Are Crypto Founders Resorting to Geofencing Due to U.S. Regulations?

Amid escalating regulatory challenges in the U.S., many cryptocurrency founders are considering geofencing as a last-resort strategy for compliance.

Jake Chervinsky, chief legal officer at Variant Fund, highlighted this trend in a recent post, where he explained that geofencing involves restricting access to services based on a user’s geographical location.

By establishing a virtual barrier, companies can prevent users from regions with strict regulations—like the U.S.—from accessing their platforms. Chervinsky noted that while this may be a necessary step for some firms, it represents a significant withdrawal from the American market. He remarked, “This is a drastic measure, but sometimes it’s unavoidable.”

In 2023, 17 regions tightened their cryptocurrency regulations, impacting about 70% of global crypto activity, according to TRM Labs. Notably, some protocols, such as the rebranded Sky (formerly Maker), have faced backlash for blocking VPN access to comply with U.S. regulations. Binance also employs geofencing, notifying users from U.S. IP addresses that the site is unavailable.

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Chervinsky’s guide suggests best practices for geofencing, including the use of IP and GPS data to identify users and employing multiple blocking techniques. He also advises reducing reliance on U.S.-based infrastructure to better navigate these regulatory waters. While geofencing can help companies enter new markets while maintaining compliance, it is ultimately seen as a costly and extreme tactic in the face of U.S. regulatory demands.