A digital-asset fund manager selecting Liechtenstein as a domicile faces a practical question early in the build: how will investors exit, and on what terms? Liechtenstein's Token Container Model – the regime established under the Token and Trusted Technology Service Provider Act (TVTG) and the broader Alternative Investment Fund regulatory framework administered by the Financial Market Authority Liechtenstein (FMA) – gives managers genuine flexibility to structure redemption and liquidity terms, but that flexibility is not unlimited and it must be documented with precision. The FMA expects the offering documents to specify notice periods, valuation frequencies, gate provisions and suspension triggers in terms that reflect the actual liquidity profile of the underlying assets. For a crypto fund holding a mix of liquid tokens and illiquid positions, the mismatch between those two layers is the central legal engineering problem.
Liechtenstein sits inside the European Economic Area. That single fact shapes everything that follows. A fund authorised there can be marketed to professional investors across the EEA under the Alternative Investment Fund Managers Directive (AIFMD) passport, provided the manager holds the relevant authorisation from the FMA and the fund documents meet the disclosure standard that AIFMD and its implementing instruments require. Redemption terms are not merely commercial preferences: they are a regulatory disclosure obligation. The wrong domicile locks in tax leakage and limits which investors you can accept – and an investor base built on retail or semi-professional capital requires a different liquidity architecture than one built on institutional limited partners.
This page explains how Liechtenstein's legal regime governs redemption and liquidity terms for digital-asset funds, what the inbound structuring process looks like, how the cross-border tax and banking dimension interacts with liquidity design, and where the decision points are for a fund manager choosing between Liechtenstein and competing domiciles.
The Liechtenstein regime for digital-asset funds
Liechtenstein offers a layered regulatory architecture for digital-asset funds that no single offshore centre matches. The FMA supervises collective investment schemes under its investment undertakings legislation, which implements AIFMD for managers above the relevant threshold and provides a lighter supervised regime for sub-threshold managers. Sitting across that is the TVTG, which tokenises civil-law rights – including fund units – by attaching them to a blockchain-based token container. A fund unit represented as a TVTG token carries the same civil-law validity as a paper unit; the token is the legal instrument, not a representation of it.
For redemption design, this matters because the token container can encode transfer restrictions, lock-up periods and redemption conditions at the protocol level, making the legal terms and the technical implementation mutually reinforcing. The FMA treats the on-chain mechanics as part of the fund documentation, which means smart-contract logic governing redemptions must be consistent with the prospectus. A mismatch between what the contract executes and what the prospectus says creates a compliance deficiency. In our structuring practice, we verify both layers before any offering document is finalised.
The FMA also requires that the fund's investment policy, its risk profile and its liquidity management approach be described in a manner that a professional investor can assess. For funds holding cryptoassets, that includes an explanation of how the liquidity of the underlying tokens is monitored, what valuation methodology applies to illiquid positions, and what conditions trigger the exercise of a gate or a side-pocket.
How are redemption terms structured under Liechtenstein law?
Redemption terms in a Liechtenstein digital-asset fund are set by the fund's constitutive documents – typically the fund regulations or the partnership agreement – and must be approved by the FMA as part of the authorisation or registration process. The terms must reflect the real liquidity position of the fund's assets. Open-ended structures dealing in liquid tokens typically operate on weekly or bi-weekly dealing cycles, with notice periods calibrated to allow the manager to liquidate positions without market impact. Closed-ended structures, more appropriate for funds holding staked assets, yield positions or illiquid DeFi exposures, set redemption only at defined intervals or not at all during an initial lock-up period.
The key structural tools available under the Liechtenstein regime include:
- Redemption gates: a contractual mechanism allowing the manager to limit aggregate redemptions in any dealing period to a defined percentage of net asset value, preventing a liquidity run without suspending the fund entirely.
- Suspension provisions: the ability to suspend redemptions entirely where the manager cannot accurately value the portfolio, where underlying exchanges are closed, or where market conditions make orderly liquidation impracticable. The FMA requires the suspension criteria to be described with sufficient specificity that investors can predict when they would apply.
- Side-pockets: a segregated share class or sub-fund vehicle that ring-fences illiquid positions, allowing the liquid portion of the portfolio to continue dealing while the illiquid positions are worked out over time. Liechtenstein's sub-fund structure under the investment undertakings framework accommodates this.
- Mandatory notice periods: investor redemption requests typically require advance notice running from a few business days for a highly liquid fund to several weeks for one with mixed or illiquid positions. The notice period must be consistent with the settlement cycle of the underlying assets.
In our cross-border practice, we see managers underestimate how granular the FMA expects these provisions to be. A clause that simply says "redemptions may be suspended at the manager's discretion" does not satisfy the disclosure standard. The trigger conditions must be enumerated.
What does the FMA authorisation process look like?
The FMA authorisation or registration pathway depends primarily on whether the manager manages assets above or below the AIFMD threshold. Above-threshold managers must be authorised as Alternative Investment Fund Managers (AIFMs), which requires demonstrating organisational competence, risk management and liquidity management systems, capital adequacy and the fitness and propriety of key personnel. Sub-threshold managers operate under a lighter registration, but the fund documents – including the liquidity terms – still require FMA review.
The process, broadly, runs in three phases. In the first phase, the manager prepares the draft fund regulations, the constitutional documents, the risk management policy (which must include a liquidity stress-testing framework for cryptoasset funds) and the operational infrastructure description. In the second phase, the FMA reviews the documentation and engages with counsel on any deficiencies. The FMA is known in the practitioner community as a technically competent authority with genuine experience of digital-asset structures; the review process is substantive rather than formalistic. In the third phase, approval is granted and the fund can commence marketing under the AIFMD passport across the EEA.
Timelines depend on the complexity of the structure and the quality of the initial submission. A well-prepared application for a straightforward fund – clear asset policy, liquid token focus, professional investor base – progresses materially faster than one with a mixed illiquid portfolio requiring novel liquidity management justification. In our experience, the FMA engages constructively when the submission is complete and internally consistent from the outset. Applications that arrive with placeholder provisions in the liquidity section reliably generate extended back-and-forth.
For a scoped assessment of your fund structure and a realistic view of the FMA process, contact OBOLUS at info@oboluslaw.com. The process above describes the standard path. Your facts – the entity type, the investor base, the asset mix and the banking stack – change the analysis materially.
What is the cross-border interaction between Liechtenstein and the EU for fund marketing?
Liechtenstein's EEA membership is its primary structural advantage over purely offshore domiciles. A Liechtenstein-domiciled AIF managed by a Liechtenstein-authorised AIFM can be marketed to professional investors across the EU and EEA via the AIFMD passport without requiring separate national registrations in each target market. For a digital-asset fund with a European institutional investor base – pension funds, family offices, insurance companies, fund-of-funds – this is a material operational efficiency. The alternative, an offshore fund marketed under each jurisdiction's national private placement regime, introduces inconsistent investor-protection standards and increases the compliance overhead for every new investor country added.
Under MiCA (the Markets in Crypto-Assets Regulation, supervised by ESMA and the national competent authorities), the cryptoassets held by the fund may themselves be subject to issuer-level requirements if they are asset-referenced tokens or e-money tokens. A Liechtenstein-domiciled fund holding MiCA-regulated instruments benefits from legal certainty about the rights associated with those instruments, including the redemption rights attaching to any EMTs held as near-cash positions. The FMA's supervisory relationship with ESMA and with the EU NCAs means that Liechtenstein-authorised structures carry a level of cross-border institutional acceptance that is difficult to replicate from a non-EEA domicile.
Investors we advise routinely require that their fund exposure come through an EEA-regulated vehicle. That requirement reflects their own regulatory and investment mandates, not merely preference. A Cayman or BVI fund, however well-structured, does not satisfy the mandate of a German insurance company or a Dutch pension administrator. Liechtenstein does.
How do tax and banking interact with liquidity design?
Liechtenstein has a civil-law tradition informed by Swiss legal principles and a tax treaty network that, while narrower than Switzerland's, provides a credible onshore regime for fund-level income. The absence of withholding tax on fund distributions to non-resident investors in most standard structures is an important factor in liquidity design: a redemption that triggers a withholding tax creates a direct reduction in the investor's net return, which affects the effective redemption price and must be disclosed.
Banking for a Liechtenstein digital-asset fund sits at the intersection of AML expectations and the practical reality that many banks remain cautious about cryptoasset exposure. Liechtenstein's domestic banking sector – anchored by institutions with long-established relationships with the investment funds industry and with digital-asset businesses – provides access to fund banking that is genuinely available rather than notionally permitted. The fund's liquidity model depends on the speed with which subscription proceeds and redemption payments can be settled; a banking relationship that imposes delays or restrictions on crypto-to-fiat conversion creates a liquidity mismatch between what the fund documents promise and what the operational reality delivers.
In our structuring practice, we address the banking layer as part of the domicile decision, not as an afterthought once the legal documents are signed. A fund with a 10-business-day redemption cycle needs a banking counterpart that can operationally support settlement within that window. Getting the bank relationship established in parallel with the FMA application shortens the overall time to launch and avoids the situation – which we have seen more than once – where the fund is authorised but cannot open accounts.
The cross-border tax dimension also extends to the manager entity. A Liechtenstein AIFM and a Liechtenstein fund may be held by a parent structure in another jurisdiction; the substance requirements that the FMA applies to the AIFM – real decision-making, qualified staff, adequate systems in Liechtenstein – must be met to preserve both the regulatory authorisation and the tax residency of the management entity. Hollowing out the Liechtenstein AIFM while managing from elsewhere creates both a regulatory and a tax risk that can destabilise the entire structure.
If a prior fund application stalled or a banking relationship fell through, a structural review can identify the underlying cause. Contact OBOLUS at info@oboluslaw.com.
A common assumption is that any offshore vehicle works equally for a digital-asset fund
A common assumption among fund managers entering the digital-asset space is that the choice of domicile is primarily a cost and speed question. Offshore vehicles – BVI, Cayman, Marshall Islands – are faster to incorporate, cheaper to maintain and involve less regulatory process. That analysis is accurate for a certain investor type: a fund serving only US sophisticated investors under a private placement exemption, with no EU investor base and no requirement for regulatory legitimacy signals, may find an offshore structure entirely adequate.
For any fund that needs to accept European institutional capital, the assumption breaks down. The AIFMD passport is not available to a Cayman fund with a Cayman manager. It is available to a Liechtenstein fund with a Liechtenstein AIFM. The cost and compliance difference between the two options is real but it is a one-time build cost; the investor base restriction imposed by an offshore-only structure compounds every time a new European institutional investor declines to invest on jurisdictional grounds. The managers we advise who moved from an offshore structure to a Liechtenstein structure consistently report that the change opened investor conversations that had been closed.
The liquidity terms dimension reinforces this analysis. Offshore fund documents often contain liquidity provisions that are adequate under the applicable offshore law but that do not meet the disclosure depth that a European institutional investor's own due diligence process requires. Rebuilding the liquidity framework mid-fund life – after investor capital is already in – is significantly more complex and costly than building it correctly at launch.
Decision profile: which fund structure fits which operator?
The right Liechtenstein structure depends on three factors: the investor base, the asset mix and the manager's own regulatory footprint. The following profiles reflect the analysis we apply in practice.
Profile A – Institutional European focus, liquid token portfolio. An open-ended Liechtenstein investment company or unit trust, authorised as an AIF under the FMA's investment undertakings framework, with weekly dealing and a standard notice period is typically appropriate. The AIFMD passport is the primary commercial objective. The key risk is the FMA's expectation that the liquidity management policy genuinely reflects the token portfolio's on-exchange liquidity, which requires ongoing monitoring rather than a static disclosure.
Profile B – Mixed liquid and illiquid cryptoasset positions. A closed-ended or semi-closed-ended structure with a defined investment period, a side-pocket mechanism for illiquid DeFi or staking positions, and redemption only at defined intervals fits the asset profile better. The sub-fund structure available under Liechtenstein law allows the illiquid sleeve to be segregated from the outset, protecting liquid investors from being locked in alongside illiquid positions. The key risk is the complexity of the documentation: the FMA will scrutinise the valuation methodology for the illiquid sleeve carefully.
Profile C – Sub-threshold manager, smaller institutional raise. A registered (rather than fully authorised) sub-threshold manager can operate with a lighter compliance overhead, but cannot use the AIFMD passport for marketing into the EU. This profile is appropriate only where the investor base is Liechtenstein or Swiss domestic, or where investors are accessed under national private placement rules in each jurisdiction separately. The liquidity documentation standard, even for registered funds, remains high under FMA expectations.
From our practice
In a recent structuring matter, a digital-asset manager sought to launch a multi-strategy fund combining liquid exchange-listed tokens with positions in staking protocols carrying lock-up periods of several months. The initial structure – a single open-ended vehicle with monthly dealing – created an immediate liquidity mismatch: the illiquid staking positions could not be liquidated to meet monthly redemption requests without forfeiting the staking rewards that justified the position. We restructured the vehicle as a Liechtenstein AIF with two sub-funds: a liquid sub-fund with bi-weekly dealing and a restricted sub-fund with quarterly dealing windows and a gate provision calibrated to the staking lock-up cycle. The FMA approved the structure; the manager launched into the EEA investor market in the same quarter without further structural amendments.
Related at OBOLUS
- Funds and investment vehicles for digital-asset businesses – our core practice in structuring, domiciling and advising crypto funds globally.
- Crypto fund formation for institutional clients – end-to-end formation, documentation and regulatory filing for institutional digital-asset funds.
- NFT project legal structuring in Ireland – how Ireland's legal and tax framework applies to token-based project structures.
FAQ
Where should a crypto fund be domiciled?
The right domicile depends on the investor base, asset mix and manager's regulatory footprint. A European institutional investor base strongly favours an EEA-regulated domicile – such as Liechtenstein, Ireland or Luxembourg – that supports the AIFMD passport. Offshore domiciles suit US-focused raises or smaller structures where regulatory marketing passports are not required. Tax treatment, banking availability and the sophistication of local regulation all factor into the decision. There is no universally correct answer: domicile choice is a matching exercise, not a default.
Does a digital-asset fund manager need a licence?
In most regulated jurisdictions, yes. A manager handling a collective investment scheme above the applicable threshold requires full AIFM authorisation under the relevant regime – in Liechtenstein, that means FMA authorisation under the AIFMD-implementing legislation. Sub-threshold managers may qualify for registration rather than full authorisation, but still face regulatory oversight. The threshold calculation includes leverage and aggregates assets under management across all funds managed. Managers who assume a small fund escapes the licensing requirement should verify the threshold calculation with counsel before launch.
How is custody arranged for a crypto fund?
Custody of cryptoassets for a regulated fund must be addressed in the fund documents and must meet the FMA's expectations for asset safekeeping. Under the AIFMD framework, a depositary is required for authorised AIFs; for digital assets, the depositary function interacts with the technical reality of private-key custody. In practice, this means engaging a regulated custodian – either a licensed VASP custodian or a bank with digital-asset custody capability – whose arrangements are described in the offering documents and reviewed by the FMA as part of the authorisation process.
OBOLUS is an independent digital-asset law boutique acting only for businesses. We advise exchanges, custodians, token issuers and funds on licensing across 70+ jurisdictions, on disputes and on-chain asset recovery across 25+ forums, and on the tax, banking and compliance that sit around them. Digital assets are the entirety of our practice. We match domicile to investor base, asset mix and redemption profile – and we act only for businesses, which means our entire institutional knowledge is oriented toward the operator, not the retail investor. To discuss your fund structure, contact info@oboluslaw.com.
By Lydia Brennan, Tax & Structuring Analyst – specialist in fund domicile selection, cross-border tax structuring and investment vehicle design for digital-asset managers.
This publication is general information about the law and does not constitute legal advice. It is not a substitute for advice tailored to your circumstances. OBOLUS accepts no liability for action taken or not taken on the basis of this material. For advice on your situation, contact info@oboluslaw.com.