Amid ongoing consideration of federal legislation to regulate cryptocurrency markets, states appear to be drafting local policies in an attempt to fill the void. It appears that states like California, New Jersey, and now Illinois, may rush through legislation on cryptocurrency markets in reaction to the fallout from FTX as the third-largest exchange failed in 2022 and its CEO, Sam Bankman-Fried, was found guilty of fraud. . A new bill in Illinois introduced two weeks ago called the Digital Assets Regulatory Act (DARA) could be an example of this.
DARA had already been introduced and considered in Illinois in 2023, where it was ultimately not passed by the time the session ended. There has been a similar path to a bill in California, where the Digital Financial Assets Act that California Governor Gavin Newsom signed into law in 2023 was the same bill he vetoed in 2022. Since 2015, only New York has had a BitLicense system in place. A specific license is required to work with cryptocurrency in the state. Last year, New Jersey introduced BitLicense-like legislation that ultimately did not pass.
“The FTX scandal in 2022 will likely push states to come up with their own cryptocurrency frameworks due to the lack of federal action. This is unfortunate, as a similar patchwork may be created,” said Lee Brachter, co-chair of the U.S. Blockchain Coalition (USBC). “The government cryptocurrency licensing systems are all different, which is really a challenge with money transfer licenses (MTL).” USBC is a national organization that focuses on multi-country issues affecting cryptocurrencies and blockchain and has recently merged with the World Blockchain Business Council. (GBBC).
Details about the DARA bill in Illinois
The introduction of the DARA bill two weeks ago by state Sen. Laura Elleman (D-Ill.) appears to highlight the concern expressed by Brachter about how states might feel obligated to take action in light of the vacuum left by federal lawmakers and pressure from Order creation of legislation based on FTX failure. I spoke with a new organization called the Illinois Blockchain Association about DARA. According to their analysis so far, the new bill includes broad definitions that may affect more than just centralized exchanges, such as DeFi and base-layer blockchain networks.
“While well intentioned, DARA goes further. It seeks to regulate not only those entities, but almost anyone working on blockchain in Illinois,” said Nelson Rosario, executive director of the Illinois Blockchain Association. “No one disagrees that certain types of companies – namely centralized companies that take care of client money – should be subject to a comprehensive regulatory regime. A lot of people are working on this very thing in Washington today.
Ulta Andoni, General Counsel and Head of Compliance at Enclave Markets, shared some of her specific concerns about DARA. “I think it definitely has a broader reach than BitLicense because of the broad definition of ‘digital asset business activity,'” Andoni said. According to Andoni, this definition “…will apply to all structures once operating and transacting digital assets without even holding them.” Andoni noted that she likes to exclude software developers from the definition of digital asset businesses, but believes there is room for more misinterpretation about what software deployment will involve.
“This bill, like last year's proposal, came out of nowhere. I don't think IL cryptocurrency lawyers were consulted on either version…I'm a big proponent of working on the proposed draft definitions to make it workable, but I don't think my legislators would.” IL They will have a lot of appetite for it,” Andoni said. Crypto policy could face a state-level crisis if other countries start formulating policy without the industry at the table. This could be a result of a loss of confidence in the industry following the FTX fallout. The senator did not respond State Rep. Laura Elman (D-Ill.), author of the DARA bill, asked for comment.
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