Tokenised Funds move closer to launch with Cayman Consultation

The Cayman Islands, the home to most leading blockchain protocols, has taken another important step towards enabling fully tokenised funds with a consultation commencing for legislative changes which will enable on-chain funds and real-world asset tokenisation. The proposal builds on the existing well understood and robust regulatory regime and a significant depth of funds and digital assets talent to support this rapidly expanding area. Earlier this year a key amendment was made to ensure tokenised funds were not subject to double regulation, and these further amendments prepare Cayman for the launch of tokenized funds.

Cayman has a robust Virtual Asset Service Provider (VASP) regime which expanded in April 2025 to require licensing of exchanges and custody providers.

The Proposed Changes

The proposal will make changes to three key pieces of Cayman legislation:

a) the Mutual Funds Act;

b) the Private Funds Act; and

c) the Virtual Asset (Service Providers) Act.

The revisions are intended to introduce a regulatory regime for investment funds which have or intend to adopt a blockchain powered tokenization structure. Cayman is home to over 30,000 private and mutual funds and nearly half of all crypto hedge funds are domiciled there.

New Definitions

Bespoke definitions are proposed including for a "digital investment token" in the Private Funds and Mutual Funds law as a digital representation of an ownership or investment interest which provides the holder the rights to participate in the fund's profits and voting.

No doubling up

Amendments seek to make clear that a fund adopting a tokenized structure will not, only by doing so, become subject to registration or licensure under the VASP Act. This is a key clarification as previously there was uncertainty in whether a tokenized fund would be regulated under both fund laws and VASP laws, even with the same regulator covering both areas. Funds which engage in virtual asset services will still be required to register or gain a licence as a VASP.

Tokenized Fund Interests Must Carry Rights

The changes seek to capture not only tokens which carry rights, but ensure the tokens must convey the same rights and privileges as traditional equity or fund interests.

Bespoke Requirements

Records of the sale and transfer of tokenized fund interests and requirements for administrators to be suitably skilled in using blockchain technology will be required, as well as specific custody requirements to protect the interests of owners of tokens.

Enabling Secondary Transfers

The amendments are also intended to permit the trading and transfer of tokenized funds in secondary markets. These transfers are limited, in the case of the Private Funds Law to only be transferable among the tokenized private fund's existing digital investment token holders with prior approval of the fund manager and in accordance with a process set out in the offering document. This would permit greater transferability of tokenized fund interests but place a significant restriction on their use.

The consultation is open until 9 September 2025, and the Blockchain Association of the Cayman Islands (BACI) is gathering industry feedback.

First published at Bits of Blocks and reproduced with permission.