(Bloomberg) -- It turns out that the high plains and majestic mountains of Wyoming are a hotbed of activity when it comes to laying out the groundwork for crypto regulation.
The least populated state’s select committee on blockchain has put forth dozens of pieces of legislation over the last five years. And just last month, Wyoming announced plans to launch a dollar-backed token by early 2025, which aims to lower consumer payment costs using blockchain technology.
A significant challenge for the Cowboy State’s plans will be educating consumers and businesses on how cryptocurrencies work and shepherding them through a steep adoption curve, one that includes setting them up with wallets to hold, send and receive the tokens. The state is investing $5.8 million into the project. A year ago Wyoming had invested $2 million across all crypto-linked projects and only received $473,000 in returns, data compiled by Bloomberg shows.
“The gap between theory and practice is still fairly wide,” said R.A. Farrokhnia, a professor of Economics at Columbia Business School and executive director of the university’s fintech initiative. “For this to work, there has to be a compelling reason for consumers to switch. If the savings are big enough that might compel someone to switch or if there are other incentives that would justify the pain of switching to a new system.”
The Wyoming Stable Token Commission plans for consumers to purchase the tokens through existing crypto exchanges and, over time, be able to use the digital tokens to pay for everyday expenses. The state’s stable token plan is contending with the status quo of card payments in the US. For consumers, credit cards often offer lucrative rewards programs, convenience, fraud protection and chargeback options – all of which would likely need to be reimagined to convince people to adopt stablecoin payments.
The payoff would be curbing the costly fees merchants pay to payment processors, service providers and card networks, according to Anthony Apollo, executive director of the Wyoming Stable Token Commission. Credit card purchases typically cost merchants around 2% in swipe fees charged by banks and card networks like Visa and Mastercard. But, the average cost per transaction on public blockchains is fractions of a penny. On Solana, for example, the average cost per transaction is $0.00064. The card fees are a hot button issue for merchants and in recent years have spilled over into the public eye with the rise of surcharging at stores across the country as they attempt to pass processing fees onto their customers.
Streamlining stable tokens for consumer payments is an ambitious undertaking, especially for a project in such early days. The Commission only gained access to the allocated funds on July 1 and is currently taking applications for a chief financial officer and chief information security officer. Along with filling those crucial roles, the Commission needs to secure its financial services partners through a bidding process and create rules around how the token will operate.
Once launched, the Wyoming token will need to compete with stablecoins like Tether’s USDT or Circle’s USDC, which have market capitalizations of $118 billion and $35 billion, respectively. However, competing with industry coins may not be as important to the state as signaling their innovation-friendly attitude, Lee Reiners, a lecturing fellow at Duke Financial Economics Center, said.
“From my vantage point the Wyoming policymakers have effectively been captured by crypto interests who have decided to make Wyoming this sandbox/playground,” Reiners says. The stable token is “keeping with that trend. To me, it’s more of a signaling device than anything that will have substantive meaning.”
The proposed Wyoming stable token will be backed 102% by US dollars and short-term treasuries. Interest generated by reserve assets will be donated to Wyoming public schools.
Dollar stablecoins are designed to track the value of US dollars one-for-one and today are primarily used as bridge currencies in and out of the crypto economy. Stablecoins are not as volatile as other cryptocurrencies, but they still carry risks. When a stablecoin’s value falls out of step with the currency it’s designed to track, it’s called “depegging.” During the regional bank crisis last March, the second-largest stablecoin by market capitalization, Circle’s USDC, lost its dollar-peg after Circle disclosed it held $3.3 billion worth of reserves at Silicon Valley Bank. Wyoming plans to carefully monitor its reserves, but the token will not be backed by the full faith and credit of the state. This means that if there is a depegging event, taxpayer money will not be used to prop up the token.
Wyoming has been building its brand as a haven for the cryptocurrency industry in an effort to bring economic diversity to a state that’s been long dependent on revenue from the fossil fuel industry. In an effort to reduce this dependence, Wyoming has taken strides to make it easier for crypto businesses to operate in the state.
The stable token initiative marks a significant uptick in terms of investment dollars. The investment seems to reflect a sentiment that the stable token will be a meaningful revenue driver for the state. In 2023, stablecoin issuer Tether reported $4 billion in net profits generated by US Treasuries. “It’s a bet, a calculated gamble that if crypto takes off Wyoming will benefit,” Reiners says.
©2024 Bloomberg L.P.
