Wyoming: Move Over, Delaware!
By Lacey Shrum
Wyoming’s 2019 legislative session just wrapped up, and as of close the state has signed 13 blockchain-friendly laws into effect. These laws are a strong play to attract blockchain businesses and development to the state of Wyoming. Besides being extremely legislatively efficient, here’s some facts on Wyoming and its new laws:
Property Rights For Crypto Owners
Contrary to the Uniform Commercial Code (UCC), Wyoming recognizes direct property rights for crypto owners. Digital assets are special in that an owner does not need an intermediary to hold her assets on her behalf, as we do with traditional securities. Wyoming recognizes a crypto holder’s ownership in her property and rights to the property if she outright holds that asset. In contrast, the UCC only recognizes rights of digital assets owned via securities intermediaries. Wyoming is also not afraid of confrontation.
10th Largest State
Located in the northwest U.S., Wyoming is home to just over 500,000 people, Old Faithful, The University of Wyoming, and only a handful of escalators and elevators. The word “Wyoming” means “at the big river flat” or “a large prairie place.” There are few mountains in the north west of the state (Tetons in Jackson Hole) but most of the state is plains, and an ever-present wind is common. More seriously wild facts here.
Digital Representation of Ownership
Wyoming will now allow ownership of a company to be represented by security tokens on the blockchain. Our current system of stock ownership is a daisy chain of manual processes and procedures. Allowing ownership to be represented digitally opens the floodgates of efficient transfer of ownership, new business models, and perhaps a clean cap table. We can only dream.
One of the new laws authorizes a “qualified custodian” that solves the SEC requirement for institutional investors, creates a solvent custodian (your asset is never leveraged over 1:1 and is always available), and preserves the direct ownership of digital assets.
Wyoming now directly prohibits digital asset rehypothecation. Rehypothecation is the pledging of assets multiple times (as our banks and custodians currently do), which doesn’t work for crypto. This is important because the amount of a digital asset is finite; more cannot be created. The combination of an over-leveraged asset with a reckoning event (a run on the bank) can leave the customer with no asset and no lender of last resort (i.e. the Fed, a company) to correct the problem by issuing more.
While a cryptocurrency ownership is detailed on a immutable ledger, only the ownership detail is included on the ledger. The ledger does not include other lien holders who may have interest in the asset. New Wyoming law applies super-negotiability rules of money to digital assets. This means you buy your bitcoin free and clear of any pre-existing liens against it, eliminating the “surprise” lien risk.
Read my lips. Digital assets are exempted from Wyoming state property taxes.
Many blockchain and cryptocurrency related businesses are unable to obtain traditional fiat-based bank accounts. Most banks are Federal Deposit Insurance Corporation (FDIC) insured and are thus unwilling to serve these “risky” businesses. Wyoming’s new law allows state-chartered depository institutions where FDIC insurance is optional.
Utility tokens are exempt from Wyoming state securities laws. Remember, federal law still trumps, but this is a significant step to allow startups to develop tokens in Wyoming.