In a recent development highlighting the struggles of the web3 industry in Ukraine, a study conducted by the Ukrainian Web3 Institute, supported by the Ministry of Digital Transformation, reveals significant regulatory hurdles. The research, titled “Web3 for Ukraine: Talk to Founders,” points to a critical need for clear guidelines and a regulatory framework within the country.
Regulatory gaps challenge Ukraine’s web3 sector
Based on interviews with 50 founders from 19 sectors of the web3 economy, the study brings to light the difficulties startups face in this space. Due to the absence of defined legal regulations, Ukrainian web3 companies are in a complex situation. This lack of clarity impedes their ability to work effectively within Ukraine and forces many to incorporate in foreign jurisdictions, taking their innovation and potential economic benefits with them.
One of the report’s key findings is the readiness of these projects to collaborate with government institutions, often offering their products free of charge. However, the absence of official rules for engaging with web3 technologies leads to hesitance and refusal from the government side, creating a gap between potential technological advancement and governmental engagement.
The Push for a comprehensive legal framework
The Ukrainian Web3 Institute urges the Ukrainian government to take immediate steps towards establishing a clear regulatory framework. The institute highlights that without such regulations, the country’s ability to harness the full potential of the burgeoning web3 sector is significantly hampered.
Additionally, the report touches upon the challenges faced in the financial aspects of the web3 domain. Ukrainian investment funds lack legal mechanisms to purchase cryptocurrencies using fiat currency. Moreover, the absence of defined rules for official interactions between Ukrainian web3 companies and their foreign counterparts adds another layer of complexity to the situation.
Aligning with international standards
In a related development, Ukraine is actively preparing to implement the Financial Action Task Force’s (FATF) requirements on cryptocurrencies. Yulia Parkhomenko, the director of the virtual assets department at the Ministry of Digital Transformation, highlighted the country’s efforts to avoid being placed on FATF’s grey list. Non-compliance with international standards poses a risk to Ukraine’s standing in the global financial community, making establishing a regulatory framework a domestic priority and an international necessity.
Draft law No. 10225-1, under consideration by the Ukrainian Parliament (Verkhovna Rada), aims to address these issues. If passed, it will mandate crypto exchanges to register with the government, enforce customer due diligence, and report suspicious transactions. This step is pivotal in creating a conducive environment for crypto businesses, aligning Ukraine with global regulatory standards, and opening doors for greater international cooperation and investment.
The study by the Ukrainian Web3 Institute, supported by empirical data and direct insights from industry players, casts a spotlight on the urgent need for regulatory clarity in Ukraine’s web3 sector. As the country navigates through these challenges, the outcome of these efforts will shape the future of the Ukrainian web3 landscape and signal its position in the global digital economy. The proactive steps taken by the government in response to this call for action will be crucial in determining the growth and success of this innovative and rapidly evolving industry.