Web3 Is Coming Fast, and Regulation Needs to Keep Pace

Web3 is a buzzword and concept that quickly rose to prominence during 2021 and 2022, alongside the continued investment in underlying blockchain technologies by institutions and nation-states across the board. Despite the increased level of attention and investment, however, there remains significant ambiguity with regards to how web3 use cases and applications should be treated from a regulatory perspective. Not equivalent to blockchain or cryptoassets, it is important to recognize how closely these technologies influence and impact each other. This piece is written with both investors and policymakers in mind, and should be viewed as the beginning of this comprehensive conversation, versus a definitive or authoritative guide.

By Sean Stein Smith^[1]

I. INTRODUCTION

As the enterprise adoption of blockchain-based applications and tokenized assets continue to accelerate across different economic areas, one specific use case has continued to attract significant attention and investment, known increasingly as “Web3.” While not directly connected to blockchain or cryptoassets, there are several fundamental characteristics and components of Web3 applications that need to be understood prior to a robust conversation around Web3 regulation can be conducted. Specifically, the two components in question are blockchain and tokenized governance protocols, both of which are necessary to have Web3 applications operate as advertised. These tools will be broken down in more