Tokenizing Race-Horses – Legal Framework and Regulatory Strategy – Case Study

Overview

A client engaged Aurum to design a compliant framework for a tokenization platform where users can buy, sell and trade tokenized shares (fractional ownership) in race horses. Because horse racing sits at the crossroads of betting, gambling, collective-investment, crowdfunding and crypto-asset law, the project faced an unusually complex regulatory landscape. Our objective was to minimise that burden while keeping the model within the bounds of all applicable rules.

Core Challenges

• Keep the platform outside the virtual asset service provider (VASP) scope.
• Structure the token to avoid the requirement to be licensed in the local jurisdiction.
• Align the model with race-horse industry guidance, standards, and consumer-protection regulations.
• Design a corporate structure for the project that is simple today yet easily scalable for future growth.

Legal Strategy & Work Performed

1. Regulatory mapping: Conducted a full analysis of betting, horse racing, CIS, crowdfunding and crypto-asset statutes, relevant case law and industry best practice. Cross-checked findings against recommendations provided to the client by the horse racing authorities and tokenization techniques.
2. Non-custodial architecture: Recommended a fully self-hosted wallet model, guaranteeing the platform never holds users’ private keys or assets.
3. Token redesign: Redesigned the token as a blockchain certificate, eliminating licensing exposure for the issuance.
4. Liability allocation: Outlined a risk matrix that keeps various risks with the appropriate stakeholders rather than the client as the platform operator.
5. Document roadmap: Planned the next drafting phase, which includes Terms of Use, Privacy Policy, and template Syndicate and Racing-Club Membership Agreements, fully aligned with the approved regulatory strategy.
6. Streamlined entity plan: Simplified the project's expected corporate structure. Recommended starting with a single, locally incorporated vehicle that can be augmented with additional entities as the project expands, preserving flexibility without unnecessary complexity.

Current Status

The client is implementing the technical build and legal strategy recommendations. The regulatory blueprint provides clear guardrails, allowing the project team to proceed with confidence that the model remains outside VASP and financial-promotion territory while satisfying horse racing industry expectations.

Key Takeaways

• Substance-over-form approach: A token that certifies ownership can avoid financial regulation treatment where a profit-participating instrument would not.
• Regulation starts with architecture: Non-custodial design is essential for staying clear of VASP licensing.
• Industry guidance is invaluable: Even without formal rulings, aligning with regulator and authority recommendations reduces future friction and gives more clarity.
• Simplicity scales: A lean corporate stack today can be layered as the platform enters new markets, saving time and cost.