I. Executive Summary
Wyoming, a northwestern US state with a population of around 580,000, the smallest US state, has since 2019 become a cryptocurrency and digital asset haven, leading the way among all US jurisdictions by offering a clear – and advantageous – legal, regulatory, tax framework. and the investor privacy regime for investment vehicles focused on digital assets, including non-fungible tokens (“NFTs”), cryptocurrencies, digital certificates and other similar asset classes. As the United States Securities and Exchange Commission (“SEC”) further develops its treatment of digital assets that are securities (“Digital Asset Securities”) and the Commodities Futures Trading Commission (“CFTC”) does the same for digital assets that can be treated as commodities, we expect the current securities regime to apply generally to Digital Asset Securities. This supposed framework, Wyoming has developed a truly advantageous and state-of-the-art scheme for investing in digital assets. This review will first review Wyoming’s attributes as a jurisdiction to found a corporation, limited partnership (“LP”), or limited liability company (“LLC”), and then review Wyoming’s unique attributes ( in the United States) for investments and investment vehicles focused on digital assets and cryptocurrency.
II. Wyoming as a jurisdiction
We briefly reported on Wyoming’s attractiveness as a trust fund and domicile in our recent “Special Purpose Vehicles (“SPVs”): Uses and Abuses,” available at Kurtin PLLC White Papers and Notices. Wyoming is one of many US states with no income tax (the others are Alaska, Florida, Nevada, New Hampshire, South Dakota (itself become a favorite trust domicile for investors US and non-US due to its highly protective privacy laws), Tennessee and Texas. Wyoming also offers several other attractive attributes for outside investors, whether or not digital assets are the focus of the business to be created. :
- Wyoming corporations, limited partnerships, and limited liability companies can be formed online, from anywhere in the United States or outside, using a Wyoming registered agent, and then liberally structured in their documents constituents to optimize their structure for investors, investment assets, taxes, accounting, governance and others. business goals.
- Wyoming corporations, LPs, and LLCs may be formed, owned, and managed by physical and legal citizens (i.e. corporations) of other states and other countries, with limited liability protection for shareholders: the shareholders of a corporation, the limited partners of an LP and the members of an LLC.
- Wyoming corporations, LPs and LLCs may be “chained” vertically and horizontally – affiliated – with other Wyoming corporations, LPs and LLCs, whether in Wyoming, other US jurisdictions or offshore jurisdictions, and have organizations executives domiciled in other jurisdictions, onshore or offshore. For example, a Wyoming LP could have a Delaware LLC as a required general partner (or a Wyoming LLC could have a Delaware LLC as a managing member) to preserve Wyoming benefits while taking advantage of Delaware’s highly developed statutory regime and interpretation case law of this regime. for corporate governance certainty and the potential attractiveness of that certainty to investors; and also have a parent company from the British Virgin Islands (“BVI”) or the Cayman Islands or another offshore jurisdiction, with additional tax, accounting and privacy benefits for investors, both onshore and offshore.
- Wyoming limited partnerships and limited liability companies can be formed, including as trusts, without any public document disclosing the settler or beneficiary. Wyoming also allows trusts with generation-skipping transfer rights and “self-established” trusts (trusts formed by a person who also becomes the beneficiary of the trust).
However, what makes Wyoming unique among US states so far are its key laws of 2019 and 2021 allowing, facilitating and governing the processing of blockchain and digital assets, including cryptocurrencies, tokens non-fungible assets (NFTs) and other digital assets.
III. Wyoming Digital Asset Laws
In 2019, Wyoming became the first state to enact blockchain-enabling legislation and established the treatment of digital assets such as cryptocurrencies and non-fungible tokens (“NFTs”) as intangible property under the Act. Article 9 of the Uniform Commercial Code (“UCC”). ), which is enacted in all states and the District of Columbia. The Wyoming Digital Asset Statute of 2019 (WS 34-29-101 et seq.), as amended in 2021, defines a digital asset as “a representation of economic, ownership, or access rights that is stored in human-readable format. computer and that is either a digital consumer asset, digital security, or virtual currency. In doing so, Wyoming has recognized digital assets as property – general intangible property – under Wyoming’s general regime of property rights, protection and enforcement of proprietary rights, sale, rental, licensing, assignment and other disposition of property available for other forms of intangible property. 2019 subjects ownership of digital assets to the UCC in which a security right can be made effective in all US jurisdictions.
The 2019 law further provides for the use of “smart contracts” by secured parties in digital assets, algorithms or other code-controlled automated transactions, including the transfer and taking sole control of an asset. digital.
The 2019 law further establishes an opt-in framework for banking custodial services for digital assets and a Wyoming court jurisdictional framework for digital asset disputes. The opt-in for bank custody services enables the use of Wyoming SPVs as investment fund vehicles holding blockchain digital assets, NFTs and cryptocurrencies as fund assets, in which investors inside and outside of Wyoming can invest. Anti-money laundering, accounting and audit provisions are also included.
The 2019 law provides that a Wyoming bank providing custodial services must enter into an agreement with its customer as to the nature of its custodial arrangement: (i) if the custodial is a deposit, whether a fungible or non-fungible digital asset, in which case the bank must strictly separate the digital asset from other assets; or (ii) a legal bond authorizing the bank to enter into transactions with the digital asset based on the client’s instructions. In addition, the bank and its customer must agree in writing which source code version the bank will use for each digital asset and the treatment of each digital asset under the UCC, with any ambiguities to be resolved in favor of the customer. Various notification requirements on behalf of the bank to its customer are also included. Finally, the 2019 law authorizes each bank opting for digital asset custody services to operate a fiduciary service to perform these services.
The 2021 Amendment clarified certain aspects of the third-party effectiveness of security interests in digital assets, specifying, among other things, that the third-party effectiveness of security interests can be obtained through control of the digital asset.
IV. How to Use Wyoming Laws
To put it all together, an investment fund of any kind can form a Wyoming SPV, be it a corporation (perhaps to serve as an onshore blocking entity, since Wyoming n ‘has no income tax), an LP or LLC, and create a fund vehicle to buy and hold digital assets of any kind, be it cryptocurrency, digital certificates or fungible or non-fungible tokens, and engage a Wyoming bank to perform custodial and/or brokerage services generally necessary for such fund. The Wyoming SPV formed as an investment vehicle may be a stand-alone entity or chained to a hierarchy of onshore and/or offshore entities; either way, it, its owners, and its investors will enjoy state-of-the-art privacy. The enacted banking regulations and jurisdiction of the courts provide a regulatory and enforcement framework to manage the investment vehicle and fund with certainty and security.
Until other US jurisdictions catch up, for anyone looking to create an investment fund or vehicle to buy, hold, trade, or sell digital assets, including cryptocurrency, Wyoming should be a very privileged choice and destination.