Crypto Founders Embrace ‘Geofencing’ as US Pressure Mounts

Geofencing is an “extreme” method for ensuring compliance with US crypto laws, blocking access for specific regions, says Variant Fund’s Chief Legal Officer.

According to Chief Legal Officer of Variant Fund Jake Chervinsky, geofencing is an extreme method to ensure compliance with US law.

Geofencing is an “extreme solution” to regulatory uncertainties in the US, which involves banning users in specific regions. This is something that inventors of cryptocurrency are increasingly considering.

As US regulators continue their war on cryptocurrencies, several inventors of cryptocurrency are thinking about adopting geofencing as a compliance tactic, according to a post made by Variant Fund chief legal officer Jake Chervinsky on X on September 30.

He shared a tutorial on the process of correctly geofencing. He clarified that, in essence, geofencing is the act of erecting a virtual “fence” around a product to prevent people in a specific “geography” from accessing it.

Suppose a business cannot adhere to legal requirements like delivering disclosures and completing KYC (Know Your Customer). In that case, it can be utilized as a backup plan for a compliance strategy.

For example, users in the United States who are subject to stringent compliance regulations could be blocked by the firm or protocol. Chervinsky countered that it was a severe measure:

“It’s a pretty extreme solution to the problem of regulatory uncertainty — completely abandoning the US market — but sometimes there’s just no other way.”

TRM Labs reports that 17 governments, or 70% of the world’s cryptocurrency exposure, strengthened their crypto laws in 2023.

After altering its name from Maker to DeFi protocol Sky in August, the latter faced backlash when it prohibited VPN access for its Spark Protocol. This was done to try and stop US users from using the protocol, but it also blocks any IP addresses connected to VPNs, no matter where they are.

The biggest cryptocurrency exchange in the world, Binance, likewise uses geofences to prevent users from accessing it from US IP addresses. Instead, it displays a message that reads, “Binance.com is unavailable in your country or region.”

In the meantime, users from 30 nations, including the US, Canada, China, and Russia, could not claim Ethereum’s April airdrop due to the protocol’s restaking, Eigenlayer.

Orca, a decentralized exchange based in Solana, has similarly stopped allowing US users to trade through its web interface.

Chervinsky’s book provides several best practices for geofencing, such as identifying US users using GPS data and IP addresses and banning them using various techniques such as IP blocking, attestations, and VPN monitoring.

It also recommended utilizing non-US servers and cloud services, reducing hardware and staff in the US, and utilizing infrastructure outside of the US.

However, there are some benefits the business might receive from using a geofencing plan.

Chervinsky’s book provides several best practices for geofencing, such as identifying US users using GPS data and IP addresses and banning them using various techniques such as IP blocking, attestations, and VPN monitoring.

It also recommended utilizing non-US servers and cloud services, reducing hardware and staff in the US, and utilizing infrastructure outside of the US.

However, there are some benefits the business might receive from using a geofencing plan.

According to a September blog post by compliance solutions vendor GeoComply, “tailored geofences using advanced geolocation data help crypto firms expand into new markets while maintaining compliance.”

However, Chervinsky stated that geofencing “is an extreme and costly measure to ensure compliance with US law.”