Another brick in the wall?

For a state with a small-town feel, Wyoming is moving with metropolitan enthusiasm when it comes to crypto stuff. Under the bipartisan bill introduced into its legislature last week, a Wyoming stablecoin could debut before the end of 2022. The announcement even surprised Wyoming banker and cryptocurrency champion Caitlin Long.

“I didn’t know it was coming” tweeted the CEO of Avanti Bank.

It also raises some questions: is a stablecoin really necessary for the citizens of Wyoming? Is it attainable? Will it upset the state’s commercial banks, including recently chartered special depository institutions (SPDIs) like Avanti, which itself has issued a stablecoin-like product?

Besides, is a state-issued stablecoin even constitutional? And, aren’t there enough stablecoins already? On the other hand, maybe Wyoming is again ahead of the crypto pack — at least in the United States — and other cities and states will soon be jumping on the stablecoin train?

“As regulators are still struggling” to understand and handle crypto, “anything a state like Wyoming that is a new data point does will have an impact.” Rohan Grey, an assistant professor at Willamette University College of Law, told Coin-Crypto. It would be “treated as part of the landscape,” something US regulators and even Congress would have to respond to, he said.

Senate Leader Chris Rothfuss, one of the four sponsors of the Wyoming Stable Token Act, told Coin-Crypto that many people in Wyoming, as well as beyond, are still reluctant to use stablecoins “because they don’t trust the assets” behind them. Will the token really be exchangeable for US dollars on demand?

“It’s still a question mark” in many people’s minds, Rothfuss said. With the Wyoming stablecoin, “they will know that they are 100% backed by US Treasury bills.”

Wyoming has been at the forefront of crypto’s breathtaking global expansion. It was the first US state in 2020 to charter special-purpose custodians, which are allowed to house cryptocurrencies along with fiat, and also the first US state in 2021 to recognize decentralized autonomous organizations (DAOs) and grant them the same rights as limited liability companies. .

Wyoming State Capitol Building. Source: Bradlyons

Maybe not this year

Once Wyoming’s treasurer has determined that a stablecoin is feasible, so will that official necessary to “issue a stable token from Wyoming by December 31, 2022,” the bill said.

So does that mean we’re likely to see a Wyoming stablecoin before the end of the year? Passing the legislation this year “will be a bit of a challenge,” Rothfuss told Coin-Crypto, but we’ll at least get some feedback. However, he has no doubts that if the bill is not passed this year, they will bring it back next year.

What about Wyoming’s private banks, could they have a problem with a state-owned company competing for retail deposits or maybe even their own stablecoins? As mentioned above, Avanti Bank, Wyoming’s second SPDI after Kraken Bank (both chartered in late 2020), has already described a product called Avit on its website as a “tokenized, programmable US dollar”, which is much like a stablecoin. . Would a Wyoming Stablecoin Compete With Avanti Bank?

Rothfuss told Coin-Crypto that he had no intention of letting Wyoming’s stablecoin compete with Avit, although he hadn’t discussed his proposal with Long beforehand either. “We are not looking for independent companies.”

Demand for digital assets is expected to grow exponentially in the coming years, Rothfuss continued, and there is room in the state for both a state-issued token and a private bank(s) stablecoin.

In her tweet, also Long called Feb. 17 is billing a “mind-bender” that raises “a lot of questions,” while adding that she loved “that Wyoming continues to explore cool #crypto ideas!” Avanti did not respond to Coin-Crypto’s request for comment on this story.

“Technology neutral”

What about technology: Would the Wyoming stablecoin be built on the Ethereum platform, like many, but not all stablecoins?

“We’ve been technology neutral so far,” says Rothfuss. Wyoming could be using the Ethereum blockchain or the Solana blockchain or any other. What could be ideal is if the stablecoin could eventually run on multiple blockchains, he added. However, it is still much too early in the process to make technical decisions now.

Some have questioned whether a state-issued stablecoin would even be legal under US law. After all, only Congress has the power to regulate money in the United States. Can a state-issued stablecoin be considered unconstitutional?

“This is not a new currency – this is the tokenization of the US dollar,” Rothfuss told us. As such, it cannot violate Article I, Section 8 of the U.S. Constitution, which states that Congress alone has the power to “coin money and regulate its value.”

However, not everyone is so sure. Since the constitution specifically mentions “money,” “defining what money is is crucial,” Max Dilendorf, a partner at Dilendorf’s law firm, told Coin-Crypto. “Traditionally, money was defined as a medium of exchange and a store of value. Whether state-backed stablecoins fall under Article I, Section 8 is a question that has yet to be answered by the Supreme Court.

A stable Wyoming currency could also erode Congress’s power to regulate interstate commerce, Dilendorf added. Since those individuals or entities exchanging cryptocurrency are unlikely to all be in the same state in the US, “the cryptocurrency is likely to be shipped across state lines and is therefore subject to Congressional regulations as interstate commerce,” he said.

Congress could technically enforce the provisions of Article I using the necessary and proper clause (NPC) powers to “prevent states like Wyoming from issuing stablecoins because it could tamper with existing rules of interstate trading,” Dilendorf added. to.

Overall, it appears that Congress could regulate and stop the issuance of state-backed stable coins, applying the latest Supreme Court logic of the United States v. Lopez decision (1995) and the plenary powers of the Congress under the NPC. Dilendorf concluded.

There are also other questions. Even if a Wyoming stablecoin passed legal collection, would it eventually be replaced by a digital dollar? That is, would anyone want to use it?

“While federal regulators are talking about a digital dollar and a coexisting stablecoin, it’s another question whether there would be as much public interest in a state-issued stablecoin once a digital dollar existed,” Gray replied.

Who’s next?

If a Wyoming stablecoin were issued and started to gain popularity, would other US states or municipalities follow suit and issue their own stablecoins?

“The next place you’re likely to see this is at the city level, a place like Miami or New York City,” for example, CityCoins, Gray said. Wyoming appears to be way ahead of other US states, but a second place “where it could happen is Texas,” he said.

“I’m not sure what the significance of the first US state-issued stablecoin is,” Dilendorf said. “There are already Miami and New York coins facing similar federal lawsuits.”

Gray, who helped draft the US Stable Act 2020 proposed to Congress, has called for stricter regulation of stablecoin issuers, requiring them to be insured custodians, for example. He saw some positive aspects in Wyoming’s proposal.

For starters, a publicly issued stablecoin would likely have more “procedural transparency”, although even a state player could eventually migrate from having 100% US Treasury reserves. Still, “It’s unlikely that everything will happen behind closed doors,” as happens with privately issued stablecoins.

“I certainly have fewer problems with Wyoming’s stablecoin than with the private one,” said Gray, who went on to suggest that Wyoming’s proposal, which uses the language of the crypto world — not the language used by those advocating, for example, public banks – could also be intended to promote “normalization of crypto in general”.

So maybe Wyoming is fighting the good fight for crypto in its own way? “Yeah, normalize the language, normalize the model — normalize the entire industry,” Gray said.

Is that how Rothfuss sees it, ie Wyoming is using the process to make some sort of commitment to the future of crypto?

“It can be seen as a statement,” Rothfuss told Coin-Crypto, “but we’ve been talking about this for five years now and this is really just another piece of the puzzle — like DAOs are one piece and digital identity is one piece — it has to be one piece.” installed. And if we don’t get it right at first, we’ll fix it.”

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