Jewel, a proposed Bermudian bank and aspiring stablecoin issuer that is looking to provide services to digital asset businesses worldwide, has hired Nick Lepetsos, a veteran of First Western Trust Bank, as CEO.
He is coming on board at a time when the proposed bank is waiting to see whether its application for a banking license in the British island territory of Bermuda will be approved, according to a press statement shared with CoinDesk. If approved, the combined bank and digital asset license will allow Jewel to serve as the custodian for digital assets, facilitate crypto-collateralized lending and issue its own stablecoins, which are cryptocurrencies whose value is pegged to other assets like the U.S. dollar, the statement said.
Lepetsos, who will officially start as CEO on Friday, will bring his expertise in traditional banking to the digital asset world.
“What I really want to do for Jewel going forward is to be the person that can be in that mesh point between the traditional fiat currency commercial banking business and the digital asset business, both of which are important,” Lepetsos said.
Chancellor Barnett, Jewel’s founder and chairman, said Jewel is preparing for an early 2022 launch.
Banks around the world are exploring the prospects of offering crypto and other digital asset custody services. In 2020, U.S. financial regulators began allowing national banks to be the crypto custodian on behalf of customers. In April, Paxos became the third regulated crypto trust charter in the U.S. after Anchorage and Protego.
Earlier this year, CoinDesk reported that Deutsche Bank is working on a digital asset custody platform for institutional clients. In September, Swiss bank SEBA obtained a license from the local financial watchdog to be the custodian of and offer digital assets to Swiss-based clients. Barnett told CoinDesk that his staff worked with Bermudian financial regulators for almost two and a half years to assemble the application before it was submitted in June to the Bermuda Monetary Authority (BMA).
“We got to actually go through a collaborative process to create a bank application that was of no surprise to [Bermudian regulators] so that puts us in a really great position … We feel extremely confident about where we’re headed, and the future of the bank,” Barnett said.
A spokesperson for the BMA told CoinDesk that the agency doesn’t comment on pending applications.
“If the BMA is aware of false statements, we will request that the information is corrected, removed or [publish] details regarding the falsehood on its website’s ‘Warning List’,” the spokesperson said in an email to CoinDesk.
Despite the BMA’s statement, Bermuda Premier David Burt appeared to have endorsed the proposed bank, saying, “The introduction of Jewel as Bermuda’s first dedicated digital asset bank can provide the critical infrastructure to further drive the growth of Bermuda’s digital asset economy.”
Genesis of Jewel
Before he founded Jewel, Barnett was the founding CEO of equity crowdfunding platform crowdfunder.com (which Barnett is no longer associated with). According to his LinkedIn profile, he also co-founded cryptocurrency wallet CoinCircle and worked as an adviser to software company Orchid Labs.
About four years ago, Barnett met Lepetsos, who has around three decades of experience in traditional banking. The two became interested in exploring use cases for stablecoins and were approached by the U.S. Office of the Comptroller of the Currency’s (OCC) Office of Innovation to discuss ideas.
“We realized that the U.S. wasn’t ready to move with clarity in any aspect, and that sent me offshore looking for other progressive jurisdictions to do something similar,” Barnett said, explaining what led him to Bermuda.
In 2018, Bermuda established the Digital Asset Business Act (DABA), a legal framework for governing digital assets. The territory became one of the first jurisdictions in the world to test a COVID-19 stimulus token designed to help deliver pandemic aid swiftly through smartphones. Earlier this year, Bermuda tested a digital dollar for retail payments.
“But one of the pieces of missing infrastructure was really a dedicated digital asset bank in Bermuda to provide services where companies can really come and grow. And that was the genesis of Jewel,” Barnett said.
Bermuda’s Banks and Deposit Companies Act of 1999 (which lays out licensing requirements for local banks) was amended in 2018 to include a restricted banking license that would allow banks to provide banking services to Bermuda-based digital asset and fintech firms.
Barnett says Jewel initially went for the restricted license for digital asset banking but felt it was too limiting. Instead, Barnett chose to pursue the existing Bermudian bank license, which will allow Jewel to offer fiat or crypto-collateralized lending and serve global clients in non-sanctioned jurisdictions – not just Bermuda based clients.
According to Barnett, Jewel raised capital from Bermudan family offices (investment management firms for the ultrawealthy), former bank owners and investors in the digital asset market. Jewel’s first outside funding round was led by Sir John Swan, a former premier of Bermuda, and his family office, Barnett said.
But Barnett said finding investors to get Jewel off the ground wasn’t easy.
“Early on, it was a different equation for people to try and wrap their heads around. We didn’t go to just the traditional private equity, traditional bank funding round, and there’s a few reasons for that, but the largest one is, we’re doing something that combines a bank into a scalable technology company. So it’s not a traditional bank trajectory,” Barnett said.
Stablecoins will be a core service for Jewel, as Barnett said the Bermuda digital asset license under DABA will allow the bank to issue its own stablecoins.
In DABA, “digital asset business” is defined as any business “issuing, selling or redeeming virtual coins, tokens or any other form of digital asset.” The act doesn’t mention stablecoins by name.
Barnett says not all stablecoins are “bad,” explaining that private banks are in the best position to function as stablecoin issuers.
“The big challenge that happens, let’s say there was a run, let’s say there was a bankruptcy or some major issue. The holder of the stablecoin has no contractual claim on the funds in custody. The only one who does, who has any say, and can control the whole thing is the underlying issuer, which is not the custodian,” Barnett said. He said that such a crisis can be avoided if a private bank is both the issuer and the custodian.
Barnett and Lepetsos confirmed that Jewel’s proposed product set includes issuing USD and other single fiat currency stablecoins. That will enable Jewel clients to settle and manage liquidity with trading partners within the bank in real time, according to the press statement.
Barnett later said in an email that Bermuda’s combined bank license and digital asset license application will help move stablecoin issuance from today’s non-bank-issued model, to a bank issued stablecoin model.
Jewel also plans to offer custody and banking services to crypto businesses from around the world.
“We’re talking not just large exchanges, but even hedge funds … The need is, in many ways, very basic, like finding a bank that can service digital assets companies with core banking and treasury needs,” said David Riker, Jewel’s chief development officer.
According to Riker, these core services include providing crypto exchanges with fiat currency on-and-off ramps, offering real-time transaction settlement and providing access to systems that are compatible with distributed ledger technology.