Through landmark blockchain legislation over the last two years, Wyoming is doing everything it can to lure blockchain companies to head west—with several established players such as Cardano, Kraken, and even ConsenSys (Decrypt’s financier) already heeding the call.
Now, a New Mexico-based startup is preparing to make the jump to the Cowboy State. FreeRange won’t be traveling very far, but it will be attempting to do something no other company has done before: become the nation’s first state-chartered digital asset bank.
Earlier this week, Governor Mark Gordon signed the Special Purpose Depository Institution bill (HB0074) into law, paving the way for Wyoming to become host to the first fully authorized “crypto banks” in the country. According to Caitlin Long, an advisor to the Wyoming Blockchain Coalition and former president and chair of Symbion, the law is aimed at putting an end to the “horror stories” of crypto startups having their bank accounts go up in smoke.
Since banks are federally regulated, and laws at the federal level are especially murky regarding crypto, blockchain companies have been hindered in ways that most other businesses take for granted.
“Blockchain companies need to confidently maintain bank accounts and have basic banking services to operate as a company in the United States,” says Amber Terrasas, COO of FreeRange.
Despite the favorable legislation that Wyoming passed in the last year, blockchain companies “still could not bank in the U.S. or anywhere else efficiently, which is a requirement to pay withholding taxes and the like to U.S. employees,” she explains. “This is unfortunate, as most blockchain companies are software and IT developers—about as far from cannabis and firearms as you can get. Something had to be done to facilitate business that wanted to be in the U.S. and Wyoming in particular.”
With special purpose banks now the law of the land in Wyoming, the state is now “the only place in the U.S. where blockchain companies safely bank and store assets under a comprehensive commercial code scheme,” Terrasas says.
A special purpose depository institution (SPDI) as defined by Wyoming law isn’t quite like the banks most people are accustomed to dealing with. From a consumer perspective, the differences are negligible, but SPDIs are specifically designed to meet the unique needs of this burgeoning industry. SPDIs will be “required to keep 102% reserve, which is different than traditional fractional banking—meaning all customer money is kept, and none of it is lent out,” says FreeRange CEO Joe Pitluck.
FreeRange, should it receive its charter to open a crypto bank, will be required to “have full surety bond, all insurance, 100% reserve plus 2% conservancy account,” Pitluck explains. Lower capital requirements would also allow FreeRange and other SPDIs to take in more deposits, as well as act as custodians of digital assets for institutional investors—which, by law, must store their crypto assets with a third party.
It’s also important to note that SPDIs will not be insured by the Federal Deposit Insurance Corporation (FDIC), which means that while these special banks will be able to operate on a national level, they will not be subject to the same rigorous scrutiny against “high risk” enterprises as ordinary banks.
4) The SPDI bill creates a state-chartered, non-lending, 100% reserve depository institution for businesses only. V impt-SPDIs aren’t #FDIC insured. As @SenatorDriskill said during lively Senate debate, "#Wyoming is creating an unbullyable bank" bc the FDIC can't bully SPDIs...
— Caitlin Long 🔑 (@CaitlinLong_) February 15, 2019
The crypto banking law officially goes into effect in Wyoming on July 1, and Pitluck says FreeRange is already preparing to the be the first company to apply for a charter in October—the deadline for the state banking commission to adopt procedural rules for the law. If all goes according to plan, FreeRange would open up the country’s first crypto bank by the second quarter of 2020.
Terrasas says “hundreds of blockchain companies” are now incorporating in Wyoming. The way things are headed out by The Rockies, that isn’t so hard to believe. And with crypto banks given the green light to operate in all 50 states, we might soon see hundreds more race to become Blockchain’s First National.
Editor's note: This story has been updated to clarify that FreeRange is in fact attempting to become the first-ever state-chartered digital asset bank, unlike previous attempts elsewhere in the country that claimed state authorization but ended with CEOs behind bars.