States have long been “laboratories of democracy” where policymakers can try out certain innovative policies on a local or regional level that could eventually, if successful, become national programs. On the tech side, some states have sought to establish themselves as laboratories of blockchain. For example, this past week Vermont announced that it will work with vendors to launch a pilot program permitting new captive insurance companies to register with the Vermont Secretary of State using blockchain.
Across the country, Wyoming has been especially active in this area and reportedly desires to be a corporate-friendly “Delaware of the West” [subscription required] as well as a haven for blockchain and fintech business activity. To that end, the Wyoming legislature has advanced several blockchain-related bills through committee since the new year (following an active 2018, which saw the state pass a number of regulatory measures related to blockchain and digital assets).
Three bills that have passed through committee and will be considered by the full Wyoming House are:
- HB57, which would create a supervised, flexible, regulated fintech sandbox to test new products and services. Under the bill, “a person who makes an innovative financial product or service available to consumers in the financial technology sandbox may be granted a waiver of specified requirements imposed by statute or rule…if these statutes or rules do not currently permit the product or service to be made available to consumers.” Under HB57, companies would be required to submit an application for admission to the state’s fintech sandbox, and be subject to certain consumer protection and transparency provisions during their term.
- HB70, which would authorize the implementation of a blockchain-based commercial filing system for documents required to be filed with the secretary of state under certain provisions of Wyoming law. Unless superseded by subsequent legislation, the blockchain-based commercial filing system would be required to run in parallel alongside Wyoming’s existing system.
- HB62, which would establish that “open blockchain tokens” with certain specified “consumptive” characteristics that were not marketed to initial buyers as a financial investment are (along with “virtual currency”) intangible personal property – and not securities – under Wyoming state law. Under the bill, “consumptive” is defined as “a circumstance when a token is exchangeable for, or provided for the receipt of, services, content or real or tangible personal property, including rights of access to services, content or real or tangible personal property.” HB62 would repeal the Wyoming law passed in 2018 that established an exemption for certain “open blockchain tokens” under the state’s securities laws. According to the legislative findings set forth in HB62, such open blockchain tokens (as defined in both HB62 and the 2018 law) are not securities because a person who is sold that token cannot receive a cash payment or share of profits from a developer, but would instead receive a fixed amount of, or access rights to, consumptive goods or services; and, not being securities, there is no need to specifically exempt offers or sales of such tokens from the state’s securities laws. While the question of whether token sales are securities transactions subject to regulation under the federal securities laws is a fact-specific inquiry and remains not entirely settled, HB62 would carve out a subset of token sales from being classified as such under Wyoming state law.
Beyond these bills, the Wyoming legislature is considering other blockchain-related bills, including HB74 (which would enable the creation of special purpose depository banks that may be better suited to handle the elevated and unique risks relating to customer identification, anti-money laundering and beneficial ownership requirements posed by businesses using blockchain or dealing in digital assets) and HB185 (which would authorize Wyoming corporations to issue “certificate tokens” in lieu of stock certificates). Finally, this past Friday, the Wyoming legislature introduced SF125, a sweeping bill that would, among other things, facilitate qualified custodianship of digital assets as well as specify a taxonomy of digital assets and their treatment under the Uniform Commercial Code.
Blockchain businesses, as well as regulators, policymakers and legal practitioners, would do well to keep a close eye on the legal framework for blockchain and digital assets fast-developing in Wyoming’s legislative laboratory.
© 2019 Proskauer Rose LLP.