More than $1 of every $10 of global tokenized U.S. Treasury bonds is issued by a company incorporated in the British Virgin Islands.

According to BVI Finance, this miniature Caribbean territory is second only to the United States as a key jurisdiction for the rapidly growing asset class.

BVI Finance’s digital destination report in June found that BVI entities accounted for about $1.5 billion of the $14.98 billion global tokenized U.S. Treasury bond market as of June 1.

A growing list of digital asset companies now call the British Virgin Islands home, including Kraken’s parent company, Payward, Bitstamp (recently acquired by Robinhood), 1inch and Bitfinex.

The territory boasts a stablecoin market capitalization of approximately $1.2 billion held at BVI-linked addresses and has approximately 28,000 stablecoin asset holders.

More than 25 virtual asset service providers (VASPs) are approved under the BVI’s VASP regime, and according to Bernstein Research, there are 305 tokenized securities on the islands – the most for any jurisdiction in the RWA.xyz dataset.

Distribution value of US tokenized securities by jurisdiction. Source: Destination Digital

Statistics suggest that the Virgin Islands has become one of the world’s most popular crypto hotspots, but the reality is a bit more nuanced.

Tokenized assets are designed to be borderless, and crypto projects often have the opportunity to choose which offshore jurisdiction to incorporate.

In most cases, digital asset companies do not physically relocate to the Virgin Islands; they simply apply the territory to register legal entities such as token issuers, treasury companies, holding companies or special purpose vehicles (SPVs).

Crypto companies choose the BVI for more than just tax reasons

Andrew Jowett, a partner at Appleby (BVI) Ltd who advises digital asset companies on corporate structure, told Cointelegraph that clients examining the BVI typically compare several jurisdictions, such as the Cayman Islands, the United Arab Emirates, Singapore and Switzerland.

Despite long-held assumptions about tax havens in the Caribbean, tax neutrality is no longer the main driver.

Related: Dubai’s cryptocurrency market reaches 50 licensed companies following approval by fresh company VARA

“The overriding factor in choosing the BVI was digital asset regulations, not taxes,” Jowett said. The British Overseas Territory has an attractive tax policy and imposes no corporate income tax or capital gains tax for BVI companies.

But now all leading cryptocurrency centers have it favorable cryptocurrency taxation ruleswhich means it is no longer a determining factor.

The Cayman Islands imposes no corporate income tax or capital gains tax, and the United Arab Emirates has zero personal income tax or federal corporate tax on eligible free zone entities.

“Tax neutrality is at stake,” said Saeed Al-Marri, chief executive of BVI-registered digital asset infrastructure company Ethra. He added that the BVI provides legal certainty and clarity, and he believes factors will determine which jurisdictions survive institutional adoption.

LTP is an institutional digital asset infrastructure provider that serves regulated entities in the BVI, Hong Kong, Australia and the United Arab Emirates. Its founder and CEO, Jack Yang, told Cointelegraph that while favorable taxation is vital for cross-border structures, it is secondary to legal and regulatory certainty as tokenization moves into institutional finance.

“A tax-neutral structure that cannot withstand the review of banks, depositories, auditors, investment committees or regulators has limited practical value,” he said.

Number of tokenized securities by jurisdiction. Source: Destination Digital

Orest Gavryliak, chief legal officer at BVI-registered decentralized exchange aggregator 1inch, said more and more decentralized finance (DeFi) protocols are choosing jurisdictions that provide predictable rules rather than simply the lowest tax burden.

“Jurisdiction continues to be irrelevant, but its role is changing,” Gavryliak told Cointelegraph. “The protocols are increasingly taking into account factors such as regulation, institutional credibility and long-term sustainability.”

Cryptocurrency hubs now compete on legal infrastructure

Jurisdictions vying to be called “cryptocurrency hubs,” such as Singapore and the United Arab Emirates, are increasingly competing with each other through favorable legal infrastructure and licensing regimes, such as Singapore’s Payment Services Act and Dubai’s Virtual Assets Regulatory Authority (VARA) rulebooks.

In 2023, the BVI introduced the Virtual Asset Service Providers Act (VASP Act), overseen by the BVI Financial Services Commission (FSC).

Compared to many larger financial centers, it offers quick turnaround, responds to VASP requests within six weeks and aims to complete the review process within six months, According to in accordance with BVI Finance and FSC guidelines.

In addition to favorable tax regimes, Jowett said clients are prioritizing “ease of startup” and an proficient corporate structure, which has long been part of the BVI’s appeal. Companies can be organize something quickly, the legal framework is adaptable and ongoing reporting is generally lighter than in onshore jurisdictions.

Related: Web3 foundations in the Cayman Islands jumped 70% with the advent of CARF reporting rules

The Virgin Islands have also been favored in the past because they offer greater corporate confidentiality than many larger financial centers.

While BVI companies are still topic In line with anti-money laundering (AML) and know-your-customer (KYC) requirements, beneficial ownership information is held by registered agents rather than in a public register, limiting disclosure requirements.

British Virgin Islands. Source: Destination Digital

However, none of the companies Cointelegraph spoke to cited tax neutrality or greater corporate confidentiality as factors in their decision to join the BVI, pointing instead to legal certainty, regulatory transparency and corporate flexibility.

Incorporation, not physical relocation to the Virgin Islands

Yang told Cointelegraph that LTP does not employ full-time “field” staff. Instead, the entity is overseen by a board of directors and supported by staff from other parts of the LTP group.

The same distinction can be seen in other areas of the industry. Kraken’s parent company, Payward, is registered in the BVI, but the exchange’s operations are primarily based in the United States, while 1inch’s team and operations are spread across multiple jurisdictions.

The BVI is not winning the race to attract flashy headquarters or vast engineering teams. Instead, it has become the legal headquarters of many digital asset companies, while most of the work takes place elsewhere. For jurisdictions competing to attract the industry, this may be enough.

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