What Wyoming’s 13 New Crypto Laws Mean for Blockchain in the US
In advance of her talk at Ethereal NY, Wyoming blockchain advocate Caitlin Long offers her take on crypto regulation and law in the US.
While it’s clear that there are many legislators at all levels of US government who are very bullish on blockchain, many believe that further development of digital assets into a pillar of the economy rests on representatives at the state level, in Congress, and government agencies like the SEC taking action to ensure a legal foundation upon which the industry can continue flourishing.
Recent statements from the SEC, the re-introduction of the Token Taxonomy Act in the House of Representatives, and a veritable avalanche of positive legislation on the state level signal that we may be entering a period of substantive movement. No state has been as proactive in leading the way in blockchain legislation than Wyoming, and Caitlin Long of the Wyoming Blockchain Task Force has been a vocal advocate in the state’s race to the lead.
Caitlin’s live-tweet breakdowns of happenings in Cheyenne and Washington D.C have been frontline reporting for the crypto business, and her work behind the scenes has been even more vital. She’ll be speaking at Ethereal Summit NY on May 10–11th in New York City alongside the brightest minds in tech, blockchain, and Ethereum.
In advance of Caitlin’s talk at Ethereal Summit NY, we sat down to get an overview of the latest happenings in blockchain and law in the US and a deeper look at what makes Wyoming the most blockchain business friendly state…
Wyoming recently passed another round of substantial legislation on blockchain and crypto. Can you point out some of the highlights?
The first and most important is that there’s no state tax on crypto. In the state of Wyoming, there’s already no income tax, but there’s also no sales tax and no property tax as well for digital assets. That’s very important because there isn’t going to be another state that’s tax friendlier for crypto than Wyoming. Aside from taxes, one of the things many people in the blockchain industry have been waiting for is legal clarity about some basic issues, many of which are defined in the Wyoming statutes. The most meaningful in that regard is SF125, which ties crypto to what I call ‘the protocol layer of the legal system’ — property law. Property law governs all commerce, and in the US commercial law is governed by the states..
For the Ethereum community, there are two other laws that I’d highlight: Wyoming was the first state to recognize utility tokens as distinct from securities under state law. Eight other states are following or in the process of following as well. If they are executed in a manner that meets certain requirements, utility tokens are property rather than securities under state law, which means they may not fall under SEC jurisdiction. I think it’s important because this movement among nine states is pushing the SEC and Congress to define exactly how the should treat consumptive tokens, and this is helping the ERC-20 and other Ethereum standards to become recognized under the law and become backwards compatible with the legal system.
The other law I’d highlight for the Ethereum community pertains to security tokens, which are also frequently issued on Ethereum. They are also legal in the state of Wyoming — both in certificated form (ERC-884 standard) and in uncertificated form for corporate shares. Wyoming is the only state where that is the case.
What are your thoughts on the recent statement by the SEC?
It fits very nicely with Wyoming’s law, so we were pleased when we saw it. I must give credit to ConsenSys and The Brooklyn Project because they helped Wyoming draft the utility token law, and it’s essentially consistent with where the SEC came out.
But like all regulators, when the SEC takes enforcement actions or issues no action letters, they begin with the edge cases, the low hanging fruit. They don’t want to risk losing on their first enforcement actions, because if they lose, they lose jurisdiction. Same thing at the opposite end of the spectrum, where instead of an enforcement action, you’re giving an enabling action — a “No Action Letter.” Here again, they go after the low hanging fruit. I think everyone looked at this No Action letter and thought — ”Well, no duh, of course that’s not a security” because the facts showed it wasn’t even close to the line. The real issue is that no one knows how to parse situations that are close to the line, and the SEC has a lot of wiggle room to determine that projects are securities. Since they have all that wiggle room, they’re liable to use it.
The Token Taxonomy Act was recently reintroduced in Congress. What is your take on that legislation?
It's a valiant effort, well intentioned, but falls way short. It definitely has momentum and is a bipartisan bill, but I think what we're seeing here is the result of “drafting by committee.” The Token Taxonomy Act started out with the same language as the Wyoming legislation that has now been enacted in four states and is on the way in five others, and look where it ended up.. It's now entirely different! That's what happens when you draft by committee — you get something that doesn’t quite work. It's also what happens when special interest groups get involved. Some of the biggest crypto companies don't have perfect interest alignment with individual crypto users and small startups in this industry. They are interested in broad sweeping legislation and federal preemption because they know they can influence Congress, whereas individuals are not interested in those things.
How many states have followed suit with legislation originally drafted in Wyoming?
It's probably a couple dozen that have followed in some way. Not every state is copying every bill. I mentioned the utility token bill--that’s in nine states including Wyoming. I believe six states are looking at Wyoming’s money transmitter license exemption. It's an interesting smattering of states that runs from Rhode Island to South Carolina to Missouri to Oklahoma to Iowa, among others. And then of course we have the whole Rocky Mountain arc of states that have already enacted some of Wyoming's bills: Montana, Utah, Colorado, and Arizona. Wyoming has definitely shown real leadership here and the fact that these bills keep making it through the legislative process in other states I think speaks volumes about the quality of legislative drafting.
I think there are things that Wyoming give a couple of very big advantages. One is privacy. Wyoming protects privacy for its LLC registrants more than most other states. Wyoming invented the LLC in 1977, and since then Wyoming has protected that privacy approach fiercely. That value is aligned very well with the crypto industry. And the other value that aligns very well with the crypto industry is no state taxes. And again, this gets back to Wyoming assessing no state taxes on any crypto-asset whatsoever. Other states may copy Wyoming's laws, but none of them can offer such a favorable state tax regime. So Wyoming wins on both of those fronts.
What do you see as being the next phase of blockchain legislation in the US?
One of the requests the Task Force has received is to consider enabling decentralized organizations as a new type of business entity recognized under Wyoming law. I think there's a very good chance that actually happens down the road. It's an idea that has to be studied in great detail, but it's something that developers in the Ethereum community would very much appreciate. As for Congressional action, The Token Taxonomy Act has received the most attention. It’s not clear to me whether that will become law--and I certainly hope that its favorable tax provisions do become law. But it opened a skirmish over federal vs. state jurisdiction. It also didn’t define “digital token” in a manner that really helps developers of consumer tokens. So, I think it has a long road ahead.
by Jemayel Khawaja.
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