What is CFA: Comprehensive Guide and FAQ

DFAs Explained in Simple Terms

Digital financial assets (DFAs) are a cutting-edge class of financial instruments that exist solely in digital form. Their issuance and storage are built on blockchain technology, providing robust security and complete transparency for every transaction.

At their core, DFAs are comparable to familiar financial instruments like stocks, bonds, or debt securities. The crucial distinction is that DFAs exist only electronically and have no physical form. This makes them more flexible, accessible, and efficient for managing and transferring ownership rights.

Key features of digital financial assets include:

1. Digital Format. All DFA-related accounting and transactions occur digitally. This delivers high transaction speed and lower operational costs compared to conventional financial instruments.

2. Blockchain Integration. Blockchain technology underpins DFA operations, guaranteeing record immutability, protection against unauthorized access, and eliminating the risk of forgery or fraud. Each transaction is recorded in a distributed ledger, making the full transaction history transparent and verifiable.

3. Legal Regulation. In Russia, DFAs are governed by a dedicated legal framework that defines their legal status, ensures their legitimacy, and safeguards investor rights. This fosters a supportive legal environment for the digital financial asset market.

4. Diverse Forms. DFAs can take many forms, including digital debt obligations (the digital equivalent of bonds), digital shares, hybrid digital rights, and other derivatives. This diversity enables DFAs to address a broad spectrum of financial needs.

Types of DFAs

Digital financial assets fall into several main categories, each with distinct features and applications:

What Falls Under DFAs

DFAs encompass digital rights, including monetary claims, rights to issued securities, rights to participate in private company capital, and other financial instruments. Crucially, DFA records are maintained in specialized blockchain systems, ensuring transaction transparency and reliability.

DFAs can also represent tokenized versions of traditional assets, enabling fractional ownership and broader investor access. This paves the way for democratizing financial markets and attracting new capital.

What Problems Do DFAs Solve?

Digital financial assets are designed to solve several critical issues found in conventional financial systems:

How Are DFAs Different from Cryptocurrencies?

While both DFAs and cryptocurrencies leverage blockchain technology, they differ fundamentally:

DFAs are regulated digital rights, usually linked to real assets or obligations. They are issued under clearly defined legal frameworks and subject to regulatory supervision. DFAs can represent company ownership, debt, or payment rights.

Cryptocurrencies are decentralized digital currencies, generally not tied to real-world assets and not overseen by government agencies. They serve as a means of exchange or store of value, but do not confer rights to specific assets or payments.

In summary, DFAs are structured and regulated instruments, while cryptocurrencies remain decentralized and largely outside government control.

Pros and Cons of DFAs

Like any financial instrument, digital financial assets offer both advantages and disadvantages:

What Laws Govern DFAs in Russia?

In Russia, DFAs are regulated by Federal Law No. 259-FZ of July 31, 2020, “On Digital Financial Assets, Digital Currency, and Amendments to Certain Legislative Acts of the Russian Federation.”

This law sets out:

• DFA issuance and circulation procedures
• Requirements for information system operators
• Rights and obligations of DFA market participants
• Investor protection mechanisms
• Rules for DFA accounting and storage

The law also defines “digital currency” and restricts its use in Russia. These regulations are designed to ensure a secure, transparent environment for the DFA market while maintaining state oversight.

Are DFAs Considered Property?

Article 128 of the Russian Civil Code recognizes DFAs as a type of property right. This legal status is significant, as it allows for:

• Judicial protection of investor rights
• DFAs to be used in various legal transactions
• Buying and selling digital financial assets
• Transferring DFAs by gift or inheritance
• Using digital assets as collateral

Recognizing DFAs as property rights provides a solid legal foundation for market growth and ensures investor protection.

DFA Market Outlook in Russia

Russia’s digital financial asset market is steadily growing. In recent years, participants have recorded a significant rise in DFA issuances. Experts forecast the Russian market could reach hundreds of billions of rubles in volume.

Key drivers of market growth include:

• Enhancements to the legal framework
• Rising interest from institutional investors
• Advancements in technological infrastructure
• Growth in the number of system operators
• Greater market awareness of DFA opportunities

However, growth will depend on factors such as the economic climate, regulatory policy, and participants’ readiness to adopt new technology.

DFA Operators

Only Russian legal entities included in the official register of information system operators (ISOs) may serve as DFA operators. The Central Bank of Russia maintains this register and supervises operator activities.

DFA operators perform several vital functions:

1. Issuing DFAs. Operators build the technical infrastructure for DFA issuance and record ownership rights in the information system.

2. Maintaining DFA Records. Operators keep the registry of DFA holders and document all transfers and encumbrances.

3. User Access Management. Operators handle user identification and grant access to the system’s features.

4. Government Liaison. Operators provide information to regulators and ensure compliance with legal requirements.

5. Security. Operators are responsible for information security and preventing unauthorized access.

To qualify as a DFA operator, organizations must meet strict Central Bank standards for capital, technical infrastructure, and personnel qualifications.

DFA Issuance Examples

Russia’s DFA market is expanding rapidly, with several major projects already launched:

Example #1. Atomize issued the first DFA backed by precious metals, providing an alternative investment tool and demonstrating the benefits of regulated digital assets over unregulated cryptocurrencies.

Example #2. Alfa-Bank issued DFAs backed solely by monetary claims, allowing the bank to test a new funding approach and assess investor appetite for this type of instrument. The issuance proved the viability of digital bonds.

Example #3. Leading marketplace Ozon placed a large DFA issuance, diversifying its funding sources and showcasing an innovative corporate finance strategy. The successful placement confirmed the market’s readiness for major DFA deals.

These cases highlight the expanding use of DFAs in different sectors and their potential for a wide range of financial applications.

How to Buy DFAs: Step-by-Step

Buying digital financial assets involves several sequential steps:

1. Select an information system operator. Review the Bank of Russia’s registry of DFA operators to find a suitable provider. Consider reputation, service terms, and available assets.

2. Register on the platform. Create an account through the selected operator’s website or mobile app. Provide contact details and set a strong password.

3. Complete identification. Verify your identity by submitting documents and completing required KYC procedures, which may include document uploads and video identification.

4. Choose a DFA to purchase. Explore available assets, review their issuance terms, returns, and risks, and select a DFA that matches your investment goals.

5. Sign the agreement. Use your qualified or unqualified electronic signature to sign the DFA purchase contract. Read all terms carefully before signing.

6. Make payment. Pay through the operator’s platform using your preferred method (bank transfer, payment system, etc.).

7. Receive your DFAs. After completing the transaction and payment, your DFAs will be credited to your digital wallet in the system. You’ll receive confirmation and can track your assets in your personal account.

Where to Store DFAs

DFAs are stored in special digital wallets provided by system operators. These are secure accounts within the system, recording ownership rights of DFAs.

DFA storage features:

• Cryptographic security. Wallets are protected with advanced cryptography and multi-factor authentication.

• Data backups. Operators regularly back up data to prevent loss.

• Legal protection. DFA ownership is legally protected, and the operator is responsible for maintaining ownership records.

• User-friendly management. Your personal account lets you view assets, transact, and monitor performance at any time.

Unlike cryptocurrency wallets—where users manage private keys themselves—DFA security is managed by the system operator, reducing the risk of losing access due to lost keys.

What to Know About the DFA Secondary Market

The secondary DFA market is essential for liquidity. Here, investors can buy and sell DFAs after initial placement.

Key points:

Liquidity boost. The secondary market lets investors exit early, making DFAs more appealing to a wide audience.

Pricing. DFA prices on the secondary market are set by supply and demand, ensuring accurate market valuation.

Trading platforms. Operators may offer built-in secondary trading or connect to external platforms.

Regulation. Secondary DFA trading must comply with applicable laws.

Trading opportunities. Active investors can use the secondary market for speculation and profit from price movements.

Secondary market growth is key for the entire DFA sector, delivering flexibility and portfolio management for investors.

How to Issue DFAs: Step-by-Step

Issuing digital financial assets involves several major steps:

1. Register with a system operator. Select an operator from the official Bank of Russia registry and complete issuer registration. Provide all required organizational documents and set up an issuer account.

2. Prepare documents and set issuance terms. Assemble a comprehensive document package, including:

   • Issuance decision
   • Terms of issuance and circulation
   • Information on DFA holder rights
   • Issuer financial statements
   • Collateral documents (if required)

3. Define smart contract parameters. Work with the operator to establish smart contract terms covering rights and obligations, payment mechanisms, redemption terms, and other key parameters.

4. Issue DFAs. Submit your issuance application, supply all documents, and confirm everything with an electronic signature. The operator reviews and records the issuance in the system.

5. Attract investors. List your DFA on the operator’s platform or use other channels to reach potential investors. Provide all necessary information to help with decision-making.

6. Place assets on the market. Once enough capital is raised, the assets are officially issued and distributed. Investors receive DFAs, and the issuer receives funds.

7. Fulfill obligations. Throughout the DFA term, ensure timely payments and required information disclosures to asset holders.

DFA Trading

DFA trading involves actively buying and selling digital financial assets to profit from price changes. This approach may suit investors seeking new earning opportunities and willing to take on higher risk.

Key features of DFA trading:

Volatility. The DFA market can be highly volatile, especially in early stages, offering opportunities for active traders.

Trading strategies. Strategies range from day trading and swing trading to long-term investment, depending on goals and risk appetite.

Market analysis. Successful trading requires both fundamental and technical analysis, staying informed about market news, and understanding price drivers.

Liquidity. Consider asset liquidity when trading, as illiquid assets can make position exits difficult.

Risk management. Always use risk management tools—like stop-losses—and never invest more than you can afford to lose.

Taxation. Be sure to account for the tax implications of DFA trading and report income as required by law.

Criticism of DFAs

Despite their promise, digital financial assets face criticism from market participants and experts.

Key concerns include:

Viability skepticism. Some see DFAs as underdeveloped and doubt their ability to compete with traditional instruments or replace established cryptocurrencies.

Operator financials. Some operators run at a loss, raising questions about long-term business sustainability and service quality.

Accessibility hurdles. Acquiring DFAs can be more complex than anticipated, creating barriers for new entrants.

Limited asset variety. The current DFA selection is relatively narrow, which may deter investors seeking diversification.

Regulatory risks. Uncertainty about future regulations could impact DFA appeal.

Cryptocurrency competition. Efforts to pitch DFAs as crypto alternatives face skepticism, as the instruments serve different purposes and audiences.

Many of these issues are typical for emerging financial instruments. As the market matures and infrastructure improves, most drawbacks are likely to be addressed.

FAQ

What are DFAs and how do they work?

DFAs are digital financial assets built on blockchain and smart contracts. They allow for transparent investments and trading, with automated transaction execution via smart contracts.

What types of digital financial assets exist?

Digital financial assets include cryptocurrencies, tokens, stablecoins, smart contracts, and decentralized finance (DeFi) instruments. Each type serves a unique function in the blockchain ecosystem.

How do I buy and store DFAs securely?

Buy DFAs through banking platforms or specialized exchanges. Store them in secure wallets with strong passwords and two-factor authentication. Blockchain data ensures your assets’ safety.

What risks come with investing in DFAs?

Risks include issuer default, capital loss due to price swings, and regulatory or legal uncertainties. Carefully analyze the issuer’s financial health before investing.

How do DFAs differ from cryptocurrencies and traditional assets?

DFAs are regulated digital financial tools, unlike cryptocurrencies, which often lack legal status. Compared to traditional assets, DFAs rely on blockchain for transparency and security.

What is the legal status of DFAs in Russia and elsewhere?

In Russia, DFAs are classified as electronic securities and can be sold, pledged, or exchanged, but are not legal tender. In other countries, their status ranges from fully recognized to tightly regulated. Laws are evolving rapidly.

How are DFA earnings taxed?

DFA income is taxed at 13%. Acquisition costs can be deducted from income. The taxable amount is the difference between income and cost of acquisition.

Which DFA trading platforms are reliable?

Top-tier trading platforms are large financial institutions with digital asset experience and legally established brokerage operations. Check for licensing, trading volume, and market reputation when choosing a platform.

What are the future prospects for the DFA market?

The DFA market is expected to grow with new crypto and index products. Further regulation—especially in taxation—is anticipated. Main challenges include boosting liquidity and increasing transparency in issuer risk assessment.