Bankless - 81 - The Digital Commodity Explosion | Brian Quintenz

Episode Date: September 6, 2021

Brian Quintenz was a commissioner on the Commodity Futures Trading Commission from 2017 until April of this year. The CFTC serves to regulate the derivative markets, and Brian particularly worked to embrace innovative technologies and emphasize the power of free markets, even in a regulatory environment. He has been an advocate for the exploration and growth of the crypto space and is provides an insider’s perspective to deal with the question of crypto regulation. His sober and pragmatic takes are deeply insightful, and there is a clear alignment of values between Brian and the industry. This episode dives into the disruptive nature of cryptocurrencies, and how we can make sense of this Cambrian explosion of new assets. GET THIS EPISODE'S DEBRIEF: https://shows.banklesshq.com/p/exclusive-debrief-the-digital-commodity  ------ 🚀 SUBSCRIBE TO NEWSLETTER: https://newsletter.banklesshq.com/  🎙️ SUBSCRIBE TO PODCAST: http://podcast.banklesshq.com/  ------ BANKLESS SPONSOR TOOLS: 💰 GEMINI | FIAT & CRYPTO EXCHANGE https://bankless.cc/go-gemini  🔀 BALANCER | EXCHANGE & POOL ASSETS https://bankless.cc/balancer  👻 AAVE | LEND & BORROW ASSETS https://bankless.cc/aave  🦄 UNISWAP | DECENTRALIZED FUNDING http://bankless.cc/uniswap  ------ 📣 SoRare | Collect and Play! https://bankless.cc/SoRare  ------ Topics Covered: 0:00 Intro 7:00 Brian Quintenz 9:29 Does the US Hate Crypto? 14:10 Brian’s Take on Crypto 20:36 The CFTC 26:36 Congress is Great at 2 Things 31:14 Digital Farmers need Futures 38:05 Understand It Before You Attack 47:03 SEC vs CFTC 54:04 Crypto Commodities 1:03:35 Tokens Transcend Labels 1:10:00 The New Paradigm 1:17:54 An Explosion of Assets 1:25:14 Rights and Innovation 1:32:20 Good Regualation 1:39:00 Closing & Disclaimers ------ Resources: Brian on Twitter https://twitter.com/BrianQuintenz?s=20  Episode with Hester Peirce https://shows.banklesshq.com/p/-the-sec-and-defi-hester-peirce  ----- Not financial or tax advice. This channel is strictly educational and is not investment advice or a solicitation to buy or sell any assets or to make any financial decisions. This video is not tax advice. Talk to your accountant. Do your own research. Disclosure. From time-to-time I may add links in this newsletter to products I use. I may receive commission if you make a purchase through one of these links. Additionally, the Bankless writers hold crypto assets. See our investment disclosures here: https://newsletter.banklesshq.com/p/bankless-disclosures 

Welcome to bankless where we explore the frontier of internet money and internet finance. This is how to get started, how to get better, and how to front run the opportunity. I'm Ryan Sean Adams. I'm here with David Hoffman, and we're here to help you become more bankless. David, fantastic episode. Brian Quintez is a former commissioner at the CFTC, former, and he just resigned, actually, the day before we talked to him. This is a very candid conversation and what's going on in regular. mind, particularly in the CFTC with respect to crypto. Just fantastic insights here. This is definitely part of the bankless series where we try and explore the disposition or the nature of these agencies that regulate the financial world and are all kind of jostling for

position with how to deal with the crypto regulation question. It was actually really fortuitous that Brian had just resigned from the CFTC. So he was probably a little bit more capable of speaking freely. And so we were able to pick his brain about like what's it like to take the perception and perspective of the CFTC as it relates to some of the big questions that we have about how crypto is ultimately going to be regulated by the nation state or even if it can at all. We also went through kind of just a background of the CFTC and how it came to be and what its role is and then of course extended that and extrapolated that to crypto. And then also just talked about the inherent problems, the nature of crypto and how it might, you know,

cause a big obstacle for not only the CFTC, but for regulators at large. If you guys remember our episode with Josh Rosenthal, we talked about how everyone now has a printing press for assets. How is an agency going to deal with that? So questions like this were rampant throughout the episode, and I overall really enjoyed Brian's very sober and pragmatic responses to all the questions that we had. Yeah, not only pragmatic, but also like values aligned. And this is just another reminder to people in crypto who think all regulators are evil and like bad and coming out to get us. Like there are some fantastic people in the halls of our government and in the halls of regulators who want many of the same things that we want and value many of the same things. I think Brian is very much to me.

We had Hester Purst, who's a commissioner of the SEC on bankless podcast a few months ago. And I think we were also surprised at how values aligned she was with the crypto industry. And so is Brian. And I was just amazed to. hear that. Like, he had just fantastic insights that I think anybody in this space for the reasons you listeners are in it, we are in this, to go bankless, to disintermediate financial systems, become more self-sovereign, more free. Brian sees all of that. And so he had some very candid insights into how these industries work. Like, the difference between the SEC and the CFTC, is there a little beef there? I don't know. It was interesting to get his insights into the world of

regulators, how they're reacting to crypto. And I think, I think big takeaway for me, David, was Brian thinks that there needs to be a balance restored, that we are too much on the side of saying no to everything. No, you can't do this. No, did you ask for permission? I'm sorry, you can't do this. We need to swing the pendulum back the other way, and specifically regulators talking about America, but other countries as well, towards being a bit more like pro-innovation, like asking

questions like, well, what if we did this? Could we sandbox this? Could we let this experiment run? how can we focus on maybe prosecuting the fraud and the scammers directly rather than creating blanket rules and unclear regulations that harm the entire industry as a whole? So super aligned, I think, with our hopes and aspirations. You know, my only regret, David, is that Brian's still not a CFTC commissioner because we need people like him in our government bodies fighting the fight that we're fighting

only from the inside. Yes, that is very true. it is a bummer that he is not having the regulatory power that he does have yet. I'm really excited to see what his future lies because it sounds like he is trying to work his way into the crypto industry. So I don't hate that either. Also, you're totally right. His take about how the permissionless and open nature of crypto as a response, a backlash

to the permissioned nature of the alternative financial system, I thought was a really good take. And I think it was probably my favorite part in this conversation. So without further ado, I think we should just go ahead and get right into that conversation. with Brian Quintez. But first, before we get there, a moment to talk about some of these fantastic sponsors that make the show possible. Bankless is proud to be supported by Uniswap.

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slash go bankless. And if you trade more than $100 within the first 30 days after sign up, you'll be gifted a free $15 Bitcoin bonus. Check them out at gemini.com slash go bankless. Bankless Nation, we are super excited to introduce you to our next guest. This is Brian Quintes. He is a very recently former commissioner at the CFTC, the Commodity in Future Exchange. He was nominated by both presidents, Obama and Trump, unanimously confirmed by the Senate for that position, before being a commissioner, he used to run his own investment firm. He was an analyst during the banking sector. I think that was his trial by fire because there was a little banking crisis in between there.

He ran a commodity hedge fund as well. So he's got an experience in Capitol Hill as well as in capital markets. Brian, it is fantastic to have you on bankless. How are you doing, sir? Thanks, Ryan. I'm doing great. It's great to be with you and excited to be doing this post-government. Yeah, that's cool.

So you just resigned recently then. Is that the case? Yeah, that's the case. So as a commissioner, I and my colleagues are appointed to calendar date set terms. And it's a five-year term. And technically mine actually expired last year. But I could stay on through the end of this year unless my replacement had been nominated and confirmed. That didn't happen. So I was basically given the choice of when I would want to choose to step down. And this felt like the right time. And I'm excited having been at the commission for four years, four full years. I'm excited to take the next step.

Well, this is super cool because I think you can give us some takes that are maybe not representative of the CFTC now. These are your own kind of personal takes that will be exploring this industry. But yeah, I don't have to give my disclaimer anymore. You know, it took me three years. Yeah, that's great. I was waiting for it. So, yeah, I'm happy to talk about my own thinking, you know, free and clear from how it

affect anyone's view of the agency. We'll start here, like free and clear. I think what a lot of crypto people are wondering is, does the US government hate us? Does the US government hate crypto? I mean, you know, I think there's a short answer and a longer answer to that. The short answer is that I think it depends on the time period and the people in positions of authority. I think the longer answer is that we

We've obviously seen a transition in political dynamics, in the power structures of the White House and Capitol Hill and in the regulatory community. And those power dynamics have philosophical impacts in terms of a regulatory outcome. And it seems to me like we're in an environment that's much more negative, I think. I'm disappointed to say that. And that's not necessarily to put value judgments or, you know, negative connotations on anybody's, any particular person's motives. So I have plenty of friends that are colleagues that are, you know, in majority positions now and have been in a minority positions.

But, I mean, you look at, as I know you've talked about extensively, you look at, you know, what happened with the infrastructure bill. You look at what's coming out of, you know, the SEC and, and some of the agencies. You look at the language that's being used on Capitol Hill by some very outspoken members of Congress. And it's hard not to think that there's a little bit of a target on Crypto's back right now. We've been feeling that, Brian, to be honest.

I think the infrastructure bill is a time in the crypto industry's history where we really felt that significantly. We've got lots of stuff to talk about. But let's park on this for a minute. I'm curious, why do you think this has skewed negative recently in the current Ziegist across regulators across all of government? Why is this regime maybe we're currently in a bit negative on crypto? So I think it's a few reasons. Number one, it is, you know, a lot of it is currently outside

of the control of regulators. And that creates interesting dynamics. The first, that, that dynamic that it creates is that it competes against, you know, the regulated environment. And so just, just from a fairness perspective, I think it's legitimate to kind of ask yourself, if you're in a position that's appointed, that is, you know, swearing to uphold the law to look at, you know, what you regulate and what you can't or don't regulate and ask yourself, you know, am I creating, you know, fair competition. And I know one of my colleagues has kind of focused on that, you know, at my former colleagues, has focused on that at the agency. But I think there's more to it than that. And I think, you know, more to it is when you're in a position like a regulator, you're used to

having control, you're used to expressing some of your political philosophy or your regulatory philosophy through that control and things that are outside of your control that are related to your space. I think, you know, challenge that and diminish your authority and diminish your power and diminish, you know, what, you know, your reach. And I think some of this could be motivated by, you know, the need to do more, the want to create a new regulatory. framework and structure that is some kind of legacy that is, you know, could be self-serving for those in positions of authority. So, I mean, I think there are a lot of dynamics that are going on right now. And, you know, there's kind of the traditional fair competition, you know,

discussion. And you can kind of err on the side of innovation and letting the market kind of evolve before you take more of a stricter view. Or you can err on the side of, I need to enforce the law as it is currently written, you know, against anyone who should be caught up by it regardless of whether or not they fit into this box. Innovation versus like very strict rule following being sort of a stickler for this sort of thing. Before we get any farther, Brian, I'm actually interested in your personal take here. So like, what's your personal take on crypto?

Is it a good thing? Is it something that the U.S. government should kind of push away and relegate to the fringes of society? What's your take? Well, so, you know, maybe this represents ignorant thinking, you know, or old-fashioned thinking. And, you know, the CFTC is a small agency and we have authority over a huge market. $400 trillion of derivatives, you know, are traded that are within our jurisdiction. That's the biggest market by far. Biggest market by far.

Of course, that's a notional value, you know, measurement. So it doesn't necessarily measure, you know, true risk in terms of dollars, you know, exposed to risk. But it's, but it is a huge market. It affects all areas of the economy for risk management purposes, you know, to ensure risk transfer functions and hedging activity of, of every sector. And we're 750 people or the agency is 700. I'm not there anymore, right? So the agency was, it is 750 people. And so, you know, it's there, there's, there's, a lot to handle. And so I think, you know, the agency during my time they worked hard at trying to keep on top of what's going on. And, you know, I've worked hard at trying to keep on top

what's going on, but, you know, it takes about two clicks, you know, through a threat on Twitter to realize that there's a lot of stuff going on that I still need to learn more about. So I say that, you know, there's a little bit of a caveat to say, you know, maybe this is old style thinking and we can, you know, talk more about it in real time, you know, if there's more to add. But, you know, I think about, you know, crypto is kind of how it evolved. I was, I felt I was very early in my role at the agency to defend the intrinsic inherent value of Bitcoin. You know, Bitcoin was kind of, Bitcoin and Ether and, you know, the Ethereum blockchain and the Bitcoin blockchain were kind of the most prominent things in the space, you know, as I was coming into the

agency and as I was, you know, nominated for this role in preparing to come into the role. And, you know, at that point, as there still are, there were a lot of value judgments being made, you know, on what this is, if it has value, whether or not it's a fraud. And, you know, I gave speeches in the United States. I gave a speech, you know, directed at the powers that be in Europe to say, look, you know, I don't know what the value of this is, but there is unquestionable value in it. And to dismiss it as something that, you know, is a fraud or is worthless or is a Ponzi scheme or a bubble misses how I think 95% of the world is going to look at this. We can't look at it at that point through the lens of a reserve currency status of the United States or of the euro or of some other major global.

currency. We need to look at it through the demand and accessibility with something that has a finite supply, in terms of Bitcoin specifically at that point, and understand that this is something that is going to grow in interest and likely value. And so, you know, I felt like I've been consistent about the fact that there is inherent value in what we've seen develop, you know, from a crypto token crypto asset basis. And I've never felt like we needed to necessarily have, you know, new regulations for that. That, you know, those tokens, you know, were either securities or non-securities. And while we would all possibly like more clarity on what those things on the status of that from the SEC,

we didn't necessarily need new law, you know, to address some of that. think it was more process as opposed to policy, if that makes some sense. But then as, you know, we start getting into defy, I think the conversation shifts a little bit in terms of, you know, what the CFTC's purview is, because there have been, you know, some protocols, you know, through, you know, smart contracts, native tokens that have allowed for derivative-like contracts to be listed and traded. And that directly implicates the CFTC's jurisdiction. And I think, you know, that's where, you know, we can really talk about, you know, where I fall on the scale of, you know, strictly enforcing the law in real time, regardless of innovation, you know, or the progress of a certain, you know, of a certain space, of a certain sector. And regardless of some of the features that that space has, that doesn't exist in the traditional regulated financial system, that solve for.

some of the problems which regulation was designed to address, you know, or, you know, taking what I view as more of a standback, you know, a wait and see approach to see how this space develops, to see how it can address some of these problems through transparency, through open access, how it can promote freedom, how it can promote wealth creation, how it can promote access to, you know, financial products. and then revisit the law and or an agency's regulations if there is a need, you know, to address some flaw. And, you know, I don't know. I mean, I'm sure there are a few, but I don't know of a lot of, or a huge swath of investors in this space or owners in this space that are raising their hands and saying, hey, U.S. government, please come and protect me. I need your help. I can't make my own decisions.

Yes, I agree. He's make value judgments for me. You know, I don't see that anywhere. And I think that that should be, you know, a direct response to anybody on Capitol Hill in agencies that are saying, you know, we care about investor protection. And this area is right with fraud. And you're at risk unless, you know, we're there to help. Brian, we have so much to talk about. And I want to get to this conversation of defy and so many things that you mentioned, like feel like American values.

You know, D5 being a representation of American values. So we definitely want to get to that discussion on a little bit. But I'm wondering if you could provide for our listeners a quick primer on the CFTC as a regulatory agency. So you did that a little bit, 750 employees regulating this massive $400 trillion derivatives market, and pretty incredible. And I noticed the mission of the CFTC, it says, is to promote the integrity, resilience, and vibrancy of the U.S. derivatives market. Can you tell us maybe in some plain speak terms, like, what is the purpose and mission of the CFTC? Why are you guys there? How are you guys helping? Yeah, thanks. So I'll try to take a little bit of a walk back through time, not to, not to bore anybody, but I think it's

interesting. And I think, you know, it actually speaks to some of the regulatory and the political environment of the agency and how we interact with Capitol Hill and what you may see going forward and why. But, you know, the U.S. derivatives markets really began in Chicago in the 1850s. And, you know, that's where trading occurred, you know, for commodities, you know, for a future delivery at a specific point to allow farmers, transporters, producers, processors, to start to manage their risk. To manage their risk. So prices going up, prices going down, you know, supply disruptions, weather events,

all those kinds of things. And that was a federally unregulated, privately self-regulated marketplace through the 1930s, when ultimately, because of some price movements, there was a political call to create an agency at that point within the Department of agriculture because of the birth of the futures markets from the agricultural sector in products like corn, wheat, soybeans, you know, to create a regulatory agency within the Department of Agriculture to oversee, you know, the futures exchanges. And, you know, and that was in the 30s. And then fast forward in time. And in the 1970s, Congress passed the Commodity Exchange Act, which officially

created the CFTC and gave this agency independent state. which meant it wasn't part of the administration, and it achieved a level of independence by virtue of having a bipartisan multi-member board. So we have five appointed, presidentially nominated and appointed roles, Senate confirmed, presidentially nominated and appointed roles. And no one political party can have more than three members. So usually you have two Republicans, two Democrats, and the chair appointed by the president. So the president's party has, you know, governing control over the agency. So that's how the agency was originally created. You know, through the 80s and 90s, you had the invention, the, you know, the innovative development of financial futures.

You know, futures contracts on treasuries, futures contracts on stock indexes, which significantly expanded the agency's jurisdiction. from both a number of contracts traded and the markets and what was underlying those markets. Then because there were futures on stocks, there was a agreement between the SEC and the CFTC about narrow-based security futures contracts and single-name security futures, narrow-based security index futures, and broad-based security index futures. That's just a little bit of an aside, but it can be relevant going forward. Then as we got through the financial crisis, and in my view, a very tiny corner of the swaps market played a role in that through credit default swaps on mortgage-backed securities. You know, if we're talking about hundreds of trillions of dollars of market, this is, I don't know what the numbers are at the top of my head.

I'd say probably, you know, two trillion, three trillion, something like that. A big number, big number, but tiny fraction. of the swaps market. But Congress responded to that financial crisis with a whole new regulatory regime for swaps. And that was implemented through the Dodd-Frank Act. So then that gave the CFTC jurisdiction over interest rate swaps, credit default swaps, equity swaps, commodity swaps, foreign exchange swaps. You know, that rule writing occurred at the agency mostly in the first kind of four years of the 2010s, although we have recently wrapped up a number of very important rules that were left unfinished on things like swap dealer capital, our cross-border view of swap dealing

activity, a position limits regime that expanded position limits to new commodity futures contracts. And that brings us front and center to today when I was being nominated for this role and I was preparing to talk about all things Dodd-Frank and the implementation of new swaps market rules. And within two months of joining the agency and deciding to sponsor our technology advisory committee, Bitcoin futures get listed by two exchanges and put the agency front and center in the crypto debate. And we haven't looked back since. And I certainly haven't looked back. And I'm thrilled to, I was thrilled to be a part of the agency when that was happening.

and I can't wait to see where it goes and how I can be involved. It seems like there's one trend, Brian, which is like new financial product is created, something bad happens, Congress reacts, CFTC gets more jurisdiction to come fix it. But it seems to oftentimes start with some bad thing happening in a new financial market, some sort of fraud that's out there. Is this the recipe that's repeating? So when I first joined Capitol Hill as a policy staffer, you know, young right out of college, opening the mail, giving tours to the Capitol building, you know, great stuff, a lot of fun, you know, but very introductory. I remember someone coming into the office who, you know, was well known in the office.

And they just said, you know, Brian, I just want you to remember two things, you know, I want you to remember something. Congress is great at doing two things. nothing and overreacted. And I didn't say that. I'm quoting someone that did say it. So, you know, no one can say that it's my view. But I'm sure he was quoting someone else. Yeah, probably.

But I would expand upon that or actually rationalize it to say, you know, that at some level, that's what it's supposed to do. You know, I also went to a class on procedure and process. at the Library of Congress, my first, you know, a couple weeks at, you know, on Capitol Hill. And, you know, one of the experts in congressional procedure and the rules that are structured to consider bills said, you know, a lot of people get frustrated because they think Congress was created to enact laws. When if you really read the Constitution and think about what the founding fathers had in mind, Congress was created to try to make it as hard as possible to have bad ideas become law. and, you know, we can debate about how successful they were, you know, over the course of time and what's developed. But it is very hard for Congress because of checks and balances, because of, you know, the consensus that's needed, because of how much is on their plate and how much time it takes to consider just the normal business that they have to do of funding the government every year. it is very difficult to pass new legislation.

And usually there is only, you know, momentum necessary to focus the time and the resources and the rule writing and get support for, you know, a product if it's responding to a crisis. And, you know, in that kind of scenario, in my view, you're never going to end up with a rationalized, right-sized, you know, a scalpel-like or flexible kind of approach or one that distinguishes well between things that didn't have anything to do with the crisis or why the crisis happened to begin with. So you're right. And, you know, that if a crisis happens, Congress usually responds. And depending on who's in power and what their political views are, you know, you're, you could get a you could get a result that's very punitive. Luckily, I think for the most part, the rule writing that the CFTC did, certainly while I was

there in the last four years, to rethink and recalibrate a number of rules that were written in response to the crisis have been done in a way that really respect risk, respect the market, and respect the public. But who knows if a crisis hits the crypto space, what Congress is. is going to do, who's going to get a new authority, who's going to be at that agency when that authority is given, and what those rules end up looking like. Brian, you just went through and gave us a historical context for the establishment and growth of the CFTC.

And I just want to add a little bit more color upon that because in the crypto world, we often talk about how we are speed running the evolution of money and finance. And the commodities and the financialization of commodities are just a part of that history as everything else. And you talked about how the futures contracts came out to help. people help farmers manage risk and help ensure that they can, you know, perpetuate their farm into the future without having the whims of the market dictate whether their farm can survive. And so for the people who are, you know, crypto-native and want to gain a map for how this

relates to our industry, like Bitcoin miners are a new-age farm, right? This is our new-age yield with like new-age crops. We call these A-6. They're producing digital commodities rather than physical commodities. And also, we also have this term in defy called yield farming. and like that term is appropriate. Like these are people with like, you know, digital crops and digital yields that will need financial tooling

that we have already created in the physical world and now crypto is going to overlay these things, these instruments that we've had and had before that the CFTC has a jurisdiction over. We're going to overlay them onto all these things that we're creating in Defi. And so that's really where this conversation between crypto and CFTC really begins.

We've seen this before, but now we are putting it on. to a digital paradigm, and we all have to come to terms with, like, what that means and what the similarities are and what the differences are. I just wanted to add that color and see if you have any thoughts on that. Yeah, you know, it should have been really self-evident to me to think about, you know, mining as the new farming. And, you know, given that, you know, some of those terms are being used, you know, in the space. And I think it's a great way to think about it. And I think it directly applies to, you know, our legacy space and what we're going to see in the

future, you know, the most successful businesses are the ones that successfully risk manage. And they do that through a combination of, you know, of tactics, but derivative use is a part of that. And I think, you know, one of the most irresponsible things I've ever heard someone say about the derivatives markets is that they're weapons of mass destruction. You know, they are the reason why we have had economic growth that we have had for the last 30 to 40 years, period. You know, when saying something like that is trying to sell you something. And, and, you know, it's really unfortunate that that kind of view, you know, was aired and painted with, you know, whole cloth, the entire space.

But derivatives are crucial to risk management. I think the agency has done a very good job of regulating the risk involved. Although, you know, the reason that we have the regulatory system that we do, you know, for futures and swaps contracts is because, you know, the one, one philosophical take on the agency's goal is to protect the integrity of a transaction, you know, that, you know, because of the use of margin, you know, which, which is, which is, you know, viewed as basically kind of like a performance bond, you know, it's not, it's not a down payment. It's kind of viewed as a performance. It's kind of viewed as a performance bond that you will, you know, make good on the need to pay up if the contract moves

against you. That does, that creates leverage, but it's necessary because no one's going to put up all of the money for, you know, a product because otherwise it's a pre-sale, you know, or a pre-purchase. So that's not really a risk. It is a risk management tool, but it's not the same kind of risk management tool. So, you know, derivatives hedging naturally involves leverage. Leverage creates risks. It creates risks of default by a customer, which can create the risk, you know, to a clearing entity that is designed to stand in the middle of each trade and break that trade apart and face each side so that something diversifies the risk of customer defaults by aggregating it together. You know, clearing houses don't reduce risk. They try to

diversify it through aggregation. And you have clearing members, which are the financial firms, that are the brokers of derivatives contracts. We call them future commission merchants, FCMs. But you can see a scenario where a customer through a very adverse market event can't make good, goes bankrupt, that the size of that position is big enough that it affects the FCM. The FCM can't make good on its obligations to the clearinghouse.

Maybe a few FCMs are caught in this. And all of a sudden, there's a massive problem at the clearinghouse, and everything everyone has been using for risk management purposes is gone. You know, I mean, that's a debacle. Now, I don't think that there's a lot of stress testing that we do of clearing houses. They are incredibly resilient, incredibly resilient. I mean, we're talking multiples of a Lehman-style event, multiples of a COVID-style market move, you know, that could even start to approach some of the reserve resources they have. I mean, very resilient. But in my view, you know, you're not going to threaten a clearinghouse unless there is broad financial economic chaos.

And, you know, that may be one of the lesser problems that you have in that kind of scenario. But, you know, I say all of that to describe the rationale for why we regulate the way we have, why the CFTC has regulated the way it does. And it's to protect the integrity of the transaction because of leverage and because of how that leverage can flow through the same. system. Now, when you have a new financial paradigm that's been, you know, rapidly and wonderfully developed in, you know, the last two, three, four, five years of defy, you know, you have kind of a whole different approach to that. You have a different approach to risk management. You have a different view of counterparty exposure. You have a different view of what you need to, you know, what deserves protecting from a, from a risk management perspective and whether or not, you know,

protocols that have more open source code that can be viewed and are actually probably much more transparent than the changing margining process of the legacy clearing houses. That's just a completely different dynamic. And right now, the law in our rule set says if you trade a futures contract, it has to be done on a registered exchange and cleared through a clearinghouse. well, you know, maybe before we start, you know, punitively going after, you know, defy developers and market participants that aren't complaining about anything, we should think whether or not that's the right approach, you know, for this kind of market.

And again, I think there are some very thoughtful people, even, you know, that may take a different view of me from, you know, the innovation to the fair competition landscape. very thoughtful people that I think have the best intentions. But I think we need to, my view is, and my view was in that role before we need to be thoughtful about what's different. Yeah, totally agree. And no question about DFI bringing an entirely new paradigm, a more disintermediated paradigm to the entire legislative set of laws and set of regulations that are on the books. You know, and Ryan, let me pick up on that if I could for a second. Go. Yeah, go for it.

Because, you know, I was listening to your podcast, Ryan Salkus, and was talking about the, you know, the political dynamic that we've seen. Yeah, he's fired up, isn't he? He's fired up. And I spoke with him recently. And it was a great conversation. And, you know, I think he provided, you know, a lot of clarity, you know, in some of his comments. Some of them I disagreed with, but I think, you know, as I think about. the progress that the crypto space has seen in political advocacy, you know, the voice that it has, the, you know, unification around an idea of, you know, understand this before you attack it. And, you know, hey, we're good. We might not need your protection. to me, you know, those kinds of, you know, the unity around those ideas, you know,

it might be coming from the fact that the space is disintermediated, that there isn't, there aren't very large intermediaries that can create a conflict between, you know, with their customers, you know, where customers can feel taken advantage of or can feel powerless. I mean, you compare it to the traditional banking system. I mean, you know, the customers of some of the banks are the, you know, give them the worst reviews, but yet they don't change banks. You know, I mean, customer satisfaction is very, very low in traditional banking space. And that, to me, creates a fractured political dynamic where you can try to promote, you know, economies of scale and, you know, and a capitalist system and the benefits there. while also, you know, at the risk of, you know, adversarial customer base that really does want, you know, someone to take it out of, you know, the entities that they feel are, you know, abusing them.

And, you know, there are, there are receptive audiences to both of those perspectives on Capitol Hill. And that creates, you know, a dynamic of, well, you know, which one are we going to listen to and which, which, which philosophy. is in power at what point to create a, you know, more, you know, a laissez-faire regime versus a more, you know, customer protection and control regime. But in this space, you don't necessarily have that kind of conflict. And you have a, again, more of a sense of self-responsibility, self-direction, self-education, individual freedom, individual liberty, taking ownership for your decision making. And it's basically saying, hey, we're good. You know, we don't need you. And I think that's an incredibly powerful thing to try to preserve going forward.

125% agree with you on this, Brian. And I've never heard somebody, you know, coming out of the regulatory world, frame it in that way. But that's exactly what crypto is saying. You know how you were saying earlier? Congress does two things, either nothing or overreacts. I quoted someone. We were talking about this. You quoted someone. Excuse me. You quoted someone who quoted someone. And we were talking earlier about this pattern of your kind of regulation, how there's new financial product, there's a crisis. Congress responds, and then it overreacts and, you know, lots of things happen. What crypto is saying is like, hey, guys, we haven't had a crisis, right? Like, you're attacking us. And there's nothing wrong here. We're actually building something that's incredibly cool. It's $2 trillion. million dollars. And some of the biggest crypto companies and organizations and employers behind this movement are actually U.S.-based. And so, like, shouldn't America be supporting something that, A, aligns with American values, and, like, B, helps to propagate and, you know, increase the pie of the American economy and employ more people? Like, come on, take a look at this industry. We're not

causing a crisis here. In fact, when you peer into all the weirdness of the code and the memes and everything that goes on Twitter, you'll find some pretty robust financial products. And by the way, if you don't believe us, it's all transparent and open. So go check the blockchain, right? Like, this is kind of what we're saying. And I think you're saying the same thing. And I totally am. And I think it, you know, it's a great conversation that leads to, you know, my view of how, you know, aspects of defy really represent the founding principles of this country, which is individual liberty and freedom. And, you know, Chris John Carlo, you know, a previous chairman of the CFTC,

with whom I'm very close and was a wonderful chair and has been doing wonderful things in this space. The original crypto dad. Yeah, crypto dad, that's right. It was great to be at the commission all that was going on. You know, he had to turn off his phone as his Twitter followers, you know, went from basically 100 to 50,000. but well deserved. I mean, he's a very thoughtful person.

I mean, he said in a speech, the freedom to transact in the financial marketplace is part of freedom itself. And, you know, I think we need to take a step back in this country and ask ourselves, you know, how much freedom are we really giving up and is it for the right purpose? Is it for the right benefit?

You know, I'm a big believer in balance. You know, I think, you know, there are rational arguments on both sides of a spectrum between, you know, ensuring things, you know, aren't used illicitly versus ensuring that people can do what they want and are free to transact with privacy. But I believe that the pendulum has swung very far, you know, in one direction of anti-privacy and pro-surveillance, that we need to have a reset and a rethink of that conversation. And I think, you know, the only way to do it, and you kind of see, you know, in an ecosystem, when it gets out of balance,

it's usually something that's in the other extreme that comes along that resets. You know, to me, that's that's D5. You know, that's crypto. You know, that's, that's, that's some aspects of, of what we've seen. Is it, is it's the, it's innovative, innovation that is responding to something getting way out of balance. And I think no one's going to argue that we don't want, you know, terrorists to be using, you know, things that could cause harm to people. But, you know, that doesn't mean that the government should be able to see every single transaction I do. And that crypto shouldn't be viewed more along the lines of physical cash.

And even with, you know, AML and terrorist financing concerns, you know, I would think that it's in the U.S.'s, you know, geopolitical, you know, national strategic interest to allow citizens of foreign countries where some terrorist organizations are based to be transacting in these things to try to create more independent. from those regimes. And so walling those, you know, those countries off from, you know, the innovation and the wealth creation, you know, of these things, you know, just for the sake of, of, you know, a justified fear, you know, of how some may use it, you know, could be doing plenty of harm that needs to be considered in, you know, how we view the progress that people, around the world can make to escape authoritarian dictatorships.

And, you know, that's the foreign policy aspect. I mean, there's the domestic aspect. I think it just requires, it's going to require a new conversation. And I think the laws on the books are the laws on the books and the interpretations are the interpretations. But, you know, we need to do a better job of swinging the pendulum back. Totally agree with that. Brian, I want to ask you about kind of some differences that might be in the mind of a listener

as there's thinking about the CFTC jurisdiction and kind of SEC. And both organizations, regulators have played a role in that. Recently, there've been sort of a new SEC chair, Gary Gensler, taking charge, and he's communicated some things that the crypto industry is just kind of unsure of. The clarity still hasn't come out of the SEC with respect to its position on basic things like what's a security versus what's a commodity. You tweeted this out on August 4th. Just so we're all clear here, the SEC has no authority over pure commodities or their trading venues, whether those commodities are wheat, gold, oil, dot, dot, dot, or crypto assets. I'm curious about this.

What in crypto is clearly a commodity versus what is clearly a commodity versus what is clearly a security. Like, we still don't have a solid answer to that. Is Bitcoin a commodity? I think the CFTC has said yes. Is ether a commodity? I think the CFTC has said yes. I don't know if you can confirm that.

And then, like, what about all of these other assets? Because we have now hundreds of thousands of them, and we don't know what regulatory regime they even fall under. Can you shed some light on this? Yeah, I can try. And, you know, let me just say that, you know, that the tweet that you showed was in response to a speech that Chairman Gensler gave at the Aspen Security Forum where he characterized crypto as the Wild West with rampant fraud that needed protection oversight. And he was going to use as many authorities as he could to provide that as well as asking Congress for new authorities to do it. I recall the speech.

Yeah. I was very disappointed in some of the reporting of that speech, as well as in my view, the purposeful lack of clarity or omission of certain facts given Chairman Gensler's chairmanship over the CFTC during and after Dodd-Frank, when the CFTC was given new authority over fraud and manipulation issues in spot market commodity transactions. Spot market commodity transactions are just, you know, cash for commodity, you know, going to the store buying something, spot market commodity transaction. And that is authority that the CFTC has had, and reporters know it,

and the leadership of the SEC knows it, and a lot of people in the space know it, it. It's authority we've used that the agency is used. I think we brought 25 to 30 cases over the last couple years prosecuting fraudsters who are offering, you know, exposure to crypto or a new crypto token and just absconded with people's money. We have, you know, fine, received civil penalties, disgorgement and, and, you know, other, you know, financial related penalties to the tunes of, I think, over $100 million, you know, maybe $200-ish million. So, you know, the CFTC has been very active, you know, in this space. And again, with, you know, within a small agency, 750 people full time that are, you know,

charged with protecting and overseeing and promote the integrity resilience of, you know, the entire derrars markets. And, you know, I was disappointed that our role in promoting that market integrity and holding fraudsters accountable was not raised, either in that speech or in the press. And I was disappointed that there wasn't more subtlety to what current authorities, you know, the limitations of current authorities are around pure commodity transactions, wherever they are traded versus, you know, what Congress may or may not choose to do. And if they choose to do something, who should be the correct, you know, agency to try to implement that regime? And so, you know, it's, I think there's, I think this is part of a longer story. And again, my view is that there

isn't, you know, a groundswell of support in the crypto space for, you know, needing the protection of the government. People are taking individual responsibility and doing their own research and expressing, in my view, you know, their rights to freedom of financial market transactions in this space. But I think, you know, to your point, it is not the CFTC that determines if something is a security. under our statute, under the Commodity Exchange Act, basically anything that can be bought and sold in interstate commerce that has some level of fungibility is a commodity.

So we don't, as an agency, we don't have to make really an affirmative declaration that this is a commodity. Basically, you should assume that basically everything is a commodity. So then the question is, is that commodity, also a security? You know, does that commodity also, you know, represent a security? And if so, it goes into the SEC's purview.

Okay. So from the CFTC's perspective, you're saying all crypto assets that are out there are commodities. And it's outside of your jurisdiction. I just want to clarify that real quick. I think it's a little strange when you start talking about NFTs because... Okay, I was going to ask. Like, what's an NFTs?

What is that? I think it depends on how many of a... of a similar kind of, you know, of NFT are created. But if they are, you know, if they are somewhat unique and they're highly limited or there is a lack of fungibility, you know, true fungibility from one to the next, then that wouldn't necessarily mean that they are a commodity. So that could be an exception. Some NFTs may not be commodities.

Some probably are. But anything that is fungible. So any ERC20 token from the CFTC's perspective, that's a commodity. Now, whether it's also a security or not, that's beyond the jurisdiction of the CFTC, and that starts to fall into SEC territory. And then they have their own tests that they apply with limited clarity, I would say, on whether something is also a security. And so we kind of know that Bitcoin and ETH are commodities. At least I think we know that because Ether is on the CME right now, CME futures, correct? So, okay, so this is an important point.

The SEC is going to be the agency that declares or through a, you know, court challenge, you know, prevails in classifying something as a security commodity. Okay. And if they do that, that security product, you know, in our, in my language, spot commodity, but that security product has to be traded on an SEC regulated exchange or ATS, alternative trading system, right, which was a huge registration, you know, regime. If something is not a security, if it's just a commodity, it can be freely traded because there is no federal regime, registration regime for spot commodity trading venues. There are some state regimes around money transmission, right, which I think you're probably familiar with with the discussion over, you know, the last three to four or five years.

But where the CFTC becomes involved is if a registered exchange seeks to list a derivative on a crypto asset. And if that crypto asset is viewed as a security by the SEC, then that futures concept. contract actually has some joint jurisdiction between the agencies. If there isn't a view at that point or, you know, going forward, that the underlying product, an underlying asset, that crypto token, isn't a security, then that futures contract is solely within the CFTC's purview. So the fact that you have Bitcoin futures contracts and Ether futures contracts trading solely within the CFTC's purview means that at least up until now, the SECC has not viewed or declared those to be securities. In my view, that's absolutely appropriate.

it. And I said, I think in March of 2018, that echoed a lot of prior thinking, including then Chairman Christian Carlo, that at that point, Bitcoin was clearly a non-security commodity. And recently, Chairman Heath Tarbert, former Chairman Heath Tarbert of the CFTC, declared Ether to be a commodity itself. And he didn't necessarily say a non-security commodity. But my view from within the agency and looking back on that was that he wouldn't have made that declaration, you know, without, you know, some level of communication or awareness that, you know, of how the SEC looked at that. So, you know, then the question is, well, you know, should you, should exchanges try to list a lot of futures contracts on a lot of futures contracts? a lot of these products to clarify what their status is. I mean, at least that's, that's, you know, kind of, you know, some idea.

And in that circumstance, I think you have to be careful what you wish for because there wouldn't be anything to prevent the SEC. And, you know, this is their jurisdiction. These are decisions that they make on a regular basis. And they, you know, they are, they have a lot of institutional knowledge in applying securities laws, you know. And if they do that too aggressively, hopefully, you know, someone sees through a court case to its completion and allows a judge to decide as opposing to enter into a settlement that doesn't necessarily add a lot of clarity to the space. But, you know, if there were a flood of futures contracts on a number of crypto tokens, there's nothing that would prevent the SEC from saying we think all of those are securities.

And then that creates a broader implication of, well, does that mean anyone, you know, that's running a, you know, crypto, spot crypto exchange is violating the law because they're listing these products that the SEC now uses securities? But then you can take that a step further and say to yourself, well, what if we have, you know, two kind of, you know, competing spot crypto exchanges, that each apply for, or maybe, you know, where one applies for, you know, where one applies for, you know, derivative's license with the CFTC. And what if it tried to list a futures contract on its competitors, you know, native token or rewards token? And then all of a sudden, you know, it's basically using an anti-competition tactic,

you know, through, you know, forcing, you know, a regulatory agency to potentially, you know, classify something that's in, you know, their competitive interest just by virtue of, you know, the regulatory process. And I go through all of that to say, I think we're at a point where these decisions need more transparency. There is a bill that was authored and sponsored by Congressman McKenry. of North Carolina in the house, it passed the house that called to create a, you know, a working group between the SEC and the CFTC and private market participants to discuss and try to clarify the status of a number of these tokens.

You know, I think that's an interesting step. If it were to come to fruition, I don't know what the result would be. You know, I think that the SEC may just do a lot of listening and say thanks, you know, we'll let you know what we think. and as is now, I think they're right and within their regulatory jurisdiction. But I think it speaks volumes. First of all, having served in the House of Representatives for seven years, the House is run purely on a majority basis,

and it is a highly political chamber of Congress. the majority and the power of the speaker is pretty unparalleled. And I'm not making a value judgment on any speaker or the current speaker or any prior speaker. That is just institutionally how the House of Representatives is run. And to have a bill, in my view, that directly implicates or challenges or acknowledges the lack of transparency around these decisions and calls for a new process, either out of frustration or, you know,

to some degree, you know, indictment, you know, of that lack, of that process, of that lack of clarity, to have a bill pass from a minority member, you know, who has a prominent role as they rank, member of the House Financial Services Committee, you know, pass in a Democrat-controlled House to me speaks, you know, fairly significantly to a, you know, a view within at least one chamber that this isn't, you know, this is unacceptable, that this needs to change. And I don't necessarily know, you know, if it's not that bill, what the right approach is, you know, you know,

I think the dialogue between the agencies around the status of something, if there's a futures contract or Dutu's contract, you know, listed on it. You know, I think that deserves more transparency. I don't, you know, and having served in this role, I'm also, you know, selfishly a little bit of a defender of the deliberative privilege. You know, a lot of my internal communications are protected by deliberative privilege because it's me forming opinions within my own staff. And I think that, you know, there is the need to try to have free and open communications in a, you know, a small, close-knit, you know, office so that exchanges of views can be heard and you don't necessarily, you know, overly weaken yourself, you know, in trying to make a decision and then having conviction. But to the extent that there are two agencies that have views about a product that have widespread implications, you know, I don't believe that. those communications necessarily should be outside of the public sphere, regardless of whether or not they weaken one agency or the other in terms of potential, you know, legal challenges to what they do.

Brian, there's a lot to like parse apart with this. And what you've been saying has been, I think, illustrative of what a lot of people in the crypto world kind of just want to turn off, right? There's a lot of things to pay attention to when we have all these agencies that are like trying to find the line between these two things. And one of the reasons why we like tokens in the world of Ethereum and on Defi is that these tokens themselves transcend all like previous categories and boundaries that we've been able to establish from the pre-crypto world. We have tokens that can literally be anything and so they will be everything and all agencies will want to have their sort of like jurisdiction imposed upon these things. And so like because there's this lack of classification

on tokens, it leaves a lot of interpretation as to like what the responsibilities and roles of these different regulators actually are. But it kind of also leaves a power vacuum, right, because there is no classification. And so one thing that we're worried about or pessimistic on from the world of crypto is that all agencies that have any sort of relevant jurisdiction are going to like claim territory. And this is kind of like the libertarian versus like the statist approach, right? Like people, especially, Bitcoiners love this narrative, is that like all governmental organizations are incentivized to grow their jurisdiction and to grow their organization. And so ultimately, that comes to envelop

everything around it. And then all of a sudden, we've lost the freedoms that we also value in the crypto world. So my question to you is, is there actually a fight for jurisdiction over stuff like this? And do you see that the budding heads of the CFTC versus the SEC and now also the Treasury? Do you see that as them trying to jostle for position to have more power and control and to perhaps even straight up increase the funding towards their own organization? So, I mean, yes and no. You know, I think if you approach your role within government, you know, either from a, you know, a government employee perspective or a leadership perspective or even an appointed perspective, you do owe some elite. allegiance, a significant allegiance, you know, to the law. You know, it's a hard thing to look at the law and if it says X to say, I don't care, you know, when you're in that kind of role. You know, it's just, there's a lot of irresponsibility, you know, that that that view could generate. You know, so I think if there are things that feel to, you know, an institutionalist, you know, a, you know, a, you know, in, you. agency representative who has expertise that, yes, this is clearly in our jurisdiction.

And if we didn't express that view, we wouldn't be applying the law, you know, fairly and equally. You know, I think that I think that that's, you know, to some degree, you know, what, you know, what, what some of this activity is, you know, on behalf of all kind of, you know, counterparts and agencies, you know, looking at this space. I think there's a different conversation about, you know, things that may not be within their jurisdiction, within any agency's jurisdiction,

that they either, again, view as a threat to their own powers and their own control, either through taxation, through money supply, through, you know, quote unquote, investor protection issues, that then they are trying to find flexibilities in their authorities to bring them into their jurisdiction, or they are asking Congress or hoping that Congress, you know, creates a new regime to give them that jurisdiction. And I believe that's a high bar. I think that there needs to be a high bar to Congress creating a new regulatory application.

rat us out of whole cloth that it has not done before. I mean, we do not have a federal oversight regime over purely spot commodity transactions. You know, we don't have, we don't register, you know, cattle auctions in Texas and Oklahoma. You know, we don't, we don't have a federal regulator over eBay, right, in terms of an exchange, you know, the money transmission aspect, probably. But why is this so different and why does it need this kind of attention? To me, there's a high bar to justifying, you know, new public policy for any regulator. And I have not seen anyone convincingly state that, including all of the speeches and dialogue that has so far been presented. Balancer is a powerful platform for flexible automated market makers. Typical

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So we talked about this world that I think the current financial of regulatory apparatus is set up for is a world full of intermediaries. But defy sort of disintermediates the intermediaries. So instead of institutions that, you know, take funds, we have code that actually takes funds and that's open and transparent on chain. And I want to maybe contrast that's kick off this discussion to ask you about kind of the, you know, the CFTC and how it sees things and maybe other broader parties in government, right? So the CFTC brought some action against Bitmex recently, right? And so not to zone in on that action specifically,

but this is the example of what on the bank list we call kind of a crypto bank. This is a centralized exchange and intermediary, sort of an institution you'd find in traditional finance. And I feel like from my perspective, it's just like, okay, it checks all the boxes. This is just another institution that we regulate, like all of the others. Okay, the CFTC knows what to do here. Are they breaking laws? Are they not? If they are, then we have to prevent fraud. So, okay, I get that. But now we've got this thing, which is defy, and it is permissionless, it is global, it is open, there are no counterparties, there's no bitmex, it's executed by code, not humans. And I guess my question to you is, when we talk about defy, does the CFTC do you think, and do other

see the distinction between those things because we've got crypto through crypto banks and intermediaries. But then we have defy, which is executed by code. And these are completely different worlds. And I'm not sure how many people understand the subtleties of this difference, but it's massively important. And again, I mean, I'm not sure I understand all the subtleties. I think there are a lot of subtleties to it. And it's in a very fast and evolving space. But there are enough differences that I do understand to feel a lot of conviction in saying the old model probably doesn't work. And if the old model doesn't work, you know, why should we be trying to apply it and rope someone into it because they publish code or because they chose to use something? You know,

again, but, you know, as I've said before in a different discussion, just as a matter of fact, not because it's a view that I love, but the CEA, the Comay Exchange Act, the law says it is illegal to offer or enter into an off-exchange futures contract. And I mean, that's the law. And so, you know, if... And just to be clear, Brian, whether that's a... The law says, as like just the black and white words of the law, it's whether that's a centralized intermediary or a smart contract executing that futures contract. it's just a law that pertains to the contract itself is what you're saying. Well, so, I mean, I think, you know, I'm not a lawyer and I'm very glad I'm not a lawyer.

You know, the agency had plenty of lawyers and they do great work, but I'm glad that my voice was a little bit differentiated from those. And I'm glad that, you know, not being a lawyer sometimes I felt like I could take, you know, a higher level view and ask questions that, you know, maybe someone more focused on the details wouldn't have asked. So, you know, I say that to say that, you know, this isn't legal advice, since I'm not a lawyer, thank goodness. But, you know, I guess you could look at the operative words in that statute as being, you know, to offer or to enter into, which, you know, could mean, you know, some entity offering something. So it could be, you know, a centralized entity or it could be something else that may be hard to hold accountable for something. But then the other, you know, word is enter into, which actually creates liability for an individual, you know, taking responsibility and, you know, and again, exercising, you know, financial market freedom by, you know, entering into a transaction. And I think that's an unfortunate and dangerous concept. And one of my points on that was, look, let's take the CFTC out of it. let's say the CFTC just refused to enforce that part of the law.

You know, large financial institutions are not going to engage in activity that they know is illegal. And so, you know, if the defy community, if the defy space and certain, you know, protocols and their smart contracts, you know, are hoping for more institutional engagement and there are, you know, derivatives being traded and there's a hope or a wish that, you know, institutional money or resources come into that, you know, that's a problem that's going to need to be solved, you know, either by changing the law, you know, creating a different kind of framework that can recognize, you know, the status of a non-entity, you know, code, you know, as a exchange, you know, or some other kind of solution.

So there is a real-world implication to what the law says, even if the CFTC decides to do nothing. And I think that's important to understand. But also, you know, to your more fundamental question, Ryan, you know, I think that, you know, there could be a view by some at the agency. I haven't heard about it directly, but I can understand if some have this view that they saw. activity occurring that they believed is illegal, and they're going to find someone to hold accountable for. You know, I wouldn't agree with that, and that's not something that I would necessarily, you know, overtly kind of support if I had, you know, if I was in my prior role.

But, you know, people could take that view, you know, within, you know, within, you know, within the regulator. Brian, I want to jump on that point and ask another question that's related to that. When I got into crypto, I was, how old was I? I was young. I was like 24, 25 or something. I had a psych degree, right? I didn't have a business degree, didn't have a finance degree.

I paid my taxes with turbo tax, whatever. Just like input my W2 called it good. And so many people are coming into crypto with that background, right? Like not really understanding finance, not really understanding, not even understanding like commodities or securities or anything. You got a ledger. you live at your parents' house, you find this Ethereum thing, and then you start pressing some buttons. And so, like, one of those buttons might be to mint a commodity or a derivative token or something that falls under the regulation of the CFTC.

Now, if it's not going to be a centralized intermediary because these individuals are playing around in Defi, and the reporting requirements or the regulation requirements actually don't fall upon everyone, does that mean that it actually falls upon the individual to understand the rules of regulations coming out of the CFTC. And do you think that the CFTC will actually start to have a jurisdiction over the individual, right? Like, no, you actually can't touch that contract because of the loss. Is that like a future that you see or is that just too crazy?

I don't see that future. And I think that would be very irresponsible of the agency to take that view. You know, technically could there be liability there? Yes. but I don't view it as credible or as responsible. I mean, I think you really see the agency, you know, only going after individual traders who are, you know, committing massive manipulation, you know,

in important markets that are bread and butter to the CFTC certification. And those cases take a lot of research and a lot of time to bring and win. And, you know, I don't, don't see that as a, again, this isn't legal advice, but I don't see that as a likely outcome in this space. And it wouldn't be something that I individually would be concerned about me personally. You know, I think it's, I mean, we're just, we're just going to have to see how, how the space evolves. I think that, you know, there is an understanding that, you know, public, Code is a First Amendment right, and it is part of freedom of speech. And there are a lot of

court cases that back up the ability to publish something that could be used by any recipient in a negative, hostile, violent, right-breaking way, but it is not the publishing of that material that is violative of the law, it is the use of it, you know, for that illicit purpose. And I think the more that, you know, that Defi stays or or furthers itself as decentralized, the, the, the safer, you know, the ecosystem is because it basically just becomes individual actors interacting with freely published code. I definitely appreciate that take, too. I think that represents a lot of hallmarks, you know, and again,

some of the foundational principles of the country. Yeah, that's a really, really good thing to hear. And I also want to ask, because the other obstacle that I see coming towards the way of regulators and especially the CFTCs, you know, earlier we talked about NFTs and how, like, you know, NFTs could not be synthetic assets or commodities or anything. But the thing about Defi is that we have all these financial tools that plug into each. each other. And so we actually just yesterday, a new project came out that talked about creating perpetuals, perpetual contracts upon a price of the floor price of NFTs, which just means

like the aggregate price of NFTs. All of a sudden, we can now make perpetual contracts based off of any NFT like set, anything that has sufficient amount of liquidity. In the last two weeks, we have seen a thousand NFT projects like blossom and created out of thin air over the last two weeks. And I actually kind of think like over the next year, we're going to see like 10,000 more. And that means that there's going to be, like, room for, like, tens of thousands, hundreds of thousands of perpetual contracts, synthetic assets, derivatives that are all coming out of NFTs. And that's not even talking about the defy tokens, which also have these same potential properties. And so, like, I see a world of 10,000 synthetic assets, 10,000, like, derivative contracts coming into defy. And so, like, is the CFTC equipped to handle just a Cambrian explosion of assets that kind of fall under the purview of commodities?

No. I don't think that it needs to be concerned about that. You know, even if it, you know, technically implicates its jurisdiction, you know, the agency has very important authorities over, you know, critical components of the economy. that it doesn't need to be using its scarce resources to go after, you know, a new blossoming space, you know, that could implicate its, you know, potential jurisdiction. But let me answer that also in a different way, which is that I had said before the CFTC has anti-fraud and anti-manipulation authority overspot commodity transactions. You know, not some overarching trading registration regime, you know, regulatory regime, but pure anti-fraud, anti-manipulation, you know, civil authority, you know, to prosecute. You know, if the agency is considering getting involved in the DFI space at all,

maybe it should start there. I mean, technically that would mean that the agency's, has some level of prosecutorial authority over flash loan attacks, for instance, you know, over outright fraud and theft through, you know, chat room schemes. And, you know, if there aren't criminal authorities that are helping to prosecute that activity, and if the agency is starting to dip its toe into the defy waters, you know, let's actually just go after the bad actors who are stealing things. Oh my God. Can I just put my hand up and say that's exactly what we want? That's exactly what crypto wants. I mean, there are bad actors. There are people who perpetuate

fraud. Not a day goes by that I don't get a DM or somebody on Discord message me and try to get me to do something in crypto that's essentially going to steal all of my money, right? These are the kind of bad actors that we would hope our regulators would help us with, the clear frauds, right? The BitConnects of the world. I mean, good job, SEC for going after that case, right? Or if there's a centralized exchange that is defrauding their customers, like, please help with that. What we worry about, I guess, Brian, is the editor for bank lists, we have a newsletter, too,

and we try to go to various products in the U.S. One of my favorite products is called DYDX, doing really cool things. it's a perpetual's product. It's not available if you live in the U.S., right? So it's like, geoblocked, you live in the U.S., you can't access it. And I'm like, Lucas, why can't I access this? And he always goes, because we live in a financial prison, Ryan. That's why, right?

And he's kind of joking, but like it's also... He's referring to the CFTC's authorities and the statute that exists. It kind of stings. Yeah. So if I'm in Europe, I get access to these markets and these products. If I'm in another place and like, why can't Americans have this? I think the regulatory environment in Europe is different. I think it's changing. It could be changing very rapidly. And, you know, sometimes, you know,

a lack of clarity could be better than clarity. And we'll see how it evolves in Europe. Because, you know, the clarity may not be as beneficial as, you know, anyone could hope. What I just worry about is, like, is there the real case that America could fall behind? We have some of the best talent in this space. A Silicon Valley came, you know, from the U.S. That's a U.S. creation. And, like, how can government not lose sight of, let's not miss the next internet guys this is like a financial this is a huge movement doesn't the u.s. government want it to be centered here don't they want their citizens to have access to this and i worry that we're missing something along the way and this is not a criticism on on

you in particular like i think you're doing fantastic work i never mind being criticized you know i believe that you know in my prior role accountability is part of the job and that can come through criticism feedback whatever um so you know i i um i appreciate any and all that at at all points, as I hope my colleagues do, and I think they do. But I wanted to bring up two issues that you raised. One was kind of the geo-fencing. You know, I believe it's a disgrace that regulators are forcing through a potential enforcement action, you know, entities to take away what, in my view, is a First Amendment right to privacy of market participants, you know, in our country. You know, we talked about balance and the pendulum.

And I understand that there are ways to get around rules and get around regulations. You know, but to me there is a very strong First Amendment argument to be made to the ability to use, you know, VPNs and access points that are, you know, less traceable to the government. Maybe I don't know that much about VPNs, but a lot of the conversation. from a regulatory basis has been around detecting those uses and trying to prevent that from, you know, those kinds of access points. And I don't view that positively. You know, I think that an exchange or an entity can meet its obligations by having reasonable standards in place that doesn't necessarily preclude people from exercising some right to privacy. And it's the government's job to find those things out, not to force, you know, other entities to do its work for them.

And we've gotten to a point in the regulatory state where, you know, regulators are forcing entities to do a lot of their own work. And I don't view that necessarily positively for freedom or for, you know, the standards of privacy of the individual consumer. And that conversation can go directly into big tech if you wanted to, but I mean, we won't go there today. The issue to me is still around, you know, the ability to transact freely in the financial marketplace. And it's a regulator's job to try to understand what's going on, whether or not frameworks can apply, and if they aren't, how they can be.

So, you know, that's one of my points of view there. You talked about, you know, innovation and entrepreneurialism. and wealth creation. And, you know, in my view, one of the fascinating things about Defi in its true form is that it is the ultimate, and, you know, maybe in my view, the ultimate expression of the beneficial power of a free market. from a access, innovation, transparency, reward, competition, virtuous cycle. You know, you don't have a lot of that, a lot of those characteristics in the existing financial system.

You know, it's hard to compete against the incumbent, you know, top 50 banks, let alone top three, right? It's hard to compete against the top three derivatives exchanges. It's hard to compete against the top two or three stock exchanges. But here we have an environment where, you know, things can be innovated at a very low cost by almost anybody, have instantaneous and widespread accessibility to create a network effect that generates value and wealth that then can be competed against and, you know, re-provoke, you know, innovation, growth, wealth, everything that we want. Why would we unduly inhibit that?

It's beyond me in the name of increasing a regulator's power, increasing someone's potential legacy, or in the name of, you know, applying a law as it's currently written. You know, again, I talked about balance, and I think ultimately things have to come back into balance. But I think, you know, DFI needs to run as far as it can, as fast as it can to make sure that we get that pendulum swinging back more towards the middle. Well, we are running fast and we are running hard right now, Brian. And as we start to bring this to a close, I want to ask you a question about, like, projecting into the future. So you've talked so much during this discussion, I think one of the major themes has, been kind of this balance. Another theme is we need some additional regulatory clarity coming

from our legislators, from Congress, for some of these agencies too. So I'm wondering if you could maybe we're in sort of a negative troth, I guess, it seems like a negative regime. But can you tell us maybe where you think this ends up and paint the happier picture of how you think America can move forward and other countries? America can maybe partially serve as a model for other countries, how they move forward with some sensible regulation for crypto that doesn't kill innovation but actually supports it, clears out fraud. How do you think this is going to play out in maybe a good way? So I think, you know, again, I'll try to separate what I see in terms of the innovation

and evolution of DFI versus, you know, more of the well-known, large market cap, you know, crypto, you know, products, assets, and their trading environment. You know, I think, you know, in any economic environment, you know, service providers are going to come to exist and grow in order to increase access and, you know, ease of use of new products. And we've seen that with, you know, the growth of, exponential growth of, you know, crypto trading venues, you know, exchanges. I think exchanges, you know, there's a sense in the government that the word exchange connotes, say, you know, a registration status with the government. So I kind of refer to them as, you know, crypto trading venues, but, you know, people refer to them as exchanges and that's fine. You know, highly centralized entities, providing a valuable service, you know, being compensated for that service. you know, outside of a, you know, more traditional financial regulatory regime because they're, you know, in the spot commodity market for the most place, depending on what the SEC may or may not decide on the status of any product.

I do see the potential, you know, for a regulatory regime to develop around those because of their size, their scale, their customer base. I wouldn't necessarily advocate for it if one's going to be developed. I think the CFTC needs to be front and center in the conversation. There was a bill that was introduced in the last Congress called the Digital Commodity Exchange Act that would allow the CFTC to create a voluntary registration regime for spot crypto trading venues. And then through registration would basically grandfather in as non-security commodities, the tokens that were being traded there or that had enough liquidity to justify, you know,

commoditization, right, to solve a couple issues at the same time. And I think if something's going to happen, that's a good approach for a few reasons. One is that it's voluntary so that it doesn't just force, you know, large, successful, you know, service providers that have increased access to these products into something that may not fit them or may destroy value.

It allows an agency that has some level of expertise in the commodity markets to develop a regime that should hopefully become attractive enough for voluntary registration. But it also creates an incentive through more certainty of the legal status of the products that are being traded. That is an approach that I, I could appreciate. And it is in the House Agriculture Committee. The Agriculture Committees, getting back to our first conversation,

are the committees of jurisdiction of the CFTC. You know, it's not the Financial Services Committee. It's the Agriculture Committee because of the history of futures contracts originating with the agricultural markets. And I would say that it's very important that those are our committees of jurisdiction because farmers have a strong voice there, and it forces the members of Congress sitting on those committees to pay attention to the effect that our regulations have on end users, on the people who need the products we regulate to manage and run their businesses.

And I think that that's a very important dynamic that I actually really appreciate. So it may sound odd, but I think there's a lot of public good there. And so that's in the House Agriculture Committee. I don't know what the status will be of that bill going forward, but I would hope that in any discussion about, you know, a centralized crypto trading venue registration regime that the members of Congress on Capitol Hill that have jurisdiction of the CFDC are front and center in that conversation. You know, moving along to Defi, you know, I don't think there is,

is the bandwidth, the understanding, or even the capability, possibly at this point, to create or craft legislation that would be able to effectively target that space. I think we're going to have to see how, so I think it's going to be more of a regulator-led discussion of how any regulator wants to apply its existing authorities if it decides to take action and then against whom for what? And, you know, we may see court cases develop out of that. And again, as I said, with regards to, you know, challenging any regulators, you know, decision-making, hopefully if any regulator takes a view that's too aggressive, that's too broad, or that isn't well-substantiated,

you know, a judge ends up making, you know, a ruling on it to either limit, you know, or negate that kind of decision, you know, or hear it for its merits and embrace it under certain circumstances, you know, in that scenario. Brian, this has been absolutely fantastic to walk through some of these issues with you. I really appreciate it. I hope the Bankless Nation heard that it all starts with agriculture, all starts with farming, is what Brian Quintes is telling us. This has really been a pleasure.

Thank you so much for spending some time with us. Thanks, Ryan. Thanks, Dave. It's great to be with you. I wish you all the best. hope to stay in touch as things move forward. Well, can I ask you this? You got some extra time on your hands these days.

What are you going to be doing? Part of me kind of wishes you were still at the CFTC now that I've heard your voice and your values. So I'm kind of regretting that. But like, what are you going to spend your time on? Well, thanks for that, Ryan. I do appreciate that. I was going to have to leave by the end of the year anyway.

And it was the right time to move on. I don't have anything lined up yet. I'm hoping to have some announcement in the next few days, maybe within a week. As I said in my, you know, my resignation communication, I want to keep crypto and defy very relevant to my career. And I think, you know, at least one of my announcements in the near future will do that. And I'm hoping to do a number of things that can, you know, embrace, you know, this space, this innovation and the freedom. and opportunity that exist in it and help move it forward. Well, Brian, as bullish as I am on crypto, I am also as bullish on your career and seeing

what you do in this space. So I'm looking forward to following that story. In the words of a great meme, we will follow your career with great interest. Yes, we will. Thank you. Bankless Station, we hope you enjoyed that. Brian Quintez joining us for this incredible conversation, some action items for you today. I guess maybe a sister episode to this.

Go tune into our episode with Hester Purse that we did a few months ago. She is a commissioner on the SEC. That's a good reference. So you get the SEC's take. Now we have sort of a former CFTC commissioner's take on it. It'll round out the picture of what's going on in DC. You can also listen to the episode with Ryan Selkis we did. Also, Jake Chravinsky, fantastic discussions there.

Also, we've released a new show. At least David has. He's been busy on it. Coming out every Tuesday, it's called Layer Zero. This tracks the social element of crypto, the stories of individual people and what they are doing in the space. David, I think our next one, every Tuesday this comes on, is the next one with Justin Drake. Justin Drake. Yeah, last week was with Eric Connor, which was already one of my favorite conversations next week.

The one coming out tomorrow, lizards are listening to this on Monday, is with Justin Drake. So definitely do not miss that. And also, if you appreciate all the shows that we are doing and the conversations that we are having, please go ahead and give us those five-star reviews wherever you listen to podcasts. There, David fit in two action items in one. Awesome, man. All right, risk and disclaimers, guys, crypto is risky, defy is risky, ETH is risky, so is Bitcoin. You could lose what you put in, but we are headed west. This is the frontier. It's not for everyone, but we're glad you're with us on the bankless journey. Thanks a lot.