Understanding Wyoming’s WYST Stablecoin Rules: A Closer Look at Freezing Authority
We recently submitted a comment on the proposed rules for Wyoming’s new stablecoin, WYST. You can read our full comment here, and the proposed rules are available here. This article explains our main concerns with the current draft in plain language.
Background: What is WYST?
WYST is a proposed stablecoin that would be managed by the Wyoming Stable Token Commission. A stablecoin is a type of cryptocurrency designed to maintain a stable value, typically by being backed by traditional assets like US dollars. Unlike regular cryptocurrencies that can fluctuate wildly in price, stablecoins aim to provide the benefits of digital currency while maintaining predictable value.
The Core Issue: Who Can Request a Freeze?
One of the most important powers in managing a stablecoin is the ability to “freeze” tokens — essentially preventing them from being transferred or used. This is similar to how a bank might freeze a bank account. In WYST’s case, the proposed rules create an unusual situation around when and how this can happen.
If the Director otherwise reasonably believes, based on the advice of the
Commission Staff, Licensed Service Providers, legal counsel, government officials, or entities who are contractually supporting WYST on behalf of the Commission, that WYST is being used for illegal purposes under federal or State of Wyoming laws, rules, or regulations.
Note the “or” in the first sentence. If anybody on that list can convince the Commission’s director to freeze some tokens they can be frozen. Oddly enough elsewhere the rules state that:
The Director or Commission Staff shall deny a governmental or regulatory body any request to Freeze WYST absent a Temporary Lawful Legal Directive.
Understanding “Lawful Legal Directives”
The proposed rules define something called a “Lawful Legal Directive,” which is essentially a court order or similar legal instruction from a judge or other authorized legal authority. Generally, the Commission would need one of these directives before freezing someone’s WYST tokens.
However, the rules also allow the Commission to freeze tokens without such a directive in certain circumstances.
The Problem: A Limited List of Advisors
Here’s where things get concerning. According to the proposed rules, the Commission’s Director can freeze tokens without a court order if they “reasonably believe” WYST is being used for illegal purposes, based on advice from:
- Commission Staff
- Licensed Service Providers (companies contracted to help run WYST)
- Legal counsel
- Government officials
- Entities contractually supporting WYST on behalf of the Commission
Notice that this list consists entirely of people and organizations who work for or are hired by the Commission itself.
The Inconsistency
Interestingly, another section of the rules states that the Commission must deny requests to freeze tokens from governmental or regulatory bodies unless they provide a “Temporary Lawful Legal Directive” (a type of emergency court order).
So external government agencies need legal paperwork, but the Commission’s own contractors and staff don’t. This creates an odd double standard.
Why This Matters: Real-World Scenarios
Let’s consider a practical example. Imagine an independent cybersecurity firm discovers that WYST tokens are being used to violate U.S. sanctions laws (known as OFAC violations — OFAC is the Office of Foreign Assets Control, which enforces economic sanctions). This firm isn’t under contract with the Commission, so they’re not on the approved list.
Under the current rules, what can the Commission do with this information?
Option 1: Ignore it This is obviously problematic — the Commission would be turning a blind eye to potential illegal activity.
Option 2: Forward it to their contracted service providers for review This creates a conflict of interest. The contracted providers apparently missed this problem in the first place. Now they’re being asked to evaluate whether their own oversight was adequate. Will they acknowledge they made a mistake? Or might they downplay the issue to protect their reputation?
Option 3: Act on the information anyway This would mean operating outside the rules the Commission is supposed to follow, which creates legal problems.
None of these options are satisfactory.
The Conflict of Interest Problem
The current structure essentially gives the Commission’s hired service providers veto power over freeze decisions. If a problem is discovered by someone outside this contracted group, there’s no clear path for the Commission to act on that information in a timely manner.
This becomes especially problematic if the information reveals that a service provider has been failing in their duties. Would they really be objective about information that exposes their own oversight failures?
A Better Approach: Due Process Without Artificial Limits
We believe there’s a better way to handle this.
What is Due Process?
Due process is a fundamental legal principle (enshrined in the U.S. Constitution and dating back to the Magna Carta) that requires government actions to be fair, follow established procedures, and not be arbitrary or capricious. The Wyoming Stable Token Commission, as a government entity, is already bound by these requirements.
The Solution
The Commission should be able to receive and evaluate information from credible external sources while still maintaining appropriate safeguards. Due process doesn’t mean the Commission must ignore information from third parties — it means they need to have a fair, transparent process for evaluating that information before taking action.
Rather than limiting the Commission’s information sources to a specific list of insiders and contractors, the rules could establish:
- Clear standards for what constitutes credible evidence
- A transparent review process for freeze requests
- Timelines for decision-making
- Accountability measures to prevent abuse
This would allow the Commission to act quickly when necessary while still protecting against arbitrary freezes.
Why Court Orders Aren’t Always Practical
Some might ask: why not simply require a court order in all cases?
While this would create a clear, consistent rule, it has practical drawbacks. In emergency situations — such as an active hack or ongoing illegal activity — the time required to obtain a court order might allow significant harm to occur. Traditional cash can’t be frozen in all cases either, and we accept that limitation. But if we’re going to grant the Commission discretionary freezing authority, that discretion should extend to evaluating information sources, not just deciding whether to freeze.
What Happens Next?
Under the current proposed rules, it’s unclear why an external party would bother reporting problems to the Commission. The convoluted process and built-in conflicts of interest create significant barriers to effective oversight.
The Wyoming Stable Token Commission is a governmental body subject to the state’s laws and regulations. It has the legal framework to make fair, well-reasoned decisions based on the best available information. The proposed rules should reflect this capability rather than creating unnecessary limitations.
We hope the Commission will reconsider this aspect of the rules. Wyoming can build a stablecoin governance structure that is both responsive to legitimate concerns and protective of individual rights — but only if the rules allow the Commission to access and act on reliable information, regardless of its source.
Note: We are aware of specific concerns related to entities connected to the Commission, but are not detailing those issues in this commentary.
Wyoming’s WYST Stablecoin Commentary was originally published in ChainArgos on Medium, where people are continuing the conversation by highlighting and responding to this story.
