Real Estate Tokenization: Fractional Ownership on Compliant Rails

The Carve-Out That Changes the Game for Blockchain Infrastructure

In September 2025, the FSRA published Consultation Paper No. 10/2025, addressing the regulatory treatment of virtual asset staking within Abu Dhabi Global Market. Buried within a consultation paper ostensibly about staking was one of the most significant regulatory developments for blockchain infrastructure in the GCC: the explicit exclusion of technical infrastructure providers from the FSRA’s regulatory framework.

The key language states that technical infrastructure providers that do not hold or control virtual assets are excluded from the staking regulatory framework. While the carve-out was articulated in the context of staking, its implications extend far beyond that single activity. It establishes a regulatory principle that the FSRA distinguishes between entities that perform regulated financial services and entities that provide the technology infrastructure on which those services are performed. This distinction — between operating the trains and operating the rails — is fundamental to how digital asset infrastructure is classified and regulated within ADGM.

For blockchain infrastructure builders, protocol developers, compliance technology providers, and institutional settlement platforms, this carve-out provides the clearest regulatory pathway available in the UAE. Understanding what it means, who qualifies, and how to structure an infrastructure business to fall within it is critical strategic knowledge. Real estate tokenization platforms seeking to issue property tokens can structure themselves as infrastructure providers rather than regulated service providers if they do not hold assets. See FSRA virtual asset standards and permissioned blockchain design for implementation details.

Understanding the Functional Test

The FSRA’s carve-out is not a blanket exemption. It is defined by a functional test that evaluates what an entity actually does — not what it calls itself, not how it markets itself, and not how it structures its corporate entity. The functional test examines the entity’s actual relationship to regulated activities and the assets involved in those activities.

To qualify for the infrastructure provider exclusion, an entity must satisfy several conditions established by the functional test. The entity must not hold, control, custody, or have access to any client money, client assets, or virtual assets at any point in the transaction lifecycle. It provides the technological rails on which regulated institutions conduct their activities, but it never takes possession of, control over, or custody of any assets that flow through the infrastructure.

The entity must not perform any regulated financial service activity. It does not issue tokens, operate as an exchange, provide custody services, execute trades on behalf of clients, or manage investment portfolios. Its function is technology provision, not financial service delivery.

The entity’s relationship to the regulated ecosystem must be analogous to that of a technology vendor providing infrastructure to regulated clients. The parallel to traditional finance is instructive: SWIFT provides messaging infrastructure for international banking without being a bank. The London Stock Exchange provides trading infrastructure without being a broker-dealer. Payment card networks provide transaction processing infrastructure without being payment service providers. In each case, the infrastructure provider is a technology company serving regulated institutions, not a regulated institution itself.

Why This Distinction Matters

The infrastructure provider carve-out resolves a paradox that has plagued blockchain infrastructure development in regulated markets. Without the carve-out, a blockchain network designed to enforce protocol-level compliance could face the absurd outcome of being classified as a regulated financial institution simply because compliant transactions flow through it — even though the infrastructure provider never holds, controls, or has custody of any assets.

Consider the analogy: if SWIFT were classified as a bank because banking transactions flow through its messaging network, the implications for financial infrastructure would be devastating. Every technology provider that facilitates financial services would need to be licensed as a financial institution, regardless of whether it actually performs financial service activities. The FSRA’s functional test avoids this outcome by drawing a clear line between the platform (technology) and the activity (financial service).

For blockchain infrastructure specifically, the carve-out enables a design pattern where the infrastructure enforces compliance rules at the protocol level — identity verification, transaction monitoring, audit trail generation — without the infrastructure provider performing any regulated activity. The compliance rules are configured by the regulated institutions that use the infrastructure. The infrastructure executes those rules automatically. But the infrastructure provider itself does not make compliance decisions, hold assets, or operate as a financial service provider.

How to Structure an Infrastructure Business Within the Carve-Out

Structuring an infrastructure business to fall within the FSRA’s carve-out requires deliberate architectural and operational decisions that must be made at the design stage, not retrofitted after the infrastructure is built.

Asset flow architecture. The infrastructure must be designed so that virtual assets flow between participants (regulated institutions and their clients) without the infrastructure provider ever taking possession or control. The infrastructure routes, validates, and records transactions, but does not hold or control the assets at any point. This requires careful attention to wallet architecture, key management, and custody arrangements to ensure that the infrastructure provider has no access to participant assets.

Separation of roles. The infrastructure provider must maintain strict separation between technology provision and financial service activities. If the same entity that operates the infrastructure also provides custody services, issues tokens, or operates an exchange, the carve-out does not apply. The technology provision function must be clearly delineated from any financial service activity, both in legal structure and in operational practice.

Validator governance. For blockchain infrastructure that uses a validator-based consensus mechanism, the carve-out favors designs where validators are independent regulated institutions rather than employees or subsidiaries of the infrastructure provider. When validators are licensed financial institutions operating under their own FSRA authorization, the infrastructure provider’s role is limited to maintaining the technology platform — consistent with the carve-out’s requirements.

Revenue model. The infrastructure provider’s revenue must be structured as technology service fees, not as financial service fees. Subscription-based licensing, settlement processing fees, and technology service agreements are consistent with the carve-out. Revenue that is contingent on the value of assets transacted, that resembles commission structures, or that involves revenue sharing on financial service activities could blur the line between technology provision and financial service delivery.

The RegLab Path to Regulatory Clarity

For infrastructure providers whose regulatory classification is ambiguous, the FSRA’s RegLab sandbox provides a formal mechanism for seeking regulatory clarity. Rather than simply asserting infrastructure provider status and hoping the FSRA agrees, the RegLab allows infrastructure providers to present their architecture, explain their operational model, and receive guidance on whether their approach satisfies the carve-out’s requirements.

The RegLab engagement is particularly valuable because it creates a documented regulatory position. An infrastructure provider that has been through the RegLab process and received FSRA confirmation of its infrastructure provider status has a defensible classification that pure self-assessment cannot provide. In a regulatory environment where classifications can be challenged and penalties for misclassification are severe, the RegLab provides a pathway to certainty.

The strategic approach for infrastructure providers is to frame their RegLab engagement as seeking design feedback rather than regulatory approval. This framing acknowledges the FSRA’s role as regulator while positioning the infrastructure provider as a technology builder seeking guidance on how to design its platform in a way that serves the regulatory objectives without triggering licensing requirements that are designed for financial service providers.

Broader Implications for the Digital Asset Ecosystem

The FSRA’s infrastructure provider carve-out has implications that extend beyond individual businesses. It establishes a regulatory principle that, if adopted by other GCC regulators, could shape the development of digital asset infrastructure across the region.

The principle is that regulated financial markets need regulated financial institutions and unregulated technology infrastructure. The regulation should focus on the entities that perform financial service activities — those that hold assets, make investment decisions, execute trades, provide custody — rather than on the technology platforms those entities use. This principle enables technology innovation in financial infrastructure without imposing financial service regulation on technology providers.

The convergence between the FSRA’s approach and the DFSA’s framework suggests that this principle may gain broader adoption within the UAE. Both regulators distinguish between regulated activities and the technology infrastructure supporting those activities. Both apply functional tests that evaluate what entities do rather than how they describe themselves. As other GCC jurisdictions develop their digital asset frameworks, the FSRA’s infrastructure provider carve-out may serve as a template for how regulators across the region treat blockchain infrastructure providers.

For the digital asset ecosystem as a whole, the carve-out enables a model where compliance infrastructure can be built and operated as shared technology rather than as individually licensed financial services. This shared infrastructure model — analogous to how SWIFT, DTCC, and card networks serve multiple financial institutions — has the potential to dramatically reduce the cost of compliance across the institutional digital asset market.

Practical Guidance: Building Within the Carve-Out

For infrastructure providers planning to structure their business within the FSRA’s carve-out, several practical considerations should guide the design and operational decisions.

Documentation is critical. The infrastructure provider should maintain detailed documentation of its architecture, operational procedures, and asset flow diagrams that demonstrate compliance with the functional test. This documentation should clearly show that no virtual assets are held, controlled, or custodied by the infrastructure provider at any point. It should identify which functions are performed by the infrastructure (technology provision) and which are performed by the licensed institutions that use the infrastructure (regulated financial services). This documentation serves multiple purposes: it supports RegLab applications, it provides a defensible regulatory position if the FSRA questions the provider’s classification, and it serves as evidence of good faith regulatory engagement.

Ongoing compliance monitoring is also important even for entities that fall within the carve-out. The FSRA’s regulatory framework is evolving, and the boundaries of the carve-out may shift as the regulator gains experience with digital asset infrastructure providers. An infrastructure provider should monitor FSRA consultations, amendments, and guidance for any changes that could affect its classification. It should also maintain regular engagement with the FSRA through appropriate channels — RegLab updates, industry consultations, and formal correspondence — to ensure that its operational model remains aligned with the regulator’s expectations.

Finally, the infrastructure provider should be transparent about the limitations of its status. An entity that falls within the carve-out is not a regulated financial institution, and it should not represent itself as one. It should not claim FSRA licensing, use regulatory credentials in its marketing, or imply regulatory approval that has not been granted. The carve-out is an exclusion from regulation, not a form of regulation — and the distinction matters for marketing, investor communications, and institutional partnerships.

Sources: FSRA Consultation Paper No. 10/2025 (September 2025); Clyde & Co, “Virtual Asset Staking in ADGM” (October 2025); King & Spalding, “ADGM FSRA Implements Amendments” (June 2025); Pinsent Masons analysis; ADGM Guidance — Regulation of Virtual Asset Activities (VER07.100625).