Mauritius is well-positioned to capitalize on the growing use of cryptocurrency settlement tokens, also known as bridge assets, to facilitate cross-border transactions. The island nation's Virtual Asset and Initial Token Offering Services Act (VAITOS Act) defines five license classes for virtual asset service providers (VASPs), including brokerage, wallet, custody, advisory, and marketplace. These licenses cover the necessary activities for a settlement-token operation.
A settlement token is a type of cryptocurrency designed to exist for only a few seconds, serving as a bridge between two currencies that do not trade directly with each other. Ripple's XRP is a prominent example of a settlement token, which can move value across different currencies in a matter of seconds. This is different from speculative assets or stablecoins, which are designed to hold value.
The use of settlement tokens can significantly reduce the cost and time associated with traditional cross-border transactions. Sending $200 to Sub-Saharan Africa through traditional correspondent banking, for instance, can cost around 9% and take several days. Ripple's On-Demand Liquidity service, which uses XRP as a bridge asset, can settle transactions in as little as three to five seconds.
Mauritius's financial center offers several advantages for a settlement-token corridor, including a licensing regime built for this activity, a strategic time zone that allows business to be conducted across four continents in the same working day, and a bilingual workforce. The country's hybrid legal system and network of double taxation agreements also make it an attractive gateway for international capital into Africa.
Despite having the necessary legal framework in place since 2022, no Mauritius-licensed VASP has yet applied for a license to operate a settlement-token corridor. South Africa, on the other hand, is already testing a settlement token on a real corridor through its regulatory sandbox. Ripple's network connects over 300 financial institutions across 55 countries and 70 currencies, with several African institutions already using its services.
To move forward, Mauritius needs one licensed VASP to apply for a brokerage or marketplace license and operate a settlement-token corridor. This could involve partnering with existing financial institutions or technology providers to pilot a supervised test within the next two to three quarters. The goal is to settle a real payment through a corridor, such as from Mauritius to a single East or Southern African destination.
The next step for Mauritius is to have an existing or new VASP, licensed under the brokerage and custody classes, run a supervised pilot for a settlement-token corridor. This would involve working with regulators and financial institutions to ensure a smooth and secure operation. By taking this step, Mauritius can position itself as a leader in the use of cryptocurrency settlement tokens for cross-border transactions.
Key points
- Mauritius has the necessary legal framework to license cryptocurrency settlement tokens, but has yet to grant a single operation.
- The use of settlement tokens can significantly reduce the cost and time associated with traditional cross-border transactions.
- Mauritius needs one licensed VASP to operate a settlement-token corridor and pilot a supervised test within the next two to three quarters.
