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Crypto Assets and ICOs as seen by ESMA's SMSG

05 November 2018. Published by Ella Shanks, Trainee Solicitor

Part 1: Definitions and Taxonomy

On 19 October 2018, ESMA's Securities and Markets Stakeholder Group (SMSG) published a report on initial coin offerings (ICOs) and crypto assets. The report is a useful one-stop shop for relevant definitions, classifications and statistics and we summarise the highlights in this two-part series.


The SMSG is a group of representatives responsible for providing technical advice on policy development to the European Securities and Markets Agency (ESMA). The report takes stock of the various approaches currently deployed by European Member States in relation to crypto assets and ICOs, as well as making recommendations to ESMA as to steps it could take to mitigate the risks posed to investors and general financial stability by ICOs and crypto assets.


The SMSG acknowledges that the language of crypto assets is often deployed inconsistently between different jurisdictions, issuers and investors and frequently interpreted incorrectly in the media. It aims to clarify matters by setting out its interpretation of key terms. Of course, until a unified set of nomenclature is adopted there will be scope for differences of understanding, but the SMSG's definitions, detailed below, are worth considering:

Crypto asset: a generic term for virtual currencies, cryptocurrencies, virtual assets and tokens.

Virtual currency: a digital representation of value that is neither issued by a central bank or a public authority and only rarely attached to a fiat currency, but is accepted by a growing number of natural or legal persons as a means of payment and can be transferred, stored or traded electronically.

Cryptocurrency: a subset of virtual currency which is secured using cryptography. Generally, cryptocurrency transactions are recorded on a distributed ledger technology database, either public or permissioned by a central authority. The SMSG identified 1930 cryptocurrencies in existence as at 11 September 2018, mostly using distributed ledger technology like blockchain.

Token: a broad term which encompasses many crypto assets and can be defined by comparing with account-based assets. An account-based system relies on the ability to verify the identity of the owner, while a token-based system relies on the ability to verify the validity of the token itself. A token, like a banknote, is a bearer's asset. Banknotes include multiple physical security features. In the crypto asset world, tokens are secured by cryptographic keys.

ICO: the initial offering of any crypto asset.

Categories of Crypto Assets

There is no universal classification of crypto assets. However, the Swiss Financial Market Supervisory Authority (FINMA) has adopted taxonomy in February 2018[1] guidelines which the SMSG endorsed. Again, as with the definitions, until a unified taxonomy is adopted there will be scope for differences of understanding, but by adopting FINMA's approach, the SMSG at least seeks to avoid adding yet more noise to the existing clamour.

FINMA sorts crypto assets into the following groups:

  1. Payment tokens: a means of payment for acquiring goods or services by which the holder of the asset has no claim on the issuer. Virtual currencies, including cryptocurrencies like Bitcoin, are examples of payment tokens.

  2. Utility tokens: provide access to a specific application or service but are not accepted as a means of payment for anything other than their specific purpose.

  3. Asset tokens: represent assets such as a debt or equity claim against the issuer of the token. For example, asset tokens could promise a share in future company earnings or future capital flows. They are analogous to equities, bonds or derivatives.

In the second part of this series we highlight some interesting observations from the SMSG report on the state of crypto asset markets as they stand across European jurisdictions.