Token offering in Abu Dhabi Global Market – Regulation and classification

As we discussed earlier (article – Cryptoregulation in the ADGM free financial zone), ADGM remains to be a leading crypto-regulator in the UAE. This time, we will shed a light on regulatory approaches towards the crypto token offering in this special economic zone and discuss the classifications set out by the governing rules in the zone.

ICO requirements

As the competent regulator in ADGM, the Financial Services Regulatory Authority (“FSRA”) of the Abu Dhabi Global Market (ADGM), in October 2017, the FSRA issued a guidance applicable to those considering offering virtual assets. The guide has been updated for several times ( in June 2018 and May 2019, in February 2020 and 2021) subject to regulation in accordance with the Financial services and markets regulations (hereinafter: “FSMR”). This may be the case when the FSRA determines that the tokens exhibit the characteristics of securities. In this case, the FSRA considers virtual assets to be digital securities and an ICO must comply with the FSMR if it is offered within ADGM or outside of the ADGM. Accordingly, if an ICO is issued overseas but offered to the public at the ADGM, a decision from the FSRA must be sought, unless purchasers located at the ADGM are excluded from participation.

FSMR divides virtual coins and tokens into FSRA regulated digital assets on the one hand, which includes virtual assets (such as non-fiat virtual currencies including Bitcoin and Ethereum), digital securities, fiat tokens (fully backed by fiat)) and derivatives and funds (i.e. derivatives for any digital assets and collective investment funds investing in digital assets) and other digital tokens. However, only utility tokens remain unregulated.

The FSMR defines a virtual asset as a digital representation of value that can be digitally traded and functions as a medium of exchange, unit of account, or store of value, or all three, but does not have legal tender status in any jurisdiction. From a regulatory policy perspective, the FSRA treats virtual assets as commodities and therefore not as certain investments under the FSMR. Derivative virtual assets are treated as commodity derivatives and therefore as certain investments under the FSMR. While not all virtual assets are defined as investments, any market operator, intermediary or custodian dealing with virtual assets must be approved by the FSRA as a Financial Services Authorization Holder for applicable regulated activities.

Digital Securities Guidance

In addition, the FSRA’s decision to treat a token as a security gives rise to prospectus obligations under Section 61 of the FSMR, other obligations under Chapter 4 of the FSMR Market Rules, and AML and KYC requirements. The normal prospectus exceptions may apply if the offer is made only to professional clients (as defined in the FSMR) or to less than 50 individuals in any 12-month period, or when the consideration to be paid by one individual for the purchase of tokens is at least $100,000 United States (EUR 91642). In its latest guidance on digital securities, the FSRA suggests that issuers of digital securities must fully consider the context of both the primary and secondary markets. This includes an obligation for the issuer to also seek admission of digital securities to trading on multilateral trading venues and recognized investment exchanges operated by ADGM due to the incomplete integration of the primary and secondary markets for digital securities.

Classification as a digital security also requires that market intermediaries or operators such as virtual currency exchanges that trade these tokens are regulated as:

  • holders of permits for financial services;
  • recognized investment exchanges;
  • recognized clearing houses.

It is important to note that the FSRA does not currently provide permission for the secondary market to list digital securities issued outside the ADGM.

Moreover, the FSRA may consider tokens used by firms to create an investment fund on the blockchain as units of a collective investment fund (as defined in section 106 of the FSMR) to which the rules of the ADGM fund apply. This classification also gives rise to extensive regulatory requirements.

If the token to be issued is a stablecoin, it can only be issued and offered within the ADGM, where it is 1:1 backed by fiat currency and will then be characterized as a fiat token. Its issuer is considered a money services business that must be authorized to provide financial services for a regulated money services business. Only in cases where the FSMR does not consider digital tokens to be digital securities, fiat tokens, or derivatives can an ICO fall outside the scope of ADGM. The FSRA ICO Guidelines encourage the industry to develop voluntary best practices for such ICOs.


Paragraph 10 of the Regulations on the Regulation of Activities with Virtual Assets in the ADGM provides a classification of tokens, which is displayed in Table No. 1:

Тable №1


According to Article 162 of the ADGM’s Virtual Asset Regulation, a stablecoin is a type of blockchain-based fiat token that is valued against a base fiat currency. The key feature of a stablecoin is that it should have less volatility than other virtual assets, which allows it to work as a value transfer in the virtual asset ecosystem, including as part of a trading pair on the MTF (Multilateral Trading Facilities).

Demand for stablecoins in the virtual asset markets continues to grow as many participants look for a safe store of value. Demand has also increased as a result of the general inability to convert virtual assets into fiat currencies. In addition, some stablecoins are designed more to function as digital currencies within the digital economy.

The FSRA’s position on stablecoins is as follows:

  • only allow stablecoins that are a fully backed 1:1 fiat token, backed only by the same fiat currency it is intended to be tokenized;
  • fiat tokens should be considered as a mechanism for storing value (for example, electronic money);
  • issuers of fiat backed tokens for the purpose of facilitating or making payments are treated as businesses providing money services. In addition to the need to have an FSP for a regulated money services business.

The comprehensive regulatory framework and clarifications from the ADGM authorities have made the Free Zone even more secure for Virtual Asset service providers to do business in more favorable conditions.

The content of this article is intended to provide a general guide to the subject matter, not be considered as a legal consultation.

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Token offering in Spain

The Government of Spain, just like many other countries of the world, has been very carefully approaching the regulative treatment of crypto-assets.

As the law prioritizes the protection of investors and consumers rights’, and to ensure the eradication of any form of fraudulent activities in relation to financial and securities.

As we have already discussed recent regulatory updates by the Spanish government on taxation and registration matters for the purposes of anti money laundering in our earlier article, this time we will broadly examine the categories of tokens and the recent regulatory guides on how commercialization of tokens is treated for investment law purposes.


In July 2021 Spanish Stock Market Regulator (Comisión Nacional del Mercado de Valores; hereinafter:- “CNMV”) published a proposal for a circular to address the mass advertising of crypto-assets. The Circular provides a normative definition of crypto assets, as “digital representation of an asset or right that can be electronically transferred or stored by using distributed ledger technologies or other similar ones”.

The CNMV and Bank of Spain released a new press statement on cryptocurrency investment risks in 2021. In 2018, CNMV and Bank of Spain issued a joint press statement on “cryptocurrencies” and “initial coin offerings (ICOs)’, on the associated risks related with purchasing virtual currencies or investment products linked to them.

Besides, the CNMV has issued two other documents outlining its viewpoint and position on specific matters corresponding to virtual currencies. However, only the CNMV has issued a statement to explain that it has not authorized any prospectus, nor has it exercised any authorisation for, or power to verify, any transaction in relation to virtual currencies and it remains effective up to date.


CNMV still does not yet have a clear standpoint as to the legal categorisation of crypto tokens, and has unofficially claimed that virtual assets shall not be treated as securities. Moreover, CNMV believes that nature of the cryptokens vary, and the widely used distinguishing characteristics can be classified into two:

  • “Security tokens” which generally grant participation in the future income or the increase in the value of the issuing entity or of a business;
  • “Utility tokens” which give the right to access a service or receive a product, without prejudice to which, on the occasion of the offer, mention is usually made of expectations of revaluation and liquidity or the possibility of trading them in specific markets.

On the other hand, the draft law introduced in april 2021 also included the instruments issued by means of distributed ledger technology within the list of financial instruments in the Spanish securities market law. In view of this, as specified by the reports from the European Securities and Markets Authority and the European Banking Authority (EBA), virtual tokens can be categorized into four, namely:

  1. currency tokens (cryptocurrencies with no rights or investment purposes);
  2. security tokens, which usually provide property rights, interest rights or dividends attached to a business;
  3. utility tokens, which facilitate access to a product or a service, but do not serve as a payment method for other products or services; and
  4. hybrids, which might fall into more than one of three categories listed above.

The CNMV and the Bank of Spain warn that, to date, there has not been any “cryptocurrency” issue or ICO registration, authorization or verification by any supervisory body in Spain. This implies that there are no “cryptocurrencies” or “tokens” issued in ICOs whose acquisition or possession in Spain can benefit from any of the guarantees or protections provided for in the regulations relating to banking or investment products.

Despite the foregoing, after carefully reviewing how digital assets are marketed and acquired, the CNMV has confirmed that the virtual token offering and commercialisation might have investment law implications:

  • Direct marketing

Digital currencies are bought via platforms operating on the internet (exchanges) and cryptocurrency automatic teller machines (ATMs). In either of the cases, the investor does not have an exclusive ownership to virtual assets, but only has rights in connection with an unsupervised exchange or intermediary. Consequently, purchasers might be exposed to the risk of an insolvency of the intermediary and noncompliance with underlying rules of appropriate record keeping and, diligent custody and assets recording and accurate management of conflict interests.

  • Contracts for differences (“CFDs”)

Entities offering these types of products must be authorized by the CNMV in order to provide investment services and comply with all reporting obligations and other applicable codes of conduct. Thereby, market participants shall be aware that this kind of contracts generally involves greater risks.

  • Futures, options and other derivatives

If these categories of financial products have earlier been authorized by a regulated supervisor, their active marketing by a public offering by market professionals to retail investors may entail a prospectus approved by the CNMV or another EU authority that has been subject to passporting arrangements.

  • Collective investment vehicles that invest in cryptocurrencies

The CNMV has affirmed that UCITS (Undertakings for the Collective Investment in Transferable Securities) can invest in virtual currencies through financial instruments whose profitability is linked to those currencies and that do not incorporate an implicit derivative instrument, provided that their price is published in a market each day. Moreover, Hedge funds might invest in cryptocurrencies through derivatives as well, if the derivative settlement does not imply the delivery of the applicable currencies, even though these kinds of funds can only be traded with professional investors. In any case, investments in cryptocurrencies and the risks must be expressly and prominently mentioned in the prospectus and key investor information document of any Spanish collective investment scheme. These types of investment funds or vehicles must be approved or registered by CNMV.

  • Acquiring structured bonds whose underlying asset is a virtual currency.

By acquisition of structured bonds where the underlying asset is cryptocurrency (Exchange Traded Products or ETPs, and Exchange Traded Notes or ETNs). Under public offering scheme, marketing of exchange-traded products and exchange-traded notes necessitates to have approval by supervisory authority of an explanatory prospectus that has also been subject to the relevant EU passporting procedure.


CNMV recognizes the potential benefits of technologies and innovation that might drive the financial services industry and particularly regards the proportionality principles on exercising supervisory powers. CNMV acknowledges that the transactions formed as Initial Coin Offerings (ICOs) generally shall be treated as issuance or public offerings of transferable securities based on the extensive definition of transferable security under Spanish law (Article 2.1 of the Spanish Securities Law)

The CNMV sets forth the relevant factors listed below in assessing whether transferable securities are being offered through an ICO:

  1. tokens that assign rights or expectations of a share in the potential increase in value or profitability of businesses or projects or, in general, that they constitute or assign rights equivalent or similar to those of shares, bonds or other financial instruments included in Art. 2 of the Spanish Securities Law; or
  2. tokens that entitle access to services or to receive goods or products, that they are offered referring explicitly or implicitly to the expectation that the purchaser or investor will obtain a profit as a result of their increase in value or some form of remuneration associated with the instrument, or reference is made to its liquidity or tradability on equivalent or allegedly similar markets to regulated securities markets.

Nevertheless, with respect to the second point, if it cannot be reasonably established that there is an interrelation between the profit expectations or an increase in value and the evolution of the underlying business or project, then the token should not be considered a financial instrument. In the event that the ICOs qualify as financial instruments, regulations in relation to Markets in Financial Instruments Directive II, the Prospectus Directive and the Alternative Investment Fund Managers Directive should apply to them.

It is worth to note that if the ICO does not qualify into Public Offering (e.g. fewer than 150 investors or involves a minimum investment of €100,000 or a total amount of less than €5 million), if it has been advertised (including websites in Spanish offering the tokens), then this entity would be an entity authorized to provide investment services should intervene in relation to its marketing, thus the provisions of Art. 35.3 of the Securities Market Law would be applicable. The CNMV understands that this requirement is deemed to be fulfilled if the entity authorized to provide investment services intervenes:

  1. on the occasion of each individual subscription or acquisition of the securities or financial instruments as a placement agent, broker or adviser, subject to the rules applicable in each case; or
  2. by validating and supervising the offer in general and, in particular, the information provided to investors, and the placement or marketing procedure used (without an authorized entity having to intervene on the occasion of each subscription or acquisition). With regard to the validation of information, the authorized entity must ensure that the information is clear, impartial and not misleading, and that it refers to the characteristics and risks of the securities issued, as well as the company’s legal, economic and financial situation, in a sufficiently detailed manner to allow the investor to make a well-informed investment decision. Likewise, the information for investors shall include a warning on the novel nature of the registry technology and on the fact that the custody of the tokens is not carried out by an authorized entity.

Last, but not the least, it should emphasized that, regardless of the place of issuance of the tokens, if the issue complies with the abovementioned criteria (and may, therefore, qualify as a transferable securities issue), then its active marketing in the kingdom of Spain (for example displaying the availability of websites in Spanish offering the tokens) will be subject to the aforementioned rules as well.


Up to now, the CNMV has not yet authorized any ICOs, even though it has analyzed numerous prospective ICO structures. Moreover, the draft law stipulates that the CNMV might mandate the advertisers of crypto-assets for investment purposes to authorisation, involving the forewords of warnings on risks and characteristics, although they are not products covered within the scope of Spanish securities market law. In this respect, the CNMV published a draft circular for public consultation in June 2021, aimed at developing the standards, principles and criteria to which advertising activity associated with crypto-assets will be subject and, specifically, to define the objective and subjective scope, as well as the supervisory powers of the CNMV on the advertisement of crypto-assets.

However, a more universal regulatory approach and development is still needed at European and international level, as it is quite difficult to fit existing legislative instruments into new business and alliance models. Hence, the complication of applying the prevailing norms in a digital sector and notably its transnational nature necessitates efforts at international cooperation.

The content of this article is intended to provide a general guide to the subject matter, not to be considered as a legal consultation.

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Taxation of crypto staking in the United States

Thanks to the growing number of virtual asset transactions, the notion of “crypto-staking” has become more familiar for tax affairs.

Staking can be described as getting rewarded for taking part in the blockchain system, in which users validate crypto transactions by staking their coins, by monetizing more coins by using virtual currencies they possess.

Which is to say, stakers receive rewards from cash in savings accounts, the same as getting dividends from stocks. Although from US federal law perspective, digital currencies are treated differently than fiat currencies and stocks for income tax purposes.

Personal Income Tax

With reference to the Internal Revenue Service (hereinafter: – “IRS”, convertible virtual assets are treated as property for federal income tax purposes, thus general taxation rules apply to such property transactions. According to the Internal Revenue Code, the stock is relevant to corporate shares. As convertible virtual currency is not an interest of the company, it won’t be referred to as stock and neither as security and debt instruments under income tax purposes. However, for the purposes of non-income tax purposes, some categories of virtual assets might be treated as securities, meanwhile there is a bill proposing a treatment of digital assets as “covered securities” in terms of information reporting hence brokers and exchanges will be required to report original sale price in order to calculate capital gain and loss.

Taxation of mining

Thus far, there is no particular official instruction on taxation of staking transactions, while IRS Notice 2014-21 stipulates that a taxpayer who engaged in virtual asset mining is subject to tax on the new virtual currency received from those activities as ordinary income. Likewise, Revenue Ruling 2019-24 states that “a hard fork followed by an airdrop results in the distribution of units of the new cryptocurrency to addresses containing the legacy cryptocurrency.” Prior rulings might be interpreted that the IRS shall view crypto staking benefits analogous to an ordinary income provided that the taxpayer disposes of new coins at the time they are generated.

Nevertheless, in the recent case of Jarrett v. United States established that cryptocurrency mining is not a taxable transaction because it is the creation of property, much like a baker making a cake, plaintiff persuaded the federal court in seeking a refund from the Internal Revenue Service, claiming that taxpayer is not subject to tax until she/he sells or exchanges the new tokens.

Application of Security Laws

The analysis under SEC v. W.J. Howey Co. is required to determine if the cryptocurrency staking service provider qualifies as an investment contract. Howey test sets out the following factors:

  1. an investment of money;
  2. in a common enterprise;
  3. with the expectation of profit;
  4. based solely on the efforts of others.

Evidently, the aforementioned four criteria must be fully met in case of staking of cryptocurrencies, for it to qualify under securities laws and tax principles, which in most of the time, crypto-staking do not fulfill the Howey identified criterias.

Moreover, staking service providers also fail to advance the intent of securities laws. Pursuant to Securities Act of 1934, SEC was granted an authorisation to monitor public companies, with the aim to facilitate investors to make informed decisions, based on the comprehensive and reliable information which has been made available to them. Whereas, in an accessible proof-of-work network, there is already enough transparency and/or basic data asymmetries formed by a staking service arrangement. Hence, it is enough for customers to make informed judgments with respect to selecting providers.

There isn’t specialized IRS guidance on crypto staking. Yet, IRS guidance on mining insists that due to similarities to mining, crypto staking should still be implied to taxation. Following the IRS Notice 2014-21 (the guidance on mining income), earnings from crypto staking is taxable as an ordinary income at its decent market price on the date of receipt. Capital gains tax on increase in value would apply in cases when the taxpayers sell digital assets received as a staking reward. The gains will be predicated upon the holding period of assets, namely, the shorter term gains are subject to ordinary income tax rates, long term gains on the other hand, might receive discounted rates.

The content of this article is intended to provide a general guide to the subject matter, not to be considered as a legal consultation.

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