Ukrainian Ministry Surveys Founders on Web3's Future
Exploring the potential role of the Web3 industry in Ukraine's post-war reconstruction and growth, the Ministry of Digital Transformation of Ukraine, in collaboration with the "Virtual Assets 2030" Public Union, launched the "Web3 for Ukraine: A Dialogue with Founders" study under the Web3 Institute initiative.
Conducting interviews with 50 Ukrainian Web3 founders, the researchers shared findings for a broader discussion among business leaders, government, NGOs, Web3 specialists, and enthusiasts.
A primary focus of the survey was the impact of russia's large-scale invasion on Ukraine, understandably casting a significant shadow over the local Web3 industry. Ukrainian startups are grappling with currency restrictions, travel bans, and wartime risks that deter foreign investment, partnerships, and clientele.
These issues are set against a backdrop of an already complex environment in Ukraine's Web3 sector, influenced by market dynamics and regulatory hurdles. The study highlights a lack of a cohesive ecosystem for Web3 startups in the country. Only isolated hackathons are present, lacking coordination in the broader "hackathon — incubator — pre-acceleration — accelerator" sequence. Additionally, there's a notable gap in skill-sharing between seasoned and novice founders, with the latter often learning independently, incurring time and financial costs.
"The absence of educational, financial, regulatory, and promotional support for Ukrainian Web3 startups is evident. One notable instance involved a Ukrainian Web3 startup being denied a government grant for an idea later adopted and successfully implemented by a foreign startup, eventually becoming a unicorn," the study reveals.
In a bid to offset the sharp decline in venture capital investments in Web3, Ukrainian startups have turned to grants, albeit with mixed success. Respondents also highlighted the lack of access to banking services, citing blocked transactions related to crypto trading, hampering Web3 product launches and pushing businesses towards less desirable exchange methods.
Banks' hesitance to engage with Web3 companies stems from regulatory uncertainty. The lack of clear legislation affects not only taxation but also leaves consumers without adequate protection. Moreover, there's a looming fear among Web3 businesses about the possibility of retrospective application of regulatory and legal measures.
Startups also reported unsatisfactory interactions with regulatory bodies, perceiving a lack of government interest and understanding of the Web3 sector. Those involved in drafting the virtual assets law and participating in pilot projects expressed dissatisfaction with the outcomes.
"The Web3 industry was initially aligned with the regulatory framework established by Ukraine's 'Law on Virtual Assets'. However, a shift towards the more stringent MiCA requirements was later announced. An anticipated tax regime to stimulate the virtual assets market is yet to be implemented. Despite the initial moratorium on inspections and fines announced at the onset of russia's invasion, it has since been revoked," entrepreneurs lament.
The MiCA situation is particularly critical. Founders unanimously agree that the market, government bodies, and experts are unprepared for MiCA. Simply replicating this European protocol is not feasible. "Ukraine requires a unique regulatory approach, especially in comparison with MiCA. Otherwise, Web3 companies will see little incentive to choose the Ukrainian jurisdiction over the EU's MiCA, given the specific risks and constraints in Ukraine," the researchers elaborate.
In wartime, fostering new digital economy sectors is strategically vital. The Web3 industry could be a key driver for Ukraine's technological and economic progress, enhancing its digital leadership. This study pinpoints the key impediments in the Web3 sector, emphasizing the urgent need for favorable digital economy legislation to ensure business stability and growth,stresses Oleksandr Bornyakov, Deputy Minister of Digital Transformation for IT Development.
As a reminder, the Ministry of Digital Transformation, alongside deputies and business stakeholders, has crafted the draft law on virtual assets #10225-1. Its passage is expected to pave the way for a stable and thriving Web3 business environment in Ukraine.