# Carats Benefits and Use Cases

The discussions below are not legal advice. They are intended to identify key concepts for independent evaluation by platform operators and their counsel.  The comments below are based on private research and unpublished counsel opinions; they have not been confirmed by any regulators or tax authorities, or adjudicated by any court.

**Social networks, gaming platforms and Web3 applications**

Any platform that supports virtual currency transactions may be transmitting money (unless strictly peer-to-peer). This is because Bitcoin, stablecoins, cryptocurrencies and even in-game currencies have been legally categorized as “virtual currencies,” making them subject to money transmission regulations, for example requiring 48 state licenses in the U.S. 

Due to the unique structure described in this paper, Carats, unlike virtual currencies, are regulated under pre-existing commodities laws.  Carats are electronic documents of title, issued by the commodities and not by a sponsor, for immediate delivery of identifiable fungible commodities from a warehouse.  Therefore Carats appear to be:

* Exempt from virtual currency regulations, and the cascade of related rules
* Exempt from U.S. and similar global Money Transmitter License requirements 
* Not included under FINCEN Money Services Business activities (unless converted)
* Exempt from securities and commodities futures/derivatives regulations
* Exempt from Stablecoin regulations
* Exempt from sales tax and VAT because the commodities are in tax free locations 
* Excluded from UCC Article 12 (virtual currencies), being included in Article 7
* Taxable for capital gains like other commodities, upon their profitable disposition
* Subject to AML requirements above certain amounts based on user location<br>

By utilizing Carats as the medium for transactions, platforms enable users to transfer commodity titles, an activity that is not regulated as money transmission.

If a platform sells Carats to users (with or without a markup), or purchases them from users for virtual or fiat currencies, it is operating akin to a spot commodity broker or commodity dealer, buying and selling commodities relative to a spot price (not to be confused with commodity futures and options dealers), and not acting as a money services business.


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