Abstract
Digital assets and distributed ledger technology (DLT) are frequently characterised as disruptive innovations that challenge the foundations of financial regulation. This paper argues that such claims overstate novelty and understate continuity. Financial services have historically evolved through successive technological shifts, while retaining stable economic functions: capital allocation, payments, and risk management.
Drawing on financial history, Australian financial services law, and emerging international standards, this paper argues that digital assets can and should be regulated primarily by reference to economic substance rather than technological form. While certain features of digital assets justify tailored regulatory responses, the core regulatory principles of technology neutrality, functional regulation, and proportionality remain both viable and desirable in the digital economy.
Introduction
The rapid expansion of digital assets has intensified debates concerning the adequacy of existing financial regulatory frameworks. Crypto-assets, stablecoins, tokenised securities and decentralised finance (DeFi) platforms are frequently described as unprecedented innovations that undermine the conceptual foundations of financial services law. In policy discourse, this framing has encouraged calls for bespoke regulatory architectures designed specifically for blockchain-based technologies, often on the assumption that existing regulatory categories are incapable of accommodating decentralised or tokenised forms of value.[1]
This paper challenges that narrative. It argues that digital assets largely represent new technological instances of longstanding financial activities. While the mechanisms of issuance, transfer and record-keeping have changed, the underlying economic functions served by these instruments have not. Financial history demonstrates that regulatory systems have repeatedly adapted to technological change – from paper instruments to electronic records – without abandoning foundational principles such as consumer protection, market integrity and systemic stability.
The tendency to treat digital assets as fundamentally different risks repeating a familiar regulatory policy error: confusing technological novelty with economic novelty.[2] Similar claims were made during the initial emergence of e-commerce, dematerialisation of securities, the rise of electronic payments, and the emergence of complex securities and derivatives.[3] In each case, regulators and policymakers ultimately responded not by discarding existing legal frameworks, but by extending and adapting them to new products and services, and new forms of intermediation.
The central argument in this paper is that digital assets should be regulated primarily by reference to economic substance rather than technological form. This approach is consistent with Australian financial services law, comparative jurisprudence, and emerging international regulatory standards. By situating digital assets within the broader evolution of financial regulation, this paper argues that continuity, rather than exceptionalism, provides the most coherent and resilient regulatory response in the digital economy.
Enduring functions of financial services
Financial systems generally exist to perform three core economic functions: capital allocation, payments and risk management.[4] These functions have remained stable across time and across very different social, institutional and technological contexts. Capital allocation involves the mobilisation of savings and their deployment into productive investment. Payment systems facilitate the exchange and settlement of value across space (e.g. traditional payments) and time (e.g. trade finance). Risk management enables individuals and firms to manage uncertainty through insurance, derivatives and other risk-transfer arrangements so that the risks are allocated to those who are best able to bear them.
Throughout history, these functions have been performed by different institutions and supported by different technologies. Early banking arrangements relied on merchant houses and goldsmiths, while modern banking systems operate through highly regulated deposit-taking institutions supported by electronic clearing systems. Insurance markets have evolved from informal risk-sharing arrangements organised in coffee houses to complex global industries, yet their core purpose remains unchanged. Derivatives markets have expanded dramatically in scale and sophistication, but still perform the essential function of allocating and pricing risk.[5]
Digital assets do not disrupt these fundamental economic functions. Instead, they provide new technical means through which capital can be raised, value transferred and risk allocated. Token issuance may resemble equity or debt financing, stablecoins may function as payment instruments and certain crypto-derivatives mirror traditional risk-management products. Generally, the novelty lies in the infrastructure, not the economic function or purpose.[6]
Recognising this continuity is essential for policy and regulatory analysis. Unless digital assets are understood primarily as technological innovations rather than economic ones, regulatory responses risk being either excessively permissive or unduly restrictive. A functional understanding allows policy-makers to calibrate obligations according to risk and impact, rather than novelty alone.
Some genuinely new business models and functionalities have emerged with DLT. For example, digital assets allow combinations of fundraising and pre-purchase of goods and services, where the sale of tokens can provide starting capital for a business while also entitling purchasers to a certain amount of goods or services from that business, once established. The smart contracts running on blockchains are capable of more complex automated sequential transactions (sometimes described as composability), where multiple related or unrelated transactions are executed together if certain conditions are met, allowing for chains of transactions to proceed together and for some automated functions (eg coupon payments at certain frequencies) to be built into the system’s code.
The full potential impact of DLT and tokenisation on financial services is not yet clear. Many commentators have predicted huge cost savings, risk reduction and functional benefits, but these have not yet been proven out.[7] Pilots and experiments using tokenisation across the financial services spectrum are widespread, some with extensive involvement of both government and industry. For example, ASIC has been working with the Reserve Bank of Australia and the Digital Finance Cooperative Research Centre to test the potential of tokenisation in wholesale financial asset markets in Australia.[8]
Financial instruments and ledger technologies
Most financial instruments depend on some form of ledger to record ownership, obligations and transfers. The history of finance is therefore closely intertwined with the history of record-keeping technologies. Early economies relied on physical ledgers, whether inscribed on stone, papyrus or paper. Some were centralised ledgers (e.g. a goldsmith’s paper ledger), others were distributed (e.g. tally sticks or passbook accounts). Obviously, some non-ledger-based payments were and continue to be in use, including precious metals, notes and coins.
As international trade grew, methods of communicating and verifying financial instruments were needed to facilitate trade and payments at a distance. Where the payer and payee were in the same town, using the ledger of the local goldsmith or banker was sufficient. But where long-distance trade was involved, merchants needed methods to move money and demonstrate financial viability at a distance. Sometimes this involved a series of connected local ledgers, such as when using correspondent banking. Precious metals could be used for long-distance payments, but practical limitations around transport costs and security were a disadvantage.
At other times, long-distance transactions involved bearer instruments that could be trusted and relied upon as proof of payment or financial soundness, without having to go back to a central ledger for validation. These had the advantage that they could be transferred from one holder to another without the need to consult with or any processing by the issuer, and the holder following such a transfer was generally assumed to be the valid owner of the instrument. Examples included letters of credit, bills of exchange and other negotiable instruments. These instruments were developed by merchants in common law jurisdictions and can be traced back at least 2000 years.[9]
The rise of modern financial markets was accompanied by increasingly sophisticated systems of centralised record-keeping, culminating in electronic databases and real-time settlement systems.[10] In Australia, this includes the Reserve Bank Information and Transfer System (RITS), Austraclear and the Clearing House Electronic Sub-register System (CHESS).
DLT represents the latest stage in this evolution. By enabling shared, synchronised records across multiple participants, DLT allows a novel approach to the allocation of trust and verification within financial systems. It does not eliminate the need for ledgers (the DLT is the ledger itself), nor does it obviate legal concepts of ownership, transfer or custody. Instead, it reconfigures how these concepts are operationalised.
From a legal perspective, claims that DLT-based instruments are incompatible with existing regulatory frameworks often rest on an overly narrow understanding of financial law.[11] Legal systems have long accommodated a wide variety of record-keeping arrangements, including decentralised and bearer-based instruments. What matters is not primarily where the ledger is held or by whom, but how rights and obligations are defined, transferred and enforced.
Some digital assets exhibit similarities to historical bearer instruments, in that control over a private cryptographic key can confer effective control over the asset (as represented on the DLT).[12] However, bearer instruments have long been subject to legal regulation, particularly where their use poses risks of loss, theft or misuse. Far from placing digital assets beyond regulation, the bearer analogy reinforces the need for clear rules on custody, loss allocation and consumer protection.[13]
Layered financial regulation
Financial regulation has historically been deployed in layered form, reflecting different levels of consumer, market and systemic risk. In Australia, this structure can be understood as comprising three interrelated layers: general consumer protection law, broad financial services regulation and prudential regulation.[14]
General consumer protection law applies economy-wide and addresses misleading or deceptive conduct, unfair practices and unconscionable behaviour.[15] This layer provides baseline protections that apply regardless of whether a product is financial in nature. Broad financial services regulation applies to investment, payment and risk-management products above defined thresholds. It relies on licensing, disclosure and conduct obligations designed to address information asymmetries, fair dealing and conflicts of interest. The financial services regulation is also layered to consider different levels of risk and different types of conduct concerns. Prudential regulation is reserved for institutions whose failure would have systemic consequences, and is supported by capital, liquidity and governance requirements.[16] Most modern jurisdictions also have a systemic risk regulator (often the central bank), with oversight of lender of last resort and similar functions.
This layered structure reflects an implicit theory of regulatory proportionality. As the potential harm to consumers and the broader economy increases, so too does the intensity of regulatory oversight. Importantly, this structure is flexible. It allows new products and technologies to be accommodated without wholesale legislative redesign, provided that their economic characteristics can be identified.
Digital assets and associated services can be mapped onto this layered framework. Some will fall primarily within general consumer law; others will trigger general financial services regulation; and a subset – particularly widely used payment instruments – may eventually warrant prudential oversight. This approach avoids the binary choice between over-regulation and under-regulation that often characterises debates about crypto-assets.[17]
Technology neutrality and functional regulation
Technology neutrality is a foundational principle of modern financial regulation. It reflects the view that regulatory obligations should be determined by the economic activities rather than the technologies used to perform them. This principle promotes competitive neutrality by ensuring that functionally equivalent services are subject to equivalent regulatory treatment, regardless of delivery channel or technological architecture.[18]
Australian financial services law embodies this approach through broad, technology-agnostic definitions of financial products and services.[19] The Corporations Act 2001 (Cth) defines a financial product by reference to its economic function – making a financial investment, managing financial risk, or making non-cash payments – rather than by reference to form or technology.[20] Australian courts have consistently emphasised substance over form in applying these provisions.[21]
Applying a functional approach to digital assets yields differentiated regulatory outcomes. Tokenised securities will generally fall within existing securities regulation. Payment stablecoins will generally trigger payment services regulation. Non fungible tokens (NFTs) representing digital art likely fall outside financial regulation altogether. Hybrid cases require careful analysis, but they do not justify regulatory exceptionalism.
The functional approach also supports regulatory certainty. By focusing on economic characteristics rather than technological labels, regulators can provide clearer guidance to market participants and reduce opportunities for regulatory arbitrage.
Regulatory challenges and policy implications
Despite this continuity, digital assets raise some genuine policy and regulatory challenges. Classification uncertainty can undermine investor protection and market confidence. Decentralised issuance and governance structures, and composibility of arrangements (the ‘money legos’ of blockchains, as it is sometimes referred to) complicate the identification of entities responsible for the provision of the products or services. This is particularly so with some arrangements such as decentralised autonomous organisations (DAOs). Cross-border activity strains jurisdictional boundaries and enforcement capacity.
These challenges, however, are not unprecedented. Financial regulation has long grappled with complex products, opaque operating structures and global markets.[22] Investment schemes, structured products and over-the-counter derivatives have posed similar difficulties in the past. The appropriate regulatory response lies in consultation, clarification and targeted intervention where risks are most acute.
A particular challenge arises where decentralisation is said to mean a product or service is not or even cannot be regulated. Legal analysis should focus on practical control and benefit, rather than formal claims of decentralisation. Where identifiable parties exercise influence over protocol design, governance, or economic outcomes, regulatory obligations can and should attach.[23]
There are also some non-regulatory (i.e. private law) issues still to be worked through in relation to digital assets. For example, most common law jurisdictions have accepted that digital assets are a form of personal property.[24] Many have done this organically, others following minor legislative clarification.[25]
Emerging regulatory responses
International standard-setting bodies have emphasised the application of existing regulatory principles to digital assets. The International Organisation of Securities Commissions (IOSCO) has highlighted the functional equivalence between certain crypto-assets and traditional securities, while the Financial Stability Board has focused on systemic risks posed by stablecoins and interconnected crypto markets.[26]
Jurisdictions have adopted varied approaches. The European Union’s Markets in Crypto-Assets Regulation represents the most comprehensive bespoke regime, yet it largely builds upon existing regulatory concepts.[27] Australia has pursued a hybrid approach, combining application of existing law with targeted reforms for digital asset platforms, custody providers and payment stablecoins.[28]
This incremental strategy reflects a degree of regulatory continuity (and perhaps even regulatory humility).[29] Rather than assuming that digital assets require entirely new legal frameworks, policymakers have sought to adapt existing structures while remaining responsive to emerging risks.
ASIC guidance - clarifying continuity in Australian law
ASIC Information Sheet 225 represents the regulator’s most detailed guidance on the application of Australian financial services law to digital assets. Rather than introducing new legal concepts or bespoke categories, INFO 225 adopts a functional and technology-neutral approach. It emphasises that existing definitions of ‘financial product’ and ‘financial service’ under the Corporations Act 2001 can apply to digital asset arrangements according to their substantive characteristics rather than their technological form.[30]
ASIC’s guidance explicitly rejects the notion that digital assets constitute a discrete asset class for regulatory purposes. Instead, it confirms that a digital asset may fall within the regulatory perimeter where it functions as a security, derivative, managed investment scheme interest or non-cash payment facility.[31] This mirrors the historical treatment of earlier financial innovations, including derivatives and dematerialised securities, which were regulated through extension and interpretation of existing legal concepts rather than wholesale legislative redesign.
ASIC INFO 225 is significant in its treatment of intermediaries. ASIC highlights that many consumer harms in the digital asset sector arise not from the tokens themselves, but from the conduct of platforms that provide custody, trading, lending or yield-generating services.[32] The best-known example is the 2022 collapse of FTX.[33] This observation reflects longstanding regulatory experience with relying on agents to provide services in traditional finance, where control of client assets creates acute vulnerabilities in insolvency, governance, and operational resilience.
Importantly, ASIC’s approach underscores that decentralisation, in itself, does not determine regulatory outcome. Where an identifiable person or entity exercises practical control over a digital asset arrangement – whether through custody, governance rights, or economic incentives – existing obligations may attach notwithstanding claims of technological decentralisation.[34] This focus on practical control echoes judicial approaches to substance over form in financial regulation more generally.
From a policy perspective, INFO 225 demonstrates incrementalism. By clarifying how existing law applies, ASIC has sought to reduce uncertainty while preserving flexibility for future developments. This reinforces the central argument of this paper: digital assets challenge regulatory administration, not policy and regulatory foundations. The law already possesses the conceptual tools required to address these arrangements; what is required is careful application rather than reinvention.
The Digital Assets Framework Bill 2025: legislating functional regulation
The recently introduced Corporations Amendment (Digital Assets Framework) Bill 2025 represents the most substantial legislative intervention in Australia’s digital asset regulatory landscape to date. Significantly, the Bill does not abandon the existing financial services framework. Instead, it introduces tailored amendments that integrate digital asset platforms into the established regulatory architecture.[35]
The Bill’s central innovation lies not in redefining ‘digital assets’ as a novel asset class, but in defining new regulated facilities - ‘digital asset platforms’ and ‘tokenised custody platforms’ – through which digital tokens are acquired, held, transferred or represented.[36] This shift in regulatory focus reflects an explicit policy judgment that intermediated holding arrangements are a key source of consumer and systemic risk.
Consistent with the most recent Treasury consultations, the Bill does not create a bespoke taxonomy of digital assets. Instead, it preserves the existing approach under which digital tokens may represent commodities, bearer-like assets or claims under external legal arrangements.[37] The Bill’s definition of ‘digital token’ centres on the concept of factual control and rivalrous transferability, aligning statutory language with emerging common law recognition of crypto-assets as property.[38]
A particularly notable feature of the Bill is its treatment of custody. By applying a modified custodial framework to digital asset platforms, the legislation draws directly on existing regulatory models developed for investor-directed portfolio services and managed investment schemes.[39] Operators who possess digital tokens on behalf of clients will be subject to licensing, conduct, disclosure and asset-holding standards, reflecting the long-standing regulatory principle that custody creates fiduciary responsibilities irrespective of the technological medium.
The Bill also embodies the principle of proportionality. Small-scale platforms are subject to exemptions, while ministerial and ASIC powers provide flexibility to address emerging risks and new business models without constant legislative amendment.[40] This approach mirrors international trends favouring incremental adaptation over sweeping reform.
Viewed in historical context, the Digital Assets Framework Bill does not mark a radical departure from Australian financial regulation. Rather, it represents a Government decision that digital assets can be accommodated within existing legal concepts, supplemented by targeted adjustments as necessary. In doing so, the Bill reinforces the argument that effective regulation of digital assets depends less on technological novelty than on enduring principles of financial services law.
Conclusion
History demonstrates that financial and technological innovation rarely displaces the core functions of finance. Instead, it reshapes the technologies through which those functions are performed. Digital assets are no exception. While they introduce novel technical features, they do not replace or retire the foundational principles of financial regulation.
By adhering to technology neutrality, functional analysis and proportionality, regulators and policymakers can accommodate innovation while preserving consumer protection, market integrity and systemic stability. In this sense, the regulation of digital assets represents not a rupture with the past, but another instance in which history rhymes.
The long-term impact of recent technological innovations like DLT are not yet clear. In the end, the ‘free hand’ of the market will decide which technologies provide the greatest net benefit to the end-users of financial services. However, the policy and regulatory framework is well placed, with some modest refinements, to contribute by ensuring that consumer protection, market integrity and financial safety standards are maintained in the meantime.
[1] Vakul Talwar, ‘Why the new government must prioritise crypto regulation’, Investor Daily, 10 June 2025 (https://www.investordaily.com.au/why-the-new-government-must-prioritise-crypto-regulation/); Digital Economy Council of Australia, Submission to ASIC CP 381, March 2025, (https://download.asic.gov.au/media/nt5hmwy5/deca_redacted.pdf)
[2] Similar arguments occurred in the early 2000s with the emergence of e-commerce and the internet – where they fundamentally new services needing fundamentally new law, or just new ways of delivering products and services to clients?
[3] Sancak, Ibrahim E., Implications of Germany’s Electronic Securities Act for Supervisory Technology (November 3, 2021). Journal of International Banking Law and Regulation / Thomson Reuters - Sweet & Maxwell, Available at SSRN: https://ssrn.com/abstract=3936211
[4] J G Gurley and E S Shaw, Money in a Theory of Finance (Brookings Institution, 1960).
[5] N Ferguson, The Ascent of Money (Penguin, 2008).
[6] Digital assets allow forms of blended fundraising and pre-purchase of goods and services, where the sale of tokens can provide starting capital for a business while also entitling purchasers to a certain amount of goods or services from that business, once established.
[7] DFCRC, Report on Key Policy Reforms to Support Tokenisation of Real World Assets in Australia, 10 October 2024
[8] RBA Consultation Paper, Project Acacia: Exploring the role of digital money in wholesale tokenised asset markets, November 2024
[9] Frederick Read, ‘The Origin, Early History, and Later Development of Bills of Exchange and Certain Other Negotiable Instruments’, 1926 4-10 Canadian Bar Review 665, 1926 CanLIIDocs 12, (https://canlii.ca/t/t74b)
[10] J Yermack, ‘Corporate Governance and Blockchains’ (2017) 21 Review of Finance 7.
[11] Sometimes this argument is made by those who do not want their DLT-based product or service regulated under existing financial services arrangements. It is therefore not a disinterested position, but rather an advocacy point..
[12] However, many digital assets are not likely to be bearer instruments (even if they seem to operate as such) because the obligation is recorded on a ledger and parties need the consent or cooperation of the network to process transactions.
[13] Bridge, Michael, The International Sale of Goods 5e, 5th Edition (2023; online edn, Oxford Law Pro), (https://doi.org/10.1093/law/9780192882424.001.0001)
[14] Financial System Inquiry (1996), Final Report (https://treasury.gov.au/publication/p1996-fsi-fr); R Bollen, ‘Best Practice in the Regulation of Payment Services’ (January 24, 2010). Journal of International Banking Law and Regulation, Vol. 2010, p. 370 (available at SSRN: https://ssrn.com/abstract=1747222)
[15] Competition and Consumer Act 2010 (Cth) sch 2; Australian Securities and Investments Commission Act 2001
[16] Banking Act 1959 (Cth); Insurance Act 1973 (Cth).
[17] Hemenway Falk, Brett and Hammer, Sarah, A Comprehensive Approach to Crypto Regulation (May 25, 2023). The University of Pennsylvania Journal of Business Law, Vol. 25:2, 2023, Available at SSRN: https://ssrn.com/abstract=4245285
[18] Almada, Marco, Two Dogmas of Technology-neutral Regulation (September 11, 2024). Available at SSRN: https://ssrn.com/abstract=4953377
[19] Corporations Act 2001 (Cth) pts 7.1–7.9
[20] Corporations Act 2001 s763A
[21] ASIC v Westpac Banking Corporation (2016) 258 CLR 525.
[22] Australian Securities and Investments Commission v Cassimatis (No 8) (2016) 336 ALR 209.
[23] SEC v W J Howey Co 328 US 293 (1946).
[24] J Jackman, ‘Is cryptocurrency property?’ Commercial Law Association, 21 June 2024 (https://www.fedcourt.gov.au/digital-law-library/judges-speeches/justice-jackman/jackman-j-20240621)
[25] Property (Digital Assets etc) Act 2025 (UK)
[26] IOSCO, Policy Recommendations for Crypto and Digital Asset Markets (2023); Financial Stability Board, Regulation, Supervision and Oversight of Global Stablecoin Arrangements (2023).
[27] Markets in Financial Instruments Directive
[28] ASIC INFO 225; Treasury (Cth), Regulating Digital Asset Platforms (Consultation Paper, 2023).
[29] https://www.ftc.gov/es/system/files/documents/public_statements/635811/150401aeihumilitypractice.pdf
[30] ASIC, INFO 225: Digital assets – financial products and services (2025)
[31] Corporations Act 2001 (Cth) s 764A.
[32] ASIC, INFO 225 [Key risks and harms].
[33] E Helmore, ‘‘Old-fashioned embezzlement’: where did all of FTX’s money go?’, The Guardian, 29 March 2024, https://www.theguardian.com/business/2024/mar/27/where-did-ftx-money-go
[34] ASIC v Cassimatis (No 8) (2016) 336 ALR 209.
[35] Explanatory Memorandum, Corporations Amendment (Digital Assets Framework) Bill 2025.
[36] Corporations Amendment (Digital Assets Framework) Bill 2025 sch 1.
[37] Treasury, Token Mapping Consultation Paper (2023).
[38] Re Blockchain Tech Pty Ltd [2024] VSC 690; Poulton v Conrad [2025] TASFC 7.
[39] Explanatory Memorandum ch 1
[40] Corporations Amendment (Digital Assets Framework) Bill 2025 ss 761GB–761GD.
