Last week, the California Legislature took a significant step by approving a bill designed to establish a new set of rules and licensing requirements for cryptocurrency firms. The bill also intends to implement various regulatory measures to oversee these crypto companies. Currently, the bill is awaiting approval from Governor Gavin Newsom, who has until October 14, 2023, to make it a law. According to Omar Rodriguez, a spokesperson for Governor Newsom, the bill will be carefully assessed for its merits before a decision is made.

This development in California follows in the footsteps of the New York Department of Financial Services, which previously introduced proposals outlining how cryptocurrency platforms can list or delist tokens. New York has had its own cryptocurrency licensing system in place for nearly eight years, which prompted some businesses to relocate away from the state due to compliance challenges. If California’s new licensing system closely resembles New York’s, it could potentially lead to another wave of crypto firms leaving the state in search of more favorable regulatory environments.

So, what does California’s crypto bill entail?

One of the most significant concerns raised by the proposed bill is the potential for increased costs and the banning of certain crypto products. Specifically, the bill calls for complete reserves to back stablecoins. This provision could result in the prohibition of algorithmic stablecoins, which maintain their value pegged to the dollar through code rather than traditional reserves. The collapse of the TerraUSD stablecoin in 2022 might have influenced this aspect of the bill.

Additionally, the bill will mandate that crypto firms obtain a license from California’s consumer financial protection regulator, a move similar to the crypto regulation framework in New York.

However, it’s worth noting that major federal crypto regulation may not be imminent, as the Senate faces challenges due to a lack of Democratic support. Furthermore, this isn’t the first time that California has attempted to pass crypto regulation legislation, as a similar bill was passed in the state last year.

In a letter addressed to Treasury Secretary Janet Yellen, Senate Banking Committee Chairman Sherrod Brown (D., Ohio) expressed concerns about some of his colleagues’ proposals in Congress, emphasizing the potential pitfalls of applying limited disclosure requirements to digital asset tokens