation for individuals or companies that interact or seek to interact with the Melon protocol for the purpose of establishing a business hereupon. The case of “Ash” reveals the importance of assessing business models on a case-to-case basis as well as the indispensability of hiring professional legal advisors in order to guarantee full compliance with all existing regulations.

2. Crypto regulation in the DACH region

The DACH region has been one of the most active regions when it comes to crypto regulation. Particularly Switzerland and the Crypto Valley Zug were at the center of attention of early crypto projects, even before the ICO hype in 2017/18. The early and comparatively progressive steps by the Swiss financial authority Finma were also part of the reason why Midas Technologies was founded in Zug. At the time of incorporation (Nov. 2017) Swiss regulators seemed more supportive of the crypto industry compared to other countries like the USA or China. However, almost three years later, the situation has changed in the way that Liechtenstein seems to turn into the crypto- friendliest jurisdiction in the DACH region, if not worldwide. This is mainly due to a new blockchain law which came into force in January 2020. Further, the sheer size of the country (population of 38,557) allows for rather direct communication channels with the Financial Market Authority (FMA). In addition, the government of Liechtenstein seems keen to position the country as a crypto industry hub in order to attract new businesses and business models. Applications with the FMA are answered rather fast in comparison to communication with Swiss Finma or Germany’s financial authority, BaFin. Before discussing the potentials arising from the new crypto laws in Liechtenstein, a brief summary of the situation in Germany and Switzerland will explain some of the hurdles that crypto companies might face there.

2.1 Germany

With the 5th EU Anti-Money Laundering Directive (AMLD 5) by the German legislator, crypto asset custody and crypto asset trading requires a license by the German financial authority BaFin. This poses a series of problems for all fintech startups in the country since these laws apply to all companies holding or trading crypto assets such as Bitcoin and Ethereum, from custody providers to crypto exchanges. The AMLD 5 establishes crypto assets (so-called “Kryptowerte”) as a financial instrument to the German Banking Act (KWG). Additionally, custody of crypto assets is considered as a new type of financial service and therefore requires the authorization of BaFin. Custodians of crypto assets that hold private keys of customers need to fulfill regulatory requirements of institutions in the meaning of KWG. Since the beginning of 2020 they can do so by acquiring a newly created “crypto license”. Companies need to receive the license until Q4 2020 to be allowed to provide crypto services to German customers. This means those firms must also announce their intent to apply for a license by March 31st. Similar to Switzerland, a tech due diligence is part of the license requirements such that BaFin demands some kind of “technological opinion” about the technology involved. This requirement can become a critical bottleneck if dozens of applying companies will have to go through a tech-due diligence first.

However, the law goes further than had been previously planned as in the previous draft of the bill crypto asset custody or trading would have had to be separated from traditional financial services. This means that banks needed to rely on external custodians or dedicated subsidiaries if they wanted to offer any crypto-related service. While a larger bank can easily open a subsidiary with exclusive focus on crypto, smaller startups would very likely not have the resources to do so. The present law still comes with uncertainties and insufficiencies since it is mainly addressing and regulating “traditional” crypto assets such as Bitcoin and Ether. Consequently, companies handling Bitcoin and Ether have a better working basis; but the moment they handle other crypto assets the legal situation is still blurry and suboptimal. Security tokens still underlie securities regulation, where traditional laws apply. This is because a security token contains characteristics of a security and a crypto asset at the same time. However, the classification as a crypto asset is subordinated to the definition of traditional financial instruments which means that a security token is classified as a security. As a result a crypto wallet provider might not be allowed to hold tokens that are considered a crypto currency like Bitcoin, and security token in the same legal entity. The same logic applies to decentralized crypto exchanges (DEX). For these exchanges other regulatory frameworks might apply, e.g., regulation for trading assets, such that they might not develop similarly to “basic” Bitcoin trading.

In conclusion, the current regulatory framework in Germany definitely brings crypto a step closer to proper regulation as crypto assets become institutional-grade once market participants have received the license. However, dapp projects and actors that deal with other assets than BTC and ETH are still left in the dark. The current regulation framework leaves a lot of questions unanswered and it is unclear how and when the German regulators will continue their work. With regard to Melon-based apps it would definitely be recommended to get in touch with BaFin before starting any kind of business. As already mentioned it is important, particularly for smaller projects, to expect this to take time and resources.

2.2 Switzerland

In 2018 the Swiss Finma was one of the first regulators to make steps towards the regulation of ICOs. At this point in time Switzerland took an avantagdist position in the global landscape of crypto regulation and provided a fair amount of legal clarity with regard to the issuance and distribution of tokens as public offering. Finma announced that to assess ICOs, it will focus on the economic function and purpose of the token issued by the ICO organizer. The key factors are the underlying purpose of the tokens and whether they are already tradeable or transferable. Since there was no generally recognized terminology for the classification of tokens either in Switzerland or internationally, Finma categorised tokens into three types:

Payment tokens
Synonymous with cryptocurrencies without further functions or links to other development projects
Utility tokens
Tokens which are intended to provide digital access to an application or service
Asset tokens
Tokens which represent assets such as participations in real physical underlyings, companies, or earnings streams, or an entitlement to dividends or interest payments. Analogous to equities, bonds or derivatives

Based on this analysis, Finma stated that money laundering and securities regulation are the most relevant to ICOs. The Anti-Money Laundering Act contains requirements for financial intermediaries including, for example, the need to establish the identity of beneficial owners and mainly aims to protect the financial system against the risks of money laundering and the financing of terrorism. The securities regulation is intended to ensure that market participants can base their decisions about investments on a reliable minimum set of information. Moreover, trading should be fair, reliable and offer efficient price formation. On the basis of these criteria and acknowledging that ICOs can also exist in hybrid forms, Finma announced to handle ICOs according to the following three types:

Payment ICO
The token is intended to function as a means of payment and can already be transferred. Subject to anti-money laundering regulations, not considered a security.
Utility ICO
If the utility token can already be used at the point of issue, these tokens do not qualify as securities.
Asset ICO
Subject to securities law as well as civil law under the Swiss Code of Obligations (e.g. prospectus requirements)

In 2019 Finma published a statement regarding stablecoins in the course of the discussions around Facebook’s Libra Coin. In general the authorities stressed that Swiss financial markets regulation is principle-based and technology-neutral. Finma’s treatment of ‘stable coins’ under supervisory law follows the existing approach taken to blockchain-based tokens: the focus is on the economic function and the purpose of a token (‘substance over form’). In ruling on concrete projects, Finma follows the proven principle of ‘same risks, same rules’ as well as the specific features of each case. Later in 2010 Finma published another statement regarding payment processes on the blockchain which again stressed the tech-neutral perspective and its focus on anti money laundering and terrorist financing. The main result for service providers in the crypto space is the legal requirement of client KYC, transaction monitoring and risk management with regard to the anti terrorism act.

The legal framework given by Finma does provide some degree of clarity for crypto service providers in Switzerland. In particular, companies seeking to raise money through an ICO can rely on a rather clear guidance in global comparison. Finma further uses the categorization of tokens for the taxation qualities of crypto assets. A KPMG paper stated in 2019 that the factsheets published by the tax authorities serve as a good starting point for developing a practice on the treatment of mainstream cryptocurrencies. As alternative crypto assets continue to flood the market and as the technology supporting cryptocurrencies develops, new assessments will be necessary though. From this perspective, the same problem of insufficient regulation for altcoins seems to emerge in Switzerland and Germany. With regard to Melon-based apps it would definitely be recommended to get in touch with Finma before starting a business. Similar as in Germany, a case-to-case decision by the financial authorities requires amounts of time and money that are simply not feasible for a lot of startups. Another problem arising for companies in Switzerland is that once a license is acquired, it is only valid for the Swiss market and not for the entire EU.

2.3 Liechtenstein

In January 2020 the Tokens and TT Service Providers Law came into force in Liechtenstein and allows straightforward tokenization of all kinds of assets and rights without legal workarounds. The new law refers to blockchain and DLT systems as “trustworthy technology” (TT) and represents a collection of new rules and changes of existing laws that allow rights and assets to become tokenized. Tokenization in that case means that as of January 2020 nearly any right or asset can be “packaged” into a token according to the “Token Container Model” (TCM). This model is regarded as progressive and serves to provide legal certainty for pre-existing rights that are tokenized as well as for information stored on blockchain-based systems. As Professor Philipp Sandner, Head of the Frankfurt School Blockchain Center at the Frankfurt School of Finance & Management, emphasizes:

“Liechtenstein amended its civil law to allow the token world to have priority over the physical world for the cases where tokens exist for rights and assets. Besides this, the act provides regulatory and supervisory rules regarding those interacting with blockchain systems — including consumers, service providers, and intermediaries”.

(Source: NÄGELE Attorneys at Law LLC, 2019)

These supervisory rules are particularly helpful to assess legal requirements for decentralized application providers as they show a clear overview of different use cases and what licenses and requirements companies have to fulfill to be able to offer these use cases. Thereby the Liechtenstein authority’s efforts to provide legal clarity and guidance for the crypto space exceed the efforts of Germany and Switzerland by far.

3. Liechtenstein Tokens and TT Service Providers Law

From January 2020 the Tokens and TT (Trustworthy Technology) Service Providers Law in Liechtenstein addresses a range of legal questions around tokenization, ICOs, crypto payments, as well as various blockchain-based business models. For the latter the FMA published guidelines on different service provider categories and necessary licenses. In view of the enormous significance of the financial service sector in Liechtenstein, the government’s aim in creating this framework law is to make it easier to bridge the divide between established institutions and blockchain applications. The regulator stressed that the blockchain technology will very likely become a potential and attractive basis for financial services (such as banks, funds, insurance companies and asset managers) as well as other sectors of the economy. The aim of the law is therefore the creation of good framework conditions in Liechtenstein for blockchain companies and the token economy. Further, the regulator is aware that further questions are likely to arise in the future. These questions shall be clarified on an ongoing basis in order to drive the overarching state innovation process in which the described framework conditions will be continuously developed.

The Liechtenstein-based law firm, Nägele Attorneys at Law LLC, published an English version of the report.

3.1 Trustworthy Technology (TT)

The long-sighted approach of the new Tokens and TT Service Providers Law starts with the careful choice of terminology:

“To prevent this Law from becoming outdated from a technical perspective and having a limited scope of application in just a few years, the technology-neutral formulation of the term “blockchain” is very important. […] The term “transaction systems based on trustworthy technologies” covers a view of blockchain systems that is as technology-neutral as possible in order to meet the needs of future technological generations as well.” (Tokens and TT Service Providers Law, p. 52.)

The FMA acknowledges that today’s blockchain ecosystem revolves primarily around payment tokens and its various applications. However, the regulator sees that ICOs have shown that not only digital money, but also, for example, software usage rights or financial instruments can be represented on blockchain systems. As a result the FMA comes to the conclusion that a legal definition which mainly relates to crypto-currency or crypto-shares cannot do justice to the full range of potential applications of the whole token economy. Hence, the FMA sees the necessity of a more abstract formulation that goes beyond “money” and “securities”. With regard to tokenization the financial authority states that rights connected to a token are just represented in digital form on TT systems, or are subject to the legitimation and transfer regulations of the TT system. The original “legal right” and thus all the related legal consequences remain in effect. For this representation of rights on a TT system to have legal certainty, the new law introduces the legal subject of the “token”, which makes it possible to represent all types of rights on a TT system in the first place. The key sentence in this matter is: “The “token” is therefore a kind of “container” for representing a right.” ( Tokens and TT Service Providers Law, p. 54).

3.2 Token Container Model (TCM)

Hence, one of the building blocks of the law is the so-called Token Container Model (TCM). With this framework, a token becomes a container with the ability to hold rights of all kinds. This container can be “loaded” with a right that represents a real asset such as real estate, stocks, bonds, gold, access rights, money:

“The “token” is therefore a kind of “container” for representing a right. The case of an “empty” container is also possible, and relevant in practice, for example crypto-currencies without real value collateralisation (e.g. Bitcoin).” (Tokens and TT Service Providers Law, p. 54)

In conclusion, the TCM clarifies that a security token is simply a security (with all the rules, licenses, duties attached to it) technically transferred onto the token which loads the security like a container. The word “container” is actually to be understood literally here. The token can now be transferred to a new owner, can be managed in a portfolio or can be stored by a custody provider. In order to clarify evolving questions such as rights to tokens, delegation to third parties and the legal connection between the token and the represented, the FMA introduced a set of terms to describe elements around the token itself as well as transfer processes and storage:

the “token” as a new legal object for representing rights of all kinds,
the “TT identifier” as an element to assign tokens (a type of unambiguous “address” in blockchain systems derived from the “public key”),
the “TT key” as an element to dispose over tokens assigned to a “TT identifier” (named “private keys” in blockchain systems),
the “holder of the TT key” as a person who can actually dispose of the “TT key”,
the “person possessing the right of disposal over the TT key” as a legal person entitled to rights similar to those of an owner of tokens, and
the “delegate of the person holding the right of disposal” as an independent role, for example, in the case of safekeeping of TT keys

Tokens and TT Service Providers Law, p. 56

In the words of the FMA, tokens on TT systems are typically assigned to an address, generally known as the “TT identifier”. All the tokens that are assigned to a “TT identifier” can be disposed of via the “TT key”. This terminology and assessment system enables a categorization of actors that interact with tokens on different levels. Based on these categories, the financial authority has developed a set of licenses and registration requirements.

3.3 Service Provider Categories

The different service providers in the crypto space can be described along the life phases of a token. Different events in the token’s life indicate different requirements of the actors, e.g. token generator, token issuer, token depositary. The FMA therefore provides multiple possibilities to register with the FMA such that companies can act along the life phases of tokens. However, all categories are subject to the legally specified minimum standards for TT Service Providers, and must also ensure appropriate internal procedures for the proper execution. These basic requirements are described hereafter (3.4 Registration & Licences). There are currently four main categories that service providers can be divided by:

Token Emission
The process of token emission is subject to registration under the Tokens and TT Service Providers Law. This means that companies that issue tokens are obliged to publish basic information about the tokens and to correctly inform potential buyers. According to the requirements of article 30, an issuer of publicly offered tokens needs to prepare and publish appropriate basic information in advance. This serves the protection of users by informing about associated opportunities and risks. The systematic structure of this article is based to a large extent on the provisions of the Securities Prospectus Act (WPPG). The main difference between a securities prospectus under the WPPG, and basic information under the TVTG, is that although the latter must be submitted to the FMA, no formal approval of the information is required by the FMA.

TT key depositary
A TT Depositary keeps TT keys for clients in order to ensure security, or an easier disposal as part of their services. In most cases the key depositary will generate the key directly for the customer. Typical examples are:

Wallet providers
Storing keys centrally on a server, thereby reducing the risk entailed by a possible loss of the smartphone
Offline storage providers
Storing keys separate from the internet in order to reduce the risk of hacker attacks
Crypto exchanges
Initiating the disposal of the tokens directly on behalf of the client in order to allow trading transactions to be carried out more efficiently

Delegation comes with a risk of misuse and loss of assets, especially in the case of bankruptcy of the service provider, or if the technical precautions are not sufficient. The FMA tries to protect the user by requiring that tokens must by law be kept separate from the assets of the TT key depositary in the event of bankruptcy and they must not be used to satisfy creditors’ claims.

TT token depositary
The token safekeeping service for customers is important for transaction accounts. Used, for example, by crypto exchanges or custodian banks, transaction accounts can efficiently process a large number of transactions by many customers. The TT token depositary shall assign all of their customers’ tokens to one or several TT identifiers over which it has the power and right of disposal. The allocation to the customer is done in a — usually separate — database.

Physical validator
The physical validator’s function and duty is to identify the holder of tokens with a tokenized real world counterpart. It knows who is owning the token and, with it, the tokenized asset and has the duty to ensure the contractual enforcement of the represented rights and obligations, e.g. by storing the assets (or rights) of the real world in a vault. If errors occur, if the physical assets are stolen or damaged, or if the physical validator does not comply with the rules, it has the responsibility to solve these issues. This way, the new law assigns the responsibility to guarantee a perfect synchrony of the physical world and the digital world to the physical validator.

3.4 Registration & Licenses

One guiding principle is that some new service providers that interact with the blockchain and the tokens need to be regulated. Some of these new formats of service providers need not only a registration with the Liechtenstein FMA, but also a license to operate. As there are risks related to the usage of crypto services in principle all service providers are subject to the SPG (Sorgfaltspflichtgesetz — Due Diligence Act). Furthermore, all persons with headquarters or place of residence in Liechtenstein seeking to act as crypto service providers have to apply for the TT Service Provider Register with the FMA (Article 12). Article 13 names four basic requirements that need to be met by all applying companies:

Be capable of action
Be reliable (Article 14 defines “reliable” as not having been convicted by court for fraudulent bankruptcy, damage to third party creditors, severe or repeated violations of the provisions of the Law on Unfair Competition or the Consumer Protection Act etc.)
Be technically suitable (Article 15 defines this as being sufficiently technically qualified for the task in question due to education or prior career)
Have their headquarters or place of residence in Liechtenstein

Depending on the field and range of service a company wants to provide at least another four requirements need to be considered and can apply individually or all together:

The necessary minimum capital (Article 16)
A suitable organizational structure with defined areas of responsibility, including procedures for dealing with conflicts of interest
Written internal proceedings and control mechanisms that are appropriate in terms of the type, scope, complexity and rists the services provided; including ensuring sufficient documentation of these mechanisms
Special internal control mechanisms (Article 17)

The following analysis (4. Melon based apps) will show that for Melon-based applications and business models the role of the TT key depositary in the shape of a crypto exchange is in particular critical to be looked at. The requirements for a. The minimum capital and d. Special internal control mechanisms are straightforward. The minimum capital as demanded by the regulator:

TT key depositories: CHF 100,000
Exchange Providers: CHF 30,000 (if transactions with a total value of more than CHF 150,000 up to CHF 1,000,000 are issued within a period of twelve months)
Exchange Providers: 100,000 (if transactions with a total value of more than CHF 1,000,000 are issued within a period of twelve months)

The internal control mechanisms as demanded by the regulator:

establishing suitable security measures which in particular prevent the loss or abuse of keys
the separate safekeeping of customers keys from the business assets
the maintenance of services in the event of interruptions
the disclosure of comparable market prices of the traded tokens
the disclosure of the purchase and sale prices of the traded tokens

4. Melon-based apps

Based on the categorization of blockchain-based business models and service providers in Liechtenstein as analyzed above, there are three Melon use cases that can be described along the new regulation. These use cases differ in their grade of decentralization as well as their scope of protocol functionality made accessible by a company to its customers. The biggest pain point still exists around the trading of securities. It is an important step of the regulator to clearly state that security tokens are being treated like “real world” securities. However, this ruling also poses a challenge for smaller teams and businesses as they need to comply with the Liechtenstein securities regulations if they plan to enable access to trading security tokens. Similar to that, the application of fund management regulations is of particular importance for Melon-based businesses as these regulations also stay untouched by the Tokens and TT Service Providers Law. The same applies to the question whether Melon funds and managers need to be licensed if they want to manage funds of other investors. These questions need to be answered on a case to case basis by the regulator himself. However, we have identified three approaches to argue how under the current Act a provision of Melon services could be possible.

4.1 Decentralized Interfaces

There might be an opportunity for technology providers in the form of non-profit association structures to maintain open and decentralized infrastructure to access the Melon protocol without any regulation as a TT system provider. If such an open infrastructure technology restricts its functionality to enabling access to the protocol, not handling any customer keys, providing no form of KYC procedure, it can be argued that such an association only provides the vanilla interface part of a TT system without providing any of the qualifying services like key management, token trading etc., and thus merely supports access to a decentralized common good. The role of such an entity as “maintainer” of the infrastructure has to be as little as possible which also means that the provider cannot charge service fees. However, it could be argued that a provider can place ads on the interface or receive donations by users. This needs to be assessed in detail based on the Liechtenstein laws for non-profit structures like associations or foundations. Since the Tokens and TT Service Providers Law was just put into effect in January 2020 and there has not been any case so far it will be up to debate if the TT system provider regulation can be flexibly fitted to edge cases like decentralized non-profit organizations. As of now, it can be argued that such structures would not need to register or be licensed under the TT service provider regulation since none of the qualifying services would be provided.

4.2 Centralized Services

Teams that seek to provide their clients with the full range of Melon functionality i.e. opening and managing a decentralized fund, investing & redeeming, managing funds of other participants etc., would need to offer features including key management, KYC, price feed data and exchange functionality and hence are most likely to qualify as TT system providers. Even though the exchange of tokens is technically not provided by the provider as the trading functionality is running on the protocol layer, such a provider would still enable the exchange of tokens by offering a hosted interface solution for the Melon protocol and thus acts as an intermediary. However, the usage of a Melon fund itself could be free of financial license under Liechtenstein law, for the user/manager, considering the token container model that was put into action. As long as the funds strictly operate in an asset universe that solely permits the exchange of utility tokens there is no traditional financial regulation applying. Therefore, such Melon-based businesses are likely to be required to register as TT system providers under the specific regulation for the TT Key Depository. The specific requirements (beyond basic requirement as described in 3.4) in such a case include:

a minimum capital of CHF100,000
internal control mechanisms
a framework suitable to provide best practices concerning organizational governance procedures

While technically there is no case for a Melon protocol-based business to fall in the category of a TT Token Depositary, it still might be necessary to comply with this additional set of regulation as well when registering for a TT system provider license. For a final conclusion the FMA would need to assess on a case to case basis. For that, the Melon protocol’s decentralized nature needs to be portrayed and presented to regulators to highlight the technical specificities of decentralized vs. centralized technology offerings.

The case of Ash
The way it is planned as of now, Ash offers a hybrid composition of centralized and decentralized services. Wallets and passwords are decentralized and remain outside the custody of Midas Technologies AG. However, having a certain amount of assets being traded in the app we will ask our users for KYC as a user protection measure. To create a fund, users will need to register with Ash and connect their fiat payment method in order to then stack their Ash-intern decentralized wallet with a base crypto currency like ETH. With this decentralized wallet users can buy assets for their decentralized fund. This way we know the identity of all users and can comply with user protection regulation while users always remain in power over their funds as wallet and funds are traceable and manageable on the blockchain layer, also outside the app. Further, Ash will curate an asset universe, which is composed according to the legal framework given by the regulators. This means that for the near future, utility tokens will be whitelisted in order to trade them legally based on the TT laws in Liechtenstein. This way Ash can provide its users a utility token based playground which lets them experience the magic of Melon and DeFi in general without having to register as an investment fund manager. As it is not clear yet if the investment functionality of the Melon protocol will be classified as token generation according to the TT framework, since investing triggers the emission of an ERC20 token, we might consider implementing the copyFund module milestone to avoid such token generation and be able to provide investment functionality without violating said section of the framework. This way Ash qualifies as TT system provider and token generator under Liechtenstein law and needs to provide:

a minimum capital of CHF100,000
internal control mechanisms
a framework suitable to provide best practices concerning organizational governance procedures

4.3 Centralized Services with limited Functionality

Another option could be hosting a centralized interface which provides limited access to the functionality of the Melon protocol. As an example such an interface could only allow users to invest and redeem funds while it does not enable the creation and management of Melon funds. Since such an interface would leave the creation and management of funds untouched it acts as a pure investor interface. If a user invests through such an interface, it would create a token representing the Melon fund and send it to the investor. The fund token represents the share a person owns and in that case it could be argued that such a provider falls under the category of a Token Issuer. Although the actual creation of the token happens on the protocol level, the provider enables access to receiving the token. Based on this argument the service provider would be required:

NO minimum capital,
NO due diligence act
internal control mechanisms
a prospectus for each fund token. The document would need to list the risks etc. of the respective fund that a person decides to invest in

5. Conclusion

Before summarizing the key findings of this report it is important to stress again that both, the crypto space and as well as the regulative landscape it is embedded in, are extremely vivid and change steadily. Regulators need to learn about technology and understand the benefits before they can create a suited regulative framework which protects users while supporting providers. Based on the analysis above, we think that regulators of Liechtenstein push an open, constructive and productive process of setting up such a regulative environment. While this is also due to the size of the country and the importance of the financial industry for the Liechtenstein economy, it is not clear if other regulators will take Liechtenstein as a role model. We certainly hope so and it is our task to actively lead the dialogue with regulators in order to increase the understanding of potentials and benefits that blockchain technology can bring. Said that, the report also makes clear that not all questions related to blockchain-based services are clarified yet in Liechtenstein. However, the country provides the most straightforward and tech-friendly framework which can act as an excellent starting point for appropriate regulation of crypto-based businesses.

With regards to business models around the Melon protocol in particular, it is important to state that the specifically sensitive area of fund management is left untouched by the Tokens and TT Service Providers Law of Liechtenstein. The new regulation is by no means a free ride ticket but rather an outstanding set of guiding principles to work along in order to make a case for Melon-based businesses under the law of Liechtenstein. It can be argued that regulators in Germany or Switzerland do also provide usable guidance. However it is the point of willingness and accessibility that currently gives Liechtenstein an edge over the other DACH countries. In the case of Ash we are seeking direct contact with the FMA to analyze our technology and business model in order to find a way to comply with all current regulations while offering the broadest scope of functionality to our users.

After all, the most critical point remains the questions surrounding security tokens. We are convinced that security tokens need to be and will be a crucial element of the Melon universe and we envision them as an integral part of Ash. As of now, this topic remains a construction site which needs to be constantly addressed in dialogues with the regulators. However, thanks to the TCM, Ash has a solid starting point for offering service to customers. This is not only true for Ash but any small company that seeks to provide a crypto service to clients. The direct communication link to the regulators, comparatively short response times as well as the financially manageable registration and licensing requirements make Liechtenstein very attractive for small businesses. In the end, it is always a dance between complying with the given regulatice framework and pushing new ideas and business models that possibly fall within a legal grey zone. If we as tech businesses, do not take the lead in this dance, our visions will not turn into reality. We hope that other blockchain-based and in particular Melon-based businesses follow our way and join us. Further, we hope that this document provides a good inspiration for other teams to assess the current legal situation in the DACH region as well as their business models based on the compatibility with the Liechtenstein Blockchain Act.