Software engineer Jae Yang received a lot of questions from friends when he left Silicon Valley with the intention of launching his cryptocurrency exchange not in the booming urban crypto hubs of Miami or Austin, Texas, but in the windswept plains of southeastern Wyoming.
While the collapse of massive exchange FTX and the recent arrest of its founder, Sam Bankman-Fried, have heightened concerns about crypto, Wyoming remains full steam ahead to woo the industry. He enacted a series of new laws – with perhaps more to come – aimed at making the industry more regulated and more reputable to attract companies like Yang’s.
“FTX wouldn’t have happened if it was a Wyoming company,” said 2-year-old Steven Lupien, director of the Center for Blockchain and Digital Innovation at the University of Wyoming. “Wyoming got it right. We knew five years ago when we started down this road that proper regulation was the way to go.
While Lupien argues that state agencies have noticed the ongoing “scheming” with the exchange, others aren’t so sure.
“There wouldn’t be anyone in Wyoming sophisticated enough to audit something FTX-wide,” said Cheyenne attorney Larry Wolfe. “If you are a true believer, of course you would say that could never happen here. But of course it could happen here.
Cheyenne, Wyoming’s capital of 65,000, is home to a US Air Force nuclear missile base, a historic Union Pacific rail yard, many old country restaurants and bars, and sprawling cattle ranches in all directions.
So far, there are few signs of the crypto industry that Wyoming has courted over the past five years. But Yang says fledgling exchanges like the one he hopes to open for business in 2023 could be the start of an influx into the state.
His company Tacen Inc. already has a dozen employees, about a third of the company’s global workforce, working out of a downtown office building.
“We said, OK, what’s the right place to go? And Wyoming is the right place,” Yang said. .”
Even after the collapse of FTX that potentially wiped out thousands of investors, Yang says he feels good to cast his spell with the least populous state and its many new laws aimed at attracting crypto and mining companies. blockchain.
Some of these new laws are aimed at discouraging speculation with the digital assets of crypto bank customers, an alleged cause of FTX’s downfall.
“Ensuring customer safety is really what we do,” Yang said. “You should have full access to your money. And if something goes wrong with the exchange, the default should be that you get your money back – without having to worry about what the bankruptcy court does and all that nonsense.”
Wyoming officials remain bullish on crypto, digital currencies such as Bitcoin and Etherium based on decentralized, encrypted ledgers called blockchains.
A big part of the appeal of crypto is that there is no middleman: money can flow freely between people without the involvement of government or traditional banks. Transactions are instantaneous, although the lack of legal and regulatory oversight attracts drug dealers and other criminals who need to move money discreetly.
All the while, the value of the crypto – which skeptics say is based on nothing more than what its users say – is now notoriously unstable, with Bitcoin alone down nearly two-thirds over the past the last year.
Wyoming’s strategy amidst all this to attract the crypto industry with regulatory respectability. Although many traditional banks help their customers invest in crypto, Wyoming is among very few states, including Nebraska, that allow crypto banks known as special purpose depository institutions (SPDIs or “speedies”).
Wyoming speedies cannot make loans, cannot reuse customer funds without their approval, and must back up 100% of customer deposits with liquid funds.
But while Wyoming has issued four state licenses for crypto banks since 2020, none have opened fully, if at all. Much depends on a federal lawsuit filed by one of the banks, Custodia, seeking access to Federal Reserve services, including its electronic payment system. If granted permission, Custodia and other banks would give Wyoming a massive financial boost because they would be required to pay the state 0.02% of their assets each year, CEO Caitlin Long said.
“When you start getting billions and billions of assets in Wyoming, it starts to accumulate,” Long said. “Traditional banks don’t pay that.”
Wyoming has even set aside $4 million to help students at the University of Wyoming experiment with crypto staking or establish cryptocurrency ownership.
“They have developed a comprehensive regulatory system that is far more advanced than any other state in the country. They’re encouraging companies to think Wyoming,” said Mary Beth Buchanan, President of the Americas and Global General Counsel at Merkle Science, a crypto consultant for business and government.
But Wolfe, the attorney, calls it a “cryptographic plague on the Wyoming legislature.”
“They can tell you there’s some small business here,” Wolfe said. “But it doesn’t turn into something like how are we going to fund schools, how are we going to fund health care, how are we funding anything?”
Among Wyoming’s efforts to open its arms to crypto, the state is now allowing blockchain-based companies called Decentralized Autonomous Organizations, or DAOs, which are based on “smart” contracts that act like computer code and automatically take effect when certain conditions are met.
The DAO policy is reminiscent of when the state first allowed the limited liability company in 1977. Limited liability companies are now a common form of business that protects the personal assets of small business owners, partners and investors against lawsuits. About 500 DAOs, which are a type of LLC, have been created so far, according to the office of the Wyoming Secretary of State.
By comparison, Wyoming now hosts more than 17,000 companies alone with “crypto” in their names, from “3 Guys Crypto LLC” to “YYZ Crypto Miners Inc,” according to the secretary of state. The vast majority are still not physically located in the state.
Given Wyoming’s business license renewal rate starting at $60 a year, they bring in relatively little revenue compared to fossil fuels, which, after a 2020 crisis that forced deep budget cuts, have now graced the of a surplus of more than 900 million dollars.
Yang wants his Tacen exchange to stand out as an exception among the obscure business crowd.
He has already hired a dozen employees – including lawyers, software developers and a social media specialist – to work in the company’s three-story brick building, adorned with Western art and the company’s logo. company engraved on glass doors. A cryptocurrency ATM sits just inside the entrance.
At Elite Mining, another new Cheyenne-based fintech company, entrepreneur Micheal Weir recently unloaded equipment for his crypto-mining rigs from a flatbed tractor-trailer.
He described crypto as a “wild, wild west” right now, but remains optimistic.
“I say fear not. It’s still a nascent industry,” Weir said. “Amazing things are going to come out of it.”
Associated Press reporters Geoff Mulvihill in Cherry Hill, New Jersey, and Thalia Beaty, in New York, contributed to this report.