Luxembourg continues to be a premier jurisdiction for structuring sophisticated investment vehicles. Among its most flexible and cost-efficient fund structures is the Special Limited Partnership (SCSp) — particularly well-suited for alternative strategies, including those targeting digital assets, such as Bitcoin, Ethereum, stablecoins, Liquid Restaking Tokens (LRTs), and yield-generating DeFi strategies.
Why the SCSp for Digital Asset Strategies?
The SCSp (Société en Commandite Spéciale) is a contractual partnership without legal personality, similar in nature to Anglo-Saxon limited partnerships. It allows General Partners (GPs) and Limited Partners (LPs) to freely negotiate and define the terms of the partnership through the Limited Partnership Agreement (LPA), offering unparalleled flexibility for asset managers targeting high-growth sectors like crypto and blockchain.
Privately Explored Strategies Eligible for SCSp Funds
Luxembourg SCSp structures are ideal for bespoke and high-risk-adjusted investment strategies, such as:
- Ethereum High-Yield Strategy
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Bitcoin High-Yield Strategy
- Stablecoin High-Yield Strategy
- Liquid Restaking Token (LRT) Strategy
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Segregated Managed Accounts
These strategies often fall outside the scope of traditional UCITS regulations but can thrive under the AIF (Alternative Investment Fund) regime when structured via an SCSp.
SCSp Structure: GP-LP Model
An SCSp is managed by a General Partner (GP), who holds unlimited liability, while Limited Partners (LPs) benefit from limited liability. The GP can be an existing Luxembourg SARL, SA, or SCS. Most importantly, the GP can delegate portfolio management to a registered AIFM (Alternative Investment Fund Manager), offering scalability and compliance.
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GP Role: Full control and management responsibility; may be compensated via performance and management fees.
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LP Role: Passive investors; risk limited to their capital contribution.
Tax and Accounting
The SCSp itself is fully tax transparent. This means:
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No corporate income tax, municipal business tax, or net wealth tax at the level of the SCSp.
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Income is taxed at the partner level, depending on their individual residency and tax profile.
Management fees and carried interest structures are also tax-advantageous when carefully structured, especially for GPs based in low-tax jurisdictions.
From an accounting perspective:
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The SCSp must maintain appropriate financial records.
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Annual accounts must be drawn up, though filing with the Luxembourg trade register is generally not required for unregulated SCSps.
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Regulatory audits are only mandatory if specific thresholds (such as investor count or asset size) are crossed or if required by the LPA.
Regulatory Options
The SCSp may be established:
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Unregulated, suitable for qualified investors under private placement.
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Regulated, if opting for a structure like a RAIF (Reserved Alternative Investment Fund), which offers a balance between light regulation and speed-to-market.
Unregulated SCSp funds are especially popular for first-time managers or digital asset specialists seeking a lean, fast-track setup.
How Damalion Assists
Damalion offers a turnkey solution for fund managers and digital asset entrepreneurs seeking to establish a Luxembourg-based SCSp. Our services include:
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Advising on the optimal GP-LP structure
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Incorporation of the General Partner company
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Drafting or reviewing the Limited Partnership Agreement (LPA) made by our partner lawyer
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Connecting with AIFMs, custodians (when necessary), and fund administrators experienced in digital assets
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Assisting with AML/CFT and KYC onboarding procedures for crypto-related strategies
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Facilitating the Set up and maintenance of Segregated Managed Accounts tailored to specific investor mandates
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Coordinating with legal and tax advisors to optimize tax transparency and compliance
With regulatory clarity, investor-friendly taxation, and structural flexibility, the Luxembourg SCSp stands out as a superior vehicle to house innovative digital asset investment strategies. Whether you’re pursuing high-yield strategies in stablecoins, Ethereum or Bitcoin, or structuring impermanent loss-hedged liquidity pools, Damalion empowers fund sponsors to establish and scale their crypto-focused funds in a robust European framework. Please contact your Damalion expert now!