How to Structure a Private Investment Vehicle for TradFi-to-Crypto Yield Arbitrage

How to Structure a Private Crypto Yield Investment Vehicle

This guide shows sponsors how to create a private, auditable vehicle that raises capital and allocates to crypto yield strategies such as lending and staking of stablecoins like USDT. The goal is a clear spread between investor coupons and platform yields, delivered through a structure that looks and behaves like fixed income, with independent oversight and documented controls.

Outcome: An SPV with trustee oversight, regulated custody, documented allocation rules, fixed investor coupons, a defined waterfall, and scheduled reporting. The strategy is passive on trading, active on risk controls. No yield is guaranteed and capital is at risk.

The vehicle at a glance

Entity

Delaware LLC or BVI company as Issuer SPV. If targeting offshore family offices, consider a Cayman SPC cell for cleaner segregation.

Instrument

Privately placed notes with 8-12 percent fixed coupons. Proceeds allocated to crypto yield platforms within policy limits.

Oversight

Independent trustee, regulated custodian, proof-of-reserves monitoring, quarterly attestations or annual audit, and a standing risk committee.

Step by step

1 Decide the wrapper and investor base

Pick Delaware LLC or BVI for speed and cost. Use a private placement to accredited or professional investors. If marketing outside your home country, take local counsel on placement rules.

2 Mandate the trustee and administrator

Trustee controls movement of funds according to the Offering Memorandum and trust deed. Administrator maintains the register, NAV records if required, and investor communications.

3 Appoint custody and execution venues

Open an account with a regulated digital asset custodian. Execution routes can include approved exchanges and platforms such as Nexo or Binance for yield products. All venues must pass KYC and counterparty checks.

4 Set the Investment Policy and limits

Caps by platform, tenor, and collateral type. Example: single platform exposure capped at 25 percent of AUM, minimum overcollateralization thresholds, and daily liquidity buffers of 5-10 percent in cash or T-bills equivalents.

5 Define the cash flow waterfall

Interest in flows from platforms to the custodian. Trustee pays operating costs, fixed investor coupons, and then residual to the sponsor. Missed coupon triggers a cure period and distribution pause.

6 Draft documents

Offering Memorandum, Subscription Agreement or Note Purchase Agreement, Trust Deed, Administration Agreement, Custody Agreement, and Risk Policy. Include stress tests and disclosure on de-peg and platform risk.

7 Stand up reporting

Monthly fact sheet, position and exposure table, proof-of-reserves dashboard, and quarterly attestation. Two independent analysts on contract publish market trend notes each quarter.

8 Launch and allocate

First close, staged deployment across approved platforms, and regular rebalancing to stay inside policy. Keep dry powder for coupon coverage during market stress.

Example waterfall

Priority Flow Notes
1 Custody and admin fees Monthly invoices paid from operating account
2 Trustee fee and audit/attestation accrual Accrued monthly, paid quarterly
3 Investor coupons 8-12 percent Paid monthly or quarterly per note terms
4 Reserve top-up Liquidity buffer maintained at policy minimum
5 Residual to sponsor Paid after all prior items are current

Risk controls that matter

Counterparty risk

Diversify across venues. Limit per platform. Monitor health scores, insurance coverage, and on-chain data where available.

Stablecoin risk

Disclose de-peg scenarios for USDT or other stablecoins. Size liquidity buffers and add a conversion path to cash if stress triggers.

Liquidity risk

Set maximum lockups and withdrawal notice periods. Hold short-duration allocations to cover coupons during outages.

Legal and regulatory

Private placement to qualified investors only. Sanctions screening and source-of-funds checks on all subscriptions.

Operational risk

Granular permissions on custody. Dual controls for withdrawals. Whitelisted addresses only. Incident runbooks tested quarterly.

Disclosure

State that capital can be lost. Yields on platforms change. Platforms can fail. Do not present the vehicle as low risk.

Documents checklist

Document Purpose
Offering Memorandum Strategy, risks, fees, conflicts, governance, reporting
Subscription or Note Purchase Agreement Investor commitments and representations
Trust Deed Trustee duties and control of cash movements
Administration Agreement Investor register, statements, NAV or balance reporting
Custody Agreement Safekeeping, whitelists, approvals, insurance and liability limits
Risk Policy Limits by venue, tenor, collateral, buffers, stress triggers
Auditor Engagement Scope and timing of attestations or full audit
Data and Pricing Appendix How yields are recorded, benchmarked, and verified

Reporting and research cadence

Investors expect transparency. Set a calendar and stick to it. Below is a baseline rhythm for a passive strategy supported by two contracted analysts.

Item Frequency Content
Monthly fact sheet Monthly Gross yield, coupon coverage, exposure by venue, buffer levels, incidents
Trend report Quarterly Analyst view on yields, spreads, counterparty health, regulatory updates
Attestation Quarterly Cash and asset confirmations, exceptions list
Audit Annual Financial statements with notes on custody and counterparties
Ad hoc alerts As needed Material platform changes, withdrawals, risk trigger breaches

Cost model

Lean but credible. Avoid cutting the items that give investors confidence. Numbers are typical ranges for a compact setup.

Category Setup (one-time) Annual run-rate Notes
SPV formation $2,500 - $5,000 $1,000 - $2,000 Delaware or BVI
Core documents $7,500 - $12,000 $3,000 - $6,000 Updates and consents
Trustee & admin $3,000 - $5,000 $10,000 - $20,000 Cash control and investor records
Custody $0 - $5,000 $24,000 - $48,000 $2,000 - $4,000 per month
Audit/attestation $0 $20,000 - $25,000 Quarterly attestations or annual audit
Analyst contracts $0 $80,000 Two analysts at $10,000 per quarter each
Website & deck $5,000 - $8,000 $2,000 - $4,000 Hosting and updates
Social media light mgmt $0 $12,000 - $18,000 Posting and community replies
Estimated totals $18,000 - $30,000 $152,000 - $203,000 Year 1 adds setup to run-rate
Coverage math: if investor coupons average 9 percent and gross yield averages 12 percent, net spread is 3 percent before costs. With a fixed burn near $175,000 per year, you need roughly $5.8 million of deployed capital to cover fixed costs at that spread. If yields compress to 10 percent, the same math may require $8.8 million. These are illustrations, not forecasts.

Indicative timeline

Phase Duration Key outputs
Structuring & counsel 1-2 weeks Entity plan, investor base, term sheet
Docs & service providers 2-3 weeks OM, agreements, trustee and custodian confirmed
Accounts & custody 1-2 weeks Bank fiat account, custodian wallet setup, whitelists
First close & allocation 1-2 weeks Initial subscriptions, staged deployment

Governance model

  • Board or manager resolutions for material changes to policy, fees, or platforms
  • Risk committee meets monthly and on any incident
  • Trustee sign-off for transfers above preset thresholds
  • Key person plan and dual-control on private keys and withdrawals

KYC, AML, and sanctions

Onboard only accredited or professional investors. Run KYC and sanctions checks on all subscribers. Monitor transactions for unusual activity. Maintain records that match the regulator’s retention periods in the jurisdictions you target.

How platform yields are generated

Most centralised platforms pay interest from lending activity to traders and users who borrow against collateral with margin rules. Some include liquidity programs and market making. Liquidation engines and haircuts reduce loss risk but do not remove it. Present the mechanics clearly and avoid language that suggests near-zero risk.

Frequently asked questions

Is this structure low risk

No. It can be designed to reduce certain risks through diversification, custody, and limits, but platform failures, de-peg events, freezes, or legal actions can impair capital and delay coupons.

What if platform yields fall below the investor coupon

The vehicle draws on liquidity buffers or accepts a period of reduced residuals to the sponsor. If the gap persists, the manager can reduce coupons at renewal or suspend new allocations.

Why use a custodian if assets sit on platforms

Custody governs keys, enforces whitelists, and provides oversight on movements. Some custodians integrate with exchanges through controlled connectors. This adds control and evidence.

Can we market to retail

No. Keep this to accredited or professional investors under private placement rules. Public marketing invites regulatory risk.

What proof-of-reserves is acceptable

Third-party attestations, custodian statements, and on-chain proofs where relevant. Tie these to monthly fact sheets and quarterly reviews.

How many platforms should we use

Three to five is a common range for diversification without operational sprawl. Apply hard caps per venue and per collateral type.

What happens if a platform freezes withdrawals

Pause new allocations, activate the incident plan, use buffers to pay coupons if possible, and report within the next business day. Follow the recovery path set in the policy.

Can the vehicle borrow to add leverage

You can, but that adds risk and complexity. If used, cap it at a small percentage and disclose the terms and covenants clearly.

How are the two analysts used

They publish quarterly trend reports and ad hoc notes on yields, counterparty changes, and policy suggestions. Baseline compensation is $10,000 per quarter each.

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This material is for information only. It is not legal, tax, or investment advice. Crypto assets are volatile and involve significant risk of loss. Yields can change without notice. Past conditions do not predict future outcomes. Sponsors should obtain independent legal and tax advice and confirm placement rules in each target jurisdiction.

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