Regulation
For crypto, the global regulatory “Olympics” have already begun
This summer, athletes from all over the world will meet in Paris for the Olympic Games. One of the competitions is the pentathlon, in which athletes compete in four separate events: swimming, fencing, horse riding, running and shooting. It is a test of strength, agility and speed.
Matthew Homer is a venture capitalist and advisor to founders in the crypto space. He was the first-ever Executive Deputy Superintendent for Research and Innovation at the New York State Department of Financial Services.
Among financial jurisdictions, similar multidisciplinary competition is already underway. In this race, however, jurisdictions are competing for the prize of becoming the capital of the next generation of financial services: tokenized finance operating in open, decentralized systems. Like the pentathlon, winners will demonstrate an ideal blend of strength, agility and speed.
Competitors include established financial centers like London, New York and Hong Kong, which dominated the pre-digital era. But hungry challengers – EU member states, the United Arab Emirates (UAE), Singapore, Bermuda and California – are also in the race.
This is a remarkable change from 18 months ago, when some doubted the future of crypto. While the American team (largely) boycotts this financial Olympiad, a new group of champions has a rare chance to emerge.
In this competition, there are four distinct competitions: regulatory effectiveness, founder depth, market size, and capital market strength. As a former cryptocurrency regulator charged with improving New York’s regulatory system and now a venture capitalist, I understand how difficult it is to win in these four categories, especially those that are beyond your direct control.
Here’s what to look for in each competition and how participants are currently performing.
Regulatory effectiveness is assessed based on two key factors: credibility (being tough but fair) and accessibility (clear and navigable for existing players and new entrants). Finding the right balance between these aspects is a challenge. If it is impossible to comply with regulations, markets find ways to get around them.
Conversely, if entry is too easy, it leads to a low-quality ecosystem. An effective regulator sets high standards but works with regulated entities to help them meet those standards. Transparency and accountability are crucial.
Two regulators are leading the way in this area: Dubai’s Virtual Asset Regulatory Authority (VARA) and the Bermuda Monetary Authority (BMA). VARA, during its two years of existence, has already granted 17 licenses and took at least a similar number of coercive measures — a remarkable achievement for a new entity.
The second competition evaluates a jurisdiction’s ability to cultivate or attract a strong pipeline of high-quality founders. Unlike regulatory effectiveness, which can be quickly influenced by government actions, becoming a magnet for founders’ talents occurs over generations and involves factors beyond the direct control of government.
The factors that contribute to the talent of the founders were widely studied and include existing entrepreneurial networks, cultural practices, quality of life and access to customers, partners and resources.
If California, New York and London maintain clear leadership in these areas rankings, places like Dubai and Singapore are emerging as clearly larger-scale destinations. These cities attract more mature businesses and founders who may have started elsewhere but find these locations better suited to the growth phase of their business. As these companies move, they will eventually foster a new generation of early-stage founders in these regions, as their employees and networks create their own companies.
Market size is the third competition in this competition. Even if your regulatory environment is impeccable, it will not attract future financial giants unless there is a substantial customer base to serve your jurisdiction. Large markets, such as the United States (with a population of more than 335 million) and the EU (with more than 445 million people), have an advantage.
However, smaller jurisdictions can still be competitive, particularly for companies serving institutional clients or retail clients in other countries where permitted.
The final category is the strength of the capital market. Both startups and scaleups need investment to grow. Capital seeks opportunities in places with effective regulation, strong founders, and large markets. However, other factors also play a crucial role, such as physical proximity of founders to funding sources, investor-friendly legal frameworks, and favorable exit conditions (such as strong M&A and Initial Public Offering).
Research carried out by Galaxy reveals that while US-based companies still receive the majority of venture capital in the blockchain sector (both in terms of number of deals and share of capital), their share has declined significantly. If we consider macro ranking of capital availability As an indicator of the direction in which capital could move, the UAE, Qatar, China and Singapore are candidates to watch.
Unlike the Olympic pentathlon, this competition will not necessarily have a single “winner” immediately, if ever. Instead, winners will likely emerge in various categories. For example, Bermuda could become the main hub for stablecoin issuance, while Dubai could excel in offshore institutional trading.
There will also be regional capitals. What matters is that the map of financial services can be redrawn in a significantly different way than today. The United States will likely eventually join the race, providing new jurisdictions with a time-limited opportunity to establish and consolidate their leadership position before it is too late.