Once upon a time, Thailand and Taiwan competed in a race for the frontier market cryptocurrency dollars. Security token offerings, or STOs, were billed as offering all the excitement of an initial coin offering (ICO) but with regulatory certainty versus uncertainty. At one time Thailand looked like it was going to win the race as it had a Royal Decree (the equivalent of a bill passed by the lower house and signed by the Monarch) drafted and Taiwan’s proposed STO laws were deemed to be overly conservative even by its own legislators — some of whom used to say that Taiwan was on the way to becoming a major hub for blockchain technology

But then nothing happened. Thailand and Taiwan are both waiting for their first listing. Is it because the market hasn’t figured out what to do with the STO, as VC-firm Rocktree LEX’s Omer Ozden would argue, or is it because the liquidity premiums on ICOs are too great, which makes them worth the risk?

Or is it because — in the case of Thailand — regulatory uncertainty makes things difficult? 

After all, the launch of the legal framework for STOs was held up because of “peculiarities” in how the Kingdom divides securities and digital asset regulations. 

To get a sense of where things are going in Thailand, Forkast.News recently spoke with Dr. Ulrich Eder, the managing director of Bangkok-based international law firm Pugnatorius. Eder’s firm recently put out a newsletter titled the “Episode guide through Thailand’s cold crypto season.” 

“As much as we would like to see useful applications for decentralized systems, as much as the magic of the word blockchain keeps fantasies alive, we do not expect that the current situation will change during Thailand’s winter season,” Eder’s firm wrote in the newsletter. “Big data and artificial intelligence should therefore not be slowed down or even stopped by the blockchain. The implementation of digital assets in the real world is still far away — at least for more than six months.”

The following Forkast.News interview with Eder has been edited and condensed.

What’s the state of the Thai cryptocurrency industry? You use the term ‘cold crypto season.’ What does that refer to? Lack of regulatory clarity? Or a lack of consumer interest?

For some time now, our law firm has been publishing a semi-annual outlook of our own educated expectations for the summer and winter semesters. If you could come to Thailand at this time, you would be able to confirm the relatively cold season for yourself.

Apart from that, there are certainly no hot improvements in the area of cryptocurrencies and digital assets. We do not see how this could change in the next six months. Due to the pandemic, there is also a development backlog in almost all other branches of industry. This still stand has been the reason that Thailand’s Securities and Exchange Commission did not publish updates of their Digital Asset Business Decrees as of 2018. 

You say that the alliance between the Stock Exchange of Thailand and the Kasikorn Business-Technology Group to build out a digital asset platform would actually turn off some stakeholders. Why is this? Wouldn’t they be more interested in platforms that have institutional weight behind them?

Thailand’s extensive regulatory framework for digital asset businesses aims not only to build trust in local providers but also to implement for these innovative ventures a protected area for long-term investments in new industry models, asset classes, and market products. The requirements, e.g. an equity requirement of up to THB 50 million (US$1.6 million), are for privately-owned players a significant hurdle. We believe that, if foreign investors now have to compete against governmental and quasi-governmental stakeholders, this will have a significant negative impact on their willingness to further invest in Thailand. An unequal playground will have an unpleasant effect on the needed innovation boost.

The tokenization of assets is said to be the evolution of digital assets? What sort of efforts are there in Thailand to grow this industry? Is Thai law structured in a way that is conducive to growing this industry? Or are there structural problems?

We see Thailand as well-positioned for the tokenization of real-world assets. The foreigner restrictions limit this but can be incorporated into a smart investment structure. Appropriate concepts are already available. However, in Thailand, there is a tendency to cover up restrictions rather than take an offensive approach. Unlike in other areas, empty promises in tokenization projects can lead to financial disaster and criminal consequences. Hopefully, a learning process will take place here. 

Our legal team is currently working on the tokenization of trophy-assets in Thailand’s real estate sector. The term ‘indirect fragmented equity ownership stake’ sounds formal and awkward, but gives a much better impression of the tokenization structure than the misleading ‘fractional land ownership.’ However, in the long run, it is better to do it right than to do it the easy way.  

The market last year was excited about STO frameworks as the cure-all for the questionable legality of ICOs. Taiwan and Thailand were in something of a race to publish the first STO framework. But, as you mention, the market hasn’t really signaled an interest in this: Thai exchanges are still waiting for their first listing. Why is this?

We understand from numerous discussions with the Thai SEC that the 2018 regulatory framework was originally not limited to ICOs and should also apply to an STO. In the meantime, the SEC has moved away from this stance. This leaves the question open, which type of STO can be accepted by the already established ICO portal companies.

Perhaps STOs are not offered in Thailand because they are not understood by the SEC. Or maybe because they are very well understood by the Thai authorities. Instead, the developing potential and creativity are channeled into DeFi ventures. Their decentralized nature makes it easier to avoid Thailand’s complex regulations. Thailand gives away important opportunities here. 

Why so bearish on blockchain as a technology? What’s your take on China’s rapid institutional adoption of blockchain? Is it the right move? Or is China throwing money at a technology without properly assessing its merit?

Whether a dry stock-taking is to be regarded as bearish is left to the reader. Developments and investments in the area of blockchain technology are not the same as further developments of the blockchain. China is obviously well advised to press ahead with research and development in all digital future industries in order to avoid being dependent on foreign competitors and governments. But not everything that has blockchain on it has blockchain in it.  

From a technical point of view, our law firm does not want to and cannot evaluate this. Till today, disruptive developments beyond cryptocurrencies entrust their big data with good reasons to a central database. Blockchain supply chain traceability, blockchain-based pandemic apps, the blockchain power grid, etc. do not exist or will not play a significant role in the coming months. 

Our essay should be understood as a snapshot of Thailand’s digital asset industry. For our summer guide 2021, there is, hopefully, the opportunity to show things sunnier.