USA – CALIFORNIA Trends and Developments Contributed by: Alexander Lindgren, Karl Lindgren and Daniel TeJumson, Lindgren, Lindgren, Oehm & You LLP
exclusions (see below) and by the commissioner’s ability, by regulation or order, to exempt persons, transactions or classes of persons/transactions where in the public interest. It is helpful to analyse these categories in light of the stated exclusions, which are: (A) a transaction in which a merchant grants, as part of an affinity or rewards programme, value that cannot be taken from or exchanged with the merchant for legal tender, bank or credit union credit, or a digital financial asset; (B) a digital representation of value issued by or on behalf of a publisher and used solely within an online game, game platform, or family of games sold by the same publisher or offered on the same game platform; and (C) a security registered with or exempt from registra - tion with the US Securities and Exchange Commission or a security qualified with or exempt from qualifica - tion with the department (California Financial Code Section 3102 (g)(2)(A)–(C)). Factoring in the exclusions, one of the most clearly in-scope categories of assets are “stablecoins” (eg USDC). For the DFAL’s stablecoin chapter, a “stable - coin” is a digital financial asset pegged to USD or another national currency and marketed so as to cre - ate a reasonable expectation that it will retain a stable nominal value. Note, the DFAL also contains stablecoin-specific restrictions. From 1 July 2026, a covered person gen - erally must not exchange, transfer, or store a stable - coin (or engage in digital financial asset administration relating to a stablecoin) unless the issuer is appro - priately licensed (or otherwise eligible) and maintains eligible securities with an aggregate market value at least equal to its outstanding stablecoins (California Financial Code Sections 3601 (a) and 3605). Apart from being a reference, stablecoins easily quali - fy under this definition. They act as a functional proxy for money in many contexts and would easily qualify as a medium of exchange (and potentially also a unit of account and store of value), while not constituting legal tender. As a practical matter, businesses already registered as a money services business with FinCEN and licensed in one or more states as a money trans - mitter may find that DFAL compliance builds on exist -
ing consumer protection and anti-money laundering controls. The application of the DFAL to other digital assets is less clear-cut, however. The DFAL’s core defini - tion focuses on how the token is used (medium of exchange, unit of account or store of value), but those labels can be contestable in practice. Almost any fun - gible asset could, in theory, be used as a medium of exchange; similarly, many networks use a native token for accounting and fee payment (which may point towards “unit of account” status, at least within the digital asset’s network). Finally, while “store of val - ue” has a commonly understood meaning in finance, many (if not the vast majority) digital assets exhibit significant volatility. In practice, firms should expect the classification exercise to be fact-dependent and, in some cases, uncertain. It would be cautious to assume that any fungible digital asset that is not covered by an exclu - sion falls within the DFAL’s definition of a “digital financial asset” for these purposes, as illustrated by the following analyses of some exemplary classes of digital assets. Layer-1 blockchain native tokens Bitcoin illustrates both the breadth and the ambigu - ity of the “medium of exchange/unit of account/store of value” language. Bitcoin is used as a means of exchange in some contexts, but price volatility may make it an inefficient one, and similarly an unstable unit of account in everyday pricing. It is also widely used as an investment asset and could be viewed as a store of value, albeit one with significant volatility. Within a given network, a “native” token may also function as a unit of account for network activity (eg, Bitcoin transaction fees are denominated in BTC; Ethereum gas fees are denominated in ETH). Outside the network, the same asset may be used as a unit of account in limited contexts, but again, volatility con - strains the practicality of day-to-day pricing use. This suggests that many (if not most) Layer-1 native tokens could, at least in principle, fall within the def - inition by functioning as a unit of account (and, at least with respect to payments to node operators and
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