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Article by Marceau Visano, DLA Piper & Robin Ledoux, Bridgepoint, on behalf of the Market Practice & Operations Cluster – Digital & Technology
As digital assets move from experimentation to institutional execution, Luxembourg is positioning itself at the forefront of crypto and DeFi fund structuring. New regulatory clarity, combined with the Luxembourg established fund ecosystem, is enabling managers to bridge the gap between traditional finance and decentralized finance—creating fresh opportunities for investors and sponsors alike, while raising new questions around regulation, custody, valuation and operational risk.
DeFi creates new markets to borrow, lend, and trade digital assets in seconds, directly on the blockchain, unlocking deep instant liquidity and yield opportunities. Stablecoin volume has accelerated dramatically since the passage of the GENIUS Act, with quarterly transfer volumes surpassing $5 trillion. Banks are issuing stablecoins while asset managers tokenize funds and real-world assets and major players such a BlackRock, Fidelity or J.P. Morgan have embraced the change.
From a legal perspective, Luxembourg offers a well known toolbox already and suited to digital-asset strategies through the special limited partnership (SLP) as a tax-transparent vehicle or the corporate partnership limited by shares (SCA) as a tax-opaque option for the legal forms and the specialized investment fund (SIF) as a regulated regime and the reserved alternative investment fund (RAIF) as an unregulated alternative for the fund regimes. On the management side, both the authorised Alternative Investment Fund Manager (AIFM) and the registered AIFM (for sub-threshold managers) provide the necessary flexibility for all projects.
On the regulatory aspects, the CSSF has considerably widen the scope of the funds: UCITS are now allowed indirect exposure to crypto-assets, up to 10% of NAV and to hold e-Money Tokens (EMTs) as ancillary assets, up to 20% of net assets (solely for the purpose of processing subscriptions or redemptions). AIFs managed by authorised AIFMs may invest both directly (having a specific license) and indirectly in crypto-assets up to 100% of their NAV, provided the manager holds the appropriate licence. Retail AIFs (not reserved for well-informed investors) are limited to 10% of NAV in crypto-assets. Another important item is on the custodian front, Luxembourg allows custodian to be different entity from the depositary so that the custody is provided by a custodian compliant with MiCAR authorisation and notification requirements.
Fund structuring for crypto and DeFi strategies raises specific tax considerations requiring careful attention early on. The type of investment strategy pursued – VC like, staking, lending, market-making or yield farming, commercial-activity characterization of the vehicle, DAC 6 reporting obligations and tax-transparency treatment (investor jurisdiction, expected income) must all be assessed to determine the applicable tax treatment of income flows and gains within the Luxembourg fund vehicle and for the LPs.
Digital assets carry unique operational attributes—24/7 trading, multi-venue execution at global scale, irreversibility of transactions, private-key management, specific value drivers, on-chain settlement and peer-to-peer transactions—each creating risks that must be carefully mitigated. Fund managers must demonstrate genuine expertise with fund obligations and digital assets and internal controls must be adequately built to address the specific risks attached to digital assets (risk management frameworks, outsourcing arrangements).
