In May 2021, the market capitalization of crypto-assets grew threefold to US$2.5 trillion (two point five trillion US dollars), although some time later there was a decrease in the market capitalization of crypto-assets to 40% (forty percent). . 11 Sergio Gorjón, “The role of crypto-assets as legal tender: the example of El Salvador,” https://. Further regulation is intended to provide legal protection amid Indonesia's potential and rapid development of crypto-assets.
At this point, hundreds of crypto-assets exist and there is no denying that they will continue to grow.30. Investments in crypto assets arise from agreements regarding the traded goods or services at the price of the goods or services.
Low Cost and Simplified
According to Magnus Schückes and Tobias Gutmann, ICOs gain success because this mechanism simplifies how a start-up company raises funds for their projects48 and creates their community and social identity branding.49 Besides that, ICOs offer other advantages such as lower costs and minimal requirements for to raise the company's capital, efficiency and anonymity and profit. Simply put, it can be understood that the role of ICOs in assisting the development of innovative projects from a start-up has positive consequences for various parties, not only limited to start-ups and those who invest, but also has an impact on society as a whole.
Efficient and Anonymous (In a Permissioned Blockchain)
Profit and Liquidity
C. Disadvantages of ICOs
Risks
The ICO risk is forcing financial authorities in several other countries to pay more attention to ICO schemes. For example, the SEC informed and advised the citizens of the United States about the risk thread of ICOs.57.
Fraud
Based on research from the Satis Group, it was found that 78% (seventy-eight percent) of ICOs were at least partially based on fraud, 4% (four percent) failed, 3% (three percent) failed midway and only 15 % (fifteen percent) of ICOs projects successfully.56 From this data it can be concluded that ICO investment is uncertain. Therefore, based on all the explanations above, the development of the ICO will undoubtedly determine the direction of the economy in the future, especially for Indonesia, and also cannot be avoided due to the presence of disruption in the modern era and public importance that much more benefits in its implementation.
Limited Regulation
LEGAL PROTECTION AGAINST ICO RISKS IN INDONESIA The implementation of ICOs is not regulated explicitly in Indonesian Law
Oppressive legal protection against ICO risks in Indonesia Oppressive legal protection is legal protection whose purpose is to resolve.
A. Repressive Legal Protection Against ICO Risks in Indonesia Repressive legal protection is legal protection whose purpose is to resolve
Litigation
Alternative Dispute Resolution
B. Preventive Legal Protection Against ICO Risks in Indonesia Preventive legal protection can be defined as legal protection carried out before
5 of 2021 has organized blockchain technology development activities – which is closely related to the implementation of the ICO – as one of the business activities that business actors can perform as long as they have obtained a business license in the system and under -electronic transactions sector. In this case, legal entities can participate and invest in blockchain development, especially in connection with ICOs. This type of legal provision has created ambiguity and uncertainty as to whether ICOs can be offered in Indonesia.
This uncertainty is further highlighted by the interpretation of a researcher who says that Indonesia prohibits ICO,72 although the prohibition is not explicitly regulated in the existing laws and regulations. Besides that, there are also rules in Bappebti Regulation Number 7/2020, which do not regulate ICOs explicitly, but have a close relationship with this capital mechanism. This screening process must incorporate the precautionary principle to ensure the safety of crypto-asset products as early in the process as possible so that it will not endanger the public and the financial system.73.
Uncertainty in this regulation is certainly a risk in itself, just like with the ASIX token. 73 Basel Committee on Banking Supervision, Prudent Treatment of Cryptocurrency Exposures (Basel: Bank for International Settlements, 2021), p. The indecisiveness of regulators has resulted in price fluctuations that harm many people.74 As a result, crypto asset developers and investors are disadvantaged in this case.
There is no doubt that such losses would not occur if there were regulations overseeing ICOs.
THE EMERGING OF DEFI AND ITS IMPLICATIONS FOR ICO As stated before, ICO processes are very much intertwined with the introduction
This number will continue to change along with the mechanism of DeFi, which is still in the early stages of development. Up to this point, DeFi has offered innovations in financial services that include payments, lending, trading, investing, insurance, and asset management.78 Among these innovations, trading and lending are vital parts of the DeFi financial services ecosystem. Simply put, stablecoins can be defined as cryptoassets linked to a reference value.80 The most prominent stablecoins are linked to the U.S.
Its pegged value to a reference asset means that the price volatility of Stablecoins tends to be lower than other cryptoassets. Stablecoins are central to the functioning of DeFi, as Stablecoins are often used to facilitate financial services under the DeFi mechanisms.82 Stablecoins. 84 A fire sale refers to the sale of an asset or other product at greatly reduced prices due to financial distress.
Not limited to uncontrollable volatility and leverage factors, Defi is also prone to being affected by a "run" that occurs in a stable currency. Execution occurs when stablecoins are not performing as expected, from a hack, to a problem with the reserve of assets backing a stablecoin, to a problem with the smart contracts that manage the value of a decentralized stablecoin.89 When these things happen, we can expect holders to exchange their stablecoins for fiat currency and exchanges to demand redemption, forcing stablecoin issuers to begin liquidating the reserve of assets backing the stablecoin, reducing the market value of those assets. 90 Risks to the wider economy and the financial system depend on the content of stable currency reserves, and they can grow rapidly as long as there are no clear regulatory standards. 91 Uncertainty about the size of stable currency reserves and settlement mechanisms and redemptions by stable currency issuers further complicate efforts to assess and prevent the impact of the flow.92 . Based on the above explanation, it turns out that the risks that DeFi brings are a real threat to the existing stability of the financial system.
In response to the existing problems, there are still various limitations due to the absence of regulations in Indonesia that provide specific guidelines for the implementation of DeFi.
THE URGENCY OF STRENGTHENING Ex-ANTE CONTROL ON ICO IMPLEMENTATION IN INDONESIA
In fact, such a regulation is certainly necessary to protect the public and the existing financial system from potential adverse effects of DeFi tokens offered during ICOs. Therefore, DeFi should be checked from the very beginning, even before the ICO of the DeFi project is about to start. Moreover, it is also necessary to set up a regulatory sandbox mechanism that can be a tool to assess the ICO plan proposed by crypto asset developers.
Then the authority can consider the review results when approving and allowing the developer's license.
A. Creation of a Regulatory Sandbox to Oversee the Implementation of ICOs in Indonesia
Innovation labs
Regulatory accelerators
Therefore, it has been proven that if a regulatory sandbox is formed to review the performance of the ICO, this arrangement can be a means of mutual learning between the authority and the company, which can benefit equally.102. In order to embody effective policy-making, a regulatory sandbox can play a role in assessing the impact of an innovation.103 Through a regulatory sandbox, authorities can collect necessary data to identify and investigate potential risks arising from the technological aspects of these innovations.104 By conducting tests through a regulatory sandbox, relevant authorities can usually provide relief for the company so that it can optimally simulate its innovation and carry out experiments in normally prohibited areas or still in a gray zone.105 Based on data obtained from the simulation, authorities, with the help of companies involved, can test the most appropriate rules and at the same time maintain the optimization of innovation development.106. Therefore, strict regulations are needed to solve the problems of these ICOs.107 For this reason, a regulatory sandbox can be an instrument to support the authorities in formulating adequate policies that are in line with recent needs and developments.
102 Jayoung James Goo and Joo-Yeun Heol, “The Impact of the Regulatory Sandbox on Fintech”, p. Investors will also be assisted by the results of the risk assessment conducted through the regulatory sandbox so that investors can invest in ICOs more accurately with minimal risk.109. The last benefit that can be identified is related to the role of a regulatory sandbox in maintaining financial stability.
As crypto asset innovation continues to evolve, the need for a regulatory sandbox to monitor crypto asset innovation will undoubtedly become more relevant in the coming days. In addition, the existing regulatory sandbox is still limited to overseeing the fintech payment system (by Bank Indonesia) and the fintech financing system (by the Financial Services Authority), with crypto-assets still being classified as commodities under Indonesian legal policy.111 There on top of that, a regulatory sandbox oversight of crypto asset innovation is still in line with its original goal of helping policy makers adapt to the development of fintech innovation (which more or less termed crypto asset innovation includes). 112 That is why a regulatory sandbox is needed so that supervisors can develop policies that support innovation and competition in the market and protect the financial system, society and in particular the consumer.113.
111 Masda Greiyes Nababan, Siti Salwa Sastra Maria og Masha Prisha Putri Deristiandra, “Strengthening Regulatory Sandbox and Scoring System Dalam Penerapan Prinsip Kehati-hatian Dalam Peer-To-Peer Lending”, Legislatif , Vol.3, No.1 ( 2019 ), S.
CONCLUDING REMARKS
Blockchain & Cryptocurrency Laws and Regulations 2022. https://www.globallegalinsights.com/practice-areas/blockchain-laws- and-regulations/usa. The Future of Cryptocurrency: 8 Experts Share Predictions for the Second Half of 2022. com/nextadvisor/investing/cryptocurrency/future-of-cryptocurrency/. DeFi Beyond the Hype: The Emerging World of Decentralized Finance. The Impact of Regulatory Sandboxes on the Fintech Industry, with a discussion of the relationship between Regulatory Sandboxes and Open Innovation.
Journal of the Review of Corporate Finance Studies, Vol. net/publications/distributed-futures-publications/more-than-token-regulation-alternative-currencies/. Stablecoins: growth potential and impact on banking. A year after El Salvador adopted Bitcoin as legal tender, it could default on its sovereign debt by 2023. Paol, Weiss, Rifkind, Wharton and Garrison LLP.” https://www.paulweiss. com/media/3978879/initial_coin_offerings_whitepaper.pdf.
Perkembangan pasar crypto Indonesia menarik bursa global.” https://investasi.kontan.co.id/news/. Acara Entri Pasar-Crypto Indonesia-Pertukaran Menarik-Global. 8 Tahun 2021 tentang Pedoman Perdagangan di Pasar Fisik Aset Kripto di Bursa Berjangka.
