The token is not the new product. The fund is, and it has been regulated for decades. Most projects begin by reading the wrong rulebook.
Anyone contemplating the launch of a tokenised fund tends to open MiCA. That is the first mistake, and it shapes everything that follows, because Regulation (EU) 2023/1114 is not the rulebook that applies to what they are building.
Article 2(4) of MiCA excludes from its scope crypto-assets that qualify as financial instruments, together with deposits, funds other than e-money tokens, securitisation positions, and insurance and pension products. And ESMA’s guidelines on the qualification of crypto-assets as financial instruments are explicit on the two points that matter: tokenised financial instruments remain financial instruments for all regulatory purposes, so the technological format is not a determining factor; and a crypto-asset is a unit in a collective investment undertaking where it represents a stake in a pooled investment with the objective of generating a return for investors, carrying rights akin to those traditionally associated with such units.
Hence the consequence that orders everything else: if what is tokenised is the units of a fund, the token is a unit of a fund. The applicable rules are those on fund management, on investment services and, where relevant, on prospectuses. MiCA and MiFID II do not apply to the same crypto-asset at once. A crypto-asset service provider licence does not authorise anyone to manage a fund, and no project is fixed by choosing the more convenient rulebook.
That settled, there are four structural decisions and a fifth that is often overlooked: how disputes will be resolved.
1. What is tokenised
These are two distinct structures and they are frequently conflated.
Tokenising the units. The token is the unit: it represents the investor’s entitlement against the pooled assets. The fund may invest in whatever it likes — real estate, credit, private equity, crypto-assets — and tokenisation affects the liability side, not the asset side. It is the cleaner structure, and the first to meet the question of the register.
Tokenising the assets. The fund keeps its classical form and what is tokenised is what it holds. Here tokenisation affects the asset side, and the question ceases to be one of corporate law and becomes one of custody.
Combining the two — tokenised units over tokenised assets — is possible, and it multiplies the problems in the next two sections. It is worth knowing that one is choosing it, rather than arriving at it by accumulation.
2. The depositary, which is where it breaks
This is the technical point on which the investor’s actual protection depends, and it almost never appears in the marketing materials.
Article 21(8) of Directive 2011/61/EU draws a distinction. For financial instruments that can be held in custody — those capable of being registered in an account opened in the depositary’s books, or physically delivered to it — the depositary must hold them in custody, in segregated accounts opened in the name of the fund or of the manager acting on its behalf, so that they are at all times clearly identified as belonging to the fund. For other assets, the regime is different and weaker: the depositary must verify that the fund or the manager holds ownership of each asset, maintain a record of those assets for which it is satisfied that ownership is so held, and keep that record up to date, relying on information and documents provided by the fund and, where available, on external evidence.
The difference is substantial: in one case there is holding and segregation; in the other, verification and record-keeping. And it is worth stating precisely what decides which applies, because a technological limitation does not: it is the legal characterisation of the asset, and whether it is capable of being held in custody under the applicable rules, that determine the depositary’s regime. Where the asset does not fall under the custody regime for financial instruments, what applies is the verification of ownership and the up-to-date record of article 21(8).
Hence the question every investor should ask and almost none does: which of the two categories does this fund’s assets sit in? The answer determines whether there is segregated custody or merely a record of verified ownership, and it rarely appears in the marketing documentation. It is not an operational detail: it is the actual content of the protection being bought.
3. The register and the chain, and which one governs
A token circulates on a chain. Title to a fund unit is established under the applicable law and the register that law recognises. While the two coincide there is no problem; the design consists in ensuring they always do.
Three decisions follow, and none can be deferred. Who the holder is as a matter of law: the person on the register or the person controlling the address. What happens to a transfer the chain executes and the register does not recognise — a token sent to an unauthorised address, say: if the answer is that the transfer is valid on the chain and ineffective on the register, it must be said what rights the recipient then holds. And how the restriction is enforced: whitelists of permitted addresses, a transfer agent with power to correct, or a combination of the two.
A fund that does not settle this in writing does not have a technology problem. It has two versions of who its investors are.
4. The DLT pilot regime is smaller than it looks
Regulation (EU) 2022/858 is frequently cited as though it provided the infrastructure for tokenised markets. Its thresholds say otherwise.
Article 3 permits the admission of shares where the issuer’s market capitalisation is below EUR 500 million; bonds and other securitised debt with an issue size below EUR 1 billion; and units in collective investment undertakings whose assets under management are below EUR 500 million. To which an aggregate limit is added: the total market value of DLT financial instruments recorded by an infrastructure may not reach EUR 6 billion at the moment a new instrument is admitted, and on reaching EUR 9 billion the operator must activate its transition strategy.
It is an experimental regime, subject to quantitative limits and authorisation conditions, with competent authorities empowered to set lower thresholds still. Its purpose is to permit regulated experimentation with DLT-based trading and settlement infrastructures, not to serve as general infrastructure. It should therefore not be assumed that it will by itself meet the trading and settlement needs of any given tokenised fund.
There is a further reason not to treat these figures as settled. On 4 December 2025 the Commission put forward a reform proposal that would extend the scope to all financial instruments under Annex I, Section C of MiFID II, remove the per-instrument caps, raise the aggregate limit per infrastructure, and remove the time limit on authorisations. The proposal has not been adopted — the legislative process runs through 2026 and 2027 — so what is in force is as set out above; but anyone designing a structure today on a multi-year horizon should expect this framework to move.
5. The part almost nobody designs: the dispute
So far, the structure. What is missing is the question that occupies us at BACS, and which is rarely in any of the project’s documents: when the investor claims, against whom and over what?
A tokenised fund has, unlike most crypto-assets, identifiable persons to proceed against: the manager, the depositary and, where there is one, the issuing vehicle. That resolves what proves insoluble with other assets. But it opens three further questions, decided at the structuring stage or never.
The first is where the arbitration clause lives, and whom it binds. The subscription documents, the fund rules and the depositary agreement are distinct instruments with distinct parties. A clause in only one of them leaves out precisely the claim that matters: the investor against the depositary for a loss of assets the depositary was not holding in custody but merely recording.
And it is worth being exact about the limits of that remedy, because this is where the most expensive mistakes are made. Including an arbitration clause in the fund documents does not of itself extend its effects to a person who has not consented: the depositary is not bound by virtue of being the depositary. For the mechanism to work, the arbitration agreement must validly bind each of the parties concerned — which is built into the contractual relationship with each of them, not achieved by cross-reference — and the disputes must be arbitrable under the applicable law, whose mandatory limits do not disappear because the clause is well drafted.
The second is the conflict between register and chain, which is this structure’s natural generator of disputes. If it is not agreed which prevails, a tribunal will have to decide it, and will decide under a law that probably did not contemplate the case.
And the third is what the award reaches. An order to deliver units is performed only if someone can register that delivery; a monetary order requires a valuation date, and with a periodic net asset value and a token trading continuously those are two different figures. If the underlying asset sits in a control structure that admits an adjudicated decision, the award reaches it; if not, the award is an order directed at someone with no reason to comply.
Hence the conclusion, which is the one that underpins our work. A well-structured tokenised fund is not the one that complies with fund regulation: it is the one that complies and provides, in its own architecture, the channel by which an adjudicated decision reaches the unit and the asset. The first is reviewed by the supervisor. The second can only be decided beforehand, while the parties still cooperate.
Institutional interest note: BACS (Blockchain Arbitration & Commerce Society) is a non-profit association registered in the European Union Transparency Register under number 9106897105368-14, and has established an international tribunal of arbitration, BACSIT, which administers proceedings under its own rules. This analysis is general in nature and does not constitute legal advice on any particular project or jurisdiction; characterising a specific token requires examination of the rights it carries.
Sources: Regulation (EU) 2023/1114 (MiCA), article 2(4); ESMA Guidelines on the conditions and criteria for the qualification of crypto-assets as financial instruments (final report, December 2024); Directive 2011/61/EU (AIFMD), article 21(8); Regulation (EU) 2022/858 on a pilot regime for market infrastructures based on distributed ledger technology, article 3.
