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State lawmaking at the heart of blockchain regulatory evolution

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  • State lawmaking at the heart of blockchain regulatory evolution

    Little Federal Lawmaking

    Supreme Court Justice Louis Brandeis labeled states as the “laboratories of democracy,” and this is being borne out in real-time with the rapid development of blockchain-based technologies and the spread of cryptocurrencies. These technologies have garnered much attention from federal agencies in recent years, but there has been little definitive rulemaking. Instead, federal agencies have relied on well-settled law to address these issues, thus enabling states to take the lead in innovating.

    There were many reminders in 2019 that existing law still largely applies to new types of assets.

    On April 3, 2019, the SEC published its “Framework for ‘Investment Contract’ Analysis of Digital Assets,” which detailed the circumstances under which digital assets may be considered “investment contracts” and therefore securities. This framework expanded on the SEC’s 2017 DAO Investigative Report(“DAO Report”), which assessed initial coin offerings (“ICOs”) under the Howey test and found they bore the indicia of traditional securities offerings.

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    A deep-dive into the state of rule-making and guidance around cryptocurrencies and blockchain applications among U.S. states.