A bills pending in Illinois – the Digital Asset Custody & Protection Act (DACPA) – has raised quite the furor. People are alarmed over its potential impact on the state’s burgeoning tech ecosystem. The bill, intended to regulate digital assets, could impose significant costs and compliance burdens on Illinois-based startups utilizing blockchain technology. Critics counter that DACPA’s wide-ranging scope would hamper innovation. They argue it will lead to a two-tiered system that forces companies to leave the state. If signed into law, DACPA would be overseen by the Illinois Department of Financial and Professional Regulation (IDFPR).
DACPA’s broadness is perhaps its most problematic feature, and serves as the main reason critics are up in arms. The bill's overly broad scope could inadvertently capture a wide range of blockchain applications, imposing regulatory burdens on legitimate startups. This adds unnecessary additional layers of complexity and cost with no demonstrable benefit to consumers or the industry.
The Illinois Department of Financial and Professional Regulation (IDFPR) has a crucial role to play. They’ll be charged with leading a complicated, exciting and fast-changing industry. The IDFPR is in the midst of its own modernization and still uses many paper applications. In fact, the department referred to its own delays as a “crisis” just last year. This consequentially led to doubts around its capacity to efficiently regulate the fast-paced digital asset environment.
Worrying too is the possibility that DACPA could establish a two-tier system. The intricate new licensing regime it creates might end up being too expensive and cumbersome for smaller firms to afford. If this is the case, only the biggest, most well-capitalized companies will survive in Illinois. Smaller startups will continue to be pushed out, stifling competition in the process.
DACPA's proposed regulatory framework is even broader than New York's BitLicense. New York adopted a similar system in 2015 and has issued just over 30 BitLicenses since. The stringent requirements have led many crypto companies to geoblock New York residents, limiting access and hindering innovation in the state. Illinois stands to suffer a similar fate if DACPA is enacted into law.
