U.S. Crypto Users Missed Out on $5 Billion

Introduction

Millions of U.S. crypto holders were unable to participate in major airdrops from 2020 to 2024, missing out on an estimated $5 billion in potential earnings due to SEC-driven geofencing.

Geofencing and Restrictions

A study from venture capital firm Dragonfly revealed that geoblocking policies, implemented to avoid U.S. regulatory scrutiny, caused these losses. Ongoing legal uncertainty surrounds the classification of airdropped tokens as securities.

With the SEC increasing enforcement actions against crypto firms, many projects block U.S. users entirely. An estimated 1.84 million to 5.2 million active U.S. users were affected in 2024 alone.

Financial Impact

$1.4 Billion in Lost Tax Revenue

The restrictions on claiming airdrops resulted in an estimated $1.4 billion in lost tax revenue for the government between 2020 and 2024. This loss came from personal income tax on airdropped tokens and potential corporate taxes from crypto projects that relocated offshore.

Haseeb Qureshi of Dragonfly stated, > “Airdrops were once the most democratic way to distribute tokens. Today, they’ve become a game of avoiding the SEC’s wrath.”

For example, Tether reported $6.2 billion in profits in 2024 but paid no U.S. corporate taxes due to its offshore incorporation. Dragonfly noted that Tether could have contributed approximately $1.3 billion in federal corporate tax and $316 million in state taxes if fully subjected to U.S. taxation.

Exodus of Startups

Regulatory uncertainty has led many blockchain startups to leave the United States. In 2024, the SEC initiated 33 enforcement actions, with 73% related to fraud and 58% concerning unregistered securities offerings. This has stifled crypto innovation, prompting many projects to avoid the U.S. market.

Jessica Furr from Dragonfly remarked, > “The SEC’s enforcement-driven regulatory stance has forced crypto projects to exclude U.S. users from airdrops, depriving them of billions in potential gains. Clearer guidelines are needed to prevent further economic loss.”

Lawmakers have taken notice of these issues.

Congressional Actions

In September 2024, Congress members Patrick McHenry and Tom Emmer wrote to SEC Chair Gary Gensler, requesting clarity on whether airdrops classify as securities. They highlighted the SEC’s inconsistent approach, especially compared to traditional reward programs.

> “Given the SEC’s unwillingness to establish a regulatory framework in the United States, developers have been forced to block Americans from claiming ownership of a digital asset in an airdrop.”

Geofencing, the practice of blocking users based on their location, has become the standard risk-avoidance strategy in light of regulatory uncertainty.

Legal expert Jake Chervinsky believes geofencing is a temporary solution, stating, > “Many companies geofence out of fear rather than necessity, leading to lost opportunities for both users and the government.”

A Variant report suggested that a structured compliance framework could enable projects to serve U.S. users legally.

Recommendations from Crypto Leaders

A16z Crypto has advocated for the SEC to provide formal guidance on airdrops and to create clear exemptions for non-fundraising token distributions. Scott Walker and Bill Hinman have also proposed eligibility criteria and safe harbor provisions for token distributions.

Future Prospects

As pressure mounts from lawmakers and industry leaders for regulatory changes, the SEC has the opportunity to introduce clearer guidelines. Such rules would allow U.S. investors to participate in airdrops without legal risks, benefiting both individuals and the broader economy. However, for now, U.S. projects remain cautious, with American investors missing out on global opportunities.