Why the United States is Still a Web3 "No-Fly Zone"
U.S. regulatory uncertainty hinders Web3 growth, with outdated laws on governance tokens, decentralized records, and crypto compliance limiting innovation.
The United States faces significant regulatory uncertainty regarding cryptocurrencies, decentralized finance (DeFi), and governance tokens, creating conditions that make it difficult for Web3 innovation to take root.
As Adam Miller stated in a recent episode of the Network State Podcast, hosted by Balaji Srinivasan: "The problem is you're in the United States, and DAOs are global organizations. So that's the issue with the U.S. You have a state law governing an international DAO."
Despite several attempts by states to craft DAO legislation, the regulatory ambiguity at the federal level stems from outdated frameworks and agencies that fail to account for decentralized technologies and token-based models. Without clear guidance on classification, compliance requirements, and permitted activities, projects incorporated in the US face major barriers to adoption.
Why Federal Regulatory Ambiguity Is the Core Problem
The issue is not that the U.S. has no crypto legislation. Several states have made genuine attempts. The problem is that state-level rules cannot override federal enforcement, and at the federal level, the rules remain unclear.
As the fear of potential federal government intervention and unclear securities regulations continues to push projects away from the U.S., Web3 organizations struggle to access financing, hold assets, develop token economies, and more without risk of penalty.
Projects based in the U.S. typically face a combination of the following barriers:
- No clear classification for governance tokens, leaving them exposed to securities enforcement
- No safe harbors for asset custodians, making it difficult for banks and funds to serve crypto ventures
- No federal recognition of on-chain governance or record-keeping as legally valid
- Ongoing uncertainty around tax treatment for token-based activities
The climate of uncertainty also restricts institutions like banks and funds from engaging with and offering services to cryptocurrency ventures, further stifling growth. Without safe harbors for asset custodians, clarity on tax treatment, and exemptions for certain activities, traditional financial services entities remain cautious about the sector. This starves projects of infrastructure support and widens the gap between decentralized networks and legacy systems.
Restrictions on Critical On-Chain Functions
An equally significant challenge comes from strict restrictions on performing essential on-chain operations. While blockchain-based record-keeping offers clear advantages in accuracy, transparency, and ease of data sharing, U.S. law has not moved to recognize these benefits.
As Miller highlighted: "Traditional LLCs, a member of the government, or anyone could come to you and say, I want a copy of all the organization's records, and you'd have to provide them with a PDF or a binder full of records."
What U.S. Law Still Requires That Blockchain Already Handles Better
Legacy regulations still demand paper filings, physical addresses, and traditional bank accounts, even when a public, timestamped, and immutable on-chain record already exists. While other jurisdictions are updating laws to recognize on-chain governance, the U.S. has not caught up.
This prevents projects from fully using blockchain technology's core strengths:
- Reliability and security of decentralized record storage
- Accessibility of publicly verifiable transaction histories
- Programmability that allows governance to be encoded directly into smart contracts
Until policymakers modernize organizational regulations, these outdated requirements will continue to reduce operational efficiency and push projects toward jurisdictions that treat on-chain records as legally valid.
Outdated Securities Regulations Limit Token Utility
In the U.S., outdated securities classifications often restrict tokens' intended utility and hinder decentralized governance. As Miller emphasized, governments are "trying to enforce dated securities laws" and "apply concepts like traditional securities to governance tokens."
Is a governance token a security? In the U.S., the answer is often yes, regardless of how the token actually works. The SEC's own framework for digital asset investment contracts illustrates how broad and unresolved this classification question remains.
How Blunt Token Classifications Harm Both Projects and Investors
Simplistic classifications fall short of accounting for the range of token designs in use today, from governance rights to staking rewards and protocol fees. Rather than updating frameworks to support tokenized models, U.S. securities laws force projects to limit token functionality or risk penalties.
This has two direct consequences:
- It reduces the incentive to develop token-based operating models that expand participant rights and value creation
- It limits sophisticated investors' access to potentially valuable assets based on blunt categorizations rather than a nuanced assessment of risks and rewards
Modernizing Policy is Critical for Competition
In contrast to the United States' regulatory delays, jurisdictions like the Marshall Islands offer more welcoming conditions for Web3 innovation to advance. With its compliant platform for DAO LLC registration, tailored organizational regulations, and expanding crypto-asset laws, the Marshall Islands demonstrates the potential benefits of forward-thinking blockchain regulation.
As Miller stated: "We have more that we're working on in the pipeline, laws and regulations to continue to help the Marshall Islands be the best place in the world and the only sovereign nation that truly recognizes the nature of DAOs and Web3."
Regulatory sandboxes in other regions also encourage controlled experimentation with new models under structured policy frameworks. A shift towards more forward-thinking policy and organizational law is critical for the U.S. to remain competitive.
Targeted safe harbors, nuanced classifications, and exemptions tailored to decentralized structures can help bridge the gap. Fostering collaboration between regulators, lawmakers, and industry experts, along the lines of what the Uniform Law Commission has attempted with digital asset legislation, can lead to more balanced policymaking.
Without such efforts, the regulatory barriers and legal constraints in the United States will continue to make it a difficult place for leading-edge Web3 projects. Examples like the Marshall Islands show that progressive regulation, rather than restriction, helps position countries as attractive places for transformative technologies.
Learn More About DAO Legal Structures Globally
For those looking to deepen their knowledge about the Marshall Islands' cutting-edge digital governance law and the global DAO environment, explore the wealth of content available in the "Just DAO It" podcast and MIDAO blog.
The "Just DAO It" show features Adam Miller unpacking the nuances of legally structuring organizations for Web3 across multiple in-depth episodes. Listeners can access the podcast through various platforms:
The MIDAO blog is also an invaluable resource for anyone interested in learning about or forming a legally compliant DAO. Whether you simply want to stay updated on the evolving DAO landscape or have specific plans to structure a blockchain-based organization, you’ll find unparalleled guidance directly from experts.