Binance Blog.

By SB Seker, Head of APAC, BinanceMain TakeawaysPolicy discussions hosted by the GFI in Tokyo reflected a more mature phase for digital assets, focusing on how they can be regulated in a practical, forward-looking way.Three areas stood out as priorities: tax frameworks that better reflect market reality, clearer classification standards for newer digital asset products, and custody rules that focus on operational safeguards.As crypto assets and products evolve, regulation must be built through dialogue, anchored in market reality, and calibrated with greater nuance.Conversations have moved past whether crypto belongs in the financial system and toward how to regulate it in a workable, future-ready way aligned with market realities. This change was clear at a policy breakfast I attended in Tokyo hosted by the Global Fintech Institute (GFI), which brought together policymakers and industry participants from across the APAC region to discuss cryptocurrency regulation and market realities.Tax Policies Need to Reflect Market RealityTaxation was one of the most immediate concerns raised. In many jurisdictions, crypto gains can be taxed at progressive rates that are significantly higher than those applied to traditional financial products. Even when the intent is sound, the outcome can be counterproductive. High and complex tax burdens tend to drive trading activity offshore toward jurisdictions with more competitive frameworks, possibly weakening domestic oversight and investor protection.I’m aligned with the broad consensus among the event participants on the proposed fix: a flat tax rate paired with the ability to offset future gains with past losses would better reflect the often volatile realities of digital-asset markets. It would also make it more attractive for participants to remain within regulated domestic markets, where market transparency and investor protections are stronger.Classification: Economic Substance Over Technical StructureAnother recurring theme was digital asset classification. Innovation in the ecosystem is producing new structures quickly, including tokenized assets, wrapped tokens, cross-chain assets, and asset-backed tokens. While these developments are expanding the scope of blockchain technology, they are also exposing the limitations of regulatory frameworks that have yet to consider such complexity – as without clear definitions, it becomes difficult to apply consistent rules for taxation, disclosure, custody, and licensing. The practical solution is a transparent classification system based on the assets’ economic substance rather than its technical structure. Employing such a taxonomy would in turn improve clarity for users and firms, which would strengthen investor protection and enable more effective regulatory supervision.Custody Risk is Primarily OperationalCustody was another area where the discussion highlighted a structural difference between crypto and traditional finance. In many traditional institutions, risk is often prudential, tied to credit exposure and counterparty relationships. However, in crypto custody, risk is primarily operational. Security depends on governance frameworks, wallet architecture, internal controls, and the integrity of custody systems.For this reason, regulatory frameworks should focus on ensuring strong operational safeguards – including clear asset segregation, transparent governance processes, strict cybersecurity standards, robust wallet architecture with sufficient “air-gapping,” and use proof-of-reserves tools. Financial backstops can be relevant in certain contexts, but custody safety is often determined by operational resilience more than balance sheet strength alone. In this case, effective oversight means focusing regulation on where the risk actually concentrates, without stifling responsible innovation.Clarity as CompetitivenessEncouragingly, there is growing momentum toward integrating digital assets into established financial regulatory frameworks. With more players recognizing certain crypto activities as financial instruments, this can provide structure and clarity for market participants.At the same time, the breakfast discussion surfaced areas where clearer pathways are still needed, including licensing frameworks for services such as staking and yield. If rules remain unclear or inconsistent, businesses and users may simply move their activities to jurisdictions where such services are permitted. Given the borderless nature of digital assets, capital, innovation, and talent can relocate quickly if regulatory environments become overly restrictive or uncertain. When activity relocates, domestic markets lose economic opportunity, and supervisors lose the ability to effectively protect their own consumers.Final ThoughtsRegulation works best when it is developed through dialogue and anchored in market reality. As crypto assets and products become more sophisticated, the policy response will inevitably require greater nuance, and the collaboration of multiple experts across law, technology, risk, and markets. Together, we can build a balanced regulatory environment that safeguards consumers, maintains financial stability – all while encouraging technological progress. When this balance is achieved, digital assets can grow to be a regulated and integrated part of modern finance.Further ReadingThe 2025 CoinDesk Benchmark: The Exchange Industry’s Health Check And Binance’s LeadershipCelebrating Recognition: Binance Named Digital Assets Exchange of the Year by Regulation AsiaRegulation, Innovation, and Adoption – Inside Binance’s APAC Strategy With SB Seker