Advising on Commodity-Backed Token Issuance: Jurisdictional Analysis and Regulatory Compliance

Introduction

The Client, an entity incorporated in Dubai, intended to issue commodity-backed virtual assets (“VAs“), including a fungible VA and a non-fungible VA, both representing ownership rights in the underlying commodity.

The Client required comprehensive guidance on the regulatory and compliance obligations related to their issuance across various jurisdictions.

Challenge

The primary challenge was to navigate the complex and varied regulatory landscapes governing the issuance of VAs in five different jurisdictions: Mauritius, Labuan, Isle of Man, Hong Kong, and Panama.

Each jurisdiction had its own unique regulatory framework, ranging from fully regulated to unregulated. The Client needed a comprehensive analysis to determine the most suitable jurisdiction for conducting the VA issuance.

Strategies, Tactics, and Solutions

Our advisory team conducted a thorough desktop analysis of the potential regulatory requirements in each jurisdiction. We employed the following strategies:

• Detailed regulatory assessment: We examined the specific laws, regulations, and regulatory bodies governing VA issuance in each jurisdiction.
• Comparative analysis: We compared the regulatory status, licensing requirements, and associated costs across all five jurisdictions.
• Risk evaluation: We assessed the potential risks and uncertainties in each jurisdiction, particularly focusing on evolving regulatory landscapes.
• Practical recommendations: Based on our analysis, we provided clear recommendations, prioritising jurisdictions that offered a balance between regulatory clarity and operational feasibility.

Our key findings and recommendations for each jurisdiction were:

• Mauritius: Fully regulated, requiring registration as an issuer of initial token offerings. However, due to the lack of currently registered entities, we did not recommend this jurisdiction.
• Labuan: Fully regulated, requiring a license for credit token business. We recommended this jurisdiction if the Client sought a regulated environment, citing the regulator’s openness to innovative businesses.
• Isle of Man: Semi-regulated, requiring registration as a “designated business”. We recommended this as an option, noting the relatively faster process compared to fully regulated jurisdictions.
• Hong Kong: Unregulated for VA issuance, but with potential risks due to evolving regulations. We advised against using Hong Kong due to regulatory uncertainty.
• Panama: Unregulated, with no specific VA legislation. We recommended this if the Client preferred an unregulated jurisdiction, suggesting the establishment of a Panama Private Interest Foundation.

Outcomes

Our in-depth analysis equipped the Client with a clear understanding of the regulatory landscape across five jurisdictions. We guided the Client through intricate international regulatory frameworks, offering practical and strategic advice tailored to their unique needs.

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TLP Advisors is a dynamic and forward-thinking consulting, strategy and law firm specialising in providing cutting-edge solutions to our diverse clientele. With our roots deeply embedded in financial services, gaming, web3, and emerging tech, we offer unparalleled knowledge and support tailored to these rapidly evolving sectors’ unique challenges and opportunities.

TLP Advisors has consistently been the firm of choice for L1 chains, DeFi protocols, gaming companies, fintech and payment companies, foundations, funds, and investors. We have built a reputation for excellence through frequent collaborations with regulators, funds, and technology incubators. Our deep understanding of the intricate regulatory landscapes and industry dynamics allows us to provide strategic guidance and innovative solutions that empower our clients to navigate complex challenges and seize emerging opportunities.