Binance is working with crypto-friendly Nigeria to create a digital economic zone aimed at enticing blockchain and cryptocurrency companies to set up shop in Africa’s largest country.
The Nigeria Export Processing Zones Authority hopes to set up a virtual free zone, a type of special economic zone in which the companies are headquartered, regulated and taxed under special rules aimed at stimulating economic growth. And like the Dubai Virtual Free Zone it’s modeled on, companies do not need to be physically located there.
Still, it makes Nigeria — which is also far and away the largest country to have launched a central bank digital currency, the eNaira — the latest in a small but growing list of emerging nations looking at attracting crypto entrepreneurs who want to set up shop in a location with clear crypto regulations and favorable tax treatment.
While wealthy Dubai is hardly an emerging nation, Honduras, El Salvador and the Philippines have similar projects, as do the Cayman Islands and Belarus.
A Piece of the Pie
Special economic zones (SEZs) are hardly unique to emerging nations, but they offer the ability to get a piece of the digital assets industry’s pie at a relatively early stage — when many wealthier nations are still wrestling with setting up clear regulatory regimes, or have rules that the industry considers onerous.
Using special economic zones allows emerging nations, which can focus attention on getting regulations written quickly — generally with special tax treatment and innovation-friendly rules for the zones — to attract young industries. It’s something crypto companies that tend to be virtual or virtual-friendly, and are seeking clear rules of the road, will be attracted to, organizers believe.
Binance is also working with the Philippines’ Cagayan Economic Zone Authority (CEZA), which has sought for several years to establish itself as a crypto industry hub.
At an Aug. 24 hearing in the nation’s senate, both joined the Philippines central bank (BSP), its Securities and Exchange Commission and the FinTech Alliance Philippines to advise on developing regulations that protect consumers while providing a sandbox regulatory environment, according to Inquirer.net, a local news outlet.
It is an approach that helped grow the nation’s FinTech and digital payments sector, BSP Deputy Governor Chuchi Fonacier said at another senate hearing last month. At the same time, the focus of an SEZ makes it easier to keep up with technological and industry developments that could require updated regulations, Fonacier said.
Despite making bitcoin a legal tender last year, El Salvador’s dream of a Bitcoin City crypto enclave remains a dream, and probably will until the value of the No. 1 cryptocurrency rises to the point where the $1 billion Bitcoin Bond the country’s president, Nayib Bukele, has proposed to build it becomes feasible.
In April, Honduras doubled down on its Honduras Prospera special economic zone’s appeal to crypto companies by making bitcoin a legal tender — in the SEZ only — and allowing municipalities, local governments and even international firms issue bitcoin bonds from its jurisdiction, Reuters reported.
It’s not just countries setting up SEZs. In the U.S. last month, the Catawba Indian Nation proposed regulations that would allow the decentralized autonomous organizations, or DAOs, that govern decentralized finance (DeFi) projects to establish limited liability companies or unincorporated nonprofit associations within the Catawba Digital Economic Zone (CDEZ) on its land, which is in South Carolina.
“With the backing of a sovereign tribal government, the CDEZ has an opportunity to become one of the first sovereign nations to build a legal structure for DAOs from the ground up,” the agency said in a June statement.
“The CDEZ is a regulatory sandbox protected by the high walls of U.S. treaty obligations,” it added.
“Our goal with this rule-making around DAOs is to create a structure that enables innovation, rather than forbidding it,” said Joseph McKinney, founder and CEO of the CDEZ. “We want to take the best practices from regulatory environments across the world to make the CDEZ the obvious choice for anyone that is looking to start a DAO.”
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