BBW23 – Day 1 – Since the Federal Gov’t won’t legislate, it’s up to the States!

[Music] before we dive in it does feel appropriate to acknowledge that there's been an era of positivity reverberating from uh Capitol Hill in recent months and as the industry does recover from its latest crypto winter as seen in our in memorium presentation uh we've all seen the various legislative Pro proposals that are now circulating through Congress but after years of federal enaction one is left to wonder if this time will be any different and that is where the states come in in the absence of legislation or effective regulation at the federal level state governments across the US have stepped up to the plate to fill the void but to put it simply this has not been an easy task our aim today is to help you navigate the regulatory maze but also to Envision a future where block block sorry blockchain technology can flourish while safeguarding the interests of both business and individuals as former president Obama once said a good piece of legislation is like a good good sentence or a good piece of music everyone can recognize it they say huh that works it makes sense so without any further Ado let's start off with a brief overview of the current state of blockchain and digital asset legislation at the state level Cole could you give us an overview of some of the legislative progress that has been made in Massachusetts and perhaps comment on some of the great work that our sponsor cubic Labs has been doing sure yeah thank you and thank you cubic labs and Boston blockchain week having us and uh pin shating today for uh rep Cutler and rep liard gabian uh what I just want to start with is um rep Cutler and and rep lier garab beian uh last session uh started the uh house blockchain caucus in the Massachusetts House of Representatives and and what that caucus does is it's an informal group of legislators uh who've come together and want to learn more about the blockchain and the crypto space uh from really from the industry from Regulators from uh nonprofits from quasi state state government agencies uh to come and really teach us what we ought to know about the landscape relative to blockchain so uh we are in our second session now at the the caucus uh we've had a few meetings so far this session that just started in January um and so we are really learning from the industry about what you folks need and and what we need to do as legislators and policy makers to create an atmosphere that is is um you know good for you folks I will say rep Liber garab Bean rep Cutler have filed a few pieces of legislation this session relative to blockchain um one rep gabian filed a bill that would create a special commission comprised of Industry Partners policy makers uh Community Advocates uh to take a holistic look in Massachusetts at at what's going on in this space uh that that commission would uh then have to kind of create a special report back to the legislature uh those kind of reports you know I think some people think oh they just go up on a shelf and don't do anything but really from from the policymaking perspective um those are the types of reports that inform our next steps and so that legislation is pending it had a hearing back in July um to um before the information and Technology uh committee um we're still kind of at the beginning of the legislative session you know it's the first year of the two-year session so legislation is having hearings now and and hoping that those bills will advance uh come uh beginning of of next year of 2024 uh and then just relative to cubic Labs you know we have a great partner in the legislature with with them but also with the Mass Tech collaborative who um you know awarded them a grant a few years ago now I think Ian I was I was there uh for for their work and so you know those types of partnership between government and the industry are really important especially from the perspective of of uh rep cuddler and rep leberger Bean and the in the Boston uh excuse me in the blockchain caucus that's excellent thank you co it sounds like a ton of progress we made in Massachusetts and continues to be made um Joe maybe you can speak to this what are some key trends or developments that you're seeing at this state level in terms of regulation of blockchain and digital assets and maybe focusing on your home state of California sure yeah so California has been an interesting case study in regulation so uh last year there was assembly bill of 2269 uh which would have regulated crypto uh at large I think I was quoted as saying it was a bit license and a cheap disguise um thankfully Governor New vetoed that a one siiz fits-all bill um and we had another legislative session although assembly chair Grayson who's the author of last year's bill in this year's Bill reminded the governor that not long after vetoed it we had the FTX collapse I don't think the two were necessarily related but it just reminded the folks that this is important that we get our wrap our arms around crypto and truly regulate the space at the state level so uh this year there were two bills that passed the legislature that are now currently sitting on the governor's desk he has procedurally until October 14th to either sign or veto those and every other bill that's on his desk I think there's 900 at this point um assembly Bill 39 would regulate uh crypto exchanges at large right so if you do any sort of crypto exchanging activities Fiat to crypto crypto to Fiat crypto to crypto with minimal exception you'd be regulated under that bill uh and there was a separate bill much more prescriptive just for Bitcoin ATM operators uh Senate Bill 401 uh which would create fee caps uh transaction caps uh and have prescriptive requirements in terms of what's on a transaction receip uh and other disclosures uh at the time of transaction I want to sort of go on that one a little bit with with s SP 401 because that's where we see the states going much more prescriptive and what they want from crypto so I think Ian did a good job of sort of saying we really don't have any clarification at the federal level I think the states are picking up the slack not just passing regulation at large in the case of ab39 but looking at different areas of crypto and saying how can we be a little bit more prescriptive on different nuances that aren't in law so assembly Bill 39 actually takes up the issue of stable coins and tells the regulatory agency you have the approval process for what a stable coin is and unless until you dfp Department of Financial Protection innovation in California unless you approve of that that stable coin can't be listed or offered for exchange so those types of nuances those specific elements of crypto we're going to see those more and more legislative bills uh and to the degree it's not legislated it's going to come through The Regulators taking a more nuanced approach uh as opposed to saying well it's money transmission at the federal level so we'll just regulate you like we regulate Western Union it's not going to work that way crypto is a little bit different yeah how would you handicap the likelihood of those bills being passed or written into law um if there's something just this shy of 100% that's where I'd put it um I I think the governor politically has to sign that great um you know Governor knew some sort of a closet in crypto fan uh but you know in the current environment uh and what's going on I think both bills will be signed and by the way I think both bills actually were were a really fair compromise especially assembly Bill 39 I think that uh chair assembly Grayson I had the pleasure of meeting with on several occasions and brought some folks in from industry he wanted to get it right from day one and that's what we like to hear I hear a lot of that going on in the Commonwealth you let's get together let's talk about this it's okay to disagree but let's put something out there that's a common sense piece of legislation everyone go that makes sense kind of like you said about President Obama let's that makes sense let's go with that uh as opposed to the sort of tribalism of crypto good crypto bad um and I think striking that balance is is what we'll see but yeah I think both bills are going to be passed and next year we're going to see another slate of bills which I'm I'm happy to talk about but don't want to Coop the conversation just yet uh I'm sure everyone will find you by the cocktail bar for that uh conversation uh but thank you it sounds like a lot of progress has really been made in California as well um but it goes without saying that Regulators do face challenges uh in the space Cole maybe you can speak to some of the specific challenges that Regulators face when crafting legislation for a rapidly evolving and complex technology like blockchain yeah sure I you know I think it's education um you know admittedly myself um you know I'm not an expert on the blockchain or crypto or anything like that you know legislators policy makers I mean we're presented with issues range ing from A to Z on a daily basis I mean just this morning I was at a hearing on you know disability rights and Healthcare and then I went to the Carpenters Union to see their training facility and now I'm here talking about blockchain and crypto so you know policy makers are are confronted with a myriad of issues spanning the gamut on a daily basis and so I think you know from our perspective as staff and as as legislators here in the Commonwealth uh you know being educated by the right folks is is the most important piece uh and that's where you know the the blockchain cost has been a really important step in that direction by inviting you know recognized professionals from the industry in to come and give their perspective to us has been really important um um from our perspective and and not only that but you know when we go to craft legislation when that you know at the beginning of the a session you know reaching out to them and saying you know what what can we do that would help your industry grow you know what are the kind of things that you guys need when you look at um you know the general laws here in Massachusetts or the ecosystem here in Massachusetts and what can we do do to be helpful in that sense so I think the biggest part is really education there aren't too too many blockchain related pieces of legislation right now before uh the massachusett state legislature I'd say you know maybe five to 10 just a handful and I can see that growing you know as the years progress as people get you know more educated and and you know I think there's a you know a conception that it's you know the older maybe the older folks who who don't understand it but you know again I have a lot of colleagues who are my age or younger who who also don't understand it and we need that kind of expertise um we just simply can't know everything about every issue and so we we rely on folks like yourselves and the folks In This Crowd to do that kind of work that's uh very true and one of the reasons why at least in my view uh some folks have been slow to regulate this area is because of the fears around consumer protection yeah uh Joe maybe you can give us your thoughts on how can Stak strike the right balance between consumer protection and Innovation uh do you have any thoughts about the idea of a state sandbox yeah so first on Innovation and consumer protection I I don't think those term should be mutually exclusive I think that it's possible for them to coexist um when we look at consumer protection today my my concern is the capital c capital P of consumer protection has sort of been co-opted as as a brand for folks that don't like crypto and they're using that as as a way to say well think of the consumer think of the consumer and when we had these conversations in in California we were talking about Bitcoin ATM operators we were talking about them earlier uh they have any number of warning screens uh that appear before the transaction and it seems the lawmakers didn't want to talk about that they wanted to talk about capping transactions or capping fees because they wanted to have a number and they wanted to have an achievement and we were talking about well if it's about protecting the consumer let's tell you what we've been doing for years by the way the prepaid card companies aren't doing this but we are and look at all the the the uh ways in which we're confronting this head-on and making some some successes and working with law enforcement so um you know again sort of getting off my Soap Box on on that um I think Common Sense consumer protection is just good for business in general right right so if you want to have Innovation you want to have an industry you want to have sub sectors of that industry survive they have to do right by their consumers and I I think that the two should coexist together and can um regarding sandboxes I'm I'm always hesitant on that I I feel like that could be you know in some ways the goalpost could move and and it could become very pro- incumbent um so it's difficult without some very strict parameters early on um I think it's interesting to see some of the states sort of Tinker with that model and maybe come up with something I'm more more of a fan of looking at this from Workforce development or apprenticeships or something along that lines as opposed to creating this sort of members only club uh and allowing a handful of folks to get sort of front row seat uh with regulators and with lawmakers yep totally agree and it is interesting how a word like consumer a term like consumer protection can become so weaponized when people you know need to latch on to something uh when they're opposed to an idea um maybe to shift gears a little bit and talk about Interstate coordination Cole in your experience uh to what extents are the difference States coordinating their efforts in regulating blockchain and digital assets um especially when these Technologies often do cross state lines sure yeah I you know look I'll be the first to admit we copy a lot of you know we see something good happening in another state where we're certainly have to to copy it and I think a lot of people look at Massachusetts for a myriad of different issues and try to copy us uh to see what we're doing and so you know I I we're looking at States like Wyoming uh Tennessee Vermont that are passing you know legislation relative to you know corporate structure uh blockchain llc's daa llc's things like that you know we're not trying to recreate the wheel here you know if something's working somewhere else you know why wouldn't we take a look at that and see if we can Implement that here in Massachusetts you know there's a few organizations uh out there that that we the legislature communicate with their National organizations uh National Conference of uh state legislator and Council of state governments that are large nonprofits that uh are great resources for us as policy makers because you know they take a holistic 50-state look at various issues across the Spectrum and say you know this is what's happening in xstate in this issue and so you know the coordination uh you know I I'll admit I haven't reached out to the folks in Wyoming and had a conversation with them you know maybe that will come down the line we certainly do do that um but we are certainly looking at what other states are doing and saying how can we if it is working you know if our industry Partners say this is working in those other states how can we take that model and Implement that here in Massachusetts yeah we like to use the word adopting rather than copying but it's a very legal East way of saying the same thing uh Joe do you have anything to add along those lines sure yeah we saw that in California so uh assembly chair Grayson the author of ab39 which regulates which will regulate crypto exchanges at large uh they under took a trip to New York and met with the nydfs with regard to the bit license and said okay you know we're starting from zero you started from zero back in 2015 you know what should we what Lessons Learned um their takeaway was they didn't hire enough people out of the gate which which I think was maybe a little Hometown scoring uh but at least they undertook that opportunity to reach out to other regulators and say hey what's worked for you what hasn't um and then sort of reflect on that as part of the the uh part of the conversation um tactically when we get down to those that are regulated the state examinations are quite coordinated in that the state examiners uh go together now not all 50 states in the territories but usually here four five so we'll get together for the larger institutions that have multi-state licenses and they'll go out and conduct an examination together and they get to learn from each other balance ideas off each other um and then there's the money transmitter regulatory uh authority agency Mt so it's an organization of all the state U money transmitter Regulators they get together it's sort of like the Teachers Lounge right they talk about the troubl students and and who's who's the star student in the class uh but they get together share best practices coordinate uh exam schedules and and get to talk about some of the points of emphasis now clearly things are going to be different politically between California and Alabama and other different states in between uh but the idea is that they get on the same page in terms of Lessons Learned knowledge what is crypto how does it work what are these business models that we have to wrap our arms around um and so I'm I'm very grateful for that coordinated effort and uh the outcomes that that go along with that that's great and along the lines of collaboration uh you know one of the questions that I often hear my clients asking is how can they help to shape state level policies uh to work not you know not just in their favor but to allow them to operate in in the way that they conduct their business um maybe in your experience how can stakeholders actively contribute when it comes to crafting state level legislation yeah I think the first thing to think about is is don't discount your voice right so anytime you you meet with an elected official it only takes a handful of folks and I'm sure you know this quite well Cole you get a handful of folks together in a state rep's office that is enough to move the needle on an issue may not get exactly what you want or a vote or a bill but it really moves the the the attention uh onto your particular issue so don't discount yourself and don't discount that the value of organizing um within your you know sort of smaller crypto Community um I'll tell you in California with with Senate Bill 401 I had the privilege of testifying uh before the Senate before the committee on that um the kiosk operators or Bitcoin ATM operators uh those guys and gals they can't agreee on the time of day but yet they all seem to come together for this bill because the initial draft of the bill would have been a deao ban it would have capped the fees at 0 to 2% and cap transactions of $1,000 they would have all gone out of business not because they were making less money but because they lose money and so they put all of their um competitive juices aside and just said hey look you know we're not going to have a place to compete we're not going to have an opportunity to hate each other if we don't have a business at the end of the day so they're able to put that aside get together hire a lobbyist and do it the right way and say okay we just need to educate lawmakers we know we're going to be licensed we know we're going to have to to fulfill some obligations we're here to play by the rules but if you create rules that we can't operate in you know unfortunately we're going to go out of business but we're still you're going to open it up to the black and gray market and we were able to make that case successfully and ultimately the bill though not perfect ended up being you know a good compromise somewhere in the middle as is so often the case that's really great to hear that you were successful in that uh regard um and Cole maybe you could give us an example of a successful collaboration between state government and Industry players uh to Foster blockchain Innovation yeah sure and I do want to just comment on on that last question as well you know don't be scared to call your your state lawmakers you know usually you'll get someone like me on phone who's generally pretty nice um but it is true you know seriously calling us you know like like I said before we have so many issues on our plate by calling your state lawmakers and you know maybe it's a neighbor or a friend who has a similar interest or or an industry group that has a similar interest having those conversations are are really important to us I can't tell you how many pieces of legislation we have filed because somebody reached out to us and said hey this is an issue are you aware and we say no can you educate us and that those conversations while it doesn't happen overnight as you mentioned you know those conversations turn into legislation uh and and I think that's really really important to not be fearful for sending an email or making a call to your state policy makers uh you know very often or not more often than not they are your neighbors they are more local than than you know your federal officials so they have a stake in the community and I think that's really important to to emphasize that point uh relative to some of the collaboration you know I guess I can kind of go back to to the blockchain caucus um you know having industry Partners come in um and and talk to us about the issues that they're facing um as I mentioned we we filed legislation rep Cutler filed legislation this session relative to a um a dow or blockchain based LLC um that idea came from a Boston based company who said you know look other states are doing this why isn't Massachusetts doing this can we do this and we said I don't know what that is can you educate us and they did and they kind of sold us on that idea and after a series of months going back and forth with drafting um you know we followed that legislation and that legisl is now I think it has a hearing uh at the in October if I'm not mistaken uh where we will be testifying and we'll be asking our industry Partners to come and testify and support of that legislation um so it's those very conversations you know they called us said hey we heard you had started this caucus can we talk about some of the issues that are company is facing uh so you know those are the types of collaborations that you know not only from an industry perspective but you know as a constituent as well as an individual who who lives in a state or you know who has local elected officials uh those conversations should should be happen and we need those conversations so if anyone wants Cole's cell phone number for a personal request he's going to be handing it out after this um maybe now to switch to a topic that will resonate with many of the folks in the room the impact on startups and small businesses um Joe maybe you can uh kick off with how to state level regulations affect startups and small businesses operating in the blockchain and digital asset space sure I think anytime you have regulation it disproportionately benefits the incumbents and the larger players I think we all kind of understand intuitively that that's the case um and now with the current environment in crypto we're probably going to see less in the way of tax incentives and and perks you know we're not going to see a mayor Suarez come up anytime soon giving things away to the crypto space to try to lure them in um I think just creating a Level Playing Field right so I sort of removed the sandbox and and get into a place where the regulation is common sense that we're charging a a fee because we have to right at the state level uh for the application process and asking you know information that is not only top of MTH or or can be readily produced but is reasonable in terms of the ask right and and not you know going over the top so most business owners say the same thing what are the rules and how do I play I think if we approached it from that way I think the startups will will be in a position where they don't feel disadvantaged but rather they feel like they're on a Level Playing Field because most will tell you look we're not looking for a tax break we're not looking for anything special treatment we just want to have a clear path where it doesn't take months or in the case of New York with a bid license years uh to get a license we want to know is our candidacy sound do we have the information we need and what do you need from us because there's always going to be a back and forth um so yeah my heart goes out to the startups I most of the crypto space is a startup right because it's such a nent industry um but we're going to continue to see competition I hope that competition doesn't get scared scared away because we're a little slower on the federal side and that's maybe where the states come in again not creating tax incentives or perks but rather creating some really solid guard rails and saying here's how you can come to Market and then getting those entrepreneurs to pull the trigger so to speak and move forward with their idea move forward with their Innovative um Innovative system Innovative platform Cole do you have anything to add on that yeah I mean I I think from Massachusetts perspective you also have to look at it you know as competition right if when you see other states that are starting to regulate you know the space um you know I think of Wyoming that are are trying to draw business to them you know that is a competitive disadvantage for Massachusetts and and I think for a lot of other states and they need to kind of think about it in those terms that you know if there are other states that are ahead of the curve or ahead of of you of your home state uh they're going to be competing for those same startups and those same businesses uh to come to them rather than here and you know I think Massachusetts especially you know Boston and the quiny area are have an advantage given the kind of intellectual talent and the the top universities that we have to for these types of Industries to to thrive but um you know until we have a regulatory framework that is you know works for the industry you know they may look at other states you know it's an expensive state to to operate in here in Massachusetts and you know that's competitive disadvantage what can we do as policy makers to you know create an advantage and and draw those companies whether they be startups or or larger companies to Massachusetts to to work and live that's really great um now as we wrap up here start to wrap up I wanted to spend a few minutes discussing with each of you the future outlook for state level legislation of blockchain uh as well as any opportunities that you see so maybe to stick with you Cole uh what do you envision for the future of state level legislation regarding blockchain and digital assets yeah I think in Massachusetts again it's it's relatively early at least from my perspective relative to legislation before the legislature um you know I mentioned rep Liber garabedian um you know commission bill that that rep Cutler coiled with her I think that's a really important um piece of legislation because it gives you know some special some legit legitimacy to to the the industry uh it pulls in Industry Partners to have those conversations um you know it's a bill that would need to be voted on by the house the Senate and and signed in by the governor um you know and when that kind of thing happens I think it gives uh some legitimacy to to what's going on um so those are the types of things that we're working on um but I still think it is in the early stages in educating you know lawmakers policy makers and and my colleagues staff and things like that at at this moment great and uh Joe are there any unique opportunities that state level legislation provides for blockchain innovation in your view that might not be possible at the federal level or I guess generally if you have any thoughts about the future outlook for blockchain legislation sure I guess getting back to being States in competition so in California our governor responded saying we're more like a country so so Singapore is our competition not Massachusetts or or uh Texas but you know looking at ways in which we can sort of galvanize you know the entrepreneurs get them to stay uh in that market and I think I mentioned this before you know going the route of sort of apprenticeship or or creating opportunities uh within the College University system so I had the pleasure of helping to write uh Senate Bill 7-Eleven uh which ultimately died in Appropriations as most bills do uh but we were enthused that it went that far through the process um and what the bill would have done was effectively create a working group within the California community college system which is a largest university system in the world um and it would create blockchain curriculum blockchain based uh courses uh and opportunities for study not just degree programs uh but certificate programs which are becoming more and more commonplace more and more popular both online and in person um although the bill was defeated there's a lot of energy behind it and we got a lot of backing women and data largest Organization of Women data analysts got behind it some various Chamber of Commerce uh organizations and as well as the schools themselves um but as it turns out the universities like most of us don't like to be told what to do uh so there was a little bit of a back and forth there um and ultimately we're sort of going back to the drawing board and looking at this more as Workforce Development through the grant process which I think there's maybe some efforts going on in the Commonwealth as well um in other states too where they're looking at this saying how can we how can we get the working base up to where it needs to be right we're talking about res skills you know retooling folks in the marketplace so that they can get into careers where there is an upside where there is a livable wage and there's an opportunity to to excel um and we think that blockchain is one such space so maybe not through the legislative route but I think much more through the grant process at least our case in California and in some of the other states we've heard of as well and Cole I saw you nodding do you have anything to add on that yeah and I don't want to steal uh my boss is thunder who's going going on in about an hour but uh he's filed legislation again with with uh his co-chair uh relative to Workforce Development in the blockchain space right I think uh we see that there is a you know a gap you know how can we partner with universities uh we we met with the the Cs met with WPI uh a few months ago over the summer uh who were talking about some of the the programs that they have in their business school surrounding blockchain and so how can we partner with those you know Academia to to create a space where folks can go and learn learn more about this and I think it's especially important especially given you know the younger generation uh who who are far more educated than me on this and who are starting so much earlier in in this kind of space whether that be just generally trading or or in the blockchain space um there's another bill filed that would direct the the state treasure to create um kind of going back to the consumer protection piece um a kind of a education financial literacy on blockchain and crypto uh here in Massachusetts kind of modeled after a financial literacy uh piece of legislation that was passed you know probably 5 10 years ago here in Massachusetts so you know those are the types of things that we need to be thinking about as policy makers is how can we partner not only with the industry but also Academia to make sure that um you know the folks that are going into college or or you know even certificate programs have the opportunities to come into this industry and and succeed I maybe just ask one more question here if you could just wave a magic wand and any regulation any legislation that you could dream up uh would be in effect 6 months from now in the state of California that's not currently you know in place or in the process what would that be oh goodness in the state of California where to begin this magic wand could be dangerous yeah I think maybe U not so much on the legislative side but my concern in California is operationally okay you're going from zero to 100 miles hour meaning that in California right now you don't have to register as a money transmitter if you're doing crypto exchanging activities so they literally have no license ease and they're going from zero to 100 they're going to be inundated with hundreds and thousands of applications and so what we've said uh through chair Grayson's office is look you have to go to the dfp not necessarily put pressure on them but tell them we want to see a public plan what is your plan to process these applications it's in the best interest of the consumers it's in the best interest of taxpayers and it's certainly in the best interest of the applicants because their their mindset of going from 0 to 100 is the bit license in New York and I still have clients and waiting four or five years right now for a bit license approval not because they're doing anything wrong not because they forgot something but because that's how long the process is taking and dragging on and so let's put out a public plan let's all be on the same page let's all have that transparency and I think at the end of the day I will use my magic one for not NE not necessarily legislation but how we act out and how we execute on that legislation I was going to say it sounds like your magic one would be to have the bu bureaucracy be efficient which is quite Cole any anything that you we get it's a magic one right okay yeah I uh it's a hard question to answer I think especially just given the kind of U beginning stages we in Massachusetts are at uh relative to to legislation and uh you know I always get fearful as well you know I think folks get very frustrated that the legislative process is so slow and and can sometimes die just like that but um you know there is an important aspect to it being slow that you know I think we especially the you know the caucus that rep Cutler and rep lier gab beting co-chairs we want to be deliberate you know we want to be deliberate in our actions and not overreact to things that have happened in the past year I think we want to make sure that we're making the correct decision not just something that happens fast uh so I always get a little nervous when you say magic wand like that but I understand yeah well thank you for that and I didn't mean to make anyone nervous uh but thank you both and as we conclude here today I just wanted to encourage everyone in the audience to carry the ideas that have been shared up here on stage forward in your respective spheres of influence um as we continue to work collaboratively you know Bridging the Gap between Innovation and regulation to harness the full potential of blockchain technology so thank you once again for your participation and let's all keep the conversation alive thank you thank [Music] you