Blockchain and digital token technologies have achieved prominence in terms of crypto and digital asset transactions, but these technologies also are the foundation for a new iteration of internet technology known as Web3. Web3 technology is more decentralized and depends on development and implementation of blockchains and digital tokens to succeed. This paper broadly defines Web3 and discusses the current legislative and regulatory approaches to digital asset markets, which are merely a subset of how Web3 could be deployed. Additionally, it identifies potential issues policymakers and regulators will face if their regulation of financial digital assets broadly impacts Web3 development, and cautions against an overly expansive regulatory approach.
I. INTRODUCTION
The decentralized technology behind Web3 holds enormous promise, and has developed quickly over the last decade-plus. The technology may allow both new market entrants and current “Web2” internet incumbents to better compete to provide online services in areas as disparate as identity management, financial transactions, intellectual property distribution, and personal data ownership, among others yet to come. As with other technological innovations, legislation and regulation can be slow to keep pace – and focusing on regulating the technology in specific use cases, can be misguided.
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