, 24 tweets, 15 min read Read on Twitter
1/ IMPORTANT-I'd stayed quiet abt this until now. The below letter was just publicly released by the #Wyoming #Blockchain Task Force. It responds to 2 letters the Uniform Law Commission sent to WY “strongly urging” it to withdraw its v impt... #blockchain wyoleg.gov/InterimCommitt…
2/ bill, SF125, which is now law. I’m bringing attention to WY's response bc it addresses a debate that should be in the open, plus it should make clear #Wyoming is seriously willing to go to bat to attract #blockchain tech to the state AND defend a strong & basic principle—that
3/ laws should recognize property rights for INDIVIDUALS who own financial assets. We shouldn’t have to own them thru an intermediary in order to gain the best legal protections. The Task Force letter responded to letters dated Jan 29 & Feb 6 sent by the Uniform Law Commission to
4/ #Wyoming legislators & others “strongly urging” Wyoming to withdraw SF125 just a few days after it was introduced. SF125—which passed & takes effect Oct 1—recognizes direct, individual property rights in digital assets. Legislators studied the detailed letters &, instead of
5/ buckling under the pressure, voted OVERWHELMINGLY to enact SF125 by 28-1 in the Senate & 54-2 in the House. Gov Gordon signed SF125 into law this week. (I really love #Wyoming for standing firm!) The Uniform Law Commission’s letters raised no new issues that Wyoming
6/ hadn’t already considered & rejected in favor of the SF125 approach. The gist is this: the Uniform Law Commission’s proposed Supplemental Act would recognize commercial law protections for owners of #virtualcurrencies ONLY if they’re owned via #securities intermediaries under
7/ the indirect ownership rules of UCC Article 8. Yep, these are the very same indirect ownership rules that enabled so many problems to build in #securities mtks. Many #blockchain supporters have long criticized indirect ownership, including @OverstockCEO , @AndreaTinianow,
8/ .@TraceMayer, #Delaware Chancery Court Judge J. Travis Laster, myself & many others. All of us have long pointed out that #blockchain would fix these problems by restoring direct ownership of #securities, & yet the Uniform Law Commission’s proposed Supplemental Act
9/ would effectively block these improvements by pigeonholing #crypto into the very same indirect ownership regime that enabled the VERY SAME problems #blockchain technology means to fix! #Wyoming studied the Supplemental Act & rejected it as inappropriate bc it
10/ recognizes #virtual currencies under the UCC only if they're owned indirectly via a securities intermediary. It neglects the reality that INDIVIDUALS directly own a majority of #virtualcurrencies, which are fundamentally peer-to-peer assets, & leaves them w/ inferior
11/ UCC treatment by default. By applying the same indirect ownership regime to virtual currencies that also applies to #securities, the Supplemental Act actually enables significant solvency risk at #virtualcurrency intermediaries that puts consumers at risk of loss! Without
12/ restricting an intermediary’s ability to build uncovered exposures in its omnibus accounts, the Supplemental Act leaves a big hole. Remember, unlike traditional #securities, there’s zero ability to build fault tolerance into #crypto settlement systems—this is a good thing!
13/ Trad securities mkts need fault tolerances (failures to deliver, operational shorting & the like) bc the indirect ownership system allows securities ledgers to fall out of sync. Regulators permit these practices bc it’s the only way to keep securities mkts from seizing up.
14/ But for #crypto, there’s no way to build such fault tolerances into the settlement system. Not only is there no lender of last resort for #crypto, but also no one (such as DTC) can force parties to accept fault tolerances bc no one controls on-chain settlement mechanisms.
15/ Failure to deliver #crypto is default. This is a feature, not a bug! Additionally—and this is a big gap in the Uniform Law Commission’s Model Acts—neither the #URVCBA nor Supplemental Act addresses the legal status of #securitytokens or #utilitytokens.
16/ Grab popcorn 🍿 bc WY’s response letter is worth the read, even tho it's long & wonky in places. Here are some choice lines: "Did the Uniform Law Commission mean to create a structural advantage for the #securities industry to the detriment of individual owners" who are
17/ left, by default, with inferior UCC protections? "The Model Acts would neuter the power of #blockchain technology to fix the securities industry's problems when, inevitably, #digitalsecurities are issued natively on a blockchain."
18/ "#Wyoming is actively seeking to be the home of SOLVENT financial institutions by recognizing direct, individual property rights in digital assets…We encourage other states to join us."
19/ "We believe the Model Acts are not yet ready to be considered in any state. We urge the Uniform Law Commission to set aside the Model Acts & develop a proposed uniform law that better accounts for the nature of digital assets..." Keep in mind #Wyoming did not
20/ seek out any conflict with the Uniform Law Commission and has offered to help it fix the problems with the Model Acts, most especially with the Supplemental Act. The Uniform Law Commission started this debate by sending two separate appeals “strongly urging” #Wyoming
21/ to halt its legislative process right in the middle of it. Clearly, SF125 touched a nerve. (Remember, the Uniform Law Commission’s Supplemental Act has the effect of favoring the #securities industry over individuals—whether intended or not, I believe that’s its effect.)
22/ When challenged, #Wyoming stood on principle on the side of individuals & clear, direct property rights. I encourage other states to join #Wyoming, & also encourage CA, NV, OK & HI to set aside their proposed Model Act legislation until it can be improved to address these big
23/ issues. I especially thank the wise team of #Wyoming legislators for doing the right thing here, especially incl. @Tyler_Lindholm, @SenatorDriskill, @TaraNethercott, @JaredSOlsen, @rothfuss, @CyrusWestern, Mike Yin & others who studied the issues and decided to stay
24/ the course. #Wyoming has done a lot to attract, enable & support #blockchain technology. Now you know just how much they were willing to go to bat & how thoughtful their deliberations have been. Folks, please show appreciation to Wyoming however you can! 🤠🤠🤠
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