(Bloomberg Businessweek) -- Wyoming is about 1,000 miles from Silicon Valley and even farther from wealthy East Coast investors. But the Cowboy State is hitching its wagon to the virtual currency craze, bidding to reinvent itself as the most crypto-friendly state in the U.S.
Republican Governor Matt Mead signed sweeping legislation in March that makes limited liability corporation laws friendlier to blockchain companies, enshrines “open blockchain tokens”—also known as “utility tokens,” a type of digital currency that can be redeemed for goods and services—as an asset class, and exempts cryptocurrency, taxed by the IRS as physical property, from state property taxes. That’s led scores of companies with “crypto” or “blockchain” in their names to register in the state. “This is one of the most exciting things that I have seen in a decade as far as the possibilities,” says David Pope, an accountant who’s also executive director of the Wyoming Blockchain Coalition, which lobbied for the changes. “The more traction and the more ground we can gain toward Delaware”—known for its friendliness to LLCs—“the better for the state of Wyoming.” Pope says his business has been contacted by more than a dozen companies looking into registering in the state.
Wyoming has already lost one race to cash in on LLCs. While it was the first state to allow them in 1977, it was long ago surpassed by Delaware for corporate registrations. State Representative Tyler Lindholm, a Republican who sponsored key parts of the blockchain legislation, says Wyoming takes in $30 million in registration and other filing fees, while Delaware takes in more than 40 times as much.
Since the Wyoming legislature finished its annual 20-day session in March, two or three crypto-related companies have registered there each day, says Lindholm. The part-time lawmaker, cattle rancher, electrician, and firefighter says the influx in registration and filing fees alone would bring loads of fresh cash into the state, where mining and energy primarily drive the economy. Backers expect the payoff to be even bigger as companies set up offices in the state.
Many companies trying to raise capital through initial coin offerings, or ICOs, are looking overseas to avoid having to comply with U.S. financial rules. “Most of the legal counsel we had said we needed to move offshore to execute the token sale,” says Charles Dusek, co-founder of Node Haven, a startup hoping to raise as much as $50 million in an ICO. Node Haven decided to register in Wyoming in mid-April to take advantage of the new tax incentives. Even though Dusek emphasizes that the company plans to limit its coin sale only to wealthy investors in the U.S., in compliance with regulations set by the U.S. Securities and Exchange Commission, the legislation, he says, “lowers our risk.”
Since late February, the SEC has been cracking down on virtual tokens. Chairman Jay Clayton has said he hasn’t seen an ICO that doesn’t have the “hallmarks of a security” and would need to comply with federal capital-raising regulations. “What Wyoming has tried to do is identify areas that are within the scope of state securities and financial-services law,” says Jeff Bandman, a former top financial technology adviser at the Commodity Futures Trading Commission who now runs Bandman Advisors, a consulting firm. “I don’t think Wyoming is going to get in a fight with the SEC.” The SEC declined to comment on the Wyoming laws.
James Row, a registered broker for more than two decades who’s worked with the Wyoming Blockchain Coalition, says he filed paperwork for a new blockchain finance company in the state immediately after the law changed. He also says he’s considering moving at least a few of his 11 other businesses he’s registered in Delaware, including some in finance and energy. “It’s cheaper and easier from a corporate filing perspective,” says Row, a managing partner at Entoro Capital LLC in Houston. “Wyoming is proving that it’s being pro-business and anti-bureaucracy.”
Lindholm, the sponsor of parts of the law, says he isn’t too concerned about running afoul of the SEC. He says he and other lawmakers formed a blockchain task force and invited the SEC to come to their next meeting in the state later this month. He’s helping organize an event on May 15 near his hometown of Sundance to demonstrate how blockchain technology can help track biographical information of cattle, which is typically scribbled in a rancher’s notebook.
“My legislation does tend to not align with federal bureaucracies very well, and it wouldn’t be the first time I got a letter from an agency at the federal level,” Lindholm says. He adds that officials in states such as New Hampshire and North Dakota have contacted him to express interest in passing similar laws. “If it comes down to a federal fight,” he says, “I think it’s great for Wyoming to have partners.”
©2018 Bloomberg L.P.