Glossary

According to MiCAR, asset-referenced tokens are crypto assets that are not e-money tokens and aim to maintain a stable value by referring to another value or a right or a combination of these, including one or more official currencies.

“BAIT” stands for “Bankaufsichtliche Anforderungen an die IT”. BAIT is a regulatory framework in Germany that prescribes certain requirements for regulated companies (e.g. banks) in relation to the handling of IT and IT security.

As financial market infrastructures, central securities depositories (CSD) take over the custody and transfer of fungible securities. On the one hand, this takes place in the form of physical security pieces, which is rather unusual today, and on the other hand, in the form of book entries (so-called effects giro). When issuing securities, CSDs take on a quasi-notarial function and ensure the correct registration of the issued securities. As a result, the CSD is responsible for contributing to the integrity of the issue over the entire life cycle of the securities. When booking in the securities account, this is done on the one hand by safely storing the documents (usually a so-called global certificate) in a CSD safe. On the other hand, through the regular comparison between the overall issued holdings according to the documents held by it and the respective individual holdings of the CSD participants in the relevant security.

Central register securities are entered into a central securities register. The physical global certificate that was previously used will be replaced by an entry of the issue in a database. Transactions are not reflected in the global certificate or in the electronic register, but rather through electronic bookings on custody accounts. Both forms of issuance therefore lead to comparable settlement structures, so that there will be little change in securities trading practice. The eWpG creates the impression that electronic securities are considered items within the meaning of Section 90 of the German Civil Code (BGB). The transfer of electronic securities therefore continues to be fundamentally governed by the property law provisions of the German Civil Code (BGB). Central registers can be maintained by a securities depository (other name: central securities depository) or, if expressly authorized by the issuer, by a custodian (other name: custodian bank). If central register securities are entered in the name of a securities depository in a central register maintained by it, they are automatically included in its securities register in accordance with Section 12 Paragraph 3 eWpG. This means that the requirements of Article 3 of the European Central Securities Depositories Regulation (CSDR) are met for exchange trading. Central register securities that are not included in the securities register of a central securities depository are excluded from trading on a trading venue within the meaning of the MiFID. Regulated markets, multilateral trading facilities (MTF) and organized trading facilities (OTF) are therefore not eligible as trading venues. (See Bafin publication from July 15, 2021)

Coins are the means of payment on the respective blockchains. They are created as part of consensus mechanisms.

Consensus mechanisms prevent decentralized databases from being manipulated. The consensus mechanism thus creates agreement among all network participants. In the case of Bitcoin, for example, about the respective transactions and the resulting account balances of the individual wallets. The common consensus mechanisms are “Proof of Work” and “Proof of Stake.”

Crypto assets are digital assets. Crypto assets include cryptocurrencies, security tokens sui generis, and utility tokens. According to KWG, crypto assets are to be regarded as financial instruments (Section 1 (11) sentence No. 10 KWG). The KWG defines crypto assets as “digital representations of a value that has not been issued or is guaranteed by any central bank or public body and does not have the legal status of a currency or of money, but is accepted as a means of exchange or payment by natural or legal persons on the basis of an agreement or actual practice or serves investment purposes and which can be transferred, stored and traded electronically.”

As a result of the Act implementing the Amendment Directive to the fourth EU Money Laundering Directive, the crypto custody business was included in the KWG as a new financial service. It defines the crypto custody business as “the custody, management and protection of crypto assets or private cryptographic keys used to hold, store and transfer crypto assets for others” (§ 1 para. 1a sentence 2 no. 6 KWG).

A crypto exchange is an exchange where crypto assets, in particular cryptocurrencies, can be traded.

Following the entry into force of the eWpG in June 2021, the eWpG was extended by German legislators in June 2022 with the Ordinance on Crypto Fund Shares (“KryptoFAV”). The new regulation enables providers of investment funds to issue electronic share certificates in the future also by registering them in a crypto securities register as so-called crypto fund shares.

Crypto securities registry is a requirement under the KWG for permission to act as a crypto securities registrar. In addition to other tasks, a crypto securities registrar is responsible (as the name suggests) for maintaining the register of an electronic security in accordance with eWpG, which is classified as a crypto security.

A crypto security is an electronic security in accordance with the eWpG that is entered in a crypto securities register.

Cryptocurrencies are a type of crypto assets in accordance with KWG, which represent a digital means of payment based on a blockchain system. Cryptocurrencies must be differentiated from other crypto assets or digital assets such as security tokens Sui Generis or utility tokens.

Cryptography is the science of keeping information secret. For this purpose, data is encrypted using an algorithm so that it cannot be understood by unauthorized persons. For example, cryptography is used for cryptocurrencies to approve transactions or even in "Proof-of-Work".

DEX stands for “Decentralized Exchange.” DEXs are decentralized marketplaces that do not rely on third-party providers to store clients' money. Instead, trading takes place directly between customers (peer-to-peer) in the form of transactions. As a result, assets do not have to be entrusted to a third party and customers can remain anonymous when trading. Security is also guaranteed, as the network is spread over many servers. The most well-known DEX is Uniswap.

“DLT” stands for “Distributed Ledger Technology.” A distributed ledger (“distributed account book”) is a decentralized database that allows all network participants the same read and write rights and is tamper-proof at the same time. For example, account balances can be managed decentrally without a trustworthy authority such as a bank. Distributed ledger technology is most commonly implemented via blockchains. Therefore, DLT and blockchain are used synonymously by many persons.

A DLT MTF is a multilateral trading facility operated by an investment firm or a market operator that is licensed under MiFID II and has received special approval under the DLTR (also known as the “DLT Pilot Regime”).

The DLT Pilot Regime is a pilot regulation for market infrastructures based on distributed ledger technology (“DLT”). It is a regulation valid throughout Europe, which came into force in March 2023 and is intended to serve as a temporary “regulatory sandbox” for trading and/or settlement of financial instruments based on DLT. As part of the DLT pilot regime, stocks, bonds and other debt instruments as well as UCITS can be traded and settled directly via the blockchain.

A DLT SS is a settlement system operated by an authorized central securities depository (“CSD”) and offers the opportunity, under the DLT Pilot Regime, to apply for exemptions from the cash settlement rules of the CSD Regulation and to develop innovative solutions relating to commercial bank money or “e-money tokens.”

A DLT TSS is one of the three forms of the DLT pilot regime. A DLT TSS can take two forms. Either a DLT MTF, which combines the services of a DLT MTF and a DLT SS and is operated by an investment firm, or a DLT SS, which combines the services of a DLT MTF and a DLT SS and is operated by a central securities depository with specific features.

“DeFi” stands for “Decentralized Finance.” Here, the technical processes of financial services are represented decentrally using smart contracts. One example of DeFi applications is a DEX.

E-money is any monetary value stored electronically — even magnetically — in the form of a claim against the issuer, which is issued against payment of a sum of money in order to carry out payment transactions and which is also accepted by persons other than the issuer (see §1 Payment Services Supervision Act (ZAG)).

ETP stands for “Exchange Traded Product.” ETP is the umbrella term for exchange-traded financial products. In addition to the now very common ETFs (usually represent stock indices), this also includes ETCs (represent commodity markets) and ETNs (securities in the form of notes). However, ETPs also play an important role in the crypto world. Through ETPs, investors can invest in cryptocurrencies without having to hold them themselves. For several years now, crypto ETPs have been among the most popular financial products on stock exchanges.

The Electronic Securities Act (eWpG) is a German federal law that enables securities trading in form of electronic securities and came into force in June 2021. The eWpG distinguishes between electronic securities, which are kept in a central register (central register securities) and electronic securities, which are kept in a crypto securities register (crypto securities).

A security can also be issued in form of an electronic security. An electronic security is issued by the issuer is registerd in an electronic securities register instead of a securities certificate is issued (see Section 2 Electronic Securities Act (eWpG)).

The term “embedded finance” means the integration of financial services into non-financial applications or platforms.

Ethereum is an open-source blockchain that primarily supports smart contracts. The blockchain, launched in 2015, is the basis of numerous crypto assets and is known in particular for its own currency Ether (ETH). Ethereum was switched from “Proof of Work” to “Proof of Stake” in 2022.

The term “FinTech” stands for the abbreviation “Financial Technology.” In general, this term describes companies that offer innovative, technology-based application systems related to finance. Although these are often so-called “start-ups” or “scale-ups,” this is not a mandatory requirement. Even established companies use innovative technologies and can fall under the term “FinTech”. Thematically, the term “FinTech” covers a variety of different technology-based business models, including — but not limited to — activities in connection with artificial intelligence, distributed ledger technology or interfaces in an open banking environment.

The term “FinTution” is a neologism that is composed of the words “FinTech” and “Financial Institution.” It describes companies that combine the best of both worlds. The term was created by FinPlanet, which, through its advice, creates a symbiosis between FinTechs and traditional financial institutions.

The financial commission business is a permit under the Banking Act (or Securities Institutions Act). Section 1 (1) sentence 2 No. 4 KWG defines financial commission business as the purchase and sale of financial instruments in one's own name for the account of others. The facts of the financial commission business are therefore fulfilled if: Financial instruments are purchased and/or sold in one's own name and for the account of others.

ICO stands for “initial coin offering.” During an ICO, new crypto assets are brought onto the market and thus made available to retailers. This is usually used for financing, as the collected capital flows directly to the company behind the coin.

KWG stands for "Kreditwesengesetz" and represents the German “Banking Act.” The KWG applies to credit institutions and financial services institutions. In addition, crypto custodians and crypto securities registrars are subject to the KWG.

“MaRisk” stands for “minimum risk management requirements.” MaRisk is the German central set of rules for qualitative banking supervision. Based on Section 25a KWG, they provide a flexible and practical framework for designing risk management in institutions.

The Markets in Crypto Assets Regulation (MiCA or MiCAR) is a European regulation relating to crypto assets, which was adopted by the European Parliament on 20.04.2023 as part of the European “Digital Finance Package” published by the European Commission on 24.09.2020. The regulation covers crypto assets that are not currently regulated by existing financial services legislation. Key provisions for those who issue and trade crypto assets (including asset-referenced tokens and e-money tokens) include transparency, disclosure, authorization, and monitoring of transactions. The new regulatory framework will support market integrity and financial stability by regulating public offerings of crypto assets and ensuring that consumers are better informed of the associated risks.

MiFID II is the acronym for the English term Markets in Financial Instruments Directive 2014/65/EU on Markets in Financial Instruments, or Financial Market Directive for short. It is a European Union (EU) directive to harmonize financial markets in the European single market. Since January 3, 2018, it replaces Directive 2004/39/EC on Markets in Financial Instruments (MiFID I).

NFT stands for “Non-Fungible Token” and is the name for digital goods that are primarily characterized by their uniqueness. NFTs are stored on the blockchain. As a result, the ownership of the asset is clear and forgery-proof, which opens up a wide range of applications. Many things can be hidden behind an NFT, such as images, music, videos, or documents.

“NPP” stands for “new product process.” An NPP is a regulatory process that regulated institutions must carry out in accordance with the German MaRisk AT 8.1 before they want to offer a new product or service or enter a new market. An NPP is used in particular to analyze the processes associated with the project, to set up necessary structures and to analyze risks.

The private key is the second part of a wallet's key pair. This must be kept secret. In blockchain technology, the private key is stored in the user's wallet. It is ensured that the credit that has been sent to the public address can only be accessed with the correct private key. There is technically no way to recover a lost private key.

Proprietary trading is a permit under the Banking Act (or Securities Institution Act). The proprietary trading permit enables market participants to trade in financial instruments in which the proprietary trader acts for his own account, i.e. represents the counterparty for purchase or sale transactions.

In the context of blockchain technology, the public key is a public network address to which you can send the respective crypto asset. It is comparable to an IBAN. A public and private key pair is created for each user. This ensures the security of the protected data.

"Scale-up" is a term for the current state of a company in its growth cycle. A scale-up is a company that has already successfully placed its product in the market and has proven that it can be economical. As soon as a company is considered a scale-up, it is no longer considered a start-up.

Security tokens sui generis are tokenized assets based on the blockchain infrastructure. They allow issuers to issue securities to investors in the form of tokens. From a regulatory perspective, security tokens are treated like regular securities, but no intermediaries are required for settlement.

Smart contracts are automated contracts that are based on a computer program. They follow the simple “if-then” logic and are there to automate business processes in a legally secure manner. Smart contracts are based on blockchain technology and are therefore transparent, forgery-proof and do not rely on any third party. In this way, agreements can be carried out reliably, even if the contract partners do not know each other.

Stable coins are crypto assets whose value is linked to a “stable” reserve value such as the US dollar or gold. This is usually achieved by hedging the stable coin with the reserve value after a given market capitalization. Stable coins are intended to combine the advantages of crypto assets with low volatility. The most well-known stable coins are USDT (Tether) and USDC.

"Start-up" is a term for the current state of a company in its growth cycle. A start-up is a company that has not yet successfully placed its product in the market and has not yet proven that it can be economical. As soon as a company achieves a successful placement, it is no longer considered a start-up but a scale-up.

A target operating model, also known as “TOM” for short, is used to define and document future optimization strategies for companies and may include several dimensions. These can represent processes, operational capabilities, personnel, or the company's infrastructure. The TOM can range from a rough outline of a strategy to a detailed framework that outlines all change activities. The TOM represents the connection between vision and strategy and the organizational structure.

Tokens are digital objects that can be duplicated. Unlike coins, tokens are not based on their own blockchain, but are created on existing blockchains. Well-known examples include security tokens, utility tokens or even NFTs.

As part of tokenization, tokens give their owners various rights. These can be, for example, ownership rights or usage rights.

According to MiCAR, utility tokens are crypto assets that are designed as a means of granting digital access to goods and services that are provided exclusively by their respective issuers.

A wallet is a digital form of wallet. It can store various digital assets, such as cryptocurrencies or NFTs. Depending on the cryptocurrency or asset, there are different wallet providers that investors can rely on. Wallets are comparable to a bank account, with the private key serving as access (comparable to a PIN).

Bitcoin was the first cryptocurrency to hit the market in 2009. Today, it still has the highest market capitalization and is accepted as a means of payment by many market participants.

A blockchain is created by stringing together many blocks of data. These blocks are cryptographically linked together (“chain”). The stored data is therefore unchangeable and logged in a comprehensible manner over time. Due to its decentralization, the blockchain is like a distributed ledger without a central authority and the individual blocks can be imagined as the pages of this ledger.