Why America Was Losing the Tokenization Race (And Why That Changed in 2025)

In 2021, the United States was the undisputed center of the global digital asset industry. Coinbase went public in April of that year at a $65 billion valuation — the largest crypto company listing in history. American venture capital had funded the largest DeFi protocols, the most significant NFT marketplaces, and the most widely used blockchain infrastructure. The US hosted more crypto companies, employed more crypto professionals, and generated more crypto-related intellectual property than any other country. It was, by every measure, winning the tokenization race.

By 2024, the industry was losing. Not collapsing — the underlying technology and economic activity continued to grow — but systematically migrating away from American jurisdiction. Binance’s US operations were under a consent order. Coinbase was fighting SEC enforcement actions while simultaneously lobbying for legislation that the regulator opposed. Kraken had settled, then been sued again. The SEC had filed more than 100 enforcement actions against crypto firms, asserting that most crypto assets were unregistered securities and that most crypto exchanges were operating as unlicensed broker-dealers. The legal theory was contested in courts. The practical effect was to make the US a hostile environment for digital asset innovation.

The Gensler Theory

Gary Gensler, appointed SEC Chair in April 2021, had a coherent legal theory. He argued — not unreasonably, given the text of the Howey test and existing securities law precedents — that most crypto assets met the definition of investment contracts and were therefore securities. This meant that crypto exchanges were operating as unregistered broker-dealers or alternative trading systems, that issuers who sold tokens to the public had conducted unregistered securities offerings, and that the SEC had jurisdiction to regulate the entire ecosystem.

The theory had genuine legal support. The Ripple case, decided in part in 2023, produced a nuanced ruling that XRP tokens sold to institutional investors were securities while XRP traded on secondary markets to retail buyers were not — a distinction that created enormous practical uncertainty. The Coinbase litigation produced jurisdictional rulings that went in the SEC’s direction on some counts and the industry’s direction on others. The courts were not producing the comprehensive vindication of the SEC’s theory that Gensler hoped for, but they were not rejecting it either.

The problem was not the legal theory. It was the regulatory strategy built on top of it. Gensler’s SEC chose enforcement over rulemaking as its primary policy instrument. Rather than issuing rules that defined which crypto activities required registration, which tokens were securities, and how exchanges could register under securities law, the SEC sued first and left the rules for later. This approach created a situation in which the industry knew it was under legal threat without knowing exactly what compliance would look like, because the SEC hadn’t told them. Firms couldn’t comply with rules that hadn’t been written.

The Offshore Migration

The consequences were predictable. Activity moved offshore. Binance, which was the world’s largest crypto exchange, had never established a clear US regulatory structure. It continued to operate from outside the US, serving American customers through entities that the Department of Justice would eventually charge with operating an unlicensed money transmission business. Its November 2023 settlement — $4.3 billion in penalties — was the largest in crypto history but did not resolve the fundamental regulatory uncertainty facing the industry.

More damaging to American competitive position was the migration of legitimate, law-abiding companies. Crypto.com, one of the largest global exchanges, made significant investments in Dubai and Singapore regulatory compliance while limiting its US expansion. HashKey, one of Asia’s largest digital asset firms, explicitly cited US regulatory uncertainty as a factor in its decision to focus on Hong Kong rather than seeking US licenses. DeFi protocol developers increasingly structured their projects from the Cayman Islands, British Virgin Islands, or Singapore to minimize US regulatory exposure.

Venture capital data told the same story. The US share of global crypto venture investment fell from over 50% in 2021 to around 30% by 2024. Not because American VCs lost interest in crypto — Andreessen Horowitz, Sequoia, and others remained active — but because many of the most interesting projects were being built outside the United States to avoid the regulatory hazard zone.

The Political Response: Fairshake

The industry’s political response to regulatory hostility was perhaps the most significant development of the 2022-2024 period. Rather than accepting regulatory defeat, the crypto industry did what every other major American industry does when it faces adverse regulation: it organized politically.

The Fairshake PAC, funded primarily by Coinbase, Andreessen Horowitz, and Ripple Labs, raised $202.9 million for the 2024 election cycle — making it the largest single-sector political action committee in that cycle. The strategy was explicit and, in retrospect, extraordinarily effective. Fairshake identified incumbent legislators who had been hostile to crypto regulation and funded primary and general election challenges against them. The message was direct: being anti-crypto had an electoral cost.

The results were remarkable. Fairshake’s endorsed candidates achieved a 91% win rate in contested races. The roster of defeated or successfully pressured legislators included several who had been among the most prominent critics of the industry. The message to the incoming Congress was unmistakable: the crypto industry had demonstrated electoral threat credibility, and legislators needed to account for that in their policy positions.

The 2024 election results reinforced the industry’s leverage. Multiple self-identified crypto-friendly candidates won Senate and House seats, and the Trump campaign — which made crypto a campaign issue — won the presidency. The political landscape for crypto had shifted from hostile to, at minimum, potentially enabling.

The 2025 Pivot

The legislative and regulatory change in 2025 was real, comprehensive, and rapid. Donald Trump’s executive orders on crypto, signed in the early weeks of his administration, called for pro-crypto regulation, halted SEC enforcement actions in several ongoing cases, and directed the SEC to develop actual rules rather than proceeding by enforcement alone.

Paul Atkins, confirmed as SEC Chair, launched Project Crypto on July 31, 2025 — a structured rulemaking initiative to provide clear regulatory frameworks for crypto securities, token offerings, and exchange operations. The contrast with the Gensler approach was explicit and intentional. The CFTC, with Brian Quintenz nominated as Chair, similarly pivoted toward enabling crypto derivatives markets under CFTC jurisdiction.

Most significantly, the GENIUS Act was signed into law on July 18, 2025 — after years of failed attempts at stablecoin legislation. The bipartisan margins (68-30 in the Senate, 308-122 in the House) reflected the industry’s political investment paying dividends: enough legislators in both parties had concluded that opposing a comprehensive stablecoin bill was not worth the political cost.

What Was Lost and What Was Recovered

The honest accounting of the 2021-2024 period is that the US lost ground it cannot fully recover. Activity, talent, and institutional infrastructure that migrated to Dubai, Singapore, and Hong Kong during the regulatory hostility period will not simply return because Washington has become friendlier. The regulatory jurisdictions that benefited from American dysfunction invested in their own capabilities — VARA’s licensing infrastructure, MAS’s technical standards, ADGM’s legal frameworks — and those capabilities have permanent value.

The more optimistic reading is that the US retained its most fundamental advantages: the deepest capital markets, the most sophisticated institutional investors, the largest pool of engineering talent, and the most innovative technology ecosystem. The GENIUS Act and Project Crypto give that ecosystem a regulatory foundation to compete on. American financial institutions — JPMorgan’s Onyx, BlackRock’s tokenized funds, Fidelity’s digital asset custody — never actually left, and their scale means that American institutional engagement with tokenization remains enormous even as the startup ecosystem partially migrated.

What changed in 2025 was not that America suddenly became the world’s most permissive crypto jurisdiction. It became a jurisdiction where serious, legitimate digital asset business is possible without facing existential legal risk. That is a necessary condition for competitive participation — not a sufficient one.