{"id":379668,"date":"2021-12-11T13:11:00","date_gmt":"2021-12-11T10:11:00","guid":{"rendered":"https:\/\/en.buradabiliyorum.com\/fatf-guidance-on-virtual-assets-nfts-win-defi-loses-rest-remains-unchanged\/"},"modified":"2021-12-11T13:11:00","modified_gmt":"2021-12-11T10:11:00","slug":"fatf-guidance-on-virtual-assets-nfts-win-defi-loses-rest-remains-unchanged","status":"publish","type":"post","link":"https:\/\/buradabiliyorum.com\/en\/fatf-guidance-on-virtual-assets-nfts-win-defi-loses-rest-remains-unchanged\/","title":{"rendered":"# FATF guidance on virtual assets: NFTs win, DeFi loses, rest remains unchanged"},"content":{"rendered":"<div id=\"ez-toc-container\" class=\"ez-toc-v2_0_85 counter-hierarchy ez-toc-counter ez-toc-custom ez-toc-container-direction\">\n<p class=\"ez-toc-title\" style=\"cursor:inherit\">Table of Contents<\/p>\n<label for=\"ez-toc-cssicon-toggle-item-6a3eba85d0775\" class=\"ez-toc-cssicon-toggle-label\"><span class=\"\"><span class=\"eztoc-hide\" style=\"display:none;\">Toggle<\/span><span class=\"ez-toc-icon-toggle-span\"><svg style=\"fill: #dd3333;color:#dd3333\" xmlns=\"http:\/\/www.w3.org\/2000\/svg\" class=\"list-377408\" width=\"20px\" height=\"20px\" viewBox=\"0 0 24 24\" fill=\"none\"><path d=\"M6 6H4v2h2V6zm14 0H8v2h12V6zM4 11h2v2H4v-2zm16 0H8v2h12v-2zM4 16h2v2H4v-2zm16 0H8v2h12v-2z\" fill=\"currentColor\"><\/path><\/svg><svg style=\"fill: #dd3333;color:#dd3333\" class=\"arrow-unsorted-368013\" xmlns=\"http:\/\/www.w3.org\/2000\/svg\" width=\"10px\" height=\"10px\" viewBox=\"0 0 24 24\" version=\"1.2\" baseProfile=\"tiny\"><path d=\"M18.2 9.3l-6.2-6.3-6.2 6.3c-.2.2-.3.4-.3.7s.1.5.3.7c.2.2.4.3.7.3h11c.3 0 .5-.1.7-.3.2-.2.3-.5.3-.7s-.1-.5-.3-.7zM5.8 14.7l6.2 6.3 6.2-6.3c.2-.2.3-.5.3-.7s-.1-.5-.3-.7c-.2-.2-.4-.3-.7-.3h-11c-.3 0-.5.1-.7.3-.2.2-.3.5-.3.7s.1.5.3.7z\"\/><\/svg><\/span><\/span><\/label><input type=\"checkbox\"  id=\"ez-toc-cssicon-toggle-item-6a3eba85d0775\" checked aria-label=\"Toggle\" \/><nav><ul class='ez-toc-list ez-toc-list-level-1 ' ><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-1\" href=\"https:\/\/buradabiliyorum.com\/en\/fatf-guidance-on-virtual-assets-nfts-win-defi-loses-rest-remains-unchanged\/#Expanding_the_definition_of_virtual_asset_service_providers\" >Expanding the definition of virtual asset service providers<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-2\" href=\"https:\/\/buradabiliyorum.com\/en\/fatf-guidance-on-virtual-assets-nfts-win-defi-loses-rest-remains-unchanged\/#Impact_on_DeFi\" >Impact on DeFi<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-3\" href=\"https:\/\/buradabiliyorum.com\/en\/fatf-guidance-on-virtual-assets-nfts-win-defi-loses-rest-remains-unchanged\/#Impact_on_stablecoins\" >Impact on stablecoins<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-4\" href=\"https:\/\/buradabiliyorum.com\/en\/fatf-guidance-on-virtual-assets-nfts-win-defi-loses-rest-remains-unchanged\/#Impact_on_NFTs\" >Impact on NFTs<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-5\" href=\"https:\/\/buradabiliyorum.com\/en\/fatf-guidance-on-virtual-assets-nfts-win-defi-loses-rest-remains-unchanged\/#What_the_FATF_guidance_means_for_the_crypto_industry\" >What the FATF guidance means for the crypto industry<\/a><\/li><\/ul><\/nav><\/div>\n<p>&#8220;<strong># FATF guidance on virtual assets: NFTs win, DeFi loses, rest remains unchanged <\/strong>&#8221;<\/p>\n<div class=\"post-content\" data-v-128018ef>The Financial Action Task Force (FATF) released its long-awaited guidance on virtual assets, laying out standards that have the potential to reshape the crypto industry in the United States and around the world. The guidance addresses one of the most important challenges for the crypto industry: To convince regulators, legislators and the public that it does not facilitate money laundering.<\/p>\n<figure><img decoding=\"async\" src=\"https:\/\/s3.cointelegraph.com\/uploads\/2021-12\/0532ae49-3753-4d6f-add4-22bb23ab4f8d.png\"><\/figure>\n<p>The guidance is particularly concerned with the parts of the crypto industry that have recently brought about significant regulatory uncertainty including decentralized finance (DeFi), stablecoins and nonfungible tokens (NFTs). The guidance largely follows the emerging <a href=\"https:\/\/buradabiliyorum.com\/en\/category\/download-scripts-themes-apps\/\" data-internallinksmanager029f6b8e52c=\"9\" title=\"Download Scripts &amp; Themes &amp; Apps\" target=\"_blank\" rel=\"noopener\">app<\/a>roach of U.S. regulators toward DeFi and stablecoins. In a positive note for the industry, the FATF is seemingly less aggressive toward NFTs and arguably calls for a presumption that NFTs are not virtual assets. The guidance, however, opens the door for members to regulate NFTs if they are used for \u201cinvestment purposes.\u201d We expect this guidance to add fuel to the NFT rally that has been underway for the majority of 2021.<\/p>\n<p><strong><em>Related: <\/em><\/strong><strong><em>The FATF draft guidance targets DeFi with compliance<\/em><\/strong><\/p>\n<h2><span class=\"ez-toc-section\" id=\"Expanding_the_definition_of_virtual_asset_service_providers\"><\/span>Expanding the definition of virtual asset service providers<span class=\"ez-toc-section-end\"><\/span><\/h2>\n<p>The FATF is an intergovernmental organization whose mandate is to develop policies to combat money laundering and terrorist financing. While the FATF cannot create binding laws or policies, its guidance exerts a significant influence on counter-terrorist financing and anti-money laundering (AML) laws among its members. The U.S. Department of the Treasury is one of the government agencies that <a href=\"https:\/\/buradabiliyorum.com\/en\/category\/general\/\" data-internallinksmanager029f6b8e52c=\"3\" title=\"General\" target=\"_blank\" rel=\"noopener\">general<\/a>ly follows and implements regulations based on the FATF\u2019s guidance.<\/p>\n<p>The FATF\u2019s much-anticipated guidance takes an \u201cexpansive approach\u201d in broadening the definition of virtual asset service providers (VASPs). This new definition includes exchanges between virtual assets and fiat currencies; exchanges between multiple forms of virtual assets; the transfer of digital assets; the safekeeping and administration of virtual assets; and participating in and providing financial services relating to the offer and sale of a virtual asset.<\/p>\n<figure><img decoding=\"async\" src=\"https:\/\/s3.cointelegraph.com\/uploads\/2021-12\/0b47ad1f-f66e-47d7-b48e-f1ae81075d87.png\"><\/figure>\n<p>Once an entity is labeled as a VASP, it must comply with the applicable requirements of the jurisdiction in which it does business, which generally includes implementing Anti-Money Laundering (AML) and counter-terrorism programs, be licensed or registered with its local government and be subject to supervision or monitoring by that government.<\/p>\n<p>Separately, the FATF <a rel=\"nofollow noopener\" target=\"_blank\" href=\"https:\/\/www.fatf-gafi.org\/glossary\/u-z\/\">defines<\/a> virtual assets (VAs) broadly: <\/p>\n<blockquote><p>\u201cA digital representation of value that can be digitally traded, or transferred, and can be used for payment or investment purposes.\u201d But excludes \u201cdigital representations of fiat currencies, securities and other financial assets that are already covered elsewhere in the FATF Recommendations.\u201d<\/p><\/blockquote>\n<p>Taken together, the FATF\u2019s definition of VAs and VASPs seemingly extends AML, counter-terrorism, registration and monitoring requirements to most players in the crypto industry.<\/p>\n<h2><span class=\"ez-toc-section\" id=\"Impact_on_DeFi\"><\/span>Impact on DeFi<span class=\"ez-toc-section-end\"><\/span><\/h2>\n<p>The FATF\u2019s guidance regarding DeFi protocols is less than clear. The FATF starts by stating: <\/p>\n<blockquote><p>\u201cDeFi application (i.e., the software program) is not a VASP under the FATF standards, as the Standards do not apply to underlying software or <a href=\"https:\/\/buradabiliyorum.com\/en\/category\/technology\/\" data-internallinksmanager029f6b8e52c=\"4\" title=\"Technology\" target=\"_blank\" rel=\"noopener\">technology<\/a>\u2026\u201d <\/p><\/blockquote>\n<p>The guidance does not stop there. Instead, the FATF then explains that DeFi protocol creators, owners, operators or others who maintain control or sufficient influence over the DeFi protocol \u201cmay fall under the FATF definition of a VASP where they are providing or actively facilitating VASP services.\u201d The guidance goes on to explain that owners\/operators of DeFi projects that qualify as VASPs are distinguished \u201cby their relationship to the activities undertaken.\u201d These owners\/operators may exert sufficient control or influence over assets or the project\u2019s protocol. This influence can also exist by maintaining \u201can ongoing business relationship between themselves and users\u201d even when it is \u201cexercised through a smart contract or in some cases voting protocols.\u201d <\/p>\n<p>In line with this language, the FATF recommends that regulators not simply accept claims of \u201cdecentralization and instead conduct their own diligence.\u201d The FATF goes so far as to suggest that if a DeFi platform has no entity running it, a jurisdiction could order that a VASP be put in place as the obliged entity. In this respect, the FATF has done little to move the needle on the regulatory status of most players in DeFi.<\/p>\n<p><strong><em>Related: <\/em><\/strong><strong><em>DeFi: Who, what and how to regulate in a borderless, code-governed world?<\/em><\/strong><\/p>\n<h2><span class=\"ez-toc-section\" id=\"Impact_on_stablecoins\"><\/span>Impact on stablecoins<span class=\"ez-toc-section-end\"><\/span><\/h2>\n<p>The new guidance <a rel=\"nofollow noopener\" target=\"_blank\" href=\"https:\/\/www.fatf-gafi.org\/publications\/fatfgeneral\/documents\/report-g20-so-called-stablecoins-june-2020.html\">reaffirms<\/a> the organization\u2019s previous position that stablecoins \u2014 cryptocurrencies whose value is pegged to a store of value such as the U.S. dollar \u2014 are subject to the FATF\u2019s standards as VASPs.<\/p>\n<figure><img decoding=\"async\" src=\"https:\/\/s3.cointelegraph.com\/uploads\/2021-12\/a1dd0299-1aba-46c8-9da1-95ed09cd5bd3.png\"><\/figure>\n<p>The guidance addresses the risk of \u201cmass adoption\u201d and examines specific design features that affect AML risk. In particular, the guidance points to \u201ccentral governance bodies of stablecoins\u201d that \u201cwill in general, be covered by the FATF standards\u201d as a VASP. Drawing on its approach to DeFi generally, the FATF argues that claims of decentralized governance are not enough to escape regulatory scrutiny. For example, even when the governance body of stablecoins is decentralized, the FATF encourages its members to \u201cidentify obliged entities and \u2026 mitigate the relevant risks \u2026 regardless of institutional design and names.\u201d<\/p>\n<p>The guidance calls on VASPs to identify and understand stablecoins\u2019 AML risk before launch and on an ongoing basis, and to manage and mitigate risk before implementing stablecoin products. Finally, the FATF suggests that stablecoin providers should seek to be licensed in the jurisdiction where they primarily conduct their business.<\/p>\n<p><strong><em>Relayed: <\/em><\/strong><strong><em>Regulators are coming for stablecoins, but what should they start with?<\/em><\/strong><\/p>\n<h2><span class=\"ez-toc-section\" id=\"Impact_on_NFTs\"><\/span>Impact on NFTs<span class=\"ez-toc-section-end\"><\/span><\/h2>\n<p>Along with DeFi and stablecoins, NFTs have exploded in popularity and are now a major pillar of the contemporary crypto ecosystem. In contrast to the expansive approach toward other aspects of the crypto industry, the FATF advises that NFTs are \u201cgenerally not considered to be [virtual assets] under the FATF definition.\u201d This arguably creates a presumption that NFTs are not VAs and their issuers are not VASPs.<\/p>\n<p>However, similar to its approach toward DeFi, the FATF emphasizes that regulators should \u201cconsider the nature of the NFT and its function in practice and not what terminology or marketing terms are used.\u201d In particular, the FATF argues that NFTs that \u201care used for payment or investment purposes\u201d may be virtual assets.<\/p>\n<p>While the guidance does not define \u201cinvestment purposes,\u201d the FATF probably intends to encompass those who buy NFTs with the intent to sell them at a later time for a profit. While many buyers purchase NFTs because of their connection with the artist or work, a large swath of the industry purchases them because of their potential to increase in value. Thus, while the FATF\u2019s approach toward NFTs is seemingly not as expansive as its guidance for DeFi or stablecoins, FATF countries may rely on the \u201cinvestment purposes\u201d language to impose stricter regulation.<\/p>\n<p><strong><em>Related: <\/em><\/strong><strong><em>Nonfungible tokens from a legal perspective<\/em><\/strong><\/p>\n<h2><span class=\"ez-toc-section\" id=\"What_the_FATF_guidance_means_for_the_crypto_industry\"><\/span>What the FATF guidance means for the crypto industry<span class=\"ez-toc-section-end\"><\/span><\/h2>\n<p>The FATF guidance closely tracks the aggressive stance from U.S. regulators concerning DeFi, stablecoins and other major parts of the crypto ecosystem. As a result, both centralized and decentralized projects will find themselves increasingly pressured to comply with the same AML requirements as traditional financial institutions.<\/p>\n<p>Moving forward, DeFi projects, as we are already seeing, will burrow deeper into DeFi and experiment with new governance structures such as decentralized autonomous organizations (DAOs) that approach \u201ctrue decentralization.\u201d Even this approach is not without risk because the FATF\u2019s expansive definition of VASPs creates issues with key signers of smart contracts or holders of private keys. This is particularly important for DAOs because signers could be classed as being VASPs.<\/p>\n<p>Given the expansive way that the FATF interprets who \u201ccontrols or influences\u201d projects, crypto entrepreneurs will have a tough fight ahead of them not only in the United States but also around the world.<\/p>\n<p><em>This article was co-authored by <\/em><strong><em>Jorge Pesok<\/em><\/strong><em> and <\/em><strong><em>John Bugnacki<\/em><\/strong><em>.<\/em><\/p>\n<p class=\"post-content__disclaimer\"><em>The views, thoughts and opinions expressed here are the authors\u2019 alone and do not necessarily reflect or represent the views and opinions of Cointelegraph.<\/em><\/p>\n<p class=\"post-content__disclaimer\"><em>This article is for general information purposes and is not intended to be and should not be taken as legal advice.<\/em><\/p>\n<div>\n<div style=\"background: rgb(239, 239, 239); border: 1px solid rgb(204, 204, 204); padding: 10px;\"><strong>Jorge Pesok<\/strong> serves as general counsel and chief compliance officer for Tacen Inc., a leading software development company that builds open-source, blockchain-based software. Before joining Tacen, Jorge developed extensive legal experience advising technology companies, cryptocurrency exchanges and financial institutions before the SEC, CFTC, and DOJ.<\/div>\n<\/div>\n<div>\n<div style=\"background: rgb(239, 239, 239); border: 1px solid rgb(204, 204, 204); padding: 10px;\"><strong>John Bugnacki<\/strong> serves as policy lead and law clerk for Tacen Inc. John is an expert on governance, security and development. 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