Wyoming’s crypto-friendly aspirations are colliding with economic reality

While several cities and states have made strides to attract crypto investments over the past decade, Wyoming Governor Mark Gordon describes the state as “the most crypto friendly place in the United States.” He might be onto something.

Wyoming has enacted dozens of bills that either mention crypto-related terminology or are sponsored by a legislative committee that’s dedicated to all things blockchain and technology. The tally — 28 since 2019, according to data compiled by Bloomberg — leads the nation. This far outpaces Utah in second-place with 15 bills of its own.

The momentum comes along with millions in spending and a significant amount of legislative hours, efforts proponents say are necessary to ensure the economic diversification in a state that’s heavily reliant on revenue from fossil fuels including oil, natural gas and coal. On average, some 60% of discretionary state revenue comes from either taxes on mineral extraction or investment income created by legacy mineral development, according to data from the Wyoming Legislative Office spanning back to 2000.

But so far, returns haven’t matched investments. In total, all possible sources of state revenue attributable to crypto in Wyoming add up to less than half a million dollars, data compiled by Bloomberg show. In contrast, the Wyoming state legislature has appropriated nearly $2 million on applications related to crypto.

Desire to diversify

“Wyoming needs economic diversification,” the state’s U.S. Senator Cynthia Lummis, said in an email. “Change takes time and our state needs to think strategically about its future prosperity.” Lummis’ efforts in crypto and blockchain include spearheading legislation at the federal level.

There is some evidence of crypto making inroads in Wyoming. More than a thousand LLCs with some variant of “crypto,” “blockchain” or “DAO” in their name have signed up in the state, according to data from the Wyoming Secretary of State’s office. Even the University of Wyoming is engaging in crypto with a lab that has projects running on the Cardano blockchain.

“As a diversifier of our economy, it is already having an impact and it will continue to grow,” Gordon said of blockchain.

The desire for diversification has been an effort that the state has grappled with for decades, said Phil Roberts, an emeritus professor of history at the University of Wyoming. The state’s economic history is littered with booms and subsequents busts from natural resource products. During booms, the majority of people want to ride the wave and diversify after, he said.

“When the bust comes, it’s too late. So that’s happened with minerals, coal, with oil. It’s happened even with cattle,” Roberts said. “It’s happened at least a dozen times in the state’s history.”

“The pragmatic policymakers in Wyoming have understood that those are finite resources with finite lifetimes, and that our dependence on them is not going to sustain us forever,” said State Senator Chris Rothfuss, who has been involved in crypto legislation for the last seven years.

Steve Lupien, who runs the Center for Blockchain & Digital Innovation at the University of Wyoming, said the state wants to try the exact opposite approach to the federal government.

“Embrace this business here in the United States, create an enabling regulatory environment and you won’t get the scammers,” Lupien said. “The scammers are operating because we don’t have a clear regulatory environment except in Wyoming.”

At the federal level, regulators from the Securities and Exchange Commission to the IRS have sought to rein in crypto’s excesses. While Lummis has called the collapse of crypto exchange FTX “a good, old-fashioned fraud,” she said it was a relatively isolated incident that had nothing to do with the underlying economics of the asset class. FTX founder and former CEO Sam Bankman-Fried, who is scheduled to stand trial in October, has denied all the allegations against him. 

State funding mechanisms

So far, crypto hasn’t moved the needle for Wyoming’s treasury, which is already restricted by the absence of corporate income tax. Revenue attributable to a flagship program — an annual supervision fee for digital asset firms — has contributed less than $8,000 since it launched in October 2019. The account also holds $200,000 from separate, one-time fees.

By contrast, a similar program in New York is projected to generate $5.8 million for the fiscal year 2023-2024. 

Rothfuss acknowledges the limitations, blaming them on the way the state structured its revenue opportunities more broadly. “Regrettably, the Wyoming revenue structure is rubbish — designed to rely upon the minerals industry,” he said. “This is a separate challenge Wyoming must address.”

Corporate registrations in Wyoming are surging with more than 41,000 new filings in the first quarter of 2023 compared with just over 3,000 in 2009’s first quarter. Annual reports in the first quarter have also ballooned to more than 70,000 in 2023, more than tripling since 2009, the earliest year provided by Wyoming’s Secretary of State business division. Limited liability corporations that register in Wyoming are required to pay a $100 initial fee and an annual report fee. Registration fees have already brought in almost $30 million this year, according to the Secretary of State’s Business Division. 

But crypto has been a minor contributor to that revenue. Since 2017, when local lawmakers first started embracing the asset class, company registrations with either “crypto,” “blockchain” or “DAO” in their name have generated less than $250,000, according to Bloomberg calculations. 

Lee Reiners, a lecturing fellow at the Duke Financial Economic Center, said he was unpersuaded that the state can successfully foster an entire industry. Wyoming lacks the requisite infrastructure, Reiners argued.

“Why did Silicon Valley become this tech hub? Why did Detroit become the automotive hub in the mid 20th century? It wasn’t just because there were one or two great innovative companies,” Reiners said. “I just don’t see that happening in Wyoming.”

Despite the challenges, government officials remain committed. Lummis said in an email that “crypto assets and distributed ledger technologies are the future of finance.” 

Gordon believes his role is to be “a cautious steward” in the face of crypto’s inherent volatility and frequent upheavals. “I love the fact that we’re the most crypto-friendly place in the United States,” he said. “That doesn’t mean that we wanna make it a playground for evildoers.”