Legal and Regulatory Risks

Evolving Regulatory Landscape

Digital asset regulation remains in flux across global jurisdictions, with new legislation, enforcement actions, and regulatory guidance emerging continuously. While Zoth structures its operations to comply with current regulatory requirements and works proactively with legal counsel to anticipate regulatory developments, the protocol cannot guarantee that future regulatory changes will not adversely impact operations, user access, or economic viability.

Regulatory actions could potentially require protocol modifications, impose geographic restrictions on user access, mandate changes to vault structures, or introduce compliance costs that affect protocol economics. Users should recognize that regulatory risk is inherent in participation in emerging financial technologies and that past regulatory treatment does not guarantee future regulatory status.

Securities Law Considerations

Individual zTOKEN vaults may constitute securities under applicable securities laws in various jurisdictions. The protocol requires KYC for direct zTOKEN vault deposits, implementing a permissioned access model consistent with securities regulation compliance. However, regulatory classification remains subject to jurisdiction-specific analysis and could change based on evolving regulatory guidance or enforcement action.

ZEUSD's legal classification—whether as a security, commodity, payment token, or hybrid instrument—may vary across jurisdictions and regulatory frameworks. The protocol structures ZEUSD to maximize regulatory defensibility, but users should conduct their own legal analysis or consult qualified counsel regarding the regulatory status of protocol tokens in their specific jurisdictions.

AML/KYC and Compliance Infrastructure

Anti-money laundering (AML) and Know Your Customer (KYC) services are provided by fund administrators using established compliance infrastructure and regulatory-approved identity verification processes. These compliance controls support protocol adherence to applicable financial crime prevention requirements and create audit trails for regulatory reporting.

Users should expect that participation in the protocol, particularly direct zTOKEN vault investment, will require identity disclosure and verification. Personal information collected through KYC processes is handled according to applicable privacy regulations and data protection standards, with fund administrators bearing responsibility for secure data custody and appropriate use.

The protocol implements sanctions screening and ongoing transaction monitoring to prevent use by prohibited persons or for illicit purposes. While these compliance measures may create friction for legitimate users, they are necessary for sustainable operation within regulated financial systems.