• Wyoming’s recently enacted Stable Token Act is the latest step in the Cowboy State’s efforts to create a business and legal environment that is tailored to digital assets and blockchain businesses. It also cements Wyoming’s position in the debate among regulators and the private sector around the types of entities that can – or should – issue stablecoins.
• The Act creates a path for Wyoming to issue the United States’ first government-issued stablecoin, which would be fully backed by reserves of US dollars.
• However, the law is short on specifics and the committee created by the Act to develop the Wyoming stablecoin will have a list of open issues and challenges to overcome before the first token issuance.
• In addition, legal and practical uncertainties exist around Wyoming’s ability to issue a stablecoin, some of which were highlighted in an open letter from Wyoming’s governor announcing that he would allow the legislation to pass into law without his signature.
• Some of these uncertainties include lack of an implementation plan for the token, the unclear market (if any) for this type of token, and potential constitutional roadblocks.
• In addition, recent statements from Rep. McHenry (R-NC) and the House Financial Services Committee indicate that federal legislation on stablecoins and digital assets more generally may be forthcoming, which may overlap with or supersede the Wyoming law.
• In short, the Act is a meaningful but imperfect step forward in the developing legal framework for stablecoins. It will likely serve as the basis for further efforts by Wyoming lawmakers in this space, but it is unclear and uncertain that the law will have a larger significance in the US regulatory framework or the market generally.

The Download

In March 2023, the Stable Token Act (the “Act”) became law in the State of Wyoming. The Act creates a Wyoming state commission (the “Commission”) that is tasked, by the end of 2023, with issuing a virtual currency that is backed by the US dollar (the “Stable Token”). While the Act is a significant step in creating the first government-issued stablecoin in the United States, there are legal and practical impediments that may prevent a Stable Token from coming to market by the end of 2023, if at all.

Background

The Act is the latest step by Wyoming to tailor its legal and financial regulatory system to foster and encourage the development of digital assets businesses in the state. For example, the 2019 Special Purpose Depository Institutions Act (the “SPDI Act”) created a form of bank that is fully reserved and capable of providing services related to digital assets such as custody and execution of transactions.

In addition, Wyoming’s 2021 DAO Supplement to its Limited Liability Company Act (the “DAO Supplement”) gave legal personhood to decentralized autonomous organizations and extended the legal protections available to members of Wyoming LLCs to members of DAOs organized in Wyoming.

With the Act, Wyoming is attempting to bring regulatory clarity—albeit on a state level—to one sector of the digital assets market that provides one of the more concrete use cases for digital assets in financial services.  

The Stable Token Act

The Act itself is relatively short, but has several principal sections. It establishes the Commission, provides a budget ($500,000) for the Commission and sets a deadline (December 31, 2023) for the issuance of the Stable Token. The Act also describes the Stable Token as “a virtual currency representative of, and redeemable for,” one US dollar that will be held in trust by the state of Wyoming solely to support the redemption of Wyoming stable tokens. The trust will be administered by the Commission and invest all funds received for the issuance of Stable Tokens in US treasury bills.

Notably, the Stable Token will not be guaranteed or insured by Wyoming, and the state will have no obligation to redeem the Stable Token for amounts in excess of the funds held in the trust account. The Stable Token Act also expressly disclaims any fiduciary duty to holders of the Stable Tokens. These characteristics make the Stable Token look like a government money market mutual fund, albeit without the federal regulation that applies to the intermediation function of these types of funds. They also make the Stable Token a special obligation of the state, as opposed to a general obligation that is backed by the full faith and credit of the state.

Perhaps most importantly (for now), the Act creates a process by which the Commission will build a framework for structuring the Stable Token and addressing the open legal and logistical questions that will need to be addressed in issuing the Stable Token. For example, the Act calls for the Commission to seek rulings and other guidance from relevant federal agencies, including the US Department of the Treasury, US Internal Revenue Service, and the US Securities and Exchange Commission (“SEC”). This authority is also tacit admission of the legal questions surrounding the Stable Token.

These questions and the related uncertainty were highlighted in an open letter from Governor Mark Gordon announcing that he would allow the Act to become law without his signature. Governor Gordon noted, among other things, that the Act had addressed some of the concerns he noted when he vetoed the first version of the Act in 2022. However, he also stated his continued reservations about the practicality and legality of the Stable Token. For example, Governor Gordon’s letter stated that it is not clear that the Stable Token was permissible under the Wyoming Constitution or whether there is a robust market for a Wyoming stablecoin. That said, he allowed the Act to become law to permit the Commission to continue the work of resolving these uncertainties.

Challenges and the Road Ahead

The Act and the Stable Token create several issues that the Commission will need to confront and overcome as part of the issuance of the Stable Token. Among them are constitutional (federal and state), federal regulatory and philosophical hurdles.  

In addition, Congress is eager to leave its mark on digital assets markets and has focused on stablecoins in its ongoing work to legislate in these areas. In mid-April, the House Financial Services Committee posted a draft of its bipartisan stablecoin bill that was previously leaked in September 2022. Rep. Patrick McHenry of North Carolina, chairman of the committee, has also said this month that he expects comprehensive digital assets legislation to be introduced within the next two months. It is possible that federal legislation could create a further roadblock for development of a state-level stablecoin.

In short, the Commission has more work to do in structuring and issuing the Stable Token, and there are legislative and market forces that may influence the Commission’s ability to successfully issue the Stable Token.

Additional Author: Dean A. Corrado

¹ Wyoming Stable Token Act (Mar. 17, 2023), https://wyoleg.gov/Legislation/2023/SF0127.

² Wyoming Special Purpose Depository Institutions (2023), https://wyomingbankingdivision.wyo.gov/banks-and-trust-companies/special-purpose-depository-institutions.

³ Wyoming Special Purpose Depository Institutions Act (Feb. 26, 2019), https://www.wyoleg.gov/Legislation/2019/hb0074.

⁴ Wyoming Decentralized Autonomous Organizations Act (Apr. 2021), https://www.wyoleg.gov/Legislation/2021/SF0038; Wyoming Decentralized Autonomous Organizations Amendments (Mar. 9, 2022), https://wyoleg.gov/Legislation/2022/SF0068.