The global Web3 market was valued at $2.18 billion in 2023, with approximately $0.54 billion coming from the U.S. According to the same study, the market could exceed $65 billion by 2032. Even more crucially, decentralized technologies are among the most innovative fields, with use cases far beyond the financial market. Therefore, leadership in this area is a strategic goal for all major countries, and one of the main obstacles to achieving this goal is legal uncertainty.
U.S. Leadership in Web3 Technologies: Premises and Threats
The United States is the largest market for Web3 companies. This is due to several objective reasons, as evidenced by 2023 statistics:
- consumer spending in the U.S. amounted to about $18.86 trillion;
- the country had around 311.3 million internet users, which is nearly 92% of its total population;
- the e-commerce market in the U.S. reached a record high of $1.1 trillion.
In other words, the U.S. is the largest consumer market in the world, ranking high in internet penetration and digital technology usage. Additionally, the U.S. boasts one of the highest per capita income levels globally, fostering high levels of consumption. People have the money and are willing to spend it online.
Adding to this is the fact that the U.S. leads in the number of startups, significantly outpacing other countries. In 2023, there were over 77,927 startups in the U.S., more than any other nation. A major contributing factor is the U.S.’s status as the world leader in venture capital investment. In 2022, the total venture capital invested in startups worldwide was $445 billion, with $209.4 billion invested in the U.S.
These factors create ideal conditions for the development of innovative IT projects. However, competitors aren’t standing still. China is rapidly advancing various Web3 technologies in a centralized manner and has already taken the lead in the CBDC sector. Moreover, China is developing a sort of special economic zone for cryptocurrencies in Hong Kong, while such operations are banned on the mainland. Web3 markets in South Korea and Japan are also growing rapidly. Besides, the authorities in Singapore, India, the UAE, and several other countries are working hard to create optimal conditions for the Web3 business to thrive. The key to these conditions is legal certainty.
How Legal Uncertainty in U.S. Affects Web3 Market
Legal uncertainty refers to a situation where there’s a lack of clarity and consistency in the laws and regulations governing a particular field, making it difficult to conduct business. In the context of cryptocurrencies and Web3 technologies, legal uncertainty arises from fragmented and contradictory existing laws and differing approaches among various regulators.
In the U.S., there’s no federal legislation specifically designed to regulate the cryptocurrency industry. The primary laws governing this innovative sector are nearly a century old. These include the Securities Act of 1933, the Securities Exchange Act of 1934, and the Commodity Exchange Act of 1936, among others, which were originally crafted to regulate the traditional financial market. Naturally, these laws lack the necessary definitions and can be interpreted in various ways, which regulators take advantage of. The primary regulatory bodies, the Securities and Exchange Commission (SEC) and the Commodity Futures Trading Commission (CFTC), actively compete for the right to regulate the industry. To this end, they may classify the same asset as either a security or a commodity, creating confusion.
The SEC has been particularly aggressive, causing numerous crypto companies to exit the U.S. market, such as Poloniex, Bitfinex, Deribit, and many others. Kraken paid a hefty fine and restricted available features for U.S. users, but this didn’t prevent further legal action against the company. Binance was forced to settle with regulators, paying a massive fine. Coinbase continues to battle the SEC in court, aiming to prove the regulator’s claims unjustified. The legal battle between the SEC and Ripple has been ongoing for four years, with mixed results for the Web3 company.
These are just the most prominent cases; many more go unnoticed. In 2022, the SEC initiated at least 30 actions against crypto companies, including both lawsuits and administrative cases. About half of these were related to Initial Coin Offerings (ICO), with more than half (57%) involving fraud allegations. In H1 2023, the SEC continued its aggressive stance, launching 24 new cases against crypto companies and market participants. The situation remained the same thereafter.
The SEC’s actions have deprived Web3 projects of the ability to raise funds and develop, forcing many to change jurisdiction and leave the United States. The scale of the SEC’s actions has been so controversial that open hearings were held in Congress, where SEC Chair Gary Gensler had to answer tough questions. However, the situation hasn’t changed.
Role of Precedent, Judicial Influence, and Legal Certainty
Due to the lack of legal certainty, the fate of small Web3 businesses caught in the regulatory crossfire is often grim — facing heavy fines or even criminal prosecution. The SEC’s primary weapon is its team of top-tier lawyers, which small businesses simply can’t afford to fight against. As a result, companies shut down, go bankrupt, or relocate, and the opinions of their teams and founders about U.S. regulation are understandable.
In this environment of legal uncertainty, the role of judges and precedents becomes increasingly significant. The personality of the judge matters because they make the final decision in specific cases, while precedents serve as sources of law, ensuring uniformity and predictability in legal application.
For instance, a recent ruling by the U.S. District Court for the District of Columbia, presided over by Judge Amy Berman Jackson, determined that BNB and BUSD aren’t securities and that transactions involving these tokens aren’t subject to the SEC’s oversight. This decision was immediately used by Coinbase’s lawyers as a precedent in their ongoing litigation with the SEC, arguing against the inconsistency of the agency’s regulatory policy.
In another case, Mary Rowland, Judge for the Northern District of Illinois, ruled in favor of the CFTC. The court recognized the altcoins OHM and KLIMA as commodities, classifying them alongside Bitcoin, Ethereum, and similar virtual currencies, thus falling under the CFTC’s jurisdiction. This precedent will empower the CFTC in future disputes with the SEC over crypto market regulation. Additionally, market participants can now challenge the SEC’d claims by referencing these precedents.
It’s worth noting that over the past couple of years, the SEC has been a significant obstacle for the Web3 industry in the U.S., exploiting legal ambiguity and citing “insufficient regulation.” However, growing public criticism of Gary Gensler‘s aggressive stance, which hampers industry development and benefits competitors, is transitioning into practical opposition. Brenna Bird, Attorney General of Iowa, has led a coalition of states including Indiana, Arkansas, Kansas, Nebraska, Oklahoma, Montana, and Iowa to push back against the SEC’s cryptocurrency regulations.
According to this coalition, the SEC has overstepped its authority, stifling innovation and hindering the growth of the cryptocurrency sector in the U.S. Experts predict that Gary Gensler‘s tenure as SEC Chair could end with a change in the White House. Donald Trump has included cryptocurrency issues in his campaign, advocating for their support and opposing the digital dollar (CBDC). Should Trump win the presidency, significant regulatory shifts towards greater transparency and legal clarity in the U.S. Web3 industry could occur in 2025.
