This week’s top story — Wyoming’s new blockchain laws
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Read the full weekly crypto recap here.
Last week, Wyoming released new forward-thinking blockchain laws, establishing clear and structured legislation for crypto and blockchain projects and companies. Driven by the efforts of the Wyoming Blockchain Coalition, which is spearheaded by Caitlin Long and other volunteers, Wyoming has passed a total of thirteen laws since 2018. Our understanding of key highlights of the Wyoming laws is as follows.
Fintech sandbox. The newly created sandbox exempts blockchain companies and projects from all financial regulations for up to three years if they apply with a local regulator in Wyoming beforehand. The only laws that apply are consumer protection laws. So long as the business is not hurting consumers, they could be granted exemption for up to three years. Wyoming’s sandbox is reciprocal with sandboxes in other states (i.e. Arizona and Nevada) and outside the US in regions like Bermuda.
State chartered depository institutions. Wyoming has authorized a state charter for banks that provide banking services to blockchain projects and companies that are limited in their activities. They will still have to comply with federal KYC/AML requirements. But importantly, these entities will have to maintain 100% reserves and cannot lend out deposits (thus will not pay interest on deposits). As a result, they will not have to be FDIC-insured, which means the FDIC won’t be able to scrutinize and shut down these entities. This structure is intended to address the risk of legitimate blockchain companies having their bank accounts closed because they are in a “high risk” industry (which carries greater compliance overhead and risk for FDIC-insured banks that provide services to the industry). FreeRange, a New Mexico based entity, is planning to relocate to Wyoming and apply for the state charter to become the first state chartered digital asset bank.
Custody. Institutional investors are required to custody their assets with custodians (i.e. they cannot self-custody their assets). Investors in traditional securities have a debtor/creditor relationship with their financial counterparties — they have indirect ownership. According to this article, D.C. Donald notes, “under the indirect ownership regime, securities intermediaries are not required by law to have on hand the securities they sell to you.” On the other hand, investors that use Wyoming-domiciled custodians for digital assets will retain direct ownership over their assets. The investor never loses ownership of the asset — rather, the custodian holds assets on investors’ behalf, as required by law. This means the custodian cannot do anything with the asset (i.e. lend it out).
Super negotiability. Regarding commercial law and property law, state rules trump federal rules. One aspect of Wyoming’s new commercial laws is that when someone purchases what the state classifies as “virtual currencies”, they are subject to the same rules that apply to money under commercial law. In other words, they legally own the virtual currency even if there was a previous lien against it, “as long as the transferee isn’t colluding to avoid the lien”. This is referred to as “super negotiability”. Caitlin Long states that the importance of this feature rises as crypto lending rises because the likelihood that there’s a prior lien against “virtual currencies” goes up.
These are just a few takeaways from the eight bills that Wyoming recently passed to create a friendly and structured environment for blockchain businesses. For a comprehensive overview of all the new blockchain legislation established in Wyoming, we recommend this article by Caitlin Long.
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