Russian Promises: Norilsk Nickel’s Tokenization Platform May Catalyze the Slowly Developing Russian Crypto Legislation

News and Analysis

Russian Central Bank has approved the digital platform of Norilsk Nickel for trading tokens backed by commodities. On February 17, the Central Bank confirmed that the platform’s testing was successfully completed. It took place in the regulator’s own “sandbox.”

Norilsk Nickel is a major mining and smelting company, co-owned by a Russian oligarch and unlikely crypto-enthusiast Vladimir Potanin who had announced that Norilsk Nickel may launch a blockchain-fueled token back in 2018.

Initially perceived as a stablecoin backed by the company’s commodities, the current iteration of Norilsk Nickel’s platform allows organizations to issue custom tokens, which can then be exchanged for goods, financial instruments, real estate, services, or other assets. 

Despite the tests in the regulator’s sandbox being successful, the Russian legal reality dictates that the platform will not be able to operate in the Russian Federation until the adoption of the law “On Digital Financial Assets,” which has been in development for two years and already been postponed several times.

Crypto-experiments and Legal Hurdles

The fate of Russian legislation on digital assets is complex and tumultuous. It has been in the works since 2018 when regulators were first urged to deal with the circulation of cryptocurrency. While the bill was initially well-received, numerous hurdles soon accosted the law’s development process. Back then, Russian President Vladimir Putin proved to be a Bitcoin skeptic but noted he believed in the technology itself. At one point regulators considered an outright ban on cryptocurrencies, comparing the crypto-industry to gambling. Back in 2019, Anatoly Aksakov, the Chairman of the State Duma Committee on the Financial Market, stated:

“Initially, we considered allowing Bitcoin, Ethereum, and other cryptocurrencies to circulate freely in the Russian legal space, but the Central Bank took a very tough stand that it could destroy the Russian financial system and create big problems, including those related to money-laundering and financing drug trafficking.”

The latest Norilsk Nickel’s and Central Bank’s experiments could apparently be a huge argument for a feasible regulated and safe tokenization model. It will likely propel the law-making process on digital assets in the State Duma.

“This was one of the largest sandbox projects. We studied in detail the new business model and its relevance to the market’s needs. Based on the results of this pilot, the Bank of Russia proposed to include in the draft federal law “On Digital Financial Assets” the provisions necessary for the introduction and development of such decisions in the emerging digital assets market, which were supported by government agencies and businesses,” said Ivan Zimin, Director of the Bank of Russia’s Financial Technologies Department.

According to Anatoly Aksakov, by February 2020 the authorities generally managed to resolve the disagreements regarding the draft and the State Duma may adopt a law on digital financial assets as early as next month.

“Regarding digital financial assets, unfortunately, the Bank of Russia and the competent authorities have conflicting views. Unfortunately, until recently, the disagreements could not be resolved. Last week there was another meeting, and it seems that an agreement on principal points has been reached. The draft is being prepared now, and if the relevant institutions, the Central Bank and the legal department support this draft, we believe that in March we can come through with such a bill in the second or third reading,” the official said.

One of Many Crypto Projects

The project of the Norilsk Nickel digital platform may become the “first significant project” in Russia both in tokenization and in the practical industrial application of blockchain technology. Nonetheless, it was not the first time the Russian government experimented with blockchain tech and crypto.

In 2017, Russian Central Bank registered the documents entitling the platform Voskhod (Russian for “sunrise”) to trade in cryptocurrencies. The platform was created to attract investment to Russia’s Far East regions that suffer from underdevelopment. 

Almost simultaneously, the Moscow Stock Exchange announced that it was going to develop an infrastructure for cryptocurrency trading. Those plans never came to fruition.

Later the same year, the Voskhod platform tried to register as a cryptocurrency exchange operator in Japan as well as announced its plans to trade D1 Coin, a diamond-backed cryptocurrency from Singapore. Still, in the subsequent years, Voskhod gradually faded away from the newsreel. Right now its website looks half-abandoned, even though it mentions the year 2020 in its footer.

Other crypto-related activities in the Russian government sector included an attempt to hold a “controlled” ICO for the Moscow-based think tank Skolkovo and to turn the far-eastern city of Vladivostok into some sort of a “crypto-valley” to “trial run technological and regulatory approaches.”

Finally, Russia had made several attempts to launch the so-called “crypto-ruble,” first in the form of a private coin owned by a local payment processor QIWI and then as a public effort. Both projects have been eventually shelved due to regulatory complexities and the ambiguity in the official positions of different government entities.

This background suggests that while the Russian authorities are definitely interested in crypto, their attempts haven’t produced much of a result so far.

To that end, the recent project by the Norilsk Nickel may either become the first-ever instance of a working crypto-project endorsed by Russian authorities or join the ranks of its predecessors, of which only old articles are a reminder.

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