Bermuda Aims to Become the First Fully Onchain Economy

Bermuda is positioning itself to be the first economy globally to transition entirely to an onchain model, a strategy that officials believe will generate new opportunities for its residents.

Overview:

• The island nation is partnering with Circle, Coinbase, and Stellar to establish a fully onchain economy, which includes plans for a sovereign digital dollar.
• The Bermuda Monetary Authority (BMA) has initiated real-world testing by distributing USDC to residents, allowing transactions at a temporary market and preparing to accept digital assets for government fees, beginning with the Department of Motor Vehicles.
• Regulatory updates are underway to adapt laws related to property, contracts, and securities while piloting smart contract compliance and an AI-based payments system, with the goal of making Bermuda a hub for tokenized assets and decentralized finance.

Craig Swan, CEO of the Bermuda Monetary Authority, expressed enthusiasm about the island's ambitious plans to transition its economy onto the blockchain, highlighting the potential benefits for the local population.

In a recent interview with CoinDesk in London, Swan detailed the initiatives being undertaken by Bermuda.

“We hosted a significant event aimed at educating our citizens on how to establish their crypto wallets, distributing $100 in USDC, and demonstrating its use for transactions, transfers, or conversions to fiat currency,” Swan stated.

The initiative was designed to engage both local vendors and the public simultaneously, allowing participants to use their newly acquired stablecoins for purchases at an onsite market, with payment processors like MoneyGram facilitating immediate conversion to cash.

Building Demand at the DMV

As the pop-up market served as a testing ground, the BMA and Bermuda's government are enhancing the infrastructure to support blockchain integration. Recent legislative changes now permit the acceptance of digital assets for public taxes, starting with high-traffic areas.

This financial transition is the practical realization of a strategy first presented at the World Economic Forum in Davos, where Bermuda announced collaborations with Circle and Coinbase to develop infrastructure for a fully onchain economy. Circle is implementing its Circle Mint framework to manage the government's digital treasury, while Coinbase is providing the technical support needed to facilitate onboarding for institutions and consumers.

Bermuda has also established a third significant partnership with Stellar for the upcoming launch of its official digital dollar, a stablecoin of sovereign quality. Swan anticipates that the new onchain systems will complement existing financial institutions, which will continue to manage fiat reserves backing the digital tokens and provide local custody services.

“The reliance on traditional payment systems has resulted in high fees for Bermudians and has stunted economic growth,” stated Premier E. David Burt following the Stellar partnership announcement. By utilizing blockchain technology, Bermuda aims to eliminate costly intermediaries that diminish merchant profitability, keeping funds circulating locally.

However, transitioning an entire economy to blockchain necessitates more than just banking reforms, Swan noted, as it also involves redefining property laws.

“When examining contract law and securities, it’s often ambiguous whether a smart contract constitutes a legal transfer of ownership,” Swan pointed out. “We must ensure our legislation aligns with these changes, and some adjustments to how shares are recorded digitally will be necessary.”

Regulating the Rise of AI Agents

Bermuda's testing initiatives have historically produced significant macroeconomic outcomes, according to Swan. The island ranks among the top three global centers for reinsurance. The government is optimistic that its regulatory framework, the Digital Asset Business Act (DABA), can achieve similar global recognition for tokenized real-world assets and decentralized finance.

To validate this, the BMA has recently completed a pilot program that integrated compliance into smart contracts. This trial successfully demonstrated that systems could automatically halt transactions if collateral reserves dropped below a designated level or block exchanges if an address failed real-time anti-money laundering or sanctions checks.

To mitigate these risks, the BMA is also planning to explore automated liquidity generated by machines. This includes the development of an AI payments hub to research and oversee transactions initiated solely by autonomous software.

While larger G20 nations face multi-year regulatory challenges in scaling such an ambitious initiative, Bermuda benefits from its small population, which serves as a geopolitical advantage.