On March 8, 2018, Wyoming Governor Matt Mead signed into law House Bill 70, entitled the “ Open Blockchain Token Exemption Act ” Wyoming has been at the forefront of business and corporate regulation for many years, having invented the limited liability company, or LLC, in 1977, and its recent foray into the cryptocurrency space is no exception. In this article, I will provide a brief overview of the new Wyoming law as well as what impact I think it will have on both Wyoming and those U.S. companies that are currently developing (or thinking about developing) blockchain-based projects.
The Law in a Nutshell
At its core, House Bill 70 creates an exemption for what it refers to as “ open blockchain token exemption act ” from Wyoming State securities laws as follows:
A developer or seller of an open blockchain token exemption act shall not be deemed the issuer of a security and shall not be subject to the provisions of [the Wyoming Uniform Securities Act] if all of the following are met:
(i) The token has not been marketed by the developer or seller as an investment;
(ii) The token is exchangeable for goods or services; and
(iii) The developer or seller of the token has not entered into a repurchase agreement of any kind or entered into an agreement to locate a buyer for the token.
House Bill 70 is the first state-level law in the United States that explicitly recognizes the concept of “utility tokens” (which are described in my previous article here) and provides an exemption for them. This does not mean, however, that simply declaring one’s token as a “utility token,” or an “open blockchain token” for that matter, will automatically avail a project of taking advantage of this exemption for their issued tokens. However, what it does provide is much greater clarity, at least at a state level, as to what can and cannot be done if a project wants its token to qualify for the exemption.
Also important to note is that although this law is welcome news for blockchain project developers and founders, it has no impact whatsoever on U.S. federal law and regulations (which preempt state law), so all the uncertainty that still exists in the space regarding the U.S. Securities & Exchange Commission and how it will deal with the utility vs. security token issue still remains. You can find more information about federal securities law impact on blockchain tokens in my article here.
My Thoughts on the Bill
Regardless, I consider the passage of Wyoming House Bill 70 a very positive move, for the following reasons:
- For the State of Wyoming, it means an enormous inflow of companies doing cutting-edge development in the blockchain space;
- Clearly defining security tokens as ones which are “promoted as an investment” sends a signal to anyone caught up in the cryptocurrency “pump and dump” industry that such behavior is inappropriate; and
- This move by Wyoming, where residents are still required to pay federal taxes on crypto transactions, will encourage similar attempts in other jurisdictions, such as the efforts of Brock Pierce, founder of EOS and board member of the Bitcoin Foundation, who is pushing a similar bill in Puerto Rico, which has the additional benefit of being exempt from federal taxes.
In conclusion, although the Wyoming bill is not a panacea for all the concerns present in the cryptocurrency space, it is an enormous step in the right direction, and will certainly benefit the people and businesses setting up shop in Wyoming moving forward.