Blockchain Regulation Matrix
The Blockchain Regulation Matrix (BRM) establishes a framework outlining the concerns of regulating the blockchain from both the government and the consumer perspective, and in doing so, provides a pragmatic and clear approach to Web3 regulation. The BRM outlines regulation aspects of the blockchain by viewing it as a blockchain stack in many layers starting with the electricity physically supporting the blockchain at the base layer, all the way to the process of offloading crypto to fiat currency. With centralization and decentralization on either side of the matrix, the primary objective of the BRM is to understand where and how regulation of the blockchain should be developed specific to each layer.
Beginning with the electricty supporting the blockchain, as you hover over the images of each row, you'll see the specifics for that topic within that layer. The left side refers to projects that are centralized, while the right side refers to projects that are decentralized. For example, if there was an organization or business that wanted to provide electricity to miners in their area, that would be a centralized project. However, if there was a solar farm operating as a DAO that wanted to provide electricity to miners, that could be a decentralized project.
There are two illustrations of the Blockchain Regulation Matrix below, a short-form immediately below and a long-form afterwards.
Hover over the icons to preview each topic, and click any icon to pin its details — the address bar then links straight to that cell, ready to share.
Application Layercentralized
This row applies to companies whose apps give access to other protocols on the blockchain.
Partially addressedCustodial apps slot into MSB/CASP regimes; disclosure standards are absent.
Government Concerns
- Whether an app that custodies or routes user funds is a money services business
- Disclosure standards for fees, risks, and the contracts an app actually calls
Consumer Risks
- Data privacy concerns due to centralized control over user information
- Vulnerability to data breaches and security incidents
- Dependence on the cApp operator's security and practices
- Limited recourse in case of disputes or malfunctions
Cons to over-regulation
- Stifling innovation and growth of centralized cApp ecosystem
- Higher entry barriers for startups and new entrants
- Potential reduction in user accessibility and choice
Cons to lack of regulation
- Lack of standardized security and data protection practices
- Potential for unscrupulous behavior and fraudulent activities
- Limited avenues for consumer protection and dispute resolution
Does blockchain technology currently exist to fulfill these obligations, and if so, what is it?
- Wallet-level transaction simulation showing users what an app will actually do before they sign
- Sign-In With Ethereum standardizing authentication without password databases
- On-chain verification that the interface serves the contract addresses it claims to
Current regulatory landscape
- enactedMiCA CASP scope (custodial services) — EU, 2024. Apps taking custody or executing orders are CASPs; purely non-custodial interfaces sit outside — the same boundary question as US law.
- guidanceState money-transmitter licensing — US — states, ongoing. Custodial app operators generally need MTLs; interpretations for non-custodial apps vary state by state.
Notable incidents
- Ledger Connect Kit supply-chain attack (2023) — A compromised npm library served wallet-drainer code across many dApp front-ends at once — the application layer's systemic dependency risk made real.
- BadgerDAO front-end injection (2021) — Malicious script injected into the site UI harvested inflated approvals for months (~$120M) while the underlying contracts stayed uncompromised.