Armenia at a Web3 Crossroads: To Regulate or to Foster?

Web3 - the next generation of the internet that promises decentralization, the return of ownership to users, and transparency through blockchain technology - is no longer a virtual concept but an emerging reality. From cryptocurrencies to NFTs and Decentralized Finance (DeFi), this new economy is attracting billions of dollars in investment and the most talented professionals globally.

Armenia, as a country with technological ambitions, faces the necessity of confronting this new reality. However, alongside technological progress arises a critical question: how should this dynamic and complex field be regulated? Today in Armenia, Web3 and virtual assets operate in a legal "grey zone" - a situation that contains both opportunities and serious risks.

The Current Legal Landscape: A State of Uncertainty

As of 2025, the Republic of Armenia has no comprehensive law or legal act that directly defines and regulates cryptocurrencies, virtual assets, or Web3 technologies. Industry participants are primarily guided by the following realities:

1. Not Forbidden, Therefore Permitted: The fundamental principle of law applies: what is not explicitly forbidden by law is considered permitted. Citizens and companies in Armenia can acquire, hold, and transfer cryptocurrencies.
2. The Central Bank's Position: The Central Bank of Armenia (CBA) has repeatedly issued warnings. The CBA emphasizes that virtual currencies are not legal tender in Armenia, are not guaranteed by the state, and are subject to high volatility, which can lead to financial losses. This is a caution, not a prohibition.
3. Tax Ambiguity: One of the most pressing issues is taxation. Since virtual assets are not clearly defined as a type of property, it is unclear how income from their sale or appreciation should be taxed. This uncertainty hinders the transparent operation of the sector.

This legal ambiguity is not merely a theoretical problem. It has a tangible, negative impact on the Armenian tech ecosystem. Startups operating in the Web3 space often face difficulties opening bank accounts or securing loans because financial institutions, wary of the risks, prefer to avoid activities related to virtual assets. Meanwhile, Armenian freelancers and professionals working in the international market who receive their salaries in cryptocurrency find themselves facing a complex process of legalizing and taxing their income. Consequently, this uncertainty not only stifles local innovation but also drives talented specialists and promising projects to relocate to countries with more predictable legal frameworks, such as the UAE or Georgia.

The Regulatory Journey: Stalled Attempts and Community Initiative

Although a final law is yet to be enacted, there have been steps and discussions toward regulating the field. Back in 2018-2020, draft legislative proposals were circulated that aimed to define the concept of a "virtual asset" and regulate its circulation, mainly from the perspective of Anti-Money Laundering and Combating the Financing of Terrorism (AML/CFT). However, these initiatives did not reach their logical conclusion, partly due to the complexity of the sector and partly due to the difficulty of keeping pace with rapid technological changes.

While progress at the state level has been slow, Armenia's Web3 community has not remained passive. An excellent example of self-organization is the activity of the Web3 Armenia Foundation and similar initiatives. These organizations not only organize educational events, meetups, and hackathons to raise awareness about the sector but also actively develop legislative and regulatory proposals. They strive to act as a bridge between the tech industry and government bodies, presenting international best practices and the needs of the local ecosystem. Leveraging this expertise could significantly accelerate the creation of an effective and viable regulatory framework.

The Regulator's Dilemma and Global Lessons

Armenia's regulatory bodies face a classic dilemma: how to find the golden mean between fostering innovation and managing risks. The main challenges are consumer protection, ensuring financial stability, complying with international AML/CFT obligations, and maintaining the flexibility to adapt to technological developments.

In this regard, Armenia can study and adapt the successful models of other countries:

• The EU Approach (MiCA): The European Union has developed the comprehensive Markets in Crypto-Assets (MiCA) regulation, which creates uniform, transparent rules for all participants in the sector.
• The "Sandbox" Approach: Countries like the United Kingdom and Singapore use regulatory sandboxes where startups can test their innovative solutions in a limited and supervised environment.
• The Swiss and UAE Models: These countries have chosen a pro-innovation path by creating a clear legal framework and favorable conditions for crypto companies.

Viewing Web3 regulation solely from a technical or financial perspective means missing the larger geopolitical and economic picture. In an era where data is the new oil and digital platforms are the new economic zones, control over decentralized technologies becomes a component of digital sovereignty. Having a thoughtful and progressive regulatory framework will not only boost the local economy but will also allow Armenia to be a rule-setter in the region, rather than a rule-follower. If the country falls behind in the regulatory process, it risks not only its competitive technological edge but also being forced to accept the rules of the game developed by other economic blocs, without the ability to consider its own interests.

Conclusion: From Ambiguity to Strategic Clarity

The legal "grey zone" is unsustainable in the long term. It deters serious institutional investors, hinders talent acquisition, and puts citizens at risk.

The best strategy for Armenia would be not to prohibit or ignore but to develop smart and flexible regulation. This requires collaboration between state bodies (the CBA, Ministry of Finance, Ministry of High-Tech Industry) and the private sector (the Web3 community, startups, legal and financial experts).

It is necessary to:

• Define key terms and the legal status of virtual assets.
• Develop clear taxation mechanisms that are simple, predictable, and incentivizing.
• Establish AML/CFT rules that comply with international standards without stifling innovation.
• Consider creating a regulatory sandbox to support Armenian startups.

Creating the right legal foundation will not only mitigate risks but can also position Armenia as a regional Web3 leader, attracting investment, technology companies, and contributing to the country's economic development. It is time to move from uncertainty to strategic clarity.