Gold Tokenisation in Bermuda

Introduction

Tokenisation of gold is an emerging segment of the broader real-world asset (“RWA”) digitalisation trend, whereby ownership rights in physical gold are represented by blockchain-based tokens. These tokens can be traded, transferred and potentially redeemed for underlying bullion while maintaining a verifiable link to allocated gold held in professional vault custody.

The market for tokenised gold has grown rapidly as investors seek exposure to the stability of gold combined with the efficiency of blockchain infrastructure. Major examples include Tether Gold, PAX Gold, XAUt and WisdomTree Gold Token.

Bermuda is an attractive jurisdiction with a clear licensing regime for digital asset businesses and token issuers. Bermuda has already seen the successful launch of a tokenised insurance company, and is uniquely positioned at the growing intersection between commodity markets and blockchain infrastructure. Bermuda hosts many companies that operate in the traditional gold sector, including miners, royalty providers, streamers and commodity traders, whilst also being a jurisdiction for market leading digital asset issuers, exchanges, funds, trust and custodian service providers etc.

Benefits of Tokenisation

As those familiar will be aware, tokenisation offers a number of structural advantages.

Fractionalisation and Accessibility

Blockchain tokens can represent fractional interests in a gold bar, democratising participation and significantly lowering barriers to entry for investors seeking exposure to physical gold.

Liquidity and Continuous Trading

Traditional gold investments are constrained by settlement cycles, intermediaries and market trading hours. Tokenised gold can be traded on digital asset exchanges on a near-continuous basis, improving liquidity and price discovery.

Transparency and Verifiability

Blockchain infrastructure allows token holders to verify ownership and transaction records. Tokens can correspond to specific gold bars with identifiable serial numbers and audited vault holdings.

Integration with Digital Finance

Tokenised gold can be integrated with decentralised finance systems, used as collateral, or embedded into programmable financial products, enabling new forms of financial infrastructure built around commodity-backed assets.

Regulatory Framework

The regulatory approvals required in Bermuda will depend on the nature of the proposed activities (e.g. issuing, selling or redeeming tokens, providing custodial or other digital assets services or operating an exchange), the tokenisation structure and the nature and number of proposed token holders. Consultations are ongoing to further enhance Bermuda’s regulatory regime, but entities may require licensing under the Digital Asset Business Act 2018 (“DABA”) and Digital Asset Issuance Act 2020 (“DAIA”). The Investment Business Act 2003 (“IBA”) and Investment Funds Act 2006 (“IFA”) can also be relevant.

Digital Asset Business Act 2018

DABA establishes a licensing regime for entities conducting digital asset business in or from within Bermuda. Activities captured under the regime include issuing, selling or redeeming digital assets, operating digital asset exchanges, providing custodial wallet services, operating as a digital asset derivative exchange provider, operating as a digital assets services vendor and operating as a digital asset lending or digital asset repurchase transactions service provider.

Digital Asset Issuance Act 2020

DAIA governs offerings of digital assets to the public and imposes disclosure and regulatory approval requirements for token issuances. Issuances to a limited number of acquirers or to designated qualified participants do not constitute offerings to the public and are not subject to DAIA.

Investment Business Act 2003 and Investment Funds Act 2006

Certain product structures in tokenisation may be regarded as ‘investments’ under the IBA or as ‘investment funds. Under the IFA, potentially triggering dual licensing obligations.

The industry regulator, the Bermuda Monetary Authority (“BMA”), is working closely with industry stakeholders with a view to implementing legislative and regulatory proposals to further support the development and adoption of tokenised assets in Bermuda and to streamline the licensing process to avoid dual licensing requirements under DABA, DAIA, IBA and IFA (as applicable).

AML/ATF Compliance

Digital asset businesses operating in or from Bermuda must comply with the jurisdiction’s globally recognised anti-money laundering and anti-terrorist financing framework (Proceeds of Crime Act 1997; Anti-Money Laundering and Anti-Terrorist Financing Regulations 2008 etc.) tailored specifically for digital asset businesses. Key obligations typically include:

• customer due diligence and AML/ATF procedures;
• transaction monitoring;
• ongoing monitoring & reporting;
• sanctions screening; and
• reporting of suspicious activity.

Bermuda’s regulatory framework is designed to align with international standards including those established by the Financial Action Task Force.

Cyber Risk

Like other financial centres, Bermuda has enacted cyber risk management laws to help combat cybercrime, ransom attacks and other online security threats. This includes the “Digital Asset Business Operational Cyber Risk Management Code of Practice” (effective January 2024) published by the BMA, with which a tokenisation project must comply.

A detailed assessment of the token structure, underlying investment exposure and target investor base is necessary in order to determine the precise regulatory approvals required in Bermuda.

Transaction Structures

A tokenised gold project established in Bermuda may be structured in a number of ways depending on the business model and regulatory classification.

Digital Twins vs Native Tokens

Tokenised structures typically adopt one of two approaches:

1. Digital Twins

A digital twin is a blockchain-based token that serves as a digital representation of a RWA existing outside the blockchain (i.e. off-chain). The token does not itself constitute the asset but rather represents the holder’s rights, interests or claims in respect of that asset.

The most common model for gold tokenisation involves:

1. physical gold held off-chain in a vault;
2. legal title held by a custodian or special purpose vehicle; and
3. blockchain tokens representing beneficial ownership or contractual redemption rights.

This structure closely mirrors the approach adopted by major tokenised gold projects.

2. Native Tokens

Native tokens are digital assets that are created, issued and exist solely within a distributed ledger technology (DLT) environment (i.e. on-chain). Unlike digital twins, native tokens do not represent a claim over a separately existing off-chain asset – the token is the asset. The entire lifecycle of the asset, from issuance through transfer to retirement is recorded and governed on-chain.

Gold does not lend itself to native tokenisation given that it necessarily exists off-chain and is not typically used in this context.

Storage and Vault Custody

The integrity of tokenised gold depends heavily on custody arrangements. Common features include:

• allocated storage in professional bullion vaults e.g. in the UK, US, Switzerland or Singapore;
• periodic independent audits verifying the existence and purity of the underlying gold; and
• segregation of client assets from operating assets of the issuer or platform.

Smart Contracts

Smart contracts are often used to automate core functions in tokenised commodity structures, including:

• token issuance linked to deposits of physical gold;
• automated transfer of ownership on the blockchain ledger, potentially subject to inbuilt compliance checks; and
• token redemption mechanisms upon delivery or sale of underlying bullion.

Careful legal structuring is required to ensure that tokenholder rights correspond clearly to the underlying assets and custody arrangements.

Why Bermuda

Bermuda has emerged as a leading jurisdiction for digital asset and fintech innovation. Key advantages include:

Regulatory Leadership

Bermuda was among the first jurisdictions globally to implement a comprehensive regulatory regime for digital asset businesses through DABA and DAIA.

Pragmatic Regulatory Approach

The BMA adopts a proportionate and risk based approach to regulation, and has developed a reputation for engaging constructively with emerging technology businesses.

Established Financial Services Infrastructure

The jurisdiction hosts a sophisticated ecosystem of financial institutions, insurers, funds and professional service providers capable of supporting complex and novel transactions.

Legal Certainty

Bermuda’s legal system is based on English common law and provides a stable framework for structuring cross-border investment and asset-backed digital products. These characteristics make Bermuda particularly attractive for projects involving tokenised commodities and other RWAs.

International Regulation

Bermuda is widely considered the “blue-chip” offshore jurisdiction, preferred by institutional investors and Fortune 500 companies. It has implemented economic substance rules in line with OECD standards. Bermuda is recognised by the OECD, FATF, and the EU as a cooperative jurisdiction

Working with Wakefield Quin

Wakefield Quin is a leading independent law firm in Bermuda. We have a highly-rated corporate practice, experienced in advising regulated entities in the jurisdiction.

We are particularly interested in natural resources and digital assets. We have a close working relationship with Government and pride ourselves on achieving positive regulatory outcomes for our clients.

Wakefield Quin can provide company secretarial and/or director services through our affiliate company, M Q Services. We also work with a wide network of expert digital asset service providers and senior representatives in Bermuda to provide a seamless client service.

This note has been prepared for information purposes only. Please contact us should you wish to discuss in more detail.

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