As federal regulation remains patchy, firms may want to consider a New York state charter as a potential avenue to expand digital asset offerings in a compliant manner.

By Arthur S. Long, Barrie VanBrackle, Stephen P. Wink, and Deric Behar

On March 22, 2024, WisdomTree, Inc., a global asset management firm, announced that the New York Department of Financial Services (NYDFS) granted a New York limited purpose trust company charter to its subsidiary WisdomTree Digital Trust Company, LLC.  WisdomTree stated that the new trust company would engage in fiduciary custody activities for digital assets, including offering digital wallet services, issue and exchange NYDFS-approved stablecoins, and manage stablecoin reserves. The new trust company would also allow WisdomTree to offer WisdomTree Prime, its mobile personal finance app, under NYDFS supervision in New York.

New York limited purpose trust companies have a long history, but most recently, they have become a popular charter for digital asset companies. This is because the Office of the Comptroller of the Currency (OCC), the regulator of national banks, has not approved the creation of any de novo national trust banks since Michael Hsu became Acting Comptroller of the Currency. Indeed, Acting Comptroller Hsu has publicly expressed his skepticism about digital assets in the banking system.

NYDFS and Digital Assets

Digital asset custody fits well into the traditional trust company paradigm because fiduciary custody is a traditional trust company function. NYDFS, however, has also permitted trust companies to issue stablecoins and hold the reserves for those coins; indeed, it has issued extensive guidance on the redeemability of such stablecoins, the asset reserves backing such stablecoins, and attestations concerning such backing. Unlike national trust banks, New York limited purpose trust companies do not benefit from federal preemption. They are, however, exempt from many (but not all) states’ money transmitter licensing regimes.

WisdomTree stated that the trust company will launch the WisdomTree Gold Token and the WisdomTree Dollar Token within the WisdomTree Prime app and maintain reserves for those coins in accordance with NYDFS guidance.

Ramifications for Market Participants

WisdomTree’s acquisition of the NYDFS trust company charter is part of a strategic plan to leverage its existing business model and expertise to expand its digital asset offerings.

To the extent that federal digital asset regulation remains patchy and inhospitable, firms looking to innovate have a limited number of pathways forward for offering blockchain-based financial services in a regulated and compliant manner. Asset managers exploring the benefits of offering digital assets and stablecoins to clients (both retail and institutional) should therefore view the New York state charter as a potential avenue for growth and expansion.

Latham & Watkins will continue to monitor state digital asset developments.