Regulatory clarity and crypto-friendly banks are driving the blockchain revolution

Surprise! Wyoming is the top ranked US hub. Many of CoinDesk’s Crypto Hubs 2023 criteria were measured on a national basis, so all US hubs were hampered by a mediocre crypto regulatory score, a benchmark in the driver category, and the most heavily weighted criteria – 35% – of the total. However, this negative was partially offset by the highest cryptocurrency adoption rate (another driver criterion) in our sample. Given that regulatory and acceptance scores were country-based, Wyoming broke from the U.S. pack with its high quality of life (at 15%, the second most weighted criterion and part of the enablers category) and other individual measures. The least populous U.S. state benefited from its eye-popping per capita numbers for crypto, blockchain, and Web3 jobs, businesses, and events, which make up the opportunity category.

Since 2016, the state has passed more than 35 laws regulating some aspect of the crypto industry. That work is paying off, says Steve Lupien, director of the Center for Blockchain and Digital Innovation at the University of Wyoming.

“We are seeing a lot of companies moving to Wyoming, last time I checked there were over 3,000 companies based in Wyoming, and there are probably more now,” Lupien told CoinDesk.

These companies provide well-paid engineering jobs, he added. As a college professor, Lupien has seen many of his graduates leave Wyoming over the years (70% of University of Wyoming graduates eventually leave the state). But now there is finally a chance to reduce that brain drain.

“It gives my college graduates the opportunity to work in the digital asset space and not leave the state,” he said. “Several of my graduates now work for companies in Wyoming, or [have] started Wyoming companies.

Lupien believes that what attracts crypto companies such as major exchange Kraken and IOG (formerly IOHK, the organization behind the Cardano cryptocurrency) is the greater regulatory certainty, which is scarce in the United States as a whole.

Wyoming doesn’t boast a particularly vibrant business or cultural scene, compared to other more populous crypto destinations like New York, Austin, or the West Coast tech hubs. However, it has passed crypto legislation at a pace unparalleled elsewhere in the country.

In 2018, Wyoming passed a law exempting utility tokens from securities regulations, resolving the U.S. crypto industry’s biggest legal challenge at the local level. Tokens get the exemption if they are issued and sold to buyers solely for “consumer purposes”, meaning they are exchanged for goods or services.

Later, other laws exempted cryptocurrency-related activities from the scope of the state money transmitter law, allowed companies to maintain their business records on blockchains, and exempted virtual currencies from the state property tax, among other things.

The state has recognized a new kind of bank, a special depository institution (SPDI), which is a regulated custodian for crypto assets. Crypto exchange Kraken and Custodia Bank, led by crypto evangelist Caitlin Long, are among a handful of companies that have acquired SPDI status since 2020.

Another boost for crypto in the state: During bankruptcy proceedings, cryptocurrencies in Wyoming are considered on par with cash, meaning crypto, like cash, is considered free of any legal encumbrances. That would provide clarity in cases where crypto companies go bankrupt, Lupien noted.

Earlier this year, the state passed the Wyoming Stable Token Act, which authorizes state authorities to issue a stablecoin backed by dollars or U.S. Treasury bonds. The stablecoin is expected to be released by the end of this year and will give Wyoming “some exposure,” said David Pope, co-founder of the Wyoming Blockchain Coalition and former member of the Wyoming Legislative Blockchain Task Force.

In February, the Wyoming House of Representatives passed a bill banning the forced disclosure of private crypto keys by US state courts.

One thing currently holding back Wyoming’s move into the bright blockchain future is the ongoing legal battle over the fate of SPDIs. The battle is led by Custodia, who was recently barred from accessing Federal Reserve banking services. As a result, Custodia cannot perform its banking functions.

Wyoming crypto advocates believe that Custodia will win its case, and that once it does, crypto companies will storm into the only state to provide specialized banking services with fully reserved crypto banks. “It’s going to snowball,” Pope said.

Furthermore, unlike the US regional banks that failed in a recent bank robbery, SDPIs are not allowed to lend out customer savings, providing a banking alternative that could appeal to more than just bitcoiners.

“If Custodia prevails, Wyoming will be ground zero for digital asset banking because there are four Wyoming SPDIs standing by, ready to operate once the Fed admits, which the court will do,” said Lupien. Other SPDIs include Kraken Financial, Commercium Financial, and Wyoming Depository and Trust.

The local crypto community consists of startup founders, miners, industry-focused lawyers and accountants, and local influencers. At a typical Wyoming gathering in a Cheyenne coffee shop, you usually saw a mix of people like “business executives, accountants, lawyers and enthusiasts,” Lupien said. The state is also represented in the U.S. Senate by “Crypto Queen” Cynthia Lummis (R-WY), who co-authored the bipartisan “Responsible Financial Innovation Act,” which aims to create a regulatory framework for the industry .

According to Pope, an average Wyoming resident may not have noticed the effects of the state’s crypto-friendliness, but it’s “something future generations will definitely feel.”