A proposed bill in Illinois, the Digital Assets Control and Protection Act (DACPA), is raising concerns among tech industry leaders and advocates. They fear the legislation could chill the state’s burgeoning tech ecosystem. Setting sweeping regulations and heavy compliance burdens could be crushing for fledgling blockchain–based startups.

The DACPA, in its current form, tasks the Illinois Department of Financial and Professional Regulation (IDFPR) with overseeing the complex and rapidly evolving digital asset sector. Critics include cities who argue that the bill injects new complexity and expense. They are disappointed that it does not provide any quantifiable benefits to consumers or the industry.

The bill’s wide reach is seen as the biggest sticking point in ongoing negotiations. At the same time, it would burden real established Illinois-based startups building real-world applications on blockchain with crushing costs and compliance burdens. Concerns are rising that the DACPA could create a two-tiered system, where only large, well-funded companies can afford to navigate the complex licensing regime, effectively shutting out smaller innovators.

Still, critics point out that the IDFPR is currently undergoing its own modernization efforts. This agency is charged with enforcing the DACPA. This is due, in large part, to the department’s reliance on paper applications. Just last year, it declared its processing delays a “crisis.” Experts question whether the IDFPR is equipped to effectively regulate the complex and dynamic digital asset space, especially given its existing challenges.

The Illinois regulatory regime proposed is far more sweeping than New York’s comparatively mild BitLicense. This very same system was put in place down in 2015. New York’s BitLicense, since its inception, has issued a little over 30 licenses. Most of these crypto companies have answered with geoblocks to prevent New Yorkers from using their services, stifling consumer access and New York-based innovation of the technology.

The extreme breadth of the DACPA is dangerous. It would inadvertently put the businesses it’s trying to regulate out of business. Illinois crypto firms continue making meaningful contributions to the state under current state and federal regulatory frameworks. They have Money Transmitter Licenses and meet regulatory burdens from agencies including the SEC, CFTC, and DOJ.

Opponents of DACPA have claimed that it misses the mark in a number of ways. They say the penalty is too low to be an effective disincentive for illegal drug trafficking. They caution that the bill’s sweeping scope and complex mandates could accidentally quash innovation and investment in Illinois. In the extreme, this might lead startups to look for more hospitable regulatory climates in other countries.