A tokenised Cayman fund is an investment fund established under the laws of the Cayman Islands that leverages blockchain technology to issue, manage, and record investor interests in the form of digital tokens, rather than traditional share. These tokens typically represent ownership interests and may confer various rights, including voting, redemption, and distribution entitlements.
Regulatory Considerations
Where a tokenised fund provides redemption rights to token holders, it will generally be required to register as a mutual fund under the Mutual Funds Act. In addition, it must register as a virtual asset service provider under the Virtual Asset (Service Providers) Act (as Revised) ("VASPA").
Conversely, where the tokens are non-redeemable – i.e., they are tradable on digital asset exchanges but cannot be redeemed at the option of the holder – the fund may only need to register as a token issuer under VASPA, and not as a private fund under the Private Funds Act. In such cases, there may be no statutory minimum investment requirement, which can significantly widen the pool of eligible investors, including those who may not typically meet the thresholds of traditional private fund structures.
This regulatory flexibility means that tokenised funds may offer greater accessibility and lower barriers to entry, potentially attracting smaller investors and broadening participation in sophisticated investment products.
Legal Certainty and Embedded Rights
Tokens issued by a Cayman fund can be structured as security tokens, meaning that the rights and obligations of token holders are embedded directly into the token through the underlying smart contract. This approach offers an immutable and transparent record of ownership and facilitates:
- Real-time visibility into investor rights;
- Streamlined administration and compliance checks; and
- A verifiable and auditable chain of ownership.
These features can reduce operational friction and increase transparency among stakeholders.
Valuation Methodology
The process of valuing a tokenised fund remains consistent with traditional structures: the fund's value is determined by its net asset value (NAV). However, in a tokenised model, the relevant metric becomes NAV per token, calculated by dividing the fund's total NAV by the number of outstanding tokens. For funds operating multiple classes, tokens may be issued in place of shares for one or more of those classes.
Liquidity and Market Access
A major advantage of tokenised funds lies in their flexibility and liquidity. Unlike traditional private funds, which are typically closed-ended and impose restrictions on redemptions and secondary transfers, a tokenised fund may:
- Facilitate near real-time secondary trading of fund interests;
- Allow tokens to be listed on regulated or permissioned exchanges or alternative trading systems; and
- Enable investors to exit positions more easily, thereby enhancing the fund's appeal.
In effect, tokenisation creates a virtual marketplace for fund interests, providing continuous access to liquidity and fostering more dynamic pricing and trading, similar to how listed equities are traded.
Conclusion
The tokenisation of investment funds holds the potential to modernise financial infrastructure, enhance market efficiency, and significantly broaden investor access. By combining the legal and regulatory rigour of Cayman Islands fund structures with the speed and transparency of blockchain technology, tokenised funds are poised to play an increasingly important role in the evolution of asset management.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
