Why are Centralised Crypto Exchanges locating in small Caribbean islands?

I wrote a short article three weeks ago “Binance CEO Changpeng “CZ” Zhao lands in Barbados Today and what that means for Caribbean Crypto & Fintech Industries.” and it sparked some great conversations on Linked in. Below are three responses that I wanted to share with you.

The first is from David Palmer – Global Platform Innovator Vodafone Business Blockchain Lead

He said “Very interesting to see centralised crypto exchange Binance now in Babardos for talks, and this following TRON winning a government deal with Dominica, and all of this following the recent collapse of FTX, who was based in the Bahamas. (thanks for this article Ingrid Riley )

Why are centralised crypto exchanges locating in small Caribbean islands?

Could the power of the centralised crypto exchanges vs small indebted governments lead to too much relative power for these exchanges? Binance market capitalisation $19,014,856,231, while the market capitalisation of all shares of all securities traded on the Barbados Stock Exchange is $2.44 billion USD, and the Barbados GDP was $4.9 billion in 2021

Will exchanges locating in these countries actually bring employment, investment, and growth? What are the wider political implications?

Are moves to the Caribbean just a symptom of inadequate regulation or non-friendly regulation in bigger countries like the USA, EU?

At the start of my journey in blockchain, I never thought that there would be so much focus on trading cryptocurrencies, and a lack of focus on the underlying protocol, project, and valuation based on the benefit and potential of the protocol. Instead, crypto is treated as just another speculative, risky asset class, which is packaged and traded for profit in the same way as other assets by financial markets all facilitated by crypto exchanges.

I believe that blockchain and Web3 technology has the potential to significantly change the world in a positive way, however, I also believe that while the focus remains on turning protocols into financial products for speculation, many good protocols could be lost in the process, or even worse they may never get the capital to start.

Could the real potential growth for countries like Barbados be to focus on providing a friendly incubator environment for protocols and not to focus on exchanges?

Then Jonathan Brathwaite – General Counsel at FlatStone Capital Advisors

“Crypto exchange and digital asset businesses are for sure going to migrate to Barbados and other Caribbean islands.

In the UK, people earning over Uk125kGBP – are subject to 60% plus income tax. What do you think these people are going to do? Remain in Uk and high-tax countries and be taxed to poverty? No.

Small open economies above all are nimble. They can adapt faster and are used to surviving without largesse and without great assistance. Small open economies do not have and never had large overheads and infinite unfunded liabilities.

As digital technology, the internet, and the networked economy progresses, small island open economies will continue to experience increasing demand for citizenship and access. Small open economies will adapt faster than large countries.

CZ and the crypto crew see this – they can speak directly to regulators and leaders – who have the type of survival geopolitics – Barbados turned away Allen Stanford and SBF. We know that people bearing gifts are not always your friends.

So, the Caribbean islands have the foundational frameworks to become a lifestyle and economic nodes in the global economic networks. We don’t need fanfare, it is happening organically

Then Tara Frater, Fintech Lawyer at FT Legal.

There is a global race to become a member of an elite class of crypto hubs around the world with participants including the UK, the US (eg Wyoming), Switzerland, Estonia, Singapore, Dubai etc. Many of these countries, in their bid to attract the rising wave of digital entrepreneurial wealth, offer tax-optimized environments with attractive regulatory frameworks.

Small island developing states in the Caribbean is no different from developed and wealthy countries in their quest to leverage economic opportunity and attract foreign investment. Moves to the Caribbean are NOT synonymous with inadequate regulation.

Regulation in the digital assets space is evolving. Rogue actors are not synonymous with rogue systems. Recent FTX debacle will be a lesson from which regulators around the world – including developed countries – learn.

WHat are your thoughts. Leave a comment.