Author: Lawyer Shao Jiadian

Introduction

Projects that engage in cryptocurrency payments almost always register as a U.S. MSB (Money Services Business) in the early stages. However, once the project is up and running, it will inevitably face a question: is having only an MSB sufficient from a legal standpoint? This question cannot be answered by "industry feeling" but must return to the regulatory structure itself.

First, clarify a common misconception: MSB and state MTL are not an "upgrade relationship."

Many projects misunderstand MSB and state MTL as "low-end" and "high-end" versions, which is a typical misconception. MSB (Money Services Business) is a federal-level anti-money laundering registration system regulated by FinCEN, focusing on:

• Whether KYC/AML/sanctions screening obligations are fulfilled

• Whether there are compliance risks related to money laundering, terrorist financing, etc.

State MTL (Money Transmitter License) is a state-level financial license that focuses on more fundamental issues:

• Whether you are qualified to engage in "money transmission" activities in that state

• Whether you can legally access, control, or transfer others' funds

In summary, the difference between the two is: MSB concerns "whether the money is clean," while MTL concerns "whether you are qualified to handle this money." They do not exist in the same regulatory dimension, nor is there a legal logic of "using MSB to cover MTL."

Why many projects can "run with just MSB" in the early stages

It is not that regulation is lenient, but rather that the business model deliberately avoids triggering state laws. In the projects we have assisted, common compliance designs in the early stages include:

• Not directly targeting U.S. individuals

• Not providing fiat currency deposits and withdrawals, only handling cryptocurrency assets

• Not forming a fiat currency balance for customers within the platform

• Not directly holding or controlling customer funds

• Funds always being completed through third-party licensed channels or custodians

Under these premises, the project typically does not constitute money transmission under state law, so MSB + internal control systems are feasible in the short term. However, it is important to emphasize: this is not an "exemption," but rather "not yet triggered."

The real core issue: What are the triggering standards for state MTL?

From a legal practice perspective, determining whether a state MTL is needed is never about whether you call yourself a "payment platform," but rather about your legal position in the money chain. A highly operable judgment standard is: whether you "transmit, control, or possess others' fiat currency or its equivalents" in your business.

Based on the regulatory standards of various states, the following actions are highly likely to be recognized as money transmission:

• Directly providing fiat currency payment services to U.S. users

• Forming a disposable fiat currency balance within platform accounts

• Treating stablecoins as "currency or currency substitutes"

• Funds entering your account first, then being instructed to transfer out by you

• The platform having decision-making power over the flow path, timing, or parties of the funds

Once the above elements are combined, relying solely on MSB becomes legally very weak.

Which cryptocurrency payment scenarios practically cannot avoid state MTL

Based on our experience handling projects, I usually directly advise project parties to seriously assess state MTL for the following business forms, rather than "running first and discussing later":

• Cryptocurrency payments or exchanges targeting U.S. retail investors

• Integrated platforms for fiat ↔ stablecoin

• U-cards/cryptocurrency cards issued or used in the U.S.

• Customer funds "posting" or remaining within the platform system

• Integrated structures of payment + wallet + account systems

The judgment logic is quite simple: the more you resemble a "bank-like" or "payment institution-like" entity, the less likely state regulators will treat you as a technology intermediary.

Why many projects are aware of the risks but still delay obtaining MTL

The reasons are not complicated but rather due to costs and practical constraints. The actual thresholds for state MTL include: applying separately in multiple states, as there is no "one license for nationwide use," high surety bond amounts, ongoing capital and liquidity requirements, local compliance officers, audits, annual inspections, and the possibility of state regulatory inspections at any time. Therefore, many projects choose a phased strategy: through business structure design, they try to delay triggering, outsourcing the "money handling" aspect to licensed institutions, and treating MTL as a mid-to-late stage capability-building goal. However, it is important to be clear: regulatory attention often precedes your "preparation completion."

A very useful self-check question in practice

When conducting risk assessments for projects, I often ask this question: If a state regulator sends an inquiry today, can you clearly answer: "We do not touch, control, or transmit customer funds"? If you cannot confidently answer this question yourself, then the discussion is no longer about "whether to obtain MTL," but rather "when you will be recognized as operating without a license."

A more realistic compliance path: not a choice between two options, but a phased design

A mature compliance path in the U.S. is usually not: immediately applying for MTL upon obtaining MSB. Instead, it starts with MSB, aiming to avoid falling under state law regulation, gradually building internal control, risk control, and compliance capabilities, clearly identifying which business lines constitute money transmission, and progressively applying for MTL by state, by business, and by pace. From a legal perspective, state MTL is not a "startup threshold," but rather a "reflection of business maturity."

Conclusion

I do not recommend that all cryptocurrency payment projects rush to obtain state MTL from the start. That is neither realistic nor necessarily required. But I also do not suggest you assume: "We will only ever need MSB."

MSB is the foundation of compliance, while MTL is the load-bearing structure. When you need it is not a result of your subjective choice, but rather whether your business has already entered the regulatory scope of state law. If you have started to seriously grapple with this issue, it usually means—your project is no longer in the "early experimental stage."

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