By Diamond-Michael Scott
As the meteoric growth of cryptocurrency continues to garner widespread attention, Wyoming is rapidly emerging as a hub for digital asset innovation. Over recent years it has enacted a series of laws paving the way for the nation’s first digital asset banks.
In mid-September 2020, the Wyoming banking board granted San Francisco-based cryptocurrency exchange Kraken a Special Purpose Depository Institution (SPDI) charter, permitting it to function as a digital asset custodian. Known as one of the most secure digital asset exchanges in the world, Kraken’s expansion into this space will now allow individual consumers to use many features common among traditional banks.
On the heels of this development, a second charter was granted to Avanti Bank, the brainchild of Laramie, Wyoming native Caitlin Long, a 20-year veteran of Wall Street and former head of Morgan Stanley’s pension advisory group. With a focus on institutional clients, Avanti will launch a new class of investment options solutions for university endowments and pensions.
The banking board also approved Avanti’s widely anticipated issuance of Avit, a programmable digital currency redeemable at par with the U.S. dollar. Because it’s not a security token, it falls outside of an investment that is expected to generate returns. It will be initially issued on the Bitcoin sidechain Liquid before being migrated over to Ethereum.
Long moved from New York back to her birthplace of Wyoming to help guide efforts to build Wyoming into a epicenter of digital asset innovation. After working with state legislators for years to craft the Special Purpose Depository Institution guidelines, she is now turning her efforts toward building Avanti into a brand name.
All of this is welcome news for the nascent digital asset space as SPDI allows for broader support around digital custody transactions. Cryptocurrencies, like bitcoin, are currently purchased on exchanges run by third-parties, in a manner similar to the New York Stock Exchange. But in order to build mainstream use of cryptocurrency for day-to-day spending in the U.S., it needs to be converted back to U.S. fiat currency through a crypto exchange.
Ultimately , SPDI’s will foster more traditional banking services for the frictionless direct use of cryptocurrencies via debit cards and checking accounts. And while these institutions will not be permitted to issue loans like traditional banks, their assets still must be backed by reserves to ensure liquidity.
Wyoming’s Emergence as a Asset Protection Haven
According to asset protection attorney and Rich Dad Advisor Garrett Sutton, author of the newly released book “Scam-Proof Your Assets: Guarding Against Widespread Deception.” (October 27, 2020, RDA Press), Wyoming is arguably the top state in the nation for protecting one’s assets.
“Wyoming is far ahead of any other state in terms of these digital assets being protected. They have authorized banks to be the qualified custodians for digital assets allowing investors direct ownership of digital assets through a bank account.”
Sutton notes that in terms of Wyoming asset protections, be it a regular brokerage account with stocks and bonds or a bitcoin account, it all now really works the same way. Key here is the use of a Wyoming LLC or corporate entity to house these assets under. He offers this example:
“If you have a brokerage account under a Wyoming LLC, and you get into a car wreck and someone wants to get at those assets, Wyoming provides the best asset protection law in the country against a charging order which is a lean on distributions.”
“In some states like California, the LLC laws are very weak. The courts there would say “alright Mr. car wreck victim, with your claim against X, you can force a sale of his brokerage account. Have at it…. you can go into his account and sell everything he has.”
Sutton says that through the use of a Wyoming business entity, a third-party can’t barge in and force a sale of a digital asset. Rather they would have to wait until distributions are made out of the Wyoming LLC to reach the assets.
There are a number of other advantages to setting up a Wyoming business entity according to Sutton:
“Wyoming offers privacy unlike any other state as it doesn’t collect the names of the owners or managers. You register with the state and get a charter . Then you have what is called an operating agreement which is a roadmap for how the LLC is going to operate which is kept confidential and not filed with anyone.”
With all of this, Sutton does offer a concluding cautionary tale:
“You will often hear people say that LLCs don’t require minutes of meetings which is generally true. But if you ever end up in court you’d better have minutes with you done an annual basis which is not hard to do. Because if you don’t have them, and someone sues you and tries to “Pierce the Veil”, meaning they are going to go through the LLC to try to reach your personal assets, not having minutes is a big error. So you have to follow these formalities. It’s not hard to do so but if you don’t do so you can lose your asset protection.”