DFA vs. Cryptocurrency
The regulation of blockchain technologies in Russia is quite peculiar. One notable aspect is that the most comprehensively regulated category, “digital financial assets” (DFA), does not encompass cryptocurrencies, which are the main assets on the blockchain by market capitalization worldwide.
The current federal law, “On Digital Financial Assets and Digital Currency,” separates the concepts of digital financial assets and digital currency (cryptocurrency). Only the DFA receives detailed regulation, while the law only contains a couple of articles about cryptocurrency. Essentially, the conclusion drawn from this document is that DFA and cryptocurrencies are not the same; the similarity lies solely in the use of blockchain technology.
What are “digital financial assets”?
The law defines digital rights as rights that are issued, recorded, and transferred through entries made in a distributed ledger (i.e., blockchain). These rights may include:
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monetary claims,
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the ability to exercise rights related to equity securities,
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rights to participate in the capital of non-public joint-stock companies,
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the right to demand the transfer of securities of the issuer’s class.
A DFA is essentially an investment product that cannot be used for purchasing goods and services. In general, it refers to the implementation of familiar financial instruments that are simplified and optimized through the use of blockchain technology.
Regulation of DFAs
In the DFA market, three key roles can be identified: the information system operator, the exchange operator, and the user (investor).
The information system operator is responsible for ensuring the functioning of the blockchain, admitting new users, and interacting with authorities and courts. By law, this operator must be included in a special register (distinct from the blockchain itself, referring to the state register). Currently, there are only ten operators listed, with the most recent addition on August 3, 2023. The operators are mainly large banks (such as Sberbank and Alfa-Bank) and specialized organizations, with Atomize being the first and largest, having issued DFAs worth over 16 billion rubles. The St. Petersburg Stock Exchange is also listed as an operator.
The exchange operator facilitates the trading of DFAs. This entity must be a legal entity registered with the Central Bank. The Central Bank requires:
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a Russian legal entity,
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authorized capital of at least 50 million rubles,
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net assets of at least 50 million rubles,
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specific requirements for the qualifications and tenure of members of governing bodies, sole executives, and officials,
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requirements for DFA exchange rules,
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requirements for internal control and risk management,
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operational reliability requirements.
To date, only one exchange operator, the Moscow Exchange, has been registered.
Investments in DFAs
To invest in DFAs, one must register with a platform associated with the operator. Additional requirements for investors will depend on the platform’s rules. The status of a qualified investor holds significant importance, allowing for more extensive transactions and removing the annual limit of 600,000 rubles imposed by the Central Bank’s instructions.
Examples of DFAs
The Central Bank acknowledges that the digital financial market is still in its early stages (with an estimated volume of 62.1 billion rubles according to the Bank of Russia). However, there are already prominent proposals. Here are a few notable examples:
In 2023, Norilsk Nickel issued DFAs for its employees. These assets provide benefits such as receiving dividends. In other words, the company’s employees directly benefit from the income through an asset on the blockchain.
The Samolet group of companies has introduced a digital meter tied to the price per square meter in the company’s construction projects. This allows investors to participate in specific property investments (such as apartments) using DFAs.
As anticipated, Atomize and Rosbank have collaborated to create hybrid rights to gold. Investors can choose to redeem their purchased DFAs for a gold bar or its cash value. DFAs for precious stones have also emerged.
Conclusion
The market for digital financial assets in Russia is developing as follows: the federal law is in full effect, major players are gradually entering the market, and the legal field is witnessing the first instances of using digital financial assets. However, these instances are limited and strictly regulated by the state. Moreover, there remains a legal distinction between cryptocurrency and digital financial assets, with cryptoassets still being considered a niche business without formal recognition.
This content and the information contained within it do not constitute individual or other investment advice. The opinions expressed by the editors may not align with the opinions of the author, analytical portals, or experts.