When a government encounters onchain technology, it reaches almost reflexively for one role: the regulator. The State positions itself outside the system, looking in — deciding what is permitted, what is restrained, who may do what, under which rules. This is a natural posture. It is how States have related to most new technologies: stand outside, assess, permit, restrain. The government is the referee, and the technology is the game being played by others in front of it.
There is nothing wrong with that role. States should regulate. But treating regulation as the only role a government can play onchain misses something large, and I think consequential. Because there is another role available — one governments have barely begun to consider — and it is not referee but player. A State can be a first-class participant onchain: an entity that owns its own names, holds its own foundations, and acts in its own right, not merely a body that watches others do so from the sidelines.
The difference between these two postures — regulator and participant — is not a matter of degree. It is a difference in kind, and it changes what a State is in the digital world. A government that only regulates onchain activity remains outside the thing it is governing, dependent on others for the infrastructure it uses, sovereign in law but not in substance. A government that participates onchain — that owns and acts — brings its sovereignty into the digital world rather than merely projecting rules at it from outside. That is a stronger, more durable, more genuinely sovereign position, and almost no one is talking about it.
The Regulator Posture and Its Hidden Limit
Consider what it means for a State to relate to onchain technology purely as a regulator.
The government sets rules for others. It decides what onchain activities are permitted within its jurisdiction, what protections apply, what is prohibited. It watches the ecosystem from outside and shapes it through law. This is real power, and it matters. But notice what it does not do: it does not give the State any presence inside the system. The government regulates the game without ever holding a piece on the board. It remains external — a force acting on the ecosystem, never a participant within it.
That externality has a hidden cost, and it shows up precisely where it matters most: infrastructure. A State that only regulates still has to use digital infrastructure — names, addresses, the foundations its own institutions run on. And if it is not a participant, it gets that infrastructure the same way everyone else does: by leasing it from whoever provides it. The regulator of the digital economy is, itself, a tenant in the digital economy. It makes rules for a system whose foundations it does not own and cannot fully control, because owning and controlling those foundations would require being a participant, and it has chosen to remain outside.
This is the limit of the regulator posture. It gives a State authority over the system without giving it standing within the system. And in a world where more and more of what matters — identity, records, value, trust — runs on digital foundations, standing only outside the system, however much authority you wield there, is a quietly weakening position. You govern the thing while depending on others for the ground you govern it from.
What It Means to Participate
Now consider the other posture: the State as participant.
A participating State does not merely make rules about names — it owns names, holds them as its own infrastructure, controls them outright. It does not merely permit others to build digital foundations — it holds its own foundations, in its own name, answerable to no external provider. It acts onchain in its own right: as an owner, a holder, an entity with genuine presence inside the system rather than only authority over it from outside. It is on the board, not just refereeing the match.
This is a different kind of sovereignty. Legal sovereignty — the authority to make and enforce rules — is what the regulator posture provides. But there is also substantive sovereignty: actually owning and controlling the foundations you depend on. A State that participates onchain has both. It can make rules (it is still a government) and it owns its own ground (it is now also a participant). It is sovereign not only in the sense that it has authority, but in the deeper sense that it does not depend on anyone else for the infrastructure its authority runs on.
The clearest place this shows up is in names. A participating State owns its namespace — the names its institutions use, the names its citizens might claim, the foundational identity of the State in the digital world — as its own property, held outright, revocable by no one. It is not a tenant renting its own name from a provider it also happens to regulate. It is the owner of its name, in the full sense, the same way it owns its territory and its buildings. That is what it means to be a first-class citizen onchain rather than a regulator standing outside: you hold your own foundations, and holding them is a form of sovereignty that regulating alone can never provide.
Why Participation Is Stronger Than Regulation Alone
It would be easy to hear this as a call to replace regulation with participation. It is not. A State needs both. The argument is that participation adds something regulation cannot provide, and that a State with only the regulator posture is weaker than it needs to be.
Regulation gives you authority over others. Participation gives you control over yourself. A State that only regulates can shape what others do onchain, but it cannot secure its own digital foundations, because securing them requires ownership, and ownership requires being a participant. So the purely-regulating State is in the strange position of having power over the ecosystem while being dependent within it — able to restrain others, unable to guarantee its own ground. Its sovereignty is real but incomplete: authoritative on the outside, dependent on the inside.
A participating State closes that gap. By owning its own names and foundations, it becomes independent in exactly the place the regulator posture leaves it dependent. It no longer relies on external providers for the infrastructure its institutions run on, because it holds that infrastructure itself. Its digital sovereignty becomes as substantive as its physical sovereignty: it owns its ground rather than renting it. And that independence is not just a convenience — it is a hardening of the State against exactly the kind of external pressure, failure, or dependency that a tenant is always exposed to and an owner is not.
There is also a matter of leadership. The States that move first to participate — to own their foundations onchain rather than merely regulate others’ — will have established substantive digital sovereignty while others are still standing outside the system making rules about it. That is a durable advantage. Foundations are cheapest to secure early, before dependency sets in, and a State that establishes ownership of its digital ground now will not have to claw it back later from providers it allowed to hold it. First-class citizenship onchain is available to any State willing to take the posture — but it is most valuable to the ones who take it first.
The Objection: Should a State Really Be a Participant?
The natural objection is that participation blurs a line States are usually careful to keep: the line between the referee and the players. Should a government really hold pieces on the board it also regulates? Is there not something improper about the State being a participant in a system over which it also has authority?
It is a fair question, and the answer turns on distinguishing what a State participates in. A government owning its own names and foundations is not entering the market as a competitor or picking winners among private players. It is doing something much more basic: taking ownership of the infrastructure of its own existence. A State owning its own namespace is no more improper than a State owning its own buildings, its own records, its own territory. These are not market interventions; they are the ordinary substance of what it means to be a sovereign entity. Participation, in this sense, is not the State meddling in a game it should only referee. It is the State securing the ground it stands on — which is not a game at all, but the foundation everything else, including the refereeing, depends on.
So the line between referee and player holds where it should. A State should not use participation to distort markets or compete unfairly with its own citizens. But owning its own foundations is not that. It is the State being sovereign in the digital world the same way it is sovereign in the physical one — by owning what is fundamentally its own. Regulating the ecosystem and owning your own ground within it are not in tension. They are two halves of complete sovereignty.
The Role No One Has Claimed
Governments have cast themselves as the referee of onchain technology so consistently that the other role has gone almost entirely unclaimed. Yet the participant role — the State that owns, holds, and acts in its own right — is the one that offers genuine digital sovereignty rather than mere authority over others. It is available. It is uncontested. And it is strongest for whoever takes it first.
I keep returning to the same underlying conviction: foundations should be owned by whoever depends on them. A State depends, more every year, on digital foundations — names, identity, the infrastructure its institutions run on. The regulator posture leaves those foundations in others’ hands and settles for authority over the ecosystem. The participant posture takes the foundations into the State’s own hands and makes its sovereignty substantive. One is a government standing outside the digital world telling others what to do in it. The other is a government that has brought its sovereignty inside — that owns its ground onchain the way it owns its ground everywhere else.
That second thing is what a State could be, and almost none yet are: not a regulator watching the digital world from the outside, but a first-class citizen of it, holding its own foundations, sovereign in substance and not only in law. The role is there for the taking. The only question is which State takes it first.