Crypto Founders Are Abandoning the US Market—Here’s Why Geofencing Is on the Rise

Key Takeaways

• Geofencing is on the rise in the U.S.
• The regulatory compliance strategy is common as a “when all else fails” for crypto products.
• Crypto companies are “completely abandoning the U.S. market” to dodge regulatory scrutiny.

Crypto founders are increasingly “abandoning the U.S. market” amid increasing regulatory uncertainty and scrutiny.

Jake Chervinsky, chief legal officer at venture capital firm Variant Fund, said geofencing is rising in the U.S. and beyond as crypto founders turn to it as a last resort measure.

What Is Geofencing?

Geofencing is a technology that creates a virtual boundary around a geographic area using GPS, RFID, Wi-Fi, or cellular data.

When a device enters or exits this boundary, the geofencing system triggers a predetermined action, such as sending notifications, blocking access to content, or collecting location data.

In crypto , geofencing can take various forms, including blocking a front-end interface or excluding wallet addresses from distributions.

Why Is Geofencing Popular in Crypto?

According to a new report from Variant Fund, titled “A Practical Guide to Geofencing,” the regulatory compliance strategy is common as a “when all else fails” for products.

“Before launching any new product, a company should undertake a regulatory risk assessment to determine what compliance obligations apply in the jurisdictions where the product will be offered,” the report stated.

Some regulations require crypto firms to gain approval from a government agency before launching in its territory, while some governments require notices or disclosures from companies before a launch.

If a crypto firm is unable to satisfy regulatory compliance obligations for a territory, the company is forced into geofencing.

“In that case, the most viable way to avoid violating the laws of a given jurisdiction is simply to avoid that jurisdiction entirely,” the report added.

Why Is Geofencing Growing in the U.S.?

As the legal landscape around cryptocurrencies continues to evolve at a rapid rate, U.S. businesses are using geofencing to avoid offering services in regions with unclear regulations.

“It’s a pretty extreme solution to the problem of regulatory uncertainty — completely abandoning the U.S. market — but sometimes there’s just no other way,” Chervinsky said in a post on X.

U.S. regulatory agencies like the Securities and Exchange Commission (SEC), Commodity Futures Trading Commission (CFTC), and the Department of Justice (DOJ) have stepped up enforcement against cryptocurrency platforms.

Increased scrutiny has led to leading exchanges, such as Coinbase and Binance , facing lawsuits from the SEC for allegedly offering unregistered securities.

Given these developments, crypto platforms fear falling afoul of the law and facing heavy fines, expensive legal battles, or shutdowns.