Why Is Crypto Bank Custodia Seeking a Full Appellate Rehearing in Wyoming?

Crypto bank Custodia has filed a petition requesting a full appellate rehearing by all judges of the Wyoming Supreme Court after an adverse ruling affecting its banking license renewal. This legal challenge spotlights the evolving tensions between state banking regulators and crypto banks operating under Wyoming’s special purpose depository institution (SPDI) framework, raising important questions about the future regulatory legitimacy of crypto banking at the state level.

What happened

Custodia, a Wyoming-based crypto bank, sought renewal of its SPDI charter—a specialized banking license designed to accommodate cryptocurrency-related operations under state banking laws. The Wyoming Division of Banking declined to renew the license, citing concerns about Custodia’s compliance with state banking laws and regulatory standards. This refusal triggered a legal dispute that culminated in an appellate decision unfavorable to Custodia.

Following the appellate panel’s ruling, Custodia filed a petition for a full appellate rehearing before all judges of the Wyoming Supreme Court. In its petition, Custodia contends that the appellate panel’s decision conflicts with the legislative intent behind Wyoming’s SPDI statute, which aims to balance fostering innovation in crypto banking with appropriate regulatory oversight. Custodia argues that the ruling undermines the statutory framework established by the state legislature.

Independent legal commentary from the University of Wyoming College of Law highlights that this case exemplifies the inherent friction between traditional banking regulatory approaches and the novel operational models of crypto banks under the SPDI law. Additionally, a financial regulatory expert at the Milken Institute interprets the dispute as reflective of broader national challenges in integrating crypto banking within existing regulatory frameworks, emphasizing the risks to institutional legitimacy if regulatory clarity remains elusive.

Why this matters

Wyoming’s SPDI framework is one of the few state-level regulatory models explicitly designed to incorporate cryptocurrency banking activities into a recognized banking charter. The outcome of Custodia’s challenge could set a precedent that either affirms or calls into question the viability of this approach. Given that the state legislature intended the SPDI statute to promote innovation while maintaining regulatory safeguards, the court’s handling of this dispute will influence how effectively these dual objectives can coexist.

More broadly, the case exposes the complex balancing act regulators face when applying traditional banking laws to crypto-native institutions. The Wyoming Division of Banking’s decision to deny renewal on compliance grounds signals a cautious regulatory stance, which may either serve as a necessary check on operational risks or create barriers to innovation, depending on interpretation. The legal contest also underscores ongoing uncertainty about how state regulators can or should adapt existing frameworks to accommodate new financial technologies.

At a national level, the dispute resonates with challenges faced by federal regulators and other states that are considering or implementing crypto banking charters. The Milken Institute’s analysis suggests that unresolved regulatory tensions could undermine institutional legitimacy for crypto banks, potentially affecting market confidence and the broader integration of crypto banking into the mainstream financial system.

What remains unclear

Several key details remain undisclosed or uncertain. The specific regulatory deficiencies cited by the Wyoming Division of Banking in denying Custodia’s license renewal have not been fully detailed in public disclosures, limiting insight into the precise compliance issues at stake. Without access to internal regulatory reviews or Custodia’s full legal filings, the factual basis for the denial and the arguments for rehearing cannot be fully assessed.

It is also unclear how the Wyoming Supreme Court will respond to Custodia’s petition for a full appellate rehearing—whether it will grant the petition, and if so, whether it will uphold, modify, or overturn the prior appellate decision. The implications of this case for other states contemplating SPDI-like frameworks or crypto bank charters remain uncertain, as there is little precedent to guide regulatory and judicial approaches.

Furthermore, the position of federal banking regulators such as the Office of the Comptroller of the Currency (OCC) or the Federal Deposit Insurance Corporation (FDIC) regarding Wyoming’s SPDI model and this dispute is not addressed in available sources, leaving a gap in understanding the interplay between state and federal regulatory regimes in crypto banking.

Finally, the research material does not provide comparative analysis of Custodia’s business model or risk management practices relative to traditional banks or other crypto banks, which could contextualize the regulatory concerns cited by Wyoming’s Division of Banking.

What to watch next

The Wyoming Supreme Court’s decision on whether to grant Custodia’s petition for a full appellate rehearing and any subsequent rulings that clarify the legal status of the SPDI charter.
Any further disclosures or regulatory statements from the Wyoming Division of Banking detailing the compliance issues that led to the denial of Custodia’s license renewal.
Legal or regulatory developments in other states considering SPDI-like frameworks or crypto bank charters, which may be influenced by the outcome of this case.
Federal regulatory commentary or policy shifts from agencies such as the OCC or FDIC regarding the integration of crypto banks into the traditional banking system and their stance on state-level charter models.
Academic or industry analyses that may emerge providing further insight into the operational and regulatory challenges faced by crypto banks under state charters.

The Custodia case encapsulates the unresolved tensions at the intersection of innovation and regulation in crypto banking. While Wyoming’s SPDI statute represents a pioneering effort to create a tailored regulatory environment, the ongoing legal dispute highlights the complexities and uncertainties inherent in adapting traditional banking frameworks to new financial technologies. The outcome will be closely watched for its potential to influence the future institutional legitimacy and regulatory architecture of crypto banks in the U.S.

Source: https://www.coindesk.com/policy/2025/12/16/crypto-bank-custodia-files-petition-for-a-rehearing-by-all-appellate-judges. This article is based on verified research material available at the time of writing. Where information is limited or unavailable, this is stated explicitly.