Crypto in limbo

Pavel Matveev
Jul 29, 2019 · 4 min read

A lack of clarity

The power of cryptocurrency to change the way we live is undeniable. From ‘banking the unbanked’ to powering cost-free, instant international transactions, decentralized digital currency has enormous potential. However, thanks to its tendency to dominate the headlines, it’s easy to forget that the crypto market is relatively new and largely unregulated. Governments and central banks around the world have, for the most part, been reluctant to create new regulations or incorporate digital currency into existing legislation.

A lack of regulatory consensus means that the asset status of crypto tokens — whether they represent utilities, securities or payments — varies by jurisdiction. National attitudes towards cryptocurrencies range from pragmatic acceptance and integration, like the approach of Japan’s Financial Services Agency (FSA) which legalized cryptocurrency in April 2017, all the way to the blanket bans on digital currencies imposed by the Chinese and Indian governments. Other major regulatory bodies like the USA’s Securities and Exchange Commission (SEC) and the UK Financial Conduct Authority (FCA) remain firmly on the fence or appear reluctant to clarify regulations on crypto.

Further muddying the waters, the FCA recently released a report describing how the versatile applications of tokens like Ethereum and XRP mean that they can represent multiple asset classes simultaneously. Against such a complex backdrop, it’s no wonder that regulatory bodies are taking their time catagorising cryptocurrencies.

Winds of change

A catalyst is needed to speed things up. That catalyst might turn out to be Facebook’s proposed cryptocurrency, Libra (LIT). Officially announced in May this year, Libra is designed for peer-to-peer remittance with a tentative launch date of 2020. Whether or not the social media giant’s native cryptocurrency will prove a more effective means of moving money than crypto-based alternatives like stablecoins remains to be seen; that Libra has captured the attentions of both the public and financial regulators is beyond doubt. Facebook’s arrival on the crypto scene — and the sheer interest it has generated — has forced regulators to begin clarifying the status of Libra and other digital currencies. It’s about time: payment companies like Circle have already started moving their crypto operations outside the USA due to obstructive, outdated financial regulation.

Gary Gensler recently submitted a written report to the U.S. House of Representatives arguing that Libra is a security token. The former chairman of the Commodity Futures Trading Commission (CFTC) said, “It’s unambiguous that LIT is a security as it will receive a net return based upon interest on the Libra Reserve. Looking through to the economics, the Libra token is part of the same pooled investment vehicle and bears multicurrency and market risk.” If Libra is considered a security, it will fall under the jurisdiction of the SEC — a move that will have significant implications for token issuers and crypto companies in the U.S.

The devil in the detail

What might this mean for companies like Wirex who are in the process of expanding their operations into North America and around the world? A brief comparison of the mechanism underlying Libra and our equivalent Wirex stablecoins sheds some light. Libra, while designed for international remittance like stablecoins, is not backed one-for-one by a currency or commodity. Instead, its value is tied to a raft of currencies and government bonds. Members of the Libra Association (the project’s governing body) will earn collateral generated by this ‘Libra Reserve’.

Wirex stablecoins are pegged one-for-one to a variety of major currencies. Their value is as stable as the currency they are backed by, allowing them to be used for transferring funds around the world quickly and efficiently through the Stellar Network. Importantly, our stablecoins are classified as ‘payment tokens, deThis is underlined by the scalability, speed and security of the Stellar infrastructure they are built on. Significantly from a regulatory perspective, Wirex stablecoins fall under our existing FCA e-money licence because they represent tokenized fiat money — this could have massive implications for many different companies, platforms and token issuers.

Dual purpose

I’ve already discussed how democratizing access to digital currency and crypto-powered transactions is an integral part of Wirex’s core mission — as is the mainstream adoption of the token economy. To this end, we only integrate currencies that serve a utility function beyond their market valuation, whether it’s education (Wollo), remittance (Lumens and XRP) or smart contracts (Ether). The launch of our native Wirex Token is a perfect example. Unlike many initial exchange offerings (IEOs), it wasn’t conceived as a means of raising funds — rather, it gives our customers the power to get even more out of their Wirex experience, with discounted fees, merchant offers and enhanced rewards. Importantly, we sought extensive legal opinions from multiple law firms on the feasibility and legal status of the Wirex Token in both the EEA and APAC:

“We do not consider the WXT Token to be a security in the UK, as there are no ownership rights in relation to Wirex or the Group. We note that WXT Token Holders have no rights to, nor share in any profits, revenues or distributions by Wirex or the Group. ” Orrick, Herrington & Sutcliffe

In the regulatory limbo that cryptocurrency occupies, this level of due diligence is beyond valuable and facilitates the acquisition of local licences.


From cryptocurrency to company culture: Insights, lessons and learnings from the Wirex team

Pavel Matveev

Written by

CEO @ Wirex



From cryptocurrency to company culture: Insights, lessons and learnings from the Wirex team

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