Does a Cayman foundation company protect a crypto project everywhere?

Other countries' laws still apply

In July 2017, the US Securities and Exchange Commission (SEC) published a report on "The DAO", an organisation that had sold DAO tokens in exchange for Ether. It found that the tokens were securities and so were covered by US federal securities laws.¹ The SEC warned that those laws apply to anyone who offers and sells securities in the US, whether the issuer is a traditional company or a decentralised autonomous organisation.¹ It decided not to bring charges in that case.¹

Law firms say the same thing from the other side. Conyers advises clients to consider what setting up a Cayman foundation company means in their home country.⁵ The Arbitrum Foundation's bylaws let its directors reject a token holder vote that would break Cayman law "or the laws or regulations of any other applicable jurisdiction".⁷

US policy has moved since 2017. In March 2026 the SEC, joined by the Commodity Futures Trading Commission (CFTC), issued an interpretation of how US securities laws apply to crypto assets, and its chairman said "most crypto assets are not themselves securities".²

The liability shield is untested

Walkers, a law firm, said in November 2024 that a foundation company is intended to protect DAO members from personal liability, but that this is "as yet untested in the courts of the Cayman Islands".⁸

Courts elsewhere have looked hard at DAOs. In the Lido DAO case, a US federal judge let a claim go ahead that a DAO with no formal corporate structure was a general partnership, whose partners can be held liable.⁹ That was an early ruling based on what the complaint alleged, and as of October 2026 the case was paused while an appeal about arbitration was pending.^9,10

Cayman's own crypto law: the VASP Act

Cayman regulates crypto businesses under the Virtual Asset (Service Providers) Act, or VASP Act. The Cayman Islands Monetary Authority (CIMA) is the regulator.¹¹ This lesson reads the Act's 2024 Revision. It was amended in December 2024, and again by an Act passed in June 2025 that adds an exception to "issuance of virtual assets" for certain investment fund interests.^12,13 Ogier says the Act is based on recommendations from the Financial Action Task Force (FATF), a body set up by the G7 to fight money laundering and terrorist financing.^14,11

The Act defines a virtual asset as a digital representation of value that can be traded or transferred digitally and used for payment or investment. Digital versions of normal government money are not included.¹¹

A virtual asset service includes these.¹¹

• Issuing virtual assets: selling newly created ones to the public in or from Cayman, for money, other crypto or anything else.¹¹
• Exchanging virtual assets for money or for other virtual assets, for or on behalf of others.¹¹
• Transferring virtual assets, and keeping them safe for others (custody).¹¹
• Taking part in financial services linked to a token issue or sale.¹¹

A company formed under the Companies Act that provides one of these services as a business in or from Cayman is a virtual asset service provider. It must be registered with CIMA. Custody and running a trading platform need a virtual asset service licence.^3,11 The licensing rules came into force on 1 April 2025.¹⁵

Tokens that only give access to an app or service, and can't be transferred or exchanged, are "virtual service tokens". The Act says they are not virtual assets.^11,3

So the questions for a foundation company are about what it actually does. Ogier says it is important to consider the VASP Act when setting up a foundation company for a decentralised project.¹⁴

Sanctions

CIMA describes financial sanctions as restrictions on financial services, markets and funds for named people or entities.⁴ It explains that the Cayman Islands is a British Overseas Territory, so UK Orders in Council extend UN and UK sanctions to Cayman.⁴ The Governor is the competent authority, and sanctions reports go to the Financial Reporting Authority (FRA).⁴ CIMA's July 2026 rule says that in Cayman everyone must comply with financial sanctions, including all individuals and businesses. That includes a foundation company. The rule itself covers the firms CIMA regulates, and it took effect on 18 September 2026.⁴

Rules inside the Act that bite

• No reckless payouts. A foundation company may not give away or otherwise dispose of assets if, straight afterwards, it could not pay its debts as they fall due.¹⁶
• Penalties. A director who knowingly allows such a payout faces a fine of up to CI$15,000, up to five years in prison, or both. The company can also be fined up to CI$15,000. A person who knowingly receives it must pay it back.¹⁶
• Objects can go out of date. If the objects become impossible, unlawful or obsolete and the constitution can't fix it, the Grand Court can change the constitution or wind the company up.¹⁷
• Spare assets may go to charity. If the court winds it up and finds no better use that fits the company's general intent, the spare assets are treated as given for charitable purposes.¹⁷
• A rigid memorandum. A change that would break the foundation company requirements has no effect.¹⁸