How to Issue Tokens and Set Up a DAO in Panama

Choosing the right jurisdiction remains a challenging task for many Web3 builders. Different Web3 projects have varying strategies for launching their protocols, apps, and tokens. This diversity makes it difficult to find a single country that meets all business needs.

Panama has established itself as a key player in the Web3 industry, particularly for projects launching applications with native tokens. This guide explores why Panama has become so attractive, examines crucial considerations for builders choosing this jurisdiction, discusses suitable alternatives, and outlines practical next steps.

Panama as a popular and friendly jurisdiction for crypto projects

Panama has emerged as one of the most popular jurisdictions for crypto projects. This trend began in 2022 when SushiSwap DAO voted for a Panamanian setup, sparking a wave of similar arrangements.

While most industry-agnostic web3 infrastructure projects (such as L2, DePIN, DeAI) register as Cayman foundations, Panama has become the preferred jurisdiction for industry-specific Web3 applications. These include DEXs, AMMs, liquid staking protocols, and other DeFi projects such as derivative platforms, as well as Web3 social applications like prediction markets.

Why Panama has become popular for Web3 applications

As mentioned earlier, trendsetters like SushiSwap chose to establish a Panamanian setup. Following this lead, several DeFi projects including Forward Protocol, Zaros, and OpenPeer now operate from Panama. In the Web3 social space, projects such as Polymarket (prediction market), VLaunch (influencer marketplace), and NFTfi have also chosen Panama as their base. Here are the key reasons why Web3 projects are choosing this jurisdiction.

Flexibility of regulatory environment

Most countries with existing crypto regulations (including Caymans, BVI, Singapore, EU's MiCA, and Switzerland) still have unclear guidelines about utility tokens and DeFi protocol interfaces. Conversely, Panama's lack of crypto regulations offers greater flexibility for innovation, also, Panamanian legal entities have traditionally had an “offshore” treatment when they do not perform business within the Panamanian territory.

Time and cost-effectiveness of Panamanian registration

Setting up a Panamanian foundation costs up to 5,000 USD, with annual maintenance fees of up to 5,000 USD for nominee directors. As Panama has no crypto regulations, projects don't require governmental authorizations or licenses, allowing for a swift one-week setup and market entry. Even though these activities aren´t regulated, they are fully legal. You might require legal opinions when listing in mobile application stores, centralized exchanges, or similar to clarify these aspects.

It's worth noting that Panama's non-regulated crypto environment has a significant drawback—limited banking options, but multiple debit card and international transfer fintech solutions. Another key consideration for builders is Panama's offshore (tax-neutral) status, which results in some regions classifying it as a non-cooperative jurisdiction (these and other implications will be discussed below).

How does the Panamanian setup work for Web3 application projects and their tokens?

Web3 applications typically consist of three main layers:

• protocol layer, which ensures decentralized settlement
• economic layer, which secures the network with tokens
• interface layer, which facilitates the usage of protocol and tokens for end users

Each layer has its own business objectives and risk profile. As a result, Web3 projects commonly register a separate legal entity for each layer. A Panamanian setup usually includes three entities:

• Foundation (Panama Private Interest Foundation): This ownerless entity manages the protocol layer by overseeing its upgradability and compliance while maintaining the protocol's treasury for long-term ecosystem success.
• Token SPV (Panama Corporation): This subsidiary of the foundation handles SAFT signing during the pre-TGE stage and manages token minting and initial distribution during the TGE stage.
• Front-end Operator (Panama Corporation): This subsidiary maintains the user interface. As a user-facing entity, it can also function as a revenue-generating unit if the front-end is monetized.

Since this Panamanian setup in an ideal scenario comprises three entities—each maintaining a specific layer of the decentralized project—it is often called the "Panamanian Triangle."

📚 Learn more: Legal Structuring of Web3 Protocol Interfaces

What is required to create a Panamanian setup for a Web3 project?

Panama currently has no crypto regulation (though this may change, as the Panamanian government attempted to regulate crypto in 2021, it’s important to mention that this regulation, as we mentioned above, will only likely target activities performed within the Panamanian territory, as of January 2025 a new working group in being created as an initiative from the private sector). For teams launching a sufficiently decentralized protocol with protocol-native tokens that have purely software-related use cases, the governmental authorizations aren't needed.

To proceed with this setup, the company requires the following:

1. Instructing Party information (KYC documents)
2. Three foundation Council members (Directors) In case it’s a legal entity Panamanian law only requires a minimum of one. They (Nor Directors in Corporations) are required to be in Panama, nor to be Panamanian, so you can provide them as well.
3. [Optional] Protector (who serves in a supervisory role for the foundation)
4. Directors for each foundation-owned subsidiary (e.g. Token SPV, Front-end Operator)
5. Clear definition of the foundation's statutory purpose

Legal and tax considerations for founders based on residency

After a Web3 team completes the regulatory and compliance analysis for their project's business activities, they can move forward with company registration—a typically straightforward technical process. However, registration is just one part of the structuring process. The jurisdiction must also be evaluated from the perspective of project objectives and potential founder implications.

The potential implications and risks for founders fall into three main categories, which we outline below.

Tax implications

Registering a company in a tax-neutral (offshore) jurisdiction can have several tax implications for company beneficiaries (founders):

1. Additional reporting requirements in their countries of residency (CFC rules)
2. Additional tax obligations when the offshore company generates income (from token sales or dApp operations)
3. Potential tax reclassification from offshore tax-neutral to onshore tax resident (Place of Effective Management rule)
4. Banking complications if the offshore jurisdiction is listed as non-cooperative (as in the EU)

Regulatory and contractual liability

Projects may face liability for negligent cybersecurity that leads to hacker attacks (e.g. the Tapioca DAO case) or poor content management resulting in human rights violations (like in the case of Pump fun). Liability can also arise from non-compliant promotion of the app in foreign jurisdictions (such as the Polymarket case in the US and the Pump fun case in the UK).

Criminal liability

Criminal charges may result from inadequate management of on-chain protocol compliance (lack of on-chain AML screening and other measures preventing illegal activities) and non-compliant interfaces (e.g. case of Tornado cash).

"As Panama has no crypto regulations, projects don't require governmental authorizations or licenses, allowing for a swift one-week setup and market entry. Even though these activities aren´t regulated, they are fully legal. You might require legal opinions when listing in mobile application stores, centralized exchanges, or similar to clarify these aspects", - Teresa Carballo, Partner @ Pacifica Legal.

Legal roadmap for builders considering a Panamanian setup for Web3 apps

One of the purposes of this article was to show Web3 builders that dApp and token structuring involves more than just company registration. The process requires an in-depth analysis of the chosen jurisdiction from both the project's and founders' perspectives.

Therefore, we recommend builders analyze their Panamanian structuring options in these three stages:

Pre-incorporation stage

• Analysis of project's business needs and Panama's regulatory landscape
• Analysis of legal and tax implications for founders choosing Panama for company registration

Incorporation stage

• Defining personnel for key roles (directors, foundation council members, protector)
• Engaging nominee services (basic versus signatory nominee directors)
• Setting up governance (decision-making, delegation, committees or similar)

Post-incorporation stage

• Launching a dApp (Terms & Conditions, geofencing, transaction screening)
• Issuing tokens (SAFT, Token Sales Agreement (TSA), token offering documentation)

💡 Worth checking: Utility Token Launch Legal Guide

Alternative options to Panamanian setup

Of course, a Panamanian setup isn’t the only option for Web3 founders. Here are three alternatives worth considering:

Cayman foundation + BVI token issuer corporation

In lieu of choosing Panama for setting up a foundation and Token SPV, projects could choose to set up a foundation in the Cayman Islands and set up a BVI corporation as the token issuer. It is important to note that whilst token issuance in the Cayman Islands is subject to regulation, in this case, token issuance would be handled through the Token SPV in the British Virgin Islands, which permits unregulated token issuance.

Legal advice and help should be sought to check risks associated with your token (and your planned token distribution process) being perceived as a security or as a token subject to the BVI VASP authorization.

This Cayman + BVI option may be very suitable for some projects and appealing for several reasons, including the BVI’s ‘offshore’ tax status, however there are other factors to be considered. Some international and regional regulatory bodies, such as the Financial Action Task Force (FATF) have listed Cayman Islands on a grey list in the past. These lists are designed to create a globally consistent approach to combatting money laundering and terrorist financing (AML/CFT). As of December 2024, neither BVI nor Caymans are present on the FATF’s watch list.

Swiss foundation + Swiss token issuer

For Web3 projects looking for regulated options, A Swiss Foundation and a Swiss token issuer is a more reputable (and more costly) route. Swiss foundations require clear purposes for registration and will be subject to external auditors if the foundations assets surpass a threshold (e.g. a total balance sheet of $20 million USD). The supervisory authority will also have quite broad powers over the foundation, which some founders may find less appealing. That being said, this option would require gaining authorization for token issuance, meaning that Web3 application projects can enjoy more transparency and certainty around the legality of the token issuance.

Liechtenstein foundation + Liechtenstein token issuer

If Switzerland isn’t suitable, another regulated option is to set up a Liechtenstein foundation alongside a Liechtenstein token issuance company. Again, this option would mean you have companies established in reputable jurisdictions (albeit at a higher cost compared to unregulated options). The VASP regime, set out primarily under the Token and Trustworthy Technology Service Provider Act, require all blockchain companies to operate under license.

How Legal Nodes can help builders set up their cross-border legal structure

At Legal Nodes, we provide comprehensive guidance with a global perspective, helping you understand and evaluate both regulated and unregulated token issuance options and determine the most suitable path forward. We assist with establishing and integrating various company structures needed for development, operations, and fundraising activities, guiding you on the latest best practices. When legal or tax opinions are required for decision-making, we connect you with the right experts from our network of verified professionals, situated across over 20 jurisdictions.

Our goal is to support Web3 builders in creating compliant and robust projects through proper legal structuring and ongoing operational support. We’ve already supported over 300 Web3 projects with various fundraising, token launch, and other legal tasks. To find out how we can help your project, contact us today.

Frequently asked questions (FAQs) about setting up in Panama for crypto projects

Is there a crypto regulation in Panama?

No, Panama currently has no Virtual Asset Services Provider (VASP) regime or regulatory framework that governs cryptocurrencies or crypto-related activities, including the operation of these.  

Panama’s regulatory framework, including financial, banking, and securities laws, do not encompass or impose specific regulatory obligations on companies engaged solely in such cryptocurrency transaction services. Accordingly, no licensing requirements apply to the provision of these services under existing Panamanian law.

Furthermore, both the Superintendency of Banks (SBP) and the Superintendency of Securities Market (SMV) have affirmed through multiple formal opinions that, in the absence of relevant regulation, these authorities lack the jurisdiction and authority to oversee, regulate, or issue any form of license for cryptocurrency-related services. 

Is Panama introducing new crypto laws?

Bill No. 697 of 2021 which “regulates the Market and Use of Virtual Assets and the Providers of Virtual Asset Services and enacts other provisions”, was declared unconstitutional by the Supreme Court of Justice, in a ruling dated June 6, 2023, this bill had been approved in a third debate by the National Assembly during its session on October 28, 2022.

The decision, in essence, states: “The entire Bill No. 697 of 2021 is unconstitutional since its approval by the National Assembly did not comply with the parameters established for the formation of Laws by the Constitution, specifically Article 170.”, it had reached the Supreme Court because President, exercising his constitutional powers, raised an unconstitutionality objection against it.

As indicated by the dissenting opinion of Justice Olmedo Arrocha, one of the members of the Supreme Court, stated that this activity; that is, the purchase of cryptocurrencies and tokenization of assets, is neither regulated nor prohibited. Being unregulated, it will be an activity that does not offer guarantees to consumers and will be governed by trust, moral controls, market rules, and general legal principles.

It's important to mention, that the new government has included the use of blockchain for transparency measures at a governmental level, and a new working group from the public sector is being developed to bring laws, which will likely give guidance and flexibility to crypto projects.

How does the Panama Private Interest Foundation work?

A Panama Private Interest Foundation (PIF) is a legal entity established under Panamanian law designed for asset protection and estate planning. It operates similarly to a trust but has a legal personality, managed by a Foundation Council without shareholders (it has the figure of beneficiaries of the Foundation). The PIF allows founders or any third party to transfer assets to fulfill a purpose for the benefit of designated beneficiaries while ensuring privacy and confidentiality. It normally does not engage directly in commercial activities but can hold various assets, including real estate and investments, and do acts of commerce in relation to them. Key advantages include protection from creditors, tax exemptions on foreign income, and flexibility in managing family wealth.

What is the price to set up a Panama foundation for DAO?

The cost to set up a Panama Private Interest Foundation (PIF) for a DAO varies, but typically ranges from $1,350 to $5,750 USD. This includes registration fees, an initial capital requirement of $10,000 (which doesn't need to be paid upfront), and various legal and administrative costs. Additional fees may apply for nominee services, ranging from $1,775 to $7,950. Annual maintenance fees are around $3,750, plus government fees of $300-$400. Prices may differ based on service providers and specific requirements.

What documents are needed to set up a Panama foundation?

To set up a Panama foundation, you typically need:

1. Foundation Charter: Outlines the foundation's name, purpose, and details.
2. Founder's identification documents.
3. Foundation Council members' information and identification.
4. Registered Agent.
5. Registered Domicile.
6. Private Protectorate Document (if appointing a Protector).
7. By-laws, where the beneficiaries and other private information is included.
8. These documents must be notarized and registered with the Panama Public Registry. Additional forms and agreements may be required by the formation service provider.
   

Legal Nodes provides you with comprehensive support for your company registration process, from guidance on jurisdiction and entity choice, to helping you fill out company registration forms to submit to the registered agent.

How fast can you set up a Panama foundation?

A Panama Private Interest Foundation can typically be set up in 3-7 business days. Some providers offer expedited services, allowing formation within 24-48 hours for an additional fee. Shelf foundations are also available for immediate use. The exact timeframe may vary depending on the service provider and specific requirements.

When you work with Legal Nodes, we will provide you with the final time and prices estimates for your Panamanian companies registration before you proceed with the actual legal works. Contact us today to get a custom quote for your project.