Wyoming’s state stablecoin: Yet another stumbling block?

Stablecoins, like DAOs or digital identities, are another piece of the puzzle. “And if we don’t get it quite right the first time, we’ll correct it.”

Wyoming, for a state with a small-town atmosphere, moves with the zeal of a big city when it comes to crypto. Wyoming stablecoins might debut before the end of 2022, according to a bipartisan bill proposed last week in the state senate. Even Wyoming banker and bitcoin champion Caitlin Long was taken aback by the announcement.

“Didn’t see it coming,” Avanti Bank’s CEO tweeted.

Additionally, it raises other questions: Is a stablecoin truly required by the inhabitants of Wyoming? Is this even possible? Will it cause consternation among the state’s commercial banks, particularly its newly chartered special purpose depository institutions (SPDIs), such as Avanti, which just released a stablecoin-like product?

Furthermore, is a government-issued stablecoin constitutional? And aren’t there already a sufficient number of stablecoins? Perhaps Wyoming is once again ahead of the crypto pack — at least in the United States — and other towns and states will soon follow suit?

“Given that regulators are still scrambling” to comprehend and regulate cryptocurrency, “whatever a state like Wyoming does that creates a new data point will have an effect.” According to Rohan Grey, an assistant professor at Willamette University’s College of Law. It would be “considered as a natural feature,” to which US regulators and possibly Congress would have to respond, he explained.

Senate Minority Leader Chris Rothfuss, one of the bill’s four authors, told that many individuals in Wyoming and elsewhere are still hesitant to utilize stablecoins “because they lack confidence in the assets” that back them. Is the token truly redeemable for US dollars on demand?

“It’s still a question mark” in many people’s minds, Rothfuss remarked. “They will know that the Wyoming stablecoin is 100 percent backed by US Treasury dollars.”

Wyoming has been a trailblazer in cryptocurrency’s meteoric global rise. It was the first state in the United States to charter special purpose depository institutions in 2020, which are permitted to hold both cryptocurrencies and fiat, and the first state in the United States to recognize decentralized autonomous organizations (DAOs) and grant them the same rights as limited liability companies in 2021.

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Perhaps not this year

Once the Wyoming treasurer concludes that a stablecoin is practicable, the official is supposed to “release a Wyoming stable token not later than December 31, 2022,” the measure states.

Does this suggest that a Wyoming stablecoin is going to be released before the end of the year? Passing the legislation this year “will be a problem,” Rothfuss admitted, but “at the very least, we will receive comments.” He is certain, though, that if the law does not pass this year, it will be brought back the next year.

What about Wyoming’s commercial banks? Would they have an issue with a state-owned entity competing for retail deposits or even with their own stablecoins? As previously stated, Avanti Bank, Wyoming’s second SPDI after Kraken Bank (both were chartered in late 2020), already offers a product called Avit, which is defined on the bank’s website as a “tokenized, programmable US dollar,” which sounds suspiciously like a stablecoin. Would a Wyoming stablecoin put Avanti Bank in direct competition?

Rothfuss stated that he did not expect Wyoming’s stablecoin to be competitive with Avit, while he also did not consult with Long prior to submitting his proposal. “We have no intention of acquiring independent businesses.”

The demand for digital assets is likely to expand enormously in the future years, Rothfuss stated, and the state has space for both a state-issued token and a stablecoin issued by a private bank(s).

Long also described the Feb. 17 bill as a “mind-bender” that poses “a lot of questions,” while noting her admiration for “Wyoming’s continued exploration of interesting #crypto concepts!” Avanti did not react to this story’s request for comment.

“Technology agnostic”

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

“So far, we’ve been technology-neutral,” Rothfuss stated. Wyoming may choose to utilize the Ethereum blockchain, the Solana blockchain, or another. What would be ideal, he noted, is for the stablecoin to someday run on many blockchains. However, it is far too early in the process to make technical conclusions at this point.

Certain individuals have questioned whether a state-issued stablecoin would even be lawful under US law. After all, Congress alone has the right to control money in the United States. Could it be argued that a state-issued stablecoin is unconstitutional?

“This is not a new currency; rather, it is the tokenization of the United States dollar,” Rothfuss explained. As such, it should not violate the United States Constitution’s Article I, Section 8, which states that only Congress has the authority to “coin money and regulate its value.”

However, not everyone is convinced. Because the Constitution clearly specifies “money,” Max Dilendorf, a partner at the Dilendorf Law Firm, told, “it is critical to identify what comprises money.” “Money has historically been defined as a means of exchange and a store of value. The Supreme Court has yet to rule on whether state-backed stablecoins fall within Article I, Section 8.”

Additionally, a Wyoming stablecoin may encroach on Congress’ authority to regulate interstate commerce, Dilendorf added. Because the individuals or businesses exchanging cryptocurrency are unlikely to be all situated in the same state in the United States, “the bitcoin is very certainly being moved over state borders and is thus susceptible to Congressional regulation as interstate commerce,” he explained.

Congress could technically utilize its Necessary and Proper Clause (NPC) authority to “block states like Wyoming from issuing stablecoins because this would interfere with existing interstate commerce restrictions,” added Dilendorf.

By applying the Supreme Court’s most recent rationale from the United States v. Lopez (1995) judgement and Congress’ plenary powers under the NPC, Dilendorf said, “it appears that Congress might control and prohibit the creation of state-backed stable coinage.”

There are more concerns. Even if a Wyoming stablecoin passed legal muster, would it be supplanted by a digital dollar in the long run? That is, would anyone be interested in using it?

“While federal regulators are discussing the coexistence of a digital dollar and a stablecoin, whether there would be as much public interest in a state-issued stablecoin after a digital dollar exists is another matter,” Grey responded.

Who’s next?

If a Wyoming stablecoin is established and gains traction, will other states or municipalities in the United States follow suit and issue their own stablecoins?

“The next likely place you’ll see this is at the city level, in a city like Miami or New York City,” Grey explained, citing CityCoins as an example. Wyoming appears to be well ahead of other states in the United States, but he added that a second place “where it may happen” is Texas.

“I’m not sure what the significance of the first state-issued stablecoin in the United States is,” Dilendorf explained. “There are already Miami and New York coins that are subject to identical federal legal issues.”

Grey, who assisted in the drafting of the United States 2020 Stable Act that was introduced in Congress, has advocated for tighter regulation of stablecoin issuers, including forcing them to be insured depository institutions. He saw some advantages to Wyoming’s idea.

For one reason, a publicly issued stablecoin would almost certainly have a higher degree of “procedural transparency,” yet even a state player would eventually abandon 100% US Treasury bill reserves. Nonetheless, like with privately minted stablecoins, “it is improbable that everything will take place behind closed doors.”

“I certainly have fewer reservations about Wyoming’s stablecoin than I do about the private ones,” Grey added, adding that Wyoming’s proposal, which uses crypto-specific language — as opposed to the language used by those advocating for public banks, for example — could also be intended to advance “the normalization of crypto in general.”

Therefore, Wyoming may be waging the good fight for cryptocurrency in its own unique way. “Yes, standardizing the language, standardizing the model – standardizing the entire sector,” Grey stated.

Is that how Rothfuss sees it, that Wyoming is utilizing the process to demonstrate a commitment to the future of cryptocurrency?

“It may be interpreted as a statement,” Rothfuss told, “but we’ve been discussing all of this for five years and this is really just another piece in the puzzle — just as DAOs and digital identities are pieces.” And, if we don’t get it quite right the first time, we’ll correct it.”

Disclaimer: These are the writer’s opinions and should not be considered investment advice. Readers should do their own research.

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