In connection with the sole purpose of getting acquainted with information set out in the document dated 29 September 2023 “Summary of the Legal and Regulatory Analysis” prepared by Advokaadibüroo PricewaterhouseCoopers Legal OÜ (PwC Legal) in relation to the legal classification of Neokingdom DAO OÜ and Neokingdom Tokens (the Report), PwC Legal understands that you have requested access to a copy of the Report. teledisko DAO OÜ, to whom the Report is addressed, has approached PwC Legal with a request to obtain PwC Legal’s permission to grant you access to a copy of the Report.
PwC Legal is prepared to grant its consent to teledisko DAO OÜ to reveal a copy of the Report to you subject to the condition that you accept the terms and conditions of such disclosure as described below in this Hold Harmless Letter (the Letter). Therefore, by ticking the box “I confirm my agreement to the foregoing” below, you acknowledge, accept and agree for and on behalf of yourself and any person or entity you represent that:
SUMMARY OF LEGAL AND REGULATORY ANALYSIS
teledisko DAO OÜ, registry code 16374990 (teledisko DAO or you), approached Advokaadibüroo PricewaterhouseCoopers Legal (we or us) and requested that we draft a summary (Summary) on the basis of the legal and regulatory analysis conducted by us (Analysis) relating to the legal classification of Neokingdom DAO OÜ, registry code 16638166 (Neokingdom DAO), and Neokingdom Tokens.
For the purposes of the Analysis, you asked us to analyse the following questions (together, Questions):
We have agreed that other than the Questions, the Analysis and the Summary will not cover any other aspects in connection with Neokingdom Tokens, Neokingdom DAO, its business, affiliates, any instruments issued by it, any shareholders of Neokingdom DAO (Shareholders) or any third parties or any other legal or regulatory matters relating to any other assets.
The views and opinions in the Analysis and the Summary have been given on the basis of the documents and information provided by you, and are subject to the assumptions, qualifications and disclaimers set out in the Analysis and the Summary and are strictly limited to the issues raised in the Questions.
The AoA and the SHA of Neokingdom DAO provide that the Neokingdom Token is a cryptographical device used by the internal software of Neokingdom DAO, which is deployed to manage the Shareholder Register and the adoption of the resolutions of the Shareholders, to determine the scope of the special rights granted to each Shareholder in a machine-readable way.
The person is considered a Shareholder from the day that the person is entered in the Shareholder Register. Shareholders are divided into the following three categories:
The Shareholders have the following rights:
The Neokingdom Token does not itself grant any rights akin to the rights of Shareholders described above, i.e., where the relevant token holder is not at the same time a Shareholder. Exercising the rights of Shareholders is only possible by persons who (i) have the status of a Shareholder and (ii) hold Neokingdom Tokens on a blockchain address recorded in the Shareholder Register.
Neokingdom Tokens may, in principle, be deemed to satisfy two conditions required to be met in order for the tokens to be considered transferable securities. More specifically, Neokingdom Tokens are:
Therefore, the key question in the context of whether Neokingdom Tokens qualify as securities is, essentially, whether Neokingdom Tokens grant their holders that are not Shareholders a reasonable expectation to become a Shareholder and therefore a reasonable expectation for profit (e.g., a right to a part of the issuer’s profit, regular cash flows, or any other promise about future profit) or governance rights.
However, the transferability of Neokingdom Tokens is restricted by rules and restrictions that Shareholders are bound by when transferring Neokingdom Tokens. In addition, third persons are not able to qualify as Shareholders by virtue of receiving a right to Neokingdom Tokens from outside the Neokingdom DAO ‘eco-system’, i.e., by exchange of Neokingdom Tokens between Shareholders, the transfer of Neokingdom Tokens to third persons is strictly limited akin to how Estonian private limited companies restrict the rights of shareholders to transfer shares to third persons.
We are of the opinion that the restrictions on the transferability of the Neokingdom Token are broad enough as to ensure that even if transfers of Neokingdom Tokens occur, the transferee is not able to receive the same rights as Shareholders by virtue of merely obtaining the Neokingdom Tokens. Thereby, Neokingdom Tokens cannot be considered as transferable securities due to Neokingdom Tokens not being freely negotiable within the meaning of Article 1(2) of Regulation 2017/568.
More specifically, taking into account that the Neokingdom Token, on a stand-alone basis (i.e., where the relevant token holder is not a Shareholder), does not grant its holder a reasonable expectation for profit or governance rights in Neokingdom DAO and, further, it is not freely negotiable within the meaning of Article 1(2) of Regulation 2017/568, we are of the view that the Neokingdom Token does not qualify as any of the securities specified in § 2(1) of the SMA or “another similar tradable right” within the meaning of § 2(1)1) of the SMA.
Further, it is our opinion that the Neokingdom Token, due to its characteristics described above, does not, in substance, qualify as any of the following tokens within the scope of the banking and financial services regime:
1) ‘alternative investment fund’ tokens, i.e., where Neokingdom DAO would invest the raised funds in accordance with the determined investment policy for the benefit of the investors; or
2) ‘deposit’ tokens, i.e., where Neokingdom DAO would grant loans in its own name and account, and this activity would be financed through gathering repayable funds from the public.
As we have discussed above, the Neokingdom Token does not, in our view, appear to meet the requirements for classification as a transferable security or a token that grants their holder a reasonable expectation for profit or governance rights as specified in the EFSRA Guidelines. However, this conclusion does not automatically exclude that it may, potentially, be classified as a virtual asset within the meaning of the relevant FATF Guidance and virtual currency within the meaning of the Estonian AML Act, provided that the Neokingdom Token satisfies the scope of the relevant definitions.
In our view, the Neokingdom Token, as currently described to us, (i) is not used for payment purposes in the meaning of the FATF Guidance/the AML Act, but (ii) is used in connection with investment purposes. Since the role of the Neokingdom Token seems to be mostly of technical nature, it should not, in our view, be considered to be caught by the virtual currency definition in that respect. Therefore, it is our view that the specific functions and characteristics of Neokingdom Tokens do not cause them to be qualified as a virtual currency within the meaning of the AML Act.
Based on the above and also considering that, according to the information provided by you, Neokingdom Tokens are issued (or caused to be issued) by Shareholders rather than Neokingdom DAO itself, it is our opinion that the activity of Neokingdom DAO does not constitute the activity of an obliged entity within the meaning of the AML Act. We are of the view that Neokingdom DAO is not to be considered as an obliged entity also under the relevant EU AML/CFT regulation.
According to the Analysis, Neokingdom Token is a utility token in line with Article 3(1)(5) of MiCAR. While our opinion is that the classification of the Neokingdom Token as a utility token should not change under MiCAR, the issuer of such a token needs to take into consideration the fact that when making an offer to the public, additional obligations are imposed on issuers of utility tokens from the time that the relevant provisions of MiCAR become applicable.
The AML Package, although of high importance in relation to the operation of a crypto-asset service provider, does not, in our view, have an impact, within the scope of the Questions, on how the Neokingdom Token should be classified or whether Neokingdom DAO would be an obliged entity, instead the changes brought about with the AML Package will impact the scope of obligations imposed on such obliged entities.
Within the scope of the Analysis, we are of the view that:
We recommend establishing liaison with both the EFSRA and the FIU with a view to discussing the regulatory implications relating to Neokingdom Tokens and Neokingdom DAO and seeking their non-binding views as to the issues highlighted in the Analysis.
Appendix 1. Examined documents, assumptions, qualifications and disclaimers
Appendix 2. Hold Harmless Letter
Hold Harmless Letter
Access to a copy of the document dated 29 September 2023 “Summary of the Legal and Regulatory Analysis” prepared by Advokaadibüroo PricewaterhouseCoopers Legal OÜ in relation to the legal classification of Neokingdom DAO OÜ and Neokingdom Tokens
In connection with the sole purpose of getting acquainted with information set out in the document dated 29 September 2023 “Summary of the Legal and Regulatory Analysis” prepared by Advokaadibüroo PricewaterhouseCoopers Legal OÜ (PwC Legal) in relation to the legal classification of Neokingdom DAO OÜ and Neokingdom Tokens (the Report), PwC Legal understands that you have requested access to a copy of the Report.
teledisko DAO OÜ, to whom the Report is addressed, has approached PwC Legal with a request to obtain PwC Legal’s permission to grant you access to a copy of the Report. PwC Legal is prepared to grant its consent to teledisko DAO OÜ to reveal a copy of the Report to you subject to the condition that you accept the terms and conditions of such disclosure as described below in this Hold Harmless Letter (the Letter). Therefore, by ticking the box “I confirm my agreement to the foregoing” below, you acknowledge, accept and agree for and on behalf of yourself and any person or entity you represent that:
 Cryptographic ERC-20 tokens issued or caused to be issued by one or more shareholders of Neokingdom DAO OÜ.
 Regulation (EU) 2023/1114 of the European Parliament and of the Council of 31 May 2023 on markets in crypto-assets, and amending Regulations (EU) No 1093/2010 and (EU) No 1095/2010 and Directives 2013/36/EU and (EU) 2019/1937.
 A package of legislative proposals by the European Commission which relate to the AML/CFT rules of the EU with the aim to provide more stringent rules to combat money-laundering and terrorist financing, including a new regulation on AML/CFT, the plans to adopt the 6th Directive on AML/CFT (AMLD 6) and to revise the 2015 Regulation on Transfers of Funds. Please note that, as of the date of this document, the AML Package has not yet been adopted.
 We specifically note that as part of the Analysis or the Summary, we have not analysed any matters relating to the legal setup of Neokingdom DAO from a commercial law perspective. Nor have we analysed whether any mandatory provisions of the Estonian Commercial Code (in Estonian, äriseadustik) or any other provisions of other applicable laws could influence the operation of Neokingdom DAO as a private limited company (in Estonian, osaühing) registered in Estonia.
 Articles of Association of Neokingdom DAO.
 Shareholders’ Agreement entered into by and between all Shareholders of Neokingdom DAO.
 A register of Shareholders kept by Neokingdom DAO in accordance with applicable law.
 According to the EFSRA Guidelines, digital tokens are divided into two major categories:
See further the EFSRA Guidelines for entities engaging with virtual currencies and ICOs, available at: https://www.fi.ee/en/finantsinspektsioon/financial-innovation/virtual-currencies-and-ico/information-entities-engaging-virtual-currencies-and-icos.
 Typical transferable securities are set out in an open list in Article 4(1)(44) of Directive 2014/65/EU.
 For example, section 10.2.2 of the SHA provides that before transferring Neokingdom Tokens that are on blockchain address which is entered into the Shareholder Register out of that address, a Contributor must offer them for sale to other Contributors with a fixed price of one euro per one Neokingdom Token.
 In Estonian, osaühing.
 Estonian Securities Market Act (in Estonian, väärtpaberituru seadus).
 EFSRA Guidelines for entities engaging with virtual currencies and ICOs, available at: https://www.fi.ee/en/finantsinspektsioon/financial-innovation/virtual-currencies-and-ico/information-entities-engaging-virtual-currencies-and-icos.
 Updated Guidance for a Risk-Based Approach to Virtual Assets and Virtual Asset Service Providers, FATF (2021).
 Estonian Anti-Money Laundering and Terrorist Financing Prevention Act (in Estonian, rahapesu ja terrorismi rahastamise tõkestamise seadus) (the AML Act).
 However, subject to our recommendation to establish liaison with the Estonian Financial Intelligence Unit (in Estonian, Rahapesu andmebüroo) with a view to discussing and clarifying the treatment of the Neokingdom Token with regard to the investment related component involved.
 Estonian Financial Supervision and Resolution Authority (in Estonian, Finantsinspektsioon).
 Estonian Financial Intelligence Unit (in Estonian, Rahapesu Andmebüroo).