New groundbreaking legislation garnering the world’s attention in blockchain, cryptocurrency, digital assets and financial systems is not expected to go before the 2022 Wyoming Legislature when its budget session begins Feb. 14.
“For the last four years, Wyoming has done profound legislation that has achieved global attention with its groundbreaking concepts,” said state Sen. Tara Nethercott, R-Cheyenne, a member of the Select Committee on Blockchain, Financial Technology and Digital Innovation Technology. “We did that rapidly. There’s over 20 pieces of legislation that we’ve done. So, as a result of that, right now we are readjusting in understanding how what we have done is playing out in the global space.”
Among the landmark legislation cited by Nethercott are laws granting the creation of special purpose depository institutions (SPDI), authorization for decentralized autonomous organizations (DAO) and specifying that digital assets are property within the Uniform Commercial Code.
“There’s nothing that we feel like we need to go back and undo, which I think is really notable.” Nethercott said. “With all of the legislation that we have passed receiving global attention, none of that attention has indicated that we have done something we shouldn’t have.”
While Wyoming’s innovative laws have been celebrated by crypto enthusiasts around the world, there has been some trepidation by U.S. authorities concerning the establishment of SPDIs. The Federal Reserve has not yet approved two Wyoming-based institutions that received SPDI charters in 2020 – crypto exchange Kraken and bank and stablecoin issuer Avanti.
The Fed says it’s still reviewing whether Kraken and Avanti qualify as banks, raising the ire of U.S. Sen. Cynthia Lummis, R-Wyo. Lummis has threatened to oppose President Joe Biden’s Federal Reserve nominees for its next term, current Fed Chair Jerome Powell and Fed Governor Lael Brainard, due to their stance on crypto.
In an op-ed published in the Wall Street Journal, Lummis contended that the delay is a violation of a 1994 law by Congress requiring the Fed to act on all bank applications within a year.
Nethercott, a Cheyenne attorney, said there is little Wyoming legislators can do about the SPDI impasse with the Fed except to support Lummis and others in Congress in their opposition to the action.
She attributes the impasse to efforts by those interested in getting their share of a $3 trillion industry by slowing down Wyoming’s efforts to innovate the financial industry.
“We will never have the influence of the Fed, but we have captured the hearts and minds of the crypto world,” Nethercott said.
Select Committee Co-chair Chris Rothfuss, D-Laramie, said the committee will be monitoring developments with the Fed as it holds its last two meetings in December and January before the 2022 session.
“I think we’ll look for opportunities where we can weigh in,” Rothfuss said. “I don’t know exactly what that’s going to be yet, but it is something that we need to talk about. If there is anything that we can do through the state, through state statutory changes, I think we need to do that, because we’re clearly getting rolled on that issue.”
Rothfuss said he believes the inaction by the Fed stems from lobbying by “big bank and mega finance protecting big bank and mega finance.”
“It’s amazing how bipartisan that protection is,” he said. “I’m incredibly disappointed at the national level with folks in my political party who should be recognizing that when all of the big banks oppose something, you might want to look at that and think, ‘Well, is that because it helps people and not them?’”
In reviewing the select committee’s work to date, Rothfuss said legislation is being prepared to follow up on the “digital identity” definition established by this year’s Senate File 39, which was enacted into law this past session.
The bill laid the groundwork for further work in the realm of digital identity, including property and privacy rights, Rothfuss said. Digital identity was the topic of a lengthy discussion and public testimony at the committee’s September meeting on the University of Wyoming campus.
“It’s currently drafted as the ‘Digital Identity and Privacy Act,’” he said. “It should be released publicly pretty soon.”
Rothfuss said the draft incorporates the best practices of other states, such as California, Virginia, Colorado and Washington.
The committee is reviewing language to clarify and expand decentralized autonomous organizations (DAOs), which became legal in Wyoming on July 1. The 2021 Legislature approved Senate File 38, which created a supplement to the Wyoming Limited Liability Company Act, providing for the creation of DAOs.
“Well, there’s obviously been a lot of interest, and, honestly, even international interest in the Wyoming DAO law,” Rothfuss said.
He said due to the interest in DAOs, the committee has sought to involve more “stakeholders” in discussions about what to do next.
“We’re trying to listen to those voices and incorporate feedback into a next draft,” Rothfuss said. “In this next bill draft, we want to make sure that we’re not doing harm, but at the same time, address concerns.”
The select committee, with input from the Wyoming Department of Insurance, has been taking testimony about statutory changes that may still be needed in the area of reinsurance, he said. This might mean the possibility of creating an insurance sandbox along the lines of, or incorporating it into, the existing Financial Technology Sandbox.
“We are working with our Department of Insurance to create a sandbox where a business that is working within the insurance space would be able to come to our Department of Insurance and work with them if there are barriers, whether statutory or regulatory barriers, to their intended business operation,” Rothfuss said. “So, we’re putting legislation forward in hopes that it would be attractive to those who are creating innovative solutions that are utilizing potentially blockchain technologies in the insurance space.”
Among committee goals were to examine the status of non-fungible tokens (NFTs) in the state and whether any statutory changes are needed to benefit Wyoming citizens. He said the amount of committee work to date has limited that review.
“But I think with NFTs, we do need to clarify some of the concepts related to ownership, and related to copyright and intellectual property protection, as well as the relationship between the token and an underlying asset that the token represents ownership,” Rothfuss said.