eWpG Crypto Securities: Legally Surpassing Traditional Security Tokens

The German Electronic Securities Act, known as the eWpG, has established a formal legal framework for crypto securities that supersedes the previous reliance on security tokens. According to reporting from Anwalt.de, the traditional security token functioned as a legal provisional until the implementation of this legislation provided a robust statutory foundation for digital assets.

The eWpG came into force on June 10, 2021, with the primary objective of modernizing the issuance and trading of securities. The law enables the creation of purely electronic securities, removing the historical requirement for a physical document or certificate to represent ownership.

Transition from Physical to Digital Securities

Historically, German law required securities to be represented by physical certificates, often in the form of global notes. These paper-based instruments were typically immobilized within central securities depositories, a process that involved multiple intermediaries and created a cumbersome, costly system.

The eWpG addresses these limitations by allowing securities to be issued on blockchain-based infrastructure. This shift aligns Germany with other European countries that had previously dematerialized their securities systems, aiming to strengthen the country’s position as a leading financial center.

Under this framework, the law establishes bonds as crypto securities. The right to receive any payment documented in the bond certificate or token is tied directly to the right to possess the token, ensuring that payment proposals are assigned to the owner of the electronic security.

Operational Advantages of Crypto Securities

The shift toward crypto securities under the eWpG offers significant operational improvements over traditional security issuance. Data indicates that tokenization provides a 65% reduction in costs compared to traditional securities by drastically reducing the costs associated with the value chain.

Processing and settlement speeds have also seen a marked increase. The use of tokenized securities allows for 99% faster processing of transactions. The transparency of the system is increased by 100% because transactions are stored in an unchangeable and transparent manner, which strengthens trust between market participants.

Liquidity and accessibility are further enhanced through the following capabilities:

• 24/7 transferability of assets that were previously illiquid, allowing them to be moved anywhere in the world at any time.
• The creation of peer-to-peer marketplaces and simplified pricing mechanisms for illiquid assets.
• The integration of additional features such as voting rights, lending capabilities, and the use of securities as collateral.

Legal Distinctions and Flexibility

While security tokens and crypto securities are often discussed interchangeably, they differ in their legal standing. Tokenized debt securities are characterized as securities sui generis. The eWpG provides the necessary legal certainty to make these assets full-fledged securities, which in turn enables bona fide ownership and the issuance of senior bonds.

The legislation is designed with flexibility to allow for future additions and changes based on market interests and the ongoing development of tokenized securities trading. While the law focuses heavily on bonds, some forms of equity can also be tokenized.

By providing a legal framework for issuing electronic securities via blockchain, the eWpG opens investment opportunities in assets that were previously inaccessible to certain investors or were considered too illiquid for efficient trading.