The state of California has taken a major leap in crypto regulation through the passing of its new Digital Financial Assets Law. This law, signed by Governor Gavin Newsom on October 13, 2023, is one of the most detailed digital assets frameworks in the United States, making special provisions for stablecoins.
This has put California miles ahead of many other US states when it comes to crypto regulations. It also has massive implications for the cryptocurrency industry both within and outside of the state.
So, what does this law actually state? First, certain digital asset companies must hold a license from California’s Department of Financial Protection and Innovation. If they do not, they will be barred from operating in California from July 1, 2025. The law also touches on stablecoins, stipulating that any entity that deals in stablecoins in the state of California has to be registered with the DFPI. Issuers of stablecoins also have to prove that they have reserves “not less than the aggregate amount of all of [their] outstanding stablecoins issued or sold [in the United States]”.
This means that, moving forward, the crypto landscape in California will be much more regulated and this could benefit customers immensely. For starters, it means that customers will have more protection from potentially unscrupulous actors in the industry. Because these companies need to obtain licenses, there is less chance of pump-and-dump and shitcoin operators being allowed to prey on consumers.
It also means that consumers can access crypto-related services more efficiently. The recent spike in Bitcoin’s price, for example, means that more people are going to be buying the token as an investment vehicle. With this, Californians can turn to reputable exchanges, crypto lenders, and so on to have their needs met.
This will also benefit the cryptos with many uses outside of the speculative. Litecoin, for example, has found itself a fan favorite for online crypto casinos. A consumer in California who wants to make a Litecoin casino deposit will be able to buy the token from reputable vendors and with the protection of the law.
And, of course, we can’t forget about the inclusion of stablecoins. The requirement of stablecoin operators to show proof of reserves is one of the most striking parts of this new law and perhaps one of the most important. Most of us will remember the scandals that have plagued several stablecoins, mostly centered around speculation of whether or not their reserve claims were true. But with this, any stablecoin issuer wishing to operate in California will have to prove to the government that they have the reserves needed to operate and this further protects consumers.
Overall, this landmark law will make the crypto scene within California better regulated and will ensure that consumers are protected. Hopefully, more states in the US will follow suit and the result could be a crypto industry that, while not perfect, will be much better.