CHEYENNE, Wyo. — Software engineer Jae Yang got a lot of questions from friends when he moved from Silicon Valley with plans to launch his cryptocurrency exchange, not in the emerging urban crypto hubs of Miami or Austin, Texas, but on the beaten plains by the southeastern Wyoming wind.
While the collapse of massive exchange FTX and the recent arrest of its founder, Sam Bankman-Fried, have exacerbated concerns over cryptocurrencies, Wyoming remains in full swing courting the sector. He has enacted a series of new laws — with perhaps more on the way — seeking to make the industry more regulated and reputable to attract companies like Yang’s.
“FTX wouldn’t have happened if it were a Wyoming company,” said Steven Lupien, director of the University of Wyoming’s Center for Blockchain and Digital Innovation. “Wyoming got it right. We knew five years ago when we started down this road that proper regulation was the way forward.”
While Lupien says state agencies would have picked up on the “cheating” going on with the swap, others aren’t so sure.
“There would be nobody in Wyoming sophisticated enough to audit anything on the scale of FTX,” said Cheyenne attorney Larry Wolfe. “If you’re a true believer, you’ll obviously say it could never happen here. But of course it could happen here.
Cheyenne, Wyoming’s capital of 65,000, is home to a US Air Force nuclear missile base, a historic Union Pacific rail yard, numerous old country restaurants and bars, and sprawling cattle ranches in every direction.
Mead Gruver, Associated Press
Tacen CEO Jae Yang, left, and company attorney John Bugnacki are seen on Nov. 28 inside the Cheyenne, Wyo. headquarters of the company’s cryptocurrency exchange.
So far, there are few signs of the cryptocurrency industry Wyoming has courted over the past five years. But Yang says fledgling exchanges like the one he hopes will open for business in 2023 could be the start of an influx into the state.
His Tacen Inc. business already has about a dozen employees, about a third of the company’s global workforce, working out of a downtown office building.
“We said, OK, where is the right place to exit? And Wyoming is the right place,” Yang said. “They basically passed a whole set of laws that make it easier for me to do business.”
Even after the FTX crash that wiped out potentially thousands of investors, Yang says he feels comfortable casting his lot with the less populated state and its many new laws seeking to attract cryptocurrency and blockchain firms.
Some of these new laws seek to discourage speculation with cryptocurrency clients’ digital assets, a suspected cause of FTX’s downfall.
“Keeping customers safe is really what we’re doing,” Yang said. “You should have full access to your money. And if something goes wrong in the exchange, the default should be getting your money back, not having to worry about what the bankruptcy court is doing and all that nonsense.
Wyoming officials remain optimistic about cryptocurrencies, digital currencies like Bitcoin and Etherium based on decentralized, encrypted ledgers called blockchains.
A large part of the appeal of cryptocurrencies is that there are no intermediaries: money can move freely between people without government or traditional banking involvement. Transactions are instantaneous, although little legal and regulatory oversight appeals to drug dealers and other criminals who need to move money discreetly.
Meanwhile, the value of cryptocurrencies — which skeptics say is rooted in nothing more than the opinion of its users — is now notoriously volatile, with Bitcoin alone declining by nearly two-thirds over the past year.
Wyoming’s strategy in all of this was to appeal to the cryptocurrency industry with regulatory respectability. While many traditional banks help customers invest in cryptocurrencies, Wyoming is among the very few states that allow crypto banks, called Special Purpose Depository Institutions (SPDIs or “speedies”).
Wyoming “speedies” cannot issue loans, cannot reuse client funds without their approval, and must back 100% of client deposits with liquid funds.
Mead Gruver, Associated Press
Micheal Weir, a contractor for cryptocurrency mining equipment company Elite Mining, stands next to a container of BitCool electronic cooler November 28 outside the company’s facility in Cheyenne, Wyo.
But while Wyoming has issued four state licenses for cryptocurrencies since 2020, none have been fully opened for business, if at all. This is largely down to a federal lawsuit filed by one of the banks, Custody, seeking access to Federal Reserve services, including its electronic payments system. If cleared, Custody and other banks would provide a huge financial boost to Wyoming because they would be required to pay the state 0.02 percent of their assets each year, CEO Caitlin Long said.
“As you start getting billions and billions of goods coming into Wyoming, it starts to add up,” Long said. “Traditional banks don’t pay it.”
Wyoming has even set aside $4 million to help University of Wyoming students experiment with cryptocurrency staking or establish ownership of cryptocurrency.
“They have developed a comprehensive regulatory framework that is far more advanced than any other state in the country is doing. They’re encouraging companies to think Wyoming,” said Mary Beth Buchanan, president of the Americas and head of global law at Merkle Science, a corporate and government crypto consultant.
But Wolfe, the attorney, calls it a “cryptocurrency plague in the Wyoming legislature.”
“They might tell you there’s some small business here,” Wolfe said. “But isn’t it really turning into something that looks like how are we going to finance schools, how are we going to finance health care, how are we going to finance anything?”