The Regulatory Translation API: A Framework for Mapping ICM Product Structures to Compliance Pathways

APAC FINSTAB Research Note | December 2025

Introduction: Why We Need a "Regulatory API"

Over the past 18 months, we've observed a curious pattern: ICM (Internet Capital Markets) founders and investors spend considerable time analyzing tokenomics, bonding curve parameters, and fee-sharing ratios—yet often ask the critical question only at the eleventh hour: "Is this thing legal in Singapore/Hong Kong/the US?"

This "build first, ask later" approach might have worked during the 2021-2022 bull market. But by 2025, the regulatory landscape across Asia-Pacific has fundamentally shifted: Hong Kong's VASP licensing regime is fully operational, Singapore's FSMA amendments extend regulatory reach to offshore service providers, and Japan's trust-type stablecoin framework provides new compliance templates. Regulation is no longer an afterthought—it's a front-end constraint on product design.

The problem is that most founders and investors lack the capability to systematically interpret regulatory frameworks. They may know that "security tokens require licenses," but cannot determine whether their token actually constitutes a security, payment instrument, or "virtual commodity." They may have heard of the Howey Test, but don't understand how Hong Kong's SFO framework differs from Singapore's PSA/SFA dual-track system.

This paper attempts to bridge that gap. We'll construct a conceptual "Regulatory Translation API"—an analytical framework that systematically maps product structures to regulatory classifications. This is not legal advice, but a thinking tool to help practitioners incorporate compliance considerations from the earliest stages of product design.

Part One: The Input Layer—Four Core Variables

Any ICM project can be characterized through four core variables. These variables form the input layer of our "Regulatory API."

1.1 Product Model

The product model answers "what is this thing?" Common product models in the ICM context include:

Launchpad/Issuance Platform: Provides token issuance services for other projects. Core function is price discovery and initial distribution. Examples include Pump.fun, Believe, and MetaDAO's Futarchy launchpad. From a regulatory perspective, the platform itself may be classified as a "trading venue operator" or "securities issuance intermediary."

AMM/Liquidity Protocol: Provides automated market-making services. Core function is trade execution and liquidity aggregation. Examples include HumidiFi, Meteora, and Raydium. Regulatory classification depends on the asset types traded—may trigger "exchange" or "payment service provider" classifications.

Yield Aggregator: Aggregates multiple yield sources and distributes to users. Core function is yield optimization and risk diversification. If involving "expectation of profits derived from the efforts of others," may be classified as a collective investment scheme.

RWA Tokenization: Maps real-world assets (real estate, receivables, commodities, etc.) onto blockchain. Core function is asset digitization and enhanced liquidity. Almost certainly triggers securities law or asset-specific regulations (e.g., commodity futures law).

Social Finance/Attention Tokens: Converts social influence or attention into tradeable tokens. Core function is attention monetization. Examples include Believe's tweet-to-token. If tokens explicitly disclaim "no economic rights," may be treated as "digital collectibles" rather than securities—but this classification remains unclear in most jurisdictions.

1.2 Business Model

The business model answers "where does the money come from?" Common patterns include:

Trading Fees: Fixed percentage extracted from each transaction. The "cleanest" revenue model, similar to traditional exchanges. Fee collection itself doesn't constitute a security characteristic, but may trigger "payment service" or "exchange" licensing requirements.

Protocol Revenue Sharing: Protocol-generated revenue (liquidation penalties, MEV capture, etc.) distributed to token holders. This "passive income" model significantly increases the risk of token being classified as a security.

Token Issuance Revenue: Profits from issuing new tokens or collecting issuance fees. If the platform profits from token issuance, may be classified as an "issuance intermediary" or "underwriter."

Staking/Lock-up Incentives: Users lock tokens to earn additional returns. The source of staking yields determines regulatory classification—inflationary rewards vs. protocol revenue distribution have fundamentally different implications.

Subscription/SaaS Fees: Fixed fees based on usage or time. Closest to traditional software business models, lowest regulatory risk.

1.3 Token Model

The token model answers "what rights does the token represent?" Key variables include:

Revenue Rights: Do token holders have the right to receive protocol revenue distributions? If so, how is the allocation determined? This is a core element in securities classification.

Governance Rights: Do token holders have the right to participate in protocol decisions? How is voting weight calculated? Futarchy-style market-based governance vs. traditional coin voting have different regulatory implications.

Utility Function: Does the token have actual use beyond investment? Such as paying gas fees, accessing service discounts, unlocking features, etc. Pure utility tokens have lower securities risk, but "utility" must be genuine and primary, not decorative.

Transferability: Can the token be freely transferred? Are there lock-up periods or transfer restrictions? Restricting transfers can reduce certain regulatory risks but impacts liquidity.

Supply Mechanism: Fixed supply vs. inflationary vs. deflationary? What are the rules for minting and burning? Buyback-and-burn mechanisms may be analogized to "stock buybacks" in some jurisdictions.

1.4 Chain Behavior

Chain behavior answers "what actually happens?" Regulators increasingly emphasize the "substance over form" principle—not what the whitepaper says, but what actually occurs on-chain. Key observations include:

Trading Patterns: Who is trading? Retail vs. institutional? Distribution of trading frequency and volume? Ratio of high-frequency short-term trading vs. long-term holding?

Fund Flows: Where do token sale proceeds go? What are the fund dynamics among team wallets, treasury, and liquidity pools?

Concentration: How concentrated is token holding? What percentage is held by top 10/100 addresses? What's the holding ratio of team and early investors?

Cross-chain/Cross-border Behavior: Which jurisdictions do users come from? Are there geographic restrictions for specific regions? How effective is actual enforcement?

Part Two: The Processing Layer—Regulatory Classification Logic

The four input variables are processed through classification logic to output regulatory categorization results. Below are the classification frameworks for major jurisdictions.

2.1 Hong Kong: SFO + AMLO Dual-Track System

Hong Kong adopts a "characteristics-based" classification approach. The core logic is:

Step 1: Does it constitute a "security"?

Under the Securities and Futures Ordinance (SFO), a token may be classified as a security if it:

• Represents company shares or debentures
• Represents interests in a collective investment scheme (CIS)
• Has investment return expectations dependent on others' efforts

Key test points: Protocol revenue sharing almost certainly triggers CIS classification; pure governance rights (without revenue rights) typically don't constitute securities.

Step 2: Is it a "virtual asset"?

Under the Anti-Money Laundering and Counter-Terrorist Financing Ordinance (AMLO), operating a virtual asset trading platform in Hong Kong requires a VASP license. The June 2025 consultation papers further expand regulatory scope to:

• Virtual asset OTC trading
• Virtual asset custody services

Step 3: Does it involve stablecoins?

The Stablecoins Ordinance passed in May 2025 requires fiat-pegged stablecoin issuers to obtain HKMA licenses. Effective August 1, 2025.

Key Gray Areas in Hong Kong:

• Pure attention tokens (e.g., meme coins on Believe) with explicit "no economic rights" disclaimers are not clearly covered by current regulations
• Prediction market components in Futarchy-style governance may trigger additional gambling/derivatives regulations
• Regulatory boundaries for cross-border service providers remain unclear

2.2 Singapore: PSA + SFA + FSMA Three-Layer Architecture

Singapore's regulatory framework is more complex, involving multiple overlapping statutes:

Payment Services Act (PSA): Regulates "digital payment token services," including trading, custody, and transfer. From June 2025, MAS requires all DTSPs (Digital Token Service Providers) serving Singapore residents to hold local licenses—even if servers are offshore.

Securities and Futures Act (SFA): Regulates issuance and trading of security tokens. Classification logic is similar to Hong Kong, but MAS may interpret "collective investment scheme" more broadly.

Financial Services and Markets Act (FSMA) Amendments: Effective June 30, 2025, extending regulatory scope to "outbound services." This means even if an ICM platform has no Singapore entity, it needs a license if serving Singapore residents.

Key Gray Areas in Singapore:

• Boundaries of "utility tokens"—MAS tends toward substantive review rather than accepting project self-classification
• Regulatory attribution of DeFi protocols—if sufficiently decentralized, is a license still required?
• Whether launchpad platforms constitute "issuance intermediaries"—no clear guidance currently

2.3 Japan: Revised Fund Settlement Act + Financial Instruments and Exchange Act

Japan's framework is relatively mature but also more stringent:

Crypto-Asset Exchange Business: All platforms involving "crypto-asset" trading must register with the Financial Services Agency (FSA). Japan's definition of "crypto-asset" is broad, covering most functional tokens.

Electronically Recorded Transfer Rights: Security tokens are classified as "electronically recorded transfer rights," subject to full Financial Instruments and Exchange Act requirements, including prospectus and disclosure obligations.

Trust-Type Stablecoins: The 2023 framework allows stablecoin issuance through trust structures, with reserve assets held at licensed trust banks. 2025 amendments allow partial reserve investment in low-risk liquid assets.

Key Characteristics of Japan:

• Broad regulatory coverage, fewer gray areas
• High compliance costs, high entry barriers
• Strict retail investor protection requirements, leverage and product-type restrictions

2.4 United States: Ongoing SEC + CFTC Evolution

While this paper focuses on Asia-Pacific, US regulation has significant global impact on ICM projects:

SEC Evolution: Under new Chairman Paul Atkins in 2025, SEC stance has softened somewhat. Progress on the GENIUS Act and CLARITY Act provides clearer frameworks for stablecoins and crypto-assets. But the Howey Test still applies—any token with "investment contract" characteristics may be classified as a security.

CFTC Role: Pure cryptocurrencies (like BTC, ETH) are treated as "commodities" by CFTC. In September 2025, CFTC announced initiatives for tokenized collateral (including stablecoins) in derivatives markets.

Key US Risks:

• Even if projects don't operate in the US, SEC enforcement may apply if US users participate
• "Sufficient decentralization" standards remain unclear
• State-level regulations (like New York's BitLicense) add compliance complexity

Part Three: The Output Layer—Six-Dimensional Analysis Results

Processing input variables through classification logic yields six dimensions of output.

3.1 Regulatory Classification

Based on specific project parameters, possible classifications include:

3.2 Risk Mapping

Regulatory risks can be categorized into three levels:

Red Zone (High Risk):

• Offering security tokens to retail without registration
• Operating trading platforms without license
• Issuing fiat stablecoins without central bank approval

Yellow Zone (Medium Risk):

• Securities classification risk for protocol revenue sharing mechanisms
• Risk of cross-border regulatory arbitrage being closed
• Risk of DeFi protocols being deemed insufficiently decentralized

Green Zone (Low Risk):

• Pure utility tokens without revenue rights
• B2B services not directly facing retail
• Fully decentralized with no identifiable operating entity

3.3 Jurisdictional Landing Points

The same ICM project may have completely different regulatory positions across jurisdictions:

Case Study: Launchpad with Revenue Sharing

3.4 Compliance Cost Estimates

Compliance costs include direct costs and opportunity costs:

Direct Costs (using Hong Kong VASP license as example):

• Legal consulting: HKD 500K-1.5M
• Technical compliance (KYC/AML systems): HKD 300K-800K
• Capital requirements: Minimum several million HKD depending on business scale
• Ongoing compliance (audit, reporting, etc.): HKD 500K-1M annually
• Time cost: 6-18 months

Opportunity Costs:

• Product functionality restrictions (limiting service recipients, leverage caps, etc.)
• Delayed market entry
• First-mover advantages of competitors in low-regulation jurisdictions

3.5 Potential Gray Areas

Every regulatory framework contains undefined gray areas—these represent both risks and opportunities:

Cross-Jurisdictional Gray Areas:

• Legal entity determination under DAO structures
• Regulatory attribution of fully on-chain protocols
• Responsibility boundaries for cross-chain bridges and aggregators

Product-Type Gray Areas:

• Attention tokens (with no economic rights disclaimers)
• Futarchy/prediction market components
• Tokens issued by AI Agents

Behavioral Gray Areas:

• Securities issuance classification of airdrops
• Interest/yield classification of liquidity mining
• Governance token voting rights vs. revenue rights boundaries

3.6 Three-Year Trend Forecast

Based on current regulatory dynamics and policy signals, we forecast the following for the next three years:

2025-2026: Framework Completion Phase

• Hong Kong: Stablecoin licenses begin issuance, OTC and custody regulations implemented
• Singapore: FSMA offshore service provisions enforcement strengthens, more unlicensed platforms forced to exit or apply for licenses
• Japan: Stablecoin framework further relaxes reserve investment restrictions
• Global: FATF Travel Rule revisions take effect, cross-border compliance requirements converge

2026-2027: Enforcement Deepening Phase

• Expect more enforcement actions against unlicensed platforms
• "Decentralization" no longer a get-out-of-jail-free card—regulators will pierce through to examine actual controllers
• RWA tokenization gains clearer regulatory pathways, but compliance thresholds increase

2027-2028: Convergence Phase

• Large-scale traditional financial institution entry pushes regulatory standards toward traditional finance
• Potential emergence of cross-jurisdictional regulatory mutual recognition frameworks
• ICM project bifurcation: compliant players enter mainstream, non-compliant players marginalized

Part Four: Practical Application—Three Case Studies

Case A: HumidiFi-Style Prop AMM

Input Parameters:

• Product Model: AMM/Liquidity Protocol
• Business Model: Trading fees + protocol revenue sharing
• Token Model: Governance rights + revenue rights (fee sharing)
• Chain Behavior: High-frequency trading, institutional-dominant, funds custodied in protocol

Regulatory Analysis:

• Hong Kong: Token likely classified as CIS (due to revenue sharing); protocol itself may require VASP license
• Singapore: Similar classification, but FSMA offshore service provisions mean license may be required even without Singapore presence
• Japan: May require crypto-asset exchange registration + financial instruments business registration

Compliance Recommendations:

• Consider converting "revenue sharing" to "governance token rewards" to reduce securities risk
• If entering Asia-Pacific markets, prioritize Hong Kong or Singapore licensing
• Establish geofencing to restrict users from high-regulation jurisdictions

Case B: Believe-Style Social Launchpad

Input Parameters:

• Product Model: Social finance/Attention token launchpad
• Business Model: Trading fees (50/50 split)
• Token Model: Platform token has governance rights; launched tokens explicitly disclaim "no economic rights"
• Chain Behavior: High-frequency launches, many tokens quickly go to zero, retail-dominant

Regulatory Analysis:

• Platform token: If revenue sharing exists, likely classified as security
• Launched tokens: Theoretically, "no economic rights" disclaimer may avoid securities classification, but regulators may conduct substantive review
• Platform itself: May be classified as "trading venue operator," requiring VASP license

Compliance Recommendations:

• Platform token design should avoid direct revenue sharing; consider buyback-and-burn model instead
• Screen launched tokens to avoid obviously security-type projects
• Consider professional investor access restrictions

Case C: MetaDAO-Style Futarchy Launchpad

Input Parameters:

• Product Model: Launchpad + Futarchy governance
• Business Model: Issuance fees + protocol revenue
• Token Model: Governance via prediction market, token has revenue rights
• Chain Behavior: Long-term holders dominant, funds locked in liquidity pools

Regulatory Analysis:

• Token almost certainly constitutes a security (revenue rights + governance rights)
• Prediction market components may trigger additional gambling/derivatives regulations
• Platform requires multiple licenses

Compliance Recommendations:

• If targeting compliant operations, engage regulatory counsel at design stage
• Consider "sandbox" pathway, testing under regulator guidance
• Futarchy mechanism may require specific regulatory exemptions or permits

Conclusion: From "Regulatory Arbitrage" to "Regulatory Adaptation"

The ICM industry is undergoing a critical transition. Over the past few years, many projects have evaded regulation through choosing low-regulation jurisdictions, ambiguous token classifications, and the cloak of "decentralization." But the space for such "regulatory arbitrage" is rapidly shrinking.

The trend we observe is: Regulators are shifting from "entity-based" regulation to "activity-based" regulation. This means regardless of where your servers are, where your company is registered, or how decentralized your DAO structure is—if your activities touch users in a jurisdiction, you may fall within that jurisdiction's regulatory scope.

In this context, successful ICM projects need to shift from a "regulatory arbitrage" mindset to a "regulatory adaptation" mindset:

1. Front-Load Compliance Considerations: Incorporate regulatory factors at the product design stage, not as post-hoc remediation
2. Selective Market Access: Choose target markets based on compliance capability, rather than trying to cover all markets
3. Modular Architecture: Design flexible product architecture that can adjust to different jurisdictional requirements
4. Continuous Monitoring: Establish regulatory tracking mechanisms for timely response to policy changes

The "Regulatory API" framework proposed in this paper aims to provide a structured thinking tool. It cannot replace professional legal advice, but can help founders and investors identify key regulatory triggers early, avoiding costly late-stage adjustments.

In ICM's next cycle, compliance capability will become a core competitive advantage. Projects that find the balance between innovation and compliance will gain lasting advantages in the era of "regulatory adaptation."

Disclaimer: This paper is for informational purposes only and does not constitute legal, tax, or investment advice. Specific regulatory applicability should be consulted with licensed professionals. APAC FINSTAB is an independent research institution with no affiliation to any projects or regulatory bodies mentioned.

APAC FINSTAB is dedicated to financial stability and digital asset regulatory research in the Asia-Pacific region. For more analysis, visit apacfinstab.com