The regulation of digital assets

Under current law, the Department of Financial Institutions regulates money transmitters. With exceptions, a person may not engage in the business of money transmission unless the person is licensed by DFI. “Money transmission” means selling or issuing payment instruments or stored value, such as checks, money orders, or prepaid cards, to a person located in this state or receiving money for transmission from a person located in this state. “Money” is not defined to include virtual currency such as cryptocurrency.

This bill creates an additional exception to the regulation of money transmitters to exclude a person engaged in 1) operating a node or a series of nodes on a blockchain; 2) effectuating the exchange of one digital asset for another digital asset if there is no exchange of digital assets for legal tender or bank deposits; 3) developing software on a blockchain, even if the software effectuates the exchange of one digital asset for another digital asset; or 4) digital asset mining or staking or engaging in a digital asset mining business.

Under current law, a person may not offer or sell any security in this state unless the security is registered with DFI, the security or transaction is exempt from registration, or the security is a federal covered security.

This bill creates an additional transaction exemption related to digital asset staking. The bill exempts a person from various securities-related requirements for providing technical solutions by third-party service providers to allow token owners to earn rewards through staking, not including returns other than rewards paid by the network.