Wyoming Governor Matt Mead signed into law on March 8, 2018, Wyoming House Bill 70, or the “Utility Token Bill.” The law creates an exemption for “open blockchain tokens,” popularly called utility tokens, from securities and money transmission laws specified in the Bill. Section 1 of the law states that if a token meets the following criteria, it is exempt from Wyoming securities laws:
- The token developer files a notice with the secretary of state;
- The token is for a “consumptive purpose” – it is exchanged for the receipt of goods, services, or content; and
- The token is not sold as an investment.
For a token to meet the third “non-investment” prong of the test, the seller must not advertise the token as an investment. In addition, the seller must either:
- Reasonably believe the token was sold for a consumptive purpose;
- The token itself must have a consumptive purpose;
- The buyer must not sell until the token is used for a consumptive purpose; or
- The seller must take reasonable precautions to prevent selling prior to the token’s use for consumptive purpose.
In addition, the law designates that a facilitator of trades for such exempt tokens will not be considered a broker-dealer for purposes of securities laws, as long as specified conditions are met. Certain provisions of Wyoming law still apply to these tokens, and the secretary of state is charged with determining compliance with all applicable laws. The law also requires all those applying for the exemption to first file a notice of intent with the secretary of state. Finally, the new law explicitly defines an “open blockchain token” – its description essentially describing any cryptocurrency using blockchain technology.
Wyoming’s crypto law is the first of its kind. The SEC and CFTC have both taken stances on the legal status of cryptocurrencies; however, no other state has yet weighed in. A proponent of the law believes that the definition set out in the Wyoming law would settle the debate on how to classify cryptocurrencies – as its own “utility token” class, rather than a security or a commodity. The same proponent believes that the Wyoming law could be a potential framework for federal securities laws.
Wyoming has passed five recent bills relating to the state’s money transmission and securities regulation – all in the name of promoting cryptocurrency business in the state. These new laws range from allowing blockchain to store corporate records to exempting cryptocurrency from state property taxes. It remains to be seen whether other states, or the federal government, will follow Wyoming’s lead with these new laws.