Bankless - Inside Gary Gensler’s SEC: A Conversation with Former Crypto Policy Advisor Corey Frayer

Episode Date: December 8, 2025

What was really happening inside the SEC during the Gensler years? Today, we sat down with Corey Frayer, former senior crypto policy advisor to SEC Chair Gary Gensler and now Director of Investor Protection at the Consumer Federation of America. We dig into how the agency thought about securities law, DeFi, Uniswap, stablecoins, SAB 121, and why platforms like Coinbase and Kraken ended up in the crosshairs. Corey defends the Gensler playbook while responding to the industry’s harshest criticisms, from “regulation by enforcement” to claims of a political war on crypto.  Corey Frayer: https://www.linkedin.com/in/corey-frayer-990a6b2  ------ 🎬 DEBRIEF | RYAN & DAVID UNPACKING THE EPISODE https://www.bankless.com/podcast/debrief-inside-gary-genslers-sec  ------ BANKLESS SPONSOR TOOLS: 🔵COINBASE | ETH & BTC BACKED LOANS https://bankless.cc/coinbase-borrow 🪙FRAXNET | MINT, REDEEM, & EARN https://bankless.cc/fraxnet 🦄UNISWAP LABS | SWAP NOW https://bankless.cc/uniswap-labs 🛞MANTLE | GLOBAL HACKATHON 2025 https://bankless.cc/mantle-hackathon 💤EIGHT SLEEP | IMPROVE YOUR SLEEP https://bankless.cc/eight-sleep ------ TIMESTAMPS 0:00 Intro 4:58 Crypto Industry Misconceptions 7:59 Corey’s Role & Background 14:20 How it All Started 24:16 No Path to Register? 31:26 Technology vs Economic Activity 38:22 Protecting Investors 41:07 DeFi Regulation 44:53 Uniswap’s Wells Notice 57:00 Fake DeFi vs True DeFi 1:03:41 Google Analogy 1:08:35 The Howey Test 1:16:53 SEC: Good or Evil? 1:26:52 GENIUS Bill 1:29:10 SAB 121 1:33:01 Crypto & SEC Political Impact 1:36:02 Paul Atkin’s SEC 1:38:15 What Would Corey Change? 1:41:23 Gary’s Text Messages 1:43:10 Is ETH a Security? 1:44:39 Gary Gensler’s Radio Silence 1:47:37 Gary’s Twitter April Fools PFP 1:50:44 Closing & Disclaimers ------ Not financial or tax advice. See our investment disclosures here: https://www.bankless.com/disclosures⁠

When crypto starts coming into the traditional space and doing the traditional activities, to me, it loses the protection of the argument that this is a distinct technology built for peer-to-peer transactions. If that's what crypto wants to build, build it. And I have no opinions on it. But if you're going to build a bank, if you're going to build a securities exchange, if you're going to raise money the way the Howie Test lies out, there are laws for that. Everyone has to follow the same laws.

Welcome to bankless, where we explore the frontier of internet money and internet finance. This is Ryan Sean Adams. I'm here with David Hoffman, and we're here to help you become more bankless. Guys, we get a peek inside the Gary Gensler administration inside the SEC. This is a conversation with the guy that formed senior crypto policy advisor. And David and I, over almost two hours, got to ask him just about every question we had in our I never thought we'd have the opportunity to do this. No, and I want to give credit to our guest, Corey Freyer,

for being pretty much an open book with respect to what questions we asked and which ones he answered. So this was a pretty unique episode, I think, and above and beyond what I expected. Yeah, we have to do a debrief on this, Ryan. So that's what we're going to go record right now, because I have some thoughts, and I know you've got some thoughts. And so for all the bankless premium subscribers out there,

there is a debrief from Ryan and David in your premium fee to go listen to that if you want to hear our unadulterated thoughts about what Corey said about Gary Gensors' SEC. All right, guys, let's get right to the episode. But before we do, I want to thank the sponsors that made this possible. You can now borrow USDA against your Ethereum and Bitcoin on Coinbase. Crypto-backed loans on Coinbase make assessing liquidity seamless for crypto-hoddlers. Powered by Morpho, Coinbase Cryptobacked Loans gives you direct access to on-chain financing,

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joined by Corey Freyer. He is a former senior advisor on crypto policy at the SEC. He was a policy chair to SEC Gary Gensler, and now he is the director of investor protection, the Consumer Federation of America. He was really in the room shaping the SEC's crypto policy strategy during the Gensler years, which of course we've talked about many times on bankless. We were all here for that. So we invited him on today for what I hope and I think will be a civil conversation, just an attempt to understand what the Gensler office was thinking during those years.

Corey, welcome to bankless. Thanks so much for having me. And it will absolutely be a civil conversation, I'm sure. Amazing. Well, I appreciate you crossing over to enemy lines, I guess, to have this conversation. It's like just some background on bank lists if you've not heard the podcast before. We're definitely on the pro-crypto side of this debate. And so we've said a few things about the SEC, you know, I don't know in the past.

And so we definitely have a position staked out. But honestly, Corey, we're here to learn. We're here to hear how things looked from your... vantage point inside the Gensler administration side of that office. May the first question I have for you to kick things off is, what do you think the average bankless listener, let's say, the average crypto enthusiast thinks about the Gensler era, and what to you feels unfair about that? I mean, I think you summed it up quite well in setting me out as crossing enemy lines here.

I don't see the, I don't see crypto as the enemy. I think there are certain sectors of it that I would consider to be something like just something I'm outright against. But also like I have no, not only do I have no issue with the technology, I have great respect for the original technical revolution here, which it is to figure out how to do electronic peer-to-peer transactions. It is a technological and math marvel. is a truly interesting solve to a hard problem. That's what got me interested in this stuff in the first place. I think, you know, what I would say is that I take issue with the way that the system has morphed. I take issue with the way that it has become something that looks a lot more like the traditional financial system,

but doesn't want to be treated like the traditional financial system. And so, you know, that's where I come from generally on the issue. And the other thing I want to say is I think there's a perception that the Gensler SEC or myself was very pro-traditional industry. And just, you know, by way of context, I got my start in policy in 2007 when I started working on the Hill on financial services issues right, you know, at the center of the crisis. And if you look through my 15 years on the Hill, I think you'd be hard pressed to find someone who has been. more critical of the traditional financial services industry. You know, I've worked for bosses that wanted to break up the banks. I've worked for folks that have been really, really tough on the industry.

I am generally skeptical when it comes to finance. And that is not something that's aimed at crypto. It is somewhere where I've had, you know, a lot of criticism over the years. So I think those was probably the things, the biggest misperception, I think, is that we led an attack on crypto, that there was some kind of personal vendetta against it, and that that was driven by favorability to the traditional financial industry. That is so fascinating, such a fascinating response, because I think there's going to be a lot of nuance there.

I think some of many of the things that you said, I mean, feel like kind of common ground. I guess we'll have to hear when we get into the specifics of some of the actions that we're taking. But, you know, 2007, 2008 as sort of a moment that was, I guess, radicalizing for many people. I mean, we certainly share that. And it's interesting that you kind of like, you moved into the consumer protection sort of area as a reaction to 2008, 2008, 2009, the bank bailout shenanigans, everything that happened. Whereas I feel like many people listening to bank lists moved in a different direction, which were like, okay, like what we need, are some bankless tools that establish some self-sovereignty and independence here. So these are some things that maybe we'll flesh out throughout the episode.

I guess maybe a question for background setting. How did you end up as senior advisor for crypto oversight at the SEC? And what does that role actually do? Like, were you involved in the, when we read a headline like the SEC is taking X project to a corridor sending a well as notice, how were you involved in some of that activity? So how I came to the SEC, to some degree starts actually well before I got into policy.

I was really interested. My background's actually in technology prior to coming to Congress. I was a network architect. I did small business network installs back before, you know, the Geek Squad existed. And at the time, I was really interested in distributed computing projects. Folks might remember SETI at home or folding at home,

which is sort of conceptually related to the cryptocurrency world. And as that sort of I was like a little bit in that crew and in that field of interest. And as that developed into, you know, Bitcoin in the original Bitcoin paper, I have a lot of folks, you know, from that world that I even keep in touch with today that were really interested in it. And I have a little bit of economic background. I was not super persuaded by the economic theory behind Bitcoin. So while I was sort of interested in technology, it's not something I ever got into. Obviously, I missed out there.

But that sort of history means that when I came to Congress and worked on policy, there were these sort of like fintech issues that no one else wanted to deal with. You know, crypto was a relatively small issue at the time. So fintech issues, crypto, anything that sort of involved the technology world, kind of got dumped on me just as a like computer guy go deal with this.

And so it's like sort of a, you know, a field I got voluntold into. Primarily I worked on consumer protection, again, in the traditional industry, and then large bank supervision, large bank regulation. when Facebook in 2019 tried to launch the Libra token, I was sort of the go-to person on the minority side

for the Senate hearings around that. And that was sort of like the big crypto fight that had made it up to the congressional level and caught a lot of attention. And there was really bipartisan criticism of that. It was not a popular idea to anybody. You know, the regulators and Congress were all united in opposition.

to this. And that is when sort of like crypto really entered the radar screen of the mainstream policymakers. And so, you know, 2021 comes along. There are new people at the SEC. They were looking for someone with policy experience as well as crypto experience. And it wasn't a, it was a pretty shallow pool. And so they asked me to come up to the SEC and work on these issues. Very good. So you were in the office basically from 2021 to shortly after Gary Gendez's, Chancellor took chairmanship of the SEC and then all the way through 2024. Is that correct? I left January 20, 2025 at noon when the new president was sworn in. So I was a political appointee. Wow. Okay. Okay. So you're there during all of that time. So what were you doing there?

Like, were you involved in some of these cases against crypto and prosecuting some of these crypto projects? and, you know, were you a leader of those things? Were you advising? I mean, it seems like you were pretty involved in all of these things with respect to crypto. Yeah, across the board. So Gary had a set of policy advisors, probably out a dozen of us, maybe even more. And typically, each one would take sort of like one division of the SEC and be in charge of that. So we had a person who did all the enforcement work.

We had a person who did one of the divisions called Corporation Finance. So there's sort of everybody took a vertical. Crypto crossed all of those areas. So essentially my job was to advise Gary on crypto to coordinate the efforts across the entire agency, whether that was, you know, rulemaking under investment management, accounting rules, enforcement decisions. I sort of tried to make that all a cohesive program, make sure everyone was on the same page, and then advise sort of the broader strategy about how we executed that.

I do want to say with regard to enforcement, enforcement is it generally, or at least in our administration and most administrations prior to us, is a pretty protected silo. The chair doesn't typically get involved in the investigations themselves. Although, you know, he might say, hey, I've got policy concerns about this. Like, you need to look into this particular company. But like, I did not have access to the investigations as they were ongoing. That is something that sort of one.

the enforcement division had felt that it had investigated enough that had sort of built a solid recommendation for the commission, then it would come up to us for evaluation. So I just want to sort of stress that there's a ton of independence in the enforcement division and we, you know, by design, weren't in the weeds of that process. Our relationship, our being the crypto industry relationship with Gary Gensler, didn't really start around the same time that he was appointed. He was appointed all the way back in February of 2021 by the Biden administration.

And he was, I remember everyone was cautiously optimistic about Gary Gensler as the SEC administrator simply because he actually was informed about crypto. That was like the predominant take about Gary. He's like, this guy knows crypto, he's not naive. And to understand our industry is going to be the greatest asset. That was kind of like the perspective of like what we were cautiously optimistic for with Gary Gensler.

I don't really remember much happening as to really. between the SEC and crypto for the first like two years, until around the same time as Elizabeth Warren's tweet of her on this graphic saying Elizabeth Warren is recruiting an anti-crypto army. And that was around the same time that Gary Gensler started, and sometimes we in the crypto industry use Gary Gensler and the SEC kind of synonymously, started to become very hostile to crypto. That's when Wells notices started to become a word that,

we would all say repeatedly, enforcement actions, all of this kind of stuff. And so the understanding, the narrative inside of the crypto industry, because we basically never talked to anyone on the other side of the aisle, Corey. So this is the first opportunity that we have. The narrative, which was allowed to reverberate without being unchecked, was that Gary Gensler is upon maybe even a bishop or a knight of Elizabeth Warren, who has a very anti-crypto's political stance, and Gary Gensler is using this as an opportunity to ascend his political capital inside of the world of politics,

and he's just using crypto as a way to grow in clout and reputation. And it was really a whole entire political campaign against crypto downstream of Elizabeth Warren's political aspirations or political leanings. That's kind of the context. I think a lot of people still believe to this day. perhaps I even believe that to some degree. When I hear this, when I give you this kind of like narrative, what's your reaction? First, I don't remember this tweet at all.

I would, sorry, you mentioned that for the first two years. So you mean like 21 through 23? Yeah, it was a 21 through 23. I don't really remember, I mean, my memory could be failing me, but I don't really remember that much happening from Gary Gunsler. Yeah, I mean, I guess like my memory is, 2021 and 2022 were pretty quiet and then Luna Terra and FTX and Sam Begman-Fried and 2023, 2024, we saw a massive enforcement action like 2023 we saw a crack in staking and

Coinbase and all of this stuff. That's interesting for me to hear. So I would look back to the end of the Clayton administration, the chair before us, the first chair that Trump appointed. and in the last sort of the waning hours of that administration, they took on, I want to say it's about 76 ICO cases and the initial coin offering cases. And essentially their theory was that, much like the one we took on, was that these were being offered and sold as securities.

They met the Howie test, and therefore they need to be registered with the commission or they needed to be offered under a valid exemption from the securities laws. And so they settled a number of those cases. They won several of those cases in court. And pretty well established some precedent that at a minimum, according to the eyes of the court,

crypto assets could be offered and sold as securities. And there's a really important nuance there, which I think remains a point of confusion to this day, which is that being offered and sold as a security. doesn't mean the asset itself is a security. An investment contract is sort of the totality of a set of circumstances about promises you're making, about the way you're raising money from the public,

that is distinct from the underlying asset. And so we've seen investment contracts from, you know, whiskey casks, ostriches, the original one was orange groves. None of those things made those underlying asset securities. the concept of investment contract is that you can offer and sell something as a securities arrangement. And so that is something that was established

under the Clayton administration, which had a ton of activity late 20 and early 21. And then, you know, when we came in, there were certainly sort of a lot going in the background. I think, you know, one of our first questions coming in the building was, you know, if the prior SEC's theory

was that a lot of these were securities and we know these were trading on centralized platforms why weren't they looking at the centralized platforms which should have been registered as securities exchanges if they were trading securities. And so that's sort of where we started to focus our work because we felt that playing whackamol with 10,000 tokens wasn't going to be a productive use

of our resources. And if we wanted to get something done, where that would happen is at the platform level. And so the initial place where we started was to one, open investigations to following on sort of that theory that these were securities, but then also to engage in a program where we wanted to invite platforms in to register. Our theory here was that if you could get someone to come in and comply with the securities laws, they would have a, a competitive advantage of being the safe place to trade crypto because they were disclosing, they were following industry standard rules, they wouldn't have the structure that you have in most platforms where they are both in exchange and a bank custodian and a clearing agency

and a broker-dealer, sort of these things that we break up of these conflicts of interest. And if we could get one of them in to do that, they would sort of have this advantage that would draw the other platforms in voluntarily. And we thought that would be a way more efficient way to do this than trying to take people to court for years and years. And so that's the project we started on. A lot of those meetings happen in private. When you're at the SEC, to get open dialogue from these companies, they don't want you to be disclosing their business plans.

They don't want you, you know, talking about the things that they're thinking about doing because like that's their bread and butter. And so we were having a lot of background conversations both. with crypto-native firms and with traditional financial firms that were interested in getting into the crypto space and talking about things like, what are the rules that don't work for this technology? What specifically do you need that you think doesn't align with the current regulations? What would we need to change and fix for you to be able to register and do this sort of in the light of day? And there were some companies where we made a lot of progress with that,

and some companies where we made very little progress with that. Somewhat famously, there was a conversation with Sam Bankman Freed that became very public, where it essentially turned into a yelling match between Gary and SBF over them wanting to not follow particular regulations that we sort of said were like red lines we wouldn't cross. And the red line is essentially having all these businesses together in one platform. not having those conflicts of interest is a foundational rule in securities law. And that is sort of the thing that we were not willing to negotiate over. I can imagine SBF being very upset about that because that was pretty core to his whole scheme. And, you know, that's one of the things that, you know, I think we don't get enough credit for is that I understand the perception that there's, you know, something about crypto in particular.

we were going after. But these are foundational concepts of financial law and financial regulation. We have learned since 1929 that you don't want these businesses with tons of different exposures. You want people to be in their particular verticals,

and that way one failure doesn't cascade across the entire system. You don't want conflicts of interest that give an exchange and advantage over the customers trading on the exchange. you don't want an exchange to have a directional interest in the price of any particular security because they know what trading is going to happen and they could trade in front of it.

So there are a lot of reasons why this vertical integration is just anathema to financial regulation as we've learned it over years and years. And what I found is that that was the place where we couldn't come to agreement with the native crypto industry was that you're going to have to break up these businesses into different lines just like we do it everywhere else. And so I feel that that was pretty prescient when it comes to the FTX failure. That's something that we were ahead of. And I will also say that inside the agency, even before the fraud was uncovered, we had raised and we all had serious concerns about FTX purely because of the structure.

Like that is a classic failing business model. And we had our eyes on it for that reason long before the fraud was uncovered. I think a lot of people listening in crypto, probably Dave and myself would agree with you on some of the takes around conflict of interest and siloing those off. Like, you know, quite classically, FTX had Alameda research, which was just basically a fund. He was running both of those. and that caused him to have some sort of incentive and ability to basically pull customer deposits from FTX and start using that to invest slash gamble.

I want to go back to something you said, which you said kind of happened during your tenure. So very much Jay Clayton was kind of the whackamol type of phase of crypto. And I think he said something at one point, like I haven't seen an ICO that's not a security, right? So you had some statements like that. But largely, like Jay Clayton in terms of enforcement action, it was against clear fraud. It was against clear scams, clear things that crypto investors would be like, hey, thanks guys

for getting these bad players out of the crypto space. We don't want them here either. I want to get to kind of 2021 and 2022, where you sort of, you know, and this was often a refrain that we saw from Gary Gensler, just come into my office, you know, office hours with Gary, just come into my office, come and register, we'll talk to you. People, we, I guess the crypto industry, their reaction to that was like what they would say is, first, it was a trap. And so when they went to the office, anything they said or did was used against them in some sort of future enforcement action. I think some of the players in crypto have said this explicitly. And then secondly, there was actually

no path for them to register as such. Like the ATS path or whatever that is, you know the regulation better than I. I'm not really open or suited for the type of activity that something like a Coinbase or Cracken was doing. And so very much from the CryptoNatives perspective and like retail and, you know, Coinbase and Crack and they have tens of millions of U.S. retail customers, right, who are getting value from what they're doing. They want to see some of the bad actors like SBF out of the space. They don't want fraud. They don't want any of that.

And they want the SEC to be a cop on the job to the extent that it's within their jurisdiction to help with that, the cop on the beat, as Gary Gensler would say. But we also want a path for Coinbase and Cracken to continue doing what they're doing. And they said the office hours was kind of a trap. And they said that this was not good faith. They said that there was no real path. Maybe this is a flaw in the law. Maybe this is a congressional issue.

But for whatever reason, you didn't have the ability to actually, you know, have their activity be registered in the way that other exchanges are. What would you say to that? With regard to whether or not was a trap, I mean, it was not. It never was.

Those were all good faith discussions we had. And, you know, again, because, you know, these conversations generally happen in private, I wouldn't want to point you to anyone specifically, but I had very constructive conversations with lots of entities that never got sued. I think with regard to the argument that there's no way to register, I think you have to back out to the fundamental arguments being made about what makes crypto different

from the rest of the financial services space. And this is one where I think I actually have some allies, and I think this is somewhere where, you know, you all might agree with me on this. which is what crypto solved for is peer-to-peer transactions, not relying on an intermediary. And that is why the technology exists. So no one would have to rely on an intermediary. Like that is fundamental to the ethos. And when we talk about crypto regulation, one of the main things that gets cited by industry is the need to preserve this ability to transact

peer to peer so people can have control over their finances. And it is that function that makes crypto unique from everything else. That's why this is a unique technology. And so I get very unsympathetic to the crypto industry when they start introducing intermediaries to this process and then say, well, yeah, we look like the original financial system, but we want this unique treatment because conceptually it's possible that you could have peer-to-peer transactions here. And so my view is you don't get to have it both ways. If you're going to show up here and be an intermediary, if you're going to be centralized and you're going to raise money from the public in order to start a project, and I can look at you and I can say, like, this isn't decentralized.

I can identify the person who's taking in money and then not disclosing to investors what they're doing with it. You have clearly entered traditional financial territory, and you have to follow those rules. And there are hundreds, if not thousands, of intermediaries and hundreds of thousands of issuers that can follow the securities laws. So why can't crypto? Even past that, we would sit down with these issuers and companies and say, what are the technical reasons. What is it about the technology you need us to change? Is it settlement? Is it that you need stable coins to be able to trade for settlement on ATSs? Like, what is it that you need us to fix in these regulations for this to work? And we actually got a lot of good feedback. We made a lot of progress.

Again, a fundamental issue that came to us with regard to the crypto natives is they were not going to separate their businesses. And that was a red line for us. Like that's just somewhere we weren't willing to go. And it's not somewhere we would go anywhere else. With the traditional firms, we had actually made a lot of progress designing a system that addressed a lot of their technical issues,

which there were a few, but far fewer than the industry claimed. And the reason that didn't come to fruition is because before we executed on that plan before anyone ever took us up on that regulation before we could get it out the door, FTX collapsed. And all the traditional financial firms didn't want to have anything to do with crypto after that. It was toxic. And so late 2020, that effort kind of fizzled out even with the traditionals.

And so what I would say to that is, first of all, I didn't opt crypto into traditional financial regulation. you built a system that looks like traditional finance, you started doing the things that are in traditional finance, and there are already rules for that. And then secondly, there absolutely was a path, and we tried to make that path. I like how you're using the word fundamental, Corey,

because that just means that we're getting down to the basement of things, the base layer. Something that's fundamental about crypto, that the crypto industry felt very frustrated and unheard about the, from the SEC side of things, is that in order to build some of the more expressive financial infrastructure beyond some of the base primitives,

like just Bitcoin and Ethereum, in order to do more things, to make crypto more useful and have better assets and a more flourishing financial system, we need to have startups that raise money and start centralized and with a long-term goal of becoming

decentralized. There's just the long-term path to decentralization. And I'll totally admit that in the very beginnings of these startups, they look just as centralized as anything else that came before crypto in blockchains and smart contracts. Yet what is fundamental to crypto, that that is

also how Bitcoin started. That's also how Ethereum started. That is how anything has ever started in crypto. And based off of how the crypto industry had observed the SEC administration, I'm to bet that Gary Gensler would have gone after Satoshi as a securities issuer if he was aware of it and alive and operating as the SEC administration in 2009 and 2010 when Bitcoin was just being

operated by five computers in Western United States. And so as an industry, we were not ever allowed to fulfill our desired destiny of becoming a intermediary list system because you still need to build this stuff. There's a lot of research to be done. There's a lot of building left to be done. And we were being treated as an industry that had no values, no morals, no aspirations, and was just trying to do what you were saying, which is have our cake and eat it too. Be the previous financial system while not being regulated as though. And so we were not given our, the ability to actually blossom into the thing that we were promising the world, that we still are promising the world, because we were nipped in the bud.

by Gary Gensler. And so we have these two foundational philosophies. We have the foundational philosophy of what you're talking about, which we've learned foundational lessons from 2008 and 2019-29. But then we also have things that are fundamental to crypto that we need to not be neutered from the get-go

in order to fulfill some of our promises. So it feels like we were stuck between a rock and a hard place there's this fundamental catch 22 that we were never allowed to move beyond. What's your reaction to that? Yeah, I mean, again, I mean, I think my reaction to that is I am technology neutral. And not only that, I just, you know, as I expressed at the beginning of this, I am impressed and amazed at the technology, at the discovery, whatever you want to call it, this idea that made Bitcoin work, that made it possible to do that.

do electronic peer-to-peer transactions. And if the crypto world had stayed in the space of electronic peer-to-peer transactions, I don't think the SEC would ever gotten involved in it. And beyond that, I don't think it would have grown to the point that the, even if the SEC had a theory that it was a security space, that they would have needed to worry about it or enforce anything. on it. The issue for us primarily was twofold. One is investor protection and disclosure. To some degree, I think when the market is as small as crypto was compared to $125 trillion

securities market, we were sort of not particularly worried that the vast majority of investors in crypto weren't sort of aware of the risks they were taking broadly. But the real issue with regard to all of this is if you take two things that are economically identical, if you have something being offered and sold as a security and you have a biotech firm selling securities, and you don't treat the crypto market the same way, you are undermining the securities laws. You are inviting the rest of the security space to operate in the manner that crypto does. outside the law. And so our main concern was protecting the integrity of $125 trillion securities market that has been built slowly on these regulations over decades, over more than a

century. Because if you let part of the sector get away with not following the law, everything else follows. And so the reason crypto became an important issue is once you had platforms like Coinbase pop up and this became a multi-trillion dollar space, then it actually did become a threat to the securities laws. Then it did set a precedent that NISI or NASDAQ could, you know, argue that they should be able to custody assets for their customers as well or argue that they should, you know, be able to trade directionally on their own platform. And so as soon as you enter that space, it is incumbent upon financial regulators, regardless of the technology, to treat the economic reality of your business practices the same as any other identical

economic instrument. And so for me, it's sort of like, it's beside the point whether or not the technology grew in some particular way as designed. The issue was the business structure. The issue was the economic reality that was being created in crypto and its relationship with the broader financial markets. And again, like, I take your point that you need startups. Every sector needs startups. And other sectors raise capital either by issuing securities and selling to the broader public by registering them or by issuing securities only to a select part of the public, along with a valid exemption to the securities laws, which there are many. You know, if you restrict your sales to, you know, accredited investors, or you only sell so much into the marketplace

and you lock it up. There are a way, there are lots of different ways to raise capital. And so I don't see a reason to treat crypto startups any differently than other startups, again, when they're doing the same economic activity. Corey, part of the SEC's founding mission, right? It's a three-part mission. It's protect investors. It's maintained fair and orderly and efficient markets, and it's facilitate capital formation, which is fantastic. And by the way, crypto would say, yeah, that's what we're doing too. I want to go back to protect investors.

And hear how you think about protect investors because you just use that phrase. You're just like part of the job is to protect investors. And you said through disclosures, right? Is that the primary mechanism? We think of protecting investors from crypto. What do you actually think? Because I hope you're not saying you're trying to protect investors from volatility or risk. Because speak on behalf of one of those.

retail investors. I don't want anybody's protection from that, right? Like, I should be the determinant of what I invest in. And so I think to a lot of people listening, they might think, when you say protect investors, you're trying to bar off retail from the entire asset class. But I hope that's not what you're trying to do. Maybe it's not. Maybe you're just saying disclosures. Can you define what protect investors actually means? You're exactly right. You do not want the Securities Exchange Commission to be making decisions on behalf of investors. That's right. You do not want the Securities and Exchange Commission

to opine on the merit of any particular investment. What you want to do is make sure that issuers of securities follow the laws that Congress is set forth and the mandate that was given to the SEC by Congress with regard to the three-part mission that you outlined. And so, you know, you know, to the point of making sure crypto is following the rules because we saw it as, you know, a potential threat to $125 trillion securities marketplace, that is part of maintaining

fair and orderly markets. It's not orderly to have two different sets of rules for two different sets of people. With regard to investor protection, the orderly functioning of that marketplace is really important. The stability of that marketplace is important. Disclosure is really important. Fair dealing, eliminating conflicts of interest, attempting to eliminate unfair information to symmetry, insider trading, for example, going after fraud. That is the kind of investor protection that you want the SEC involved in. But absolutely not. Nothing we did was a judgment on whether or not crypto was a smart investment, a good investment. I would say some of what we did, got to whether or not it was a safe investment,

but not the nature of the instrument itself, the way in which it was being propagated and the way it was being traded outside of securities laws. Okay, another question of definition or your lens on the world, how do you view things? So you kept saying something that I certainly resonate with and both even myself resonate with,

which is just like peer-to-peer transactions are totally okay. And that's, you say, that's the thing that crypto was set up to do. And I would agree with you there, 100%. That is the thing that crypto was set up to do. But then I would also extend it. And I'm wondering if your lens would allow me to extend it or you don't think it should be extended this way.

That's primarily what Bitcoin did. It's a peer-to-peer transaction store of value. And then crypto started doing other things in finance with respect to intermediary list of finance, which is like peer-to-peer capital formation, peer-to-peer borrowing, peer-to-peer lending. David and I on bankless used to call this these money verbs. Transactions, payments, that's just one of the many money verbs.

What if you can actually get to a point where you can, in an intermediary-less way, you can do all of the functions or many of the functions in finance? And so that gets the question of defy, decentralized finance. And, you know, taking the point that not everything called defy is actually defy, I mean, we had people like Alex Mishinsky say the Celsius platform was defy and he defrauded everyone and I was in jail, right?

That's not real defy. I'm talking about actual real intermediaryless defy. Is that allowed? Is that part of the peer-to-peer kind of grace that you or the SEC would, would, give crypto to operate in? I would say it's nuanced. I would say that it depends a lot on how you're defining defy. I mean, like when you get down to it, even the word crypto is extremely ambiguous.

You know, I would argue that as soon as you get out of the peer-to-peer space, as soon as you're not intermediary list, you're not crypto anymore. I don't see private permission chains as crypto. I don't see payment stable coins as crypto. You have these centralized actors without which it cannot function, and so you're outside the crypto world. So I would look at Defi the same way. If you have something where genuinely,

there's sort of this immaculate conception of a protocol that allows for trading of non-security crypto assets in a truly intermediary-less way, then yeah, I think by definition, that falls outside the securities laws. It may fall inside the banking laws. There may be other things that apply that are not my area of particular expertise when it comes to crypto. But I wouldn't see it as a securities issue.

If you're trading securities, those securities have to be registered. And if you're trading securities on that platform and I can identify a centralized actor, then I don't think that's defy. and I think it clearly has an obligation to comply with the law. So then we're going to get into this debate about whether what it means to be a centralized actor when it comes to Defi. And I think this gets into this very contentious question about whether or not code is just free speech or whether or not the producer of code may be responsible for the way that that code is used. And I think that sort of gets to the, to me anyway, the core of the issue about Defi. and how a regulator would need to think about it.

So let's run an acid test on this. I want to get back to the definition of a security too because there's a conversation to be had around that. But let's run an acid test of this in a court case from 2004, which is like Wells notice to uniswap. And I think both David and myself would argue, this case and point, uniswap. It's permissionless.

It's just smart contract code. There is a uniswap labs company that provides a user interface. and was the author of much of this code, but it's open source, permissionless code, deployed on-chain, they can't edit it, they can't, like, and also any assets,

completely permissionless, so any asset can be, you know, create a pool on Uniswap and be traded against it. In 2004, 2004, I should say, the SEC staff alleged that Unuswap was an unregistered exchange, a broker, and a clearing agency.

So applying kind of the, no, you guys are an intermediary lens on this thing, Uniswap, of course, in crypto. We felt like this was an attack on open source. This was an attack on defy. And this was maybe beyond the SEC's jurisdiction. So if code is speech, then let's go solve a code of speech type, you know, court case, right? Not necessarily security stuff.

Then, of course, in 2025, we could talk about the new administration. February of 2025, the SEC did drop this investigation with no action. But what were you thinking in 2024 and bringing? a Wells notice for investigation to the Uniswap protocol, because this is like Defy. We know the team. As Defy as it gets. They're legitimate actors.

They're based in New York. Fantastic people. Four trillion in trading volume on Uniswap. Like, it's a success story coming out of America. This is like the Google for Defi, and we have it in the U.S. isn't that marvelous? And now one of our administrations is going and, you know, bringing Wells notices against them.

It didn't make sense. What were you thinking? Well, I want to start out by saying, if I were going to choose a way to identify somebody as a good actor in a space, I'm not sure, especially in the digital realm, I would go with Google as sort of a win for internet privacy or any number of things. Now, that's interesting. We'll park that. We'll talk about that later. So you raise a lot of points about what Uniswap is, and it may have been a successful business venture. The people over there may be great. none of that is relevant to enforcement of the securities laws. And so, you know, fair to raise that, but you don't say, well, the good guys I like, they don't have to follow security's laws.

The ones that I don't, I'm going to enforce against them. Well, I would like to differentiate between people like Alex Mishinsky who says, hey, deposit your money into my defy app versus Hayden Adams, the founder of Uniswap, who built an application that is truly censorship resistance. and preserves all possible property rights. And as I define it, I'm not a lawyer, but there is no intermediary there other than the smart contracts

that has no governor over it. And so I think when Ryan says these guys are so great, I think what he's baking in there is there is an implied commitment to the ethos of intermediary-less finance that Uniswap followed through on and committed to building and actually did without any sort of like back a door

that would contaminate the whole nature of intermediarylessness. Yeah, so I think that's an argument in two parts. And we should have the technology argument. All I'm trying to point out with regard to whether or not they were good actors is we never know as regulators at the outset who the good guys are and who the bad guys are. A lot of people didn't like SBF. A lot of people thought he was the one good actor that was going to make crypto-com. compliant and serious in the world. A lot of people loved Alex Bishinsky, and when, you know, we were looking into him,

we got a lot of hate. When we were looking into FTX, we got, you know, angry letters from Congress saying, like, how dare you, this is a huge boom for America. We're going to be leaders in crypto because of this company. And then it collapses, and everyone goes, where was the SEC on FTX? And so you don't know in advance who is good and who is bad. So that's not how you approach this. I think that's a fair point.

We'll take that point. You can know who is good in advance when it comes to uniswap because we can look at the code and know that it is completely sovereign for the individual who is using it, which is not true for FDX and it was verifiably not true ahead of time. It's non-custodial is what you're saying.

They can't be evil sort of thing. Totally fair point. And that's the second argument. And absolutely worth engaging with. So I didn't mean to try and skip over that. I just sort of wanted to point out from a regulatory perspective, like, you can,

Never judge who the good guy and bad guy is in advance. The claims to authority is not relevant to the SEC. Right. Right. Right. Because like a possibility, right, would be that we go look into uniswap and it turns out that like, oh no, actually there's some guy running code in the middle and like doing activities, they found a great way to hide it. That would really shake my faith in humanity, Corey. That would not be a good guy if that was the guy. I agree. I agree.

I screwed us over and Hayden screwed us over. I'm out, man. it's done for me, but yes, continue. So, yeah, so and this is, yeah, not to cast any personal judgment, this is about disagreeing about the technology itself. So what I'd say is this. If you're going to

say that code can't be in exchange, for example, like Nizzi runs on code. Nizzi is a set of rules about matching and trading. It's a matching engine that executes transactions. And if Nizzi said,

hey, we're using now an open source code to do this. And the broker dealers who trade on that are just relying on the code. And we're a software development company, not at exchange. Like, to me, that would be a patently invalid argument, right?

Like, you're clearly just trying to get around the law. And so when I look at uniswap, I see something that, you know, in fact, Bloomberg tried to do, which is to say they had this system where you could communicate with other traders you could essentially do bids and asks

on particular securities but it was through a chat program and they were like this is a free speech chat program this is not an exchange well no like you're you're trying to do an in run around the law like we look at the activity that's happening here

and if you're neutral about technology you see a securities exchange and so then you get to uniswap and uniswap's claim is it's decentralized, we release this code into the wild, and so how can we possibly be held responsible? One, there's nobody operating it, and two, code is protected.

So I take issue with the idea that code is always protected, and then I also take issue with defining uniswap as decentralized. We didn't have to work very hard to serve subpoenas to uniswap. We can identify the people, the centralized people that are, you know, they sent lawyers to us. They sent lobbyists to Congress. Like, they are not some unidentifiable, ambiguous group. They are a company. They were also providing access, providing utilities to give access to that service.

So you have somebody. who is facilitating securities trades, they've built a marketplace for it, that to me falls squarely within the securities laws. Is this not conflating together, the Uniswap code that is deployed on Ethereum, that is unstoppable and non-custodial, that Uniswap Labs does not maintain

the whole nature of Ethereum runs unstoppable code, Uniswap and Hayden when they built Uniswap was using Ethereum for that intended property. And unfortunately, Uniswap Labs shares the same name and the branding and overall meaningful alignment with that application, but is nonetheless very meaningfully differentiated from that application because they are not operating that application. And they are just, perhaps they are facilitating on the front end. And they have gone to measures to like block people from,

Iran or OFAC countries or actual securities from that front end, but they are not operating that exchange. That exchange is not their asset. I think we have a philosophical difference about what it means to facilitate or be involved with or own or control in exchange. There have been updates to the uniswap code. It is not something that exists. in a vacuum.

There have been changes executed by agreements among the community but also that have been proposed by Uniswap itself. And so, or actors at Uniswap, I should say. And so, you know, I think there is a broader discussion

about what code is and is not and the degree to which people can be held accountable for the ways that code is used. But again, in this instance, I see somebody who is continuously involved with this project. I see somebody who is profiting from that project. And I have a hard time justifying treating it differently, especially if you think of the consequences of the other kinds of people who could make that same claim.

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Your sleep shouldn't be. Eight Sleep's mission is simple. Better sleep through cutting edge technology. Their new Pod 5 is a smart mattress cover that fits on the top of your bed. It automatically adjust the temperature on each side so you and your partner can both sleep the way that you like. It's clinically proven to give you up to one extra hour of quality sleep per night. Eight Sleeps Pod 5 uses AI to learn.

learn your sleep patterns, regulate temperature, reduce snoring, and track key health metrics like HRV and breathing. With a new full body temperature regulating blanket and built-in speaker, it is the most complete sleep upgrade yet. Upgrade your sleep and recovery with Aesleep. Use code bankless at 8Sleep.com slash bankless to get up to $400 off the Pod5 Ultra during their holiday sale. That's 8Sleep.com slash bankless. You also get 30 days to try at risk free. Link in the show notes for more information. I want to make two points here, Corey. Maybe the first is, uh, a result of that philosophical difference that you have versus say we have for uniswap, then what it de facto makes illegal is any sort of decentralized finance for all of the other

money verbs besides transactions that you established you're okay with. Pure to peer transactions, that's fine. But when we get into borrowing and lending or trading or these other things, these other money verbs become problematic. You said earlier has nuance, but the nuance it seems to be. you can't be a company in the U.S. start a company without getting in defy without getting in trouble from the SEC.

But that aside, I guess maybe I want to ask the question here of like when it comes to kind of the founding mission of like protecting investors and fernordialy markets, why is it the case that the SEC can look at something that has no counterparties, that has no intermediaries, and say, hmm, maybe the SEC regulations from the 1930s don't quite fit this paradigm of the internet

and if our founding mission, if our base principles are to protect investors, right? Maybe we can do a really good job of separating the fake defy stuff like Alex Mashinsky saying, don't trust your bank, trust me instead or whatever. That's what he was doing. This is defy. And Uniswap where the SEC can like go hire some smart contract auditors to actually look at the code and see if there are, you know, ways that Uniswap

can steal the funds, can rug users, can inject things. Like, essentially, crypto is doing some of this from the bottom up with websites like Layer 2B, for example, which shows what property rights a user has on all of these various chains. Why isn't that the default protect investors approach? Like, you don't have to regulate intermediaryless finance the same way you do when you have counterparties involved, surely. There's a lot there. With regard to auditing code, right?

Like, the SEC is not going to have the capacity, unless Congress gives it at some point, the capacity to go through every platform code and, you know, figure out whether or not it could be exploited. It is often the case that it is only in hindsight that the SEC can identify these things. You know, I would look at mango markets. Why didn't anyone else figure out the ability to exploit these systems?

Terra Luna. Why didn't anyone else figure out that that was an unsustainable? I mean, it's a product we've seen in finance before and has been eliminated because it's inherently unstable. So I think it's hard to expect the SEC to go through and try to figure out which code is secure and which code might at some point be exploited. I just like don't think that's a reasonable expectation. For some context on that, the SEC oversees $125 trillion securities marketplace. That's broker dealers, its exchanges. it's issuers, it's every public company.

And it has a $2 billion budget every year. And it has, well, we were there, it had about 4,800 employees. And so you have an enormous task at that agency with a very small amount of resources. And even though the SEC is budget neutral because it charges its registrants for the services, Congress has it under appropriations and continues to limit its budget, in my opinion, because they don't want to see broader enforcement of securities laws, because the larger financial industry has a lot of power. And so, you know, if we want to, you know, triple the SEC's budget

and establish a division that goes through and, you know, audits code, that might be a valid decision. That's, you know, a Congress problem. but it's not a capacity that the SEC has right now. When it comes to whether or not you could ever have an intermediary less exchange, I think it's a really good question. I have trouble thinking of the set of events that we need to happen for that to be the case, right? So I think, you know, one, you might imagine a world where a single developer executes,

rights code and says, hey, go to this place and you can exchange. You have somebody pointing folks towards an exchange. So you essentially have a promoter. To the extent that they have themselves any governance tokens or anything of that nature, they have a profit motive. And so the sort of immaculate conception that essentially happened with Bitcoin, it seems really hard for that to happen in the defy world or in the exchange world. I'm not going to sit here and say it's not possible, though. I will say, like, I haven't seen it. I think the Dow concept is fundamentally flawed as a, you know, quote unquote,

decentralized operation. It's a way to get out of corporate law, essentially. But, you know, you can identify the people who control a Tao, who govern a Dow. and those folks, no matter how broadly distributed they are, are accountable to that. I don't think if Boeing decides that it has a million people on its board, that all of a sudden it's decentralized and they don't need to follow the law anymore. And so I think that's, it is theoretically hard to imagine a case in which you don't have that kind of issue. However, in a world where there is no centralized crypto, where there aren't these big exchanges, where there wasn't a fight to get a Bitcoin ETP through, in a world where you actually don't have intermediaries, I'm not sure I would see Defi as a threat to the broader financial services industry, to the securities laws, in such a way that it would need to be a priority of the SEC.

One point I would make on that, Corey, is there are alternatives on how to handle defy, and indeed, within kind of the SEC at large, there are different approaches that could have been taken and can be taken, such as the current approach that Paul Atkins is taking to SEC. And even at the time, Hester Purst had some great ideas around, okay, we don't know what this whole defy intermediaryless world looks like. So why don't we do regulatory sandboxes? And so I'll just make the point that is, is certainly a prioritization exercise in terms of what to focus on. And you guys definitely made the choice to focus on aspects of crypto and aspects of defy. But actually, I want to ask maybe a broader question. This gets to a comment that you made earlier when I compared uniswap to Google, right? And it's like the rough comparison here is like it's basically a trading verb on all of the assets, you know, that can exist in crypto, which is like basically all assets. And so they've kind of like revolutionized trading the way Google revolutionized the internet

and search. And you made the comment that like, well, I'm not sure actually Google has been a net benefit and a good thing. I want to ask the question because this might be a more fundamental difference in how we see the world, right? I would not contend that Google is perfect. They're certainly not. and David and I have done an entire episodes on kind of the corporate surveillance state

and how bad that is actually for consumers and for U.S. citizens. And certainly the government is involved in this too, right? So it's not just Google who has culpability here. But net net, I'm glad Google exists in America. I think they did a tremendous service to U.S. consumers and to our country, and I'm glad they built it here. and I feel the same about a lot of crypto protocols and crypto companies. Like, I'm glad Cracken is here.

I'm glad Coinbase is here. I'm glad Uniswap is here. I'm glad America has produced projects in decentralized finance, and I actually think that's a net good for not only the U.S. but for the world. I'm wondering how you see it. Do you think that these companies, these crypto companies, ignore the scammers and the things that we both agree are just like, we don't want them here either. We don't want Celsius or SBF or flawed mechanisms like that exist

within BlockFi. We don't want that. But the good actors and the players, and again, you don't get wrapped around this idea of good. I'm just saying like the projects that have done more good than bad in crypto, like, do you think that's net beneficial? Or would you just say, look, the whole crypto project after Bitcoin was flawed and everything you guys built here is kind of bad for the U.S. and it's bad for the world. I am absolutely not saying that Google is bad. Nor would I not, nor would I say that the technologies for which they are responsible are, I mean, look, I own a pixel 10. I love the vanilla Google phone.

What I take offense with with regard to Google is an antitrust issue, is a competition issue. And I think when you are no longer competing on your innovation, when you're no longer competing on a level playing field with everyone else, I start to get really concerned about that. And so I'm agnostic as to whether or not crypto is going to fulfill its promise as a more efficient technology than the other digitized technologies we use in the finance world. I will say that I don't think I have seen it yet. But I do think that if it competes on a level playing field with other technologies and wins, more power to it.

I'm not offended by the technology itself. I think it is not fair to give crypto a leg up over other industries or over other financial regulations because it's new and some way. I can't tell you the number of times pre-crypto that a financial firm came into me and said, we're using a different new technology so we shouldn't be under the same consumer protection or investor rules as everyone else. As a matter of fact, throughout my career, more and more, I have heard the crypto industry make arguments for deregulation that look identical to the traditional industry that I've been talking to for over a decade. And so, again, The technology itself may be great.

The way to find out if it's great is to have it compete on a level playing field. And if it wins that competition, the market has decided it's great. So interesting, because I do see some commonalities here. You're anti-monoplies and you're an antitrust guy. And what we would say is like, yeah, crypto. I mean, we're here to literally debank people from the banks. We're here to go bankless. We're here to give consumers max optionality and flexionality.

flexibility and so just let us run these projects and experience. Let me get to another issue that has been kind of core throughout this conversation, which is like, what is the definition of a security? And I recall, was it Richie Torres in Congress asking Tier Gensler this? This was a clip that played out in crypto circles. And he was just like, you know, Mr. Gensler, is this Pokemon card? Is this a security? Right. And the clip goes to Tier Gensler and he like, we can't quite answer that. It's like depends on facts and circumstances, right? And he's, he's, it's, it's says something about the Howie test, okay, all these things, right? So the Howey test and the idea that all tokens are securities, okay? If your definition of a security turns dollars and game

items and loyalty points and Pokemon cards and NFTs and all of the things that can exist in some sort of valuable form into a security, doesn't it seem like you've stretched the Howie test a bit too far. And I want to throw maybe some common ground here. It's like when the SEC took Ripple to court, basically. And the judge agreed with some of the things. But there was this demarcation between the investment contract, the initial, you know, sell of XRP and XRP today. And XRP on secondary exchanges, the XRP today, the token itself is not a security, but maybe the original investment contracts were. It didn't seem like the SEC was ever taking that posture, right?

It just seemed like the SEC saw everything through the lens of, yep, it's a security. As long as it's not Bitcoin, it's definitely a security. Can you talk about that? How did you guys see what is a security and what is not a security? And do you feel like there was just too much placed on the Howie test

and stretching the jurisdiction of the Howie test to just apply to everything? The first thing I want to say, we touched on this earlier, is there is a nuance about how you talk about an investment contract. And so, you know, you mentioned Congressman Torres talking about like, is a baseball card a security? Is this a security? Is that a security? The SEC under the Howie test looks at a totality of circumstances, right? And so what that means is it's not about the asset itself. It's about

how it's distributed. In the legal term there, and I should say I'm not a lawyer, but the legal terminology there is whether it's offered and sold as a security. And when we say offered and sold as a security, we mean the package of the agreement, right? And so we were not making the case that Solana or BUSD or ETH was itself a security. We're making the argument that the way it's being offered to the public is a securities transaction, is an investment contract. And is that, just to be clear, Corey, even in the secondary sales, because I feel like some of the cases against like Coinbase or Cracken or even Binance were just like, hey, this list of things that you guys are offering, they're all securities. But these were all secondary sales. So a couple of things about that.

First of all, I think it's unfair to rely just on the Torres decision in Ripple because there were a lot decisions that did not fall out that way. Okay. And so it is absolutely correct to say that whether or not anything is offered and sold a security is a nuanced legal answer. And so it's very hard to say, like, is this a security? I would compare it to, like, this is a legal question. Whether or not something is first degree murder or second degree murder is not always clearly defined in the law. There will be a difference opinion about that. And the prosecution will take one angle and the defense will take another angle. And the courts will interpret the law because that's their role. And so this idea that you can just say that you can write down in black

and white, is this or is this not being offered and sold us a security? It just doesn't make sense within the context of any legal framework. That's just not how the law works. And by the way, Corey, is that the recent, I mean, crypto has always said, give us clarity. Tell us. Give us clarity. And I guess you're saying maybe that clarity can't be given on what's the security and what's not. You can't write down in black. The whole point of the Howie test is you, if you write down in black and white, what is and is not a security, you're writing a road. You're writing a road map to getting around the securities laws. That's what the Supreme Court recognized with that decision is that what's important

about a security is the economic analysis behind it. Are you doing the things that we talk about when we talk about securities? And yes, it's a broad mandate. Or sorry, it's a broad description. But the reason it's a broad description is so that you cannot do an end run around security's laws and say, like, based on this technicality, I don't have to read. or I wasn't really a secure a security. I get that argument, Corey, but aren't we essentially trying to do that in the

Clarity Act today? That's like a bill in front of Congress and whatever the Senate's version of this effectively is, is to write that in black and white. So you're saying it can't be done, but that's not a universal law of the universe. It's just like hasn't been done by our legislative branch, but it can be done, certainly, right? Oh, I mean, yeah, it can be done. You're going to break the whole securities market. You're going to invite a whole lot of fraud.

But, I mean, yeah, you can do it. I mean, you can pass lots of bad policy. You can write a lot of bad law. But the reason that the securities laws have stood the test of time is that they take this definitional approach, this economic analysis approach to identifying a security so that they aren't giving this like roadmap around the issuance. because every time that you draw hard black lines around an issue, people will find a loophole, people will find a way around it. But is that true to the extent that you can't say, Corey, something like a baseball card is not a security

or a tokenized version of a baseball card or a Pokemon card or not a security? I mean, certainly you can at least give guidance on things that, I mean, you did with Bitcoin, you said this is not a security. Yeah. But what we did with Bitcoin was not establish a law. What was said about Bitcoin is essentially that the commission is not going to pursue the offer and sale of Bitcoin as a security. Now, if a private actor felt that it had been offered and sold to them as a security under the securities laws, they could take a private action if they could find someone to file that action against. And the SEC can't stop that. So, you know, getting back to this, you know, can you put a black and white definition on this stuff. What you're talking about is, and I worked on writing legislation for most of my career, is very hard to write definitions. So let's say we want to regulate the chair market. Write down for me, when we say chair, write down in legislative language what exactly

a chair is. How many legs does a chair have? Is a stool a chair? Does a chair have to have a back, to have a back to be a chair. If it has wheels on the bottom of it, is it still a chair? Like, it is really hard. I'd probably come back to like something that could be sat on is a chair. I don't know, but that's not going to do though either. Yeah. Yeah, it's true. It's a hot dog a sandwich. A counter is a chair. A car that you sit in might be a chair. Like, yeah. It is, it is philosophically very hard to write into law exactly what you mean. And you don't want to miss things that you mean to capture and you don't want to capture things that you mean to exclude. And so there is always an amount of interpretation and discretion in good law. And I think Howie has stood the test of time as a great way to identify what is and is not a security.

We can go into, I think, a lot of the different categories of the way that the SEC and the crypto industry met each other, securities laws, non-consensual exchanges. And we have in this episode. we've done maybe three or four of these. And like every single time we end up in this kind of basement of philosophy where we just have fundamental disagreements about the nature of things. And in order to get around that, I want to zoom all the way back out and kind of go back to one of the questions that I've asked at the very beginning, where when we ignore the nuances and we just zoom all the way back out

and we look at the forest for the trees, what we see is that we have, I will claim to, say good people who have proven to have done good things. Brian Armstrong, Hayden Adams, the whole Cracken Organization, that have built things that have not one time lost a customer dime and have followed through on providing value to the market and providing value to customers. And in some cases, philosophically, Uniswap, for example, has created fair and orderly markets, which is 100% aligned with the interest of the SEC.

And even more spicier, somebody like Eric Forhees would say Uniswap as an application has achieved the SEC's mandate in a far better, far more scalable mechanism than the SEC would ever be able to produce. And so we can zoom out and get away from all the basement nuances and say there's good happening here. And yes, we can get into the definitions of a security and exchange and talk about, yes, we don't want to adulterate the nature of securities exchanges and laws

and allow legal rap. We can get into all of that. But most of the SEC seemed to just not be able to do that, with the exception of Hester Purse. She was the one and a few of the other commissioners as well. But as a whole, the SEC from our crypto perspective, seemed to have ulterior motives, which is why I invoked Elizabeth Warren and the whole anti-Crypto army at the very beginning of this podcast. It seemed to have some sort of mandate.

And again, the conspiracy is like the big banks used Elizabeth Warren to attack crypto. Again, we don't have to actually address that part. But it just seemed that the SEC was not able to zoom out, see the forest for the trees, and see the value that crypto could provide the world. And instead, just from day one decided that that was just not going to happen. The crypto's ideal that I wanted to give the world was never going to happen, and we're just going to nip that in the butt.

And so the perspective of the crypto industry was that all of the, there's going to be so many listeners, Corey, who are listened to this and who don't care about the nuances. And they say, just look at the net effect of everything. When you net things out, bad things happened as a result of the choices of Gary Gensler. Gary Gensler harmed investors.

Gary Gensler harmed the industry. Gary Gensler prevented a better future from happening earlier by his maligned treatment of the industry. That's the average perspective of the crypto person. And so they're going to reject some of these nuances, even though I can totally understand how you get there. They're going to reject the nuances and be like, well, when you net everything out, the SEC just failed to do its job. How would you react to that? I react strongly in opposition to that. and I would look back to history,

which is something I, like, it's something that I fear the crypto industry does not do enough, which is to look back to what we've learned. And I would say, you know, in 33 and 34, when the Securities Act and the Securities Exchange Act were passed, the big operators in the capital markets said you're destroying this really important

business that is inherently American. and look at all these, you know, good, upstanding citizens that are involved in this space that you're harming. We now have, in America, the strongest, most desirable financial markets in the world. Regulation does not inherently harm an industry. I would argue that, in fact, it makes it stronger. So, you know, in my opinion, the regulating we did or attempted to do would be a boon to crypto. I think in a world where crypto follows the law and investors get the same protections that they would in other parts of the marketplace, it gains trust and it grows. So I don't see enforcing the law as a partisan or personal attack.

And I don't see it as choosing one technology or one industry over the other. And the second part, and again, we keep coming back to whether or not there was a personal judgment about the people involved in this space. And it's not. And it can't be because we never know who the bad actors are until they show themselves. And so, look, maybe Cracken is a great company doing everything right. and also maybe they are quietly running a hedge fund off to the side like FTX did and front-running their customers.

You don't know until you have applied the regulations fairly and you have looked closely at everyone in the business. And there's just no reason to my mind to argue that that shouldn't be happening in the crypto space. And in fact, it's dangerous to both investors and the broader marketplace. if you don't have a regulator doing those things. I would look today at some of the things the SEC has been doing, some of the economic policies coming out of this presidency, some of the deregulation that's going on, and you start to see other countries saying,

I'm not sure that we want to trust the dollar as our reserve currency anymore. We want to diversify out of it. There are consequences to failing to regulate the financial markets, And one of those consequences is eroding trust. And that trust is what markets are built on. That trust is why investors seek the American marketplace, the rule of law, fair enforcement, fair outcomes. And if we start to undermine those expectations, we weaken all of the markets, including the crypto markets. Would you agree that the SEC under the Gary Gensler administration chose the bad cop path?

when it could have chosen the good cop path. And both are cops, both have to follow the law. One would be more antagonistic, and the bad cop would be here, I am going to give crypto a little bit of poison to hurt it, and so it can build back better and be better for it and to adhere to the regulations by being a bully versus a good cop,

which is like, let's be more collaborative with the industry, let's meet in the middle somewhere and hopefully come to the same final outcome where we both parties are happy. Would you agree that the Gary Gensler administration chose the bad cop path? I think we started out

genuinely trying to work with the industry. Like I said, we had met with a lot of native crypto firms. We had made a lot of progress with the traditional firms. And again, it came down to us drawing a line in the sand on having conflicts of interest in the corporate structure that we do not allow in any other part of the market. I know a lot of people in crypto who would argue, and I to some degree agree with them, that it was the repeal of Glass Stegel that ended in the 2008 financial crisis. And Glass Stegel was about a conflict of interest being engaged in both investment banking and retail commercial banking. right? Conflicts of interest are incredibly important to the stability of financial markets

and to investor protection. And this is just something that you do not want to sacrifice. I will say, even if Sam Bankman-Fried had not engaged in the fraud he did, his company was destined to fail and destined to harm a lot of people along with it. I would make that argument for any one of these vertically integrated firms. And the question is, does crypto want to be what it set out to be a different kind of financial system where everyone is in control of their own finances? Or does it want to be a system that grew up outside the law that became large and unregulated? and when it collapsed, came asking for a government bailout and become the villain that it sought to conquer.

So that to me is the fundamental issue. It is when crypto starts coming into the traditional space and doing the traditional activities, to me, it loses the protection of the argument that this is a distinct technology built for peer-to-peer transition. actions. If that's what crypto wants to build, build it. And I have no opinions on it. But if you're going to build a bank, if you're going to build a securities exchange, if you're going to raise money the way the Howey test lies out, there are laws for that. Everyone has to follow the same laws.

Corey, thank you so much for spending the time with us today. This has been super cathartic. I just want to, there's a number of questions I still haven't asked. Do you have time for a quick lightning round where I just asked some questions? Do you quick feedback? Okay. Genius Bill. You think that was a good idea or not? No, I think it's a really bad idea. We have experience with private currencies. It never works out well. And again, this is a place where I don't understand how anyone thinks this is crypto.

Whether it's circle or whether it's tether, they can freeze wallets. They are a company that holds a whole bunch of financial assets. They are by definition centralized. They run through their smart contract, what is, in my opinion, essentially a private permission chain where they are a central authority on what transactions do and do not happen. They can freeze wallets and then mint or burn to do refunds. I don't see why that should be treated any differently than anyone else.

I would ask, like, if I were trying to explain this product to my grandmother, I would say, what you're doing here is you're trading a dollar, in exchange for counterparty risk to a centralized company that doesn't have FDIC insurance. It is essentially a money market fund where the company sponsoring the fund keeps the interest. And so I don't understand why, if it is a better technology, it can't win on its merits without favorable legislation. And the second thing I would say, to my point about the market will always go into these loopholes, what did we see after the Genius Act?

PayPal, Visa, MasterCard, all the large payment companies saying, oh, here's an easier way to do this with fewer regulations. I guarantee you, we are going to start to see credit card companies saying, well, actually these transactions of the back end are stablecoin transactions. So you don't get the benefit of consumer protections anymore.

We're running this the same way as the stablecoin legislation said we could. And those players are going to remain dominant in the industry. So no, I don't think the Genius Act was a good idea. I don't think you want to treat economically identical assets differently. Oh, man, whole conversation there that I'm tempted to go into, but if I can, don't have the time. I promised lightning round. Sab 121.

Okay, this is the accounting rule that basically made it such that the SEC came down on those 2022, made it such that banks couldn't really hold crypto assets, at least any practical way. Congress actually voted a repeal of this. Biden vetoed it. Is this just to kind of constrain and contain the crypto virus from the SEC's part? No. So Saab 121 came out of, first of all, a series of questions from the industry that we had gotten in our accounting office. As to the treatment of crypto, especially when it came to a resolution.

And what that meant for us is that especially with Coinbase out there being a public company, there is a question with regard to investors about in the collapse of Coinbase, is the customer held crypto part of the bankruptcy estate? Will the company have to refund the customers the actual crypto assets themselves? So one Bitcoin for one Bitcoin? Or will the company have to reimburse them for the value of the Bitcoin when it was deposited or fair market value at the time of the bankruptcy? There were a lot of outstanding questions about the kind of life,

that a public company would have that we believed investors in that public company should be aware of. And so that's where Sab 121 came from was essentially a disclosure and interpretation of the accounting rules. And to this point about just wanting guidance and clear rules of the road, that's guidance. That's clear rules of the road on accounting that we set out there and the industry didn't like it. So, you know, it's always a catch-22 with these, you know, asking for guidance because it's usually asking for favorable guidance. The second thing I would say with regard to keeping off banks balance sheets, gap accounting is not the accounting that all that banks use with regard to their regulatory requirements. Those regulatory requirements are set by the Fed, the OCC, the FDIC, and there are many deviations from GAAP accounting for, for regulatory accounting.

And so if the bank regulators felt that they had a handle on this situation and wanted crypto at the banks, they could have put capital rules out that meant that the on-sheet balance, the on-balance sheet requirements of Sab 121 didn't affect the capital standing of the banks. And therefore, they could have, you know, done whatever they wanted. The last thing I'll say about Sab 121 is that there are banks that. there are banks that created clarity around how crypto would be treated in bankruptcy based on their rules and procedures,

demonstrating that they would essentially be in the standard custody position that we've seen with other assets like art. And they essentially didn't have to do the reporting that was in Sab 112 because they had demonstrated, you know, it was inapplicable to their business model. And we were proved right about this ambiguity, ambiguity in the bankruptcy law in crypto winner when we got tons of conflicting bankruptcy decisions about

was it governed by the contract was it governed by the activity itself like we got that right nine months before eight months before FTX failed so yeah I mean I will defend SAB 121 to the death that's something I worked a lot on

I know it was very controversial but I think it was a very straightforward policy and it's one that you know prove that we had really thought through the crypto questions and come up with coherent policies to address real issues. A lot of crypto users and voters in America holders, certainly Trump made his campaign kind of pro-crypto. He went all in. And in no small part, he demonized Gary Gensler. He was kind of the anti-Gensler comment. I remember he got up at a Bitcoin conference and he said, we're going to get rid of Gensler or something like this. And cheers of the last.

applause. Some people would go as far as to say Gensler lost Kamala Harris, the presidency. Kamala did not come out pro-crypto at all. I don't ask you to respond to kind of maybe the strong form of that take. But do you think that Gary Gensler's actions, SEC's actions, made Democrats less popular in the 2024 election? I don't think it's credible that this one industry had that much influence over the election. Now, I should say this, full disclosure. I worked for Sherrod Brown, and Sherrod Brown was a big target of the crypto industry. And absolutely, they had a marginal impact on that race. But even in a world where you do say the crypto industry is so politically powerful that they tipped that election,

what did the crypto industry do in that election? Did they run ads saying, you know, Bernie Moreno is going to protect your Bitcoin? No, they ran the same Republican ads. They paid money to run social issue ads, to run the exact same kind of theme. themes that Republicans were running on, generally speaking, now they obviously supported some Democrats, but they weren't running pro-crypto ads. They never used the word crypto. So I think it's really hard to make the argument that it was crypto sentiment that affected any part of that election. The other thing I would say is Trump thought Bitcoin in particular

and crypto generally was a scam. And he saw it as a, uh, a competition to the U.S. dollar in his first term. And then once he got involved in the business of crypto, he became a huge supporter. Similar as many Wall Street executives as well, Larry Fink, to just name one. Absolutely. Yeah. You know, they saw the money-making opportunity and, you know, and they ran with it. But I think if I were in the crypto space, I would be yelling about the presidential corruption in the crypto space going on. I think it's enormously harmful to the credibility of the industry. I think the silence

for most corners of the industry around it in exchange for getting legislation or regulatory favors is ultimately harmful to the industry. And, you know, I think that there is a very good chance that the next election might be impacted, not by the

crypto of it all, but the amount of corruption that crypto has allowed the president to get away with. I think corruption will be a big theme. And the more that crypto is in that spotlight, the worse it is for crypto. Trump is in power.

When the election, Paul Atkins is now at the helm, they have unwound a lot of the Wells notices and action against crypto company. So that's been unwound. They're kind of launching Project Crypto, which kind of takes a much more good cop approach to tokenization, unwinding a lot of the policies of the Gensler regime. People listening to this podcast see that as progress.

What do you see? Do you think that that's progress or going in the wrong direction here? I think it's absolutely the wrong direction. I think there are strategic things I would change about, in hindsight, what we did at the SEC while I was there. but in terms of the initiatives we took, I would stand behind the validity of every one of them and the integrity of every one of them.

I think it's bad that CZ gets a pardon. I think it's a problem that litigation is dropped against a company like Binance where its own compliance officer sent a text message that said, we're operating a security exchange in the U.S., bro. censored. So, you know, even, you know, you look at Ripple, right,

who is this supposedly targeted and prosecuted company. And Brad Garlinghouse in 2019 was saying, regulatory clarity is just a euphemism for I don't want to follow the SEC's rules. And so it's not like there wasn't a recognition about what should be happening in this space. it was at some point the money became more desirable than the ethos. And that's when we saw these intermediaries explode. That's when we saw the demands for, you know, large asset managers to buy a bunch of Bitcoin and launch an ETP.

I think those things are anathema to what crypto is supposed to be and harmful to the arguments that it should be treated differently than anything else. AOC wins 2028 invites you back to the SEC to resume your tenure. What do you change? Do you repeal everything that Atkins has just done for the past four years? Or what's your policy on crypto there? Yeah, I mean, it's hard to say without knowing like what happens over the next couple of years, right? So one thing that's important to remember is that so far Atkins has done.

done everything by guidance. There are no rules that have been established through the APA process, which means that none of them hold the force of law. They are declarations about the opinion of commission staff at this point in time. And so those are things that are easily reversible and could be chaotic for the crypto industry because you get a new administration in there that says these are not valid interpretations. We're going another direction and everybody gets caught off guard. That's not good for the SEC. You want it to be a consistent organization. That's why you want to see durable rulemaking come out of the agency. So I think one thing you're definitely going to have is in a new SEC that wants to enforce the securities laws equally across the entire market is, one,

a little bit of chaos. And two, a big challenge in court. And we face this as well, which is, if this was a legal securities activity, why did the SEC tell the markets it was fine for four years? The courts don't see the SEC as a new institution every time there's new leadership. The court sees the SEC as a 90-year institution that has to remain consistent across all its arguments over the years. In fact, this dropping of litigation is unprecedented in the SEC's history.

We took on litigation at the SEC that we continued from the Clayton administration that we didn't necessarily agree with on policy or principle, but we felt it's incumbent, as every SEC before us has, to remain consistent in front of the courts, to not do a 180 on your arguments. When you have court cases that take three to four years, and that three to four years could have a change in administration at the SEC, a judge doesn't want to take on a case thinking that in two years, the SEC could be making the opposite arguments it was the day before. So you start to harm the credibility of that institution.

And I think what the SEC is doing now through these actions, through these unprecedented actions, is harming the integrity of that institution. And I think that's going to have broader consequences for the market than even just crypto. So in terms of what I would do differently, obviously I would be, I think, a stronger advocate for regulation in the space. for enforcement, and it wouldn't just be in the crypto space, Adkins is deregulating a whole lot of the rest of financial system to great harm.

And those are things that I would want to focus on as well. I've got two more. David's got one. Then we'll wrap it out. Corey, thank you so much. Okay. So what happened to Gary Gensler's text messages? How did they just disappear?

Do you have an answer for that? Oh, God. So I wasn't closely involved in this, but I will do my best. And there's a report on this that came out of the SEC. IG's office. And the long and short of it is that it was not backed up correctly. And somebody, somewhere in IT, lost whatever backup was supposed to be there. And, you know, this portion of messages from Gary's phone was deleted from the history of the phone. And look, it's a bad look. It's like, it looks bad. And I don't deny that. I will tell you this. Gary, a

deciduously followed the law at that agency, and even just the perception of the law. Anytime he got contacted, like, on his personal email address, he would forward it into the SEC system for record keeping. He often would transpose texts into emails so that there was a record that these things had happened. And so, I mean, I will say this. I assure you there is nothing that was lost

there is nothing controversial or incriminating in what was lost. But like, I'm not going to convince anybody of that. If this were the case with somebody else that I disliked, I would be suspicious. It's unfortunate that there's, you know, nothing we can do about it. But, like, I promise you everything we did, we did with integrity. And Gary demonstrated that in his leadership. last question then David is ETH a security Corey ETH can be offered and sold as a security

and I think some of the things that have harmed the argument that ETH is unable to be offered and sold as security or that it's not sort of used for the purposes of raising capital for a business is for example the merge like there were a lot of centralized players effectuating that move I think the move to proof of work is questionable. Now you have people controlling the validator space

based on whether or not they can... Moving from proof of work to proof of stake. Yes. Yeah, moving from proof of work to proof of stake. Because now you have these centralized players that can buy up a lot of ETH and be a larger part of the validation process. And some people are financially locked out of the validation process.

And I think those elements arm the decentralization arguments that proponents of ETH, you know, would make. Again, I'm not making the argument that ETH is itself a security. What I'm saying is almost any asset, any commodity, any instrument can be offered and sold as a security. And it is my opinion that there have at a minimum been times at which ETH was offered and sold as a security. Corey, I've just really enjoyed this dialogue that we've been having. And it's kind of just a treat, maybe a fantastic property of the American legal system that discourse like this does propagate across industries, both your side of the industry and our side of the industry.

We never got that same treatment from Gary Gensler. Gary Gensler was invited to come on any crypto media platform, write an article, talk to us directly. We never really got the opportunity to have productive discourse directly with Gary Gensler. It only ever felt like he was talking at us. Why not?

We had Hester Purse come on the podcast a number of times. Gary Gensler would have been invited by any crypto media company to have a platform to talk to us with us, collaboratively with us. Why don't you think he ever made that choice? It is much easier for me to have

an open conversation with you guys now that I'm outside of the agency, because so much of what you do there is potentially market-moving information. And, you know, the SEC chair going on an hour-long podcast, having an open dialogue can move markets. And you get to this place where it's not constructive, as you saw in the, you know, congressional testimony, when you can't speak freely when you can't talk about ongoing investigations, you just, you look like you're dodging everything. You don't want the SEC to be like airing everybody's laundry at all times. And you don't want any single commissioner, especially not the chair, speaking on behalf of the entire commission without, you know, them being given the chance to vote on policy or, you know,

express their opinions. And so there are speeches, there are media hits where you're like a short amount of time and a narrow issue. But it is really, really hard to, while you're in that seat, I would have never been able to do something like this

while it was at the SEC. You're privy to so much information. There are criminal penalties for giving away information early, for exposing trade secrets, for exposing stuff that's going on in investigations that you could accidentally do. So it's just,

it is extremely high risk to engage in this level of conversation. And I don't think it's actually something you really want independent regulators to be doing. So, you know, I wasn't as communications guy. I wasn't as press guy, but I can tell you, it is an enormous challenge while you're in the building

to have a public, conversation about the ins and outs of what's going on at the SEC. Corey, are you on Twitter at all? I'm not. I'm on, I'm on blue sky. Okay. One of the other things I learned about the crypto space that is unique from traditional markets

is that they can be aggressively personal when it comes to, what I see is, you know, you know, policy, like good faith policy arguments. This has been an amazing conversation. I am so glad you reached out to engage with me. I like a lot of people in the space. I get along with a lot of people in the space. But also a lot of the spaces is very aggressive. Toxic. And I will say,

yes. Toxic. Absolutely. Like some of our enforcement attorneys that sign the complaints that go to courts got death threats, not just like nasty emails, credible threats. And so, yeah, like, there are people braver than me who will engage with, uh, on X who have like a, a lot more which has a larger community of crypto folks than Blue Sky does. But yeah, that's not a place where I operate. Okay. The reason why I asked is because Gary Gensler's on Twitter, or it was on Twitter, is still on Twitter.

Do you remember what he did with his profile picture on April Fool's Day of 2023? I may be remembering this differently, but wasn't it a fake Gensler account that did the laser eye thing? Wasn't the laser I think? Yes, that was a thing. It was a laser I thing. Oh,

it wasn't laser I think. Gary, the actual Gary Gensler put on the deal with it sunglasses. And he didn't, he didn't tweet about it. He didn't say anything about it. So only massively up for interpretation, which I'm happy to imbiage it.

This radicalized David. This was formative. This is the thing that I heard of the deal with it. The deal with it, Gary Gensler, April Fool's Day sunglasses. Which to me. He was just a complete troll of the entire industry, of just deal with it. Because as you know, as you just said, crypto is on Twitter,

and we all reply every single Gary Gensler's tweet with, you know, something between disgust and absolute hatred, and he put on the deal with it sunglasses. I'm just wondering if you saw anything behind the scenes around that time. Again, I was not the comms guy. It is possible. It is absolutely possible that that sort of went up without any consultation with me and was crypto-related. Generally speaking, anything we did public-facing that was crypto-focused would have crossed my desk. And that's not one.

That was the beauty of it. And I'll have to give the point to Gary as a congratulations on the incredible troll. It's so incredibly ambiguous that is completely deniable. I genuinely don't remember that one. But I do. David, one day we'll get Gary on the podcast and you can ask him that question. We'll let you have the floor for question one. Corey, this has been fantastic. This has been a pleasure.

This is an open dialogue, something we've been hoping to have with someone who is formerly in the SEC for quite some time. And you've just handled this conversation incredibly well and explained your positions. I think coming away from this, there's certainly a big philosophical divide. I can say that I'm glad you're not still in the SEC, Corey. I'll say that because we probably depart on many of the things that you talked about, but I can see how through your lens you were doing many of these things in good faith. And I certainly appreciate you bringing the conversation here to our listeners and having open dialogue about it. It's exactly

what we were hoping for. So we appreciate you, sir. Thank you. And maybe come back again. I I still think we have some more questions. I appreciate you so much for reaching out. I like having these discussions. I think smart people can disagree. I don't think these are simple issues. And this has been a really wonderful conversation. I really appreciate it.

And I wish more of these could happen. Amazing. Guys, got to let you know, our disclosures, Corey, so you know we always put disclosures at the end of these episodes, okay? None of this has been financial advice, certainly not securities advice. Crypto is risky. You can 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.