Legal opinion and FAQs on the feasibility of DPOS provided by Ganado Advocates using the DPOS whitepaper shared on April 23, 2019 and the Laws of Malta.
Legal Opinion - DPOS.pdf (615.5 KB)
A summary of the findings of the legal opinion is outlined below.
What type of asset is DPOS?
As per the legal opinion, DPOS does not qualify as a virtual token, a financial instrument, or electronic money, and qualifies as a virtual financial asset (VFA) in terms of the Virtual Financial Assets Act (Chapter 590 of the Laws of Malta, the “VFA Act”).
Should DPOS be considered a VFA?
The legal opinion asserts that DPOS qualifies as a Virtual Financial Asset as defined in the VFA Act as DPOS:
i. Qualifies as a “Distributed Ledger Technology (DLT) asset” as defined in the VFA Act;
ii. Acts as a means of payment; and
iii. Does not qualify as electronic money, a financial instrument, or a virtual token.
Does DPOS qualify as a Transferable Security?
Based on the legal audit DPOS does not qualify as a transferable security .
A transferable security is defined as an asset on the capital market and involves:
i. Shares in companies and other securities equivalent to shares in companies, partnerships or other entities, and depository receipts in respect of shares;
ii. Bonds or other forms of securitized debt, including depository receipts in respect of such securities; or
iii. Any other securities giving the right to acquire or sell any such transferable securities or giving rise to a cash settlement determined by reference to transferable securities, currencies, interest rates or yields, commodities or other indices or measures
Does DPOS qualify as a Money Market Instrument?
DPOS will not have a “maturity date” and per the legal opinion it does not qualify as a “money market instrument”.
To qualify as a money market instrument an asset must have:
i. A determinable value at any point in time;
ii. Should not qualify as a financial derivative instrument; and
iii. Should have a maturity at issuance of 397 days or less.
Does DPOS qualify as a unit in a CIS (Collective Investment Scheme)?
Based on the legal audit, DPOS would not qualify as a CIS as DPOS does not qualify as ‘capital’. It also does not qualify as ‘equity’ or ‘debt’ and does not exhibit any ‘equity like’ or ‘debt like’ characteristics. Furthermore, the purpose of the Issuer is not the collective investment of ‘capital’, but rather the issue of DPOS as a “means of payment”. The DPOS tokens will not be repurchased or redeemed out of the assets of the Issuer continuously or in blocks at short intervals at the request of the DPOS token holders. DPOS does not qualify as an “investment” but rather as a “means of payment” as set out in the whitepaper.
Does DPOS quality as a Financial Derivative Instrument?
Based on the legal opinion, DPOS does not qualify as a financial derivative instrument as it does not exhibit any of the following characteristics and attributes to:
b. Futures/forward rate agreement;
d. Contracts for differences;
e. Other derivative contracts.
Furthermore, DPOS does not generate an economic exposure linked to:
d. Interest rates or yields;
e. Emission allowances;
f. Climatic variables, freight rates or inflation rates or other official economic statistics;
g. Other derivative instruments, financial indices or financial measures.
Does DPOS qualify as e-Money?
Based on the legal opinion, DPOS does not qualify as ‘electronic money’ nor does it qualify as a payment instrument as per the European Banking Authority’s report on crypto assets (January 9, 2019). This report concluded that for a DLT asset to qualify as electronic money, it must:
a. Be electronically stored;
b. Have monetary value;
c. Represent a claim on the issuer;
d. Be issued on receipt of funds;
e. Be issued for the purpose of making payment transactions; and
f. Be accepted by persons other than the issuer.
Furthermore, DPOS does not satisfy the definition of a ‘payment instrument’ since it is not “a personalized device/set of procedure”. The token is not used in order to initiate a payment order but rather is used as a “means of payment” in itself.
Does DPOS qualify as a virtual token?
DPOS is being used as a means of payment. DPOS is listed and traded on several exchanges and in light of that, it is unlikely to be considered a virtual token. The VFA Act defines a virtual token as "a form of digital medium recordation whose utility, value or application is restricted solely to the acquisition of goods or services, either solely within the DLT Platform on or in relation to which it was issued or within a limited network of DLT platforms.
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