Fractionalized Digital Assets and their Position in German and European Regulatory Law

Introduction

In the ever-evolving world of digital technology, fractionalized digital assets (FDAs) are an emerging phenomenon that is attracting significant interest from both investors and regulators. FDAs are digital assets that are divided into smaller, “broken” pieces. This technology allows multiple parties to hold ownership stakes in a digital asset, much like shares in a company.

FDAs can be based on blockchain technology, a revolutionary technology known for its ability to track transactions in a secure and transparent manner. By using blockchain, FDAs can be traded and managed in a decentralized manner, leading to increased security and transparency.

In addition, FDAs are often associated with Non-Fungible Tokens (NFTs), which represent unique digital assets. Unlike fungible tokens, which are interchangeable and often used as currency, NFTs are unique and can represent a variety of assets, from digital art to real estate.

The combination of FDAs and NFTs has the potential to fundamentally change the way we view ownership and value in the digital world. It enables individuals and companies to share and trade ownership of unique digital assets, and opens up new opportunities for creativity and innovation.

Despite the enormous potential of these technologies, however, they are not without challenges. Regulatory, security, and scalability issues are just some of the issues that need to be addressed by both industry and regulators.

Fractionalized Digital Assets and Regulatory Law

The question of whether and under what circumstances FDAs fall within the scope of German or European supervisory law is a complex matter that depends on various factors. In general, the regulation of FDAs depends on the specific nature of the asset and its use.

A critical factor is the way FDAs are marketed and typed. For example, it may make a difference whether FDAs are classified as art, business holdings, or financial holdings. This classification can have a significant impact on the applicability of regulatory law. In addition, the design of the general terms and conditions (GTC) and the way in which the distribution of the assets is organized can also be decisive for the question of regulatory classification.

In Germany, FDAs that may be classified as financial instruments could be subject to the German Banking Act (Kreditwesengesetz, KWG) and therefore have to meet certain regulatory requirements. This could mean that FDA issuers may need to be licensed and meet certain capital and operating requirements.

At the European level, the Markets in Crypto-Assets Regulation (MiCAR) could be relevant. MiCAR is a regulatory framework for cryptoassets proposed by the European Union that aims to create uniform rules for cryptoassets across the EU. The final version of MiCAR is now available(link to the final version of MiCAR).

Conclusion

The regulation of fractionalized digital assets is a rapidly evolving area that is receiving attention at both the national and European levels. While there is some clarity on how FDAs might be regulated under certain conditions, there remains much room for interpretation and further guidance.

Fractionalized digital assets are a particularly exciting concept because they allow multiple parties to jointly acquire ownership of a variety of assets. Whether it’s a car, a piece of art, a house, or a financial product, the ability to “fractionalize” these assets offers new and exciting opportunities for ownership and trading.

However, it is important to note that the legal framework applicable to FDAs is highly dependent on the type of digital asset. Therefore, it is essential to think through the legal issues thoroughly from the beginning. Product development, commercialization and regulatory evaluation must be carefully coordinated to ensure that all aspects of FDAs are in compliance with applicable laws and regulations.

It is recommended that all those involved with FDAs regularly keep abreast of the latest regulatory developments and seek legal advice as appropriate. This is especially important in a rapidly evolving and ever-changing regulatory environment in which FDAs exist. It is critical to stay current with legislation and ensure that all activities related to FDAs comply with applicable laws and regulations.

Author: Marian Härtel

Marian Härtel ist Rechtsanwalt und Fachanwalt für IT-Recht mit einer über 25-jährigen Erfahrung als Unternehmer und Berater in den Bereichen Games, E-Sport, Blockchain, SaaS und Künstliche Intelligenz. Seine Beratungsschwerpunkte umfassen neben dem IT-Recht insbesondere das Urheberrecht, Medienrecht sowie Wettbewerbsrecht. Er betreut schwerpunktmäßig Start-ups, Agenturen und Influencer, die er in strategischen Fragen, komplexen Vertragsangelegenheiten sowie bei Investitionsprojekten begleitet. Dabei zeichnet sich seine Beratung durch einen interdisziplinären Ansatz aus, der juristische Expertise und langjährige unternehmerische Erfahrung miteinander verbindet. Ziel seiner Tätigkeit ist stets, Mandanten praxisorientierte Lösungen anzubieten und rechtlich fundierte Unterstützung bei der Umsetzung innovativer Geschäftsmodelle zu gewährleisten.