Impact of Draconian Crypto Regulation on U.S. Citizens

Draconian crypto regulation has prevented U.S. citizens from benefiting from airdrops, costing Americans approximately $2.6 billion in potential revenue and the government about $1.4 billion in lost tax income over the past four years, as reported by venture capital firm Dragonfly.

Key Findings

In a report released on Tuesday, Dragonfly analyzed data from 11 major airdrops that collectively generated over $7.16 billion since 2020. Notable airdrops include 1inch, EigenLayer, Arbitrum, Athena, Optimism, and LayerZero. The average median claim per eligible address in these airdrops was $4,562.

“We realized there’s a real need for data that can actually show the effect of regulation by enforcement and how those policies impact individuals, the overall economy, and the U.S. government,” said Jessica Furr, associate general counsel at Dragonfly. “So we decided to focus on airdrops as a discrete use case from crypto to see how the present policies may have created some negative externalities.”

The report estimates that between $1.84 billion and $2.64 billion in potential revenue was lost to U.S. users from 2020–2024 due to geoblocking. This technique involves limiting access to U.S. IP addresses to avoid regulatory scrutiny, notably from the SEC.

Regulatory Climate

Years of regulatory uncertainty in the U.S. have hindered crypto innovation, pushing startups to relocate offshore and resulting in lawsuits and subpoenas for larger companies. Additionally, venture capital firms like Union Square Ventures and Andreessen Horowitz have attracted SEC attention for investing in platforms like Uniswap—cited in the report as the last major airdrop that wasn’t geoblocked in the U.S.

Dragonfly is not alone in highlighting U.S. geoblocking. Variant Fund, based in New York City, also reported on how crypto firms often resort to geoblocking to sidestep potential regulatory issues. “If the rules are not clear about what projects can do, it becomes better to just geoblock to avoid getting into trouble,” Furr noted. Litigation can be costly and may force projects to shut down due to legal fees.

Conclusion

Currently, almost a quarter of all active crypto addresses globally are controlled by U.S. residents. Since 2020, around 5.2 million U.S. users have faced geoblocking, not accounting for those using VPNs to bypass such restrictions.

Additionally, Dragonfly estimates that lost tax revenue due to geoblocked airdrop income from 2020 to 2024 ranges from $525 million to $1.38 billion in personal and corporate taxes.