Thoughts from the JFSC - From hype to helpful: essentials for digital-asset innovation

THE FOLLOWING IS AN ARTICLE [BOG] BY ANDREW EVANS, HEAD OF INNOVATION AT THE JFSC

• https://www.jerseyfsc.org/news-and-events/from-hype-to-helpful-essentials-for-digital-asset-innovation/, posts the following

From hype to helpful: essentials for digital-asset innovation

“Crypto seems silly… and even if it isn’t, I’ve probably missed the boat.” A finance graduate interested in investing said to me recently.

This sentiment is not uncommon, especially among investors navigating the fast-moving world of crypto and digital assets for the first time.

As part of IOSCO’s World Investor Week, which promotes investor education and protection, this blog offers a practical guide to help you move from uncertainty to informed engagement.

• Whether digital assets are already in your portfolio conversations or just on your radar, understanding the fundamentals and the safeguards is essential.

Crypto demystified

• Bitcoin: the first and largest crypto asset. Think internet-native bearer asset -  quickly transferable and global.
• Stablecoin: tokens linked to fiat currencies (e.g. USD, GBP) to reduce volatility and enable faster transactions.
• Tokenisation: representing real-world assets (fund units, equities, real estate, niche indices) on shared ledgers to improve distribution, transparency, and settlement.
• Decentralised finance (DeFi): software-based financial services (e.g. 24/7 exchanges, lending) where code automates middle and back-office functions.
• Staking: locking tokens in networks to help secure them and earn rewards.

Each brings benefits and risks.

• Your job is not to become a coder, but to understand the trade-offs and verify the safeguards.

Asking the right questions

• Stablecoin
• Stablecoin promises speed and efficiency in moving money across borders.
• They are often used for faster trading and settlement and can support programmable payments.
• For investors, this means reduced friction and faster execution.
• However, the benefits come with risks. Key considerations include:
• What backs the stablecoin (cash, bonds or other assets)?
• How often are audits or relevant attestations conducted?
• Do investors have clear redemption rights?
• Is the issuer, platform, custodian or other relevant party authorised in the jurisdictions where it operates?

In Jersey,

• Our AML/CFT expectations for virtual asset service providers (VASPs) and Travel Rule guidance create “trust rails” that allow compliance to move with value.

• Investors should insist on evidence of reserve quality, regular attestations, and confirmation of registration status.

Tokenisation

• Tokenisation can make access to assets faster and more transparent. It allows real-world assets like funds, equities, or property to be represented on shared ledgers, helping reduce settlement times and operational friction.
• This can open up previously hard-to-access markets, but clarity is essential:
• What does the token legally represent?
• Who holds custody of the actual asset?
• Is there a liquid secondary market?

How are corporate actions handled on-chain?

• Jersey’s principles-based guidance on real-world asset (RWA) tokenisation takes a substance-over-form approach, prioritising investor protection over labels.
• Investors should request offering documents that map the token to the legal asset, explain rights and remedies, and identify the regulated custodian.

DeFi

• DeFi offers 24/7 markets, composability (products that interconnect like lego), and transparent on-chain audit trails.
• These features are attractive, but they come with unique risks:
1. Smart-contract vulnerabilities could have flaws in the code that can be exploited
2. Oracle manipulation could be vulnerable to tampering with the external data feeds that the underlying smart contracts rely on
3. Governance “capture” could occur when control of a protocol is concentrated in the hands of a few participants
4. Liquidity shocks could occur when sudden drops in available funds occur and that can disproportionally impact trading or withdrawals
5. Unclear regulatory boundaries relate to the uncertainty about which rules apply to a protocol and who enforces them, including whether a decentralised protocol is genuinely decentralised

Jersey approach is proactive. We work closely with government and industry groups such as Digital Assets Working Group (DAWG), Jersey Finance and Digital Jersey, to keep learning loops short and align innovation with market integrity, consumer protection, and resilience.

For investors, due diligence is key. If you engage with or have exposure to DeFi (directly or through a product) you should ask:

• How is smart-contract risk assessed?
• Are independent audits carried out?
• Are there technical mechanisms or circuit breakers in place to reduce potential impact?

How Jersey aims to protect investors

• Authorisation and supervision:
• Virtual Asset Service Providers (VASPs) are captured under Schedule 2 of Jersey’s AML/CFT framework, with registration and ongoing supervision by the JFSC.
• You can see a full list of registered VASPs on our website.
• Principles-based tokenisation:
• Our RWA approach focusses on the true nature of the product and activity so innovators and supervisors speak the same language (and investors can see the protection in place).
• Clear routes to market:
• Guidance for issuers and applicants clarifies expectations on disclosure, governance, and controls (so you can compare like-for-like offerings).
• Travel rule implementation:
• We explain what information VASPs must collect/transmit for transfers across borders (improving traceability and compliance).
• Open dialogue:
• We engage locally and internationally to support investor-focussed innovation.

Smart investor checklist

Before engaging in any crypto-related product or platform, consider the following:

• Understand risks and benefits: volatility, liquidity, custody model, technology and operational risks, and fees explained in plain terms.
• Verify authorisation:
• Is the platform/firm registered, licensed, or otherwise authorised in the relevant jurisdiction and for what service is it authorised?
• Know your asset and rights:
• What exactly do you hold? A token, a unit, a derivative? What are your redemption and dispute rights? Who is the custodian?
• Spot red flags of fraud:
• Pressure to act now, guaranteed returns, secret strategies, celebrity endorsements, or communications that move you off platform to pay.
• Operational hygiene:
• Strong AML controls,
• Segregation of client assets,
• Independent audits/attestations,
• Transparent policies on token creation/redemption or protocol upgrades.

So, here are five questions to ask any provider:

• Are you authorised in Jersey? Where can I see proof of that?
• What asset/interest am I buying, and what legal rights do I have?
• Who holds custody and what happens if that firm fails?
• What are the main risks to my capital and how are they mitigated (audits, insurance, controls)?
• What fees do I pay end-to-end, including spreads and network costs?
• World Investor Week is about education and protection. Innovation should be pragmatic, proportionate, competitive and compliant. Asking the right questions is key.

Disclaimer: This article is for educational purposes only and is not investment advice. Always consider your circumstances and, where appropriate, seek professional advice.

THE ABOVE IS AN ARTICLE BY ANDREW EVANS, HEAD OF INNOVATION AT THE JFSC

• https://www.jerseyfsc.org/news-and-events/from-hype-to-helpful-essentials-for-digital-asset-innovation/,   

SOURCE

• https://www.jerseyfsc.org/news-and-events/from-hype-to-helpful-essentials-for-digital-asset-innovation/