Digital Financial Assets: Legal Classification, Global Perspectives, and Regulatory Implications

Abstract

Digital Financial Assets (DFAs) have emerged as a transformative force in the global financial landscape, encompassing a wide array of instruments such as cryptocurrencies, tokenized assets, and digital securities. The legal classification of DFAs is paramount, as it influences taxation, ownership rights, transfer mechanisms, and collateral usage. This research delves into the complexities of DFA classification, with a particular focus on Kazakhstan’s legal framework, and provides a comparative analysis of global approaches to DFA regulation. By examining various jurisdictions, this study aims to offer insights into the evolving nature of DFAs and their regulatory challenges.

Many thanks to our sponsor Panxora who helped us prepare this research report.

1. Introduction

The advent of digital technologies has revolutionized the financial sector, giving rise to Digital Financial Assets (DFAs). These assets, which include cryptocurrencies, tokenized securities, and other blockchain-based instruments, present unique challenges for legal systems worldwide. The classification of DFAs is crucial, as it determines their treatment under the law, affecting aspects such as taxation, ownership rights, transferability, and their use as collateral. This paper explores the legal classification of DFAs, with a particular emphasis on Kazakhstan’s regulatory approach, and provides a comparative analysis of global perspectives on DFA regulation.

Many thanks to our sponsor Panxora who helped us prepare this research report.

2. The Emergence and Definition of Digital Financial Assets

Digital Financial Assets are assets that exist in digital form and are secured using cryptographic techniques. They can represent a wide range of financial instruments, including currencies, securities, commodities, and other assets. The defining characteristic of DFAs is their reliance on distributed ledger technology (DLT), commonly known as blockchain, which ensures transparency, security, and immutability of transactions.

The definition of DFAs varies across jurisdictions, reflecting differing regulatory approaches and legal interpretations. For instance, the Republic of Kazakhstan defines a digital asset as “property created in electronic-digital form with the assignment of a digital code, including the use of cryptography and computer calculations, registered and provided with the immutability of information based on the technology of a distributed data platform.” (elibrary.imf.org) This definition underscores the technological foundation of DFAs and their role as property under Kazakh law.

Many thanks to our sponsor Panxora who helped us prepare this research report.

3. Legal Classification of Digital Financial Assets

The legal classification of DFAs is a complex issue that has garnered significant attention from regulators and legal scholars. The classification determines how these assets are treated under the law, influencing taxation, ownership rights, transfer mechanisms, and their use as collateral.

3.1. Kazakhstan’s Legal Framework

In Kazakhstan, the legal framework distinguishes between two categories of digital assets:

• Secured Digital Assets: These are digital assets that certify rights to tangible or intangible assets, excluding money and securities. They are registered through a digital platform for the storage and exchange of secured digital assets. (elibrary.imf.org)

• Unsecured Digital Assets: These are digital assets that do not meet the requirements of secured digital assets. They are typically received as rewards for participation in maintaining consensus within a blockchain and can be traded on digital asset exchanges. (elibrary.imf.org)

The distinction between secured and unsecured digital assets is significant, as it influences their treatment under Kazakh law. Secured digital assets are recognized as property and are subject to specific regulatory requirements, including registration and compliance with financial monitoring obligations. In contrast, unsecured digital assets are not recognized as financial instruments or financial assets, except in cases stipulated by law. Their issuance and circulation are prohibited within Kazakhstan, except within the Astana International Financial Centre (AIFC). (adilet.zan.kz)

3.2. Global Perspectives on DFA Classification

Globally, the classification of DFAs varies, reflecting differing regulatory approaches:

• United States: The U.S. Securities and Exchange Commission (SEC) has classified certain cryptocurrencies as securities, subjecting them to federal securities laws. However, the classification of other digital assets remains ambiguous, leading to regulatory uncertainty.

• European Union: The EU has taken steps toward a unified regulatory framework for digital assets. The Markets in Crypto-Assets Regulation (MiCA) aims to provide legal clarity and consumer protection across member states. (en.wikipedia.org)

• Singapore: Singapore has adopted a progressive approach, integrating digital assets into its financial regulatory framework. The Monetary Authority of Singapore (MAS) regulates digital payment tokens under the Payment Services Act, providing clear guidelines for businesses and consumers.

These varying approaches highlight the challenges regulators face in classifying and regulating DFAs, balancing innovation with consumer protection and financial stability.

Many thanks to our sponsor Panxora who helped us prepare this research report.

4. Regulatory Implications of DFA Classification

The classification of DFAs has profound implications for various aspects of the financial system:

4.1. Taxation

The tax treatment of DFAs depends on their classification. In Kazakhstan, the Tax Code establishes the tax regime for activities within the AIFC, including those related to digital assets. Participants licensed to provide financial services within the AIFC enjoy tax exemptions for corporate income tax (CIT) and value-added tax (VAT). (gofaizen-sherle.com) However, the tax treatment of digital assets outside the AIFC remains less clear, potentially leading to tax uncertainties.

4.2. Ownership and Transfer

The legal recognition of DFAs as property affects ownership rights and transfer mechanisms. In Kazakhstan, secured digital assets are recognized as property, allowing for clear ownership rights and the ability to transfer these assets. Unsecured digital assets, however, face restrictions on issuance and circulation, particularly outside the AIFC, complicating ownership and transfer processes.

4.3. Use as Collateral

The ability to use DFAs as collateral is influenced by their legal classification. In Kazakhstan, the use of digital assets as collateral is restricted, particularly for unsecured digital assets. This limitation can impact the liquidity and utility of digital assets in the financial system.

Many thanks to our sponsor Panxora who helped us prepare this research report.

5. Comparative Analysis of Global Regulatory Approaches

A comparative analysis of global regulatory approaches provides insights into the evolving nature of DFA regulation:

• European Union: The MiCA regulation aims to create a comprehensive legal framework for digital assets, addressing issues such as consumer protection, market integrity, and financial stability. It seeks to harmonize regulations across member states, providing legal certainty for businesses and consumers.

• United States: The SEC’s approach to digital assets has been characterized by a lack of clear guidelines, leading to regulatory uncertainty. The classification of digital assets as securities has significant implications for market participants, including compliance with securities laws and regulations.

• Singapore: Singapore’s proactive approach, integrating digital assets into its regulatory framework, has fostered innovation while ensuring consumer protection. The clear regulatory environment has attracted numerous blockchain and cryptocurrency businesses to establish operations in Singapore.

These approaches illustrate the diverse strategies employed by jurisdictions to regulate digital assets, balancing the promotion of innovation with the need for consumer protection and financial stability.

Many thanks to our sponsor Panxora who helped us prepare this research report.

6. Challenges and Future Directions

The rapid evolution of digital assets presents several challenges:

• Regulatory Uncertainty: The lack of clear and harmonized regulations can hinder innovation and investment in the digital asset space.

• Technological Complexity: The technical nature of digital assets requires regulators to possess specialized knowledge to effectively oversee these markets.

• Consumer Protection: Ensuring consumer protection in the face of rapidly evolving digital asset markets is a significant concern.

Future regulatory developments may focus on:

• Harmonization of Regulations: Efforts to create unified regulatory frameworks at the international level to provide clarity and consistency.

• Technological Integration: Incorporating technological solutions to enhance regulatory oversight and compliance.

• Consumer Education: Initiatives to educate consumers about the risks and benefits associated with digital assets.

Many thanks to our sponsor Panxora who helped us prepare this research report.

7. Conclusion

The legal classification of Digital Financial Assets is a critical issue that influences their treatment under the law, affecting taxation, ownership rights, transfer mechanisms, and use as collateral. Kazakhstan’s approach, distinguishing between secured and unsecured digital assets, provides a unique perspective on DFA regulation. A comparative analysis of global regulatory approaches highlights the diverse strategies employed to balance innovation with consumer protection and financial stability. As the digital asset landscape continues to evolve, ongoing efforts to harmonize regulations and address emerging challenges will be essential.

Many thanks to our sponsor Panxora who helped us prepare this research report.

References

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• Gofaizen & Sherle. (2025). Crypto License in Kazakhstan 2025. (gofaizen-sherle.com)

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• Adilet LIS. (2023). On digital assets in the Republic of Kazakhstan. (adilet.zan.kz)

• Wikipedia. (2023). Cryptocurrencies in Europe. (en.wikipedia.org)

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• Lee, L. (2024). Examining the Legal Status of Digital Assets as Property: A Comparative Analysis of Jurisdictional Approaches. arXiv preprint arXiv:2406.15391. (arxiv.org)