REGULATIONS FOR ASSET REFERENCED TOKENS

OrdinalGold.io tokens, with each token being backed by 1 gram of physical investment grade gold, are classified as “asset referenced tokens” meaning they are the same as commodities. Hence, they do not fall under the classification of “securities” from a regulatory perspective. Furthermore, OrdinalGold.io participates in gold pool streaming, akin to gold streaming, whereby each token represents a gold streaming agreement between OrdinalGold.io and the gold buyer. Our knowledge, awareness and application to relevant regulations is necessary to ensure that any marketing materials do not mislead investors about the nature of the tokens and their associated risks. Anyone buying OrdinalGold.io tokens are buying physical investment grade gold in 1 gram increments. 1 Token = 1 gram of gold. OrdinalGold.io tokens are not investment vehicles under securities definitions and do not pass the Howy Test for such purposes. Owning OrdinalGold.io tokens infers no rights to the buyer other than direct gold ownership, and there can be no expectations of any profit, dividends or royalties, future profits or other such benefits, other than the right to own physical investment grade gold.

Gold streaming agreements can be characterised as not being securities for several reasons, which differentiate them from traditional financial instruments that fall under securities regulation. What follows is an analysis of the significant differences.

Characteristics of Gold Streaming Agreements

1. Nature of the Transaction: Gold streaming is primarily a financial arrangement where a company provides upfront capital to a mining operation in exchange for the right to purchase gold at a predetermined price. This is fundamentally different from securities, which typically involve an investment of money with the expectation of profits derived from the efforts of others. In streaming, the investor’s return is directly tied to the production and sale of gold, not merely speculative gains from market fluctuations [1][2].

2. Contractual Obligations: Streaming agreements are structured as long-term commodity purchase contracts rather than traditional equity or debt instruments. They obligate the mining company to deliver a specific quantity of gold over time, contingent on production levels. This structure emphasizes a direct relationship with the underlying commodity rather than an investment in a company’s equity or debt [2][5].

3. Risk Profile: Unlike securities, which are subject to market volatility and regulatory scrutiny, gold streaming agreements allow companies to mitigate many risks associated with mining operations. The financing party does not bear construction or operational cost risks; instead, they benefit from commodity price exposure while securing their investment through contractual rights [2][3].

4. Hybrid Nature: While streaming agreements can exhibit characteristics of both debt and equity (as they may provide secured rights to future production), they do not fit neatly into either category as defined by securities regulations. This hybrid structure allows them to be customized for specific projects without being classified as traditional securities [1][4].

5. Regulatory Treatment: The regulatory environment around gold streaming is more aligned with commodity trading than with securities trading. Many jurisdictions do not classify these agreements as securities because they do not represent ownership in a company or an investment contract but rather a direct purchase agreement for commodities [3][5].

Regulations by Country

Based on the context of gold streaming and asset-referenced tokens backed with investment grade gold of OrdinalGold.io, here’s a summary of some relevant regulations required for compliance in the top gold-producing countries and the top gold-buying countries.

Top Gold Producing Countries and Relevant Regulations

1. China – Environmental protection laws, mining licenses, state ownership laws, and export controls.

2. Russia -Mining legislation, environmental regulations, and state control over mineral resources.

3. Australia – Mining Act compliance, environmental regulations, and state-specific mining laws.

4. United States – Federal and state mining laws and environmental protection regulations (e.g., NEPA).

5. Canada – Provincial mining laws, environmental assessments, and compliance with the Canadian Securities Administrators (CSA) if applicable.

6. Peru – Mining laws, environmental regulations, community engagement requirements, and tax compliance.

7. South Africa – Mineral and Petroleum Resources Development Act (MPRDA), environmental regulations, and compliance with the Broad-Based Black Economic Empowerment (B-BBEE) Act.

8. Ghana – Minerals and Mining Act, environmental regulations, and local content requirements.

9. Indonesia – Mining law compliance, environmental regulations, government control over mining rights and gold export duties (7.5% – 10%).

10. Uzbekistan – Statee ownership laws for mineral resources, environmental regulations, and compliance with local mining legislation.

Top Gold Buying Countries and Relevant Regulations

1. China – Import/export controls on gold, anti-money laundering (AML) laws, and taxation on gold purchases (VAT 13%).

2. India – Import duties on gold, Goods and Services Tax (GST 3%), and AML regulations.

3. United States – AML laws governing gold transactions, IRS reporting requirements for large purchases over USD 10,000, and state-specific regulations on gold sales.

4. Germany – AML laws, and compliance with EU financial directives (eg. 2006/112/EC for VAT)

5. Turkey – Import controls on gold and AML laws.

6. United Arab Emirates (UAE) – AML regulations for gold trading businesses, import/export controls on precious metals.

7. Russia – Import/export controls on gold, taxation policies related to gold purchases.

8. Italy – VAT on gold transactions, AML laws governing precious metal trading.

9. France – VAT regulations on gold purchases, AML compliance for dealers in precious metals.

10. Switzerland – AML laws governing precious metal transactions, import/export controls on gold.

The European Approach to Asset Referecnced Tokens – MiCAR

The Markets in Crypto-Assets Regulation (MiCAR) is a significant piece of legislation introduced by the European Union (EU) aimed at establishing a comprehensive regulatory framework for crypto-assets and their service providers. Here’s an in-depth overview:

Overview of MiCAR

1. Implementation Timeline: MiCAR officially came into force on June 29, 2023, but its provisions will be applicable in phases:
– Regulations concerning Asset-Referenced Tokens (ARTs) and Electronic Money Tokens (EMTs) will apply from June 30, 2024.
– Other parts of the regulation will take effect by December 30, 2024[13][18].

2. Purpose and Goals:
– MiCAR aims to enhance consumer protection, ensure financial stability, and promote innovation within the crypto-asset sector. It seeks to create a secure environment for both consumers and businesses engaging in crypto activities[15][17].
– The regulation is part of the EU’s broader digital finance strategy, which includes other initiatives like the Digital Operational Resilience Act (DORA) and a pilot regime for distributed ledger technology (DLT)[14][15].

Key Provisions

1. Classification of Crypto-Assets: MiCAR categorizes crypto-assets into three main types:
– Asset-Referenced Tokens (ARTs): These are intended to maintain a stable value by referencing multiple currencies, commodities, or other assets.
– Electronic Money Tokens (EMTs): These are linked to a single fiat currency.
– Utility Tokens: These provide access to goods or services offered by the issuer[14][18].

2. Licensing Requirements:
– Issuers of ARTs and EMTs must obtain authorization from relevant national authorities before offering their tokens. They are also required to publish a detailed white paper containing essential information for investors[17].
– Crypto-Asset Service Providers (CASPs) must also be licensed to operate within the EU, ensuring they meet specific regulatory standards[16][18].

3. Consumer Protection Measures:
– MiCAR imposes transparency obligations on issuers regarding disclosures and advertising practices.
– It includes provisions to protect retail investors, such as allowing them to withdraw from holding a crypto-asset within a specified period after purchase[15][17].

4. Market Integrity:
– The regulation establishes a market abuse regime aimed at preventing manipulation and insider trading in crypto markets. This is crucial for maintaining confidence among investors[14][16].

5. Supervisory Powers:
– MiCAR grants extensive powers to supervisory authorities, including the European Banking Authority (EBA) and the European Securities and Markets Authority (ESMA), to oversee compliance and enforce regulations across member states[13][15].

Differences from Existing Regulations

– Exclusions: MiCAR does not cover cryptocurrencies that qualify as “financial instruments” under existing EU regulations like the Markets in Financial Instruments Directive II (MiFID II). This means that security tokens are not regulated under MiCAR if they fall under this classification[18].

– Harmonization: One of MiCAR’s primary goals is to harmonize regulations across EU member states, providing a consistent framework that facilitates cross-border operations for crypto businesses[16][17].

Summary

MiCAR represents a landmark effort by the EU to regulate the rapidly evolving crypto-asset market, balancing innovation with necessary protections for consumers and financial stability. Its phased implementation reflects an adaptive approach to integrating digital finance into existing regulatory frameworks while addressing unique challenges posed by crypto-assets.

OrdinalGold.io’s Approach to MiCAR

At OrdinalGold.io, we recognize the value of the Markets in Crypto-Assets Regulation (MiCAR) as a framework for enhancing consumer protection on a global scale. Although we do not currently operate within the EU, we view MiCAR as a robust set of guidelines that can help establish trust and transparency in the crypto-asset market. As we consider future opportunities to engage with retail gold buyers, our commitment to adopting MiCAR principles will ensure that we are prepared for compliance, regardless of our operational jurisdiction.

MiCAR emphasizes transparency obligations for issuers, requiring clear and truthful disclosures about products and services. At OrdinalGold.io, we are dedicated to providing comprehensive information directly on our website, ensuring that potential investors have access to vital details regarding our tokenized gold offerings. This approach aligns with MiCAR’s focus on consumer rights, as it allows users to make informed decisions based on accurate and accessible information. Furthermore our white paper can be found here.

Moreover, by adopting MiCAR as a regulatory guideline, OrdinalGold.io is positioning itself to meet the demands of an evolving market landscape. We are committed to acting honestly, fairly, and professionally in all our dealings, which resonates with MiCAR’s emphasis on consumer protection and market integrity. As we prepare for potential future interactions with retail clients, our proactive compliance with these standards will not only enhance our operational credibility but also reinforce our dedication to safeguarding consumer interests in the tokenized gold space.

OrdinalGold.io in Liechtenstein

At OrdinalGold.io, we are committed to ensuring that our operations comply with the relevant regulations governing cryptocurrencies and tokenized assets in Liechtenstein. Our approach will be guided by several key pieces of legislation that dictate the licenses we pursue based on the specific nature of our activities.

Regulatory Framework in Liechtenstein

1. Liechtenstein Financial Market Authority (FMA): As the primary regulatory authority, the FMA oversees all aspects of cryptocurrency regulation in Liechtenstein. We will adhere to its guidelines and requirements for operating within the financial market.

2. Token and Trustworthy Technology Service Provider Act (TVTG): Enacted on January 1, 2020, the TVTG, also known as the Blockchain Act, establishes a comprehensive regulatory framework for blockchain and crypto companies. This act requires all crypto businesses to register with and obtain approval from the FMA, ensuring compliance with anti-money laundering (AML) and consumer protection standards.

3. Anti-Money Laundering Act (AMLA): This act is crucial for all financial institutions, including those dealing with cryptocurrencies. We will implement robust AML procedures to ensure compliance with this legislation, which aims to combat money laundering and terrorist financing.

Understanding Our Operations

The specific nature of our operations will influence the licenses we pursue:

– Asset Tokens: If our tokens represent ownership of physical gold, they will be classified as asset tokens under the TVTG. This classification typically requires more stringent oversight and may necessitate obtaining a specific license tailored for asset token issuers.

– Trading Platform: If we establish a trading platform for buying and selling our tokens, this activity could require us to obtain a license to operate as a token exchange service provider under the TVTG.

– Custodial Services: Should we offer custodial services for holding users’ tokens or assets, this will also trigger licensing requirements under Liechtenstein regulations.

Commitment to Compliance

As we prepare to engage with retail gold buyers in the future, we will adopt these Liechtenstein regulatory standards as foundational guidelines for our operations. By committing to compliance with the TVTG, AMLA, and other relevant regulations, OrdinalGold.io aims to create a trustworthy environment that meets legal requirements while fostering confidence among consumers in the tokenized gold market.

In summary, our proactive approach to understanding and adhering to Liechtenstein’s regulatory framework ensures that OrdinalGold.io remains well-prepared to navigate the evolving landscape while prioritizing transparency and consumer protection.

References and Links

1. Crypto Regulations in Liechtenstein, Regulated United Europe, https://rue.ee/crypto-regulations/liechtenstein/
2. Crypto Licence in Liechtenstein, Regulated United Europe, https://rue.ee/crypto-licence/liechtenstein/
3. Liechtenstein’s Parliament Approves Blockchain Act Unanimously, Liechtenstein USA, https://www.liechtensteinusa.org/article/liechtensteins-parliament-approves-blockchain-act-unanimously
4. Crypto Regulations in Liechtenstein: A Comprehensive Insight, LCX, https://www.lcx.com/crypto-regulations-in-liechtenstein-a-comprehensive-insight/
5. An Overview of the Liechtenstein Blockchain Act, Cointelegraph, https://cointelegraph.com/learn/an-overview-of-the-liechtenstein-blockchain-act
6. A Primer on the Regulation of the Trading in Cryptocurrencies and the Asset Management Related to Cryptocurrencies in Switzerland, PwC, https://www.pwc.ch/en/insights/regulation/a-primer-on-the-regulation-of-the-trading-in-cryptocurrencies-and-the-asset-management-related-to-cryptocurrencies-in-switzerland.html
7. An Overview of the Cryptocurrency Regulations in Switzerland, Cointelegraph, https://cointelegraph.com/learn/an-overview-of-the-cryptocurrency-regulations-in-switzerland
8. Liechtenstein Blockchain Act and Major Business Models: From Legal Framework to Reality, Mondaq, https://www.mondaq.com/fin-tech/1465326/liechtenstein-blockchain-act-and-major-business-models-from-legal-framework-to-reality

OrdinalGold.io in Switzerland

At OrdinalGold.io, we are dedicated to ensuring that our operations comply with the relevant Swiss regulations governing cryptocurrencies and tokenized assets. Our approach will be guided by several key pieces of legislation, which will dictate the licenses we pursue based on the specific nature of our activities.

Regulatory Framework in Switzerland

1. Swiss Financial Market Supervisory Authority (FINMA): As the primary regulatory authority, FINMA oversees all aspects of cryptocurrency regulation in Switzerland. We will adhere to its guidelines and requirements for operating within the Swiss financial market.

2. Anti-Money Laundering Act (AMLA): Enacted to combat money laundering and terrorist financing, the AMLA is crucial for all financial institutions, including those dealing with cryptocurrencies. We will implement robust AML procedures to ensure compliance with this act.

3. Blockchain Act (DLT Act): Enforced on August 1, 2021, this act provides a legal framework for trading cryptocurrencies and tokenized assets. It establishes clear guidelines for asset segregation and investor protection, which we will follow to enhance legal certainty in our operations.

4. Securities Law: In accordance with Swiss securities law, we will classify our tokens properly—whether as payment tokens, utility tokens, or asset tokens—and comply with the corresponding regulatory requirements for each category.

Understanding Our Operations

The specific nature of our operations will influence the licenses we pursue:

– Asset Tokens: If our tokens represent ownership of physical gold, they will be classified as asset tokens. This classification typically requires more stringent oversight and may necessitate obtaining an investment fund license or other relevant licenses.

– Trading Platform: Should we establish a trading platform for buying and selling our tokens, we may need to obtain a license to operate as an exchange or multilateral trading facility (MTF).

– Custodial Services: If we offer custodial services for holding users’ tokens or assets, this will also trigger licensing requirements under Swiss regulations.

Commitment to Compliance

As we prepare to engage with retail gold buyers in the future, we will adopt these Swiss regulatory standards as foundational guidelines for our operations. By committing to compliance with the AMLA, DLT Act, and other relevant regulations, OrdinalGold.io aims to create a trustworthy environment that not only meets legal requirements but also fosters confidence among consumers in the tokenized gold market.

In summary, our proactive approach to understanding and adhering to Swiss regulations ensures that OrdinalGold.io remains well-prepared to navigate the evolving landscape while prioritizing transparency and consumer protection.

References and Links

1. An Overview of the Cryptocurrency Regulations in Switzerland, Cointelegraph, https://cointelegraph.com/learn/an-overview-of-the-cryptocurrency-regulations-in-switzerland
2. Crypto Regulations in Switzerland, Regulated United Europe, https://rue.ee/crypto-regulations/switzerland/
3. A Primer on the Regulation of the Trading in Cryptocurrencies and the Asset Management Related to Cryptocurrencies in Switzerland, PwC, https://www.pwc.ch/en/insights/regulation/a-primer-on-the-regulation-of-the-trading-in-cryptocurrencies-and-the-asset-management-related-to-cryptocurrencies-in-switzerland.html
4. Countdown to MiCA, PwC, https://www.pwc.ch/en/insights/fs/countdown-to-mica.html
5. CMS Expert Guide to Crypto Regulation in Switzerland, CMS, https://cms.law/en/int/expert-guides/cms-expert-guide-to-crypto-regulation/switzerland
6. Blockchain Laws and Regulations in Switzerland, Global Legal Insights, https://www.globallegalinsights.com/practice-areas/blockchain-cryptocurrency-laws-and-regulations/switzerland/
7. Swiss Regulations Give Greater Certainty to Digital Tokens, Julius Baer, https://www.juliusbaer.com/en/business-navigator/business-navigator/regulation/swiss-regulations-give-greater-certainty-to-digital-tokens/
8. Token and DLT Regulation in Switzerland, Lindemann Law, https://lindemannlaw.ch/expertise/blockchain-crypto-fintech-artificial-intelligence-technology/token-and-dlt-regulation-in-switzerland-2/

Conclusion

The regulatory landscape for both gold-producing and gold-buying countries is complex and multifaceted. Compliance involves a mix of mining laws, environmental regulations, taxation policies, and anti-money laundering measures that vary significantly by jurisdiction. For companies like OrdinalGold.io that operate in this space—especially as asset-referenced tokens—we must navigate these regulations carefully to ensure legal compliance while leveraging the benefits of our unique financial structures in the global market.

In summary, gold streaming agreements are not classified as securities due to their nature as commodity purchase contracts, their contractual obligations tied to specific production levels, their unique risk profiles, and their regulatory treatment that aligns more closely with commodity transactions than with traditional securities. This distinction allows streaming companies to operate in a more flexible financial environment while providing essential funding to mining operations without the complexities associated with securities regulation.

This page is provided for reference only and is not intended as legal or taxation advice. Regulations are subject to frequent change beyond our control. We can endevour to keep abrest of the changes and ensure compliance thereof.

For more on our KYC and AML provisions go here.

Reference and Links

1. What is Gold Streaming? – The Motley Fool – https://www.fool.com/investing/2018/05/04/what-is-gold-streaming/
2. Streaming Transactions in the Mining Sector: A Financing Linchpin – Torys – https://www.torys.com/fr-ca/our-latest-thinking/publications/2014/06/streaming-transactions-in-the-mining-sector-a-financing-linchpin
3. Gold Royalty Companies – Equifund – https://equifund.com/blog/gold-royalty-companies/
4. Metal Royalty and Streams – Corporate Finance Institute – https://corporatefinanceinstitute.com/resources/valuation/metal-royalty-and-streams/
5. Streaming and Royalties in Mining: Let the Music Play On – McKinsey & Company – https://www.mckinsey.com/industries/metals-and-mining/our-insights/streaming-and-royalties-in-mining-let-the-music-play-on
6. Gold as an Investment – Wikipedia – https://en.wikipedia.org/wiki/Gold_as_an_investment
7. Best Practices for Event Log Management – WhatsUp Gold – https://www.whatsupgold.com/resources/best-practices/event-log-management
8. Top 10 Gold Producing Countries in the World – Finances Online – https://financesonline.com/top-10pgold-producing-countries-in-the-world/
9. Who’s the Biggest Gold Producer in the World? – IG – https://www.ig.com/en/trading-strategies/who_s-the-biggest-gold-producer-in-the-world-220706
10. Top 10 Gold Reserves by Country – Investing News – https://investingnews.com/top-10-gold-reserves-country/
11. Allied Gold Announces $53 Million Streaming Agreement with Triple Flag – PR Newswire – https://www.prnewswire.com/news-releases/allied-gold-announces-53-million-streaming-agreement-with-triple-flag-302216982.html
12. VAT Special Scheme for Gold – EUR-Lex – https://eur-lex.europa.eu/EN/legal-content/summary/vat-special-scheme-for-gold.html
13. Recent EU Regulatory Developments: MiCAR, Addleshaw Goddard, https://www.addleshawgoddard.com/en/insights/insights-briefings/2024/financial-regulation/financial-regulation-in-the-know-uk-eu-banking-investment-regulation-july-2024/recent-eu-regulatory-developments-micar/
14. MiCAR: An Overview of the EU Crypto Regulation for Issuers and C, Clifford Chance, https://www.cliffordchance.com/insights/resources/blogs/talking-tech/en/articles/2024/07/micar-an-overview-of-the-eu-crypto-regulation-for-issuers-and-c.html
15. The New EU Market in Crypto Assets Regulation, EY, https://www.ey.com/en_gr/tax/tax-alerts/the-new-eu-market-in-crypto-assets-regulation
16. MiCAR: EU Level 2 and 3 Measures Move Forward, William Fry, https://www.williamfry.com/knowledge/micar-eu-level-2-and-3-measures-move-forward/
17. Market in Crypto Assets Regulation – Public Consultation Exercise on National Discretions, Department of Finance, Ireland, https://consult.finance.gov.ie/ga/consultation/market-crypto-assets-regulation-eu-20231114-public-consultation-exercise-national-discretions/chapter/3-key-measures-included-within-micar
18. Markets in Crypto Assets: New EU Law on Crypto Assets, Bird & Bird, https://www.twobirds.com/en/insights/2024/global/markets-in-crypto-assets-new-eu-law-on-crypto-assets
19 Digital Assets in 2024: A Consideration of Some Legal, Regulatory, and Market Trends, Irish Funds, https://www.irishfunds.ie/news-knowledge/newsletter/digital-assets-in-2024-a-consideration-of-some-legal-regulatory-and-market-trends/
20. Markets in Crypto Assets Regulation (MiCA), ESMA (European Securities and Markets Authority), https://www.esma.europa.eu/esmas-activities/digital-finance-and-innovation/markets-crypto-assets-regulation-mica
21. International Law and Consumer Protection: The History of Consumer Protection, NYU Law Global, https://www.nyulawglobal.org/globalex/international_law_consumer_protection.html
22. The Era of Unregulated Crypto Asset Markets is Nearing its End: What Must You Know About MiCAR and How to Get Ready, Sorainen, https://www.sorainen.com/publications/the-era-of-unregulated-crypto-asset-markets-is-nearing-its-end-what-must-you-know-about-micar-and-how-to-get-ready/
23. Consumer Protection, Central Bank of Ireland, https://www.centralbank.ie/regulation/consumer-protection
24. Your Consumer Rights, Citizens Information, https://www.citizensinformation.ie/en/consumer/consumer-laws/your-consumer-rights/
25. MiCAR Law Alert, EY, https://assets.ey.com/content/dam/ey-sites/ey-com/en_gr/topics/tax/tax-alerts/law_alert_micar_en.pdf
26. MiCAR Overview, KPMG, https://kpmglaw.ie/pdf/ie-micar.pdf
27. Consumer Rights and Complaints in the EU, European Commission, https://commission.europa.eu/live-work-travel-eu/consumer-rights-and-complaints_en
28. The New EU Market in Crypto Assets Regulation, EY, https://www.ey.com/en_gr/tax/tax-alerts/the-new-eu-market-in-crypto-assets-regulation