The Israeli government has taken significant strides towards regulating the crypto sector by forming a special examination team to explore the regulation of decentralized governance organizations, known as DAOs. This step comes in the wake of Israel’s growing interest in cryptocurrencies and aims to establish legal certainty, reduce risk factors, and unlock the immense potential of the Israeli economy in this rapidly evolving field.
Special examination team, led by the Chief Economist at the Ministry of Finance and the Head of the Corporations and Capital Market Cluster at the Ministry of Justice, will delve into the workings of decentralized autonomous organizations (DAOs) and the decision-making processes within them. DAOs, typically based on blockchain technology, employ native crypto tokens for stakeholders to vote on governance matters.
The primary objective of the team is to provide regulatory clarity on the use of tokens and associated risks within these organizations. This move is expected to foster an environment of transparency, stability, and investor protection, which will be vital for the sustained growth of the crypto sector in Israel.
One of the key aspects the examination team is scrutinizing is the use of stablecoins, which are digital currencies pegged to the value of traditional assets like the US dollar. In February 2023, the Bank of Israel published guidelines for overseeing stablecoin activities, which require stablecoin issuers to maintain reserves equal to the total cryptocurrency in circulation, ensuring full backing for coin holders’ liabilities. This approach is in line with global efforts to manage risk and protect consumers in the stablecoin market.
Additionally, the Tel Aviv Stock Exchange (TASE) is also exploring avenues to cater to the increasing demand for crypto trading while mitigating inherent risks. TASE has proposed expanding its activities to allow non-banking financial institutions to offer crypto trading services to their customers. This move aims to provide secure and regulated access to the cryptocurrency market for non-bank entities, bolstering overall participation and accessibility.
Reportedly, in January 2023, the Israel Securities Authority (ISA) was working diligently to create a new regulatory framework for digital assets. By incorporating “digital assets” into the existing securities legislation, the majority of cryptocurrencies would be classified as financial investments under ISA’s control. This would offer investors increased protection and clarity while ensuring that the unique benefits of cryptocurrencies are not compromised.
It is worth noting that the global interest in cryptocurrencies and decentralized finance (DeFi) has seen significant momentum in recent years. Several countries, including the United States, the European Union, and major Asian economies, have been exploring ways to regulate and harness the potential of these digital assets. Israel’s proactive approach positions it well to compete on the global stage and attract investments in its crypto sector.
By establishing a clear regulatory framework for DAOs and digital assets, Israel aims to provide a conducive environment for startups and businesses operating in the blockchain space. The certainty offered by these regulations is expected to attract both domestic and international players, boosting economic activity and fostering innovation in the country.
As the public consultation period continues until September 3, 2023, stakeholders and citizens alike have a unique opportunity to contribute to the formulation of these policies. Israel’s proactive stance in embracing the evolving landscape of digital assets is a testament to its commitment to being at the forefront of technological advancement and financial innovation.