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AUSTIN, Texas — The collapse of Terra’s terraUSD (UST) made some investors think twice about buying stablecoins. The algorthmic stablecoin, pegged to the U.S. dollar, turned out to be less than stable, and investors in stablecoins as a whole were spooked about being left with nothing.
It’s the exact opposite way of thinking for Bermuda’s premier, David Burt. He said in an interview the Terra debacle highlights the importance of good regulation, vindicating his goal of making his country the world’s home for safe, innovative assets.
The recent dramatic loss of terraUSD’s dollar peg “is a validation of the approach that we've taken,” Burt told CoinDesk during the recent Consensus 2022 conference here.
“What Bermuda wants to be is the hub of the global stablecoin market, where it is issued under a regulated environment so investors and citizens can have confidence,” he said. “There are stablecoins, but then there are regulated stablecoins.”
He first told CoinDesk about his aims for crypto regulation during a "Money Reimagined" podcast in October 2020. Last week, it was announced that Bermuda had issued its first digital asset banking license to locally-based institution Jewel Bank, representing the first new bank license of any kind issued by Bermuda in 21 years.
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It’s been a long wait, but Burt hopes people will take that as a sign of the nation's thoroughness and credibility and be confident the Bermuda Monetary Authority has done its homework to protect hard-earned savings.
“Our regulator has responsibility to ensure that in breaking this new ground [involving stablecoins] all the risk has been assessed,” he said. “That might take longer, but you will know that we go through an incredibly thorough process.”
In addition to being a bank, Jewel plans to issue a U.S. dollar-linked stablecoin in the fall of this year for use in wholesale financial markets, potentially followed one pegged to the Bermudian dollar and then other currencies.
“Digital assets broadly are going to change the way in which the world operates,” Burt said. “We believe that is certainly going to be the future, and we want Bermuda to be the home of innovation.”
Jewel’s CEO agrees it’s not been an easy process – although Nick Lepetsos stressed that, as a bank-issued, fully reserved asset, its proposed stablecoin has a much more robust model than Terra’s algorithmic version.
Lepetsos told CoinDesk the procedure to secure Jewel's license included a grueling set of questions about the company’s expertise, capital and reason for existing – far from the cartoon view of “going to the DMV, the Department of Motor Vehicles, where you just sign up and get in line and you wait a while, and you get your license,” he said.
While long a major financial center, Bermuda’s a tiny territory – and business models like Jewel’s will depend on being able to reach bigger markets in places like the U.S.
But Burt doesn’t seem worried about the prospect of being shut out.
European Union lawmakers considering the bloc’s landmark Markets in Crypto Assets Regulation (MiCA) have proposed that crypto providers should be barred from serving European markets if they operate from known tax havens. That could potentially include places like Bermuda, which was added to an EU “graylist” of noncooperative tax jurisdictions in February.
The European Commission has urged a rethink of plans it says could breach international trade law. But even if an EU blacklist does emerge for territories with sloppy crypto rules, Burt doesn’t seem worried.
“I would say that if they were to do that type of ranking, Bermuda would probably be at the top of the list,” he said. However, when it comes to regulation, “We know how to do this stuff, and so we have no fear about what may come.”