Hawaii Launches Digital Currency Sandbox to Attract Crypto Firms

Hawaii has unveiled a virtual currency sandbox that allows blockchain startups to conduct otherwise unlicensed money transmitting activities.

The governor’s office of Hawaii revealed its new ‘Digital Currency Innovation Lab’ on March 17 — a blockchain and cryptocurrency incubator developed through collaboration between the state’s Department of Commerce and Consumer Affairs, Division of Financial Institution (DFI), and the Hawaii Technology Development Corporation (HTDC).

The initiative will run for two years, and will allow “digital currency issuers to do business in Hawaii without obtaining a state money transmitter license during the effective period of the pilot program.”

Through the program, Hawaii aims to “achieve a more in-depth perspective of digital currency” and inform future cryptocurrency regulation in the state.

Sandbox participants are immune to action against unlicensed money transmission

Iris Ikeda, Hawaii’s commissioner of financial institutions, has emphasized that the DFI has issued a no-action message to prevent regulatory recourse for companies operating under the sandbox who engage in what would normally be considered unlicensed money transmission activities.

“DFI is leveraging its statutory authority to provide an innovative way to introduce digital currency issuers into the State of Hawaii, while ensuring the safety of our consumers,” Ikeda said. “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.

Len Higashi, the acting executive director of the HTDC, expressed his hope that the program will allow Hawaii to “position itself on the forefront of financial technology and potentially, reap the economic benefits that accompany the leadership stance taken.”

Interested companies have until May 1 to apply for the program, and must pay a $500 application fee plus $1,000 for each term of participation.

Hawaii makes first efforts to foster crypto firms since 2017

In 2017, Hawaii introduced the double-reserve requirement, mandating that companies operating with virtual currencies hold an equal sum of fiat and their clients’ crypto holdings. 

Although crypto companies were not prohibited from operating in the state, the regulation drove most blockchain firms operating in Hawaii elsewhere — including leading U.S.-based crypto exchange Coinbase.

Despite sandbox, regulatory future for crypto in Hawaii is unclear

While the HTDC website notes that the sandbox was developed to address the concerns of companies deterred by the double-reserve requirement, it is not clear what Hawaii’s vision for its blockchain and crypto sectors is after the sandbox concludes.

The website states that after the two-year program finishes, “participants must conclude all digital currency transactions unless explicit approval has been granted,” adding that “DFI will determine the appropriate licensing for the company to continue operations, if applicable.” 

Last week, Rhode Island also introduced a regulatory sandbox designed to facilitate innovation within blockchain and cryptocurrency.