Virtual Asset Service Providers (VASPs)
Marshall Islands Virtual Asset Service Provider (VASP) Definition
To paraphrase, VASPs are defined as organizations that custody or transfer digital assets that belong to others or on behalf of others.
Note that launching a token, holding tokens, trading tokens, and otherwise using tokens does not make a DAO LLC a VASP; it's only when a DAO LLC does these things "for or on behalf of" another party.
This is different from some other jurisdictions, where simply launching or holding tokens can make you a VASP.
Here is the exact definition from the Banking Act Amendment of 2020
Banking Act 1987 (RMI), Chapter 1, §102(ii) provides that a ‘virtual asset service provider‛ means any natural or legal person, other than a bank, who, as a business, conducts one or more of the following activities or operations for or on behalf of another natural or legal person:
(i) exchange between virtual assets and fiat currencies;
(ii) exchange between one or more forms of virtual assets;
(iii) transfer of virtual assets (i.e., conducting a transaction on behalf of another natural or legal person that moves a virtual asset from one virtual asset address or account to another);
(iv) safekeeping and/or administration of virtual assets or instruments enabling control over virtual assets; and
(v) participation in and provision of financial services related to an issuer's offer and/or sale of a virtual asset;
Are VASPs Allowed in the Marshall Islands?
While the Banking Act provides that a VASP may operate with a valid license from the Banking Commissioner, such licenses are not currently available, effectively making it illegal to operate a VASP (as defined above) in the Marshall Islands.
Note that doing any of the above activities with non-virtual assets would make a DAO LLC a financial service provider and also require a license from the Banking Commissioner. For example, operating a bank or exchange would require such a license.
Can a DAO LLC Own RWAs (Real World Assets) and not be Considered a VASP?
There are several RWA-related DAO LLCs in the RMI, but they operate so that the DAO LLC itself does not custody RWAs that belong to other people. Rather, the DAO LLC must be the owner of the assets, and then other people can own the DAO LLC. The DAO LLC cannot own financial RWAs and then give people tokens that represent ownership of those assets directly because then the DAO LLC is considered to be in the custody of those financial assets on behalf of others and be considered a VASP in the RMI. Here are some structures RWA-related DAO LLCs have opted for that do not make them a VASP:
The DAO LLC builds a protocol for people and organizations to put up RWAs to create tokens, which are then held by others. These holders will get a return based on the return on the RWA.
The DAO LLC does not own the RWAs; rather, it facilitates other legal entities (e.g., other LLCs elsewhere in the world) that actually own the RWAs. These other entities are often optimal for the RWA in question, for example, an LLC in California that owns real estate in California.
The DAO LLC does own the RWAs, and its tokenholders are owners of the whole DAO LLC, as opposed to the DAO LLC separately managing and custodying RWAs with different tokens representing ownership of each.
The DAO LLC creates individual Series DAO LLCs within the Master, each of which would own an RWA or portfolio of RWAs, and then each Series could also have its own token holder structure, such that the tokenholders would be the owners of that individual Series. This way, the tokenholders do own the Series directly, rather than the DAO LLC being in a custody situation.
Can my DAO LLCs Operate a Frontend to a Protocol?
Yes, a DAO LLC can operate a front end for a protocol without being considered a VASP.
Can my DAO LLC Develop, Govern, and Market Protocols?
Yes, a DAO LLC can develop, govern, and market protocols without being considered to be doing the activity that is undertaken by the protocol; therefore developing, governing, and marketing a protocol does not make a DAO LLC a VASP in the Marshall Islands.
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