Legal and Regulatory Structuring for a Cryptocurrency Payment Protocol — Case Study

Overview

Aurum's client, a team of forward-thinking FinTech enthusiasts developing a cryptocurrency payment processing protocol, sought our expertise to structure the protocol and tackle the intricate legal and regulatory environment of financial projects. The major challenges included devising an effective structure that avoids VASP and financial regulations, determining the appropriate approach to protocol decentralisation, and positioning the project and protocol within the regulatory framework.

Challenges

The primary challenges we faced in this project included:

• Establishing an efficient project structure and amending the protocol design to avoid the application of VASP and financial regulations to the project.

• Determining the optimal approach to protocol decentralisation while maintaining compliance with regulatory guidelines.

• Positioning of the project and protocol within the regulatory framework to mitigate legal risks and ensure long-term viability.

• Structuring the user relationship, managing legal and compliance risks associated with the operation of the protocol components.

Legal Strategy

To address these challenges, Aurum conducted in-depth consultations with the client to gain a thorough understanding of the protocol’s technical specifications, market plans, and strategic objectives. Leveraging our expertise in blockchain technology and regulatory compliance, we conducted comprehensive research on relevant legal and regulatory frameworks, including FATF guidelines, as well as VASP and financial regulations across a number of jurisdictions where the project entities could be formed.

Following this, we created a tailored legal and regulatory structure that enabled the client to develop and release the protocol while adhering to decentralisation principles and remaining compliant with applicable laws and regulations.

Actions Taken

Our lawyers collaborated closely with the client, providing ongoing legal counsel and strategic guidance throughout the project’s development. We analysed the protocol’s architecture and functionality to identify potential legal and regulatory implications, and advised the client's team on legal, organisational and technical aspects of the protocol release. Drawing upon our expertise in blockchain law and financial regulation, we crafted a customised legal framework that addressed the client’s specific needs and objectives. This involved drafting legal documents, advising on regulatory compliance measures, and providing guidance on strategic positioning within the regulatory landscape.

Outcomes

Through thorough planning and strategic guidance, the client was able to establish a robust legal and regulatory structure for their blockchain protocol and associated activities. The tailored legal framework allowed the client to develop and deploy the protocol while adhering to decentralisation principles and remaining compliant with applicable laws and regulations. As a result, the client was able to navigate regulatory complexities, mitigate legal risks, and position their project for long-term success in the blockchain ecosystem.

Lessons Learned

This case emphasises the importance of proactive legal counsel and strategic planning in navigating the complex legal and regulatory landscape of blockchain projects. This case further highlights that the project’s goals could be achieved in a compliant manner, provided the project seeks professional advice in a timely manner. By leveraging legal expertise and conducting comprehensive research, businesses can develop robust legal and regulatory structures that enable innovation while ensuring compliance with applicable laws and regulations.