SB 535

This bill limits the ability of state agencies and cities, villages, towns, and counties (political subdivisions) to regulate digital assets, including cryptocurrency, and specifies digital asset–related activities in which a person may engage.

Under the bill, neither a state agency nor a political subdivision may prohibit or restrict a person in accepting digital assets as a method of payment for legal goods and services or in taking custody of digital assets using a self-hosted wallet or hardware wallet. The bill also specifies that a person in this state may 1) operate a node for the purpose of connecting to a blockchain protocol and participating in the blockchain protocol’s operations; 2) develop software on a blockchain protocol; 3) transfer digital assets to another person utilizing a blockchain protocol; and 4) participate in staking on a blockchain protocol. The bill includes various definitions relating to these provisions.

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.