Crypto Special Economic Zone (cSEZ)
Last updated
Last updated
The Logos project aims to create a new generation of Crypto Special Economic Zones (cSEZs), blending physical and virtual environments to drive the adoption of Logos, accelerate decentralized application (dApp) development, and provide a favorable business ecosystem for crypto startups. By acquiring land in jurisdictions favorable to crypto and establishing virtual SEZs, Logos seeks to generate significant spillover effects, impacting both the targeted territories and beyond.
This document explores the dynamic and static outcomes of SEZs, offering a blueprint for building successful cSEZs. It draws from both traditional SEZ experiences and emerging trends in high-tech zones to design a sustainable, innovative framework for crypto zones.
Traditional SEZs are commonly evaluated based on their economic, social, and environmental outcomes. These outcomes can be categorized as static or dynamic:
Static outcomes are short-term results such as increased exports, employment creation, and foreign investment. While beneficial at first, they often fail to generate long-term growth and can become unsustainable if fiscal incentives persist.
Dynamic outcomes refer to long-term structural changes within the host economy. These include backward linkages with local industries, skills development, knowledge transfer, and economic diversification. Zones that achieve dynamic outcomes enhance their competitiveness, foster innovation, and contribute to broader economic transformation.
Socioeconomic outcomes focus on the quality of employment, gender leveling, and improved labor conditions.
Environmental outcomes are increasingly crucial as SEZs adopt sustainable practices, such as zero-carbon and low-carbon blockchain technologies, making them more attractive to investors and stakeholders.
Static Outcomes Only: SEZs in Honduras and Africa saw initial success in exports and job creation but failed to generate lasting economic benefits, as they did not establish comprehensive value chains. Similarly, the Dominican Republic's SEZs experienced stagnation due to over-reliance on fiscal incentives.
Static and Dynamic Outcomes: In contrast, India's tech parks and Malaysia's EPZs fostered skill-intensive sectors and technological upgrading, leading to sustainable growth. Mauritius and South Korea demonstrated how domestic investment, skill development, and technology transfer can turn SEZs into engines of long-term transformation.
Countries like China and Malaysia used SEZs to experiment with new policies, later expanding successful models to the broader economy.
High-tech SEZs such as Russia’s Skolkovo Innovation Centre and Kazakhstan’s Technological Innovation Park highlight the success of clustering firms in advanced technology sectors. These zones have demonstrated that integrating sustainability practices (e.g., renewable energy, energy-neutral buildings) with a focus on high-tech industries can be a powerful model for future SEZs, including crypto zones.
The success of crypto SEZs will depend on several design elements drawn from non-crypto SEZ experiences. The Logos project aims to leverage these principles, adapting them for the unique needs of the blockchain ecosystem:
Legal and Institutional Framework:
cSEZs must operate under a special legal regime that facilitates crypto-friendly operations, similar to charter city laws. The regime should protect investments, provide streamlined registration, and minimize political risks.
Governance structures in cSEZs should favor public-private partnerships (PPPs), with independent boards responsible for regulation, ensuring transparency, and engaging private operators.
Fiscal and Non-Fiscal Incentives:
Fiscal incentives, such as tax exemptions and investment incentives, are useful short-term tools but should be carefully timed to prevent dependency. cSEZs should also offer non-fiscal incentives, including access to crypto-friendly banking, regulatory flexibility, and blockchain infrastructure.
A one-stop shop for administrative procedures is essential for efficiency.
Institutional Set-Up:
A dedicated SEZ authority should oversee operations, ensuring customer orientation, flexibility, and independence from political interference. This body must ensure high levels of transparency and efficiency in handling crypto-related operations.
Dynamic Linkages:
cSEZs should focus on establishing dynamic linkages with the domestic economy. This can be achieved by integrating education, skills development, and on-site R&D, fostering local talent and supporting high-tech innovation.
Building economies of agglomeration in blockchain technology through clustering and specialization will strengthen the zone’s competitiveness.
Drawing from the best practices of traditional SEZs, the following are critical to the success of crypto SEZs:
Strategic Focus: cSEZs must specialize in high-tech blockchain applications, particularly in areas such as digital identity and decentralized finance (DeFi), to create a strong value proposition.
Integration with Local Economies: Crypto zones must avoid becoming isolated enclaves by actively engaging with local businesses and fostering knowledge exchange.
Environmental Sustainability: Sustainable blockchain technologies, such as proof-of-stake and low-energy consensus mechanisms, are not only critical for reducing the environmental footprint but also enhance the attractiveness of the zone in a global, eco-conscious market.
Innovation Hubs and Clusters: Successful cSEZs should promote innovation through clustering, allowing startups to share resources, infrastructure, and ideas, creating a crypto ecosystem that fosters collaboration and drives technological advancement.
Digital National Identity / personal data
Self-sovereign control of identity solves interoperability and security problems of isolated and federated identities. Decentralized cryptographic trustless architecture, credential verification, and interoperable protocols give individuals and entities the power to control and manage their identity without relying on external authorities. Moreover, individuals get autonomy over personal data (e.g., financial, social security numbers, civil & education certificates, health records, and so on). Once the personal information is digitized, it is usable for other activities, including opening bank accounts, labor attestations, and access to public services. Verification becomes less costly & fraud lowers.
Public Procurement
A significant portion of the public budget is particularly vulnerable to corruption. Blockchain and smart contract automated functions in public procurement increase transparency, independence, efficiency, and stakeholder participation in bidding. An access window into ongoing procurement processes allows interested parties to monitor biddings, evaluation, and contract allocations in real-time. Challenges: prevent blockchain collusions, guarantee privacy, and ensure scalability.
Registries/ Property registration and real estate markets
Registration can turn into a bottleneck for doing business. Economic activities are discouraged when transferring property is costly and time-consuming. Blockchain can help reducing both (time and cost). For instance, selling property in the UK has 11 steps (from finding a solicitor to property transfer and tax payment). With smart contracts, the process in the UK could be reduced to 4 steps (Settlement 2021, p. 45). In addition, real-time audits and tracking fractional rights becomes easier. Challenges: blockchain cannot formalize or fill property rights’ loopholes. Also, a property must be digitized before going into the blockchain.
Public Administration & Licensing
Blockchain can provide advantages for:
Public program management. Blockchain favors coordination between disparate parties and sensitive data. Blockchain aids on building public trust, disintermediating and reducing the number of actors in grant management.
Government contracts with different degrees of confidentiality - transparency. This section links with public procurement.
The authorization of permits, licenses, and certificates, either for natural persons or businesses. This section links with identity and registries.
Storage of public records ensures integrity, resiliency, and access levels -- some information is publicly available, while personal data is protected.
Facilitate 24/7 settlement of government’s financial transactions.
Regulation enforcement
Enforcing regulation is onerous, and monitoring adherence to it requires data management. In this case, blockchain allows us to trace and track items in real-time. Applications can track food provenance, or trace standardization rules for pharmaceuticals, medical equipment, automobile, or aviation parts.
Public Finance (taxation)
Governments have made some progress in implementing blockchain solutions for taxation. Tax collection requires identifying citizens, their taxable activities, and assets. Taxation complexities arise from different fiscal regimes, exemptions, and special regimes; nonetheless, a blockchain-based system that allows tracking and sharing consistent information is a good start to address fraud or evasion.
The approval method changes depending on whether the country has specific SEZ legislation or not. Countries with SEZ laws define the institutional framework, authorities, roles of the SEZ developer and operators, permitted activities, fiscal and other types of exemptions, application procedures, and licenses.
In countries without SEZ laws, the information presented refers to the current applicable legislation to foreign investors. In countries without SEZ laws that host special zones, the special regime that applies generally is covered by executive orders or decrees (e.g., Vanatu).
The information that is shown in the following pages refers to the possible target countries as per Politas research, namely: Antigua & Barbuda, Bahamas, Vanatu, Ukraine, Cayman, Barbados, Bermuda, and St.Kitts and Nevis.
Ukraine: the government of Ukraine, through the Ministry of Digital Transformation, has established a virtual IT HUB. The government is currently designing a Recovery Plan for the next decade (2022-2032) that aims to rebuild the country in a post-war scenario and position Ukraine as one of the most resilient and modern countries in terms of digitalization. The plan includes a comprehensive incorporation of blockchain and AI into public services, as well as the promotion of a digital economy that attracts IT companies. Their vision is for Ukraine to become the digital hub for Asian and European backbone traffic. The proposal is that our Virtual SEZ would be the BLOCKCHAIN HUB inside DIIA CITY.
Antigua & Barbuda, Bahamas, and Cayman are countries with an SEZ regime that could facilitate the establishment of our project. The procedures are clear and if the project is embraced, the SEZ proposal could transit.
St. Kitts and Nevis is not in the top proposals from Politas but it is worth exploring as a potential host country. Specifically, the island of St. Kitts is interested in establishing a Special Economic Zone (SEZ) for exports, manufacturing, logistics, and other activities. The disadvantage is that they do not currently have an SEZ regime, so we would need to build or negotiate one (this can be an advantage to tailor the SEZ regime OR can be a delay. The advantage is that St. Kitts and Nevis want to compete with the Caribbean countries that are bringing foreign investment via SEZs.
Barbados: The legal framework for establishing a new business with foreign capital is biased towards finance. The Barbadian Prime Minister announced the need to diversify and foster economic recovery through Free Zones (the declaration was made in 2021 during the COVID-19 pandemic emergency). The proposed solution of Free Zones, coupled with the interest in diversifying and increasing digital transformation, appears promising to explore as well.
Vanuatu has made several attempts to host a cryptocurrency special zone. Currently, Vanatu is host to Satoshi Island and other traditional SEZs. Vanuatu is working on the SEZ law to embrace more initiatives; however, according to Vanuatu's assessor Michael Castle-Miller, after 15 months of consulting, the legislation is going to take longer. The problem is the location. The proximity to large markets is a relevant variable to consider.
Bermuda: my recommendation is to rule out Bermuda due to its less flexible regulatory framework, which is a result of its high reputation among the mainstream global financial system, digital asset finance (centralized exchanges and tokenized wealth management), global insurance companies, and Insurtech. Moreover, Bermuda has the highest cost of living in the Caribbean, and in the world (above Switzerland), which will limit the type of company that can afford to set up (i.e., big companies). Although Bermuda is open to hosting innovations that bolster its financial competitive advantage, I believe that the authorities may be skeptical about hosting a free city, a startup society, or a zone with a high degree of autonomy.
