Bankless - The SEC Declares War on Crypto with Ryan & David

Episode Date: February 15, 2023

In today's episode, Ryan and David bring on Mike Selig to chat about everything need to know about crypto regulation. Mike is a crypto lawyer at Willkie Farr & Gallagher, former a regulator at the CFTC, and a frequent contributor to Coindesk about the state of crypto regulation.  Operation Chokepoint is in full effect. Tune in to understand everything you need to know.  ------  MetaMask Learn  https://bankless.cc/metamaskshow  ------  JOIN BANKLESS PREMIUM:  https://newsletter.banklesshq.com/subscribe  ------ BANKLESS SPONSOR TOOLS:  KRAKEN | MOST-TRUSTED CRYPTO EXCHANGE https://bankless.cc/kraken  UNISWAP | ON-CHAIN MARKETPLACE https://bankless.cc/uniswap  ️ ARBITRUM | SCALING ETHEREUM https://bankless.cc/Arbitrum   EARNIFI | CLAIM YOUR UNCLAIMED AIRDROPS https://bankless.cc/earnifi   ------ Timestamps: 0:00 Intro 6:18 2023 Regulation Playbook 7:15 SEC Charging Kraken 11:27 SEC Rolling Out Regulation 14:09 SEC Patronizing Approach 15:44 Wells Notice 19:45 Kaken Staking Crackdown 28:00 Driving Crypto Offshore 30:05 Staking Pools Next? 35:05 SEC Scoring Points 40:50 Paxos & BUSD 44:40 Circle 50:55 Banks Servicing the Crypto Industry 57:55 Net Effects 59:27 U.S. Crypto Regulation History 1:02:49 Why the U.S. Hates Crypto 1:06:26 Banks vs. Crypto 1:08:14 Will Crypto Survive? 1:10:25 Closing & Disclaimers ------ Resources: Regulation vs. Decentralization  https://www.coindesk.com/consensus-magazine/2022/12/23/2023-the-year-of-regulation-vs-decentralization/  Gensler Statement https://twitter.com/SquawkCNBC/status/1624041483241156608  ----- Not financial or tax advice. This channel is strictly educational and is not investment advice or a solicitation to buy or sell any assets or to make any financial decisions. This video is not tax advice. Talk to your accountant. Do your own research. Disclosure. From time-to-time I may add links in this newsletter to products I use. I may receive commission if you make a purchase through one of these links. Additionally, the Bankless writers hold crypto assets. See our investment disclosures here: https://www.bankless.com/disclosures 

Bankless Nation, hope you're doing well. We spun up this episode in a hurry for you. This topic evolved late last week. David, it feels like the SEC has declared war on crypto. Staking is not a crime, or is it? I don't even know anymore with respect to what the SEC is doing. What are we going to cover today and who do we have on as our guest? Yeah, not just the SEC. There is an entire cross-governmental agency coordinated effort to really apply pressure to, the industry across many different vectors. What is going on? We're bringing on Mike Selig, who is going to, it's his second time on bank list.

This is the first time we, he, perfect timing at the end of December called 2023, the year of regulation. Oh, he did? Yes. And we are now just six weeks later. And here we are. And so perhaps he called it. And so my first question to Mike is going to be, is this what you expected?

But overall, we're just going to get a lay of the land. And now that we have more insight into what the SEC is up to, along with all the other agencies that are also showing face, showing force, what is going on and what to do you do about this? Last we left you guys was the roll-up, which we recorded Thursday. And there was rumors that maybe the SEC was going to say something about staking. And they did more than say something. Since we recorded our last episode on this subject,

they actually went about and banned staking on Crackin. Like what's that about? We're going to talk about that. And then also Paxos, there be USD stable coin. It's under attack. So not only staking, also stable coins, staking stable coins under attack by the SEC. How is a stable coin a security? Is a good question that I'd like to know.

It's the fifth prong of the Howie test. Does Gary Gensler hate it? You got to check that box and see if he does. Well, anyway, we've got to explore all of this today and give you guys an update and what's going on. Speaking of updates, David, I want to thank our friends and sponsors at Metamask Learn for building this phenomenal product

for onboarding people into Web3 and crypto. It is called Metamasklearn. That is learn.medamask.io to go check this out. David, what's on my screen? What are we looking at here? So, yeah, Metamask Learn is a brand new educational and entertainment platform. It's an entertaining platform designed to get you immersed

into the world of Web3. So, of course, you will go through the onboard flow of what is Web 3, what's a crypto wallet, how do I set up my crypto wallet? What does it mean to do self-custody? What is digital identity? It starts to unpack some of these very, very big questions to help get people onboarded into the world of crypto. So maybe you are just beginning your crypto journey. Maybe your parents are annoying you trying to get you to onboard them into crypto if you are so lucky to have parents like this. But MetaMask learned is the place to send them either way. So like Ryan said, learn.medamask.io there is a link in the show notes to learn

all things important about Web 3. This is the Khan Academy for Crypto. So go check that out, guys. All right, David, maybe tell listeners what they can expect to hear from Mike in this episode. What should we be looking out for? Yeah. So for every single topic, there's been a number of topics that are all announced, announced, revealed in the last week or so there is SEC versus Cracken. what about Crack and Staking product really triggered the ire of the SEC? There's the SEC versus Paxos. Why did whatever Paxos is doing with Binance Stablecoin? Why did that trigger the IR of the SEC?

Then there's the rest of Operation Chokepoint, which involves just the Senate Banking Committee, the Treasury, like all of these different cross-governmental organizations overarching the Biden administration. Why is this all happening at once? is this the end of the onslaught or is there another barrage coming? So these are all the angles that we are going to talk about just to be informed about like, all right, we're six weeks into 2023. Is this what the rest of the year is like?

What a brutal year. Why do they hate us so much? I don't understand. We'll ask them like that question too. Guys, we're going to get right to the episode. But before we do, we want to thank the sponsors that made this episode possible, including Cracken, our recommended exchange for 2020. I guess you can't stake there if you're in the U.S.

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And make sure you never lose another air drop. Bankless Nation, I want to introduce you to Mike Selig, who is the council for the digital asset department over at Wilkie Far and Gallagher, an international law firm based here in New York City. And Mike has been on bankless before, not talking, not too long ago, talking about the year ahead for crypto regulation. And at the start of this year, Mike, you wrote an article where you said, in the year ahead, the SEC and the CFTC will likely push the boundaries

for their existing authorities through novel enforcement actions. Mike, we are only six weeks into 2023. Is this what you thought would happen? Is this the playbook that you thought would be coming? You know, it's a little bit more coordinated than even I anticipated. I think you've seen actions by the CFTC, the SECTC, the SEC Treasury, within Treasury, FinC, and OFAC evaluating this stuff, state regulators like the New York Department of Financial Services.

There's a clear coordination of efforts amongst the regulators, and that's a lot more than even I expected here. So, to really kick these things off, there's Operation B. choke point, which is not really an official title. That's the title that the community has come up with, this intergovernmental coordination that's really all seemingly happening at once. But we want to talk about the details on some of the intricacies, starting with the SEC. SEC and staking.

Is staking now illegal, or what are the nuances here? Do I have to go to jail if I run a validator? We're going to lack you up. Right. So the SEC came in with a settlement with Cracken. So Cracking agreed to pay a $30 million fine to settle with the SEC. What is exactly the, what did the SEC charge Cracken with? And can you just help us unpack this?

Yeah. Yeah. And just first of all, it's all the Annons out there. I'm not your lawyer and nothing I say is legal advice today. So what's going on with Cracken and staking? First of all, the SEC is not saying that all forms of staking our securities yet. They might, we'll see. But today, the focus is on these staking.

programs offered through centralized platforms here, Cracken, and all of this was settled between the agency and Cracken, and so none of this is necessarily law. It's not binding precedent. Cracken chose to settle here, but others may not. And so even custodial staking programs may be outside the scope of the securities laws. It's just a settlement. But what's happening here is the SEC is glomming on to centralized custodial staking programs. And what happens in these programs is somebody wants to stake ether. They don't want to run the software themselves and stake directly through the deposit contract. Maybe they don't have 32Eth. They decide to go to a custodial provider here Cracken, provide their crypto assets to Cracken or they buy crypto assets

on the exchange. Cracken pools those crypto assets and then deposit some of them the staking contract and others it held in reserve. And so the SEC is really focused on this program, the pooling of the assets together and providing a return to the staker, the return is not necessarily the same return you would get if you staked directly. Cracken published a return amount, and that could be higher or lower at times than the actual amount that you would earn by staking directly. The rewards are more consistent because if you've got a big pool of crypto assets that you're staking, you're going to get rewards much more often, not necessarily higher rewards.

And in fact, the rewards very well could have been lower because if you're staking directly, you don't pay fees. But the idea that there's some crypto assets that don't get staked, Crackens potentially managing this reserve, and then providing instant liquidity. So you don't have the bonding and unbonding periods that you would have. And with Ethereum, you know, you can't withdraw until we get the unlock. And so just some of the mechanics look a lot different from staking directly or even liquid staking.

And that's important. But not every crypto custodial staking program is necessarily even comparable to this. So you could have a program where you have a state license money transmitter. So most of these exchanges and custodians are licensed at the state level. They may hold a trust charter, which we'll discuss the making stuff later, or they might have state money transmitter licenses, and they register with Bin Sen as a money services business. They have the ability to move funds on behalf of customers.

And so if you deposit crypto assets with one of these third parties, they move the funds and there's a deposit contract for you, stake it for you. they're really just routing funds to another person or location. And that's kind of within the scope of what these guys do, like a PayPal or a Venmo. So that direct model is a little bit different than this pooling type model where you have some held back, some state, you know, a promise fixed return. And then, of course, the SEC is very focused on marketing. And so they didn't like some of the marketing language promoting a fixed return, promoting, you know, the expertise and security of the validators operated by crack and gear. So,

whether any of this is really fair game or right within the sense of the Howie test and the law, these are the arguments the SEC made and Cracken chose to settle here. I guess I want to ask you a few things about this, Mike. One is in the manner by which the SEC is sort of rolling this out. And this was the video that Gary Gensler put out and has a classroom with Gary. is actually the title. And like this is Gary explaining staking to us with some nice background music

and it's hilarious that it's actually a picture of a steak as in meat. Office hours with Gary Gensler. The way this was approached is very interesting to me. So it was focused on Cracken, there was this settlement, but what's interesting about the approach is like

they didn't like ask Cracken to sort of re-register or tweak certain things and then come back to them. It was sort of a flat out, you can no longer do this and then a settlement by a Cracken. I tweeted this under Gary's like, you could have mandated proof reserves, required staking transparency,

supported decentralized staking. Instead, we got another Gary G. Banhammer to the head. That's really what it's felt like from the crypto industry. Is this typically the way the SEC kind of rolls out, It's what you'd call this penalties or prohibitions, or is this somewhat unique to this particular case and to the crypto industry? The SEC has the power to both issue rules and to bring enforcement actions. These are the two ways that they regulate.

In most contexts with a new technology and new type of financial product, the SEC has open meetings where the industry can come in, talk to the regulators, work collaboratively with the industry, they propose rules, industry comments on those rules, and then they get finalized. The SEC rather than engaging with this industry under the current administration is putting out influencer YouTube videos comparing proof of stake to stake, putting out enforcement actions, sending Wells notices to everybody, really trying to diminish the industry. And it shows that they don't, at least this administration doesn't view it in the same way

that they view the asset management industry more broadly or view private equity or hedge funds. They're looking down on the industry, putting out office hours with Gary as if this is child's, you know, child's finance, you know, Matt Levine's calling it, you know, fake, you know, a toy economy of crypto. And I think that's really the messaging that they're pushing. And so rather than engage and have real hearings and open meetings on this stuff, they're just going to bring lawsuits and try and sue everybody and the industry is probably going to push back. Mike, the feeling of this video was just patronizing AF. That's what I felt.

Like, you're explaining staking to people who have ether staked inside of Cracken as if we don't know anything and we're just gullible, dumb investors, you know, and you're trying to teach a classroom. I don't understand the patronizing approach. Is that a vibe that he's going for, do you think? Or is this just like how he views the industry? What's happening here? Yeah, I think this is the Gensler vibe.

This is what he wants to do, right? He wants to delegitimize and minimize the industry, whereas what we saw with the Clayton administration, which a lot of us were frustrated with, right, during the ICO years and the token sale years where there were so many scams out there. So it was somewhat reasonable. But there were a lot of legitimate companies trying to sell tokens and build in the space. And we were frustrated with the lack of. of clarity and guidance, but they put out a framework. They put out guidance on various items.

They put out, which we can talk about later, something on stable coins, which is helpful here with respect to other things that are going on with the Gensler administration. But there's really just been from this administration, a condescending attitude. And if you come in, you walk out with a subpoena. It's not the same as talking to someone earlier about going in a meeting with the SEC. You can't really do that anymore because you walk out with a subpoena or you get wells. And it's just not a friendly environment to operate up. Just a quick definition for us. What does getting wells to mean? So a wells notice is essentially the beginning of an investigation by a regulator, such as the

SEC or the CFTC, they send you a letter that says we're considering bringing a full investigation and enforcement action where we're going to seek civil monetary penalties and other relief and tell us why you don't think we should do that. And they give you a period of time to respond. And this current SEC is not giving a whole lot of time to respond. And the CFDC, frankly, is not either. And so there's this hurry up and settle with us attitude. And they're, they're welzing a lot of these crypto industry participants.

So they're collecting a lot of information and really trying to find pressure points, really trying to find points of centralization. You know, we talked about my article that I wrote last year, kind of on the predictions for this year. I think it predicted that it would be a year of decentralization versus regulation where the crypto protocol developers are really looking to find ways to decentralize aspects of their products, same with even centralized platforms incorporating things like MPC and defy and Web 3 into their platforms to further decentralize their offerings so that the SEC can't point to these kind of centralized points of failure like they're

doing with Krakken and some of these actions. There's a tweet here on screen that this conversation has reminded me. I saw not too long ago. This is from Jason Gottlieb. He says, I find the SECs, all crypto projects have to do is coming in register line, unbelievably insulting. It assumes that there's this vast quantity of sophisticated securities lawyers who are advising their crypto clients, nah, man, screw the SEC, yellow baby, and do whatever you want.

And this is the communication that Gary Gensler and the SEC have put out there. It's like, oh, you are free to come in and be compliant with us, which is just taking the voice out of so much of the crypto industry and saying that like, oh, it's simple. You just come in and do this process. And my skepticism hat is like, oh, Gary Gensler is putting on a show. He's putting on a face for the rest of the world to say like, oh, the wild west of the crypto world isn't doing what we're asking and coming in and complying. Meanwhile, there are very smart, very talented lawyers. in the crypto space who see the predicament that we are in, like, and it is not matched by the

language out of the SEC. I'm assuming, Mike, that for your conversations with lawyers all over the space, that this is kind of a consensus view. Yeah, absolutely. I mean, I work with the former chair of the CFDC. I worked with him at the CFDC when he was a commissioner. You know, we have credible people in the room trying to work with the regulators. There are commissioners at both the SEC and CFTC, Commissioner Hester Perse, Commissioner Caroline Fam, that want this stuff to move forward, want rules, want reasonable regulation. But it's very difficult to, you know, Gary Gensler said on CNBC the other day, you just come file a form.

It's on our website. And Jesse Powell tweeted about it, like, yeah, that's exactly why we have a $30 million settlement here, because it's not that easy to just file a form. None of this stuff works within the existing paradigm for securities regulations. which kind of what we talked about the last time I was on. And without exemptive relief and changes to some of the market structure, we're not going to be able to have crypto within a securities framework. It's just going to be equity securities on a blockchain.

Okay, so we've hammered out the SEC has a bias against the crypto industry details. Like that's kind of no surprise to people. I want to actually go back to the Cracken case specifically because you talked about in the ways that all of the Cracken staking product was different from just raw protocol staking. Can you talk about just like the line that, the line that was drawn by the SEC that differentiated Cracken specific flavoring of staking versus like,

I think you'd like differentiate it between liquid staking. Just talk about the nuances about like what the SEC specifically was going after here and how crack and staking was different from just any other centralized staking as a service provider. Yeah, absolutely. So staking directly is the cleanest form in that you're on Ethereum pulling together your own 32E, sending it to the deposit contract, staking it directly. You accrue your staking rewards. The rewards are generated by the Ethereum network. They don't come from any sort of third party or centralized intermediary.

It's very similar to, you know, on a proof of work chain, you earn rewards in the same kind of programmatic fashion. So the SEC hasn't really cast any thought on directly staking or running a proof of work node or any of that. So I want to also be clear. So that includes running your own validator from your house, right, Directive Protocol. Does that also include using some sort of decentralized staking service like maybe a rocket pool or in the future Lido? Have they weighed in on that at all? So the SEC is not made of view public on any of that. I think that is the next step, right?

So we feel most comfortable with staking directly. Liquid staking and Rocket Pool and Lido and others like Liquid Collective, these other types of staking methods, you know, the SEC is not weighed in on, but they're much closer to staking directly than staking through any centralized custodium because everybody is putting their eth together in a single smart contract. There's no person running a program or collecting that eth and saying, oh, some of these are going to be staked and others aren't. And even if that were to occur with respect to the programming of the smart contract,

it's all open source. There's no information asymmetries. The code's out there. It goes into a smart contract. You get your receipt token. And we should be calling these liquid staking tokens instead of liquid staking derivatives. That's another point. They're not derivatives.

But you put your token into the smart contract, you receive your receipt token, and those crypto assets that are in the smart contract get associated, delegated to a validator node, and they get staked. And you get your rewards from the Ethereum network. They're passed on to your receipt. It looks a lot like regular staking. It looks similar to, you know, if the three of us got together and like, we don't have 32 ETH, let's pull our ETH together, run a node, and stake it together.

And that's the idea with these liquid staking. protocols as opposed to some centralized program where there's other features. And I think it's important to note that in the SEC's complaints against Cracken, they compare Cracken's program to staking directly. They say that there are these other features that make an investment like that bring it within the scope of the Howie test that presumably staking directly or even under liquid staking protocol, but you don't have all these other features. And an important point here as well is that there's terms of use, there's terms and conditions associated with a centralized platform where you're staking through a program. And depending on what's in those terms of use, as the SEC

pointed out in this instance, with Cracken, the term said that Cracken's creditors could encumber the assets. So it looked a lot more like what Gemini is being investigated for, what BlockFi was offering. Next, so some of these other lending programs where users put in assets, they're kind of together, they may be deployed in whatever way they're deployed, but you earn a return on that. And I think in staking, from a policy perspective and from just a reasonable person's perspective, the two are not the same. Some of the features on top of staking are almost not the essential managerial efforts that you would look to. The rewards are still coming from the network. And so the SEC should be more focused on these instances where they're being thrown into

3AC and into other, you know, speculative projects as opposed to being deposited in the Ethereum smart contract and receiving rewards. And Mike, to be clear, other centralized exchanges offer staking as well. I mean, maybe notably Coinbase, that is custodial staking in similar ways that Cracken is. Why it wasn't CoinBit, why doesn't Coinbase have to shut down its staking program right now? You know, the facts and circumstances of every program are going to determine what whether the SEC views it as a security or whether it meets the definition of a security.

So without speaking to any particular program, it's really hard to say. And we don't know what the SEC is looking at, frankly, behind the scenes. But every program's different. The terms and conditions are different for every program. I think it's important if there is a staking program that you look to the terms and conditions. And if you have legal and beneficial ownership of your crypto assets and they're just forwarded on to the protocol for staking, and you can pull them out at any time, there's no features that make it investment like. There's not a reserve of tokens.

All these features that the SEC focused on in Cracken, that can be used as a checklist and framework for evaluating other programs. But it's not to say that Cracken chose to settle this. It's not law. This is only an out-of-court settlement. This is what's confusing to me. So I think like staking revenue, at least because we can track this for Coinbase was like 13% of their revenue last year or something.

Right. It's like that's a lot of money for centralized exchanges. So one, it's just, you know, point of evidence that that Coinbase is still operating a staking service in the United States has not shut that down, has not been required to shut that down. And then like another point of fact is Cracken has. And like it seems like if what you're saying is true is like there could be some things tweaked to the policy or changed about the way Cracken does it. And honestly, I wouldn't see why Cracken would have any material reason not to make these changes if that was requested.

Why wouldn't they just go through the process of like, okay, fine, you know, you raise some good points, SEC. There could be some more transparency here. We could safeguard investors and make sure that this is not kind of something, an asset that some debtor can claim. Once we do all of that, will you allow us to resume our program? Instead, it's just like discontinued, pay $30 million fine. And then we have like, um, people like Jesse Powell, uh, tweeting like, look, we didn't even, there was no form to fill out. There was no office hours with Gary where I could like have a discussion with you and like be reasonable about like what we should do for the industry.

You just turned it off. And I don't understand why that hasn't happened. And like there just doesn't seem to be consistency here. Is this story making sense to you? Yeah, you know, in under the prior administration, under the Clayton administration, they set up this thing. called FinHub, which is their, you know, come in and talk to the crypto team at the SEC and in a collaborative way, we'll work through exemptive relief and other sorts of issues. That was a path for many projects back in the day. There were three no action letters granted to crypto projects. I worked on one of them, the most recent of the three, and this was in 2019, 2020, that we were granted a letter actually for something that looked a lot like a stable

coin, which was interesting with respect to some of their other actions. And it was very collaborative. The FINHUB was open to meeting with industry and providing relief under the current administration. That's not the case. And so it makes it very difficult for centralized exchanges or anybody in the space that wants to comply because they can't come in and ask for these sorts of targeted pieces of relief. Maybe they wanted to offer a program that looks a lot like a security under the guys of the securities laws. The relief they would need, they need to go to the SEC and ask for that relief. Typically, you would get that in other contexts. But here, the SEC is antagonistic and won't grant that relief, and it makes it very difficult.

You have to run the risk of the product either being characterized as security and having to settle with the SEC or not being able to offer the product at all. I think that's why the crypto industry is not convinced that this chairman is actually trying to help investors in crypto. It seems much more like this is some sort of theater to score points in some game that, you know, not, has nothing to do with protecting retail, but is maybe political or motivated in other ways. I want to make the point and check me if this is true, Mike. Cracken services in Europe are still fully functional. Europe obviously has sophisticated regulatory bodies as well that are clearly not taking

the same position as the SEC. So is Gensler in this administration not in net effect driving this business offshore and making American companies and American cryptocurrency exchanges less competitive in the global market and doing a disservice potentially to retail, removing an option from the ranks? Is that the net effect of this? That's exactly what's happening here. We've got Micah in Europe. There's progress towards crypto laws and regulations overseas.

We don't have that here. There was some momentum, and FTCS kind of blew everything up, right? And so we don't have any sort of legislation that's being seriously considered at the moment. Maybe we will. But without that legislative package, it makes it really hard because the regulators are just doing their thing. They're following the administrations. We'll talk about Operation Choke Point later, but following this kind of general antagonism towards crypto. And they have this broad enforcement authority.

And without a legislative mandate to go out and pass rules, they're just going to keep bringing these actions. and they will just want to beat it down over and over again until it's gone. And of course, it's not going anywhere except for overseas. And Europe's been a lot more sensible and not regulating defi right out the gate. They want to focus on the centralized intermediaries, which in the United States, that seems to be where the SEC is somewhat focused. We can talk about Mango and some of the actions related to Defi as well, but they're primarily looking for these centralized intermediaries in their actions.

I know David's going to summarize this in a second, but I just want to say two more things. Okay. So first is I don't have assurances that Gensler won't come after staking pools next because it seems like it's somewhat arbitrary in terms of what he comes after and what the SEC comes after. I'm somewhat worried that maybe some staking, what was the term he was not derivative. but like, you know, a token liquid taking staking token might be deemed a security by this administration next. Right. So like some people are saying, well, this is great, isn't it? Net effect is it decentralized staking. And I don't actually think it's great because one, it removes an option from the market and increases the barrier to entry to staking. But also, number two, I don't have confidence or trust that this administration won't come after decentralized staking pool services next.

Is that an unfounded kind of, you know, take or do you think that's a serious threat here? I think the more decentralized the liquid staking protocol and the option to the staker, the less likely the SEC is going to be able to bring a strong case against the developer of that protocol or the Dow associated with that protocol. I would not put it past the SEC to investigate some of these DAO's, and in particular some of the governance tokens. But the way that liquid staking protocols can be designed to really focus on decentralization, the users all coming together with their own efforts as opposed to the efforts of Crackin or Coinbase

or any of the other providers you mentioned earlier, that's a little bit different in the context of liquid staking. So I do think there are arguments there, but this SEC is throwing everything at the wall and seeing what sticks. I think if the, you want to pitch your thought, right? Sorry, yeah. Just the last thing I wanted to check is an instinct of like, okay, so the Machiavellian playbook for, you know, maybe a Gary Gensler is like, wouldn't they want to incent more American centralized exchanges to pool together stake? Because that is a vector for control for the SEC and for the state. Rather than what the net effect is, they're driving outside of their borders. Not only that, they're also just driving it towards more centralized providers. Like if I was actually trying to control an industry, and I'm Gary Gensler. I actually want to like promote centralized staking services that are based in the U.S.

that are under my jurisdiction and that I can control rather than banning it. And so like I'm I'm kind of even questioning whether Gary Gensler is actually good at this. You know, if we think maybe he is out for control, this seems to be like counterproductive to that. This is why I still can't wrap my head around that like. just seems like very capricious. And I don't have a firm sense of why he's doing it. Like, it doesn't seem like just control is kind of the element here. Is there something else I'm missing about this?

It's hard to say, you know, what's in Gary Gensler's mind at the moment, aside from a hatred towards the end of time. I'm forgetting. It's really hard to say. I think there's this sense at the SEC that a lot of these crypto products are being offered by a centralized party, and there are investment-like features that bring them within the scope of the securities laws because there's this counterparty risk where you're relying upon somebody's efforts at managing a pool of money or otherwise to generate returns for the user.

And the SEC hasn't really looked under the hood at the technology to say, hey, this looks a lot different from a money market fund or some other financial products. They're just grouping it all together and they frankly don't care. You know, the view of the SEC is essentially this industry should exist within the securities regulatory framework. But we're not going to change any of the rules associated with traditional securities such that what you wind up with is equity securities on a blockchain and all of the benefits and innovation of the technology where there's a way. I mean, the security token days where people are just issuing these security tokens. it didn't go anywhere because it was so restrictive. And we could talk about accredited investor issues and all of that.

But the burden of registering a security is massive. You have to have a prospectus. You have to issue a registration statement. There's a pre-effective period. There's all of these things that you have to do to comply with the securities laws that are very complex. And that's why you have massive companies that decide to go public. And there's a ton of legal work associated with it. and other work that gets invested there.

And that's just not going to work for crypto when you have smaller development companies issuing tokens. I think if you view this enforcement action by the SEC to crack in in silo, it'll tell some certain story. And maybe, yes, there are extra services that Crackin as a result of the economies of scale was able to provide that particular project that did meaningfully change its nature away from just being a facilitator of staking as a service to something additional, a pre-packaged product that started to look like a security, at least from the eyes of the SEC.

I think we took this story in silo that interpreting it would produce a certain outcome, a certain interpretation. But the thing is, like, there's all these other data points to consider, which is like Gary Gensler's weird office hours PR campaign that's also infantilizing of the crypto industry. And then you also take in the fact that, that like, sure, maybe it, maybe it crosses some sort of how we test secure SEC line of like that starts to look like a security. But also, like, what are the risks and downsides? And does this also inhibit the mandate of the SEC, which is like to create capital, facilitate

capital formation, right? And so, like, sure, maybe I'll get, we give the SEC the benefit of the doubt that maybe it does start to look like a security. But the alternative of that is, like, like, yeah, the alternative of that is like, like, like there are no risks here because the income is coming from a protocol. They are just being a service operator. And so it to me, it's like the SEC is just trying to score points more than it is actually doing its mandate. And it's doing this in a way. It's like, oh, like, we could, we could go after Cracken because on this technicality that they haven't considered because they, it's of common sense.

Am I on to something here, Mike? Yeah. You know, when, when the merge, happened, there were all these rumors that Gary Gensler viewed Eath as a security and was going to come out and say, you know, now that we have proof of stake and people are staking, these are securities, ignoring all of the decentralization factors, everything related to the fourth prong of howie efforts of others where got a massive decentralized network. He focused on this expectation of profits prong, which you have to, you just have to defeat one prong. So staking doesn't make it a security, right? But there was that rumor that the SEC was looking at ether as a security. I think this is the SEC's way of indirectly trying to go back

to that position. They're going after the staking as a service providers potentially, and they're looking at different types of staking solutions to effectively make it very difficult to stake to hold to use Eath. So I think it's a little bit of a backtracking, but also just a way to get it ether. Is it fair to say that Gary Gensler and the SEC, they are playing a game of scoring points and it is adjacent to the actual mandate of the SEC, which is to, you know, protect customers from risk, facility capital formation. Because that's what it seems like as a, you know, a retail crypto person, it seems like Gary Gensler is just trying to score points and so is the SEC. Is that a fair take?

It's hard to say with the fallout of FTX. There's definitely this concern of what happened with FTX happening at other exchanges. And so there's, there's this sense of urgency to go and and look under the hood of different exchanges, that's fair. But I think that if that's the case, they should issue rules that allow these exchanges to come into compliance and do the sorts of things that the SEC is looking for them to do, as opposed to just bringing these enforcement actions. Because I 100% feel confident that most exchanges would walk in the front door if the SEC would work with them, giving them exempt of relief that doesn't kill the rest of the industry.

I do want to make one point, which we haven't talked about so far. So far we've been doing this broad strokes thing about the kind of the SEC, and that's true. There are dissenters in the SEC. Commissioner Hester Purse, whom you mentioned earlier, wrote, and then, like, I consider this brave. I don't know how common it is to sort of disagree with your boss. I know it's not quite that sort of a relationship as, you know, you have different commissioners who kind of vote on these various enforcement actions. But Hester Perce dissented.

And this is a quote from CNBC from her dissent post, using enforcement actions to tell people what the law is in an emerging industry is not an efficient or fair way of regulating. And I feel like somebody in the SEC like Commissioner Hester Purse has been consistently fair. I mean, we've had the opportunity to both talk to her on the bankless podcast because she engages with the crypto community. Imagine that, Chairman Gensler. imagine actually talking to us evil people rather than just giving us office hours editorials. And she has consistently had a fair approach, which is like, yes, some regulation is needed,

particularly where there is centralization, regulation is needed. I even think that some staking regulation is certainly needed, some custodial staking regulation to encourage transparency. But this ain't it. Anyway, I just wanted to point that out because there are people in the SEC, and We have tons of people in various government agencies that actually listen to bankless. And so if you are fighting the good fight internally for the core values and the reasons that your institution exist, know that we support you in that fight.

And I don't want to paint too broad a brush on the SEC. But certainly under Gensler's leadership, this has been increasingly hostile towards crypto. Is it time, David, to talk a little bit about not just staking, but about, about Paxos and stable coins. Because what is happening with that? And I feel like I'm barely up to speed with what's been an emerging story over the last couple of days.

Yeah, so Michael, we'll get your take on this too because I would love to understand how a stable coin can become a security. So February 13th, that was yesterday, Paxos receives SEC notice over Binance's stable coin BUSD, which is a product that Paxos provides to Binance. So the New York Department of Financial Services, I think, NYDFS,

instructed Paxos to stop minting BUSD due to a concern about its relationship with Binance and is considering action that the BUSD is a security and then Paxo should have registered the offering under federal securities law. How does that make sense? Why would BUSD be a security? And just like what's the real story here? If this is all like what the SEC is telling and showing us, can you just tell us what's actually going on? So we all know the Howie test, right? You know, an investment of money and a common enterprise with a reasonable expectation of profits based on the efforts of others. What sort of profits do you expect with a stable coin, right?

It's such a mixed value. So it boggles the mind to think through what they're considering when it comes to a stable point. I mentioned earlier there was a no action letter that the SEC issued that I was involved with for V-coin, which was issued by Inview. And it's a stable value point as well. The letter explains that you put a certain fixed amount in and you can use the token and then they'll allow you to redeem it for that same amount. And the SEC didn't view that to be a security. There was also an SEC interpretation from September 2020 where they say that stable coins

can be issued as non-securities. They specifically say that whether, you know, one, stable coins is security, it depends on the facts and circumstances and they do a case-by-case analysis. Gary Gensler in a speech several months ago, similarly kind of said that stable coins may be securities based on the facts and circumstances of the offering, whether there's interest involved, whether there's an algorithm involved or whatever, they can resemble a money market fund, for example, where you have an interest in a fund that maintains a stable dollar value, or it could be something else. The definition of a security is broader than just investment contracts. There's other categories, things like notes, and then there's also what's called. evidence of indebtedness, which is super broad that they could be looking at with respect to stable coins because in evidence of indebtedness is just what it sounds like. You put something in

and then you have this receipt that evidence says that you put that in and that you have the value of it. But historically, all these sorts of stored value products have been regulated at the state level and by treasury as like gift cards, basically. You can load funds into Venmo or or PayPal or any of these other custodians, and they're regulated at the state and federal level, and you can send those funds to people. And stable coins aren't so different from that. So it's a bit unusual that we'd see the SEC encroaching here.

Gary Gensler's also implied that they could be security-based swaps, which is another type of security. But it's interesting to think about what they're so focused on here. The policy concern seems to be that these are the entry points into defy, that people are purchasing these stable coins and then using them as a substitute for cash in defy and they're able to earn returns through defy through yield programs and things like that. And then some of these are exchange tokens and people are staking them on the exchanges and earning

yield. So it's really hard to say where the SEC is focused here. This is all allegations that there's a well's notice out there. There's, I think Paxos has confirmed that they've received a well's notice. I saw that the other day. but we just don't know what's in there or what's going on. And Mike, what about this story of Circle, this is from Coinbase, I believe, from today,

no, yesterday. Circle sounded the alarm on Paxos. I don't know if this is a rumor or confirmation. What is this about? Is this relevant to the story at all? And like if BUSD is a security potentially, then why isn't USC? It's really hard to say

every single one of these stable coins will be analyzed on a facts and circumstances basis. There is, as I mentioned, some very good precedent that would cut against what the SEC is potentially trying to do here in characterizing some stable coins as securities. We really have to look at the individual facts of each product. But this is very much a, when we think about Operation Choke Point 2.0, an attempt to cut off banking products, stable coins, access to banks, qualified custodians, all of that from the broader sector and potentially a way just, even if they're just casting foot on all of it, as opposed to really having the ability to bring an enforcement action. Because remember, with Wells notices, it's just

an intent to potentially bring enforcement action. It doesn't mean that they necessarily will. They're investigating. So it's very possible that they've got nothing, but maybe they are looking at evidence of indebtedness or some odd category of security here. So I'm more. wondering if you know anything that's going on behind the scenes or can speculate about that. I know lawyers don't like to speculate about things, but I'm going to ask you to see what I can get out of you, Mike. NYDFS spokesperson is quoted saying that Paxos violated his obligation to conduct tailored periodic risk assessments and due diligence refreshes of Binance and Binance customers to prevent bad actors from

using the platform. And I know we're going to turn to this idea of Operation Chokepoint, which the kind of the theme here is that there are multiple government agencies who have desires and goals and they all come to a table and maybe somebody is like, hey, there's a bunch of money laundering going around with finance, SEC, any way you can take them down. And the SEC is like, oh, well, BOSC kind of looks like a security. I'll scratch your back. Is there, is there anything to this sort of like speculation? I don't know. I mean, it's really hard to say. I don't know if I have much to add on that. You know, it's, there's a whole lot of news going on at the moment.

And I think everybody's got a new story that they're trying to break. And it, some of it may be true. Some of it may not. But I think we're going to have to wait and see on some of this. And the current status with BUSD is, has Paxos like disbanded it? Or is it's a down-only supply. So they have agreed to no longer issue any new supply of BUSD. And so the supply BUSC is down only.

And as far as we know, BUSD, was a product similar to USC and that it's just a stable coin kind of backed by Fiat and a bank account somewhere. Is that right? With some speculation that there might have been a fractional reserve at some point. And the one important distinction. So we talked about some of these state money transmitter licenses that many of the exchanges and custodians have obtained.

There's also what's called a trust charter. And so Paxos is a New York limited purpose trust charter. They are regulated by the New York Department of Financial Services as opposed to, to many of these other stable coin issuers, Circle, for example, has money transmitter licenses and is regulated by regulators across the country. And there's what's called the bit license that many of these state money transmitters have to get. The trust companies, if they're incorporated in New York, don't have to get that bit license, but they're directly regulated by DFS. And so DFS can say, hey, we don't like this product. Turn it off. And they can say,

hey, no new listings for coins. They can really exercise a lot of control over these entities. And so if the DFS doesn't like a product or wants to turn off your ability to self-certify products, they can do that. And that's a real choke point that the regulator has over these guys. So, Mike, we need to turn to Operation Choke Point because this is the overarching picture. And there's a lot to unpack here. And so we're going to get to that conversation and more as soon as we get.

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of bank run and insolvency. January 9th, Metropolitan Commercial Bank announces total shutdown of crypto asset-related verticals. January 21st, Binance announced that due to policy at signature bank, they can only process user-fiat transactions worth more than $100,000. January 27th, the Federal Reserve denied Cryptobanks custodious banks' two-year application to become a member of the Federal Reserve System, citing safety and soundest risks. I'm about one-third through of a very long list that includes Binance, the Department of Justice fraud unit, more Silvergate stuff, Protago and Paxos, more Silvergate bank, hit with a class action lawsuit. Anyways, if I had the time, I would go through every single one of those things, but I think

listeners get the point is that there is a bunch of bad stuff happening in the world of banks servicing the crypto industry. This has all started in the last eight to 12 weeks. Now the SEC comes out with some very big enforcement actions. There seems to be, a bunch of bad things happening. Mike, why? Why now? How did this, all of this coordination happen? What's the motivation here? Just like, how should we think about all of this? Yeah, so there was this presidential order related to crypto put out last year. Kind of encouraging this coordination, encouraging some reports and working groups and thinking on crypto didn't expect necessarily for this to be such a coordinated effort to take

down crypto, it seemed more positive at the time and many had that view. But what really seems to happen here after FTX is that all of these regulators start working together under the executive branch and working to choke off access to the banking system and then also minimize the ability for financial institutions to really access crypto for investment advisors to provide access to crypto to their investors, for financial institutions to, to, go and invest in crypto or offer custody of crypto, all these sorts of products that you'd need for crypto to really take off within the institutional sector. The SEC Treasury, OFAC and FinC within the Treasury, and the CFTC seem to be cracking down on based on some of these actions,

and many of which you just named. I think it's important to take a step back and just think about how the banking sector is kind of regulated. So you have these state banks. that are chartered with the state. So Wyoming's a great example because they offer the special purpose depository institution, which custodia is one of. And so that's a charter you get from the regulator at the state level. And if you want access to the Federal Reserve, you have to go to the Federal Reserve and request a master account.

And FDIC, the Federal Deposit Insurance Corporation, you have to go to that regulator and get that coverage for your customers. So there's kind of this two-tiered system. they also, there's federal banks as well. So you might be like Anchorage, a national trust bank, and they're regulated by the OCC. So there's just various banking regulators about the federal and state level. What's happening here, and you also have these New York limited purpose trust companies, you have state trust companies, and these are banking institutions, but they're not

depository banks. And so all of the big names that you'll hear about in the institutional custody space are mostly New York a limited purpose trust companies like Coinbase custody and others. So they have this charter that they got from the New York Department of Financial Services to operate. What's happening here is that the federal regulators are putting out these releases, policy releases that they've now entered into the federal register, essentially saying that they don't view crypto custody and crypto investment as principal and lots of different types of crypto activities as safe and sound banking. And they're saying that these state banks that want to be

insured by the FDIC or want to access the Federal Reserve or do anything else really related to the federal regulators, they have to not engage in crypto activities. And so it makes it very difficult, for example, for these Wyoming SPDIs like Custodia to go and get Federal Reserve Master Accounts. And so they've been declined. This is really a true. tricky situation for custodians. The SEC, so there's a rumor actually started by one of my colleagues, Justin Browder, that the SEC might propose amendments to the custody rule tomorrow that would make it very difficult, if not impossible, potentially, for investment advisors that are registered with the SEC to custody crypto assets and offer crypto assets to their investors.

And so if you're a fund manager and you're registered as an investment advisor and you have a crypto fund, the crypto under the custody rule needs to be custody with what's called a qualified custodian. And there's a number of different things that meet the definition of a qualified custodian that's set out in this SEC rule. Today, as a trust company, arguably you're able to custody crypto as a qualified custodian. So you can go to a trust company and put your crypto there. they hold it for you, and that's all kosher with the SEC. If they change that definition, they would make it impossible or very difficult potentially for all of these investment advisors to custody crypto assets. So they would have to, before whatever effective date of the rule, if it goes into effect,

withdraw, sell, and get rid of those crypto assets because they couldn't offer those products, wind down those funds, all of that. And this is all rumored. It's speculative. But there seems to be a leak within the SEC because there's a Bloomberg article that dropped today confirming that this may be happening. And it would be proposed as a rule, would go through notice and comment, but we saw, you know, in the prior administration, when they were trying to crack down on non-custodial wallets within the Treasury, they put these

things out potentially very quickly and give 30 days for notice and comment and just ram it through. And Chair Gensler has done this at the CFDC when he was enacting all the Dodd-Frank regulations after the financial crisis, pushed them through very, very fast. And so if this happens. It could happen very quickly. And that would really take, you know, give a hit to the institutional sector. Is the net effect of this that it becomes harder to self-custody crypto assets, as in who, where all the crypto assets become custody to go into a smaller, more centralized, more perhaps like state-aligned entities than what is previous, which is a more, you know, not permissionless, permissionless isn't the right word, but like a more open set of people that can

custody crypto assets, that gets confined to a much smaller set of people and those people who are able to custody crypto assets are much more state aligned. Is that a fair description of the net effect of this all? As a net effect, I think that there's going to be less institutional access to the banking sector. As it stands today, it's very difficult to get a bank account as a crypto company, and it was even more difficult years ago. there were a handful of banks like Silvergate and Signature that were offering access that's broadened out and you see more banks offering access.

But we saw the other day signature was winding down a lot of its crypto clients. And so just as any business, you know, whether you're a small business, large business in the crypto sector, access to banking is really important. And then investors that want, you know, asset managers that want to offer crypto products, not being able to custody that's going to make it very difficult. So yes, I think there's going to be a lot more high. net worth individuals that just go out and buy crypto on their own and custody at themselves and all of that rather than using a fund manager. And so is the motivation for this, like they're,

what, what is the motivation for this? Because it kind of just seems like they want to squash the industry. From the external perspective, like, oh, they're like literally just cut off the oxygen and eventually the thing will just wither on the vine. Yeah, it sounds like the like the executive branch on the back of like SBF and everything, you know, everything that happened in. 2022, we're just like, hey, now's our chance. And let's like all get together and see what we can do to choke off this fledgling industry. In all of our vectors for control, we control the banks. So what can we do to make it real hard to get a bank account for any sort of crypto company or institution? Okay, checkmark. Let's do that. We can see that in process. We control vectors of

kind of what securities are. And so how can we make that piece difficult as well? And it seems like it seems like this coordinated effort of some meeting that none of us know about, nor were present for, of kind of the executive branch going after a divide and conquer strategy to choke out this fledgling industry from like a serious investor circles inside of the United States. That's what it feels like happened. Is that really what's happening? and has anything like this happened in kind of the U.S. regulatory history with respect to crypto previously? Is there any sort of analogy here? Yeah, I really think there's an analogy to the 90s when we had what was called the crypto wars. And it was really this war on encryption and cryptography.

And there was this case, Bernstein v. United States, where a professor developed this cryptography technology that he put out on his website for students to use an experiment with for teaching purposes. And he wanted to broaden it out and distribute it more, you know, across, cross borders, outside the United States, all of that. So you went to the State Department and said, is this okay? And they essentially said, no, you're exporting munitions. They compared cryptography to WMDs, firearms, all of these illegal weapons at the time.

And exporting that outside the United States was illegal. He fought that to the Ninth Circuit. The Ninth Circuit agreed that this was a free speech issue. a First Amendment issue, and that really opened up the ability to export cryptography. And it was actually a threat for a lot of these programs like Netscape and others, where they incorporate encryption. And there's no ability to protect credit card information or other things. And this really broadened up the e-commerce industry and all of that.

I think here we're seeing the opposite, where it's almost this import embargo placed on crypto, where they want to keep all this outside the United States. They don't want it here. And so they're cracking down in the industry to push it all offshore. And there's tokens that have been sold offshore in the past and all of that. But for the most part, we've had exchanges here. They're regulated as money transmitters at the state level as money services, businesses at the federal level.

There's become kind of a regulatory framework to offer compliant legal crypto products. But if they say they're all securities and the SEC's not willing to work with the industry to develop a framework for it, it all just goes offshore. If you can't have a bank account in the United States, you've got to go offshore to a foreign bank and start your business there. Cayman foundations, all this sort of stuff. We're seeing it all go off the door. Mike, are they dumb? Like, are they stupid?

Like, here's what I don't understand about this. This seems so self-sabotaging the United States, right? Here's a fledgling technology that could be as impactful as the Internet. But you know that, Ryan. What do you think they know? do they know that? Because like how many of these people are just doing a job? And their job's like, oh, I've got the hammer and who am I going to hit today?

How did we ever get the internet to happen in the 1990s? Like, how did we ever get kind of like regulators and our legislators on board with opening up a communication protocol? If like they can't see the potential of this fledgling industry. And they're so willing to drive it outside of the borders of the U.S. I don't know if those in power realize, maybe they just don't care what's at stake for future generations and for the United States. Like, we've always said on bankless,

this isn't about whether crypto will succeed or fail. The best they can do in the U.S. is like slow it down a little. But they can absolutely harm the U.S. They can make sure that all of this innovation happens outside of the United States, but they can't, like, they can't, put this back in the bottle. I mean, like, the toothpaste has been squeezed out of the tube and they can't, like, put it back in. So, like, what are they doing? This just doesn't have coherence.

Are they just hopeful that, yeah, we'll just, like, block it in the U.S. and drive it outside of the, and then in a few years, it'll just go away, you know? Like, is that what they expect to happen? I know this is probably outside of the, like, the, like, lawyers don't like to speculate. Yeah, this is, I know this isn't a legal question, but I'm just trying to make sense. of any of this. And it seems to be the most self-sabotaging move that the United States could do. The most anti-capital, anti-entrepreneurial, anti-freedom response that they could take. And it is seeming like the inside of the United States is one of the most hostile countries on earth to this freedom-giving technology. And I'm just like, what gives?

This is so dumb. I don't understand it. And now I'm getting into rant territory. But is there anything you would say about this, Mike? Well, if you look at the terms of service for many crypto products out there, they will have the United States listed right next to North Korea and Iran on their terms of service. It's a really bad look for the United States. Rather than embracing the technology, they're pushing it offshore.

And the United States is now in line with Iran and North Korea on every terms of service. I think there's a huge opportunity here, and there are many on the Hill that get it, right, right? Like Tom Emmer, McCarthy, but others are just pushing against it. And I think after FTX, there was this idea amongst many on the Hill that we just don't pass any legislation. We just let it go, treat it, you know, as an asset class that doesn't belong here that we don't want to recognize in any legislation. and then let Gary Gensler and regular agencies go after it and police it in the United States and push it out. And this won't last, right? We're going to get new administrations in the future. The stuff's going to flourish here. But in order to get there, we really need to make our voices heard

and to communicate, educate regulators to help them understand that the technology is a generational technology that deserves to be here. I can't help but to ask a large amount of what the net effect of the SEC's actions and other agencies like the SEC is, we call it investor protection in the front, but incumbent protection in the back. And so I'm wondering, Mike, is there anything worthwhile to speculate here about how much the banking sector is involved here? Because if you look at the one category of winners here, it's the fact that the banking sector doesn't have to compete with crypto. Is there anything to this speculation? It's possible. I mean, I think the,

banks ultimately all see the merit in this technology. So the CEO of Goldman Sachs wrote an op-ed in the Wall Street Journal praising blockchain technology. And I don't think it's that, you know, blockchain, not Bitcoin kind of movement. I think they actually get that there are public permissionless networks like Ethereum and others out there that they view as being important for the banking sector as well. So I wouldn't necessarily say the banks are aligned against this. But I do think there is this investor protection monitoring.

amongst some in the sector and some on the hill that view this is kind of a shady asset class. Like when I got into Bitcoin, I remember it was like everybody believed that it was magic internet money that the drug dealers were accepting on the internet. It wasn't this legitimate asset class. And I think today you have people trying to throw the same sort of fear on top of it again. Well, Mike, we're going to be fighting the fight for hearts and minds, of course, on bankless as we do and encourage our community to get involved where they can, whether that's calling their senator or a member of Congress or writing someone or just making your voice heard,

we'll continue to call for that for sure. I'm curious, Mike, if maybe you could sort of close us out on a ray of hope here. So some of your comments a little earlier, I almost gave the spirit of like, yes, this two-shel have passed. This is sort of a phase. This is not a permanent situation that the U.S. finds itself in. We've gotten, we've, you know, gone through dips and then come to the other side of accepting new technologies in the past that, you know, scared the nation's data at first and ultimately passed. What is your hopeful case for how we come out of this on the other side, where this technology can actually flourish in the borders of the United States. Do you have a path for that happening?

Yeah, you know, cryptography survived through the 90s. There was this crypto wars. Maybe we're in Crypto Wars 2.0 now, but crypto will survive in the United States. It will take time. We need to work with the regulators. We need to fight some of these cases in court. And unfortunately, without new rules for crypto, it really will be the builders versus the regulators, the dev teams need to kind of think through thoughtfully how they're building products. Decentralization is an option for many of these protocols and teams out there, thinking through how they either trip into the securities laws or don't. That's important. But I think we'll all survive this. Future administrations are going to hopefully be a lot

more friendly to crypto assets. And it will just become such an economic case that this needs to be here that I don't think the people on the Hill will be able to ignore it. And as I mentioned earlier, you know, we've got McCarthy, we've got Emmer, we've got many on the Hill that are fighting the good fight. The industry needs to just continue to stand with people like that. And frankly, you know, frankly, fight some of these cases in court if it comes to it. I think that there are good arguments that many of these companies are going to be able to raise against the SEC, and they shouldn't let them, you know, intimidate them into basically just going with it with the Gensler way.

Well, thank you, Mike, for walking us through this and beg this nation. I hope you felt educated in what's going on with this seeming war on crypto that the U.S. has launched recently. If nothing else, we certainly have demographics on our side in another couple of decades, certainly. Those that are young now and in crypto will be those in power in our halls of Congress and on Capitol Hill. So we got that going for us anyway. We just have to wait them out. Mike, this has been a lot of help. Thanks for joining us today on bankless. Glad to be here. Recent disclaimers, guys, of course, I got to say for Mike and for all of us, none of this has been legal advice, not anything like it.

Neither has this been financial advice. Of course, as we always say, crypto is risky. So is defy. you could definitely 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.