The emergence of corporate-controlled Layer-1 (L1) blockchain networks has sparked a significant debate within the crypto legal landscape regarding their regulatory necessity and implications. At its core, the discussion questions whether these proprietary solutions genuinely address compliance concerns or merely represent a strategic maneuver to navigate existing regulations.
Upholding Decentralization as the Regulatory Standard
Jake Chervinsky, Chief Legal Officer at Variant Fund, firmly asserts that decentralized public blockchains continue to be the established regulatory benchmark for product development. Chervinsky argues that many new corporate L1s, often built for specific product needs, are "unnecessary" and "unhelpful" from a regulatory standpoint. He highlights that U.S. regulators have not explicitly demanded permissioned validator sets or embedded compliance tools, nor has any serious legislative effort suggested such requirements. For Chervinsky, unless there's a compelling commercial rationale, companies vaguely worried about compliance should stick to the proven standard of decentralized public blockchains.
The Strategy of Regulatory Arbitrage
In contrast, venture capitalist Revaz Shmertz proposes that corporate L1s, exemplified by recent launches like Circle's Arceeee and Stripe's Tempo, are a form of "regulatory arbitrage." Shmertz suggests that these companies are proactively building blockchain infrastructure designed to satisfy compliance requirements, thereby circumventing the need to advocate for more crypto-friendly legislation. This approach, he contends, could lead to a "bifurcated adoption" model: compliant corporate chains serving traditional finance and institutional clients, while neutral, decentralized protocols continue to cater to retail and DeFi applications. This perspective underscores a fundamental tension: whether institutional blockchain adoption will be driven by genuine regulatory demands or by the commercial desire for control and pre-emptive compliance.
Advocating for Flexible Regulatory Frameworks
Amidst this debate, lobbyist groups are actively engaging with regulators to advocate for adaptable approaches to decentralization. The DeFi Education Fund (DEF), for instance, has proposed five core principles for a "token safe harbor" framework to the SEC. DEF emphasizes technology-agnostic solutions that focus on addressing activity risks rather than prescribing specific blockchain models. This initiative seeks to ensure that even already-distributed tokens can qualify for safe harbor status, provided they meet decentralization goals, reinforcing the idea that base layer neutrality should be maintained without compromising on decentralization for perceived, unrequested regulatory benefits.
