What Counts as a Virtual Asset Under Pakistani Law?

Every obligation in the Virtual Assets Act, 2026 depends on one definition. If a token is a Virtual Asset, a chain of licensing, prudential, conduct and anti-money-laundering duties follows. If it is not, none of it applies.

The definition sits at section 3(1)(xxxi) and is three lines long. The exclusions that qualify it run to six categories at section 2(2), one of which carries seven separate conditions.

This article sets out the definition, the exclusions, the related token definitions the Act uses, and the provision that lets PVARA override a classification you have given your own product.

What is a virtual asset under Pakistani law?

Under section 3(1)(xxxi) of the Virtual Assets Act, 2026, a Virtual Asset is a digital representation of value that can be digitally traded or transferred and used for payment or investment purposes. It excludes digital representations of fiat currency, securities and other financial assets regulated under any other law — except where represented, issued or transferred using distributed ledger technology.

“‘Virtual Asset’ means a digital representation of value that can be digitally traded or transferred and used for payment or investment purposes, but does not include digital representations of fiat currency, securities or other financial assets regulated under any other law except where represented, issued, or transferred using distributed ledger technology. For the avoidance of doubt, Virtual Assets are not legal tender.”

— Virtual Assets Act, 2026, section 3(1)(xxxi)

The definition has four working parts:

• A digital representation of value. Not a right, not a record — value.
• Capable of being digitally traded or transferred. Transferability is definitional.
• Used for payment or investment purposes. This is the purpose test, and it does most of the work in borderline cases.
• A carve-out with a carve-back. Fiat representations, securities and other regulated financial assets are excluded — unless they are represented, issued or transferred using distributed ledger technology, in which case they come back in.

That final clause is the most consequential sentence in the definition. It is the hook for tokenised real-world assets. A security is outside the definition; a tokenised security may not be.

What is excluded from the definition?

Section 2(2) excludes six categories from the Act’s application, each subject to conditions. These are exclusions from the statute’s scope rather than exemptions granted case by case.

Excluded	Governing condition
Closed-ecosystem or closed-loop tokens	Must meet the conditions at s.2(2)(a)(i)–(vii)
Securities, derivatives, collective investment schemes, depositary receipts, traditional financial instruments	Must fall within the regulatory jurisdiction of the State Bank of Pakistan or the Securities and Exchange Commission of Pakistan
Digital representations of fiat currency issued by a central bank	Includes the State Bank of Pakistan and any foreign central bank or monetary authority
Non-fungible tokens	Not used for payment or investment, and not representing, referencing or deriving value from any security, commodity, financial asset or other regulated instrument
NFTs or digital collectibles not constituting a virtual asset	Assessed by reference to substance, function or economic effect
Any other digital representation expressly excluded by PVARA	Open-ended residual power at s.2(2)(f)

The closed-loop exclusion at section 2(2)(a) is the most detailed. To fall outside the Act, a token must — by design, technical architecture, or enforceable system controls — be:

• Usable or redeemable solely within a restricted digital platform, ecosystem, application or network administered by the issuer or operator
• Not transferable outside that platform, whether directly or indirectly
• Not exchangeable for fiat currency or legal tender outside that ecosystem
• Not redeemable for real-world goods or services outside that ecosystem
• Not convertible into, exchangeable for, or interoperable with any other virtual asset
• Not saleable, tradable or transferable on any external market, exchange or secondary trading venue
• Not designed, marketed or used for payment, investment or value-transfer purposes beyond that ecosystem

A drafting point worth flagging. Section 2(2)(a) introduces this list with the words “satisfies all of the following conditions”, but the conditions themselves are joined by “or” before the final limb. Read conjunctively, every condition must hold. Read disjunctively, one would suffice. The conjunctive reading is the one the opening words support and the one we would work to, but the text is not clean and the position is not settled.

When is an NFT a virtual asset?

A non-fungible token falls outside the Act under section 2(2)(d) only where it is not used for payment or investment and does not represent, reference, or derive value from any security, commodity, financial asset or other regulated instrument. Both conditions must hold.

Section 3(1)(xx) defines a Non-Fungible Token as a unique, non-interchangeable digital representation of value or rights recorded on a distributed ledger or similar technology, where each token is distinguishable from every other token.

Uniqueness alone does not exclude a token. The exclusion is functional. A one-of-one artwork held for aesthetic reasons is outside; the same token marketed and traded as an investment is a different matter.

Section 2(2)(e) then adds a second, broader NFT exclusion for any non-fungible token or digital collectible “that does not constitute a Virtual Asset, having regard to its substance, function, or economic effect.” This is a substance test, and it points the reader back to the section 3(1)(xxxi) definition rather than providing an independent route out.

In practice, the questions that determine NFT classification are:

• Is the token marketed, priced or held with an expectation of return?
• Is it accepted, or capable of being used, in payment?
• Does it represent or track the value of a security, commodity or financial asset?
• Are fractional interests offered in it?

An affirmative answer to any of these makes the exclusion difficult to sustain.

What other token definitions does the Act use?

Beyond the general definition, the Act separately defines two token types that carry their own issuance regimes: Fiat-Referenced Tokens at section 3(1)(ix) and Asset-Referenced Tokens at section 3(1)(i). Both are subsets of Virtual Asset, not alternatives to it.

Fiat-Referenced Token means a virtual asset that purports to maintain a stable value relative to a single Official Currency of any country and is redeemable at par value by its issuer. Two elements: a single currency reference, and par redeemability.

Section 3(1)(xxi) defines Official or Fiat Currency as a currency issued by the central bank or monetary authority of a country that is recognised as legal tender under the laws of that country.

Section 31(1) then imposes six requirements on any issuer of a Fiat-Referenced Token in Pakistan, including one hundred percent reserve backing with High-Quality Liquid Assets or other prescribed assets held as a segregated reserve, mechanisms for redemption at par without undue delay, audited reserve disclosures, and prioritised holder protections in insolvency.

Asset-Referenced Token means a virtual asset that represents, directly or indirectly, ownership rights, claims or economic interests — including entitlements to receive or share income, returns or other economic benefits — in respect of one or more underlying assets, or is designed to maintain a stable value by reference to such underlying assets.

Section 32(2) restricts what may back it. An Asset-Referenced Token must at all times be fully backed by the underlying assets and may reference tangible or intangible assets, including commodities, real estate, real-world assets, securities, financial assets, or a combination of official currencies — but “shall not be backed or derive its value from other Virtual Assets.”

Section 53 then prohibits a third type outright: no person may issue, offer or market a virtual asset whose primary mechanism for maintaining value is algorithmic and not fully or adequately collateralised, unless specifically permitted by Regulations and subject to prescribed safeguards.

Can PVARA reclassify your token?

Yes. Section 9(1)(f) empowers PVARA to assess, determine and classify any virtual asset, service, activity, offering, issuer or service provider based on its substantive features, underlying function, method of use or economic effect, irrespective of the nomenclature, structure or designation assigned to it.

The provision is drafted to defeat labelling. It expressly extends to determining whether an asset is a Virtual Asset at all, whether a person qualifies as a Virtual Asset Service Provider, and whether an offering constitutes a financial activity within the scope of the Act.

One procedural safeguard applies. Where the asset exhibits characteristics falling within the respective mandates of the State Bank of Pakistan or the Securities and Exchange Commission of Pakistan, section 9(1)(f) requires PVARA to consult them before classifying. This is the mechanism that manages the boundary created by section 2(2)(b).

Section 5(3) states the general position on that boundary: the regulation and supervision of virtual assets, virtual asset service providers, tokenisation of real-world assets and blockchain technology vests primarily in PVARA, in coordination with other relevant regulators where applicable.

Read together with the “except where represented, issued, or transferred using distributed ledger technology” clause in section 3(1)(xxxi), the architecture appears to be: conventional instruments stay with SBP and SECP; the same instruments in tokenised form come to PVARA, subject to consultation. Our reading is that this is the intended design, but the Act does not state it in those terms, and the boundary in a genuinely hybrid case is not resolved on the face of the statute.

What is not defined, and why it matters

Several terms the Act relies on are left to subordinate instruments. Anyone building a classification policy should know which parts of the definitional framework are complete and which are placeholders.

• High-Quality Liquid Assets. Section 3(1)(x) defines HQLA as “such high-quality liquid assets as may be prescribed by Regulations.” The reserve requirement for Fiat-Referenced Tokens at section 31(1)(a) therefore has no content until those Regulations issue.
• Blockchain and DLT. Section 3(1)(iii) defines the technology as one enabling a distributed ledger recording transactions across multiple nodes in a synchronised manner using cryptography to ensure integrity, tamper-resistance, immutability and consensus — “as may be further defined by Regulations.”
• Inside Information and Insiders. Sections 3(1)(xi) and (xii) both close with “as may be further defined by regulations.”
• Market Manipulation. Section 3(1)(xvii) sets three limbs but adds “as may be further defined by Regulations.” Section 52(3) requires PVARA to issue guidelines specifying the types of manipulative behaviour.
• Significant Issuer thresholds. Section 33(1) defers entirely to Regulations.

Section 3(2) supplies a default for anything else: words and expressions not defined in the Act but defined in the State Bank of Pakistan Act 1956, the Securities Act 2015, the Anti-Money Laundering Act 2010 or the Companies Act 2017 carry the meanings assigned in those Acts, unless the context otherwise requires.

About this analysis

This analysis was prepared by the CoinConnect research desk from the Virtual Assets Act, 2026 as passed by the National Assembly, principally sections 2, 3, 5, 9, 31, 32 and 53, read as published. Where practice is not yet settled or guidance has not been issued, that is stated in the text above.

Regulatory positions change and specific requirements should be verified against the current position published by the relevant authority before you act on them. This is information and analysis, not legal advice, and it does not create an advisory relationship. Take professional advice on your own circumstances.