Original article by Aiden Slavin and Kevin McKinley, a16z crypto policy partner and a16z government affairs partner, respectively.

Original translation: Luffy, Foresight News

Cryptocurrency legislation is progressing rapidly at the federal level in the United States. In the past three months alone, President Trump signed the United States Stablecoin Guidance and National Innovation Act (GENIUS Act), and the House of Representatives passed the landmark Digital Asset Market Clarity Act (CLARITY Act) with overwhelming bipartisan support.

But the federal government isn’t the only U.S. legislator working to establish rules for the crypto industry. In 2024, 27 U.S. states and the District of Columbia passed a total of 57 crypto-related bills.

While federal legislation has significantly reduced the need for states to develop their own comprehensive crypto regulatory systems, states can still play an active role in promoting responsible crypto innovation.

Below, we break down five targeted, proactive measures, based on real-world examples, designed to help states protect citizens and support local blockchain businesses.

1. Adopting DUNA

Unlike traditional businesses, decentralized blockchain networks don’t have boards of directors or CEOs. Instead, they aim to remove centralized control mechanisms by placing governance in the hands of users through decentralized autonomous organizations (DAOs).

Without DAOs, blockchain networks could be controlled by centralized forces, much like the current fragmented state of the internet, dominated by a handful of giants like Meta, Google, and Amazon. These centralized, predatory companies are detrimental to both users and innovation. If large tech companies ultimately control blockchain networks, the blockchain-based internet (Web 3) could suffer the same fate as the current cyberspace: surveillance, cybercrime, censorship, and value extraction will continue to plague the internet.

By empowering users to govern blockchain networks, DAOs hold the promise of fulfilling the original vision of the internet: openness, decentralization, and user control. However, DAOs today face numerous challenges and have even become the target of legal and regulatory action. Just last year, a court ruled that any action within a DAO, including posting on public forums, could make members liable for the actions of other members under general partnership law. This not only poses significant legal risks for DAO members but also fundamentally undermines the viability of the DAO organizational form. Furthermore, DAOs face mundane yet debilitating obstacles, such as the inability to enter into contracts with third parties.

Fortunately, solutions to these problems exist. In March 2024, Wyoming became the first US state to enact the Decentralized Unincorporated Nonprofit Organization Act (DUNA). This law allows blockchain networks to remain decentralized while complying with the law: it grants DAOs legal entity status, allowing them to contract with third parties, participate in lawsuits, and pay taxes, and it provides DAO members with core protections from liability for the actions of others. In short, DUNA puts DAOs on equal legal footing with traditional corporate forms like limited liability companies.

DUNA's influence is growing. Just last month, the Uniswap DAO overwhelmingly voted (52,968,177 in favor, 0 against) to adopt DUNA, a Wyoming-registered protocol, as the legal structure for Uniswap's governance protocol. This move allows Uniswap to maintain a decentralized governance structure while also enabling it to engage service providers and meet regulatory requirements. New blockchain projects are also adopting this structure.

The more DUNA becomes ubiquitous, the more DAOs will be able to compete with corporate-led centralized networks, ultimately contributing to the development of an open, user-controlled internet. Wyoming's groundbreaking DUNA law builds on years of experience, including the state's previously adopted Unincorporated Nonprofit Organization Act (UNA). Other states with established functional UNA frameworks can unleash the potential of Web 3 by adopting DUNA themselves. By working together, these states have the potential to accelerate the reshoring of crypto businesses to the United States and solidify the United States' position as a global crypto hub.

2. Ensure that existing laws do not misclassify and improperly regulate tokens

Tokens are data records that record information such as quantity and permissions. Unlike ordinary digital records, tokens exist on a decentralized blockchain, and their modifications must follow pre-defined rules. These rules are enforced by autonomous software without human control, allowing tokens to be used to grant holders enforceable digital property rights.

While we've categorized tokens into seven broad categories, their application scenarios are truly endless. Furthermore, contrary to the common misconception that tokens are simply meme coins or Bitcoin-like assets used for transactions, many common token types lack financial attributes. Take casino tokens, for example: as the name suggests, these tokens, similar to the metal tokens used in traditional amusement parks, provide utility only within a specific system (such as a game) and are not intended for speculation or investment. Typical examples include "digital gold in virtual worlds" and "points in membership programs."

For example, the restaurant loyalty app Blackbird distributes points to customers and distributes revenue to restaurants. Its casino token, FLY, is used to foster engagement between restaurants and customers. Customers can use FLY to purchase cold brew coffee and earn loyalty rewards. This approach provides small businesses like local coffee shops and neighborhood pizza shops with an opportunity to retain customers while also rewarding consumers for supporting them.

Similar to casino tokens, collectible tokens are not financial instruments. These tokens, often referred to as non-fungible tokens (NFTs), derive their utility from documenting ownership of an item or right. A collectible token might represent ownership of a song, a concert ticket, or any number of unique items or rights.

Obviously, dining points and songs are not financial instruments like company stocks or corporate bonds; neither casino tokens nor collectible tokens promise or imply any financial returns. Furthermore, there are many other examples of non-speculative tokens, such as identity credentials and in-game assets.

Therefore, it is crucial not to confuse casino tokens, collectible tokens, and other non-speculative digital assets with financial instruments. Unfortunately, many states often use the single term "financial asset" to refer to all tokens, which results in individuals and businesses using non-financial tokens being subject to regulatory rules for financial institutions.

Laws that misclassify tokens (or worse, laws that classify all tokens with a single definition) will inevitably lead to improper regulation of tokens, with potentially absurd consequences.

Imagine if coffee shop owners needed to obtain a financial services license to offer a customer loyalty program; or if musicians needed to consult with local financial regulators before issuing tokens representing ownership of their new songs. Such requirements would place a heavy burden on small businesses, artists, and users, and are not necessary to protect consumers. Good policy and regulation are necessary for the crypto industry to thrive, but these rules should be tailored to address real risks, not restrict the businesses and creators who drive state economic growth and spur innovation.

Illinois' Digital Asset and Consumer Protection Act (DACPA) is a prime example of state-level legislation that appropriately regulates tokens. Governor Pritzker signed the bill into law in August 2025. DACPA recognizes that different tokens carry varying risks and explicitly exempts businesses using casino tokens, collectible tokens, and other non-speculative tokens from financial regulation because these tokens don't present the risks that the financial regulatory system is designed to address. Other states should follow Illinois' lead and ensure their laws appropriately classify and regulate tokens.

3. Establishment of a blockchain-specific working group

Conflicting state laws have resulted in a patchwork of contradictory rules, entrenching large companies with the resources to comply while hindering smaller tech companies. Fortunately, federal legislation has largely eliminated the need for states to develop comprehensive encryption frameworks on their own. However, for specific issues, states should still serve as laboratories for policy innovation, borrowing a metaphor from Justice Louis D. Brandeis.

Establishing a blockchain task force is a good first step in determining whether and how to conduct policy experiments. This task force provides states with a valuable mechanism for public-private sector information sharing: its members, including both government officials and industry professionals, can provide governors and legislatures with information on blockchain technology, including its application scenarios, benefits, risks, the impact of federal policies on the state's policy agenda, and how the state can coordinate its policies with other states.

The California Blockchain Task Force is a prime example of a state-level crypto-focused task force. In 2018, California passed AB 2658, requiring the Secretary of the Bureau of Government Operations to appoint a Blockchain Technology Task Force and its chairperson to assess blockchain's application scenarios, challenges, opportunities, and legal implications.

The working group, comprised of 20 experts from various fields, including technology, business, government, law, and information security, submitted a report to the state legislature two years later, including policy recommendations and proposals for adjusting existing laws to accommodate the unique needs of blockchain.

4. Piloting Public Sector Blockchain Use Cases

States can also promote responsible cryptographic innovation and solve real-world problems by testing blockchain applications in the public sector. These pilots serve a dual purpose: they help the public understand the broad applicability of blockchain technology and demonstrate its practical value in improving government operational efficiency. The benefits of public sector blockchain projects extend beyond a single pilot: state agencies gain practical learning from the technology and can use this knowledge to guide state-level policymaking.

There are already numerous successful examples of blockchain applications in the public sector. The California task force's report went beyond theoretical research; its findings have fueled several state-level pilots. For example, the state Department of Motor Vehicles is using blockchain to digitize car ownership to reduce fraud and improve efficiency. Utah passed legislation requiring the state's Department of Technology Services to pilot blockchain-based credentials for public projects. Other application scenarios include providing blockchain-based mobile voting for overseas voters, publishing state government spending records to a public blockchain to enhance transparency, and using verifiable health credentials to privately transmit medical test results.

By piloting and promoting these applications, states can not only gain a deeper understanding of blockchain application scenarios, but also bring practical benefits to citizens in the form of optimized government services.

5. Applying Stablecoins and Building a State-Level Issuance System Based on the GENIUS Act

Stablecoins provide a reliable way for 1 billion people to enter the crypto space. On a global scale, stablecoins will enable faster, cheaper, and programmable payments.

States could also benefit from a digital dollar. Stablecoins could streamline government procurement and grant processes, reducing costs, increasing efficiency, and enhancing auditability. As long as states adopt privacy-preserving solutions to ensure the security of citizen data, these projects could be a win-win for both governments and citizens.

In addition to leveraging stablecoins to optimize government programs, states can also participate in the development of stablecoin issuance systems based on local needs. While the GENIUS Act establishes national rules for payment stablecoin issuers, it also leaves room for state-level issuance licenses, provided that the issuer's outstanding issuance is less than $10 billion and the state issuance system is generally consistent with the federal framework.

It will take time to determine what substantial consistency means. The GENIUS Act, which has broad bipartisan support in both the House and Senate, sets strict standards for stablecoin issuers, including asset backing, transparency requirements, and robust anti-money laundering (AML) and know-your-customer (KYC) compliance. The bill will take effect in January 2027, or four months after the lead federal stablecoin regulator issues final rules (whichever is later). During this period, federal agencies will refine the implementation details of the GENIUS Act, including the requirements that state-level systems must meet to meet or exceed federal standards. While the federal government advances the implementation of the GENIUS Act, states can begin to explore whether they need to adjust or advance their local stablecoin legislation.

The GENIUS Act explicitly requires that if states want to regulate stablecoin issuers, they must meet the requirements of the federal framework; but the bill also allows local governments to participate in shaping the future form of the digital dollar through policy making.

Stablecoins offer states an opportunity to once again serve as policy laboratories, allowing them to pilot different stablecoin issuance systems tailored to local needs. California and other states have already enacted stablecoin-related legislation; Wyoming has even launched its own stablecoin, the Frontier Stable Token.

Summarize

With the implementation of federal encryption regulations, states may no longer need to develop comprehensive encryption regulatory systems on their own. However, states still play an important role. By taking targeted and practical measures, they can promote responsible encryption innovation and ensure that citizens and local businesses share in the benefits of the future of the internet.