Opinion: Shane Molidor, Founder, Forgd
For years, launching crypto projects in the US has been a labyrinth of uncertainty. Legal ambiguity and a hostile regulatory environment have driven founders offshore, turning locations such as Switzerland and the Cayman Islands into global hubs for blockchain innovation.
With Trump’s election, things began to change in the end, and the US administration openly declared its intention to be code-friendly. But despite rhetoric, nothing concrete has changed so far.
Starting a crypto project in the US is as difficult as ever. US regulators continue to offer anything other than vague threats and “regulation by enforcement” litigation. America wants to be a crypto leader, but even under the Trump administration, it has not taken action to create the conditions for it to happen.
Killing codes in America
All cryptographic projects face the same underlying problem. Achieving decentralization is important to avoid regulatory scrutiny, but some degree of centralization is inevitable until the project launches the token.
The SEC’s outdated Howey tests ensure that almost all legitimate cryptographic projects are classified as security. The logic is self-destructive. Projects cannot be decentralized without launching tokens, but when you launch tokens in the US, they immediately put them in the SEC crosshairs.
This is not just a theoretical question. It brings real results. Liquidity providers essential for the launch of all new tokens will not be involved in US-based projects as they assume that tokens are classified as securities. The centralized exchange rejects a list of tokens issued by US entities for the same reasons. Even decentralized exchanges face pressure from legal teams to avoid actively sowing liquidity in American projects. result? The US founder is boxed from the global crypto economy before he even begins.
Offshore jurisdictions are prevailing
This failure of regulations has resulted in the entire cottage industry, offshore law firms that specialize in establishing token issuing entities. The Finma No-Action Letter system has made Switzerland a hotbed for crypto projects as it offers one of the few structured ways to legally clarify token classification. The Cayman Islands and the UK Virgin Islands have also established themselves as crypto-secured shelters, offering a flexible corporate structure that allows projects to operate with far fewer regulatory risks.
Recently: The US Treasury wants to cut off Huione over links with crypto crime
The absurdity is that real jobs – development, employment, innovation – are still happening in the United States. The issuance of tokens is pushed offshore through “Associations” and “Foundations” that serve nonprofits that operate independently of US development shops. American founders are forced to concentrate their money on unnecessary legal fees, foreign operators, and the Shell Foundation to avoid the inevitable crackdown from US regulators. This is not bad with ciphers alone. That’s bad for America. Until that is resolved, the US will continue to impact talent, investment, and less myopia jurisdictions.
Encrypt America
The US has been groping for crypto policy for years, but now, even with governments claiming to be pro-cryptic, they still can’t bring about real change. This solution is not to promise capital gains tax exemptions as some have suggested. It rarely improves the punishing regulatory environment that US-based projects are forced to navigate. If the US really wants to lead with crypto, it must also take the lead in providing regulatory clarity.
This means that we will ultimately realize that the same regulations that have managed traditional financial markets do not always apply to crypto. Howey tests don’t work. Instead, the government must provide the crypto industry with a new functional legal framework.
It’s time for US lawmakers and regulators to acknowledge that crypto tokens fail to achieve instant decentralization and that in most cases teams of core contributors need efforts to bootstrap early growth and development. The federal government should devise a version of the Howey test that allows for the spread of the Benefit Period instead of automatically classifying all new crypto tokens as security. In this context, the US needs to establish new protections to ensure that insiders do not benefit excessively from crypto projects during expansion.
In addition to quickly ending the “enforcement-based regulatory” approach adopted under Gary Gensler’s SEC, the tactic that appears to be designed to gradually suffocate in the US, the government must provide clear guidelines. It must be feasible for market manufacturers to assess whether US tokens are products or securities with stability and predictability. This is the only way a blanket banned market maker places it on US tokens and brings cryptographic development back to America.
The US window of opportunity is closed
The founders of the code are not waiting for Washington to understand it. Without clear regulations, more crypto projects are being built offshore each day. The US doesn’t even have to “hold” codes. You need to stop actively chasing away.
If this administration really wants to make the US a leader in crypto, it will have to move beyond the campaign slogan and fix the fundamental issues that have made the industry offshore in the first place. And it needs to act fast.
Opinion: Shane Molidor, Founder, Forgd.
This article is for general informational purposes and is not intended to be considered legal or investment advice, and should not be done. The views, thoughts and opinions expressed here are the authors alone and do not necessarily reflect or express Cointregraph’s views and opinions.
