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Proof of State is the Wednesday edition of Fortune Crypto where Leo Schwartz delivers insider insights on policy and regulation.

As the results from Super Tuesday trickled in last night, crypto fundraising groups seemed to have scored a decisive victory. Rep. Katie Porter, who faced $10 million worth of negative ads from digital asset PACs, lost her bid to become the Democratic Senate candidate for California, while other pro-crypto candidates across the country notched primary victories.

Even if the crypto industry’s preferred candidates sweep into office in November, the calculus remains the same: Blockchain regulation remains a contentious topic in the U.S., where even broadly popular bills have difficulty passing through our cumbersome legislative process.

Last week, I had the opportunity to attend the Web Summit conference in Qatar, the first Middle Eastern country to host the flagship tech conference. The decision reflected the region’s ascendance, with sovereign wealth funds from Saudi Arabia and the United Arab Emirates serving as key limited partners in venture funds across the world, and both homegrown and foreign startups springing up across the area.

Crypto has been a main area of focus for several of the Gulf countries, especially the emirates of Dubai and Abu Dhabi, which saw an opportunity during the pandemic to pitch themselves as digital asset hubs. Even after the collapse of FTX, as other governments sought to distance themselves from the cancerous industry, Dubai and Abu Dhabi raced to establish new regulations.

On the sidelines of the conference, I interviewed eight investors, both from the Middle East and the U.S., to understand why the region had embraced blockchain even during the bear market, and what it means for the global industry. “If you want to leapfrog the Western countries, you have to take some risks in places where they won’t,” said Alfred Chuang, the San Francisco–based general partner of Race Capital, who began regular trips out to the Gulf region during the pandemic. “I’ve never seen the Middle East be this aggressive before.”

With billions of dollars to spend, the largest sovereign wealth funds in the Middle East—think Sanabil from Saudi Arabia and Mubadala from the United Arab Emirates—established themselves as limited partners in top U.S. crypto-focused venture firms, from Andreessen Horowitz to Haun Ventures. The outflow of capital created an awkward dynamic, with some Silicon Valley investors, who proudly tout their democratic ideals in public, loath to admit they privately took money from governments associated with human rights abuses. “They’re still seen as closed societies and slightly authoritarian,” said Etienne vantKruys, an Amsterdam-based founder of a crypto venture fund. “But still, these guys come here.”

VantKruys added that in the past few years, the UAE especially has emphasized not just spending capital outside the region, but attracting companies to set up offices in Dubai and Abu Dhabi with open regulation. The list includes everyone from Binance and Bybit to Paxos and Coinbase.

Investors from the region also told me that venture capital, both from private firms (many of which still count state funds as LPs) and governmental firms are spending on local development. Sharif El-Badawi—the CEO of Dubai Future District Fund, a venture fund of funds and investment vehicle for Dubai—pointed to Crypto Oasis, a Dubai-based community of more than 1,000 blockchain companies. “It’s really a greenfield here,” he said. “There’s a lot of opportunity to build for locals, too.”

Several investors told me that the nascent nature of markets in countries like Saudi Arabia, Qatar, and the UAE meant that economies could be built from the ground up using novel technology like tokenization. The logic made sense as I wandered around Doha’s business district, replete with gleaming new skyscrapers.

Hasan Haider, the Bahrain-based founder of venture firm Plus VC, was more skeptical, though he’d invested in Rain, one of the major exchanges in the region. “I don’t see a lot of the use cases being real use cases,” he told me. “How is consumer adoption going to come?”

Even the regional edge of regulation, which isn’t hampered by the pesky problem of U.S.-style bureaucracy, doesn’t seem like a slam dunk. The much celebrated Virtual Assets Regulatory Authority (VARA) in Dubai has just started to dip its toes into crypto supervision. “They don’t have enforcers yet,” El-Badawi told me. Saudi Arabia seemed to put the brakes on its regulatory efforts after the FTX collapse, though companies are hopeful there will still be progress.

The more existential overhang for the Middle East may be the risks of inviting such a volatile industry to set up shop—a lesson that the Bahamas learned in 2022. Noor Sweid, the founder of Dubai-based Global Ventures, shook off the concerns. “You’re better off trying and failing than failing to try.”

Leo Schwartz
leo.schwartz@fortune.com
@leomschwartz

DECENTRALIZED NEWS

Bitcoin briefly rose above its all-time high on Tuesday before a slight correction. But how is the number calculated anyway? (Fortune)

Crypto super PACs spent more than $13 million to influence races in California, Texas, Alabama, and North Carolina ahead of Super Tuesday. (Politico)

One of the reasons for the downward pressure on Bitcoin’s price is miners cashing out of their old block rewards, with one research firm linking selloffs to miners. (CoinDesk)

Digital Currency Group filed a motion on Wednesday to dismiss a lawsuit from the New York attorney general, describing the allegations as a “thin web of baseless innuendo.” (Fortune)

New court documents revealed that Binance.US laid off more than 200 employees, or two-thirds of its staff, after the SEC’s lawsuit last June. (Fortune)