Crypto VC Dragonfly Weighs Cost of Geoblocked Airdops to U.S. Token Holders
Draconian regulatory measures in the cryptocurrency space have significantly impacted U.S. citizens’ ability to capitalize on airdrops, which are promotional initiatives designed to reward community members by distributing free tokens. A recent analysis by the venture capital firm Dragonfly has revealed that these regulations have cost Americans approximately $2.6 billion in potential revenue, with the government losing up to $1.4 billion in foregone tax income over a four-year period.
A comprehensive review of geoblocked airdrops conducted by CoinGecko scrutinized a subset of 21 instances, estimating that total potential revenue loss for U.S. residents could range from $3.49 billion to $5.02 billion between 2020 and 2024. Notably, Dragonfly’s recent report, published on March 11, details findings based on 11 significant airdrops that have collectively yielded more than $7.16 billion since 2020, with projects like 1inch, EigenLayer, Arbitrum, and Optimism leading the way. The average eligible participant in these airdrops could have claimed around $4,562 in potential tokens.
Jessica Furr, associate general counsel at Dragonfly, emphasized that there is a pressing necessity for data illustrating the effects of regulatory enforcement on individuals and the economy. Furr noted, “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.” This initiative to analyze airdrops aims to highlight potential negative outcomes arising from current regulatory practices.
The report corroborates that between $1.84 billion and $2.64 billion in potential revenue was lost to American users from 2020 to 2024 directly due to geoblocking practices. Geoblocking refers to the strategy of restricting access to certain users based on their geographical location, typically performed to avoid regulatory scrutiny from agencies such as the Securities and Exchange Commission (SEC).
Regulatory ambiguity in the U.S. has deterred innovation within the cryptocurrency sector, compelling many startups to relocate beyond U.S. jurisdictions. Meanwhile, established companies have faced legal challenges, including subpoenas that have sparked lawsuits with regulators. Notably, firms like Union Square Ventures and Andreessen Horowitz have also come under SEC scrutiny for their investment in platforms like Uniswap, which remains the last major airdrop to operate without geoblocking in the U.S.
The issue of geoblocking is not exclusive to Dragonfly; Variant Fund, a New York-based venture capital firm, has similarly reported on this phenomenon, asserting that crypto companies are often left with no alternative but to employ geoblocking as a defensive measure against potentially costly regulatory actions. Furr explained the dilemma: “If the rules are not clear about what projects can do, it becomes better to just geoblock to avoid getting into trouble. Being pulled into an expensive litigation where you have to defend yourself can shut projects down because they can’t foot that bill.”
According to Dragonfly’s findings, U.S. residents comprise almost a quarter of all active crypto addresses globally, with approximately 5.2 million American users impacted by geoblocking since 2020. This figure, however, does not account for individuals who might circumvent these restrictions using virtual private networks (VPNs) to access geoblocked content.
Additionally, Dragonfly estimates that the loss of tax revenue due to geoblocked airdrop income from 2020 through 2024 ranges between $525 million and $1.38 billion for both personal and corporate taxes. These findings shed light on the broader economic repercussions of regulatory measures, emphasizing the urgent need for clearer guidelines to foster innovation and participation in the cryptocurrency landscape.
