Paraguay -- Securities Classification Regulatory Overview

Paraguay's approach to classifying cryptocurrency tokens as securities is primarily governed by its general securities market legislation, rather than a standalone crypto-specific securities law. While Law N° 6.995/2022 established a framework for virtual assets, it explicitly states that virtual assets may be subject to other regulations, including securities law, if they meet the relevant criteria.

The primary regulator for securities in Paraguay is the Comisión Nacional de Valores (CNV) (National Securities Commission).

Legal Test Used: Substance Over Form ("Investment Contract" Concept)

Paraguay does not have a directly named "Howey Test" equivalent for crypto. Instead, the CNV would likely apply the "investment contract" concept derived from the general definition of a "security" and "public offering" as outlined in Ley N° 5.810/2017 del Mercado de Valores (Securities Market Law).

The law defines "valores" (securities) broadly to include various financial instruments that represent an investment and yield rights, including debt, equity, and other fungible instruments. The core elements that would likely lead a token to be classified as an investment contract (and thus a security) under Paraguayan law, drawing parallels to international standards and the spirit of the Ley N° 5.810/2017, would be:

1. Investment of Money or Assets: A person provides money or other valuable assets.
2. In a Common Enterprise: The investment is pooled with others in a common venture or project.
3. With an Expectation of Profit: The investor expects to derive profits or returns from the investment.
4. Derived Primarily from the Efforts of Others: The profits are expected to come primarily from the managerial or entrepreneurial efforts of the issuer or a third party, rather than from the direct efforts of the investor themselves.

The CNV would adopt a "substance over form" approach, meaning the labeling of a token (e.g., "utility token") would not be determinative if its economic reality indicates it is an investment in an enterprise.

Which Tokens Are Considered Securities

Based on the "investment contract" concept:

• Security Tokens (Investment Tokens): Tokens explicitly designed to represent ownership (equity), debt, or a share in profits/assets of an enterprise are almost certainly classified as securities. This includes tokens representing shares in a company, real estate, funds, or other traditional assets.
• Utility Tokens (if marketed for investment): Even if a token has a potential future utility within a platform or network, if it is offered and marketed primarily as an investment opportunity with an expectation of profit based on the development efforts of the issuer or others, it would likely be considered a security at the point of initial offering. The emphasis is on the expectations of the reasonable investor at the time of purchase.
• Initial Coin Offerings (ICOs): Most ICOs, especially those launched to fund a project with an expectation of future returns for investors, would likely fall under the definition of a public offering of securities.
• Stablecoins: Generally, stablecoins themselves are less likely to be classified as securities if their primary purpose is to maintain a stable value relative to a fiat currency or other asset, and they do not offer an expectation of profit beyond maintaining their peg. However, certain structured stablecoin offerings that involve yield generation or profit-sharing mechanisms could be scrutinized. Law N° 6.995/2022 defines "virtual assets" broadly, which includes stablecoins, but this doesn't preclude them from being considered securities under specific circumstances.
• Payment/Currency Tokens (e.g., Bitcoin, Ethereum): Typically, decentralized cryptocurrencies like Bitcoin or Ethereum (in their native form, as a medium of exchange) are not considered securities because they do not represent an investment in a common enterprise with an expectation of profit derived from the efforts of others. However, activities around these assets (e.g., funds investing in BTC, derivatives) could be regulated under securities law.

Registration/Exemption Requirements for Token Issuers

If a token is classified as a security and its offering constitutes a "public offering" as defined by Ley N° 5.810/2017, the issuer must comply with the following:

1. Registration with CNV: The issuer must register the offering and the tokens with the CNV. This involves a formal application process.
2. Prospectus Requirements: The issuer must prepare and submit a detailed prospectus (or "folleto informativo") containing comprehensive information about the issuer, the project, the token (rights, risks, mechanics), financial statements, and other material disclosures to allow investors to make informed decisions.
3. Corporate Governance and Financial Reporting: Issuers of publicly offered securities are subject to ongoing reporting obligations, including financial statements, significant events, and adherence to corporate governance standards.
4. Legal Entity: The issuer typically needs to be a legally constituted entity (e.g., a corporation) and comply with general corporate law.

Exemptions: Similar to traditional securities law, exemptions from full registration might exist for:

• Private Placements: Offerings made to a limited number of qualified or institutional investors, without public advertising, typically do not constitute a "public offering" and may be exempt from full registration requirements. The specific criteria (number of investors, amount, investor sophistication) would be determined by CNV regulations.
• Small Offerings: Depending on the total value of the offering, there might be specific thresholds for simplified registration or exemption.

Secondary Trading Rules

If a token is classified as a security, its secondary trading must comply with the Securities Market Law:

• Regulated Exchanges: Secondary trading of registered securities must generally occur on stock exchanges authorized and supervised by the CNV. Trading on unregulated cryptocurrency platforms would likely be deemed illegal for such tokens.
• Licensed Intermediaries: Broker-dealers and other intermediaries facilitating the trading of security tokens would need to be licensed by the CNV and adhere to rules regarding client protection, market conduct, and anti-money laundering (AML) regulations.
• Market Integrity: Trading activities would be subject to market manipulation rules and transparency requirements.

Enforcement Examples

Specific, publicly documented enforcement actions by the Paraguayan CNV solely focused on "crypto security offerings" are not widely available in international reporting. This might be due to a relatively nascent crypto market for securities offerings, or that enforcement actions, when they occur, are often resolved quietly or are not extensively publicized internationally.

However, the CNV possesses the authority under Ley N° 5.810/2017 to:

• Impose Fines: For violations of securities laws, including unregistered offerings, misleading disclosures, or market manipulation.
• Issue Cease and Desist Orders: To halt illegal offerings or trading activities.
• Require Remedial Actions: To correct non-compliant practices.
• Refer Cases to Public Ministry: For criminal prosecution in instances of fraud or other serious offenses.

It is highly probable that if an entity were to conduct a public offering of tokens that meet the definition of a security without CNV registration, the CNV would intervene using its existing powers under the Securities Market Law, treating it as an unregistered securities offering.

Specific Legislation and Regulatory Guidance URLs

1. Ley N° 5.810/2017 - Del Mercado de Valores (Securities Market Law):

   • This is the foundational law for securities regulation in Paraguay. It defines securities, public offerings, and the powers of the CNV.
   • URL (searchable database): Ley N° 5810/2017 - InfoLEX Paraguay
   • URL (CNV link to laws): CNV - Leyes y Decretos (Look for Ley N° 5810)

2. Ley N° 6.995/2022 - Que Regula la Industria y Comercialización de Activos Virtuales (Law Regulating the Industry and Commercialization of Virtual Assets):

   • While primarily focused on virtual asset mining and defining "virtual assets" and "virtual asset service providers," Article 1 explicitly states that its provisions are without prejudice to the application of other laws that regulate the same activities or assets, particularly financial, banking, and securities market laws.
   • URL: Ley N° 6995/2022 - Gaceta Oficial de Paraguay

3. Comisión Nacional de Valores (CNV):

   • Official website of the securities regulator. While it might not have specific guidance documents on crypto securities yet, it's the official source for all securities market regulations and updates.
   • URL: www.cnv.gov.py

Disclaimer: This information is for general educational purposes and does not constitute legal advice. The regulatory landscape for cryptocurrency is rapidly evolving, and specific legal counsel from a qualified professional in Paraguay should be sought for any specific situation.