Wyoming's Ambitious Plan to Launch a State-Backed Stablecoin

- 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.

Wyoming Stable Token Plan Faces Challenges in Consumer Adoption

(Bloomberg) -- Wyoming’s plan to launch a dollar-backed token by early 2025 faces a key challenge: convincing consumers to adopt a new payment method and shepherding them through a steep learning curve.

The Cowboy State announced plans last month to launch its own stablecoin, aiming to lower consumer payment costs using blockchain technology. The token will be available for purchase through existing crypto exchanges and, over time, consumers will be able to use the digital tokens to pay for everyday expenses, according to the Wyoming Stable Token Commission.

But in the US, the status quo for consumer payments is card networks. 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.

The Wyoming Stable Token Commission plans to launch the token by early 2025. 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, said Lee Reiners, a lecturing fellow at Duke Financial Economics Center.

“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 stablecoin.

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.