Wyoming legislators may have let the Wyoming Stable Token Commission off the hook when releasing a single digital stable token by the end of December to meet an arbitrary deadline. However, that doesn’t necessarily mean Wyoming Stable Tokens aren’t already floating around in the ether.
At least one company has already created a Wyoming Stable Token for testing purposes on its Stellar Test Net and Future Net.
During their most recent Wyoming Stable Token Commission meeting, Louis Morgan, co-founder and chief technology officer of Block Time Financial, told commissioners that his company created a test Wyoming Stable Token on Nov. 2 and has already been putting it to work virtually.
“Since then, we have processed over 150,000 payments and thousands of trades between 2,997 accounts for about $2 in blockchain transaction fees,” he told commissioners. “These are examples of markets between the WST (Wyoming Stable Token) and the USDC Coin and the XLM native token for the blockchain and liquidity pools.”
USDC stands for US dollar Coin and is a stable coin representing a digital dollar. Stellar refers to the XLM native tokens as lumens. They are a network tool meant to facilitate transactions on the system, whether between banks, payment systems, or people and deter bad actors by imposing costs on the use of the system.
Morgan added that all of the examples using the Wyoming Stable Token can be seen on the Stellar Expert Blockchain Explore website.
60-plus Years Of Experience
During his comments, Morgan urged the commission to continue a multi-chain approach for Wyoming’s Stable Token.
“A fast, low-cost blockchain would help solve many of the use cases in the business plan,” he said.
That includes distributing financial services, retail token holders, and efficient management of social programs.
“We have completed a project similar to the WST for a regulated financial institution,” Morgan added. “We specialize in the Stellar Blockchain used by MoneyGram, Franklin Templeton, and Wisdom Tree, among others. It is used for a CBDC, pilot projects in several countries such as Ukraine, the Philippines, and the Marshall Islands.”
Morgan added that the chain has been used since 2014 and offers a transaction cost much lower than that of competitors. It’s 1/10,000 of a cent, with block confirmation times of just five seconds.
Morgan has more than 30 years in the financial sector, while his co-founder, Bruce Rosenheimer, is a Wall Street veteran of more than 35 years working on the Capital Markets teams at Solomon Brothers, Citi, and JPM.
Blockchains ‘Chomping At The Bit’
Block Time Financial’s testimony helped illustrate a point Wyoming Stable Token Director Anthony Apollo made earlier while explaining his ambitious timelines for a streamlined request for information and proposal process to commissioners.
“I think there’s already enough teams, kind of chomping, to speak with us about this,” he said. “And those are just the ones that have reached out proactively. Plenty more of the groups out there may not know where we are in the process, or they may be working on similar initiatives overseas. They may be interested in what the domestic version they’re already working on looks like.”
Apollo also suggested that the commission should prefer working with companies that are nimble and quick enough to respond in a short time frame.
“The caliber of groups we should seek to work with should be ready to provide information extremely quickly,” he said. “They should have clients that they could point us to. They should have pitch materials, they should have, you know, whatever we’re going to ask for, and for the RFI, to be clear, if you look at the appendix, we’re not asking for a ton of information there.”
Apollo said that more detailed information will be reserved for the RFP process.
“I believe 25 days starting tomorrow is sufficient to get this done,” he said.
Getting The Right Players To Weigh In
Wyoming Stable Token Commissioner Joel Revill was concerned that the timeline Apollo has proposed will be too short.
“I worry that we’re not there yet in terms of our regulatory mousetrap, in terms of our reserves management, to present and try to draw in partners,” he said. “We’re all hopeful to move forward as quickly as possible. It would be, at least for me, more important that we have folks involved in the RFI process that are existing payment networks, like Visa and MasterCard and PayPal, or layer one protocol, who have had an opportunity to review what this opportunity is, come to us and have an RFI discussion on how they would like to present to us.
“I just don’t see all those things happening before mid-December.”
Likewise, Commissioner David Pope believes a strong case with financial models is “essential” to the process.
“I would love to see a graph across multiple years of projected income versus projected expenses and against what the resources will be,” he said. “I think, in my mind, I’m flying a little blind here on that, on these, on the expectations. I don’t know what is supporting those expectations.”
Getting Budget Numbers In Time For February
If RFI responses are less immediate than hoped, Apollo suggested extending the timing.
However, as Commissioner and Wyoming Treasurer Curt Meier and Commissioner and Wyoming Auditor Kristi Racines pointed out, pushing the timeline too far out could affect determining a realistic budget for the forthcoming Budget Commission meeting in February.
The Legislature’s budgetary appropriation will be a crucial variable in the more formal request for proposals process, Racines said.
“The treasurer brings up a good, practical point,” she said. “We can’t award anything until the Legislature has passed the budget. So, I suppose there’s some … I think getting the RFI process dashing is important, but that constrains the RFP process.”
Gov. Mark Gordon added that there’s also a rapidly changing regulatory front to consider.
“Things are moving so quickly, both on the technological front and in the regulatory framework,” he said. Against that backdrop, “having the opportunity to digest what the RFI can do fully is probably going to be a good thing.”
Commissioners ultimately decided to add a week to the RFI process, moving the deadline to Dec. 18 from Dec. 11. They also moved their Wyoming Stable Token Commission meeting from Dec. 14 to Dec. 21.
A Marketing Plan Is Needed
The additional time will allow adding back in what Apollo described as “back of the envelope math,” projecting how much the Wyoming Stable Token could generate for the state. That will be integral to a marketing document spelling out why the project makes sense for Wyoming and potential partners.
“I think most people in this room are better mathematicians than I am,” he said. “But with a 5% interest rate, if we get 1% of a $125 billion market firmly sat on those T-bills for a year, we’ll make enough money to cover all this and more.
“I’m happy to do the exercise, throw a couple of models together, and do some stress testing. That’s kind of the, for lack of a term, ammunition I would expect to bring to the appropriations committee.”
Gordon suggested that more cushion is needed to hold reserves at 102%.
That’s something that Apollo said the Blockchain Committee also has been discussing as potential adjustments to the Wyoming Stable Token legislation.
The reserves percentage could be pared back in future years, Apollo added, once there are fewer unknowns and better data on the actual reserve level to assure appropriate liquidity.
“You see stable tokens de-peg when there’s a high time of stress in the market and uncertainty whether the issuer will be able to meet its obligations for redemption,” Commissioner Flavia Naves said.
De-pegging refers to the situation where a stable token falls below the value it’s supposed to be holding. In this case, each Wyoming stable token is supposed to represent one digital dollar.
It’s essential to look at those high times of stress that caused de-pegging, she suggested, and build enough liquidity into Wyoming’s buffer that it won’t be a problem.
“When you’re meeting redemption requests, the ability to do that is essential for the perception that this token is stable,” she said. “If our ability to redeem is delayed by different factors, including our reserve management policy or investment approach, that could affect the stability of the token.”
Wyoming Banks Remain Skeptical Of Stable Token
Wyoming Banking Association President and CEO Scott Meyer questioned the “back of the envelope” math that Apollo outlined during the public comments.
“I know the executive director brought up a $125 billion market, but that’s a worldwide market,” he said. “How much does the Wyoming Stable token think they will gather under that market? That could be a very, very small market. It could be large. I don’t know.”
The amount of revenue, meanwhile, could be considerably smaller than projected, Meyer suggested, raising questions about how the Wyoming Stable Token will ever be able to reimburse the state for the expense of developing it.
Meyer also expressed skepticism about the stability of the stable token.
“According to Moody’s, this last year, for large fiat stable tokens, it was de-pegged over 600 times,” he said. “That is a serious point, I guess, in my mind. It tells me not that this has happened but that it will happen, and the question is, how often will it happen with Wyoming stable tokens? So, I think that’s a big issue we’re concerned about.”
Meyer also disagreed with a comment Gordon made, in which the governor stressed that the token won’t meet federal definitions of being a security.
“I’m not sure the SEC will agree,” he said. “And I don’t think our representation that this is not security will carry the water. I think the SEC will make that determination. So, based on that, maybe that’s why I see the unusual request under the financing that they have $2 million in there for litigation.
“I’ve never seen a business plan that starts by saying we need some seed money, but understand that the first thing we’re going to have to do is start considering whether we have to litigate on our business plan.”
Meyer’s last point was whether stable tokens could fund terrorism.
“When it comes to stable tokens along with cryptocurrency and mixers, we don’t know anything about what’s going on out there,” he said. “So all I know is that North Korea could come up here and say, ‘We want to redeem these stable tokens,’ and I don’t think we’d have anything to say but OK.”
For these reasons, Meyer suggested that the proposal to create a stable token puts Wyoming and its community banks at risk.
“I don’t know how this all fits in,” he said.
Gordon, Meier Hope Stable Token Can Help Community Banks
Gordon told Meyer that one of his biggest concerns is for community banks, which he said are under tremendous pressure.
“If you look at what the FDIC is doing, if you look at what the Fed is doing to regional banks at this point, that’s not far behind that they will do that to community banks,” he said. “And I think the resources for regional banks are probably easier to meet the challenges that the Fed is putting in them, and it’s certainly de minimus for large, huge institutions.”
Gordon said that keeping the full spectrum of banking options open is a chief concern.
“I think the biggest concerns we have are not from, you know, digital assets,” he said. “But I think the whole system is arrayed against community banks at this point, and I’m hoping Wyoming can stand firm in protecting them.”
That was a point Meyer said he agrees with.
“I think that this kind of industry, along with Central Bank digital currencies and everything that’s out there, is designed to get rid of our banking system, and the two-tier banking system that we have with large and small banks works very well,” he said. “And I brought this up last time — the concern that we have is that the money, whatever is being used, even if it, through legitimate purposes, takes away from those people who need that, need those resources; the shoe store, the pizza parlor, the auto dealer that needs our community banks.”
Meanwhile, Commissioner and Wyoming Treasurer Meier suggested that probably 25% of the Wyoming Stable Token’s liquidity pool will have to be cold hard cash.
“I am thinking of some way that we could maybe do a cash liquidity pool that every bank would share in,” he said. “We’re required to have liquid deposits, and if we can figure out a way to have liquid deposits in community banks, I think that would benefit us, the state, and the community banks.”