A DeFi protocol preparing to operate under a defined legal structure faces a question that most generic corporate advisers cannot resolve cleanly: which regulatory perimeter applies, and which legal wrapper can actually sit inside it? In Kazakhstan's Astana International Financial Centre (AIFC) – a common-law enclave with its own courts, its own regulator, and a purpose-built digital-asset regime – the answer is more actionable than in most jurisdictions. The Astana Financial Services Authority (AFSA) administers a framework that explicitly recognises digital-asset activities, including trading facilities and custody, and the AIFC's common-law DNA means that smart-contract enforceability and token classification are addressed in a legal environment that operators in London or Singapore will recognize. This guide walks through the structuring process step by step – from initial classification through entity selection, AFSA engagement, banking, and cross-border tax interaction.
Why the AIFC is a viable home for a DeFi protocol
The AIFC offers a structurally unusual combination: a Central Asian address with an English common-law system, dedicated digital-asset activity definitions under the AFSA regime, and a government mandate to become a regional financial hub. For a DeFi protocol, that combination matters because token classification, smart-contract legal effect, and liability for automated execution all turn on legal concepts – property, contract, agency – that are far better developed in common-law systems than in civil-law equivalents. The AFSA framework recognises a digital-asset trading facility concept and a custody-of-digital-assets activity, giving a protocol operator a regulatory surface to engage with, rather than a silence that defaults to prohibition.
In our cross-border practice, operators choose the AIFC for three structural reasons. First, the common-law environment makes legal opinions on smart-contract enforceability and token rights exportable to counterparties and investors in London, Singapore, and New York. Second, the AIFC sits outside Kazakhstan's domestic financial regulatory perimeter, so the AFSA regime – not the National Bank of Kazakhstan – applies to activity within the centre. Third, the cost and timeline profile for AIFC establishment is generally more accessible than equivalent common-law hubs in the Gulf, making it attractive for mid-scale protocols that cannot yet absorb the set-up cost of an ADGM or DIFC structure.
That said, the AIFC is not a no-regulation zone. The AFSA applies substantive licensing obligations, AML/CFT (anti-money laundering and counter-terrorist financing) requirements aligned with FATF Recommendation 15 on virtual assets, and the Travel Rule (the obligation to pass originator and beneficiary data with a digital-asset transfer). A protocol that conducts regulated activities without AFSA authorisation is exposed, regardless of the decentralised label on its architecture.
The process above describes the standard path. Your facts – the entity type, the user geography, and the token rights – change the analysis materially. For a scoped assessment of whether your protocol falls inside the AFSA perimeter, contact OBOLUS at info@oboluslaw.com.
Step 1: Classify the token before anything else
Token classification is the first and most consequential step in any DeFi structuring exercise, because it determines which AFSA activity category applies – and whether a licence is required at all. The AFSA, like ESMA under MiCA (the EU's Markets in Crypto-Assets Regulation) and the SFC in Hong Kong, applies a substance-over-label test: the rights conferred by the token govern its category, not the marketing description in the whitepaper.
A token that carries profit-sharing rights, voting rights over a treasury, or a claim on underlying assets is likely to fall within the AFSA's securities or investment-instrument perimeter. A token that is purely consumptive – redeemable for access to a defined protocol service with no expectation of return – sits closer to a utility instrument. A stablecoin or an asset-referenced instrument triggers its own analysis, one that increasingly mirrors the ART and EMT categories under MiCA even where MiCA does not directly apply.
A common and costly mistake at this step is relying on the utility label in a whitepaper as a classification anchor. That approach fails in every sophisticated regulator's analysis. The AFSA, the FCA, and the SEC all assess the economic substance of the rights. We regularly advise protocols at the whitepaper stage precisely because a classification error at launch can convert a product release into an unregistered offering – a regulatory consequence that is far harder to unwind than to prevent.
The output of Step 1 is a legal classification opinion. It should address: the rights conferred, the transfer mechanics, the governance structure, and the jurisdiction in which the token is offered. That opinion then drives every subsequent structuring decision.
Step 2: Select the right AIFC entity form
The AIFC offers several entity types, and the choice among them is not administrative – it has direct consequences for liability, governance, banking access, and the ability to hold an AFSA licence. The main options for a DeFi protocol are an AIFC company (the standard private limited form), an AIFC limited liability partnership, and – for certain fund-adjacent structures – a specific collective investment vehicle.
For a protocol that needs an AFSA licence, the AIFC company is the standard vehicle. It provides a clear legal personality, defined shareholder liability, and the corporate governance that the AFSA expects from a regulated entity. The AIFC company holds the licence; the smart-contract layer sits beneath it as a technical implementation, not a separate legal person.
The DAO question is harder. A DAO (decentralised autonomous organisation) that operates through token-holder governance and smart-contract execution has no default legal personality in any jurisdiction, including the AIFC. If the DAO's activities fall within AFSA-regulated territory, it must be wrapped in an entity that can hold the authorisation. In our practice, we have seen protocols attempt to argue that full decentralisation removes them from the regulated perimeter. That argument has a narrow factual basis and a high evidentiary burden. Where the protocol team retains admin keys, controls upgrades, or captures fees, the decentralisation claim is unlikely to succeed. The safer path is an AIFC entity that holds the regulatory relationship, with the governance token providing participation rights that are clearly documented as non-securities.
Step 3: Engage AFSA and structure the authorisation
AFSA authorisation is the core regulatory milestone. The AFSA issues licences by activity type: a digital-asset trading facility, custody of digital assets, and related intermediary activities. A DeFi protocol that matches buyers and sellers of digital assets, even through an automated market-maker mechanism, is operating a function that regulators characterise as exchange-adjacent. The AFSA expects an application to address governance, risk management, AML/CFT controls, technology risk, and the regulatory capital appropriate to the activity – all of which vary by licence category and are verified against current AFSA requirements rather than stated here as fixed numbers.
The application process is iterative. Pre-application engagement with the AFSA – sometimes called a pre-filing meeting – is strongly advisable. It allows the protocol team to table its structure, receive informal guidance on category fit, and identify documentation gaps before a formal submission. In our cross-border practice, pre-application engagement consistently shortens the overall authorisation timeline by surfacing issues early rather than in a request-for-information cycle after submission.
A practical note on timing: AFSA authorisation is not a same-month process. Operators we advise plan for a period measured in months, not weeks, from initial engagement to licence issuance. The exact timeline depends on the completeness of the submission, the activity category, and whether the AFSA requests supplementary information. Build the timeline into your launch plan; a live protocol operating without authorisation accumulates regulatory risk daily.
Smart-contract documentation is an area that AIFC applicants frequently underweight. The AFSA expects to understand what the smart contracts do – what they automate, what human controls remain, and what happens on a protocol failure. We prepare technical-legal memoranda that translate smart-contract mechanics into regulatory language the AFSA can assess. This is not optional documentation; it is a substantive part of the technology-risk section of the application.
Step 4: Build AML and Travel Rule compliance into the architecture
AML/CFT compliance under the AFSA regime is grounded in the FATF framework, including Recommendation 15 on virtual assets and the Travel Rule obligation. The Travel Rule requires a licensed VASP (virtual asset service provider) to collect, verify, and transmit originator and beneficiary data alongside a digital-asset transfer above the applicable de-minimis threshold – which varies by jurisdiction and must be verified against current AFSA guidance.
For a DeFi protocol, Travel Rule compliance presents a genuine technical challenge. Most DeFi architectures do not natively capture counterparty identity data; the design philosophy is pseudonymous. The AFSA, like MAS in Singapore and the FCA in the United Kingdom, does not grant an exemption from the Travel Rule on the basis of protocol architecture. The obligation attaches to the activity, not the technology. Protocols must therefore either implement a compliant data-collection layer, restrict access to verified users, or structure the user interface in a way that routes regulated activity through a compliant intermediary entity.
We have seen protocols attempt to resolve this by pointing to the decentralised front end. That does not satisfy regulators. The compliance architecture must be built before launch, not retrofitted after an enforcement inquiry. In a recent structuring matter, a protocol team operating in a common-law hub engaged us to redesign the user-onboarding flow specifically to capture Travel Rule data at the VASP-to-VASP interface, while preserving the protocol's peer-to-peer mechanics for unhosted-wallet interactions that fall outside the regulated perimeter. The result was a compliant architecture that did not require the team to abandon the protocol's core design.
Step 5: Address banking and cross-border tax from the start
An AIFC entity with AFSA authorisation still needs a banking relationship, and banking for crypto-native businesses remains the most consistently difficult operational problem in the industry. Kazakhstani domestic banks have varying postures toward digital-asset businesses. Some operate within the AIFC's regulatory perimeter and are familiar with licensed entities; others apply blanket policies that exclude virtual-asset activity regardless of regulatory status. The practical path involves engaging AIFC-familiar banking partners early – before the entity is incorporated – and presenting a compliance package that reflects the AFSA licence, the AML programme, and the transaction-monitoring controls. Operators we advise who approach banking as an afterthought routinely face delays that stall product launches by weeks.
The cross-border tax interaction requires separate attention. The AIFC offers a favourable tax environment for entities operating within its perimeter, but the specifics – applicable exemptions, treaty access, treatment of token-based income, and the interaction with founders' or investors' home jurisdictions – vary and must be verified against current Kazakhstani tax legislation and any applicable double-tax treaty. The key structural question for a DeFi protocol is how token issuance, protocol fee income, and treasury management are characterised for tax purposes in each relevant jurisdiction. A structure optimised for AFSA compliance but blind to the founders' tax position, or to the VAT treatment of services rendered to EU users, is an incomplete structure.
For a business sitting between the AIFC and investor jurisdictions in the EU, the UK, or the United States, the entity design must address both the regulatory home and the tax residence of ultimate beneficial owners. We structure licensing, banking, and tax as one mandate rather than three disconnected workstreams, because the decisions interact: the entity form affects banking access, the banking setup affects token treasury management, and the treasury structure affects the tax position.
If a prior application stalled or a banking relationship was declined, a structural review can identify the specific gap and the route back. Write to OBOLUS at info@oboluslaw.com or message us at t.me/oboluslaw.
Step 6: Document smart-contract governance and upgrade rights
Smart-contract documentation is a legal matter, not only a technical one. Under any common-law regime – and the AIFC operates under English common-law principles – the question of who controls an upgrade function, who can pause a contract, and who receives protocol fees is a question about rights, liabilities, and potentially regulatory status. If a protocol's admin keys are held by a named company or individual, that entity exercises control that regulators and courts will attribute to it in any enforcement or liability analysis.
The governance documentation package for an AIFC-structured DeFi protocol should include: a legal analysis of the smart-contract upgrade mechanism and who holds it; a description of the on-chain governance process and how token-holder votes bind the protocol; a representation of the treasury management process and the entity that custodies protocol reserves; and a clear articulation of which activities are automated and which require human action. This package serves three audiences: the AFSA in the licensing review, banking partners in the account-opening process, and investors in any token sale or equity raise.
Tokenisation of protocol governance also raises the question of whether governance tokens are themselves regulated instruments. We assess that question against the substance of rights. A governance token that confers a right to direct protocol revenue – even if framed as "fee-sharing" rather than a dividend – will draw securities analysis in most jurisdictions, including the AIFC. The documentation must address that question explicitly, not leave it to inference.
Decision point: AIFC versus alternative structuring jurisdictions
The AIFC is the right structuring home for a DeFi protocol when the operator needs a common-law environment, a credible regulatory relationship, and a cost profile below that of ADGM or DIFC, and when the protocol's primary user base includes Central Asian or CIS-market participants where an AIFC presence carries commercial weight. It is less well-suited where the primary user geography is the European Union – in that case, a MiCA CASP authorisation (through Lithuania, Malta, or another EU member state) may be a better primary regulatory anchor, with the AIFC as a complementary vehicle for non-EU activities.
Profile A – a regional DeFi exchange serving Central Asian users, seeking a common-law regulated status, with a team that can locate at least a qualified manager in the AIFC: the AIFC company with an AFSA digital-asset trading facility licence is the indicated structure. The timeline to authorisation is measured in months; the key risk is the banking relationship, which requires early engagement.
Profile B – a protocol issuing governance tokens to a global user base, with EU and US investors, and a decentralised governance architecture: the AIFC entity can hold the operational regulatory relationship, but EU regulatory exposure under MiCA and US securities-law analysis require parallel structuring. The AIFC alone does not resolve those exposures. Allied counsel in the relevant jurisdictions must be engaged as part of the same mandate, not as a separate afterthought.
Profile C – a DAO seeking retroactive legal wrapping after launch: the AIFC can accommodate this, but the analysis must start with the current state of the smart-contract controls and on-chain governance, not with the preferred end state. Regulators assess what the protocol does, not what the team intends it to become.
Related at OBOLUS
- DeFi, tokenization and smart-contract law – our practice covering token classification, smart-contract governance and protocol structuring across jurisdictions
- Cross-chain bridge legal risk – compliance obligations and liability analysis for bridging protocols in practice
- Crypto exchange setup in Seychelles – a jurisdiction-level guide to an alternative offshore structuring option for digital-asset operators
FAQ
Can a DeFi protocol be regulated?
Yes – and in most major jurisdictions, the question is not whether DeFi is regulated but which regulatory category applies. Regulators including the AFSA, MAS, FCA, and ESMA assess the activity and the rights conferred, not the protocol's architectural label. A protocol that matches orders, holds user assets, or issues tokens conferring investment returns will fall within a regulated perimeter regardless of how decentralised its execution layer is. The correct structuring question is which entity holds the regulatory relationship and which activities require authorisation.
What legal wrapper suits a DAO?
A DAO has no default legal personality and cannot hold a licence, open a bank account, or enter a contract in its own name. The practical solution is a legal entity – in the AIFC, typically a private company – that holds the regulatory authorisation and banking relationship, while on-chain governance tokens provide community participation rights. The entity's constitutional documents should reflect the DAO's governance mechanics. The governance token must be assessed for securities classification before issuance; if it confers profit rights, it may require a separate regulated offering process.
Who is liable when a smart contract fails?
Liability for a smart-contract failure turns on who controlled the contract, what users were told about its risks, and what legal relationship existed between the protocol and its users. In a common-law jurisdiction such as the AIFC, the entity that deployed the contract, holds admin keys, or markets the protocol to users is the most likely target for liability claims. Disclaimers in terms of service limit but do not eliminate exposure. Protocols that retain upgrade authority or collect fees are in a weaker position to disclaim liability than those with genuinely immutable, non-custodial architecture. Governance documentation should address this explicitly before launch.
OBOLUS is an independent digital-asset law boutique acting only for businesses. We advise exchanges, custodians, token issuers and funds on licensing across 70+ jurisdictions, on disputes and on-chain asset recovery across 25+ forums, and on the tax, banking and compliance that sit around them. We assess token classification against the substance of rights, not the marketing label – and we structure licensing, banking and tax as one mandate rather than three disconnected workstreams. Digital assets are the whole of our practice. To discuss your protocol's structure, contact info@oboluslaw.com.
By Roman Levitt, Technology & DeFi Counsel – advising on smart-contract governance, token classification and DeFi protocol structuring across common-law and civil-law regimes.
This publication is general information about the law and does not constitute legal advice. It is not a substitute for advice tailored to your circumstances. OBOLUS accepts no liability for action taken or not taken on the basis of this material. For advice on your situation, contact info@oboluslaw.com.