[Exclusive Interview] Professor Yang Yueping | Is it illegal to define cryptocurrency as a commodity, debt claim, or investment scheme?

A special report was conducted on "cryptocurrency fixed-term and demand deposit products," which are products that allow users to earn stable or fluctuating returns by depositing cryptocurrencies. Whether on centralized or decentralized platforms, this has been a hot topic this year. Fixed-term and demand deposits that offer better returns than bank interest rates may become a new investment product that attracts the general public. As advocates for the widespread adoption of blockchain applications, we naturally have high hopes for this. However, considering the current regulations in Taiwan, is this type of product really legal? Are there concerns about attracting funds? What happens if something goes wrong with the operators?

We interviewed Professor Yang Yueh-Ping, a Harvard Law School Ph.D. and current Assistant Professor of Law at National Taiwan University, to answer these key questions for us.

Is Cryptocurrency Time Deposit a Violation of the Law?

The well-known Taiwanese exchange BitoPro was the first to introduce time deposit products using the term "debt," followed by ACE Exchange. The main concept is to deposit USDT stablecoins in exchange for fixed interest rates in USDT. Does this raise concerns about violating banking laws and attracting funds? The answer is: based on current judicial practices, it may not violate banking laws for the time being.

Professor Yang Yueping explained that when you deposit money with a party and receive interest income in return, it essentially constitutes a lending activity. While it is accurate to refer to it as a debt instrument, according to the definition of deposits under Taiwanese banking laws, deposits are also a form of debt instrument. Therefore, theoretically, such instruments may raise concerns about absorbing deposits under banking laws (commonly known as "fund attraction"). However, based on recent judgments by the Taiwan High Court, these products currently do not constitute absorbing deposits under banking laws.

The reason for this non-constituent status is that these products are all based on stablecoins, such as earning USDT interest by depositing USDT, which essentially does not directly involve any national fiat currencies.

Key to "Non-Fund Attraction": A High Court Judgment

Professor Yang Yueping mentioned that the reason why using stablecoins poses no problem is related to a judgment in a "Bitcoin Ponzi Scheme" case by the High Court.

In 2015, the defendant surnamed Lin and three others operated a Ponzi scheme through their Bitcoin accounts at BitoPro, using a robbing Peter to pay Paul approach. They promised investors that if they invested 1 Bitcoin in the previous round, they could receive 2.5 Bitcoins in the next round, provided that the next round's funds raised must be three times that of the previous round. This scheme quickly collapsed, and the defendants were prosecuted for violating banking laws by attracting deposits.

The key lies in the High Court's 2019 judgment on this case. Professor Yang Yueping explained that the High Court ruled that, according to a letter from the Financial Supervisory Commission, Bitcoin is not considered legal tender but a digital virtual commodity. Therefore, the defendants' attraction of Bitcoin did not constitute the receipt of "funds" or "payments" under the banking law's provisions, and thus was not deemed illegal fund attraction. The High Court held that to constitute the receipt of funds, the so-called "payments" must be in legal tender or foreign currency. Since Bitcoin is defined as a digital virtual commodity rather than legal tender, it does not constitute "payments."

Professor Yang further pointed out that the High Court also concluded that attracting Bitcoin did not constitute the receipt of "funds" because the Financial Supervisory Commission currently does not allow banks to accept deposits of virtual currencies. Therefore, the High Court believed that attracting Bitcoin is not a banking business and should not be considered as receiving funds. However, the reason the Financial Supervisory Commission prohibits banks from accepting virtual currency deposits is due to concerns about banks assuming excessive risks. Ironically, the High Court's ruling implies that while attracting conventional deposits, considered relatively low risk, is highly regulated under banking laws, attracting Bitcoin deposits, deemed high risk, may not be subject to banking law regulations. The logic of the court's decision here is actually unreasonable.

Professor Yang then stated that due to this judgment, many domestic exchanges have found a legal basis for offering cryptocurrency time deposit products without violating banking laws. Although this specific case involved Bitcoin as the subject rather than stablecoins, it cannot be definitively stated that attracting stablecoin deposits is completely safe. However, based on the argument that it is not a banking business, stablecoin time deposits seem to be exempt from banking law jurisdiction.

Professor Yang also pointed out that while financial regulations are usually interpreted by the Financial Supervisory Commission, the judgments of the High Court carry a certain degree of legal weight. Under Taiwan's constitutional system, the courts' interpretation of laws generally supersedes that of administrative agencies. Thus, until the Supreme Court or other high courts overturn this interpretation, the legal risks of these products constituting illegal fund attraction will be somewhat controlled due to this High Court judgment.

Beyond Reach? In Conclusion, Favorable to Startups

Professor Yang Yueping stated that although there are some flaws in the reasoning process of this High Court judgment, the outcome, in his opinion, is reasonable. This is because in Taiwan, whether it's Bitcoin or stablecoins, neither can be considered widely used payment tools. They remain investment tools, and even stablecoins have a relatively small scale and low acceptance rate. Therefore, Professor Yang believes that directly applying banking law provisions to startups issuing such products is overly burdensome. Thus, he agrees with this outcome, which is positive for encouraging financial technology innovation.

Investor Alert: Legal Gray Areas Offer Limited Protection

Although cryptocurrency time deposit products are not illegal, it does not mean there are no issues with investor protection. Investors should still be cautious about their rights. Whether it's debt products offered by exchanges or investment contracts issued by private institutions, if they fall outside the jurisdiction of banking and securities laws, in case of disputes, they can only be resolved through civil litigation under general civil laws. If the investment performance does not meet the initial expectations, investors may not necessarily be able to protect their rights in court.

The professor explained that some cryptocurrency investment products that do not guarantee repayment, such as those only indicating a certain range of floating gains and losses without guaranteeing profits, are considered investment contracts. If these investment contracts are not tokenized and not issued by foreigners, they do not qualify as securities under current Taiwanese law, nor are they subject to banking law jurisdiction, essentially falling into a legal gray area in Taiwan. He suggested that these types of investment contracts should be regulated as securities and subjected to hierarchical management to balance investor protection and financial development.

Additionally, whether centralized or decentralized, most mainstream cryptocurrency time deposit platforms are operated by foreign entities. In cases involving cross-border litigation, investor protection becomes even more uncertain. It is advised that cryptocurrencies are still in the developmental and experimental stages. While time deposit products reduce many volatility risks, there are still many unknown risks, so investors should invest moderately and cautiously.