Crypto Assets related funds in Luxembourg

Luxembourg, positioned at the heart of the EU, is the largest investment fund centre in Europe and the second largest in the world after the US. With a dominant position in both retail and institutional fund markets, the Grand Duchy has also established itself as a key jurisdiction for investors from Asia, Latin America and the Middle East. To maintain and reinforce this leadership, Luxembourg continuously modernizes its legal framework, proactively aligning with industry needs and global market trends. The recent adoption of Blockchain Law IV serves as a strong testament to Luxembourg’s commitment to innovation and evolution in digital finance.

 

The Rise of Crypto Asset Funds in Luxembourg

The Luxembourg funds industry has witnessed growing interest in crypto asset funds, covering a broad spectrum of Web 3.0 investments, including blockchain technology, tokenisation, AI, and decentralised finance. Luxembourg market players are also increasingly exploring fund distribution strategies, collateralization mechanisms, and initial coin/token offerings. A key driver of this expansion is the potential of tokenization and blockchain-related technologies to enhance the liquidity and operational efficiency of private assets funds - traditionally constrained by limited transferability. The implementation of the distributed ledger technology (DLT) under the Luxembourg Blockchain Law IV provides a regulatory framework that supports these advancements.

These trends aren't unique to Luxembourg, and crypto asset fund initiators may find themselves asking which jurisdiction they should choose to launch their crypto asset funds. Although Luxembourg was once relatively cautious about crypto assets, a shift in its legal framework, combined with growing market appetite, now positions it as one of the most relevant jurisdictions for crypto asset players. Luxembourg’s strengths in fund structuring and legal certainty, alongside its EU-wide passporting benefits and pro-innovation legal framework, make it a compelling choice for fund managers exploring crypto asset investments.

 

Why choose Luxembourg for your crypto assets funds?

Like other EU jurisdictions, Luxembourg initially approached crypto assets with a degree of caution, largely due to evolving regulatory landscapes and risk considerations. However, its proactive stance toward digital finance innovation has led to the development of key initiatives such as:

• The Luxembourg House of Financial Technology (LHoFT) and the Lux Future Lab, fostering innovation and incubation of blockchain and fintech startups.
• High-profile industry events like ICT Spring or the Luxembourg Blockchain Week, providing platforms for collaboration between regulators, investors, and digital finance experts.
• Web 3.0 industry associations such as LëtzBlock and Luxembourg House of Web3, which support market development and drive blockchain adoption.
• Regulatory advances that allow for the integration of crypto assets within Luxembourg’s existing investment fund ecosystem, further supported by the EU-wide Markets In Crypto-Assets Regulation (MiCA) Regulation.

Luxembourg’s growing appeal is evidenced by the emergence of key players in the crypto fund ecosystem. These initiatives have been instrumental in attracting top-tier talent to Luxembourg, enhancing networking opportunities, and facilitating valuable collaborations across the sector. They have also created meaningful platforms for dialogue between the Luxembourg regulator, local actors, potential investors, and industry leaders, helping to drive positive momentum and create new synergies between traditional and Web 3.0 players. Luxembourg’s ability to adapt its legal and regulatory framework has provided the necessary infrastructure to support the evolving needs of crypto asset managers and investors alike.

All of these Luxembourg initiatives, along with other global and European developments have significantly accelerated the growth of the Luxembourg market, particularly over the past two years for the Luxembourg funds industry. This growth is particularly driven by the Luxembourg regulatory framework, which now enables investment funds in crypto assets, the increasing appetite of investors, and the MiCA Regulation, which provides enhanced legal clarity.

These developments have encouraged both existing market players, such as Q Securities and Swissquote, serving as depositaries of crypto assets funds, and new entrants like 6Monks, recently authorised as alternative investment fund manager (AIFM) with the license to manage crypto assets funds. Many other actors are expected to follow, reinforcing Luxembourg's attractiveness as a hub for crypto asset funds and further accelerating the scaling of the entire fund industry to support this new asset class in Luxembourg. With all the necessary players now in place, the question is how can one set-up a crypto asset fund in Luxembourg.

 

Structuring crypto assets funds in Luxembourg

With a robust operational framework now in place, Luxembourg offers flexible structuring solutions for crypto asset funds. The primary vehicles include the (i) unregulated special limited partnership (SLP) or the (ii) corporate partnership limited by shares (SCA) qualifying as reserved alternative investment fund (RAIF).

The SLP, inspired by the Anglo-Saxon limited partnership, is designed to provide maximum contractual freedom and structuring flexibility. It can be established with either an authorised alternative investment fund manager (AIFM) or a registered AIFM, benefiting from the de minimis exemption under article 3(2) of the Luxembourg law of 12 July 2013 on alternative investment fund managers.

Each option presents its strengths and weaknesses. Opting for a fully authorised AIFM increases but grants access to the AIFMD marketing passport, facilitating fundraising across the EU. Conversely, a structure managed by a registered AIFM is leaner and more cost-efficient but relies on national private placement regimes for marketing, significantly limiting fundraising capabilities. Furthermore, registered AIFMs operate under a de minimis exemption (ie EUR 100 million for those alternative investment fund managers managing leveraged funds and EUR 500 million when the funds are closed ended and unleveraged).

The RAIF is a non-regulated alternative investment fund that operates with undirect supervision from the Luxembourg regulator. However, it must appoint a fully authorized AIFM, which in turns necessitates the appointment of a depositary. Structuring a fund as a RAIF offers certain advantages: (i) flexibility and efficiency as the RAIF can be organised as an SCA, an opaque corporate partnership, particularly suitable for crypto-assets funds with liquid strategies, (ii) versatility in structure as it allows for both stand-alone and a multi compartment structures, with the latter enabling efficient set up and faster time-to-market for new strategies and (iii) enhanced marketability as the RAIF de facto benefits from the AIFMD passport, providing international qualified investors with access to a well-established and widely recognised fund label.

 

Luxembourg’s Market Readiness for Crypto Assets

With the entry into force of MiCA, the rise of institutional players, and Luxembourg’s regulatory commitment to innovation, the conditions are now in place for crypto assets to become a fully recognised asset class within the Luxembourg fund industry. Luxembourg is no longer a niche player but a serious contender in the global crypto asset fund ecosystem.

At DLA Piper, we guide our clients through the evolving Web 3.0 ecosystem, offering regulatory, structuring, and strategic advice to ensure full compliance and optimized fund setup. Whether you are launching a new crypto asset fund or seeking insights into Luxembourg’s digital finance ecosystem, our team is here to assist.

For more information on how Luxembourg can accommodate your crypto asset fund strategy, contact us today.