Cryptocurrency regulation in most jurisdictions worldwide is continuously changing, with lawmakers and authorities introducing new rules to regulate the sector. In the United States, there have been multiple efforts to regulate the crypto market at the federal level, with several bills introduced at different times. However, the US has been criticized for being less than supportive of crypto and lagging behind other countries in creating rules for the sector. Illinois is now trying to fill the regulatory gaps by introducing rules governing the industry. 

Last year, the state’s legislature introduced the Digital Assets Regulation Act (DARA). Unfortunately, the bill did not pass until the session was over, and was recently introduced by State Senator Laura Ellman (D-IL).

A supportive crypto bill could have significant benefits for many parts of the Illinois economy across several sectors. For instance, since the state already has a vibrant gambling economy, favorable crypto rules could attract any developer looking to design a crypto casino app where users can gamble using digital assets like Bitcoin (BTC), Litecoin (LTC), Ether (ETH) USDT. Unfortunately, DARA does not seem supportive and has been heavily criticized.

According to a thread on X from Crypto Accelerator and founder network Alliance, the bill is so harsh that it would make “digital asset business activity,” which includes blockchain activities, a felony. The DARA also seems to ban decentralized finance (DeFi) protocols and comes down heavily on most of the blockchain industry. This includes gaming, mining, trading, staking, and non-fungible tokens (NFTs). Alliance also notes that the compliance requirements are very difficult, describing them as “impossible.”

The post notes that DARA grants nearly unlimited rights to the Illinois Department of Financial & Professional Regulation (IDFPR). This gives the agency power over all parts of the industry and allows the IDFPR to make and enforce provisions. Broadly, DARA enables the agency to “administer, interpret and enforce” the Act by making any rules considered “necessary and appropriate for the protection of its residents.” Also, since the agency can issue, refuse to issue, revoke, or suspend any license, the IDFPR may have blanket authority to take any action whether or not an entity meets requirements necessary for operation.

Depending on the agency’s discretion, DARA also extends the IDFPR’s authority to any “covered persons,” which may include potential licensees. Essentially, the agency can issue orders against any entity it deems a covered person, including subpoenas. The IDFPR would also be able to scrutinize records of these entities and “exercise visitorial power.”

The law has been likened to the BitLicense regulation in New York, which has also been heavily criticized for compliance difficulty. Enforced by the New York Department of Financial Services (DFS), most crypto stakeholders agree that the license is too expensive and difficult to comply with.

Many global stakeholders agree that some regulation is necessary to sanitize the cryptocurrency sector. However, the situation in Illinois is concerning for stakeholders because it seems to stifle organic adoption. As crypto use cases increase, developers, especially in DeFi, create applications and services that facilitate everything from making cross-border payments to playing crypto poker at an online casino. Unfortunately, a bill like DARA may push these businesses out of Illinois and erase any chance of crypto innovation in the state.