A Crypto Innovation Handbook for State Governments: Five Feasible Recommendations Proposed by a16z

Federal-level crypto legislation is advancing rapidly. In just the past three months, President Trump signed the Guiding and Establishing National Innovation for United States Stablecoins Act (GENIUS Act), while the House of Representatives, with overwhelming bipartisan support, pushed forward the landmark Digital Asset Market Clarity Act (CLARITY Act).

However, the federal government is not the only legislative body in the U.S. working to set the rules of the game for the crypto industry. In 2024, 27 states and Washington, D.C. have already passed 57 crypto-related bills.

Although federal legislation—focused on consumer protection, providing regulatory clarity, and fostering innovation—has greatly reduced, or even completely eliminated, the need for states to implement their own comprehensive crypto regimes, states can still continue to play an active role in promoting responsible crypto innovation.

In the following, we will break down, based on real-world cases, five targeted proactive measures that state governments can take to protect their citizens and support local blockchain businesses.

#1: Adopt the DUNA Act

Unlike corporations, decentralized blockchain networks have no board of directors or CEO. Instead, they are designed to hand governance power to users through decentralized autonomous organizations (DAOs, pronounced “dow”), thereby eliminating centralized control mechanisms.

Without DAOs, blockchains risk being overtaken by the same centralized forces, repeating the “internet feudalism” of today, where a few “kings” rule: Meta, Google, Amazon, and other giants. These centralized, extractive companies benefit neither users nor innovation. If tech giants ultimately control blockchain networks, the blockchain-based internet (sometimes called “web3”) is likely to repeat the old problems that already plague cyberspace: surveillance, cybercrime, censorship, value extraction—the list goes on.

By empowering users to govern blockchain networks, DAOs can help realize the internet’s original promise: an open, decentralized, user-controlled network. But today’s DAOs face a series of challenges. Recently, some DAOs have even become targets of legal and regulatory action. Just last year, a court ruled that any participation in a DAO (including posting on public forums) could make its members liable for others’ actions under general partnership law. This exposes DAO members to significant legal liability risk and fundamentally undermines the viability of this organizational form. DAOs also face more everyday but equally harmful obstacles, such as being unable to contract with third parties.

Fortunately, solutions to these problems already exist. In March 2024, Wyoming became the first state in the U.S. to enact the Decentralized Unincorporated Nonprofit Association Act (DUNA). The DUNA Act allows blockchain networks to maintain their decentralized nature while complying with the law. It grants DAOs legal entity status, enabling them to contract with third parties, appear in court, pay taxes, and provides them with key protections against liability for members’ personal actions. In short, DUNA puts DAOs on equal footing with other corporate forms like limited liability companies (LLCs).

DUNA is gaining momentum. Just last month, Uniswap DAO (the governing body of the popular decentralized finance protocol of the same name) voted overwhelmingly (52,968,177 votes in favor, 0 against) to adopt a Wyoming-registered DUNA as Uniswap’s governance protocol’s legal structure. DUNA will enable Uniswap to hire service providers, meet regulatory requirements, and more, all while retaining its decentralized governance structure. Newly launched projects are also adopting this structure.

The more widespread DUNA becomes, the more capable DAOs are of outcompeting corporate networks and helping to create an open, user-controlled internet. Wyoming’s pioneering DUNA law builds on years of work, including the state’s adoption of Unincorporated Nonprofit Association (UNA) statutes. Other states with viable UNA frameworks can unlock web3’s potential by adopting DUNA. Overall, this helps accelerate the end of the crypto industry exodus and cements the U.S. as the world’s crypto capital.

#2: Ensure Existing Laws Do Not Misclassify and Thus Mistreat Tokens

Tokens are data records that index information such as quantity and permissions. What sets them apart from ordinary digital records is that, because they exist on decentralized blockchains, they can only be changed according to a set of predetermined rules. Since these rules are enforced by autonomous software that no party can control, tokens can be used to grant their holders executable digital property rights.

Although we have previously classified tokens into seven categories, their use cases are endless. And—despite the widespread misconception that tokens are just for trading as memecoins or bitcoin-like assets—many common token types are not inherently financial in nature. Take arcade tokens, for example, which, as the name suggests, are like the old metal coins you’d get at a game arcade. They provide utility within a system (such as a game) and are not for speculation or investment. Typical examples of these tokens include digital gold in virtual worlds and loyalty points in membership programs.

For example, Blackbird is a restaurant loyalty app that provides points to customers and revenue to restaurants. Its arcade token, FLY, is used to facilitate interactions between restaurants and their customers. For instance, customers can use FLY to buy a cold brew coffee and receive loyalty rewards. In this way, FLY creates opportunities for your local coffee shop or community pizza place to retain customers, while also rewarding consumers who patronize small businesses.

Like arcade tokens, collectible tokens are not financial instruments either. These tokens, often called “non-fungible tokens” or NFTs, derive their utility from serving as records of ownership for a good or right. A collectible token might represent a song, a concert ticket, or ownership of any unique item or right.

Clearly, restaurant loyalty points and songs are not financial instruments like company stock or corporate bonds; neither arcade tokens nor collectible tokens offer, promise, or imply any financial return. Other examples of non-speculative tokens abound, from identity credentials to in-game assets and more.

Therefore, for arcade tokens, collectible tokens, and other non-speculative digital assets, it is crucial not to conflate them with financial instruments. Yet, we often see states use a single term, such as “financial asset,” to refer to all tokens. The unfortunate consequence is that individuals and businesses using non-financial tokens are forced to comply with rules designed for financial institutions.

Laws that misclassify tokens—or worse, attempt to cover all tokens with a single definition—are bound to mistreat them. The consequences can be astonishing.

Imagine if a coffee shop owner had to apply for a financial services license just to offer a loyalty program to customers. Or if a musician had to contact her local financial regulator to request permission to issue a token representing ownership of her new single. Such requirements place a heavy burden on small businesses, artists, and users, and are not necessary for consumer protection. The prosperity of the crypto industry requires sound policy and regulation, and to achieve this, rules must address real risks, not shackle the very businesses and creators driving a state’s growth and innovation.

Illinois’ Digital Asset and Consumer Protection Act (DACPA) is a model of state-level law that treats tokens appropriately, and Governor Pritzker signed it into law in August 2025. DACPA recognizes that different tokens pose different risks, and thus provides exemptions in its financial regulation for businesses using arcade tokens, collectible tokens, and other tokens not used for financial speculation, since these tokens do not present the risks the regulatory regime is designed to address. Other states should follow Illinois’ lead to ensure laws properly classify and treat tokens.

#3: Establish a Blockchain Working Group

Conflicting laws between states often result in a “patchwork” of contradictory rules, allowing well-resourced large enterprises to consolidate their positions at the expense of small tech companies. Fortunately, federal legislation has largely eliminated the need for each state to create its own comprehensive crypto framework. But for certain issues, states should continue to serve—as Justice Louis Brandeis famously put it—as “laboratories” of policy innovation.

When deciding whether and how a state should experiment, a good first step is to establish a blockchain working group. Working groups provide states with a valuable public-private information-sharing mechanism. Composed of government and industry representatives, these groups can provide governors and legislatures with information on blockchain technology, its use cases, benefits, risks, and the impact of federal policy on state policy agendas—while also exploring how the state can align its policies with those of other states.

The California Blockchain Working Group is a good example of a state-level crypto working group. In 2018, California introduced AB 2658, requiring the Secretary of Government Operations to appoint a blockchain technology working group and chairperson to assess the uses, challenges, opportunities, and legal implications of blockchain.

This 20-member group represented multiple disciplines, including experts in technology, business, government, law, and information security. Two years later, the group submitted a report to the legislature containing its policy recommendations and proposals for adapting existing laws to the unique needs of blockchain.

#4: Pilot Blockchain Use Cases in the Public Sector

States can also promote responsible crypto innovation and address real-world problems by testing blockchain applications in the public sector. These pilot projects serve two purposes: they help spread knowledge about the broad utility of the technology and demonstrate its practical benefits for government operations. Public sector blockchain projects can generate benefits that go beyond any single pilot. By “learning by doing,” state government agencies can improve their understanding of the technology and then use that understanding to inform state-level policy making.

Good examples of public sector blockchain implementation already exist. The California working group’s report was not merely academic; its research led to state-level pilot projects, such as the Department of Motor Vehicles (DMV) digitizing car ownership certificates on the blockchain to reduce fraud and increase efficiency. Utah enacted a law directing the state’s Department of Technology Services to pilot blockchain-based credentials for public sector projects. Other use cases include providing mobile blockchain-based voting for overseas voters, publishing state government expenditures on public blockchains to increase transparency, and using verifiable health credentials to communicate medical test results in a privacy-protecting way.

By piloting and promoting these applications, states can better understand blockchain use cases while improving government services and benefiting citizens.

#5: Use Stablecoins and Establish State-Level Issuance Regimes under the GENIUS Act

Stablecoins provide a reliable opportunity to bring a billion people into the crypto world. Globally, they will enable faster, cheaper, and programmable payments.

States can also benefit from digital dollars. Stablecoins can help improve government procurement and payment processes by making them less costly, more efficient, and easier to audit. As long as states use privacy-protecting methods to ensure their citizens’ data is protected, these projects will be a boon for both government and residents.

In addition to using stablecoins to strengthen government projects, states can also participate in developing stablecoin issuance regimes that meet their local needs: although the GENIUS Act sets nationwide rules for payment stablecoin issuers, it also preserves a state-level licensing pathway for issuers—provided their outstanding issuance is below 10 billions USD and the state regime is “substantially similar” to the federal framework.

Precisely defining what “substantially similar” means will take some time. The GENIUS Act, which has received broad bipartisan support in both the House and Senate, sets high standards for stablecoin issuers, stipulates asset backing and transparency requirements, and establishes robust anti-money laundering (AML) and know-your-customer (KYC) compliance requirements. The Act will not take effect until January 2027, or four months after the main federal stablecoin regulator issues final rules (whichever comes first). During this period, federal agencies will develop the details of GENIUS, including the specific requirements that state regimes must meet or exceed to match federal standards. As the federal government implements GENIUS, states can begin to consider whether to adjust or advance local stablecoin legislation.

GENIUS makes it clear that states must meet the requirements of the federal framework to regulate stablecoin issuers, but the Act allows local governments to participate in policymaking, which will help shape the future of the digital dollar.

Stablecoins give states another chance to be “laboratories,” allowing them to experiment with different stablecoin issuance regimes to meet their local needs. States like California have already enacted stablecoin legislation. Wyoming has even launched its own stablecoin—the Frontier Stable Token.

As federal crypto rules gradually fall into place, states may no longer need to establish their own comprehensive crypto regimes. However, they still play an important role: by taking targeted, pragmatic measures, states can help promote responsible crypto innovation while ensuring their citizens and local businesses share in the benefits of the future internet.