The Impact of Draconian Crypto Regulations on U.S. Citizens
Recent analyses from the venture capital firm Dragonfly reveal that stringent crypto regulations have prevented U.S. citizens from capitalizing on airdrops—a method of rewarding dedicated user communities through the distribution of free tokens. This regulatory landscape has resulted in an estimated loss of $2.6 billion in potential revenue for American users, alongside a staggering $1.4 billion in lost tax income for the government over the past four years.
In a comprehensive report released on Tuesday, Dragonfly examined a range of data derived from a sample of 11 significant airdrops that collectively generated over $7.16 billion since 2020. Among those airdrops were notable projects such as 1inch, EigenLayer, Arbitrum, Athena, Optimism, and LayerZero. The analysis found that the average median claim per eligible address participating in these airdrops amounted to approximately $4,562.
According to Jessica Furr, associate general counsel at Dragonfly, “We recognized a pressing need for data that illustrates the effects of regulation by enforcement and how these policies affect individuals, the broader economy, and the U.S. government.” She elaborated, “Thus, we chose to focus on airdrops as a specific case within the crypto sector to better understand the negative externalities stemming from current regulatory frameworks.”
The report estimates that U.S. users have collectively lost between $1.84 billion and $2.64 billion in potential revenue from 2020 to 2024, primarily due to geoblocking. This practice involves restricting access to U.S. IP addresses, allowing crypto projects to sidestep potential repercussions from regulators such as the Securities and Exchange Commission (SEC).
Years of regulatory ambiguity in the U.S. have created a chilling effect on innovation within the crypto space, prompting startups to relocate overseas, while established companies face subpoenas and lawsuits from regulatory bodies. Not just blockchain developers but also venture capital firms like Union Square Ventures and Andreessen Horowitz have come under scrutiny from the SEC for their investments in platforms like Uniswap, cited in the Dragonfly report as the last major airdrop that did not impose geoblocking in the U.S.
Dragonfly is not alone in its concerns regarding U.S. geoblocking. New York City-based Variant Fund has also released findings illustrating how crypto firms often feel compelled to exclude American users due to fears of regulatory repercussions. Furr stated, “When the regulations are unclear regarding permissible actions for projects, it often becomes safer to implement geoblocking to avoid potential trouble. Engaging in costly litigation to defend oneself can be detrimental to a project’s sustainability.”
The report highlights that nearly a quarter of all active crypto addresses worldwide belong to U.S. residents, with about 5.2 million American users affected by geoblocking since 2020. This figure does not account for individuals who resort to using virtual private networks (VPNs) to bypass geofencing restrictions.
Furthermore, Dragonfly estimates that the tax revenue lost due to income from geoblocked airdrops between 2020 and 2024 could range from $525 million to $1.38 billion in personal and corporate taxes.
