The great migration of web3 projects from the US to Europe and now Asia

  • February 10, 2024

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The global race to embrace blockchain technology and establish robust regulations has escalated dramatically. In the wake of the shocking corruption of 2022, the web3 landscape has experienced a profound transformation. Ongoing regulatory hurdles in the United States are compelling projects to venture into more favorable jurisdictions. With the relentless scrutiny that blockchain-based initiatives endure in the American landscape, European and Asian–Pacific (APAC) nations are gaining unprecedented appeal for web3 projects seeking to sidestep costly legal battles and uncertainty.

The United States has a rich history of technological innovation, dating back to its pioneering efforts in the creation of the Internet during the 1970s-80s. This legacy of leadership in technological advancement continued into the present day, with Silicon Valley playing a central role in the evolution and widespread adoption of cryptocurrencies and blockchain technology. Nevertheless, the growing hesitancy and adversarial stance within the US regulatory landscape have introduced complexities, causing some blockchain projects to reconsider their plans. This hesitancy not only hampers the pace of innovation but also inhibits exploring the potential benefits that web3 integration could offer the United States.

Navigating the intricacies of securities regulation and taxation poses significant challenges within the United States. The SEC’s heightened scrutiny of digital assets aims to ascertain whether they fit the securities classification. The absence of clear-cut guidelines has become increasingly evident, leaving room for potential misclassifications that could lead to severe legal consequences. Instances of such misclassifications are already emerging, as seen in the cases of Grayscale and Coinbase. Many startups closely monitor these legal battles, apprehensive about being entangled in similar litigation or facing fines.

In addition to these concerns, crypto and blockchain assets face a multitude of tax implications in the United States. The IRS has been actively working to clarify tax requirements, but the blockchain industry’s ever-evolving nature presents challenges in keeping pace with these changes. This persistent ambiguity surrounding regulation and taxation impedes the investment and development of цeb3 technologies within the United States.

The quest for regulatory clarity is one of the paramount challenges confronting web3 initiatives within the United States. Despite some guidance US regulatory authorities provide, significant facets of web3 remain untouched by formal regulation. The industry’s breakneck expansion has left regulatory frameworks struggling to keep pace, resulting in legal measures lagging behind the innovation sweeping the web3 landscape. This pervasive uncertainty has compelled many projects to seek refuge abroad, where they can confidently conduct operations within a more foreseeable regulatory landscape. The multitude of barriers within the United States has effectively eroded its leading position in the global crypto race, as numerous crypto-friendly countries worldwide offer more transparent legal frameworks for projects operating within blockchain technology.

Countries like Switzerland and Malta provide a more robust, supportive environment for innovation in web3, encouraging projects to relocate their operations and headquarters to Europe, and cities like Zug (known as Crypto Valley) are uniquely positioned to make the most of their business environment.

Europe has emerged as a prime destination for project migration owing to its well-defined regulatory and compliance landscape. The advent of the European Union’s Markets in Crypto Assets (MiCA) regulation, set to take effect in 2024, has spurred a migration wave among blockchain and crypto enterprises, prompting them to relocate from the United States. This comprehensive framework is geared towards establishing clear and legally sound trading practices and compliance standards for operating projects. While adhering to these regulations may pose challenges and necessitate rigorous approval processes, their implementation promises to purge the industry of malign actors. This, in turn, instills greater confidence in the broader public, assuring them of safe interactions with blockchain technologies and, consequently, expediting widespread adoption.

Examples of what the MiCA framework provides:

  • Token classification: MiCA establishes clear and standardized definitions for various types of crypto assets, including cryptocurrencies, utility tokens, and security tokens. This classification helps regulators and market participants understand the nature and regulatory treatment of different tokens.
  • Stablecoin regulation: MiCA introduces comprehensive regulation for stablecoins, crypto assets designed to maintain a stable value. It outlines requirements for issuers, such as capital reserves and transparency, to ensure the stability and safety of these digital assets.
  • Crypto service providers: The framework sets rules for crypto service providers, including exchanges, wallet providers, and custodians. To enhance consumer protection, it mandates registration and compliance with anti-money laundering (AML) and know-your-customer (KYC) regulations.
  • Cross-border activities: MiCA provides a harmonized regulatory framework across the European Union, making it easier for crypto businesses to operate across EU member states. It fosters cross-border competition while ensuring consistent regulatory standards.

Europe hosts a variety of dynamic ecosystems that pique the interest of Web3 projects and startups. Cities such as London, Berlin, and Ljubljana have gained renown for their vibrant blockchain communities and nurturing atmospheres, boasting distinctive appeals. These include access to capital, a highly educated workforce, a dedicated commitment to fostering futuristic innovations, and, notably, their accommodating regulatory frameworks. The migration has already commenced, and Europe has firmly established itself as a blockchain-friendly epicenter for innovation.

The Asia-Pacific region has rapidly risen as a significant contender in attracting web3 projects thanks to its proactive approach to engaging with the industry. Countries like Japan, Hong Kong, and Singapore are diligently working on establishing comprehensive regulatory frameworks to facilitate secure and effective innovation in blockchain technologies.

Japan has already implemented robust licensing and registration frameworks for cryptocurrencies, aligning itself with its sizable web3 community. Simultaneously, the Hong Kong Monetary Authority has introduced licensing frameworks and launched its e-HKD Pilot Programme. Notably, it’s in discussions with major banks like HSBC, Standard Chartered, and Bank of China to integrate cryptocurrencies. The Monetary Authority of Singapore has also made significant strides in embracing web3, crafting a clear and concise regulatory framework tailored to the industry’s needs, with a strong emphasis on consumer protection and financial stability, as seen in their dealings with Ripple and Coinbase.

Asia’s openness to this burgeoning industry undeniably provides a sanctuary for projects that struggled to find stability and trust in their home countries, such as the United States. Another testament to APAC’s embrace of web3 is evident in the educational institutions within the region, specifically the National University of Singapore and Hong Kong Polytechnic University, which actively promote blockchain research and development.

With the lack of regulatory clarity and willingness to work with the blockchain in the US, migration to the EU and APAC regions will continue to trend. Especially as the SEC continues to probe into more projects and hunt for loopholes, it’ll be difficult for the US to continue being a major innovation hub. It’s crucial that the US lays down the base rules and regulations for the industry to follow to prevent bad actors from entering the landscape. Continued lack of interest and aggressive plays from the US government will eventually lead to talent migration, stalling the growth of innovation and thus market growth and expansion, ultimately damaging the country more than doing any good.

Regulatory arbitrage seems to continue to be a prominent feature within the industry. As innovation continues to outpace traditional regulatory frameworks, more projects will migrate to more welcoming countries that encourage growth and development. However, this exodus could also result in a need for regulatory convergence as countries recognize the essential need for consistency and cross-border collaboration.

Web3 transcends borders and alternatively fosters globalization. It inherently offers a borderless, decentralized infrastructure to connect businesses, organizations, and individuals worldwide. This globalization has the potential to promote financial inclusion and collaboration across cultures. It bridges gaps and democratizes assets to cultivate a more robust, more connected global society.

The future of the industry presents unique challenges but simultaneously holds exciting opportunities. The migration of web3 projects is inevitable at this point. With projects continuing to move out of the US to Europe and APAC, it highlights the growing importance of regulatory clarity and support in the blockchain industry in accelerating mass adoption. While countries within Europe and APAC continue to emerge as attractive and welcoming destinations, this ongoing trend highlights the dire need for global regulatory coordination and an agreed-upon, universal approach to addressing these challenges and opportunities presented by web3 technologies. As the web3 ecosystem continues to evolve, the regulatory landscape will play an increasingly pivotal role in accelerating the onboarding of blockchain technologies.

Lucas Lu

Lucas Lu

Lucas Lu is the CEO of ByteTrade Lab, an infrastructure builder focusing on web3 innovation, including data privacy and user empowerment. Previously, he worked at CERN, where he was involved in theoretical and experimental research on the Higgs particle. Lucas was co-founder and CTO of Light In the Box, a company listed on the NYSE (LITB), and he received his PhD in particle physics from SMU in 2005.

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