How digital assets help businesses attract funding

The Central Bank of Russia issued its first report on the state of the digital asset market. According to the Central Bank, investment, finance and digital financial asset (DFA) platforms attracted more than RUB 180 bln ($2 bln) in 2023. Experts from the regulatory body note that the report shows that a new finance niche is taking shape in Russia. 

What are DFAs?

Digital financial assets became a concept in 2020 after the adoption of Federal Law 259-FZ. Most regulations took effect in 2021, and in 2022, companies started issuing DFAs. These assets are digital versions of stocks, bonds, promissory notes, loans, etc. The only difference is that digital assets exist in the form of digital rights or certificates of a certain value.

Issuing DFAs

Currently, digital financial assets are issued through a designated information system run by operators from a special Central Bank registry.

Digital financial assets can be issued by both private entrepreneurs and legal entities. When placing assets, it is mandatory to provide information about the issuing party and the operator, the type and scope of rights, the asset quantity and the maximum amounts for transfer or other assets in exchange, the price and payment method, as well as placement date.

Nuances of issuing and dealing DFAs

For now, it is only possible to issue and purchase DFAs through one information system operator. If it’s necessary to conduct a deal with an issued asset but through a different operator, the dealer will need an exchange operator (e.g. the Moscow Exchange).

To put DFAs that include rights to issue-grade securities into circulation, the issuer must complete several procedures: making a decision on the placement, approving the issue, registering the issue, and finally, placing the securities themselves.

The issuance of a DFA with monetary claims is typically considered a public offer unless specified otherwise. Other types of digital financial assets that do not include monetary claims (such as digital rights certifying rights to goods, services, intellectual property, or other civil rights objects) may be available only to a specific group of individuals through a closed subscription. The issuer may offer a refund based on the project’s or asset’s profitability. The possibilities for linking assets to DFAs are virtually limitless. For example, diamond producers can issue assets for rough diamonds, and developers can issue assets for digital meters.

Who can own DFAs

The acquisition of digital financial assets is open to both qualified and unqualified investors. Investment opportunities vary based on the risk level of digital rights. Qualified investors can purchase DFAs with transfer requirements, while non-qualified investors face restrictions on the amount they can invest and the types of assets available to them. Specifically, non-qualified investors can invest up to RUB 600,000 per year and are limited to certain categories of digital assets. These include assets linked to securities or federal loan bonds, assets that provide rights to such securities, or assets whose value is tied to precious metals or shares on the first level of the stock exchange quotation list.

Pros of issuing DFAs

Digital financial assets offer organizations easier access to funding. They enable effective management of working capital, monetization of valuable resources, and increased staff motivation. For instance, DFAs can be used to secure short-term financing, provide liquidity for valuable resources, and offer additional employee incentives through digital asset-based compensation or bonus programs. Moreover, DFAs allow companies to divide assets, facilitating more flexible resource utilization.

Thus, DFAs can effectively replace the use of factoring or short-term bonds. Assets that include monetary claims are particularly attractive due to their greater liquidity and stability, making them more appealing for financial and investment purposes.

According to the Central Bank of Russia, by the end of 2023, platforms registered in the country issued 252 DFAs totaling RUB 53.4 bln.

Utilization of investment platforms and issuance of utility digital rights

Alongside the growth of DFAs, the markets for investment platforms and the issuance of utility digital rights are also expanding in Russia.

By the end of 2023, the Central Bank reported that 78 investment platform operators were registered in the country, facilitating the raising of over RUB 27 bln for companies last year.

Today, these platforms can facilitate investments in various forms, such as providing loans, offering or purchasing shares, and acquiring digital rights. Our analysis of the investment platform regulations revealed that the most popular and effective investment forms are loan provision and equity securities acquisition.

Securities acquisition through the investment platform is restricted to closed subscriptions, where the pool of investors is predetermined. In contrast, utility digital rights purchases are available through both open and closed subscriptions.

The issuance of utility digital rights includes an option for carrying out transactions between individuals, who are not investment platform participants, through digital certificates of utility digital rights. Additionally, the digital certificate serves as a non-equity no-par security that certifies ownership of a utility digital right and provides the right to demand the provision of services by the depository that exercises this right. However, it should be noted that securities market rules apply to the issuance of digital certificates, which could often be expensive and non-beneficial for recipients.

Since investment platforms first emerged in Russia, only 1–3 cases of utility digital rights issuance have been observed so far. Yet, certain investment platforms now have their rules including the option of placing such rights. Moreover, experts claim that the size of Russia’s utility digital rights market amounts to RUB 6–8 bln.

Placement of utility digital rights can be a profitable solution for companies involved in supplying goods and equipment, as well as for those that provide remote online access to software, as it allows them to build additional sources of income through selling utility digital rights to their products or services. Such rights can be used for providing online access to the aforementioned products or services, which expands their market and boosts competitiveness. Utility digital rights can also be used by companies that work with intellectual property.

Who can issue utility digital rights

UDR can be issued by both individual entrepreneurs and legal entities. The legislation on investment platforms restricts the amount of raised funds, with the maximum investment amount of RUB 1 bln per year. However, this restriction does not apply to open joint-stock companies that issue digital assets.

Investors are represented by individuals and legal entities, which can be either qualified or non-qualified. This difference is not about the quality of investment facilities but about the investment size. For instance, a non-qualified individual investor is allowed to invest no more than RUB 600,000 per year; the amount is calculated based on the total funds for investment proposals, including fulfilled obligations.

Taxes imposed on DFAs and UDR

DFA transactions are exempt from VAT, but the tax applies to ‘hybrid’ digital rights that combine the properties of DFAs and UDR, such as certifying a monetary claim and the right to demand an item transfer. Legal entities that receive income from DFAs and utility digital rights are required to pay a 13% tax, which increases to 15% on the income from DFAs that exceeds RUB 5 million. Foreign legal entities are required to pay a 15% tax. For individuals, the flat tax rate is 13%, and 15% on the income of over RUB 5 million per year. Tax duties are performed by a tax agent, usually an operator of an information system, exchange or investment platform.

Digital asset market prospects

DFAs and UDR issuance, which is not subject to securities legislation rules, substantially reduces the costs of raising additional finances for companies. Additionally, this tool can be efficient for attracting funds offered not only by certain financial institutions or investors but also by a wide scope of individuals.

Moscow Exchange experts claim that due to its high prospects, the digital assets market could increase from the current RUB 70 billion to RUB 5-10 trillion by 2027-2028.

Summing it up

The use of digital financial assets, investment platforms and utility digital rights can be a core strategic solution for companies that seek to raise additional funds.

  • DFAs provide convenient access to finance, streamline working capital management, and serve as an incentive for personnel, facilitating flexible resource allocation.
  • Investment platforms open up new opportunities for assets investment, including providing loans and purchasing securities.
  • Utility digital rights allow companies to create new revenue opportunities through online access to their products and services, expanding their market and boosting competitiveness.

By Artem Dobrodeenko, Senior Consultant at the Accelerator of Opportunities

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