Asset-backed Tokens and other Cryptocurrency
IN REPLY REFER TO: _________
FILE NO: _________
October 20, 2021
VIA EMAIL ONLY
Re: Request for Interpretive Opinion
Thank you for your correspondence dated April 22, June 7, and June 29, 2021, to the Commissioner of the Department of Financial Protection and Innovation. You request an interpretive opinion from the Commissioner concerning whether your client, _________ _________, is required to obtain a money transmitter license under the Money Transmission Act (“MTA”).
_______ will create a platform (“Platform”) that facilitates the creation, sale, and trading of metal asset-backed tokens (“Metal ABTs”). These tokens represent a portion of a bar of metal. The providers of the metals (“Tokenizers”) give ______ administrative powers over the physical metal, which _______stores in a secure vault or warehouse. ________ assists the Tokenizer in creating the Metal ABT, which are then stored in the Tokenizer’s digital wallet and can then be purchased, or traded with other customers, on ________ platform. The Tokenizer maintains title to the Metal ABT and the underlying metal until the Tokenizer sells the Metal ABT to a customer.
To purchase Metal ABTs with fiat currency, the customer first funds an ______ FBO account that holds all customers’ fiat currency in one account. Once the transaction purchasing the Metal ABT is executed, _______ will attribute the fiat currency value to the appropriate Tokenizer, but the fiat funds will remain in the FBO Account until they are withdrawn by the Tokenizer. The Metal ABT will be transferred to the customer’s digital wallet.
Once a customer purchases the Metal ABT, the title and delivery rights to the underlying metal also passes to the customer with that Metal ABT. The customer will have the right to redeem the Metal ABT for the physical delivery of the underlying metal. If that right is exercised, ________ will facilitate the actual delivery of the physical underlying metal to that customer.
Your letter also states that _______ may provide technical services to sellers of palladium, nickel, and other metals who are seeking to convert a physical forward contract between a buyer and the seller to a token (“Industrial Token”). If the Industrial Token is redeemed, the delivery provisions of the underlying forward contract are triggered, requiring delivery of the respective metal. __________ anticipates that users of the Industrial Tokens will primarily be industrial producers and users of metals, such as manufacturers, who must qualify as “eligible contract participants” within the meaning of Section 1(a)(18) of the Commodities Exchange Act. The Industrial Tokens will not be available to retail customers. Your request letter states that __________ platform will also be used to facilitate the creation, sale, and trading of Industrial Tokens.
There are fees associated with using the platform. Those fees may be paid with the customer’s fiat currency balance or using a stablecoin that ______ proposes to create. Specifically, these stablecoins (“Currency Tokens”) would be tethered to the U.S. Dollar on a 1:1 basis. The only use of Currency Tokens described in your correspondence is to pay ________ platform fees. The Currency Tokens are only redeemable for fiat currency on the Platform.
A customer can purchase a Currency Token by making a request through the Platform. Then, ________ mints the Currency Tokens requested and transfers the equivalent amount of the customer’s fiat currency to _______ separate bank account. The customer’s on-Platform digital wallet will reflect the Currency Token balance.
If a customer then pays Platform fees with Currency Tokens, the corresponding number of Currency Tokens on the on-Platform digital wallet will be burned.
In your correspondence, you state, “_________does not permit Customers to use fiat currency stored in the FBO account for any purpose other than purchasing Metal ABTs or Currency Tokens, receiving the proceeds of a slate of Metal ABTs, or paying Platform fees.” You also clarify that ________ will not allow customers to transmit fiat currency to one another, except to facilitate the transactions listed above.
Money Transmission Act
Financial Code section 2030 prohibits a person from engaging in the business of money transmission in this state unless the person is licensed or exempt from licensure or is an agent of a person licensed or exempt from licensure.
Financial Code section 2003, subdivision (q), defines “money transmission” to include receiving money for transmission and issuing stored value. Section 2003, subdivision (u), defines “receiving money for transmission” to mean receiving money or monetary value in the United States for transmission within or outside the United States by electronic or other means. “Stored value” is monetary value representing a claim against the issuer that is stored on an electronic or digital medium and evidenced by an electronic or digital record, and that is intended and accepted for use as a means of redemption for money or monetary value or payment for goods or services. The term does not include a credit card voucher, letter of credit, or any stored value that is only redeemable by the issuer for goods or services provided by the issuer or its affiliate, except to the extent required by applicable law to be redeemable in cash for its cash value.
In your request, you ask whether an MTA license is required in order for __________ to:
- provide technical services to enable owners of metal to create a digital asset representing interests in that metal;
- facilitate trading in those digital assets; or
- provide digital wallets to its customers.
Providing technical services to assist in the creation of a Metal ABT and Industrial Tokens and issuing a digital wallet holding the Metal ABT does not require licensure.
Although the issuance of stored value is generally considered money transmission, ________ is not issuing the Metal ABT or Industrial Tokens; it is only assisting with their creation. Further, Financial Code section 2003, subdivision (k) defines “issuer” as the entity that is liable to the holder of stored value and has undertaken or is obligated to pay the stored value. Here, to the extent the Metal ABT is considered stored value, the Tokenizer is the issuer as it holds title to the Metal ABT and stores it in the Tokenizer’s digital wallet on _________ platform. Similarly, for the Industrial Token, it is the seller of the metal, not _________, that creates the Industrial Token and the seller is obligated to deliver the metal to the holder of the Industrial Token. _________ does not need an MTA license to provide this assistance.
_________ does not need an MTA license to issue a digital wallet holding Metal ABT.  The digital wallet is not stored value because it is not holding monetary value intended and accepted for use as a means for redemption for money/monetary value or payment for goods or services. The contents of the digital wallet provided by________are Metal ABT, which cannot be redeemed for money or monetary value and is not used as payment for goods or services; the Metal ABT is only redeemable for the underlying metal.
The fiat currency-related services facilitating the sale of Metal ABTs or Currency Tokens, and the issuance and sale of Currency Tokens does not require licensure at this time.
The Department has been studying the cryptocurrency industry closely. At this time, the Department does not require licensure under the MTA for ________ to facilitate the sale of Metal ABTs and Currency Tokens, or to create a stablecoin such as Currency Token which would be used solely to pay ________ own platform fees.
Please be aware, however, that this is subject to change. At any time, the Department may determine that ________ activities are subject to regulatory supervision. The Department may also adopt regulations or issue interpretive opinions that significantly restrict ________ business operations. If _______ chooses to operate in California, it would do so subject to these risks.
This opinion is based solely on the facts presented in your correspondence. Any changes in the facts or circumstances, as we understand them, could lead to a different conclusion. Further, this opinion only pertains to MTA. However, _______ should consider that Metal ABTs and Industrial Tokens could be considered a commodity and California Corporations Code section 29520 generally prohibits the sale of a commodity, unless an exception applies.
If you have any questions, please feel free to contact me at ___________ or _________________.
Christopher S. Shultz
Department of Financial Protection and Innovation
cc: Robert Venchiarutti, Money Transmitter Division
 7 U.S.C. § 1a(18).
 Fin. Code, § 2003, subd. (x).
 The request letter does not state whether the Industrial Tokens will be stored in a digital wallet issued by ________. By contrast, the letter states that Metal ABT and Currency Tokens will be held on digital wallets provided by _______. Therefore, as it relates to Industrial Tokens, this opinion only discusses whether ________ assistance in creating Industrial Tokens requires licensure under the MTA.
 Your correspondence does not explain how ______ will facilitate the sale or trade of Industrial Tokens. In your letter of June 7, 2021, you explained, “The only fiat transactions permitted on the Platform are funding and withdrawing from the [bank] accounts for the purposes of purchasing Metal ABTs and________ Currency Tokens.” Therefore, as stated earlier, as it relates to Industrial Tokens, this opinion only discusses whether________ assistance in creating Industrial Tokens requires licensure under the MTA.