What important regulations are in the process of being finalized that provide clarity for investing in Digital Assets and for Blockchain & DLT as an infrastructure in private and public markets (issuance, trading)?
The Swiss DLT framework (the Federal Act on the adaptation of Federal law to developments in distributed ledger technology) which was adopted by the Swiss Parliament in September 2020.

What progress have you seen in 2021 and foresee for 2022?
At the infrastructure level, new institutional-grade service providers will enter the market and provide DLT based infrastructure for the trading of Digital Assets. This will foster the adoption of DLT as the underlying technology for the issuance of financial instruments.

In the traditional investment world, prospectuses are connected with most financial securities and even derivatives have clear industry standards documentation (ISDA). What is the analogous in the new world?
Applying the substance over form principle, Digital Assets should not be treated any differently if they qualify as a financial instrument, thus the ISDA and prospectuses applies in the same fashion depending on the regulatory qualification of the Digital Assets. For Digital Assets that do not qualify as financial instruments, their selling does not trigger any specific contractual documentation other than regular purchase agreements and general terms and conditions.

You have been involved in the design of new regulated digital exchanges (e.g. SDX) and many other Blockchain-based projects in different stages of the investment cycle (primary or secondary markets). Can you share with us a few BIG wins- progress and a few long-term challenges?
The granting of a banking license to the two world’s first crypto banks contributed extensively to the development of the Digital Assets industry in Switzerland. Thanks to our leading position in the world as a crypto-friendly regulatory environment, FINMA, the Swiss financial market regulator has gained substantial knowledge and expertise in assessing DLT based business models, ranging from the issuance of Digital Assets, trading activities to more decentralized type of business models such as DeFi and DAOs. The Digital Assets industry is still in its infancy and some key infrastructures are still missing to unlock the full potential of the industry. Amongst them are institutional grade DLT trading facilities and market data providers.

From a regulatory standpoint, the long-term challenge is to find a dominant regulatory framework which will serve as a reference for the top financial center across the world. It is only once this dominant framework is found that the Digital Assets industry will be able to flourish and scale.

What innovative projects has PwC been involved in that use Blockchain & DLT technology in capital markets and asset management, and what are some learnings?
We have been advising a vast range of financial institutions, from the well-established to the emerging ones in setting up their Digital Assets strategy and service offering. Finding compliant ways to offer Digital Assets related services in a highly regulated environment is very challenging. Our multidisciplinary approach was instrumental in bringing innovative solutions to our clients.

The decentralized nature of smart contract-based finance (such as DeFi), and to a larger extent the WEB 3.0 nascent economy continues to present challenges to the regulators across the globe, thus contributing in turn to the need for a dominant regulatory framework.

This article is from The Wealth Mosaic's WealthTech Views Report: DLT & Blockchain 2022. Access the full report here