Wyoming has now enacted a total of 13 blockchain-enabling laws, making it the only US state to provide a comprehensive, welcoming legal framework that enables blockchain technology to flourish, both for individuals and companies. These laws enable innovation and creativity, and are meant to bring capital, jobs and revenue into Wyoming.
Law and technology are discrete systems. For a new technology to attain wide adoption, the law and technology must be “backwards-compatible,” as early bitcoin investor Trace Mayer puts it. In a nutshell, that’s what Wyoming has now done for blockchain technology.
Here’s an analysis of what I think it all means. NONE of what follows is legal or tax advice—this is for educational purposes only. You may not rely on it and you must seek a qualified adviser to advise you about how you can take advantage of the great opportunities Wyoming offers!
In sum, Wyoming is already the “Delaware of digital asset law,” a reference to Delaware’s lead in corporate law. More than a dozen other US states and Congress are now following Wyoming’s lead by enacting our bills (usually just one or two of Wyoming’s bills). But no other state is likely to catch up to Wyoming—it’s a very tall order for any legislature to enact 13 bills on a single topic in a compressed time frame, especially when another state has already claimed first-mover advantage.
Here are the top highlights regarding Wyoming’s newest blockchain laws:
- Recognizes direct property rights for individual owners of digital assets of all types (virtual currencies, digital securities and utility tokens) and applies the super-negotiability rules of commercial law to virtual currencies—which foster their liquidity—by applying the very same rules that apply to money. Wyoming’s commercial law reflects the true nature of digital assets (directly owned, peer-to-peer assets), and I strongly encourage other states to adopt Wyoming’s same commercial law protections;
- Creates a fintech sandbox to provide regulatory relief to financial innovators from existing laws for up to 3 years. It’s broadly reciprocal with fintech sandboxes both in the US and globally;
- Authorizes a new type of state-chartered depository institution to provide basic banking services to blockchain and other businesses. The bank is required to have 100% reserves, cannot lend, is for business depositors only, and FDIC insurance is optional. Such banks could be operating as soon as March 31, 2020;
- Authorizes the first true “qualified custodian” for digital assets which is a bank. Wyoming banks can start such operations as soon as September 1, 2019. Wyoming’s digital asset custodians will stand out above all others because they will respect the DIRECT ownership nature of digital assets! These new custodians won’t be like traditional securities custodians, because for a Wyoming-based custodian investors will still DIRECTLY own their digital assets under custody as a BAILMENT, which means they retain direct ownership while merely giving up control (much like valet parking). Today, institutional investors are forced to be de factocreditors of their securities custodians, since all publicly-traded securities are owned indirectly. Custody under bailment is possible in securities custody today, but it’s neutered by the fact that all securities are owned indirectly—investors can’t directly own the real security, and therefore they’re really just counterparties to the custodian. So, what Wyoming has done is truly revolutionary—BAILMENT + DIRECT ownership! It doesn’t exist in securities custody today! Customers of Wyoming custodians can still choose indirect ownership, but it’s on much more investor-friendly terms than exist in securities custody today. In sum, Wyoming will become known as the home of SOLVENT, investor-friendly digital asset custodians to which investment fiduciaries are likely to migrate over time.
Why would a staunch supporter of #NotYourKeysNotYourCoins, as I am, help set up a digital asset custodian—especially when I acknowledge all third parties can be security holes? Answer: the custodian is for large institutional investors, which are required by federal securities law to store the assets they manage at an independent custodian. And, now, these institutional investors will be able to directly own the digital assets they custody at solvent Wyoming custodians.