As federal legislation regulating crypto markets moves forward, states appear to be creating local policies to fill the void. States like California, New Jersey, and now Illinois are in the aftermath of FTX, where the third-largest exchange collapsed in 2022 and CEO Sam Bankman Fried was convicted of fraud. In response to this, it seems possible that the government is rushing to pass legislation for the virtual currency market. . A new bill introduced in Illinois two weeks ago called the Digital Asset Regulation Act (DARA) may be one such example.
DARA had already been introduced and considered in Illinois in 2023, but was ultimately not passed by the end of the session. There was a similar move 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, New York state is the only state to have implemented a BitLicense system. The state requires specific licenses to handle cryptocurrencies. Last year, New Jersey introduced a bill similar to BitLicense, but it ultimately failed to pass.
“The 2022 FTX scandal will likely prompt states to devise their own cryptocurrency frameworks in the absence of federal action.” Co-chair of the United States Blockchain Coalition (USBC) “This is unfortunate because it could create a similar patchwork of crypto licensing regimes in all different states, which is already a challenge with money transfer licensing (MTL),” Lee Brachter said. said. . USBC is a national organization focused on multi-national issues impacting cryptocurrencies and blockchain, and recently merged with the Global Blockchain Business Council (GBBC).
Learn more about Illinois' DARA bill
State Sen. Laura Ellman (D-Ill.) introduced the DARA bill two weeks ago, which is a sign of how states would be obligated to act given the vacuum left by federal lawmakers and the pressure on Congress. This seems to highlight concerns expressed by Mr. Blachter about how people feel. Legislation based on FTX's failures. I spoke with a new organization called the Illinois Blockchain Association regarding DARA. According to previous analysis, the new bill includes broad definitions that could impact more than just centralized exchanges, such as DeFi and base-layer blockchain networks.
“DARA, while well-intentioned, goes too far. It seeks to regulate not just these entities, but almost everyone involved in blockchain in Illinois,” said Nelson Rosario, executive director of the Illinois Blockchain Association. . Rosario continued: “No one disputes that certain types of companies, namely centralized companies that hold customer funds, should be subject to a comprehensive regulatory scheme.” Many people in Washington are doing just that right now. ”
Orta Andoni, General Counsel and Chief Compliance Officer at Enclave Markets, shared some of his specific concerns regarding DARA. Mr. Andoni said, “Because the definition of “digital asset business activities'' is broader, I think it is definitely broader in scope than BitLicense.'' According to Andoni, this definition “applies to all structures where digital assets are manipulated or touched without being managed.” However, he believes there is room for more misunderstandings about what constitutes software dissemination.
“This bill, like last year's proposal, came out of nowhere. I don't think the Illinois crypto lawyers were even consulted on both versions… “I'm all for working to make the draft definition workable, but I don't think there's much appetite for Illinois lawmakers to do it,” Andoni said. Cryptocurrency policy could face a crisis at the state level if other states begin developing policies without involving industry. This may be a result of the decline in industry confidence due to the impact of FTX. State Sen. Laura Ellman (D-Ill.), the author of the DARA bill, did not respond to a request for comment.
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