State-Level Developments: The Regulatory Landscape for Digital Assets

As we begin the 119th Congress, the nation is also preparing for the new administration to take office in just a few weeks. While federal action on digital assets remains a key focus, this week’s Crypto Policy Tracker shifts attention to state-level developments, where legislatures are entering busy sessions that could significantly impact the regulatory landscape for digital assets.

While digital asset companies must register federally and comply with anti-money laundering regulations under the Bank Secrecy Act, state-level requirements add another layer of complexity. Each state (except Montana) requires digital asset companies to obtain a money transmitter license or digital asset business activity license, leading to a patchwork of regulatory frameworks.

The Money Transmission Modernization Act (MTMA), developed by the Conference of State Bank Supervisors (CSBS), aims to streamline and standardize state regulations for money transmitters, including those handling digital assets. To date, more than 26 states have adopted the MTMA, though its implementation and scope vary. Some states have chosen to include the MTMA’s optional virtual currency provisions, while others have either excluded or heavily modified such provisions, resulting in a fragmented approach.

Below are highlights of how different states are approaching crypto regulation under the MTMA:

• Texas
  • Adopted the MTMA but added specific provisions defining fiat-backed stablecoins as a type of monetary value that requires licensure to transmit or custody.
  • Adopted Chapter 160 of the Texas Finance Code in 2023, which introduced additional requirements for digital asset service providers (e.g., electronic platforms which facilitate the trading of digital assets or maintain custody of customer digital assets, and which are licensed as money transmitters), such as:
    • Filing annual “proof of reserves” reports with the Texas Department of Banking.
    • Prohibiting the commingling of customer funds.
• Vermont
  • Adopted the MTMA in 2024, including the optional virtual currency component but with substantial revisions. Key highlights include:
    • Requires businesses to hold customer virtual currencies in identical types and amounts, prohibits the use of derivatives or wrapped tokens to back native tokens (e.g., wrapped ETH cannot be held as a permissible investment for customer obligations denominated in native ETH).
    • Bans the use of unlicensed custodians by Vermont licensees.
    • Limits cash transactions at virtual currency kiosks to $1,000 per customer, per day, per licensee.
  • Expanded consumer protection powers for the commissioner, addressing evolving risks in the virtual currency industry.
• South Dakota
  • Adopted the MTMA but excluded the optional virtual currency article.
  • However, the South Dakota Division of Banking had previously published guidance in 2019 stating that “[i]t is the position of the South Dakota Division of Banking that, as it relates to SDCL Chapter 51A-17, virtual currencies including cryptocurrencies like Bitcoin, are ‘monetary value.’”
  • Further, SB 58, which was signed into law in March 2024, aligns with MTMA principles by requiring licensees transmitting virtual currency to hold like-kind virtual currencies in the same amount owed to consumers, as opposed to other permissible investments, like U.S. dollar deposits.
• California
  • Developed a robust standalone crypto framework through the Digital Financial Assets Law (DFAL) (Assembly Bill 39 and Senate Bill 401). DFAL requires entities engaged in digital asset business activities to obtain licenses from the California Department of Financial Protection and Innovation (DFPI). Governor Newsom signed AB 1934, which extended the date by which covered entities must apply for licensure under DFAL from July 1, 2025 to July 1, 2026. Licensing requirements include:
    • Security and capital obligations.
    • Consumer disclosure standards.
    • Certification for token listings.
    • Specific stablecoin requirements. [See additional information here.]
  • The Department of Financial Protection and Innovation has solicited two rounds of comments on proposed rules implementing the DFAL, which are expected to be finalized before the July 1, 2026 application deadline.
• New York
  • New York continues to rely on its Bitlicense framework and Limited Purpose Trust Company Charters for the regulation of digital asset firms. New York’s regime, one of the oldest and most comprehensive, imposes strict licensing requirements for virtual currency businesses. 
  • Pursuant to this licensing framework, the New York State Department of Financial Services periodically issues guidance for licensees on topics such as the use of blockchain analytics and the listing of virtual currencies. 

Why It Matters

The MTMA was designed to create uniformity across state digital regulations, but the reality remains far from consistent. States like Texas and Vermont have taken various paths by tailoring their rules, while New York and California continue to operate under independent frameworks. This lack of uniformity complicates compliance for digital asset companies operating across multiple states.

As state legislatures convene in the coming weeks, digital asset businesses should watch closely for developments that could shape the regulatory landscape in 2025 and beyond. Whether through MTMA adoption, modifications or standalone frameworks, state-level actions will remain a critical factor in the evolution of U.S. crypto regulation.