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Cryptocurrency legislation at the federal level in the United States is advancing rapidly. In the past three months alone, President Trump signed the GENIUS Act (Guidance for the Establishment of National Innovation through Stablecoins Act), while the House of Representatives passed the landmark CLARITY Act (Clarity in the Digital Asset Markets Act) with overwhelming bipartisan support. However, the federal government is not the only legislative body in the U.S. committed to establishing rules for the crypto industry. In 2024, 27 states and the District of Columbia collectively passed 57 crypto-related bills. While federal legislation has significantly reduced the need for states to build comprehensive crypto regulatory frameworks independently, states can still play an active role in promoting responsible crypto innovation. Below, we break down five targeted, proactive measures—all grounded in real-world cases—designed to help states protect citizen rights and support local blockchain enterprises. I. Adopting DAOs Unlike traditional corporations, decentralized blockchain networks lack boards of directors or CEOs. Instead, they aim to eliminate centralized control mechanisms by transferring governance to users through Decentralized Autonomous Organizations (DAOs). Without DAOs, blockchain networks risk being controlled by centralized forces, mirroring the current feudal fragmentation of the internet dominated by a handful of giants like Meta, Google, and Amazon. These centralized, predatory corporations benefit neither users nor innovation. Should large tech companies ultimately control blockchain networks, the blockchain-based internet (Web3) risks repeating the current cyberspace's pitfalls: surveillance, cybercrime, censorship, and value extraction would proliferate. By empowering users to govern blockchain networks, DAOs hold the promise of realizing the internet's original vision: openness, decentralization, and user control. Yet today's DAOs face numerous challenges and have even become targets of legal and regulatory actions. Just last year, a court ruled that any participation in a DAO—including posting on public forums—could subject members to liability under general partnership law for the actions of other members. This not only imposes significant legal risks on DAO members but fundamentally undermines the viability of the DAO organizational model. Additionally, DAOs encounter everyday yet disruptive obstacles, such as the inability to enter contracts with third parties. Fortunately, solutions exist. In March 2024, Wyoming became the first U.S. state to enact the Decentralized Unincorporated Nonprofit Association Act (DUNA). This legislation enables blockchain networks to comply with the law while maintaining decentralization: it grants DAOs legal entity status, allowing them to enter contracts with third parties, participate in litigation, pay taxes, and provides core protections for members against liability for others' actions. In short, DUNA places DAOs on equal legal footing with traditional business structures like LLCs. DUNA's influence continues to expand. Just last month, the Uniswap DAO overwhelmingly approved (52,968,177 votes in favor, 0 against) a resolution to adopt a Wyoming-registered DUNA as the legal framework for its governance protocol. This move enables Uniswap to preserve its decentralized governance structure while allowing it to hire service providers, meet regulatory requirements, and more. Newly launched blockchain projects are also adopting this framework. The greater DUNA's adoption, the more capable DAOs become of competing with corporate-dominated centralized networks, thereby advancing the construction of an open, user-controlled internet. Wyoming's pioneering DUNA legislation builds upon years of practical experience, including the state's earlier adoption of the Unincorporated Nonprofit Associations Act (UNA). States with established functional UNA frameworks can unlock Web3's potential by adopting DUNA. Through collective action, these jurisdictions can accelerate the return of crypto businesses to the U.S., solidifying America's position as the global crypto hub. II. Ensuring Existing Laws Avoid Misclassifying and Improperly Regulating Tokens Tokens are data records that capture information such as quantity and permissions. Unlike ordinary digital records, tokens exist on decentralized blockchains where modifications must adhere to predefined rules. These rules are enforced by autonomous software beyond human control, enabling tokens to grant holders “enforceable digital property rights.” Although we categorize tokens into seven major types, their application scenarios are virtually limitless. Moreover, contrary to the common misconception that “tokens are merely meme coins or Bitcoin-like assets for trading,” many prevalent token types lack financial attributes. Take entertainment tokens as an example: as the name suggests, these tokens resemble traditional amusement park tokens, serving practical functions only within specific systems (like a particular game) and not for speculation or investment. Typical cases include “digital gold in virtual worlds” and “points in membership programs.” For instance, the restaurant loyalty app Blackbird issues points to customers and distributes revenue to restaurants. Its entertainment token, FLY, facilitates interaction between eateries and patrons. Customers can use FLY to purchase cold brew coffee or earn loyalty rewards. This approach enables small businesses like local coffee shops and neighborhood pizzerias to retain customers while rewarding consumers who support them. Similar to entertainment tokens, collectible tokens also do not qualify as financial instruments. Often referred to as non-fungible tokens (NFTs), their utility stems from recording ownership of an item or right. A collectible token might represent ownership of a song, a concert ticket, or any unique item or privilege. Clearly, restaurant points and songs are not financial instruments like company stocks or corporate bonds; neither entertainment tokens nor collectible tokens promise or imply any financial returns. Numerous other non-speculative token use cases exist, such as identity credentials and in-game assets. Therefore, the key for entertainment tokens, collectible tokens, and other non-speculative digital assets is to avoid confusion with financial instruments. Regrettably, many jurisdictions commonly use the singular term “financial asset” to categorize all tokens. This results in individuals and businesses utilizing non-financial tokens being subjected to regulations intended for financial institutions. Legislation that misclassifies tokens—or worse, categorizes all tokens under a single definition—inevitably leads to inappropriate regulation of tokens, with potentially absurd consequences. Imagine: a coffee shop owner needing a financial services license to offer a customer loyalty program; a musician having to consult local financial regulators to issue tokens representing ownership of their new song. Such requirements impose heavy burdens on small businesses, artists, and users—burdens not necessary for consumer protection. The crypto industry's growth requires sound policy and regulation, but rules must target actual risks rather than shackling the businesses and creators driving state economies and sparking innovation. Illinois' Digital Asset and Consumer Protection Act (DACPA) exemplifies sensible state-level token regulation. Governor Pritzker signed the bill into law in August 2025. The DACPA recognizes that different tokens carry different risks. It explicitly exempts businesses using entertainment tokens, collectible tokens, and other non-speculative tokens from financial regulation, as these tokens do not pose the risks that the financial regulatory system is designed to address. Other states should follow Illinois' lead to ensure laws appropriately classify and regulate tokens. III. Establish a Blockchain Task Force Conflicting state laws have created a patchwork of contradictory rules, allowing resourceful large enterprises to consolidate advantages while stifling smaller tech companies. Fortunately, federal legislation has largely eliminated the need for states to build comprehensive crypto frameworks from scratch. Yet for specific issues, borrowing Justice Louis D. Brandeis's metaphor, states should still serve as laboratories for policy innovation. When determining “whether and how to conduct policy experiments,” establishing a blockchain task force is a sound first step. Such task forces provide states with a valuable mechanism for public-private information sharing: composed of both government officials and industry representatives, they can advise governors and legislatures on blockchain technology—including its applications, benefits, risks, the impact of federal policies on state agendas, and how states can coordinate policies with one another. California's Blockchain Task Force exemplifies state-level crypto task forces. In 2018, California enacted AB 2658, requiring the Secretary of the Office of Government Operations to appoint a Blockchain Technology Task Force and chairperson to assess blockchain applications, challenges, opportunities, and legal implications. Comprising 20 members, the task force included experts across multiple fields: technology, business, government, law, and information security. Two years later, it submitted a report to the State Legislature containing policy recommendations and proposals for adapting existing laws to accommodate blockchain's unique requirements. IV. Public Sector Blockchain Use Case Pilots States can also advance responsible crypto innovation and solve real-world problems by testing blockchain applications within the public sector. These pilot projects serve a dual purpose: they help the public understand the broad practicality of blockchain technology while demonstrating its tangible value in enhancing government operational efficiency. The benefits of public sector blockchain initiatives extend beyond individual pilots—state agencies gain practical knowledge through implementation, which informs statewide policy development. Numerous successful public sector blockchain applications already exist. The California task force report transcends theory, with its findings driving multiple state-level pilots. For instance, the California Department of Motor Vehicles is using blockchain to digitize vehicle ownership records, reducing fraud and boosting efficiency. Utah enacted legislation mandating its Department of Technology Services to pilot blockchain-based public project certificates. Other applications include: providing overseas voters with blockchain-based mobile voting, publishing state expenditure records on public blockchains to enhance transparency, and using verifiable health credentials to privately transmit medical test results. By piloting and scaling these applications, states can deepen their understanding of blockchain use cases while delivering tangible benefits to citizens through optimized government services. V. Adopting Stablecoins and Building State Issuance Systems Under the GENIUS Act Stablecoins offer a reliable pathway for one billion people to enter the crypto space. Globally, stablecoins will enable faster, cheaper, and programmable payments. States can similarly benefit from digital dollars. Stablecoins can optimize government procurement and grant processes, reducing costs, improving efficiency, and enhancing auditability. Provided states adopt privacy-preserving solutions to safeguard citizen data, these initiatives will create win-win outcomes for governments and residents. Beyond leveraging stablecoins to enhance government programs, states can participate in building stablecoin issuance frameworks tailored to local needs. While the GENIUS Act establishes national rules for payment stablecoin issuers, it reserves space for state-level issuance licenses—provided outstanding issuance remains below $10 billion and state frameworks align substantially with federal standards. Defining the precise meaning of “substantial alignment” will require further time. The GENIUS Act has garnered broad bipartisan support in both chambers of Congress, establishing stringent standards for stablecoin issuers. These include asset backing, transparency requirements, and robust anti-money laundering (AML) and know-your-customer (KYC) compliance obligations. The Act will take effect in January 2027, or four months after the primary federal stablecoin regulator issues final rules (whichever occurs later). During this period, federal agencies will refine the GENIUS Act's implementation details, including requirements for state-level systems to meet or exceed federal standards. While the federal government advances GENIUS Act implementation, states may begin exploring whether to adjust or advance local stablecoin legislation. The GENIUS Act explicitly requires that states seeking to regulate stablecoin issuers must comply with the federal framework; however, it also permits local governments to participate in shaping the future form of the digital dollar through policy development. Stablecoins offer states another opportunity to serve as policy laboratories, enabling them to pilot different stablecoin issuance systems based on local needs. States like California have already enacted stablecoin-related legislation, while Wyoming has even launched its own state-backed stablecoin, the Border Stable Token. Summary With federal crypto regulations taking effect, states may no longer need to build comprehensive crypto regulatory frameworks independently. Yet their role remains vital. By adopting targeted, practical measures, states can both foster responsible crypto innovation and ensure citizens and local businesses share in the benefits of the internet's future.
