As blockchain technology continues to disrupt the digital landscape, its intersection with regulatory frameworks presents significant challenges for innovators and policymakers alike. Chris Donovan, COO of NEAR Foundation, recently joined Paris Blockchain Week's X Space, to explore how the industry can balance its radical potential with evolving regulatory demands. His insights provided a nuanced perspective on the opportunities and complexities shaping the future of the decentralised web.

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Permissionless Systems and Regulatory Friction

Blockchain's permissionless nature is both a defining feature and a point of contention. Donovan explained how NEAR Protocol, like other decentralised networks, operates globally without centralised control. “Blockchain transcends borders. It’s autonomous, permissionless, and inherently global,” he said. This poses unique regulatory challenges, as traditional frameworks rely on the presence of centralised entities to enforce compliance. Blockchain’s decentralised architecture, however, lacks these clear points of control.

This absence of a central authority complicates how regulators approach compliance, especially when systems like NEAR enable participants from any jurisdiction to engage without intermediaries. Donovan emphasised that legacy legal frameworks simply weren't designed with autonomous, borderless infrastructure in mind, highlighting how outdated regulations fail to address the novel features of blockchain technology.

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The Importance of Regulatory Clarity

Despite the difficulties, Donovan sees a path forward that involves cooperation between regulators and the blockchain industry. He argued that regulatory uncertainty is a primary obstacle, preventing innovation from reaching its full potential. "Web3 founders want to push boundaries, but they also want to stay compliant. The problem is, it’s hard to navigate when the rules are unclear," he said.

Donovan stressed the importance of establishing clear, predictable regulatory frameworks. With well-defined guidelines, projects could innovate confidently, minimising unnecessary legal risks. This, in turn, would foster a healthier environment for growth, where Web3 projects could scale without constant concern about compliance pitfalls.

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Risk and Resilience in the Web3 Space

Blockchain innovation has always required risk-taking. As Donovan pointed out, Web3 founders face a unique set of challenges, particularly due to regulatory ambiguity. “In Web3, you're accepting more risk than in any other sector,” he said, acknowledging the difficulties of navigating an industry where the legal boundaries are still being defined. Nevertheless, Donovan praised the resilience of those willing to push forward, describing their work as critical to the evolution of the decentralised economy.

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El Salvador’s Bitcoin Experiment: Lessons and Challenges

A prime example of this intersection of innovation and regulation is El Salvador’s adoption of Bitcoin as legal tender. Reflecting on the third anniversary of El Salvador’s adoption of Bitcoin as legal tender, Donovan acknowledged that, while he is not closely familiar with the details of the implementation, the experiment has sparked significant interest across the blockchain industry. "I'm not massively close to the nuts and bolts of the implementation of El Salvador... I've not visited or experienced it for myself," he noted. However, from his perspective, the move was both bold and pioneering. "It showed that it’s technically feasible to use a crypto asset like Bitcoin at scale," he said.

Despite the excitement around the decision, Donovan pointed out key challenges with user adoption and infrastructure. “The reality is that user education and infrastructure need to be in place for something like this to succeed at the local level. Adoption has been slow, and the volatility of Bitcoin doesn’t make it ideal for daily transactions,” he explained. He argued that for large-scale experiments like El Salvador’s to succeed, there must be a stronger focus on user experience and practical implementation.

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Pioneering Technology at NEAR: Stateless Validation and Chain Signatures

Turning to the technological front, Donovan highlighted several key innovations at NEAR Protocol that aim to address some of the scalability and usability challenges inherent in blockchain systems. He discussed the recent introduction of Stateless Validation, a significant upgrade to NEAR's architecture. "With Stateless Validation, validator nodes no longer need to store the entire blockchain state, which drastically reduces the hardware requirements for running a node," Donovan explained. This update not only lowers the barrier to entry for validators but also enhances NEAR’s scalability, ensuring that the network can handle higher transaction throughput without compromising security.

Another pivotal advancement is Chain Signatures, which enables users to interact with multiple blockchain ecosystems from a single NEAR account. “Chain signatures allow users to seamlessly manage assets across different blockchains without needing to switch between interfaces or juggle multiple wallets,” Donovan said. This innovation is part of NEAR’s broader effort to improve the Web3 user experience and address the current fragmentation of blockchain ecosystems.

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Decentralisation and the Risk of Wealth Concentration

While decentralisation is often touted as a solution to inequality, Donovan cautioned that not all decentralised systems are created equal. "One of the risks with decentralised governance is that it can inadvertently lead to wealth concentration if not managed correctly," he explained. In ecosystems where governance is tied to token holdings, the wealthiest participants often exert disproportionate influence, potentially undermining the egalitarian ethos of decentralisation. 

To mitigate this, Donovan pointed to solutions like quadratic voting and lockout mechanisms, which can help balance governance power and reduce the risk of plutocracy in de

centralised systems. These techniques aim to ensure that decision-making remains distributed, preserving the integrity of blockchain’s decentralisation promises.

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The Future of Global Blockchain Adoption

When asked about the future, Donovan expressed confidence that blockchain and Web3 technologies are on the cusp of mainstream adoption. However, he emphasised that achieving global scale would require more than just technical innovation. "We need regulatory frameworks that can keep pace with technological advancements, and we need user experiences that rival, if not surpass, those of Web2," he said.

A key component of this vision is NEAR’s work on AI integration into Web3, with the development of tools like the NEAR AI Hub. This platform will offer decentralised AI solutions, including decentralised compute and storage, synthetic data sets, and inference validation. "The idea is to provide the tools developers need to build AI-powered apps in a decentralised, privacy-first environment," Donovan explained, underscoring the role of AI in shaping the next generation of Web3 applications.

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Key Regulatory and Market Forces Shaping the Next Six Months

When asked about the critical forces likely to shape the blockchain space over the next six months, Donovan highlighted several factors that could have a significant impact. These include the implementation of the Markets in Crypto-Assets (MiCA) framework across the European Union and potential regulatory shifts in the U.S. following the upcoming elections. “A more crypto-friendly U.S. administration could open the floodgates for innovation, whereas further regulatory crackdowns might stifle progress,” he explained.

Donovan also emphasised the importance of institutional adoption, pointing to the recent approval of cryptocurrency exchange-traded products as a major milestone. “Institutional capital is starting to flow into the space, legitimising digital assets and driving demand,” he said. This influx of institutional interest, combined with rapid advancements in AI and blockchain technology, could help accelerate the path to widespread adoption.

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Rapid-Fire Takeaways

To wrap up the session, Donovan answered a series of rapid-fire questions:

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What's more important right now: regulation or innovation?  

 Innovation every time.

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Most exciting use case?  

 AI-assisted app development using natural language.

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What does the industry need more of? 

 A focus on integrity and public perception.

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Favourite thing about Web3  

Learning something new every day.

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If you weren’t in Web3, where would you be? 

Directing films.

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Virtual or in-real-life events?  

In-real-life events, no contest.

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Final Thoughts

With new technological advancements shaping the space and regulatory shifts on the horizon, the next six months will be pivotal for the industry.  In short? Web3 is about to blow up, and you don’t want to miss it. 🔥

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Keen to listen to Donovan first-hand? Catch him live on stage at #PBW2025! 

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Pre-register TODAY for #PBW2025 to secure your place 

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