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Why Wyoming: An Overview of Digital Asset Law

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This complimentary, one-hour presentation will provide a general overview of the various legislation Wyoming has passed to govern digital assets, including a discussion on key legal developments impacting the online industry.

Join presenters, Matthew D. Kaufman, Lucas Buckley, and Tyler Garrett from Hathaway & Kunz LLP to learn about decentralized autonomous organizations (DAOs) and why this new Wyoming Digital Asset legislation is important.

Webinar transcript

Disclaimer: Please be advised that this recorded webinar has been edited from its original format, which may have included a product demo. To set up a live demo or to request more information, please complete the form to the right. Or if you are currently not on CSC Global, there is a link to the website in the description of this video. Thank you.

Annie: Hello, everyone, and welcome to today's webinar, "Why Wyoming: An Overview of Digital Asset Law." My name is Annie Triboletti, and I will be your moderator.

Joining us today are guest speakers Matt Kaufman, Lucas Buckley, and Tyler Garrett from Hathaway & Kunz. And with that, let's welcome Matt, Lucas, and Tyler.

Matt: Hello, Annie. Thanks so much for the introduction. Thank you, everyone, for joining us today. This is Matt Kaufman. I'll be kind of covering the first portion of the presentation.

And maybe just to quickly orient everyone as to our plan today, we're going to do a quick, very quick introduction and overview to blockchain digital assets. For those of you that are familiar, it probably will be a review. For those that aren't familiar, hopefully you'll learn something new.

And then from there, we're going to move into a number of the legislative measures that Wyoming has taken and cover them in a little more depth. If you pay attention to this space at all, you've probably heard that Wyoming has been very aggressive over the last five or six years in passing legislation with respect to cryptocurrencies, digital assets, blockchain. And so the goal of today's webinar is to kind of review that and help folks understand why people care, why this matters, and sort of some new developments in the law around that. So, with that, we'll get started.

We thought it might be useful for everyone, in case you're not familiar with blockchain, just to do a very quick introduction to the technology and maybe a little bit of context as to why it matters to people. Blockchain is about a 12-year-old innovation that is an iteration of something called distributed ledger technology. And distributed ledger technology is really, in its simplest form, and this is crude lawyer terms, not computer programmer terms, but if you will imagine a ledger that instead of being hosted on one centralized database or one centralized server, it's a ledger system that is publicly available or publicly shared by a number of network participants, computers, servers on a blockchain. They're typically called nodes.

The idea there being that we're flipping computer architecture on its head. Instead of creating one central point of attack where someone can go hack a server and get information, we are turning all of that information public. The trade-off is usually people try to either anonymize or pseudonymize themselves on the blockchain so they're not identifiable. And we'll talk a little bit more about that and why people have said that Bitcoin and things like that is for criminals. It's because of the pseudonymous aspect of it.

But the idea with making these ledgers public and accessible by any node or network participant is that it incentivizes honesty. And those people that contribute to the operation of the network get rewarded in the native token or the native asset of that particular blockchain, and thereby creating an incentive for those participants to be honest and to validate transactions and to conduct network activity without the need of a third-party intermediary.

And really, at the end of the day, that's what this technology is all about. It's about the disruption of trusted third-party intermediaries. If you've ever sent a wire, or you've ever used a credit card, you may or may not know that those transactions typically go from or go through anywhere from three to maybe even up to seven intermediaries in the process of settling that transaction.

The invention of blockchain and the idea behind the technology was to create ways where people can interact with different types of assets and have pure custody of that asset themselves, and also obtain instantaneous, real-time settlement with counterparties that they might not even know, without the need for a third-party intermediary.

So, hopefully, that kind of helps create a little bit of context. So how does this technology work?

Well, the idea of a blockchain is that there's a couple of components, and these are important real quickly to understand that there's a public key and a private key. So think of the public key as someone's identifier on a blockchain. Might be a string of letters and numbers. It could be your name. It could be something random. And then a private key is a component that an individual participant of blockchain uses themselves to effect a transaction on the blockchain. When you put those two together, that becomes a digital signature.

And so the phrase "blockchain" simply comes from when network participants are transacting on a blockchain using this distributed ledger technology, every time a transaction is processed by the network, and the network participants agree that that transaction is correct, a date/time hash stamp occurs, creating a block, if you will, of information that contains the digital signature of those participants. People can embed messages in those blocks. They can embed documents in those blocks. They're often time and date stamped, like I mentioned.

And then every transaction thereafter adds to that block, which is why a lot of people refer to blockchains as immutable. It makes it impossible for someone to go back in time and retroactively change a prior block once it's been processed. That's one of the reasons that the public accessibility or the public visibility of blockchain transactions isn't a problem for most people because they're unchangeable. It doesn't matter.

So that's a little bit about sort of the underworkings of signatures. And I want to just, again, reiterate sort of that public and private key, because that's becoming a big component of what Lucas will be talking about here in a little bit with respect to what Wyoming has done in terms of the property rights surrounding that public key.

So, again, just one final point on the architecture here. So blockchain really then is just a combination of a couple of different forms of technology that a lot of people are familiar with. The public and private key aspect is cryptography. The distributed ledger is peer-to-peer networks. Think of Napster and stuff that's been around for a while. And then programmable protocols. I mean, networks with defined sets of rules that network participants can get on and use this recordable ledger system for anything they want.

And there's different types of blockchains, which we'll talk a little bit about. There's public blockchains. There's private blockchains. There's hybrid blockchains. Some blockchains work on something called a proof of work, which if you're familiar with Bitcoin, Bitcoin is a proof of work, meaning the more computing power that someone devotes to solving or proving up consensus on that network like we talked about, the more they are going to be rewarded from the network. And that requires energy. There's been, of course, criticism of Bitcoin for consuming energy because it requires those network participants to devote computing power.

That's slightly different from something called a proof of stake blockchain. If you follow this area at all, you might know that the second largest cryptocurrency in the world, Ethereum, just migrated successfully from a proof of work to a proof of stake. That's a reputational system. So instead of being the first one to necessarily solve the algorithm, if you will, or balance the distributed ledger and prove to the world that these transactions are correct, proof of stake uses reputation. So in other words, you're putting up collateral onto the network and saying, "Hey, I'm willing to put my collateral at risk to tell you all that I'm being honest and that I'm proving these transactions." And then you submit transactions.

So I'm only explaining that because a lot of people don't understand that there's various types of blockchains, various types of protocol rules that blockchain products and solutions utilize, and there's a lot of nuance to that.

This one, I've kind of already covered, but I'll just cover it real quickly. So if you are a user on a blockchain network, the user interface is pretty slick. Think of it in Bitcoin terms. Someone requests a transaction. That transaction goes out to all the people that are participating in the network. The network or node participants would validate. In other words, everybody agrees that their ledger matches everybody else. Once everybody agrees or there's consensus on the network, that block is recorded, like we talked about, with the date timestamp, signature stamp. And then it's added to the chain of cell blocks. And that becomes the forever record of the blockchain. And obviously, the longer a blockchain exists, the more records there are, the more secure it becomes.

This is just a quick slide to kind of give people an idea of what is out there in terms of blockchain. The term "cryptocurrency" is a real misnomer. Not everything in the blockchain world is aimed to be a currency. People are tokenizing things like equities and property. There's people that are tokenizing record keeping. There's people that are creating smart contracts, which are programmable agreements that take action. Obviously, that can't be done with physical dollars. So you need some sort of native blockchain currency to affect those transactions. So there's a whole host of economic activity out there that's occurring today on a blockchain.

And then just real quickly, before I hand it over to Lucas and Tyler to take it from here. So why does Wyoming matter in all of this? The quick answer is that Wyoming was the first and, to date, is really the only state in the union to pass a comprehensive legal and regulatory framework surrounding this technology. And depending on how you count, there's somewhere between 24 and 28 different pieces of legislation that Wyoming has passed over the last 5 years, dealing specifically with this. We've chosen just a subset of those that we're going to talk about, and some of them that are getting some national attention, and a lot of people engaging here in Wyoming on these issues.

It kind of started in 2018 with the Token Exemption Act. Wyoming was the first state to create a blockchain token creation securities exemption, which Tyler is going to talk more about.

The Special Purpose Depository Institution Act. Wyoming has made pretty big headlines in this area. We created in Wyoming a first of its kind bank that is enabled to interact with these digital assets and custody these digital assets. And we'll talk a little bit more about that. Wyoming is the first place to create digital asset custody standards based on SEC and CFTC principles for those people that want to safekeep digital assets.

Wyoming has enacted a financial technology sandbox. We've taken measures to enable corporate records on a distributed ledger, corporate security issuance on a distributed ledger. Wyoming has a comprehensive digital asset is now the term that most people are gravitating to, away from cryptocurrency, just because that's such a confusing term. But digital asset framework describing in Wyoming, we kind of have three main buckets, which Lucas is going to talk about, of how those digital assets might be characterized and what their treatment under the law is. And in some respects, that's even different from traditional property treatment.

And then Wyoming also has made some headlines. We're the first place in the world to create a legal structure, specifically a subtype of our LLC Act, or under our LLC Act for DAO, which stands for Decentralized Autonomous Organizations. And these are entities that have been the creation of the blockchain, and they live largely in code, and participants can interact with each other in an autonomous and decentralized way. And so Wyoming has been the first to take a stab at allowing those people to have a limited liability protection form.

And then we can't not mention the Wyoming Chancery Court. Wyoming has enacted, I would say, a first of its kind. It's, of course, modeled after the Delaware Chancery Court, but a much, much faster and a much, much more aggressive court than that of Delaware's, to handle not only digital asset but corporate and commercial disputes.

So, with that, I'll hand it off to Lucas. And he's going to start talking a little bit more specifically about digital assets as a property under Wyoming law.

Lucas: Perfect. Thanks, Matt. So, for all of Matt's talk about what exactly digital assets are, how the blockchain works, as far as I'm concerned, for the next few minutes, you can think of this all as magic internet money if you want. And I say that only because whether you agree or disagree, and certainly you hear a lot on both sides about whether digital assets make sense, whether they're a real thing with real value, or magic internet money that folks just hacking on their computers care about. These are assets. And the market has placed massive value on the assets.

Two trillion dollars was the kind of digital asset market cap at its peak. Everybody says and you've probably heard the term "crypto winter" that we're in now with a lot of these assets severely depressed. Even still, huge amounts of wealth are stored on chain, and they're directly impacting legacy financial systems. Coinbase is now a publicly traded company. Tesla has a huge stake in Bitcoin. And so these are assets that matter and, again, whether you like it or not.

So we've got this new asset class. And it is certainly, especially from the outside, kind of amorphous, as Matt said, at least pseudonymous decentralized, requires some level of tech savvy to deal with. And Wyoming then had to address, "Well, how are we going to deal with this asset in the real world under legacy, legal, and financial systems?"

And so the "digital asset" definition, as you can see on the slide, in Wyoming, kind of create some buckets that really create the backbone of Wyoming's regulatory scheme. And what I think is true, and no insult to a place like New York, Wyoming has taken a stance that we want to foster the growth of this asset innovation in this area. Whereas a lot of folks, of course, see the BitLicense in New York as pretty restraining.

And so Wyoming has done that really in a way that recognizes, I think, the intrinsic truths of some of these digital assets, and that they're not all the same. Certainly, it's easy to say, "Well, Bitcoin is out there, and I've heard of Ethereum." And those are all kind of the same things, but fundamentally, in terms of what they do and what they're used for, Bitcoin and Ethereum couldn't be more different. And we don't need to go into all that. But what we do want to at least flag, and this could be a whole day's worth of talk, so you're going to get it in about five minutes, is this idea that digital assets in Wyoming fall into these three buckets.

First, you've got digital consumer assets, and that's the digital asset we say used for a consumptive, personal, or household purpose. And anybody with some securities background will probably flag on that word "consumptive" with the idea being that if an asset is truly consumptive, right, if I'm buying or investing in some scheme where I'm really just getting a place to live out of it, that's not a security. And that, of course, is one of the big issues in this area.

So if it's consumptive use, if the token or the coin actually does something, you're looking at a digital consumer asset, and that would be something like Ethereum as it exists today. Ethereum really isn't just a way to exchange value. It's access to these universal computers that contain on the Ethereum blockchain. So compare that to a digital security, which really would be a regulated security, that's stocks, bonds, investment contracts, potentially representation, as Matt said, of actual real-world assets.

So I have a token. The token actually reflects on the ground, here in Cheyenne, Wyoming, property down the street from me. And so when I trade that token, really trading the underlying asset, that's probably going to be looked at as an investment. It's meant to gain in value. So you're probably talking about a digital security.

And third, you've got this idea, and that's where I think, as Matt noted, the idea of cryptocurrency is confusing because the currency aspect is really just one bucket of what these digital assets are in a virtual currency. And again, folks with some background will flag these words, a medium of exchange, unit of account, or store value, kind of a typical idea of, you know, definition of money. Bitcoin probably very much falls into this bucket.

Virtual currencies then are going to be subject to a decent amount of federal regulation. Note that under Wyoming law this is not legal tender of the United States. So if you get into these questions, "What if the United States suddenly recognizes Bitcoin? How is that going to change things?" And I only flag that because these are the issues that are coming up, I think, for practitioners, I think even if you feel like I do family law, I do . . . some area of law I practice in has nothing to do with this. I think you're going to see it more and more. And understanding this framework that I think is being adopted more nationwide is pretty critical. And I think we're going to see it more and more.

So, again, this becomes the backbone of what Wyoming has done. And it raises these questions. All right, Wyoming now has defined these assets as personal property assets under Article 9, Intangible Personal Property, of the UCC. And that then slots them into more legacy systems. Right? Well, how do we deal with ideas of can I pledge the assets in exchange for . . . in the industry we always call it fiat currency, so U.S. dollars, British pounds, whatever it might be.

And if I do, well, as Matt said, we've got a public key and a private key. And there's this idea in cryptocurrency, digital assets that if you're not holding the key, you're really not in control of your asset. And so how do I make sure I still control my asset while pledging it to a bank who might be lending against it, which is incredibly common. And you can find these portals and things all over the internet now.

And Wyoming is, again, dealing with, and I don't have a magic answer to all of this. But what does that control mean? Is it that I have to actually hold a cold storage wallet in my hand? Something that's actually tangible that's got my private key on it? Does it mean I just need to have my private key written down somewhere in a safe deposit box? If I'm looking to pledge the assets or kind of let a bank know that I'm not going to just run off with the asset and try to hide it in the blockchain. Everybody heard of Tornado Cash, which was kind of designed to mix and hide the assets, because . . .

A quick side note, we talk about pseudonymity, and that's the big complaint, "Well, these things are just used for hacking and for drug deals and things." It's not as anonymous as you think. And so how do we make sure we've got control of those assets?

Anyway, back to the point, under Wyoming law, while still protecting the various interests on both sides of a transaction, and that may come from multi-signature arrangements. And that would be where typically I've got a 128-character private key, or 64, and got to give that to somebody. Or can we . . . and it's not exactly this, but can we functionally split it up so that there's three parts to this key, and any two parts can unlock the asset, but one part alone never can. That way I can give my counterparty some feeling of comfort that I'm not going to run away with their assets. And again, this is exactly what the Wyoming statutory scheme is designed to do, give these options really so we can free up and grease the wheels of commerce.

And we're certainly seeing that happen. And Matt mentioned the Chancery Court, which then flows into that. I mean, what you're going to see, if you start to deal with this area of law, is you're going to see a lot of Wyoming LLCs. And knowing that there's the Chancery Court out there designed to handle a case really in 150 days from start to finish, that's going to have, one, published opinions and, two, a judge that's got some familiarity with this area of law has been key.

And so, again, very broad overview, probably too quickly gone through. But we do have this set of laws that's designed to allow people to work with these assets and to use these assets in the real world. So, again, it's not just this strange idea of somebody passing a digital key back and forth that doesn't really touch the real world. This is coming. I mean, there's no way to stop it really at this point, again, whether you like it or not. We've got in Wyoming actual property that is sold on the blockchain. It's owned by a functioning smart contract. And so wanted to flag some of those issues.

And then I think the one other big issue or area that Wyoming has tackled, Tyler is going to talk about now, and that's the DAOs, and the limited liability that Wyoming law applies to that.

Tyler: This is Tyler Garrett. And like Matt and Lucas said, it's an honor to be here speaking with you all about Wyoming's laws in this area. And I'm going to focus for this segment on DAOs. And I just want to kind of step back and talk about what Wyoming law was trying to solve. And so, as I think we all know, these DAOs were basically just a community-driven initially group of folks, decentralized management of some type of company that they had come to be and were pursuing.

The problem with that was there was no legal separate entity that they could have that company drive through as a vehicle. And so what that happened is it exposed them to unlimited personal liability. And Wyoming being kind of an innovative state, a laboratory of sorts, similar to how Wyoming developed the initial LLC back in the '70s, identified this problem and recently enacted DAO statutes, which is the DAO supplement. And you can find it at 17-31-101 et seq.

And that was enacted and it came effective in July 1st of 2021. And that statute was really an interesting move by Wyoming because it took . . . for the first time, allowed a legal entity . . . DAO to become a legal entity. And the LLC was chosen because of its flexibility. Obviously, a corporation is too formal. And so what the Wyoming legislature was trying to do is find that vehicle that would allow a DAO to thrive, and LLC just happened to be it.

What we've seen here in Wyoming with the DAO, we've had lots of clients file on the first day, on July 1st, 2021, file their articles of organization to form a DAO. And part of that articles of organization, you need to have your public identifier of a smart contract, whatever you're going to use in terms of your governance of your DAO. And so that was kind of an interesting one. You had to have folks that already had the mechanisms in place, the smart contracts, the protocols, the tech, all ready to go before you could even form the entity. But luckily, there was a lot of companies out there that we had as clients that had that information.

So the purpose of the DAO really in Wyoming is to authorize the creation of this type of entity. And it really is just a management, right, as decentralized management system. No more than that. And what it allows is instead of having, let's say, three managers governing an LLC, you have a community of members that are driving that information. And that's really the ethos of the DAO.

And so when we look at the DAO itself, it's governing through blockchain technology, smart contracts, and other software-enabled governance proposed protocols and procedures. And when you have members, you can have thousands of members. It's almost a paradigm shift in a traditional LLC.

So, for instance, you have, let's say, a meeting of the members in a usual LLC. You have to give a notice and things like that and a certain quorum. But with the DAO, under the statutes that we have in Wyoming, it's streamlined. Decisions of a proposal can be made, a quorum can be those that are just voting, and a vote can occur in 48 hours. And so there's this really paradigm shift in terms of DAOs that are really pursued here in Wyoming and the protection of having a legal separate entity with respect to the liability protection that those members enjoy.

So I kind of went over these unique formation rules. I think one thing we need to understand is, in practice, and I know I can't dig in too deep, but I would love to, is that how do you . . . okay, we've organized a DAO LLC here in Wyoming. You filed your articles of organization, and now you have this company that you need to start. And it has several members, but you want it to grow into thousands of members to be community driven.

There are certain things that you need to understand and advise your clients on as to how to get it off the ground, one of which is, well, you're going to have to have some type of authority of a member to sign actual physical documents with the Secretary of State, or third parties, or anything like that. And those can really be, I think, developed through an administrative member that has that authority to sign on behalf of the company. Because if you have smart contracts and other protocols that are making these decisions automatically, you really need someone to then actually execute on those on the physical side, because, obviously, all the world has not caught up to this type of management system. So that's one thing.

And I think another with respect to Wyoming statutes, the statutes for the DAO say a lot of the governance can be put in place specifically in the articles of organization or the smart contracts themselves. But what we've learned in practice is that the statute does provide also that the management can be through an operating agreement. But what we've learned is that if all of the rules and governance is in a smart contract, unless you can read the code, no one really knows. There's not a Bible of sorts, a document that says, "This is how the company is going to be governed."

And so one thing we've been really doing with clients is reflecting what we've developed in the smart contracts and the other governance protocols, reflecting those in the operating agreement. The operating agreement, I think, you don't have to have these certain provisions in the operating agreement, but we found that best practices really do reflect that you should have them in there. That way everyone knows how those smart contracts are operating, how those protocols are operating, so on and so forth.

It's really unique. It's been a year since we've seen DAOs take form. And we've now seen a lot of these Wyoming DAOs, after a year, be fully in practice. They're 90%, I would say, community driven by members, in terms of management, and through smart contracts. And obviously, I say 90% because there are some that you're going to need to have some type of administrative member or something act upon certain decisions that the members make.

But nevertheless, it's an interesting time to see how these DAOs have really taken off in Wyoming. And I would say the real worth of Wyoming is we actually have these laws on the books specifically for DAOs. I think folks still can go to Delaware and interpret the LLC Act there in a broad way to perhaps slip in DAOs and say that the management fits. But really, Wyoming provides a protection that allows for DAOs to thrive. You have Wyoming law backing you specifically on this subject. And so that's really what I think has driven a lot of folks here to Wyoming. We have seen companies from around the world come here to form DAOs. And it's been a neat process.

So I don't want to take and monopolize too much time. We could talk about this all day. And if you do have questions, I'm happy to answer them at the end or just reach out to me. But that's kind of an overview of Wyoming's DAO laws. I hope I imparted some general knowledge on it, but unfortunately, we can't really dig into the details. So I'm going to switch it back over to Matt, who is going to talk about another area.

Matt: Yeah. Thanks, Tyler. So flipping gears just a little bit, we're going to talk a little bit about some of the things that Wyoming has done with respect to banking, custody, safekeeping, and some commercial aspects of the Digital Asset Legal Framework.

And I might start by just talking, again, as Tyler did with the DAO, about what problem or what problems Wyoming has tried to solve for the crypto industry at large with some of these laws. And this applies really specifically to the SPDI and banking statutes that Wyoming has passed.

It's been a problem, as many of you may know, federal regulators and most specifically the FDIC has been very, very critical and harsh on digital assets. And over the past decade, but more specifically over the last four or five years, as the market cap and the participation in blockchain activities and these digital assets has grown, one of the major problems is that banks are, by and large, nervous about interacting with companies that deal with blockchain. The hundreds and hundreds and hundreds of stories we've heard here in Wyoming of companies from all over the world and the country who haven't been able just to get basic banking access, even if they themselves aren't trying to bank in digital assets, they just participate in the digital asset industry. A lot of people liken it to kind of the hemp and the marijuana industries early on and how there's just the regulatory uncertainty and thus banks won't touch it.

So what Wyoming attempted to do was in light of that FDIC-specific problem was create a brand-new type of depository called the Special Purpose Depository Institution that is by statute designed to be a fully reserve-backed and regulated here by the Wyoming Division of Banking, but a fully reserve-backed bank that is specifically authorized to deal with and handle and custody digital assets.

So it's a first of its kind bank charter. If you follow this space at all, you might know Wyoming has chartered a handful of these already, and there's many more in the works. One of the first ones that was chartered is sort of famously in litigation right now with the Federal Reserve Bank over whether or not Wyoming's SPDIs can qualify for Federal Reserve master account access. And so that's kind of a big issue that's going on right now.

But again, I think maybe the . . . I don't want to focus on what the federal regulators necessarily think of the SPDI. At its core, the SPDI is designed to be, again, for all practical purposes, a pretty traditional bank. Except that with the, I think, acknowledgment by Wyoming of the newness of digital assets and some of the volatility, there is significant lending restrictions. So these banks cannot participate in fractional reserve lending like a traditional bank can. So there are some safety and soundness, pretty strict specifications on these.

But getting into more specifically kind of what has been enabled via these institutions in Wyoming. And I should say it's not just the SPDIs. We also have charter trust companies in Wyoming, like many states do. Charter trust companies are, for all practical purposes, like a bank. They're chartered like a bank. They're just not depository institutions. So they're not designed to be public depositories. They're designed to be private client oriented. Some of them are even family office oriented. But they can engage in . . . not, again, depository and lending and payments, but otherwise they can participate in safekeeping custody, trust, and fiduciary type activities.

And so what Wyoming has done and it's to date really the only place in the country that has done this, it has developed a statutory-based but also a rule-based custody system, creating both permissible and impermissible activities, underwriting bank examination standards, audit standards. A few other states have adopted some form of the SPDI Act in the last few years, but no one has been able yet to implement all of the rules and examination standards that go with that.

There was a question . . . and rather than wait till the end, maybe now would be a good time. I saw a question pop up. Somebody was wondering about the SEC or the CFTC's treatment of Wyoming institutions for purposes of custody. And it's important to note. So one of the trust companies, it wasn't actually an SPDI, but one of the trust companies in Wyoming actually received a first of its kind no action letter two years ago in Wyoming. And that no action letter specifying that this particular charter trust company could deem and hold itself out as a qualified custodian under the qualified custody rules of the SEC.

The SEC has not only acknowledged it and has been aware, they publicly commented on it and have taken no adverse action. So the SEC has essentially said, "We see you, Wyoming. We understand that your custody standards in many respects align." And who knows, things could change. It's a dynamic regulatory landscape right now. But there has been some, at least, public acknowledgment of that qualified custody standard.

And then with respect to sort of the commercial law amendments and sort of the property definitions that Lucas talked about, how this fits with these banks, again, we believe and we're hearing this a lot from the industry that when it comes for institutional interaction with digital assets, you have to have that foundational layer of law that sort of establishes things like the custody rules, perfection of security interests, liens.

If you watch the news at all and you see some of the crypto companies that have gone under in the past six months with kind of the major downturn in the market, we're seeing a lot of these legal issues come to the forefront with respect to what is it that people actually own when somebody is custodying their assets. And what a lot of people are finding out is a lot of these institutions that popped up overnight with the emergence of crypto and digital assets, they were way ahead of themselves and weren't regulatory compliant. They weren't true custodians. Rather they were really just taking possession of these assets. And so as some of them have been hit with bankruptcy, it's been a mess to kind of parse out who owns what and what the legal claims are.

So, again, we're seeing this conversation come up a lot more these days with respect to Wyoming, because, again, in Wyoming, there is a baseline set of rules that has already established what are those personal property rights, how do you attach and perfect liens to those personal property rights, and what are the rights of a custodian in relationship to those lien rights. And so that really kind of has been one of the primary, I think, accomplishments of the Wyoming law in that respect.

I think, maybe with that, I think that's probably enough on the SPDIs. Maybe the only additional comment I would make is that . . . and Lucas is going to talk a little bit more in a second about some of the estate planning considerations that we're seeing. And that's one of the other, I think, bridges that we've seen a lot of conversation around is people that have these digital assets, people that are attempting to either protect legacy wealth, or pass legacy wealth, or figure out how to generate yield off of that, that digital asset wealth, or whatever the case may be, there's been this explosion of demand and need for people to have professional custody, professional financial services, professional advising, and then the ways to kind of interact with those systems.

And so what we've seen and what we've found is that these institutions, like the SPDI and the charter trust companies, are creating a really interesting bridge for people that want to . . . we sort of . . . crypto likes to use the term on-ramp and off-ramp. But for people to on-ramp through a financial or regulated licensed financial institution into the crypto world, and then have a way to conduct estate planning, and know how that estate planning is going to interact with those digital assets. Whereas that's all pretty well developed in the traditional finance world, but it's very emerging in the digital asset finance world.

And so, yeah, with that, I'll hand it over to Lucas to talk a little bit about the estate planning.

Lucas: Great. Thanks, Matt. Well, now, Matt has given you a little taste of what I was going to talk about. And then even worse for me, of all strange things, actually, yesterday Reuters came out with an article, and, of course, it's a jumble of a link. But anybody who wants to look at it, called "Why the jurisdiction of choice for trust planning with digital assets has to be Wyoming?" And so I feel like they really stole my thunder here. But actually a great article and it does talk about a lot of the things I wanted to.

But I think, one, when you're talking about estate planning with digital assets, both specifically in this blockchain sense and more generally, you've got to start with . . . it's called RUFADAA, the Revised Uniform Fiduciary Access to Digital Assets Act, which the Uniform Committee really nailed it on the name there. But this is the act. I think, almost every state now has enacted it. Wyoming has as well. Functionally, it allows an executor or other fiduciary after you pass away, during your incapacity, whatever it might be, to get access to your, again, broadly speaking, digital assets. And that's Facebook, it's your Dropbox files, probably even Coinbase or Kraken accounts, and your Fidelity brokerage accounts.

It allows a fiduciary to go to, again, anyone centralized where you can get some version of a person on the phone or over email to talk to you. And you say, "Listen, I can prove that I am the executor for John Doe who's passed away. You need to let me into their account even though they've got no estate planning." And that can subject it to probate, or summary procedures, whatever you do in your jurisdiction.

This, though, and I really pointed out almost to contrast it to its utility when dealing with self-custody wallets. And again, we get into this idea of the private key. And you've probably heard or seen the articles, the guy that has tens of thousands of Bitcoin locked in a wallet. He knows the public key. He can see his wallet on chain, and he knows how many Bitcoin are in there, but he doesn't have his private key anymore. And it doesn't matter who he screams to in the void to get access to those Bitcoin, there's no one that can do it for him because the protocol is really law in that case. And so unless you have your private key or your seed phrase, you're just not going to get access to those assets. And so a law like RUFADAA doesn't do anything for you.

Again, you can have every court in the world issue an order that says, "Hey, Bitcoin, blockchain, you need to transfer these assets," and it's not likely to happen. And for those of you who are deep into this, you would probably know, theoretically, you could try to get consensus among nodes and things, but functionally speaking, it's not going to happen. And the point of the blockchain is its immutability.

So what happens? Well, especially legacy folks, early investors in digital assets, as well as very privacy-conscious folks, and you've probably also heard, Coinbase listed in its SEC filing, "Listen, if we go bankrupt, there's a possibility that you're just going to be an unsecured creditor, and your coins are going to be considered part of our bankruptcy estate." So a lot of folks don't want to use these centralized exchanges, and you're going to go, and maybe again, like Matt said, the on-ramp that lets you buy your initial Bitcoin through Kraken or whoever it is, you're still going to move that off of Kraken into a self-custody wallet.

And that's why we call it not your keys, not your coin. If Kraken has it, there's a higher counterparty risk than if it's in your wallet. Or what's the risk in your wallet, like we said, you lose your key, you lose access to the wallet. Or you die and nobody can find your key because you only stored it in your head. And so there's a couple of ideas that I wanted to at least touch on quickly. And again, this is its own week-long seminar, it seems like.

But one is the idea of, and we're not seeing it quite yet, but I don't think we're that far off, what's functionally a self-executing a smart contract will.

MetaMask is a very popular wallet. I've got my Bitcoin held in MetaMask. And at some point, somebody creates we call them oracles, right? So any connection to the outside world that can pull information on to the blockchain for use in a smart contract, some oracle creates a way that my wallet or the smart contract associated with my wallet can go and look for Social Security death records. And if it tags and says, "Check, we do see that Lucas has passed away," then it executes a code to deliver my Bitcoin to my kids' wallets or whatever it is.

And so I think there is some idea, and there's probably going to be a lot of work around this idea of a smart contract self-executing will. But right now, again, we don't have that. So we have these custody issues. Well, if I don't trust Kraken, not that there's any reason not to that I know of, but if you don't trust them to hold your wallet, or your coins, then who's going to hold it for you? And that's where, again, I talked about the multisig wallets.

Well, maybe what you do in that . . . specifically what I think is so kind of useful about the interplay between Wyoming's asset protection laws and the digital asset laws, you can go to an entity like Two Ocean Trust. I think was actually quoted in this article as well. You can go to them and say, "Listen, I want you to hold my assets." That way somebody can move them if I pass away, because I'm going to split my key into maybe three parts. I'm going to hold one, the trustee is going to hold one, and maybe we have some escrow hold the third. I pass away, the two of three, the remaining trustee and the remaining escrow can transfer my assets as it needs to be done.

Well, even better then, under Wyoming law, you can create this as an asset protection trust. And so we know that you can transfer your assets when you pass away. We also know that you can protect your own assets from your own liabilities by transferring them into an irrevocable trust. And, of course, that's subject to the Fraudulent Transfers Act. But if you're not doing that to defraud anyone, you can protect the assets that way.

And even better, under Wyoming law, you can even continue to invest as you choose to. Right? You made all your money on savvy Bitcoin and Ethereum trades. You want to continue to do that. You don't want somebody at a trust company in Jackson Hole, Wyoming, to decide when to sell and when to buy. Without losing the asset protection, you still have the ability to control those investments.

Even better then, Wyoming is a zero income tax state. And so you can domicile those assets, again, subject to a million considerations that are beyond the scope today. But you might domicile those assets, as Matt said, find a way to earn yield off of them, so they're producing income. And maybe you want to create a non-grantor irrevocable domestic asset protection trust that is going to allow you . . . if you're in California or New York, a high state tax resident, you're going to be able to take zero income tax in Wyoming.

Of course, you still get taxed at the high trust tax levels. But if you're already at the highest tax bracket yourself, it doesn't matter. And so you get all this synergy of domesticating your assets here. In addition to, and I didn't mention this before, but if you have those assets domiciled in Wyoming, any potential lien that might be on them that you don't know about can be cleansed after being held in Wyoming for two years.

So you will see it's . . . I've got to say that Reuters, I guess, agrees with me. Wyoming really is becoming a premier place to domicile assets no matter what and specifically digital assets. Again, it's a seminar in and of itself. But for folks looking at estate planning practices, especially high-net worth generational transfers, Wyoming is a very, very interesting state to do that. And, of course, I'm happy to chat about this more with anybody if they'd like.

But let's move on. I'll kick things back over to Tyler, who's going to talk about some securities law consideration.

Tyler: Thanks, Lucas. Appreciate it. Yeah. So we're going to switch to . . . Uh-oh. Where are we at here? I think I've got to go one more. So I want to switch to securities. And basically, the utility token statute that Wyoming has considered.

When we have clients, I'm sure, like all of you, or if you're a company out there, you're considering issuing tokens and certain things like that, there's always this question of, "Well, is it a security or not?" When Wyoming was enacting its laws, it was mindful of, "Okay, well, there are going to be some types of token that are utility in nature."

And as Lucas had mentioned before, the predominant ethos of such a token is consumptive. And specifically, we have this statute in Wyoming, and I'm going to give you the citation, 34-29-106. It's the Wyoming Utility Token Act. It defines what a utility token is. And what it says is that a utility token, the consumptive aspect of it means a circumstance when a token is exchangeable for or provided for the receipt of services, software, content, or real tangible personal property, including rights of access to services, content, or real tangible personal property.

And so what we've been seeing in practice is how does that fit in terms of a company wants to issue some tokens? How do we balance whether it's a utility token or not? At least Wyoming has this law on the books that we can provide an analysis, at least based on Wyoming law, that this token is truly utilitarian. It's a utility token.

The tension, as we all have come to realize, is that how do we . . . what will the SEC . . . how do the Feds view this? And we were lucky enough to have Hester Peirce have a meeting with some of us in Wyoming a while back. And we talked through these issues. And that's the conversation we always have with clients is that we can tell you what Wyoming law says, but we don't know the treatment of the SEC. The primary position is that it is a security. And so you run into that a lot. And I think there will be continued conversations and more clarity as we go through this process.

But it's really difficult in here to say, "Here's what Wyoming says, but you have to be careful about the SEC and other regulations that are out there that are outside of Wyoming," which we have the conversations that you can do some type of offering that's completely inside Wyoming, intrastate. But that doesn't really get you far because you really, especially in the DAO sense, you might have members that are worldwide. And that is . . . keeping it confined in Wyoming just really doesn't serve that purpose.

So when we look at these laws, and I think with the token aspect as well, I want to wrap back around to the DAO. When you have a DAO, the membership interest could be issued through tokens. And one of the problems I think we've run into is that, okay, if your membership interest is going to be reflected in a token, is that going to be considered a security? In other words, do you have to perhaps follow an exemption, or do a 506(c), for instance, or something like that. I think clients have to either perhaps pursue an exemption, take the risk, which some clients do, or you go offshores.

But we have seen successfully in at least the DAO aspect of the membership interest or at least a management interest in a DAO being reflected through a token holder. So it's an interesting area. There's still tension. I think we have a long ways to go with respect to harmonizing Wyoming law with the SEC and things like that.

But at least for Wyoming's purposes, there is sound statutes that we can legitimately say that the way you're operating this token is . . . for a utility, it's for consumption, or at least in the DAO aspect, that token simply reflects a membership interest, and your voting right or your management right in that DAO, and for no other purpose. So I think you have a firm argument to make that it is not subject to securities. It's not a security.

I know we're at 55 minutes, and we have 5 minutes . . . well, almost 4 minutes left. But we do see some questions. So maybe it's a good time to flip to those, and hopefully we can answer some more pointed questions with what we talked about today.

So there's a question that says, "Have you considered, and if so, can you discuss the extent to which the DAO LLC can satisfy structural and operational requirements that arise if the DAO wants to be recognized as tax exempt, particularly as a charity under 501(c)(3)?"

We have had that question come to light several times. I think one of the issues . . . so I think one that we would all know is perhaps the Big Green DAO. It's a 501(c)(3), I believe, non-profit, but manages . . . its management structure is a DAO.

I think for Wyoming's purposes at least, the Wyoming DAO supplement is under the chapter of LLC. And so we have to understand, well, can an LLC be a non-profit? We do have a type of, I would say, non-profit LLC on the books. It's not widely utilized in Wyoming. However, I mean, I think if you can basically boil it down to the structure, the management of the entity itself, the LLC, how can you fit that then under the 501(c)(3), which is a corp or a non-profit?

I don't know. We're still pursuing that question, but we don't have a firm answer on it right now. How do we harmonize an LLC DAO with the 501(c)(3) structure for tax exempt purposes?

So, Matt, you were going to say something?

Matthew: Yeah, I think you've answered that perfectly. And I would just reiterate a lot of this, and we tell clients this almost every day, is changing on a daily basis. There's obviously a lot of ongoing regulatory actions at the federal level. For those of you that follow this, the SEC has really been aggressive as of late with some enforcement actions on registered securities offering, for token offerings, or crypto offerings that should have been either offered under some exemption or registered. The CFTC has an ongoing action with the DAO with some really interesting legal questions about people participating in a DAO that should have been regulated, and it was conducting activity that was unregulated. So much of this is evolving really rapidly.

One of the questions was, "Is Wyoming leading the country in digital asset law?" In our mind, there's no question. No state, frankly, has come anywhere even close to the legislation that Wyoming has passed. A number of states have passed bits and pieces of what Wyoming has done. Like I mentioned, there's a few that have passed the DAO Act, a few that have passed the SPDI Act, a few that are addressing things like Bitcoin mining, and some pockets of these issues, but nobody has adopted it.

It is interesting and worth noting that the Uniform Law Commission begged Wyoming not to append our UCC with the digital asset stuff, that Lucas was talking about, about four years ago. And Wyoming said, "Sorry, not sorry, we're going to do it." And lo and behold, now the Uniform Law Commission is adopting those definitions. So there is tremendous headway.

And that was the last thing I wanted to mention, just so people are aware, is that there's federal legislation pending. Not a lot has gotten accomplished yet at the federal level. But our home state senator, Senator Cynthia Lummis, and Senator Gillibrand from New York have co-sponsored some massive, wide-sweeping legislation at the federal level. Our firm was fortunate enough to participate in providing comment on some of that bill draft early on. But it addresses many aspects of what we're talking about today, everything from clarifying some of the regulatory structures at the federal level and who has authority over what, all the way down to defining different types of assets that might fall within those agencies' jurisdiction.

And we are excited about that here in Wyoming, because that federal legislation is so far looking like it would adopt Wyoming's legal framework, which we think makes Wyoming even more compelling, and for people to understand it now, because, again, since no state has taken that lead, a lot of the federal senators and representatives who are taking the lead on this are looking to Wyoming.

So anyways, as Lucas and Tyler both said, and I'd reiterate, this area of law doesn't seem to be going away. There's a lot of adoption occurring, a lot of regulatory conversation, a lot of user base growing. And so we think that lawyers are going to be continuing to be hit with these issues, and be forced to at least be familiar with some of the legal issues, and how these digital assets are transacted with.

So, with that, I think we're at the top of the hour. Thank you all for tuning in.