22 Aug 2024
Abu Dhabi Global Market has pioneered into reforming the digital asset regulatory framework with the introduction of the Distributed Ledger Technology Foundations Regulations 2023 (DLT Foundations Regulations, 2023). The Regulations are an extensive regulatory framework for DLT foundations and Decentralised Autonomous Organisations (DAO’s) enabling them to operate and issue tokens with enhanced efficiency and transparency. The Regulations provide an effective way to organise and promote governance with fair consideration and recognition of the industry’s requirement for decentralisation. Such a move is historic and serves as the world’s first legislative framework recognising and catering to the needs of blockchain foundations, DAOs, and the wider crypto industry.
In the words of His Excellency Ahmed Jasim Al Zaabi, Chairman of ADGM, "Abu Dhabi is rapidly emerging as the destination of choice for global players at the forefront of digital asset development. The introduction of the DLT Foundations Regime marks a revolutionary step forward, reinforcing ADGM's commitment to a proactive approach rooted in extensive cross-industry dialogue and collaboration with various stakeholders. The new regime serves as a driving force for positive change in the digital assets sector. By transforming the blockchain and Web3 landscape, we are moving towards a future characterized by setting global benchmarks with enhanced transparency and efficiency."
Distributed Ledger Technology Foundations Regulations 2023 - Major Highlights
The Regulations relate to provisions for foundations that enable an easier way forward for distributed ledger technology and token issuance in the Abu Dhabi Global Market (ADGM).
Section 3(1) of Part 2 - DLT Foundations Regulations, 2023 precisely introduces a DLT Foundation. Accordingly, a DLT Foundation is defined as a legal entity (registered under the Regulations) which has a separate legal personality and is established to use, deploy, develop, facilitate, or support DLT or to issue Tokens. Such an entity is disallowed, under the Regulations from adopting or owning any bylaws for itself.
The Regulations mandate a DLT Foundation to have a registered office in the ADGM, requiring all notices and communications to be directed thereto. In the event the DLT Foundation is required to have a Company Service Provider under the regulations, then the registered office shall be the same address as its Company Service Provider. Accordingly, a DLT Foundation is mandated to have a Company Service Provider at all times. However, an exception to the rule is prescribed under Section 11(2) of the Regulations as below:
Section 11 (2) states: “Notwithstanding subsection (1), a DLT Foundation that has demonstrated to the satisfaction of the Registrar to have: (a) substantial resources, experience, and personnel in the United Arab Emirates; and (b) adequate governance policies and procedures, in each case as may be specified by rules made by the Board or guidance issued by the Registrar, need not have a Company Service Provider.”
Registration Of DLT Foundation
Deriving reference from Part 3, Section 4 of the Regulations, a DLT Foundation may be established and registered upon complying with and rendering to the Registrar the following (along with the registration application):
- A Charter that is signed by all founders;
- A declaration of compliance confirming that all regulatory requirements have been fulfilled and complied with and that no financial services permission is required pertaining to the DLT Foundation’s activities;
- The initial registration fees as prescribed in the Distributed Ledger Technology Foundations Regulations (Fees) Rules 2023;
- A copy of the White Paper along with Tokenomics Paper and the hyperlink to the DLT Framework, if any;
- An application for any licence mandated by the Commercial Licensing Regulations 2015; and
- Information comprising the Relevant Disclosure as required under the Regulations.
DLT Foundation Council
It has been declared that each DLT Foundation is mandated to have a Foundation Council consisting of a minimum number of two Councillors and a maximum of sixteen Councillors, and such Council shall be required to undertake duties prescribed under Section 29(3) as below:
- (a) to manage and administer the DLT Foundation Assets;
- (b) to execute the objects of the DLT Foundation;
- (c) to ensure compliance of and by the DLT Foundation, its Organisational and Governance Structure along with each of its bodies and Charter members, its provisions (along with the inclusion of the rights conferred on any Person by the Charter, if any) and the relevant obligations; and
- (d) to do any other acts which may be required under these Regulations or Charter.
DLT Charter
Furthermore, a DLT Foundation shall have a charter in line with Part 6 of the Regulations, and such charter must contain the following information:
- (a) the name of the DLT Foundation, Founder/ Founders;
- (b) the purpose and object of the DLT Foundation;
- (c) provisions for the establishment of a Council along with a list and description of each body within the Organisational and Governance Structure and its members;
- (d) description/information of the Initial Assets;
- (g) provisions of appointment/removal of members of each body of the Organisational and Governance Structure and also of the liquidator with additional information over situations in which the Guardian will be appointed;
- (h) powers, duties, rights, and functions for each body of the Organisational and Governance Structure and its members.
DLT Foundation Assets
A DLT Foundation is required to have DLT Foundation Assets in line with Part 4 of the Regulations. Accordingly, initial assets are to be owned in terms of a minimum initial asset value, which is to be paid within six months from the date of receipt of the registration certificate or from the date when the DLT Foundation becomes active as prescribed by the Registrar, whichever is earlier. Such value is to be paid in fiat currency and cannot be contributed in any other form, including tokens.
Dissolution of DLT Foundations
A DLT Foundation under the regulations is subject to dissolution and subsequent removal from the DLT Foundations Register under the following circumstances:
- Upon expiry of the fixed term such Foundation is established for;
- Upon fulfilment of the object of the Foundation;
- Upon incapacity of fulfilment of the object of the Foundation;
- Incapacity to pay debts that become due;
- Upon dissolution required by virtue of the Charter;
- Upon dissolution order of the Court;
- Upon a dissolution that is required under the provisions of the Regulations.