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California Governor Gavin Newsom signed the “Blockchain Executive Order” on May 4, which addresses the responsible development of web3 innovation, job market growth and consumer protection in the state.
As noted in a recent press release from the Governor’s Office, the executive order (EO) will impact Californians by beginning “the process of creating a regulatory approach to foster responsible innovation while protecting California consumers […].” It will also “assess how to implement blockchain technology for state and public institutions, and build research and workforce development pathways to prepare Californians for success in this industry.”
California’s EO reflects many of the same priorities outlined in the President’s EO on cryptoassets. That includes improving America’s competitiveness, investing in new technologies and job growth, and protecting markets, investors, and consumers from all bad actors.
While Biden’s executive order focused largely on the development of a central bank digital currency (CBDC), Newsom’s EO instead prioritizes the underlying technology, or blockchain. It also addresses current shortcomings by calling for a clearer regulatory framework and then exploring potential blockchain use cases in the state of California.
EO highlights seven key priorities:
- “Create a transparent and consistent business environment for companies operating in blockchain, including crypto assets and related financial technologies.
- Gather feedback from a wide range of stakeholders, create a regulatory approach to cryptoassets aligned between federal and state authorities, explore and establish public service use cases (such as incorporating blockchain technologies into government operations), and build research and workforce pipelines.
- Gather feedback from a wide range of stakeholders for potential blockchain applications and ventures, with a particular focus on cryptoassets and related financial technologies.
- Engage in the public process and use legislative authority to develop a comprehensive regulatory approach to cryptoassets aligned with federal regulations and guidelines, creating consumer protections and cementing California’s status as a premier global location for the startup and growth of responsible cryptoasset companies.
- Get involved and encourage regulatory clarity by advancing the processes outlined in the federal executive order.
- Explore opportunities to implement blockchain technologies to address public services and emerging needs, working with the private sector, academia and the community to present pilots for innovative policies, programs and solutions that demonstrate and showcase the potential of adopting blockchain technologies to address specific challenges identified by state agencies.
- Identify opportunities to create a research environment and workforce to drive innovation in blockchain technology, including cryptoassets.”
Although the momentum and energy set in motion by the federal executive is still so fresh, it is very encouraging to see the same degree of innovation and initiative coming from state governments. Even more so when you take into account the size of California’s economy and the fact that the state is home to Silicon Valley, which is the main technology hub in the United States.
Governor Newsom also notes in a press release that, “Too often, [the] Government lags behind technological advances, so we’re ahead of the curve on this, laying the groundwork to enable consumers and businesses to thrive.”
The specific details of the California EO that really stand out are the emphasis on public-private partnerships as a vital foundation for this initiative. In addition, it places emphasis on the blockchain technology itself, rather than focusing only on digital assets as we saw in the federal EO. Blockchains are the critical foundation for all of these new innovations in payments and technology. When regulation and innovation are properly aligned, blockchains will play a critical role in powering local and federal economies in the 21st century.
Treasury Sanctions First Ever Cryptocurrency Mixer
For the first time ever, the US Treasury has just issued sanctions against a blending service: Blender.io (Blender). While it is not uncommon to see a crypto wallet address on the Office of Foreign Assets Control (OFAC) list of Specially Designated Nationals, it is remarkable to see a mixer implicated in such a targeted manner.
This has never happened before. Remember Elliptic’s previous post about North Korea’s Lazarus Group being identified as the perpetrators of the over $620 million Ronin Bridge hack? Well, the Blender was the mixer responsible for washing a significant amount of those funds.
The mixer – or blender, if you will – works by obfuscating the source, destination and identifying quality of crypto assets. Basically, if you put money into one big pot, it’s really hard to tell where things are coming from and where they’re going. Mixers are a huge red flag for illegal activity and are flagged accordingly in the 70+ attributes Elliptic assigns to cryptocurrencies for risk rating. However, they are not illegal.
Risky? Yes. Raising eyebrows? Yes. Against the law? Not necessarily.
But when an entity is complicit in aiding and abetting the concealment of funds stolen by sanctioned states or entities, it must be held accountable. In addition to compromising U.S. national security through the decay of stolen funds from North Korea, “OFAC’s investigation also identified Blender’s money laundering facilitation for, among others, Russia-linked malicious ransomware groups, including Trickbot, Conti, Ryuk, Sodinokibi, and Gandcrab.”
Elliptic’s forensic and investigative tools are able to identify all funds and wallets associated with Blender and any other sanctioned actors – no matter how directly or indirectly. Exposure to just one penny of these funds is illegal. Compliance and due diligence processes are invaluable, now more than ever, to the crypto industry.
By sanctioning crypto mixers, OFAC is signaling that not only will the thieves be held accountable, but so will their getaway cars.
Rhode Island proposes crypto rewards for green housing
Between housing, environment and technology, it is rare to see policy making that touches on all three of these different thematic areas. However, lawmakers in Rhode Island are proposing an initiative to help incentivize low-carbon residential buildings through a “green coin” cryptocurrency that rewards carbon footprint reductions for development projects.
The proposed bill – the Green Housing Public-Private Partnership Act – “would require the state Public Utilities Commission to issue annual reports on utility costs and carbon emissions from housing projects. If the project has managed to reduce its utility costs, the state will grant the property owner a credit in cryptocurrency,” according to Cointelegraph. The “green coin” would be issued using Proof of Stake (PoS), the preferred validation model for environmentalists in the crypto-asset space because it is less energy intensive than other traditional models such as Proof of Work.
Binance is now fully VASP regulated in France
Binance France announced in a recent blog post on the company’s website that it has been granted registration as a “Digital Service Provider (DASP) by the Autorité des marchés financiers (AMF) with the approval of the Autorité de Contrôle Prudentiel et de Résolution (ACPR) )”.
The company calls this an exciting milestone because it’s a “compliance-first exchange.” Binance’s blog post explains that its DASP registration in France will allow the exchange to broadly expand its crypto services and offerings in the country and remain in line with its ongoing commitment to crypto compliance with the appropriate regulators in each jurisdiction where the company operates.
David Princay – CEO of Binance France – commented on the news that: “The registration of Binance France as a DASP is a key milestone for cryptocurrencies in Europe. In particular, new levels of AML protection will help increase cryptocurrency adoption in France and Europe. Greater adoption will help bring better liquidity to the market, which will be welcomed by users and especially by the community.”
Crypto regulator in Dubai to establish metaverse headquarters
Dubai’s Virtual Asset Regulatory Authority (VARA) has announced plans to build its headquarters in the virtual world of the Sandbox metaverse. In a statement released by the Dubai Executive Council, MetaHQ “will serve as its primary engagement channel [Virtual Asset Service Providers] worldwide to launch applications, enabling younger licensees [to] enter the metaverse, openly share knowledge and experiences with consumers and fellow regulators to raise awareness, enable safe adoption and drive global interoperability”.
This will make VARA the first global regulator to break into the Metaverse. Just a few months earlier, in March 2022, Dubai established VARA to help build a “secure and competitive operational” regulatory framework for virtual assets in the region in an effort to help make Dubai a global hub for cryptocurrencies. With the recent establishment of MetaHQ, their progress is well under way.
Sanctions Compliance Regulation
