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 up-and-coming urban crypto hubs of Miami or Austin, Texas, but the windswept plains of southeastern Wyoming.
While the collapse of the massive FTX exchange and recent arrest of its founder, Sam Bankman-Fried, have compounded concerns about crypto, Wyoming remains full-steam ahead in wooing the industry. It has enacted a suite of new laws — with possibly more to come — seeking to make the industry more regulated and reputable to attract businesses like Yang's.
“FTX would not have happened if it was a Wyoming company,” said Steven Lupien, director of the 2-year-old Center for Blockchain and Digital Innovation at the University of Wyoming. “Wyoming got it right. We knew five years ago when we started down this path that appropriate regulation was the way to go.”
While Lupien contends the state's agencies would have picked up on the “shenanigans” going on with the exchange, others aren’t so sure.
“There wouldn’t be anybody in Wyoming who’s sophisticated enough to audit something on the scale of FTX,” said Cheyenne attorney Larry Wolfe. “If you’re a true believer, of course you’ll say it could never happen here. But of course it could happen here.”
Cheyenne, Wyoming's capital city of 65,000 people, is home to a U.S. Air Force nuclear missile base, an historic Union Pacific rail yard, abundant old diners and country bars, and sprawling cattle ranches in every direction.
So far, there's little sign of the crypto industry that Wyoming has courted for the past five years. But Yang says fledgling exchanges like the one he's hoping will open for business in 2023 could be the start of an influx in the state.
His Tacen Inc. business already has about a dozen employees, about one-third of the company’s global workforce, working in a downtown office building.
“We said, OK, what is the right place to locate out of? And Wyoming is the right place,” Yang said. "Basically they’ve passed a whole set of laws that makes it easier for me to do business.”
Even after the FTX collapse that wiped out potentially thousands of investors, Yang says he feels good about casting his lot with the least-populated state and its many new laws seeking to attract crypto and blockchain businesses.
Some of those new laws seek to discourage speculating with crypto bank customers' digital assets, a suspected cause of FTX's fall.
"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 you get your money back — not having to worry about what the bankruptcy court is doing and all this nonsense.”
Wyoming officials remain bullish on crypto, the digital currencies such as Bitcoin and Etherium based on decentralized, encrypted ledgers called blockchain.
Much of crypto's appeal is there's no middleman: Money can move freely between people without the involvement of government or traditional banks. Transactions are instantaneous, although scant legal and regulatory oversight appeals to drug dealers and other criminals who need to move money discreetly.
All the while, the value of crypto — which skeptics say is rooted in nothing more than the say-so of its users — is by now famously unstable, with Bitcoin alone down in value by almost two-thirds in the past year.
Wyoming's strategy amid all of this to attract the crypto industry with the respectability of regulation. Though many traditional banks help customers invest in crypto, Wyoming is among very few states, including Nebraska, allowing crypto banks called specific purpose depository institutions (SPDI's or “speedies”).
Wyoming “speedies” can't issue loans, can't reuse customers' funds without their approval and must back up 100% of customer deposits with liquid funds.
But while Wyoming has issued four state licenses for crypto banks since 2020, none has fully opened for business, if at all. That's largely contingent on a federal lawsuit filed by one of the banks, Custodia, seeking access to Federal Reserve services, including its electronic payments system. Should it win authorization, Custodia and other banks would provide a massive financial boost to Wyoming because they would be required to pay the state 0.02% of their assets each year, CEO Caitlin Long said.
“When you start to get billions and billions of assets coming into Wyoming, that starts to add up,” Long said. “Traditional banks do not pay that.”
Wyoming has even set aside $4 million to help University of Wyoming students experiment with crypto staking, or establishing ownership in cryptocurrency.
“They have developed a comprehensive scheme of regulation that is much more advanced than any other state in the country is doing. They are encouraging companies to think about Wyoming,” said Mary Beth Buchanan, Americas president and global chief legal officer at corporate and government crypto consultant Merkle Science.
But Wolfe, the attorney, calls it a “crypto plague on the Wyoming Legislature."
“They may tell you there’s some little business here,” Wolfe said. “But that’s not actually turning into anything that resembles how are we going to fund schools, how do we fund health care, how do we fund anything?”
Among Wyoming's efforts to open its arms to crypto, the state now allows blockchain-based companies called decentralized autonomous organizations, or DAOs, which are based on “smart” contracts that act like computer code and automatically take effect when certain conditions are met.
The DAOs policy is reminiscent of when the state was first to allow the limited liability company in 1977. LLCs are now common form of business that shields the personal assets of small business proprietors, partners and investors from lawsuits. About 500 DAOs, which are a type of LLC, have been set up so far, according to the Wyoming secretary of state's office.
By comparison, Wyoming now hosts over 17,000 businesses alone with “crypto” in their names, from “3 Guys Crypto LLC” to “YYZ Crypto Miners Inc,” according to the secretary of state. The vast majority still aren’t physically located in the state.
Considering Wyoming’s business license renewal rate starting at $60 a year, they bring in relatively little revenue compared to fossil fuels, which after a 2020 bust that forced steep budget cuts have now graced the state with a more than $900 million surplus.
Yang wants his Tacen exchange to stand out as an exception from the crowd of obscure businesses.
He already has hired about a dozen employees — including attorneys, software developers and a social media specialist — to work out of the company's three-story brick building, bedecked with Western art and the company's logo etched on glass doors. A cryptocurrency ATM stands just inside the entrance.
At Elite Mining, another new fintech company based in Cheyenne, contractor Micheal Weir recently unloaded equipment for its crypto mining rigs from a flatbed semitrailer.
He described crypto as a “wild, wild West” right now but remains bullish.
"I say don’t be afraid. This is still a baby industry,” Weir said. “Some amazing things are going to come out of it.”
This story was written by Mead Gruver of the Associated Press with contributions from Geoff Mulvihill in Cherry Hill, New Jersey, and Thalia Beaty, in New York.