Update: Wyoming Drops State-Backed Stablecoin Plans, For Now

April 1, 2022
Governor Mark Gordon has vetoed a Wyoming bill that would have created a state-backed stablecoin, cautioning that the state’s reputation is at stake.

Governor Mark Gordon has vetoed a Wyoming bill that would have created a state-backed stablecoin, cautioning that the state’s reputation is at stake.

In his veto message, Gordon stresses that although he believes Wyoming should continue on its path to embrace the potential of digital assets, “we must do so thoughtfully and with care, as this new realm of virtual currency is still something of a frontier.”

The Wyoming Stable Token Act was passed in the state legislature by an overwhelming majority on March 15. The act would have authorised the state treasurer to issue stablecoins pegged to the U.S. dollar on a 1:1 basis by the end of the year.

Echoing the famous words of Federal Reserve chair Jerome Powell, Gordon said “there is value in being first, but more so in being long-lived and reliable.”

“Wyoming’s reputation is at stake.”

Wyoming has adopted a number of laws in recent years aimed at creating regulatory clarity and a crypto-friendly environment.

“At a time when Wyoming is already working diligently to allay fears that regulators such as the Federal Reserve have about the capacities of a small state with big ambitions, I submit Wyoming should not implement a stable coin account without proper care and confidence in its success,” Gordon said.

“So much of our pioneering work in this area is based on doing the right thing, doing it the right way, and doing it right away. We cannot afford to be regarded as hasty or slipshod.”

This, however, was not the only concern of the governor. He regarded the implementation deadline of December 31 as “quite aggressive.”

Setting up such a system would require considerable resources from the treasurer, which is busy addressing other critical issues related to accounting for its other investment activities. In addition, the state would need to collect the necessary knowledge and expertise to set up an IT defence strategy, understand and craft pertinent contracts, and gain appropriate knowledge of code.

The act also lacked a fiscal note that would describe the potential impacts of the issuance of a stablecoin.

“If such a note had been prepared, it should have provided more information on the cost of accounting services, blockchain vendor services, and other expenses that would be necessary to implement the Act, as well as giving the estimation of potential revenue or other benefits, if any, which might be generated from the State’s issuance of a stable token,” according to the governor.

Finally, Gordon noted that a state-backed stablecoin may run counter to the constitution of the state and that the authors of the bill failed to consult with the treasurer’s investment fund committee before giving them the task of aiding the issuance and management of the stablecoin.

Nonetheless, Gordon stressed it is in the state’s best interest to “lead the pack” in terms of crypto regulation and the bill should be taken into account as an interim study in the crafting of a future bill.

“I recognize the urgency of this effort and recommend diligence over this upcoming year and look forward to a more thorough Act next year.”

These concerns are quite reasonable and thoughtful as opposed to being a rejection of the idea, said David Weisberger, CEO of CoinRoutes.

Concerns over the ability of the Treasury Department, which the governor oversees, need to be taken seriously as is his concern over a lack of cost/benefit analysis, he added.

Most important, however, is his agreement that such a proposal should be studied and that a newer, better proposal should be crafted, according to Weisberger.

“In short, it is hard to see this action as a major defeat for crypto, but rather as a temporary setback that might well be grounded in reality,” he stressed.

Original story: Crypto Market Players Hail Wyoming Stablecoin Act

Wyoming is pushing forward with its plans to become the crypto capital of the United States as a bill that creates a state-backed stablecoin lands on the state governor’s desk.

The state of Wyoming is on the verge of adopting a new bill that will create a state-issued stablecoin.

The Wyoming Stable Token Act passed the Wyoming legislature in mid-March and is now on the desk of the state governor waiting for his signature.

If signed into law, the bill will authorise the state treasurer to issue stablecoins pegged to the U.S. dollar on a 1:1 basis and direct the treasurer to adopt rules and regulations that ensure compliance with state and federal law.

In recent years, Wyoming has done a lot to put its name on the list of crypto-friendly states in the U.S., hoping it could attract large investors and become the country’s crypto capital.

It has created a special-purpose banking charter that allows crypto firms to carry out banking activities, recognized decentralized autonomous organizations (DAOs) as a legal form of limited liability companies (LLCs), and adopted more than two dozen crypto laws, with an aim to create a regulatory framework that works best for crypto companies.

Crypto market players welcome the bill

A state-issued stablecoin could act as a “trusted bridge” between competing digital assets, Dan Hoover, director at Castle Funds, told VIXIO.

“We believe that a substantial portion of a given digital asset’s value is derived from its network effects. Creating a trusted bridge between technologies expands the network reach of these assets, and thus could unlock additional value,” he added.

The broad growth of U.S.-based stablecoins could also be strategically important for the U.S. government “as it allows accessibility to dollars for various countries that otherwise could not access that store of value,” said John Eagleton, CEO of Intellabridge.

Wyoming is also working towards an environment that provides the crypto market with much-needed regulatory clarity.

For a Wyoming stablecoin to operate, the state has to come to terms with the federal regulators concerns regarding the question of validation.

“The state of Wyoming will need to get either an agreement or go to court with the Securities and Exchange Commission (SEC), who might want to call it a money market fund, and with the federal authorities in general,” David Weisberger, CEO of CoinRoutes, explained.

Regardless of the outcome of this exercise, the crypto industry will benefit from the results that come together with this discussion.

“Either, they are going to get an agreement, in which case it creates a roadmap for private companies to be compliant at the federal level, or there are going to be arguments that eventually are going to generate clarity,” Weisberger said.

“Regulatory ambiguity can be a greater drag on innovation and investment than no regulation at all,” Hoover noted, adding that Wyoming now has an opportunity to establish clear guidelines for taxation and other principles which are overhanging the digital asset markets.

The race to become crypto capital

Wyoming has been one of the many U.S. states that have recognized the opportunity that the crypto industry presents and aim to attract capital within their borders.

From Florida through Wyoming to Texas, there is a growing number of U.S. states that are trying to establish themselves as the crypto capital of the United States.

But probably more important than Wyoming being this crypto capital is the fact that states are getting more on board with embracing this technology, Weisberger said.

Bills such as the Wyoming stablecoin act are “a beacon, a symbol of what should be done at the federal level,” he stressed.

They send out an important message that the U.S should be at the epicenter of crypto innovation in the world and right now it is lagging behind, he added.

Opportunities and challenges

Although there is little known about how exactly the stablecoin would work, the bill could create new challenges and opportunities for existing market players.

For instance, the infrastructure required to construct a state-sponsored stablecoin, such as audits, investment of received collateral, or transparency in reporting, will present significant opportunities for crypto firms, as the hard work of connecting digital assets to traditional financial systems will be handled by the issuer, Hoover said.

On the other hand, the Wyoming digital token will be a competing product to other existing stablecoins, such as USD Coin, Tether, or the Pax Dollar, with all the advantages that a state-backed digital asset could bear, Weisberger stressed.

For example, the Wyoming stablecoin would be 100 percent audited and it is going to be accepted at merchants in Wyoming and probably in other states as well, he explained.

The state token will create "safe" benchmarks for stablecoins and existing market players will be required to justify their differences, Hoover added. For example, coins backed by other digital assets rather than U.S. Treasury securities may have a harder time gaining or maintaining users if users ultimately prefer the “full faith and credit” collateral of the Wyoming coin.

However, the adoption of a state-issued stablecoin could depend greatly on its design.

There are, in general, two use cases for stablecoins — they could be used as a means of payment or as a trading asset.

In the first case, the stablecoin would compete with the traditional payments infrastructure and the adoption would depend on its efficiency, costs and speed, Weisberger said.

Alternatively, stablecoins are also largely used in crypto-to-crypto transactions and their popularity could depend on the interoperability with the various digital asset exchanges and other digital asset marketplaces.

In addition, it is unknown whether the Wyoming token would be seizable by the state government, according to Weisberger. For example, this concern hit the headlines recently when Canada changed its money laundering laws to allow it to freeze crypto-assets of protestors against COVID-19 restrictions.

Although it is unlikely that a state government could easily seize crypto-assets held on private wallets, there is a growing fear that people’s funds held in a central bank digital currency (CBDC) could be frozen if they donate to others who disobey the government, Weisberger added. The adoption could largely depend on how Wyoming approaches this issue.

The stablecoin market has seen tremendous growth last year, showing a 20-fold increase compared with two years before. The market value of stablecoins reached nearly $130bn last October, at which point more than 75 percent of trading on all crypto trading platforms occurred between a stablecoin and some other token.

If signed into law, the bill will direct the state treasurer to issue the stablecoin before the end of this year.

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