CAYMAN ISLANDS Law and Practice Contributed by: Jason Ta, Gemma Walters, Paul Walters and Ben Magahy, Travers Thorp Alberga
• SIBA – depending on the nature of the blockchain asset and its offering, specific provisions of SIBA might apply. Under the VASP Act an “issuance of virtual assets” or “virtual asset issuance” means the sale of newly cre - ated virtual assets to the public in or from within the Cayman Islands in exchange for fiat currency, other virtual assets or other consideration, but does not include the sale of virtual service tokens. A “virtual service token” is narrowly defined (see the definition in 10.3 Classification of Blockchain Assets above). Having regard to the above – generally speaking – most fungible blockchain assets will fall within the def - inition of a “virtual asset” which will require the issuer – if formed in the Cayman Islands – to be regulated under the VASP Act. Additionally, if the blockchain asset meets the definition of a “security” under SIBA, additional SIBA licensing and prospectus require - ments might apply, subject to a number of exemp - tions. In each case there needs to be a careful analy - sis of the asset’s features and function as well as the relevant legislation. The Cayman Islands regulatory regime is continually developing to accommodate the tokenisation of real- world assets in a responsible manner. Legal advice should be sought with respect to the classification of a particular product to ensure compliance with the relevant regime. 10.5 Regulation of Blockchain Asset Trading Platforms The VASP Act regulates “virtual asset trading plat - forms” which means a digital platform: • which provides a virtual asset service and facili - tates the exchange of virtual assets for fiat curren - cy or other virtual assets on behalf of third parties for a fee, commission, spread or other benefit; and • which: (a) holds custody of or controls virtual assets on behalf of its clients to facilitate an exchange; or (b) purchases virtual assets from a seller when transactions or bids and offers are matched in order to sell them to a buyer, and
• includes its owner or operator, but does not include a platform that only provides a forum where sellers and buyers may post bids and offers and a forum where the parties trade in a separate platform or in a peer-to-peer manner. As noted in the definition of “virtual asset trading platforms” – trading in a peer-to-peer manner is not regulated. 10.6 Staking The Cayman Islands does not currently impose any specific restrictions on staking per se. However, stak - ing generally involves the process of depositing or locking up virtual assets and in return, participants earn rewards, which can be in the form of additional virtual assets or otherwise as may be agreed. Where staking is undertaken by a person for their own account, it is unlikely to fall under a regulatory regime. However, if a person provides staking as a service to other persons, then they would need to carefully consider whether they fall within a virtual asset service under the VASP Act – in particular, the provision of custodial services or the provision of financial services related to a virtual asset issuance. Additionally, the staking arrangement must be care - fully assessed to ensure it cannot be characterised as a securities investment business under SIBA or rel - evant financial business under the Proceeds of Crime Act which could trigger AML/CFT regulations. The nature of the tokens, the types of rewards being earned and delivered and whether the issuer of the tokens provides or delivers such rewards on its own tokens or if the rewards are provided by a third party or independent protocol could all be relevant to the assessment. 10.7 Crypto-Related Lending As a general matter, Cayman Islands law does not specifically regulate lending as a standalone activity, so there are no significant specific regulations apply - ing to lending services relating to cryptocurrencies. However, the provision of lending business would likely fall within the scope of the AML Regulations as “relevant financial business” and which will conse -
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