Pioneering the Digital Frontier: Wyoming's Cryptocurrency Project

Cryptocurrency and blockchain markets have attracted significant interest and built considerable traction through the passage of numerous bills in one of the country’s least populated states – Wyoming. While federal regulatory authorities have struggled to clearly regulate and classify crypto markets, Wyoming has signed over a dozen bills into law aiming to redefine and reshape the state’s blockchain industry through various measures since 2018.¹ Through the recent series of legislation, Wyoming has rapidly gained attention for its capability to support digital asset businesses.

Change Comes In Waves

Thirteen blockchain and crypto-related bills have been passed in just two years, establishing the state’s comprehensive legal framework. The first notable surge in legislation signed by Wyoming Gov. Matt Mead (R) last spring resulted in the determination of digital utility tokens as an asset class, reduced limited liability corporation restrictions for blockchain companies, and state property tax exemptions.²

Another wave of legislation earlier this year brought further clarity to Wyoming’s swiftly evolving cryptocurrency market. Beginning in February of 2019, the state’s legislature reclassified digital assets as property under the Wyoming Uniform Commercial Code (SF0125), approved the issuance of tokens for securities with House Bill 0185 (“HB0185”), and established special-purpose depository institutions (“SPDIs”) for businesses that have been unable to secure traditional banking access (HB0074), such as those within blockchain industries.³

“I think right now Wyoming is the standard,” Wyoming Rep. Tyler Lindholm (R) told CoinDesk earlier this year. “We’ve got other states running in one form or another our legislation…so they’re trying to play catch-up.”⁴

Some states have passed bills that focus on similar challenges for digital asset companies recently, but to this date, there has not been an equal to Wyoming’s legislative push. In March, Colorado Gov. Jared Polis (D) signed the Colorado Digital Token Act (“SB19-023″) to limit securities registration restrictions and address digital token securities licensing requirements. States such as Arizona and New Mexico have also been rumored to join Wyoming and Colorado in advocating for federal regulatory change.⁵

SPDI Charters & “Blockchain Banks”

Considering all of the above legislation signed into law, HB0074’s creation of SPDI’s has made a distinct impression on the cryptocurrency industry, as it addresses companies’ crucial lack of banking services. After meeting the statutory $5 million minimum capital requirement to apply, firms would be granted master accounts with the Federal Reserve and have the ability to clear internal wires.⁶ With an increased measure of financial self-sufficiency, some hope that it will ease pressure on the few crypto-friendly banks that currently service the market.

“Some companies might choose to partner with unaffiliated SPDIs and others might choose to create their own affiliated SPDI,” Caitlin Long, Wyoming Blockchain Task Force appointee and Wall Street expert, explained to CoinDesk. “The significance is that crypto companies won’t need to rely anymore on the few traditional banks that have been willing to bank the industry.”⁷

Since HB0074, Wyoming advocates have worked to produce concrete policies for the SPDI charter. On November 11, state officials released a set of opt-in custody rules to shed light on said institutions at New York’s Fordham Law Blockchain Regulatory Symposium. According to a series of tweets by Long, the new rules included guidelines for a multitude of operations – such as airdrops, customer notice requirements, forks, and staking.

As more on Wyoming’s transformative policies has been released, some stakeholders seek to apply the state’s openness to digital asset companies to overcome some of the current obstacles faced by the industry in other states.

In New York, for example, licensing for cryptocurrency exchanges has gained a reputation for being an exhaustive and expensive endeavor as companies must obtain a state-issued BitLicense. Created by the New York Department of Financial Services (“NYDFS”) in mid-2014, BitLicenses are acquired through a thirty-page application and a $5,000 filing fee, yet some claim that compiling all of the required materials amounts to over $100,000.⁸ In addition to costly application procedures, interested crypto and/or blockchain businesses are required to appoint a qualified Chief Information Security officer to implement written compliance and anti-fraud policies, along with disaster recovery procedures.⁹ Since the license’s creation, New York has only issued eighteen BitLicenses,¹⁰ a staggeringly low number considering the state’s impact and position as the country’s financial hub.

That said, some point to Wyoming’s established foundation as a way for companies to avoid some of the current restrictions that typically come with operating in New York. At CoinDesk’s Invest: NYC event last week, supporters appeared certain that the current legal concepts that excuse banks from having state money transmitter licenses would apply. “We are fairly confident that the Wyoming SPDI will be able to operate in New York without a BitLicense,” general counsel of the Wyoming Division of Banking, Chris Land stated.¹¹

Wyoming’s Potential in Crypto

While Wyoming appears poised to provide new avenues and opportunities for digital asset businesses, it is worth noting that the proposed systems have not been fully enacted. Looking to the future and referencing previous experience as a former Morgan Stanley executive, Long laid out potential next steps for state businesses looking to expand: “The Wyoming SPDI would need to apply to NYDFS to open a branch in New York and NYDFS would need to approve the application, but there’s a lot of favorable case law precedent.”

“So if NYDFS denies the application,” she suggested, “I think it would go to litigation and the Wyoming bank would likely prevail.”¹²

Beyond the anticipated impact of the HB0074, in two years, Wyoming has set itself up to become one of the country’s leading cryptocurrency-friendly states. Noting Wyoming’s unique position, Long previously highlighted the state’s pro-crypto stance; “Wyoming is already the ‘Delaware of digital asset law,’ a reference to Delaware’s lead in corporate law.”¹³ Colorado, however, may be working towards comparable measures as last month members of Colorado’s Blockchain Council met to discuss the formation of special-purpose banking institutions.¹⁴

Depending on the state’s handling and implementation of the flood of crypto-related legislation that has been passed since 2018, Wyoming may hold significant promise for crypto companies.

The information in this blog post (the "Blog" or "Post") is provided as news and/or commentary for general informational purposes only. The information herein does not, and shall never, constitute legal advice and therefore cannot be relied upon as a legal opinion. Nothing in this Blog constitutes attorney communication and is not privileged information. Nothing in the Post or on this website creates any kind of attorney-client relationship or privilege of any kind.

Originally published Nov. 22, 2019, at https://therodmanlawgroup.com