NFTs, Tokens and DeFi: Cayman Crypto Fund Oversight

NFTs, tokens and decentralised finance positions create operational questions for Cayman digital asset funds. The original article discussed developments in 2022; the continuing governance issue is whether the fund's providers can identify, safeguard, value and report the assets actually held.

Understand the rights and exposure

Ownership of a token does not necessarily confer ownership of associated intellectual property or an enforceable claim to an underlying asset. Review the contractual terms, protocol dependencies and restrictions. A quoted yield should be assessed alongside token price risk, leverage, counterparty exposure and the possibility of loss.

Valuation and custody

For NFTs, recent transaction prices may not provide a reliable market for the fund's specific holding. DeFi positions can involve several tokens, reward streams, lock-ups and liquidation mechanisms. The administrator and auditor need sufficient records and an agreed approach to those features.

• Map wallet permissions and approval controls.
• Reconcile on-chain activity to the fund's books.
• Document valuation sources and exceptional judgements.
• Assess smart-contract incidents, bridge exposure and withdrawal restrictions.
• Match investor liquidity to the assets and strategies used.

Board oversight

The governing body should receive clear information on material exposures and incidents. Investment in DeFi is not equivalent to holding a conventional money market fund. Bell Rock supports Cayman digital asset fund formation and governance alongside specialist legal, custody and administration providers.

Support from Bell Rock

Explore our digital asset fund formation or complete the relevant service questionnaire so we can assess your requirements.

Related insight

Hedge Fund Valuation Policies: A Board-Level Guide