U.S. Crypto Users Miss $5 Billion in Airdrops Due to Geofencing Policies

Over the past four years, U.S. crypto users have missed out on an estimated $5 billion in airdrops due to geofencing policies implemented by crypto projects. These policies, driven by regulatory uncertainty and the SEC's enforcement actions, have prevented millions of U.S. users from participating in major airdrops. The geofencing policies are a response to the ongoing legal uncertainty regarding whether airdropped tokens qualify as securities.

The financial impact of these restrictions extends beyond individual investors. The government has forfeited an estimated $1.4 billion in tax revenue between 2020 and 2024 due to U.S. users being unable to claim airdrops. This lost tax revenue comes from two primary sources: personal income tax on airdropped tokens and corporate taxes that would have been generated by crypto projects operating in the U.S. instead of moving offshore.

One notable example is Tether, which reported $6.2 billion in profits in 2024 but paid no U.S. corporate taxes due to its offshore incorporation. If Tether had been fully subject to U.S. taxation, it could have contributed approximately $1.3 billion in federal corporate tax and $316 million in state taxes.

The regulatory uncertainty has led to an exodus of blockchain startups from the United States. In 2024 alone, the SEC initiated 33 enforcement actions against crypto firms, with 73% involving fraud allegations and 58% tied to unregistered securities offerings. These actions have created a chilling effect on crypto innovation, with many projects preferring to avoid the U.S. market altogether.

Lawmakers have taken notice of the regulatory challenges surrounding airdrops. In September 2024, Patrick McHenry and Tom Emmer sent a letter to SEC Chair Gary Gensler, demanding clarity on whether airdrops should be classified as securities. The letter raised key questions about the SEC’s inconsistent approach, particularly in comparison to traditional reward programs like airline miles and credit card points.

Geofencing—the practice of blocking users from specific jurisdictions—has become the default risk-avoidance strategy for crypto projects operating under regulatory uncertainty. However, geofencing is often poorly implemented and results in the unnecessary exclusion of users from legally compliant markets. Many companies geofence out of fear rather than necessity, leading to lost opportunities for both users and the government.

A more structured compliance framework would allow crypto projects to serve U.S. users while adhering to regulatory requirements. Industry leaders and investors are increasing pressure for regulatory changes. For instance, A16z Crypto, a major venture capital firm, published a policy recommendation for the SEC, urging the agency to issue formal guidance on airdrops and clear exemptions for token distributions that do not serve as fundraising mechanisms.

Scott Walker and Bill Hinman have also proposed reforms to clarify airdrop regulations. They suggested creating eligibility criteria so airdrops are not classified as securities and aligning airdrop rules with consumer reward programs to provide consistency and reduce regulatory confusion. They also recommended safe harbor provisions to protect blockchain projects distributing tokens to their communities.

For now, crypto projects remain cautious about including U.S. users in airdrops. Hence, American investors continue to miss out on opportunities available to international participants. The SEC could introduce clearer guidelines to address ongoing uncertainties, allowing U.S. investors to participate in airdrops without legal risks. This would benefit both individuals and the broader economy.