The latest data reveals the changing face of finance in Cayman, with more digital asset businesses registered in the jurisdiction. These Web3 foundation companies don’t have a physical presence on island, but the inflow will mean increased government fees and more work for lawyers and accountants.
Figures from the Cayman Islands General Registry reveal a dramatic increase in foundation company registrations, which are mostly used for Web3 ventures. There were more than 1,700 foundations registered in Cayman at the end of October, up from 790 at the end of 2023.
The arrival of Web3 foundation companies is a boon for Cayman’s status as a financial centre, yet it was completely unexpected when Cayman passed the Foundations Companies Act in 2017.
“It was originally intended as a structure that could be used by family offices and wealth managers to compete with the Swiss foundation,” said Matthew Taber, a professional director with Leeward.
“But very early on, we realised that its combination of corporate form, orphaned ownership and tailored governance models made it an excellent fit for a vehicle that could be used to support decentralised autonomous organisations and many similar crypto-adjacent project models.”
Web3 the future of the internet
Web3 is the term applied to a next generation of technology ventures that shape how people interact online. Unlike Web2 companies – for example Facebook (Meta) – that store data and control services through central servers – Web3 operates on distributed networks based on blockchain technology or other decentralised systems
The community nature of some Web3 ventures – a simple example would be a digital token – means that founders don’t want to use a typical company structure, which has a CEO, shareholders and legal liability for its actions. Instead, they prefer to create a decentralised autonomous organisation, commonly known as a DAO, which has no CEO or board but instead has a governance protocol and allows members, for example token holders, to vote on decisions.
Yet the DAO still needs some formal mechanism or ‘legal personality’ to interact with the real economy. So, sticking with the token example, that might be hiring marketers to promote the token. Cayman foundations offer a flexible way for DAOs to engage with the real world through a legal entity without compromising the member-led nature of the organisation.
Cayman impact
The influx of Web3 foundation companies has led to an inflow of capital to Cayman’s financial centre. According to Cayman Finance, the combined total assets of Web3 foundation companies registered in the jurisdiction come to more than US$10 billion.
That’s a tiny proportion of the roughly US$8.5 trillion in assets held across Cayman’s financial system. But with Web3 ventures expected to grow fast, it’s a way for Cayman to future-proof its status as a leading financial centre.
The arrival of foundation companies fosters an ecosystem of tech-savvy directors, accountants and lawyers, which also helps to bolster Cayman’s broader tech aspirations. Those include initiatives like TechCayman and Cayman Enterprise City that encourage international tech companies to establish a physical presence in the islands.
The foundation companies aren’t just evident in the registry, they are also showing up in the legal system, where Cayman courts are increasingly dealing with Web3 cases.
“In our litigation team we have already been doing a lot of specialist blockchain and crypto litigation,” said Lucy Frew, a partner at Walkers. “We will see more litigation as the sector matures, because crypto is not only about structuring and transactions. It is also about resolving disputes, intellectual property issues and mergers and acquisitions.”
But Frew believes Cayman’s existing legal infrastructure can deal with the new cases. “You need judges with the requisite expertise, but the job of a lawyer is to explain whatever technical background needs to be explained to a judge. Judges do not necessarily need pre-existing deep technical understanding of blockchain because cases still relate to established legal principles, such as property, contract, fraud, trusts, misrepresentation and restitution.”
Related Videos
