How Are Blockchain Companies Registered In Cayman Island

The Virtual Nugget (Service Providers) Human activity, 2020 (VASP Act) equally amended, provides a legislative framework for the conduct of virtual assets business in the Cayman Islands, and the registration and licensing of persons providing virtual asset services. Since the introduction of the VASP Deed, the Cayman Islands Monetary Authority (CIMA) has seen a big number of registration applications and, where applicable, licence applications relating to crypto exchanges, crypto custody and brokerage, crypto marketplaces, initial coin offerings, security token offerings, and other businesses operating in, and services being provided in, the digital assets space utilising Cayman Islands entities.

santiago carvajal — **Santiago Carvajal**
Legal Consultant
Loeb Smith Attorneys

According to information from the CIMA, 55% of the VASPs registered in Cayman are trading platforms with a daily transaction book of USD5.one billion (2 to three% of total global volumes).

What is a virtual nugget?

The VASP Act defines a "virtual nugget" as "a digital representation of value that can exist digitally traded or transferred, and can be used for payment or investment purposes, but does not include a digital representation of fiat currencies".

The VASP Act makes a distinction between a virtual asset, as divers above, which will be regulated, and a "virtual service token", which is defined as "a digital representation of value, which is not transferrable or exchangeable with a third party at any fourth dimension, 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 possessor".

The distinction is meant to deal with the usual question as to whether or not a digital token or coin is a security or a utility token. Virtual service tokens will be treated equally utility tokens and, therefore, will autumn exterior the registration regime and the licensing authorities under the VASP Act.

Department 3(ii) of the VASP Act makes this clear by stating: "For the purposes of this law, virtual service tokens are non virtual assets and a person or legal arrangement that provides services that involve virtual service tokens only are not required to have a licence or registration nether this constabulary."

What are virtual nugget services?

The VASP Act states that virtual nugget service ways: (1) the issuance of virtual avails; or (two) the business concern of providing one or more of the following services or operations for, or on behalf of, a natural or legal person or legal organisation:

Substitution betwixt virtual assets and fiat currencies;
Commutation between ane or more other forms of convertible virtual assets;
Transfer of virtual assets;
Virtual asset custody services; or
Participation in and provision of financial services related to a virtual asset issuance or the auction of a virtual asset.

Who is a VASP?

A person is a virtual asset service provider (VASP) under the VASP Act if it is: (1) a company, or a full general partnership, or a express partnership, or a express liability company, or a foreign visitor registered in the Cayman Islands; and (2) providing a virtual asset service as a business, or in the course of business concern in or from inside the Cayman Islands, and is registered or licensed in accordance with the VASP Human activity, or is an existing licensee that is granted a waiver under the VASP Act.

The trading activeness of a Cayman entity to larn and dispose of cryptocurrencies for its ain benefit would not be regulated under the VASP Act, as it is not providing a virtual nugget service as a business, or in the course of business. Outside the activity of issuing virtual assets, the VASP Act will but touch on persons that undertake virtual asset services as a business, or in the course of a business for or on behalf of other persons. A natural person cannot behave on or purport to carry on a virtual asset service as a business concern, or in the course of business in or from inside the Cayman Islands.

The VASP Act requires a VASP to either register with the CIMA or be licensed by the CIMA. Whether the VASP will have to register or be licensed volition exist dependent on the activeness carried out past the VASP. However, broadly speaking, in the case of the provision of virtual asset custodial services, or the operation of a virtual asset trading platform (due east.g. crypto exchanges, trading platforms), the VASP is required to have a virtual nugget service licence. It appears that in most cases where the VASP is carrying on business organization every bit a VASP, only is not providing virtual asset custodial services or the operation of a virtual asset trading platform, only registration with the CIMA is required.

Cayman entities operating in breach of the VASP Human activity without the CIMA registration or a licence with the CIMA (equally advisable) will, amongst other things, discipline VASPs and their operators to substantial administrative fines from the CIMA.

Santiago Carvajal is legal consultant at Loeb Smith Attorneys in the Cayman Island