This summer, athletes from all over the world will gather in Paris for the Olympics. One of the events is the pentathlon, where athletes compete in four different events: swimming, fencing, horseback riding, running and shooting. It's a test of strength, agility, and speed.
Matthew Homer is a VC investor and founder advisor in the cryptocurrency space. He previously served as the first Deputy Commissioner for Research and Innovation at the New York State Department of Financial Services.
A similar type of multisectoral competition is already underway among financial jurisdictions. But in this competition, jurisdictions are vying for the prize that will capitalize on the next generation of financial services: tokenized financial services that operate on open, decentralized systems. As in pentathlon, the winner demonstrates the ideal combination of strength, agility, and speed.
Participants include established financial hubs such as London, New York and Hong Kong that dominated the pre-digital era. But hungry challengers are also joining the race, including EU member states, the United Arab Emirates (UAE), Singapore, Bermuda and California.
This is a notable change from 18 months ago, when some had doubts about the future of cryptocurrencies. With Team USA (for the most part) boycotting the Financial Olympics, the chance for a new champion is rare.
The competition features four different contests: regulatory effectiveness, founder depth, market size, and capital market strength. As a former cryptocurrency regulator responsible for strengthening New York's regulatory system and now a venture capital investor, I understand how difficult it is to win in all four categories, especially those outside of his direct control. doing.
Here's what to look for in each contest and how participants are currently performing.
The effectiveness of regulations is assessed based on two key factors: credibility (tough but fair) and accessibility (clear and easy to navigate for both existing players and new entrants). will be done. Achieving the right balance between these aspects is difficult. When compliance with regulations is impossible, markets find ways to circumvent them.
Conversely, if entry is too easy, a low-quality ecosystem will be formed. Effective regulators set high standards, but work with regulated entities to help them meet those standards. Transparency and accountability are critical.
Two regulatory bodies that are leading the way in this space are the Virtual Assets Regulatory Authority (VARA) in Dubai and the Bermuda Monetary Authority (BMA). VARA is in its second year and he has already granted 17 licenses and taken at least as many enforcement actions. This is an amazing achievement for a new organization.
The second competition assesses a jurisdiction's ability to develop or attract a strong talent pool of high-quality founders. Unlike regulatory effectiveness, which is immediately affected by government action, factors that attract founder talent occur over generations and involve factors beyond direct government control.
Factors contributing to founder talent have been extensively studied and include existing entrepreneurial networks, cultural practices, quality of life, and access to customers, partners, and resources.
While California, New York and London maintain clear leadership in these rankings, places like Dubai and Singapore are emerging as clear scale-up destinations. These cities attract more mature companies and founders who started their businesses elsewhere but find these locations more suitable for their company's growth stage. As these companies relocate, they will ultimately foster a new generation of early-stage founders within the region as their employees and networks establish their own ventures.
This is the third market size contest. Even if the regulatory environment is perfect, you won't be able to attract future financial giants if you don't have a significant customer base to serve in your jurisdiction. Large markets such as the US (population over 335 million) and the EU (population over 445 million) have an advantage.
However, smaller jurisdictions can still remain competitive, especially for companies serving institutional or retail customers in other countries where they are permitted.
The final category is capital market strength. Both startups and scale-ups need investment to grow. Capital chases opportunities where there is effective regulation, strong founders, and large markets. However, other factors also play an important role, such as the founder's physical proximity to the source of capital, an investor-friendly legal framework, and favorable exit conditions (such as solid M&A and IPO opportunities).
According to a study conducted by Galaxy, while US-based companies still receive the lion’s share of venture capital in the blockchain space (both in terms of number of deals and share of capital), their share has declined significantly. It became clear that If we consider the macro-ranking of capital availability as an indicator of where capital is likely to move, the UAE, Qatar, China, and Singapore are notable candidates to watch.
Unlike the Olympic pentathlon, this event doesn't necessarily have one “winner” right away. Or maybe it will continue in the future. Instead, winners may emerge in a variety of categories. For example, Bermuda could become a major hub for stablecoin issuance, while Dubai could excel in offshore institutional trading.
Regional capitals will also appear. Importantly, the map of financial services could be redrawn in a significantly different way than it currently is. The United States is likely to eventually return to this competition, giving new jurisdictions a time-limited opportunity to establish and consolidate their leadership positions before it is too late.
