Securities token offerings, cryptocurrencies, and crypto-related assets are new categories of assets. Relatively little pension money has been invested in cryptocurrency and crypto-related assets, but that amount is growing. This chapter evaluates whether those assets are suitable investments for pension plans and pension participants.

In this chapter, structures that generate yield in cryptofinance will be analysed and related to leverage. While the majority of crypto-assets do not have intrinsic yields in and of themselves, similar to cash holdings of fiat currency, revolutionary innovation based on smart contracts, which enable decentralised finance, does generate return. Examples include lending or providing liquidity to an automated market maker on a decentralised exchange, as well as performing block formation in a proof of stake blockchain. On centralised exchanges, perpetual and finite duration futures can trade at a premium or discount to the spot market for extended periods with one side of the transaction earning a yield. Disparities in yield exist between products and venues as a result of market segmentation and risk profile differences. Cryptofinance was initially shunned by legacy finance and developed independently. This led to curious and imaginative adaptions, reminiscent of Darwin’s finches, including stable coins for dollar transfers, perpetuals for leverage, and a new class of exchanges for trading and investment.

The initial title of this chapter was “Will the U.S. Security Law Lead Cryptoassets Regulation?”, because I was quite confident it would do. Then, the exploration of this topic in different jurisdictions questioned my belief. The US was not properly leading the regulatory intervention and neither Europe nor UK, which are the jurisdictions part of my analysis. The key element that was missing in all the three regulatory frameworks was a global vision. Crypto-assets run on the Internet, which has no geographic boundaries. As a consequence, a crypto-asset regulation cannot be developed in isolation. However, there are important lessons that can be drawn from the experience of each jurisdiction singularly taken.

This chapter analyses the meaning, legal implications, and policy consequences of Decentralised Finance (‘DeFi’). Decentralisation has the potential to undermine traditional forms of accountability and erode the effectiveness of traditional financial regulation and enforcement. At the same time, where parts of financial services are decentralised, there will be a reconcentration in a different (but possibly less regulated, less visible, and less transparent) part of the financial services chain. DeFi regulation could and should focus on this reconcentrated portion to ensure effective oversight and risk control. In fact, DeFi requires regulation in order to achieve its core objective of decentralisation. Furthermore, DeFi may further the idea of ‘embedded regulation’– building regulatory approaches into the design of decentralised infrastructure, potentially decentralising both finance and its regulation in the ultimate expression of RegTech.

Cryptocurrencies are reshaping money and payment systems in unprecedented ways. Catalysts include the launch of Bitcoin in 2009, the evolution of decentralised and centralised technologies, the announcement of Libra in 2019, the ongoing live trials of China’s Digital Yuan, and the COVID-19 pandemic and the related move to presenceless payments.This chapter considers the policy issues and choices associated with cryptocurrencies, stablecoins, and central bank digital currencies (‘CBDCs’) and emphasises that there is no single model for CBDC design. The catalysts reshaping monetary and payment systems challenge regulators. While Bitcoin and its thousands of progenies could be ignored safely by regulators, Facebook’s proposal for Libra, a global stablecoin (‘GSC’), brought an immediate and potent response from regulators globally. This proposal by the private sector to move into the traditional preserve of sovereigns– the creation of currency– was always likely both to trigger such a regulatory response and the development of CBDCs by central banks. China has moved first with its e-CNY– an initiative that may, in time, provoke a chain of CBDC issuance around the globe.

In its 2020 survey, the Edelman Trust Barometer identified a paradox: ‘despite a strong global economy and near full employment, none of the four societal institutions that the study measures – government, business, NGOs and media – is trusted’.1 This is a rather grim sounding paradox. One can try to resolve it in a variety of ways. An obvious way would be to argue that when we measure trust, we are measuring a rather uninformative quantity. After all, trust can be considered good and a loss of trust would accordingly be bad only if and insofar as trust is placed in something or someone actually worthy of our trust. So, the true problem, one could argue, is not the loss of trust but the loss of trustworthiness – and this has not been measured.2 Whether trust is a good proxy for trustworthiness has yet to be established.