​​Federal Preemption of State Money-Transmitter Licensing Would Be Great Policy

A federal regime would protect the public without unduly burdening the blockchain sector.

AccessTimeIconOct 6, 2022 at 3:29 p.m. UTC
Updated Oct 6, 2022 at 4:44 p.m. UTC
AccessTimeIconOct 6, 2022 at 3:29 p.m. UTCUpdated Oct 6, 2022 at 4:44 p.m. UTCLayer 2
AccessTimeIconOct 6, 2022 at 3:29 p.m. UTCUpdated Oct 6, 2022 at 4:44 p.m. UTCLayer 2

Adelle Nazarian, CEO of the American Blockchain PAC, whose advisory board is led by W. Scott Stornetta, a physicist who was one of the inventors of blockchain technology, and Alex Allaire, co-founder and CEO of the American Blockchain Initiative, recently published a federal legislative road map in magazine National Interest’s Techland.

They compiled a list of 10 legislative proposals to protect investors without inhibiting innovation in the emerging blockchain sector. We are drilling down into the specifics of each of these at the National Interest here and there, at RealClearMarkets and now in this op-ed.

Ralph Benko is senior counselor to, and Todd White the founder of, the American Blockchain PAC.

One good way to protect the public without unduly burdening the blockchain sector would be to allow companies to elect to be regulated by the Commodity Futures Trading Commission's digital commodity exchange regime. This was proposed by the Republican leader of the House Agriculture Committee, Rep. Glenn Thompson of Pennsylvania. By reducing compliance costs without diluting consumer protection, it would provide a major boost to innovation.

One of the balancing acts involved in good lawmaking is making a smart cost/benefit analysis. Everyone agrees that we must protect the public. That doesn’t mean we should station a physician at every intersection, which might save a few lives, but at an exorbitant cost.

Tech to the rescue! A stop sign or traffic light will do.

The startup challenge

One of the greatest challenges for innovators is raising the seed capital to finance a startup. Typically, this goes through three stages: friends and family, angel investors, venture capital. Founders typically work insane hours and live at a subsistence level to make every dollar count. At the friends-and-families and angel levels, their seed capital would be in the hundreds of thousands of dollars.

But filing for money transmitter licenses in all the states that require it would cost between $1 million and $1.5 million and would take up to two years, according to consulting firm Faisalkhan. That’s a deal killer, costing an order of magnitude (or more) greater than standard tech startup legal fees.

It’s preposterous. Bureaucracy runs amok, precluding innovation. These filings (and compliance costs) are wildly duplicative, an insane tangle of red tape. And to add injury to insult, this byzantine regulatory scheme has failed to deter many, many fraudsters.

The option of “one-stop shopping” at the highly competent CFTC, as proposed by Thompson, represents an act of statecraft. It is heartening to see a convergence between smart Republicans, like Thompson, and Democrats, like President Biden, who in his executive order on the responsible development of digital assets called for consumer protection and appropriate risk mitigation, stating the following:

“The United States has an interest in ensuring that it remains at the forefront of responsible development and design of digital assets and the technology that underpins new forms of payments and capital flows in the international financial system, particularly in setting standards that promote: democratic values; the rule of law; privacy; the protection of consumers, investors, and businesses; and interoperability with digital platforms, legacy architecture, and international payment systems.

The United States derives significant economic and national security benefits from the central role that the United States dollar and United States financial institutions and markets play in the global financial system. Continued United States leadership in the global financial system will sustain United States financial power and promote United States economic interests.”

In a release by the Republicans on the House Agriculture Committee, Thompson said the following:

“Because of its oversight of commodity markets, the House Agriculture Committee plays a critical role in the exciting future of digital commodities. We have an opportunity and a responsibility to be leaders in the digital assets space to protect consumers, foster innovation, and reduce regulatory burdens.

The Digital Commodity Exchange Act can tackle those challenges, and I'm asking for the feedback of stakeholders, regulators and my colleagues in Congress to ensure we advance the best possible framework as American innovators build the next generation of digital infrastructure.”

Bipartisan support

We now observe a grand conjunction of great policy between the White House and the House of Representatives, between the Democrats and the Republicans, between those who prioritize vigilant protection of consumers and those who champion keeping America at the forefront of technological innovation and its attendant prosperity.

We, along with our colleagues Nazarian and Allaire, consider Biden’s executive order the most important presidential policy statement on technology since President John F. Kennedy’s 1962 Rice University speech launching American astronauts to the moon.

The federal government will have an extraordinary opportunity to make America great again beginning in January, with the convening of the 118th Congress, by introducing an omnibus bill enacting the policies most conducive both to public protection and technological innovation. That legislation should include Thompson’s proposal to allow tech companies to elect a federal money-transmitter license that preempts redundant state regulation.


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Todd  White

Todd August White is Managing Partner of Rulon & White Governance Strategies and the founder of the American Blockchain PAC.

Ralph Benko

Ralph Benko is the senior counselor to the American Blockchain PAC.