A new UK policy report from the Solana Research Institute has issued stark warnings about the country's upcoming crypto regulations. According to the report titled The Loneliness of Misunderstanding: The UK's Crypto Sakoku and the FCA's 2026 Regulations, the proposed framework could push validators, staking providers, and wallet firms out of the country. The authors claim this approach will create what they describe as 'digital isolation' from permissionless blockchain networks, effectively cutting the UK off from innovation happening across public blockchain ecosystems.
The report focuses heavily on the FCA's proposed treatment of delegated staking, liquid staking, and non-custodial wallet services. According to the authors, delegated staking on networks like Solana differs fundamentally from traditional financial products because users retain control of their assets while protocols manage staking logic directly onchain. The paper argues that the risks associated with staking infrastructure do not map cleanly onto existing financial regulation models built around custody, credit exposure, and discretionary asset management. The report also criticized the FCA's interpretation of non-custodial wallets, warning that software providers could fall within the regulatory perimeter, comparing this approach to 'regulating postmen for the content of the letters they carry'.
The report estimates that FCA authorization could consume between 15% and 30% of annual revenue for some mid-sized Solana validator operators, after accounting for ongoing compliance costs. According to the authors, this burden could push UK firms offshore, encourage overseas firms to geofence British users, and reduce UK participation in permissionless blockchain infrastructure. The paper compares the UK's approach to Japan's historical 'sakoku' isolationist policy, arguing that the UK could effectively cut itself off from innovation across public blockchain ecosystems.
The report warns that if regulatory scope continues to expand, the UK may gradually become disconnected from the international market on open blockchain networks. UK-based businesses are relocating their operations overseas, while overseas platforms impose geographic restrictions on UK users. The UK's participation in open blockchain infrastructure has already declined, with the report noting that the approach currently under discussion in the UK is more cautious and potentially more restrictive compared to the regulatory paths emerging in other countries. This reflects an ongoing industry debate over whether blockchain infrastructure providers should be regulated like traditional financial institutions.
The report reflects a broader industry debate over whether blockchain infrastructure providers should be regulated like traditional financial institutions. Critics argue that validators, staking providers, and wallet software often operate more as technical infrastructure than as financial intermediaries. Those supporting stricter regulation emphasize that consumer protection and operational risks still need to be addressed, while opponents argue that treating on-chain infrastructure the same as traditional financial institutions could undermine local innovation and weaken the UK's connection to the public blockchain ecosystem. The FCA's crypto perimeter guidance remains under consultation ahead of the UK's planned implementation timeline in October 2027.
