Yesterday, the Central Bank of Russia (CBR) published a consultation document on regulated digital financial assets (non-crypto) in which it considers the issuance of government bonds and sub-federal loans.

In 2020, Russia passed legislation for regulated digital financial assets (DFAs) that covers the issuance of tokens for stocks, commodities, commercial paper, and more. Only three platform operators have been launched so far, Atomyze which was founded by Norlisk metals company, Sber Bank and Lighthouse (a startup).

While the government changed some of the legislation this year, the central bank is planning several additional changes and is consulting with market participants. Some of the more interesting high-priority suggestions relate to smart contracts and DeFi.

Smart contracts: make sure consumers understand them

Currently, most of the infrastructure used for digital assets in Russia is based on enterprise blockchains. Smart contracts on public blockchains can be read by end users, so the central bank wants the same to happen on these closed platforms.

These digital asset platforms may decide to only publish their own smart contracts or also allow third parties to write smart contract offerings. The central bank is interested in finding solutions that balance promoting competition with protecting the interests of customers and fighting cyber attacks. And it wants to figure out how to distribute the risk and responsibility to compensate users for any losses due to bugs in smart contracts.

He also correctly points out that most people cannot understand the code in a smart contract. So customers don’t know what they’re getting into. Therefore, the central bank wants to see the functionality of the smart contract explained in plain human-readable language.

And it suggests another common problem: setting the standards for smart contract audits.

Other regulatory plans for digital assets

Some of the CBR proposals are driven by tax or regulatory arbitrage. For example, it wants to guarantee the same tax treatment of precious metals, whether they are tokenized or not. Atomyze has issued digital assets related to metals. The central bank notes that it is possible to issue a bond-like instrument as a digital asset without the disclosures that typically accompany a bond. He wants to make sure that the concept of ‘same risks, same rules’ is established in the legislation.

Second, he wants to make regulations for the tokenization of more asset classes. This is where the federal bond issue came to light. Therefore, the classes include non-equity securities and bonds. It plans to support digital securitization, such as the tokenization of mortgage-backed claims. For precious metals and stones, it wants to allow hybrid digital rights that deliver the precious metal or equivalent value.

A third theme includes plans to trade digital assets using existing exchange infrastructures and intermediaries such as brokers.

And it intends to create rules to allow foreign digital assets to be traded within Russia. The central bank will establish procedures to allow the admission of these foreign assets to the Russian market.

Meanwhile, Russia is actively exploring ways to circumvent sanctions following its invasion of Ukraine. In September, the Russian prime minister set a December deadline to clarify the use of digital assets and digital currencies for cross-border payments. This includes real-world tokenized assets such as digital financial assets for payments, as well as cryptocurrencies or central bank digital currency (CBDC).

The central bank plans to start its digital ruble pilots next year.

In response to Russia’s moves, the EU tightened its sanctions, applying them to all Russian cryptocurrencies. Previous bans applied only to wallets with more than €10,000.