CAYMAN ISLANDS Law and Practice Contributed by: Jason Ta, Ben Magahy, Paul Walters and Gemma Walters, Travers Thorp Alberga
• blockchain technology and assets are con - stantly evolving, making it difficult to create static regulatory frameworks; • the definition of “security” in the Cayman Islands is narrow and would not capture many forms of blockchain assets; • differentiating between tokens designed for utility within a specific ecosystem and those intended primarily for investment purposes poses challenges; and • decentralisation versus centralised control – the level of centralisation surrounding the issuance and management of the asset could also influence its classification. Issuances by investment funds will generally be subject to regulation pursuant to the Mutual Funds Act or the Private Funds Act. No invitation (whether directly or indirectly) may be made to the public in the Cayman Islands to subscribe for debt securities unless the debt securities are listed on the Cayman Islands Stock Exchange. 10.4 Regulation of “Issuers” of Blockchain Assets The Cayman Islands, while considered pro - gressive in this space, has a nuanced regula - tory framework for “blockchain assets” and their issuance/sale. The key legislation is: • Virtual Assets (Service Providers) Act – this core legislation regulates businesses provid - ing services related to virtual assets, including issuance and sale; and • SIBA – depending on the nature of the block - chain asset and its offering, specific provi - sions of SIBA might apply.
Under the VASP Act an “issuance of virtual assets” or “virtual asset issuance” means the sale of newly created virtual assets to the public in or from within the Cayman Islands in exchange for fiat currency, other virtual assets or other consid - eration, but does not include the sale of virtual service tokens. “virtual service token” is narrowly defined as a digital representation of value which is not transferrable or exchangeable with a third party at any time and includes digital tokens whose sole function is to provide access to an application or service or to provide a service or function directly to its owner. Having regard to the above – generally speak - ing – most fungible blockchain assets will fall within the definition of a virtual asset service provider 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 “security” under SIBA, additional SIBA licensing and prospectus requirements might apply. This requires careful analysis of the asset’s features and function. 10.5 Regulation of Blockchain Asset Trading Platforms The VASP Act regulates “virtual asset trading platforms” which means a centralised or decen - tralised digital platform: • which facilitates the exchange of virtual assets for fiat currency or other virtual assets on behalf of third parties for a fee, commis - sion, 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,
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