Entities in the Emirate that wish to carry out a Category 2 VA issuance must ensure that all placement and distribution is carried out by a Licensed Distributor.
 

Licensed Distributors are VASPs Licensed by VARA to carry out Broker-Dealer Services. In addition to all other requirements in VARA's Rulebooks, those Licensed Distributors must also comply with specific rules for Licensed Distribution Services, set out in Part IV of the Broker-Dealer Services Rulebook. These include conducting due diligence on both the Issuer and the Virtual Asset being issued, and submitting a declaration to VARA.
 

This framework is designed to ensure that all Category 2 Virtual Assets, issued by Entities in the Emirate, are issued and distributed in a compliant manner, which protects the interests of investors and the market as a whole, without the need for the Issuer to obtain prior approval or a Licence from VARA.
 

All Entities in the Emirate issuing Virtual Assets, and all Licensed Distributors, remain subject to VARA's regulatory oversight, at all times.
 

All Virtual Assets issued by Entities in the Emirate must be accompanied by a Whitepaper, except for Exempt VAs only. The Whitepaper must be published before the Virtual Asset is made available to the public, including any offering or marketing activities.
 

Issuers must ensure the Whitepaper remains accessible in its original format and location. When preparing the Whitepaper, the Issuer must comply with the requirements of Schedule 1 of the VA Issuance Rulebook. Further Guidance is provided below regarding the application of Schedule 1.
 

The Whitepaper must be made available in a single easily accessible location in a machine-readable format, for example on a website. This prohibits making it available only upon registration or upon payment of a fee. Whitepapers must be written fairly, clearly and in good faith, using language that can reasonably be understood by the prospective owners of the Virtual Asset.
 

Issuers must also ensure that the Whitepaper remains accurate and complete at all times. This is an ongoing requirement on the Issuer that persists for as long as the Virtual Asset is available to the market.
 

Any updates to a Whitepaper must be dated and previous versions must also continue to be made easily accessible in the same format and location in which they were initially published for as long as the Virtual Asset is available to the market.
 

Issuers must take all reasonable steps to notify owners of Virtual Assets of any changes to the Virtual Asset prior to those changes taking effect. This is to provide owners with adequate time on which to act, should the owner decide such changes may have an impact on the Virtual Asset's value, associated rights, or core functionality.
 

This can include announcements or posts made through the same channels as those through which the Virtual Asset was first announced, or through which other communications are made. It should also include alerts or notifications through the venues on which the Virtual Asset is made available. This notification duty fosters transparency and enables owners to make informed decisions.
 

In addition to a Whitepaper, all Virtual Assets issued by Entities in the Emirate must have an accompanying Risk Disclosure Statement.
 

The Risk Disclosure Statement must be separate from the Whitepaper but must be available in the same easily accessible location. The publication of the Risk Disclosure Statement does not exempt the Issuer from any potential liability and solely serves to fulfil the Issuer’s regulatory obligation to enable the prospective owner of the Virtual Asset to make an informed decision regarding the Virtual Asset. For this reason, and in accordance with Rule III.B.3 of the VA Issuance Rulebook, the Issuer is prohibited from excluding or attempting to exclude any actual or potential civil liability arising from information contained in a Whitepaper or any other disclosure or communication, which includes the Risk Disclosure Statement.
 

The Risk Disclosure Statement must be written in a concise manner using language that is clear, non-technical and comprehensible for prospective owners of the Virtual Asset to understand. It must provide a detailed description of all material risks related to the Virtual Asset. In order to prevent dilution of critical information, the Issuer must refrain from disclosing non-material risks.
 

This means generic, disclaimer-like, or non-specific risk statements that fail to clearly depict circumstances related to the Virtual Asset being issued should not be included and requires a clear and direct link between each disclosed risk and that Virtual Asset. Virtual Assets may face, to some extent, similar risks, leading to comparable Risk Disclosure Statements and/or sections across peers. However, such risks may or may not be material for a specific Virtual Asset and/or Issuer, based on a range of factors, so the Risk Disclosure Statement must reflect distinctions where relevant.
 

The responsibility for assessing the materiality of risks relating to the Virtual Asset being issued rests with the Issuer and Licensed Distributor (if applicable). While the Risk Disclosure Statement does not require the Issuer to disclose how it has assessed whether a risk is material or not, the materiality of a risk should be apparent from the disclosure itself or supported by an explanation, where necessary, to justify its relevance. In general, a risk qualifies as material if a prospective owner of the Virtual Asset would reasonably regard it as material to their economic decision regarding the Virtual Asset. This may include the likelihood of a risk occurring and the potential severity of any negative consequences resulting from such risk.
 

In order for the Risk Disclosure Statement to remain clear and concise, Issuers should group the disclosed risks into relevant categories. Issuers should rank risks in descending order of materiality within each risk category, disclosing the most significant ones first to direct the reader’s attention effectively.
 

While the Issuer may include factors which may mitigate the impact of such risks, for example illustrating the probability of the risk occurring or measures which would limit the possible impact, such explanations must be presented in a balanced manner so as to not overshadow the risk being disclosed. Issuers may, for example, consider using different sized text and/or presentation. Explanations of mitigating factors must also be clear and concise.
 

As above, if the risk mitigating measures render, in the professional opinion of the Issuer and/or the Licensed Distributor (if applicable), the risk as non-material, the Risk Disclosure Statement should not mention it at all.
 

As with Whitepapers, the Risk Disclosure Statement must remain accurate and complete at all times.
 

All other requirements regarding updated Whitepapers also apply to updated Risk Disclosure Statements. Accordingly, although they remain separate, Issuers should consider whether updates to the Risk Disclosure Statement are required whenever they update a Whitepaper, and vice versa.
 

The description of the Issuer’s business, business related and/or professional activities, must be drafted in a way that makes it readily understandable to a person who is not familiar with the Issuer.
 

The description must be presented in a factual, balanced manner and must not contain any promotional language, to ensure clarity and objectivity, enabling prospective owners of the Virtual Asset to assess the Issuer's business without undue influence from marketing rhetoric.
 

In addition, VARA requires Issuers to disclose any Licences granted by VARA as well as any other regulatory authorisations from relevant authorities. This will ensure that prospective Virtual Asset owners can independently verify the Issuer's regulatory status.
 

The Issuer must provide an operating and financial assessment. This assessment should cover matters that management views as significant to the Issuer's overall business, with those particularly relevant business lines or segments deemed material to prospective owners of the Virtual Asset.
 

The assessment must cover the development during the periods for which historical financial information is provided under item B.A.vii. It should identify trends and factors relevant to prospective Virtual Asset owners' evaluation of past performance, as well as those likely to influence the Issuer's future business and the achievement of its objectives.
 

To ensure balance, the assessment must be neutral in tone and coverage, highlighting successes such as growth metrics alongside setbacks like operational hurdles or market pressures, proportionate to the Issuer's size and the complexity of its business.
 

One type of issuance categorised by VARA as a Category 1 VA Issuance is the issuance of an “Asset-Referenced Virtual Asset" or “ARVA".
 

ARVAs can broadly be described as any Virtual Asset which references or is linked to an underlying RWA or Income derived from any RWA (as those terms are also defined, with further Guidance provided below).
 

ARVAs can take many forms, both in terms of the underlying RWAs to which they relate and in the way they are structured, and the rights they grant. For example, some ARVAs aim to represent a direct right of ownership of an RWA, with ownership of the RWA passing as a result of any transfer of the ARVA. Other ARVAs may only grant a right of redemption or value linked to the value of an RWA or portfolio of RWAs, but transferring the ARVA does not itself mean ownership and/or title to the RWAs themselves is transferred.
 

The definition therefore comprises several elements designed to encompass all types of Asset-Referenced Virtual Assets observed in the market. The requirements placed on the Issuer will depend on the nature and characteristics of the ARVA they intend to issue.
 

This definition also includes any Virtual Assets that represents, or purports to represent, a direct, indirect, current, future or contingent entitlement to receive or share any ‘Income'.
 

The reason for this is that a Virtual Asset may be structured so that it grants its owners and/or holders a right to share in value originating from an RWA, as opposed to ownership of the RWA itself. VARA deems such Virtual Assets to fall within the definition of an ARVA as the RWA remains central to the Virtual Asset and how it derives its value. Further guidance on the definition of ‘Income' is provided below.
 

The definition of ARVA also explains, any Virtual Asset that references a fiat currency would not fall within the definition of an ARVA and instead constitutes a Fiat-Referenced Virtual Asset or FRVA.
 

“Fiat-Referenced Virtual Asset" or “FRVA" means Virtual Assets that purport to maintain a stable value in relation to the value of one or more fiat currencies. These are commonly referred to in the industry as ‘fiat-stablecoins' or just ‘stablecoins'.
 

FRVAs do not have legal tender status in the UAE.
 

This definition does not include any FRVA that purports to maintain a stable value in relation to the value of AED. Such FRVAs will not be approved under these FRVA Rules.

As above, the definition of an Asset-Referenced Virtual Asset or ARVA includes any Virtual Assets that represents, or purports to represent, direct, indirect, current, future or contingent entitlement to receive or share any ‘Income'.
 

The definition of Income covers all value which originates or is derived from an RWA. This includes all current, future or contingent value. In addition to those forms of value listed (i.e. sales proceeds, interests, dividends, profits and repayments) Income also includes any other form, including royalties, rent or subscriptions, originating or derived from an RWA.
 

A Virtual Asset may provide a right to value which originates or is derived from an RWA, without necessarily granting ownership of the RWA itself. Such Virtual Asset would qualify as an ARVA on the basis it represents, or purports to represent, entitlement to receive or share in any such Income.
 

The first type of Virtual Asset issuance currently defined by VARA as an Exempt VA issuance is the issuance of a Non-Transferable Virtual Asset.
 

As explained above in the Guidance on Rule I.F, the reason why lesser requirements may be applied to the issuance of Exempt VAs is that their features do not allow for secondary markets to be formed in those Virtual Assets.
 

To qualify as a Non-Transferable Virtual Asset, the Virtual Asset being issued may not be sold by the Issuer, nor may it be redeemable or exchangeable. Examples of Virtual Asset issuances which VARA envisages will fall under this definition are commemorative Virtual Tokens, issued to mark an event or occasion, or ‘badges' which may be awarded for completing a course or a stage in a game.
 

As explained above, in the event that any changes to the features or characteristics of a Virtual Asset are planned after it is first issued, before any changes come into effect the Issuer must comply with the requirements of the category under which the Virtual Asset will fall after those changes have been made.
 

The second type of Exempt VA issuance currently defined by VARA is the issuance of a “Redeemable Closed-Loop Virtual Asset".
 

As with Non-Transferable Virtual Assets, a fundamental requirement is that a market does not form around such Virtual Assets.
 

The distinction from Non-Transferable Virtual Assets is that a Redeemable Closed-Loop Virtual Asset may be redeemable for goods or services, provided that it is i) not sold or exchanged for fiat currency or other Virtual Assets and ii) it also cannot be used as a means of payment outside the Issuers and/or its partners closed-loop.
 

A qualification to the restriction on transferring the Virtual Asset between VA Wallets applies to allow for redemptions under limb (d).
 

Examples of Virtual Asset issuances which VARA envisages will fall under this category are loyalty points, discount schemes and/or other schemes designed for customer retention, but that cannot be traded or transferred between owners and/or holders.
 

An RWA, which is the acronym for ‘real-world asset' as the term is currently used in the industry, refers to any asset which exists outside the Virtual Asset or blockchain ecosystem, or any combination thereof.
 

Financial instruments and schemes of arrangement include, but are not limited to, equity, bonds, units of funds, structured products and all other instruments which would qualify as a ‘security' under the UAE Capital Markets Authority's laws or regulations.
 

Physical and/or tangible assets include, but are not limited to, real estate, precious metals and/or any physical assets.
 

Intangible assets, rights or interest include, but are not limited to, intellectual property rights, licences and/or contractual rights, with the exception that this does not include the Virtual Asset itself.
 

Additionally, to the extent that an asset and/or its right exist only in digital form, and is in no way connected to another RWA or Income, it is also outside the definition of an RWA.
 

As above, an Asset-Referenced Virtual Asset or ARVA can broadly be described as any Virtual Asset which references or is linked to an underlying RWA or Income derived from any RWA.
 

For the purposes of these Asset-Referenced Virtual Asset specific rules in Annex 2, the RWA and/or Income to which the ARVA is referenced or linked, is defined as the ‘Reference Asset'.
 

For example, if an Asset-Referenced Virtual Asset references or is linked to gold, then gold is the Reference Asset.
 

All Entities seeking to issue an ARVA must clearly demonstrate to VARA the type and composition of the Reference Assets when applying for a Licence or approval to issue an ARVA.
 

Depending on the nature and characteristics of the ARVA, and in particular i) how the ARVA will derive its value, and ii) what rights are being granted to its owners, the Entity issuing the ARVA may be required by VARA to hold assets to best ensure that such value and/or rights are protected. Such assets are referred to as “Reserve Assets".
 

Reserve Assets will apply to any ARVA which purports to maintain a stable value in respect of the value of any Referenced Asset. Reserve Assets must be suitable in order to maintain the value of the ARVA in relation to the value of the Reference Asset, and as such will be required to be the same, or closely related assets, as the Reference Asset.
 

To continue the example above, if an ARVA purports to maintain a stable link to the price of gold, then the Issuer will be required to hold gold as Reserve Assets, or potentially other assets such as derivatives relating to gold.
 

Reserve Assets must also take into account any rights of redemption granted by the ARVA, particularly the liquidity required to meet all redemption requests. Not all ARVAs are required to provide rights of redemption. Further Guidance on Rule III.E.1 of Annex 2 is provided below regarding redemption rights.
 

Reserve Assets will not be applicable to all Asset-Referenced Virtual Assets. In instances where the ARVA provides a direct right of ownership of the Reference Asset (i.e. the RWA and/or Income) which transfers with the ARVA, then Reserve Assets requirements do not apply. Further Guidance on Rule III.B.1 of Annex 2 is provided below regarding the rules that apply to such ARVAs.
 

In addition to all other information which must be provided in the Whitepaper under Schedule 1 of the VA Issuance Rulebook (and covered in items 8, 9 and 12 of this Guidance on VA Issuance above), Entities in the Emirate that wish to issue an ARVA must also include all of the information listed in items a. – n. of Rule II.A of Annex 2.
 

The purpose of these additional requirements is to ensure that all Whitepapers relating to ARVAs are comprehensive.
 

The additional disclosure requirements in items a. – n. Rule II.A of Annex 2 predominantly focus on ensuring that the rights and/or value that the ARVA grants, or purports to grant, to owners and/or holders of the ARVA are clearly set out.
 

This includes whether the ARVA purports to grant a direct right of ownership in the RWA or whether it maintains a stable link to the value of an RWA and/or Income by maintaining Reserve Assets, and/or whether any rights of redemption are provided.
 

In instances where the Issuer will maintain Reserve Assets, the Whitepaper must include full details of the types and composition of those Reserve Assets, and whether the types of Reserve Asset may be subject to change, as well as other information prescribed in item m below.
 

Entities Licensed by VARA to issue an Asset-Referenced Virtual Asset must disclose on their website the information listed in Rule II.B of Annex 2.
 

The number and value in circulation required in Rule II.B.1.a of Annex 2 are required for all ARVAs. Number means the number of units in circulation. Value means a reasonably accurate total valuation of those total units in circulation at the date the disclosure is made. The total value should use reasonable measures of the average unit values of the ARVA across the venues on which it is available.
 

As stated, Rule II.B.1.b of Annex 2 is only applicable if Reserve Assets are maintained in respect of the ARVA, in which case the value and composition of those Reserve Asset at the time the disclosure is made must be provided. In such instances, Rule II.B.2 of Annex 2 also applies, whereby the Issuer must provide a statement confirming whether or not the ARVA is, at the time of the disclosure, fully backed by sufficient Reserve Assets.
 

In instances where the ARVA provides a direct right of ownership of the Reference Asset, the Issuer must satisfy all of the requirements in Rule III.B.1 of Annex 2 to ensure that the ARVA operates as intended.
 

The requirements in Rule III.B.1 of Annex 2 reflect the fact that for ownership of certain types of assets to be legally and validly established, there are additional steps and/or requirements that must be met.
 

Any Entity wishing to issue an ARVA that aims for such ownership rights to be established by the ARVA itself, must ensure that the right of ownership is legally and validly established and that such right of ownership transfers in the event of a transfer of ownership of the ARVA and that all legal or regulatory requirements relating to the settlement, completion and/or transfer of legal ownership are satisfied in all circumstances.
 

The Entity will also be required to plan, and have mitigating measures in place, for all scenarios where a transaction in the ARVA does not result in the transaction being legally settled or completed as described.
 

VASPs that are required to hold Reserve Assets in respect of any ARVA must comply with Rule III.C.3 of Annex 2 in order to ensure the Reserve Assets are protected in the event of insolvency of the VASP.
 

VARA acknowledges that VASPs may use different legal methods in order to ensure such Reserve Assets are segregated in the event of the VASPs insolvency and, as such, the Rule refers to ‘the furthest extent permitted by applicable laws'.
 

In addition to any legal opinion which may also be required under Rule III.B.2 of Annex 2 above, all Issuers of ARVAs which maintain Reserve Assets will be required to provide VARA with a legal opinion confirming that they comply with Rule III.C.3 of Annex 2.
 

All legal opinions provided to VARA under this Rule III.C.4 of Annex 2 must also conform with the Guidance provided on the form and substance of legal opinions provided under Rule III.B.2 of Annex 2 above.
 

Asset-Referenced Virtual Assets may provide owners a right of redemption whereby an owner can redeem the ARVA for a certain value. Such rights of redemption are typically included for ARVAs which maintain or purport to maintain a stable value relative to a Reference Asset, as opposed to ARVAs that provide a direct right of ownership of the Reference Asset.
 

Entities Licensed to issue an ARVA are not mandated to provide owners and/or holders with a right of redemption. However, to the extent that such right is granted, owners and/or holders must be given the right to redeem the ARVA for an equal value denominated in Dirhams (AED) as well as any other forms determined by the Issuer and set out in the Whitepaper.
 

In other words, owners and/or holders must have the right to redeem the ARVA in Dirham (AED) in addition to any other options offered by the Issuer.