Written By: Katia Kobylinski
The Chicago-based Global Digital Asset & Cryptocurrency Association (Global DCA) is a global self-regulatory association for the digital asset and cryptocurrency industry and a proud partner to the inaugural ETHChicago conference.
Global DCA was established to guide the evolution of digital assets, cryptocurrencies, and the underlying blockchain technology within a regulatory framework designed to build public trust, foster market integrity and maximize economic opportunity for all participants.
The organization chose Chicago as its home base as a testament to the efforts of the state of Illinois to attract start-ups built in Web3. The State of Illinois is home to the fifth biggest number of Web3 start-ups among the U.S. states and the ninth in terms of the amount invested in Web3 by venture capital firms, thus becoming an important hub for digital asset and crypto innovation.
Earlier in 2023, the Illinois legislators proposed HB 3479’s Digital Assets Regulation Act (“DARA”) with an intention to provide a reporting framework for the growing Web3 ecosystem such that would honor the many novelties and novel challenges brought about by the blockchain technology that underpins Web3, as well as a framework for consumer protection. As written, however, the bill does not sufficiently account for the unique characteristics of the digital assets themselves. In fact, DARA could effectively outlaw digital asset businesses in the state unless they are able to navigate a lengthy licensing regime. This would inevitably hurt many of the Illinois-based start-ups and small businesses that often lack the necessary financial and legal resources to complete licensing and compliance processes.
A case in point is Global DCA’s member firm ‘Safe Rate’ , an Illinois-based mortgage lender that introduced a more flexible mortgage product to help protect consumers from risk of house price declines. The company is also developing an investment platform on decentralized ledger technology, where retail and institutional investors can directly invest into Safe Rate’s mortgage loans.
For companies such as Safe Rate, the DARA poses a potential hurdle to its day-to-day operations, making many innocuous activities that do not pose a threat to consumer protection fall under a licensing regime that it would be very difficult to enforce given the sheer number of actions it covers. The licensing regime mandated by DARA would be akin to requiring a state license for every website launched on the Internet in the 1990s. In the context of Web3, this could mean that every smart contract applied to a decentralized ledger could be construed as requiring a license, even if the smart contract was as simple as a calculator adding two numbers together.
Because the definition of a “digital asset” would be so encompassing under DARA, it could capture almost any asset as a “store of value” requiring a license. Just like Safe Rate could face a significant regulatory burden for every smart contract built as part of its business, an artist that would create digital art in the form of a non-fungible token (NFT) could face a similar burden in order to sell their art because it would be considered “store of value”.
Global DCA, an avid proponent of regulations ensuring customer protection, fundamentally agrees with DARA’s main premise. However, we wish to note that DARA, as currently written, with achieving its main intended goal of ensuring consumer protection, is likely to also drive innovation, investment and the economic activity in the Web3 space to other states.
Global DCA is hopeful that the ETHChicago conference and similar initiatives will serve as a platform for the emerging industry to come together and advocate for a ‘fit for purpose’ regulation that supports the responsible development and future growth of the next stage of the Internet in the state of Illinois - an approach that honors both the need for reliable consumer protection and the needs of an emerging industry that is already driving significant economic activity in the U.S. and globally.
Sources:
USBC. The State of Web3. A state-by-state analysis of the Web3 economic activity in the U.S. (2023)
H.B. 3479, 103rd Gen. Assemb. § 101-1 (Ill. 2023), *https://ilga.gov/legislation/103/HB/PDF/10300HB3479lv.pdf. *