The VASP carve-out: how Cayman cleared the path for tokenised funds

For several years the question that stalled tokenised fund launches in the Cayman Islands was deceptively simple. If a fund represented its investor interests as digital tokens, was it a regulated fund, a virtual asset service provider, or both at once? On 24 March 2026 that question received a definitive answer. A purpose-built statutory framework now confirms that a tokenised fund registered under the funds regime is not also caught by the virtual asset regime, and the dual-licensing risk that had been slowing institutional decisions has been removed.

The carve-out is not a loosening of standards. It is the opposite. It tells a manager exactly which regime governs a tokenised fund, which removes the ambiguity that allocators were pricing as risk. Clarity of this kind is what moves tokenisation from pilot to platform. Jeffrey Shaul, Director at CV5 Capital

What changed on 24 March 2026

Three interconnected amendment Acts came into force on 24 March 2026, having been passed by the Parliament of the Cayman Islands on 5 March 2026 with unanimous support. They are the Mutual Funds (Amendment) Act, 2026, the Private Funds (Amendment) Act, 2026, and the Virtual Asset (Service Providers) (Amendment) Act, 2026. Together they establish a coherent framework for tokenised funds, meaning investment funds whose equity or investment interests are represented by digital tokens recorded on distributed ledger technology.

The Mutual Funds (Amendment) Act and the Private Funds (Amendment) Act introduce tailored definitions, including digital equity token, digital investment token, tokenised mutual fund, and tokenised private fund. The Virtual Asset (Service Providers) (Amendment) Act sets the boundary between the two regimes. Read as a package, the three instruments do something the market had been asking for through an extended consultation: they place tokenised funds squarely inside the existing funds framework supervised by the Cayman Islands Monetary Authority, and they say so in statute rather than in guidance.

What the carve-out actually says

The central point is narrow and powerful. The issuance, creation, sale, transfer, or other disposition of tokenised equity or investment interests by a regulated mutual fund or private fund does not constitute the issuance of a virtual asset under the Virtual Asset (Service Providers) Act. In plain terms, putting a fund interest on a ledger and recording its ownership and transfers does not turn the fund into a virtual asset service provider. A tokenised fund registered with the Authority under the Mutual Funds Act or the Private Funds Act therefore does not require separate registration under the virtual asset regime.

The boundary matters as much as the carve-out. A fund that goes further and provides services to third parties, such as operating an exchange, offering custody, or running transfer services as a business, can still fall within the virtual asset regime for those activities. The distinction is between a fund using tokens to represent its own interests, which is now clearly inside the funds regime, and an entity providing virtual asset services to others, which remains where it always was. For most managers contemplating a tokenised share class, the first description fits and the second does not.

This is why we treat the change as a structural unlock rather than a marketing point. The detail of how interests are represented, transferred, and recorded sits at the heart of the tokenised fund structures we help managers stand up, and a statutory answer to the licensing question changes the risk calculus for every allocator running diligence on those structures.

The obligations that come with the clarity

A carve-out is not an exemption from oversight. The framework attaches specific obligations to tokenised funds, and managers should plan for them from the outset rather than retrofitting them later.

Records of every issuance, creation, sale, transfer, and ownership position in the digital tokens must be properly kept, securely maintained, and made available for inspection by the Authority. The fund must confirm its compliance to the Authority on an annual basis. Transfers of tokenised interests require operator approval, which keeps the board and its appointed administrator in control of the register rather than ceding that control to the ledger itself. Offering documents must disclose the risks that are specific to digital tokens, including cybersecurity and transferability concerns, and explain how those risks are mitigated.

The Authority's supervisory toolkit has been extended to match the technology. Its powers now expressly include inspecting the underlying technology that supports tokenisation and the digital token transactions themselves. A manager should expect questions not only about the fund's policies but about the architecture that enforces them, which places a premium on the kind of governance design we set out in our note on the authority architecture that governs a crypto fund.

What did not change

Three things are worth stating plainly because they are easy to misread. First, tokenisation does not alter legal ownership or investor rights. A token is a digital representation of an equity or investment interest, and the underlying legal relationship between the fund and its shareholders is the same as in any other Cayman fund. Second, tokenised funds remain subject to the existing audit and custodian requirements that apply to traditional funds. The framework does not impose an additional independent audit or a separate custody obligation simply because tokens are involved. Third, the board still governs and the investment manager remains an appointed service provider. The operator, which is the Authority's statutory term, retains responsibility for the fund, and tokenisation does not move that responsibility onto a smart contract.

For managers weighing whether to tokenise, this is the reassuring part. The institutional operating model does not have to be reinvented. The same separation of valuation, administration, and custody that allocators expect of any serious fund still applies, and the same questions about who controls cash and assets still receive the same answers. Our overview of the institutional fund stack applies to a tokenised fund in almost every respect, with the token layer sitting on top of a recognisable structure rather than replacing it.

Structures and early adoption

The common vehicles for tokenised funds are the ones the market already knows. Open-ended Cayman Islands exempted companies and closed-ended Cayman Islands exempted limited partnerships remain the standard structures, now with a clear statutory overlay for the token layer. A manager does not need an exotic vehicle to tokenise; the familiar structures carry the new framework comfortably, which is one reason adoption has begun quickly.

That adoption is already visible. As of 29 April 2026, Cayman Finance reported that nine tokenised investment funds had been conditionally registered with the Authority, an early use of the new framework with the number expected to grow. The context explains the interest. The Cayman Islands is home to more than 30,000 investment funds holding roughly USD 16 trillion in total assets, and is estimated to host approximately 58 per cent of the world's crypto and digital asset hedge funds. A jurisdiction with that depth giving tokenised funds a clear statutory home is a meaningful signal for the institutional pipeline. The industry body Cayman Finance has set out the framework and the early registrations in its own commentary, available through Cayman Finance, and the underlying supervisory regime sits with the Cayman Islands Monetary Authority.

The wider case for the jurisdiction has not changed either, and if anything it is stronger now that the licensing question is settled. We set out that case in full in our analysis of why Cayman still wins for institutional digital asset funds, and the foundations of a launch are covered in the complete guide to setting up a Cayman fund.

What this means for managers

The practical effect is that a manager can now decide to tokenise on the merits of operational efficiency and investor demand, rather than around an unresolved regulatory question. Smart-contract execution, real-time visibility of the register, and broader investor accessibility can be evaluated as features, not as licensing hazards. The decision moves from whether the structure is permissible to whether it is useful.

What has not become easier is the bar for institutional substance. Allocators will read a tokenised fund through the same lens they apply to any other, and the new inspection powers mean the technology itself is now in scope for supervision. A manager who arrives with a recognised vehicle, a credible administrator and auditor, operator control over the register, and clear risk disclosures will find the framework an enabler. A manager who treats tokenisation as a shortcut around governance will find the opposite. The terms that matter here, from operator to digital equity token, are defined in our glossary, and managers building a digital asset strategy can see how the pieces fit on the digital asset fund platform.

Key takeaways

This article is produced by CV5 Capital for informational purposes only and does not constitute legal, regulatory, investment, tax, or financial advice. The content reflects general market commentary and the views of CV5 Capital and should not be relied upon as a basis for any structuring, investment, or compliance decision. References to the Mutual Funds (Amendment) Act, 2026, the Private Funds (Amendment) Act, 2026, the Virtual Asset (Service Providers) (Amendment) Act, 2026, and related obligations are general summaries of legislation that may be amended or supplemented, and the regulatory treatment of any particular fund depends on its specific facts. Managers and investors should obtain independent professional advice appropriate to their circumstances and jurisdiction before acting. CV5 Capital is registered with the Cayman Islands Monetary Authority (CIMA Registration No. 1885380, LEI: 984500C44B2KFE900490).