The State of Hawaii has recently introduced a pilot program dubbed as the ‘Digital Currency Innovation Lab’ aimed at being a ‘testbed for innovation in the digital currency space.’
On March 17, Hawaii’s governor office revealed that the state’s very first state-initiated blockchain and cryptocurrency incubator is in the works.
This initiative is in collaboration with three government agencies:
- Department of Commerce and Consumer Affairs (DCCA)
- Hawaii Technology Development Corporation (HTDC)
- Division of Financial Institution (DFI)
The main aim of the project is to assist digital currency issuers to do business in Hawaii without acquiring any sort of money transmitter license in the course of the effective period of the pilot program. The sandbox will remain in operation for the next two years.
Furthermore, the program outlines three objectives:
- Create economic opportunities for Hawaii and foster early adoption of cryptocurrency
- Offer consumer protection and provide guidance to crypto entrepreneurs
- Provide data to shape crypto legislation in the state
Sandbox participants protected against unlicensed regulation
Iris Ikeda, Commissioner of Financial Institutions, highlighted that the DFI has issued a “no-action message” against unlicensed money transmission activities. This only applies, however, to crypto entrepreneurs accepted to the pilot program.
The purpose behind this action is to prevent regulatory recourse for those companies working under the sandbox who might be considered as unlicensed from regulatory authorities.
However, DFI emphasizes that other state and federal laws are still in effect, and participants of the sandbox are still subject to criminal and consumer protection laws.
To be successfully admitted to the program, companies must demonstrate that they have the needed capital, as well as the financial and technical expertise to conduct business in Hawaii. Each applicant will be “carefully reviewed to ensure that Hawaii’s consumers are protected.”
The application period runs from March 17 to May 1, 2020.
Hawaii: ‘digital currencies as a transmission vehicle of the future’
Ikeda further added that the DFI is leveraging its state authority to provide a reliable and innovative platform to introduce digital currency in the state.
Hawaii sees digital currencies as the future, and the results of the sandbox will be utilized to develop future legislation for digital currencies in the state.
“By acknowledging digital currencies as a transmission vehicle of the future, we will be able to craft legislation that is conducive to its development in Hawaii,” adds Ikeda.
According to Len Higashi, acting executive director of HTDC, the sandbox will greatly aid in making Hawaii an “early adopter” of cryptocurrencies. She states:
“By spearheading the Digital Currency Innovation Lab, Hawaii can position itself on the forefront of financial technology and potentially, reap the economic benefits that accompany the leadership stance taken.”
Hawaii’s double-reserve requirements vs. crypto firms
In early 2017, Coinbase ceased operations in Hawaii resulting from a policy by the DFI that imposed a double-reserve requirement. This policy required digital currency businesses to maintain cash reserves or similar liquid assets in an amount equal to the value of crypto funds held on behalf of customers.
Coinbase proposed to amend the policy. Hawaii has since then imposed House Bill 2257 that amends the state’s Money Transmitter Act. This allowed crypto businesses to “operate viably and safely” in Hawaii.
In spite of all this, Coinbase has indefinitely suspended operations in Hawaii, claiming that the regulatory policies “will render continued Coinbase operations [in the state] impractical.
Meanwhile, crypto firms are currently not prohibited from operating in the state given that they are in compliance with the bill’s provisions.