California Passes Crypto Bill Requiring Bank-Issued Stablecoins, and Business Owners Aren’t Happy About it
In a 71-0 vote, the California Assembly recently passed a bill that could have a lasting impact on the cryptocurrency market. Digital asset exchanges and other crypto companies will be required by the Digital Financial Assets legislation (DFAL) to have licenses in order to operate in the state—if Gov. Gavin Newsom signs it into law.
The DFAL, also known as AB-2269, empowers California's Department of Financial Protection and Innovation (DFPI) to grant crypto exchange operating licenses. It's similar to New York's BitLicense law, passed in 2015, which governs the actions of cryptocurrency exchanges like Coinbase or Robinhood.
One of the bill's key requirements is a short-term rule (set to phase out in 2028) that crypto businesses licensed in California won’t be allowed to traffic in stablecoins unless they are licensed as a bank or have a license from the DFPI. Companies that don’t acquire such a permit could be fined up to $100,000 a day until they do.
Issuers must also have real financial assets equal to “all of their outstanding stablecoins issued or sold in the United States.” The stablecoin section of the bill seems like it was crafted with recent events in mind; having such a measure might have mitigated the June 2022 collapse of the TerraUSD stablecoin.
TerraUSD was algorithmic, meaning it was supposed to maintain a stable price through a complicated algorithm in which smart contracts continually tweaked the token’s supply to keep a stable price, no matter the level of demand. If a stablecoin is backed by assets, they remain stable because they are pegged to actual reserves of an underlying asset, like the U.S. dollar or Euro.
This aspect of the bill sounds like a net positive, but as CoinDesk notes, some in the crypto industry aren’t too happy about the legislation. In a letter on its website directed at California legislators, the DC-based Blockchain Association said that “passage of A.B. 2269 would be detrimental to California’s efforts to support innovation in the crypto and Web3 ecosystem throughout the state.”
According to the Blockchain Association, the bill “would effectively outlaw all of the crypto businesses that are currently thriving in California unless they are able to navigate an onerous, uncertain, and likely expensive licensing regime.”
Marlo Richardson is an L.A.-based CEO and the founder of Business Bullish, a resource that educates California entrepreneurs in financial literacy and entrepreneurship. Richardson tells dot.LA that for a business owner like her, “it’s difficult to love any new regulation.”
“Most people that go into business for themselves are looking to have more control over their life, their money, their schedule,” Richardson says, and the “entire premise of being a business owner or entrepreneur is freedom. Crypto was created with that freedom in mind.”
Richardson says that something like the Digital Financial Assets legislation might “interfere” with business owners’ freedom to use crypto. She says it is “understandable that the government feels the need to keep a watchful eye on anything that could be a threat” to the economy, she thinks “there are other ways to accomplish that.”
Still, she seems resigned to the fact such legislation will go into effect, telling dot.LA that “we must deal with the unnecessary rules or face harsh penalties."
Gov. Newsom has until Sept. 30 to sign or veto the bill.
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