Blueprint Index
The blueprint has been tested by opening a company and drafting a Prospectus for the Fund by following the steps in this blueprint to ensure that they are executable. The company name is registered at the Gibraltar Company House with the name DS Block Ltd. and the Fund is a Private Fund with the name Diversified Digital Asset Investment Fund
Disclaimer:
The information provided in this document is for informational purposes only and should not be construed as financial, investment, legal, or tax advice. Any information provided does not constitute a recommendation or endorsement of any investment strategy, security, or product.
Table of Content
Introduction
The blueprint is composed of 4 sections.
- Legal Status Basics - what type of company and fund
- Documentaion Requirement - to establish a legal enitity in Gibraltar
- Fund Business Plan - how the company will operate
- Fund Prospectus - offer document for fund members
Legal Status Basics
It is crucial to establish proper legal structures for managing investments, especially when dealing with retail investors lacking technical expertise in Digital Assets. Many retail investors prefer entrusting their funds to trusted individuals or companies for investment, necessitating a legal framework to manage these funds legally. Informal arrangements without documentation can lead to legal complications. To address this, various legal structures are available, depending on the jurisdiction.
After reviewing the potential alternatives Gibraltar stood out. Gibraltar is a blockchain-friendly jurisdiction and offers a robust legal framework for Digital Asset funds. Gibraltar enjoys favorable tax status, legal structure options (such as private limited companies and private funds), documentation requirements, and the involvement of service providers like law firms and accounting firms.
Costs associated with setting up and maintaining a fund typically include one-time creation expenses and annual maintenance costs.
The 1st article of the blueprint discusses why a Private Fund in Gibraltar was selected. Link to Article
Establishing a Legal Entity
The 2nd article outlines the necessary documentation requirements for establishing a Limited Company to manage a Private Investment Fund, particularly in the context of Gibraltar.
It provides guidance on various aspects, including registering with a management company, creating a comprehensive business plan, and gathering essential documents such as a notarized passport copy, utility bill, CV, professional reference letter, and bank statement. Additionally, it emphasizes the importance of selecting an appropriate company name and clarifies that a private fund in Gibraltar does not require a special license.
The article identifies key parties involved in the process, such as the management company, legal advisors, and accounting practice. The article highlights the significance of a prospectus, which serves as a crucial legal document to establish the relationship between the fund and potential investors.
Business Plan
The 3rd article outlines a sample for a fund's business plan, detailing its investment strategy, asset allocation, benchmark, and key risks. It describes how the risk profile of investing in Digital Assets is notably higher than traditional equities, with substantial volatility, but has historically shown larger gains.
The scope primarily focuses on Digital Assets but may occasionally diversify into other asset classes like equities, bonds, and real estate, with cash and FX derivatives used for liquidity management. A benchmark is suggested for the fund as the "Credit Suisse Hedge Fund Index" due to its diverse portfolio. Sample asset allocation is provided and divided into five risk buckets, including stablecoins, cash and carry arbitrage, automated market making, core digital assets, and alternative investments.
The different types of Risks are discussed, such as the blockchain industry uncertainties, smart contract vulnerabilities, operational errors, extreme volatility, protocol-specific risks, and custody concerns.
Fund Prospectus
The fund's prospectus is the most important document and the one that you need to spend the most of your time and attention. It is a good idea to hire a local law firm to help draft the prospectus as they will be familiar with the topic you need to cover and the optional topics - references are at the bottom of the document.
A prospectus is a formal legal document that provides detailed information about an investment opportunity, such as a securities offering or a mutual fund. It is typically prepared by the issuer or the fund manager and is used to provide potential investors with essential information to make informed investment decisions.
The 4th article is the longest and goes in depth into what might be included in a prospectus with sample wording provided
Lessons Learned
Bank Account
Opening a bank account is very expensive and there are very few banks that are willing to deal with Digital Asset Funds. Shopping around and finding the least expensive can take a lot of time. The most cost effective option for small funds with less than 2.5mn USD under management is to only accept deposits and process withdrawals in crypto only.
Time
The time required to set-up a company and draft the Prospectus can take longer than expected. Allow for at least 6 months from engaging the business management company to having a Prospectus to show investors
Custody
Custody of assets is a significant decision, almost bordering on a philosophical choice between managing your assets independently or entrusting them to a third party. Third-party custody services typically charge fees ranging from 0.5% to 2% of your assets, which can be quite expensive. On the other hand, self-custody options include Multiparty Computation (MPC) services like Fireblocks, which start at an annual cost of $6,000 USD, or completely self-managed solutions that are free but require a strong understanding of cryptography and wallet standards. For very small funds, self-custody can be a viable initial option and can later transition to an MPC service as the fund grows.