Web 3.0 transactions in virtual universes involving digital goods, NFTs, and blockchain token-based digital assets is a complex and multidimensional area of law often requiring intricate practical analysis and application of the following rules and regulations:
At Dilendorf Law Firm, we strive to understand our client’s “metanomics”, backgrounds, objectives, and other critical factors to identify which bodies of law, and specific statutes and regulations, are implicated.
This approach is crucial when:
- starting small metaverse businesses and selecting/establishing optimal business structures;
- assisting clients with determining when federal and state money transmitter regulations apply to Metaverse transactions and businesses;
- assisting clients with purchasing digital parcels of lands in the metaverse after completing title report and KYC/AML checks using blockchain forensic investigative tools;
- assisting clients with obtaining state-by-state MTL no-action letters or licenses to facilitate cryptocurrency transactions;
- establishing guidelines for metaverse trading activities for digital stores, galleries, and venues;
- implementing anti-money laundering prevention and compliance with the Bank Secrecy Act;
- counseling investors, brokers, and others of the state and federal tax consequences of acquiring, holding, earning income from Web 3.0 metaverse transactions;
- forming regulated DAOs inside of the metaverse;
- KYC/AML checks in Metaverse transactions; and
- maintaining a cutting-edge understanding of metaverse developments and legal or regulatory changes, and keeping our clients informed of how such changes affect them.
Consider the following example:
A digital art gallery launches a store in the Metaverse to sell NFTs and wants to accept payments in virtual currency. Under the existing legal framework, the digital art gallery in our example could be treated as a money service business (“MSB”).
The US Department of Treasury issued Regulations to Persons Administering, Exchanging, or Using Virtual Currencies that refer to the participants in generic virtual currency arrangements, using the term “exchanger”. An exchanger is a person engaged as a business in the exchange of virtual currency for real currency, funds, or other virtual currency.
An exchanger that (1) accepts and transmits a convertible virtual currency or (2) buys or sells convertible virtual currency for any reason is a money transmitter under the US Treasury Regulations. FinCEN’s regulations define the term “money transmitter” as a person that provides money transmission services, or any other person engaged in the transfer of funds. The
term “money transmission services” means “the acceptance of currency, funds, or other value that substitutes for currency from one person and the transmission of currency, funds, or other
value that substitutes for currency to another location or person by any means.
Metaverse platforms and the financial instruments they offer may contain centralized components. Legislators and regulations are still far from adapting to the concept of a deregulated DeFi infrastructure and tokenized assets, so the existing conventional legislation must be interpreted to apply to Web 3.0 virtual universes. Decentralized finance is a rapidly-expanding technology in the Metaverse. Given the explosive growth of Metaverse and the “peer-to-peer” economy, that offers no traditional benefits of legal protection, the Metaverse users, businesses and brands should carefully map out risks and liabilities before engaging in Metaverse transactions.
Dilendorf Law Firm attorneys and advise clients on operational, transactional, and regulatory aspects of Metaverse projects.