ICO and DAO tokens under the EU financial regulatory framework - part 2

"Sandbox regulation" can indeed help promote innovation without imposing direct regulatory burdens, and can easily regulate innovators when needed, instead of imposing all regulatory rules on them from the beginning. However, this may lead to equality issues, that’s because only a few innovators will receive such preferential treatment, while other innovators may have to comply with the regulations immediately.

A more powerful policy option is to introduce new legislation, but this will increase the pressure on regulators, diversify the existing legal framework, and create the risk of its legislation becoming obsolete due to the market development. Therefore, the first step in legislation should be to understand whether and how the existing framework applies, and where it needs to be revised. For the investment in virtual currencies, the existing MiFID framework may have been partially applied. And in some cases, only explanatory guidance may be required, rather than legislative amendment or entirely new legislation.

Looking forward to the future, these schemes can be integrated and a hybrid scheme will be proposed. If the existing legal framework is found to be applicable, then only explanatory guidance is needed, or at most only some minor changes are needed, and there is no need for new legislation. If the existing legal framework is not inadequate, and some small changes can not solve this problem, regulators and legislators need to take a cautious wait-and-see attitude and a clear regulatory sandbox scheme before deciding whether a larger-scale regulatory reform is needed or whether an entirely new legal framework must be drafted. In addition, the close cooperation between market innovators and regulators and the prediction of market development can help determine the correct strategy for the future.