On The Brink with Castle Island - Dana Syracuse and Josh Boehm (Paul Hastings) on the regulatory picture post-Genius (EP.705)

Episode Date: March 3, 2026

Dana Syracuse and Josh Boehm of Paul Hastings join the show. In this episode we discuss: The OCC Charter process how digital asset companies are pursuing the federal path The aftermath of the Genius Act passage and the rulemaking process for this law Considerations for Federal vs. State charter pathways The market structure bill Learn more about Paul Hastings 

Today on the podcast, I sat down with Dana Syracuse and Josh Baum of Paul Hastings. Dana and Josh are two the most active lawyers in the industry when it comes to stable coin licensing, and they've been especially active on OCC applications. This was a great conversation that touched on some of the latest developments on the regulatory side of the industry. So without further ado, here's my conversation with Dana and Josh of Paul Hastings. Matt Walsh and Nick Carter are partners at Castle Island Ventures. All of these expressed by them or the guests on this podcast are solely their opinions and do not reflect the opinions of Castle Island Ventures.

Guests and host may maintain positions in the assets discussed in this podcast. You should not treat any opinion expressed by anyone on this podcast as a specific inducement to make a particular investment or follow a particular strategy, but only as an expression of their personal opinion. This podcast is for informational purposes only. Brought down by bad mortgage investments, Lehman, which has 25,000 employees, will be liquidated. The federal government loans American International Group, AIG, $85 billion.

This is a different kind of market, and the Fed is asleep. The federal government is stepping it to stabilize Fannie Mae and Freddie Mac, the two mortgage giants that have been threatened by the housing crisis. The bank of England has pumped 75 billion pounds more into Britain's ailing economy with a new round of quantitative easing. And print a couple trillion dollars and all of a sudden people start to worry. So out of this worry, we have something called the Bitcoin. Dana and Josh, welcome back to the podcast. Always good to talk about regulatory developments. Been about a year since the last time you guys were on.

So I'm not going to make you do the recap of your introductions. But feel free to splice that into the responses here. We'd love to just hop into it. Maybe, Dana, starting with you, a lot has changed in terms of the OCC in their role in this industry. So maybe if you could just speak broadly to what you're seeing, what type of companies are going this path. I know you guys are Paul Hastings are probably working with five or six of these companies that are going the OCC path. Great to be here. It's definitely been a really fascinating year.

And last time that we were on, I don't think there was really any way to predict the level of engagement that we're seeing from the OCC right now through the application process and then going on through supervision, what the Genius Act is meant to reducing ambiguity in identifying the standards that these companies are going to be held to. And the other thing that we're seeing is it feels like there's a good amount of cooperation between the regulator in these applications and through the supervision process and the applicants, but also among the regulators that also supervised and examine and license stable coin issuers. It's really, the environment has moved.

You know this for a very long time. You've done multiple bank level charters through the years. And it's interesting to see how the narrative has shifted among entities from regulation, stifled innovation, to no, we just, need a clear set of rules that we can follow now. A lot's going to be worked out through rulemaking, and that will then influence things like custody, reserve, composition, ultimately, management of reserves, things like that. But it's really interesting to see how things have solidified nicely. And Josh, maybe building on that, would love to just talk through what you guys

are seeing in terms of the consideration set for companies that are moving into that OCC framework, or deciding whether or not to do it. And then also just curious about what it means to run a business once you have a conditional charter. Great questions. First of all, echo Dana's thanks for the opportunity to join today. That the world's really changed since the last time we joined you in late 2024, I believe. It's been a substantial change on the federal side in terms of policy toward digital asset companies. And as Dana mentioned, a lot more openness to charter and digital asset firms for custody, purchase sale activities of digital assets. And we've seen that through through a number of applications and now some conditional approvals that the OTC has granted

late last year. No Great Secret in the four years prior, there really wasn't much action at the federal level. It was really you needed to find a state charter of some kind or money transmitter license to do those sorts of activities. But for a company that is exploring, is it a right thing for me. A cheap thing to understand right out of the gate. It is a banking charter. And although the door is open, there's still a real process that you have to go through, you have to develop an extensive business plan, make sure you've got directors and officers in place, develop a path of profitability, and develop a good pro forma financial statements to say that you can become profitable even in boom and bus cycles. And then go through a number of questions

from the regulator that span a variety of issues, ranging from your information security to your empty money laundering, to your capitalization, among other topics. And then if you get out on the other side of it, you then have to set that bank up and build out a policy and procedure framework and go through examinations that really are bank grade. So there's a lot of power and benefits that come with having that charter nationwide preemption for the most part, but a lot of responsibilities that come with it as well. I'm sure your clients are asking you, well, what would happen if we have a new administration and they're less friendly to this industry? Is this OCC path, sustainable, durable? Are you guys think about those considerations for entrepreneurs? That's definitely a factor that plays into

what I have to go down. Choosing a peer licensing regime that's important, not just for speed to market, but also for longevity of the model that you're trying to build. And every successful project that we've worked on, the really successful ones, they've got two key things. One is product market fit. We see that with stable coins and stable coin issuance. The desire and the ability to accomplish faster, cheaper movement of money, but then it's also regulatory fit. And what that means is not just what is the underlying law, what are the policy positions that have been taken? What's the history of that regulator in the space? Are they here for the long haul? And obviously also, what's the durability of the charter on a long-term basis?

Can you grow into both what's legal or permissible, what's permissible from a policy standpoint? Over at the OCC, we have a confirmed Comptroller, which we haven't had in many years. And typically when there is a Comptroller that's in place for a specified term, they're able to get a lot done. We have a series of interpretive letters on which to rely. And you have a team of people that are opting into wanting to be part of the space, license, regulate, supervise. At the end of the day, as we said in the last podcast, people are policy and they're incredibly influential in the direction that an agency takes. but definitely optimistic on the longevity of that. Similarly, you have, when you're thinking about other charters that are out there in the durability of regime, you've got the New York DFS. They were the

first to really step into the fray in supervising stable coin issuance early with guidance that is mirrored in many ways with genius and have a massive number of people in place to license, supervise, and regulate these entities. But one of the things we always talk to clients about is you could have, and we've seen this with a lot of different states, fantastic regimes, and the law is there. It's all lined up, but there's nobody there if you go to apply. There's nobody there if you go to developing a product and you want to interact. And it's like tennis, you need to have somebody on the other side that is going to work with you, participate in keeping that ball back and forth. Genius and the National Trust Bank regime, it's definitely, I think, kind of dominated a lot of the

discourse over the course of the past year, I think rightfully so. But I think it's really important to emphasize. There's no one-size-fits-all approach, and sometimes it is a state trust, sometimes it is a national trust bank. Sometimes you've seen this in some of the public dialogue. You'll have companies that will have both for various reasons, or a national trust or a state trust with a series of money transmission licenses. And Josh, when he was earlier talking about applications and the development of those governance, and that corporates, corporate structuring and the longevity there is that key. One thing I'll add to that, I think it would be important to watch which radio owners ended with a critical mass of applicants and charter holders who focus on

digital assets. That was a dynamic we saw in New York. Obviously, it just started with the feud back in 2015, but it really built on itself with the commitment that New York showed to regulating digital assets. And you had more and more entities going there because it was known as a regulator that was building a specialized team of regulators who understood this stuff and could supervise it effectively, as opposed to jurisdictions where it's just maybe a one-off. And now we're seeing on the OCC side, a whole number of entities going there and assuming many

or most of them get through the process and become chartered, will that create that same critical mass and allow for that pattern recognition and more sustained by and all the standpoint of regulator? I think when you have that critical mass, it can help buffer against political changes that may happen. the future. That makes sense. One consideration that I was thinking about is just would there be enough people at the OCC to get through these things? We had a government shut down here not too long after everyone started applying, but it seems like they've been turning them around in pretty short order.

They have. There is, from the time of submitting the application through conditional approval, they've been holding pretty close to this 120-day review window. And then the way the process works is at that point, once you have conditional approval, then they start turning their attention to things like review of policies and the policy development all leading into a pre-opening exam. So it is beginning to end, lengthy process. You have up to 18 months to meet while your conditions proceeding to get operational, but it's about a year's worth of work. And regulators can't be an unfunded mandate. Having the ability to staff appropriately is critical, but when Josh is making about critical mass, for a regulator, I think it's really important that they have a good number

of entities that they are supervising that have similar business models because then they develop the pattern recognition that ultimately makes them better at their jobs, which ultimately leads to clearer roles of the road. So it becomes like this virtuous cycle.

And on the resource issue, at least in our experience, our practice, I mean, there's a lot of demand for National Trust Bank charters right now, but we've seen the OCC meet that. They've got staffed to process these applications. There's also a track. We're seeing a small number, but growing of digital assets, companies seeking full service banks.

There was one recently approved. That means an entity that actually is taking insured deposits as well. So those are pathways that are both moving right now at the federal level. An interesting new paths to watch would be genius creates a type of federal non-bank stable coin issuer. And the rules are still being written around that. But those entities would be supervised by the OCC as well. So it'll be important to watch what that path looks like.

Will that be a more streamlined type of authorization than having a National Trust Bank or another type of charter to be a stablequin issue and what the resourcing will look like at the OCC for processing that new federal loan bank option that Genius created? Yeah, that's a really good dovetail into what I want to talk about next, Josh, which is Genius passed, so that landmark legislation, what next? So maybe you guys could speak a little bit about how things work after bills get passed and the rulemaking process and maybe with a particular eye on what entrepreneurs in this industry should be thinking about as that rulemaking is happening? A very good question. Genius was a real landmark piece of legislation. We went in a permanent

environment where stable coins were largely regulated on a state-by-state basis and Genius creates a federal floor for them and defines what they are, perhaps even more importantly. And that has created a substantial degree of additional institutional interest in stablecoins, legitimizing them as a means for payment, not just in crypto environments, crypto-internatam environments, but also in traditional financial environments as well. But some of the details that would be really important to parties that might hold and use stable coins in traditional environments are still being built out and need to be detailed in rulemaking.

Some of those really to capital requirements that apply to stable coin issuers that need to be spelled out. Some of the anti-money laundering requirements and details rely on rulemaking. consultancy protections. There's a lot of good language in there, but some of the details on how that would actually work in practice also need some spelling out as well. So we're expecting a proposed rule shortly, and people in the industry are watching closely to see what that looks like and standing by to comment to the federal agencies on those proposed rules. If I'm picking up on that through, I mean, we've got clients that are issuing or would like to try to issue under my transmission

regimes with an eye towards making sure that what they're building will be genius compliant and will comport with the rulemaking when that happens so that they can then essentially apply and lift and shift that issuance over yield and rewards and the discussion there about prohibition and interest. There's definitely been significant commentary there. That is the ability to pass on things like rewards, etc. That is critical to earlier. It's critical across the industry, but I think also specifically with startup issuers that are trying to enter the marketplace and develop network effects. And if that is no longer a possibility, that will definitely have an impact. Will questions does that cause consolidation amongst

those that are already out there and are a little more up the speed? The other area would be the definition of what is a substantially similar framework to genius. And I think it's important that there be a recognition for high-quality state regimes that are already there as being substantially similar. It's important, I think, for the dual banking system. I think it's important for also ensuring that there are multiple regulators out there that are supervising in a high-quality fashion. You mentioned New York, but there are other states in Nebraska has a regime. There are a handful of other states that are out there, but certainly New York being early. The other would be, you start to get into the weeds on issues, but settlement times, some of the ambiguities are reserve composition.

I think those are all really worked out. Yeah, it's really interesting on the yield front. The genius bill goes through and rewards seem like they're fine. And people continue to pay them. We're having a huge market structure dust up right now. It's one of the two critical issues that seem to be holding up that bill. And won't put you guys on the spot on prognosticating whether or not this gets passed. I think it was 70% on Polly Market. A couple days later, it's 50. So it's whip-sawing, but it leads you to wonder if that does go through with some sort of a prohibition, if that would also impact just the rulemaking process on Genius. It'll be interesting to see how that plays out. It's been really interesting to watch the reaction to the yield language in Genius,

because it certainly wasn't something that flew under the radar, at least so far as we could tell. We're monitoring that bill pretty closely, and there were different formulations of it through the making of Stap-upon legislation, and it landed in a place that, exactly like you said, The statutory text is pretty clear. There's a prohibition on paying interest or rewards solely in connection with holding use or retaining the stable coin. It also doesn't bar you from paying it if it's going out through someone other than the issue. So that does leave, at least on the face of the law, path for issuers who can find a pathway through what the law allows. And I think parties who are opposing that realize that the statutory text is pretty clear that the agencies are pretty limited

and their ability to confine that in the genus rulemaking, which is why there's this effort to reopen the issue in the context of another law, in this case, the clarity act. So it's growing to be a really highly charged issue among bank trade groups, certain exchanges, and other parties. And it's hard to put a number on it. If we knew, Matt, we'd probably have on the market too and try to make money on this. But it's hard to say with any certainty. But so far as we can tell it, it's certainly a potential blocker or clarity moving forward. That's for sure. One of the interesting things, too, when you think about genius rulemaking is there's things that you have to do. There might be other things on the reserve management side that you would

want to do in order for a ratings agency to look favorably upon the stable coin. So I'm interested to see what that looks like. And I guess that's somewhat of a bet on will the rating agencies get more active in the space. Moody's announced a methodology to evaluate stable coins based upon the asset quality, the market value risk, transparency, the quinity composition. I think what that's is it's trying to make it clear that the quality of the underlying reserves is key. You have auditors that obviously they audit the reserves, but they don't intend to not really get into the quality and the ratios of those assets. But it definitely raises a question as to the

ability to liquidate the stable coin, the ability to have access to funds. They have potential for like if there are certain assets in that basket, in that composition that are deemed to be higher quality. I think short-term treasuries, there are only so many of those to go around. does that create a different market there? Does it influence that market if this notion of rating stable coins really kicks off? Reserve composition also, it's something that company, it's no one-size-fits-all approach. Companies try to work through what is their white label issue or what are their customers want to see those that they're working with in developing those issuances. What will, if they just are issuing their own stable coin directly to the market,

what do they feel is the best composition? So they're going to be so. They're going to be So many points beyond, I think, just underlying regulatory requirements that are going to influence that. It's going to pretty rapidly go beyond just T-bills, reverse repurchase agreements, government money markets, deposit accounts. And kind of like that baseline, give me one of those four or all four, and we'll have external factors that will influence it. That's a really interesting point. So you're saying if you're creating this reservation bid for short-term U.S. Treasury is you'd be effectively pushing up the price of those bonds, pushing down the yield. You have some janky issues in the treasury market, potentially if you can't go

further out the duration curve. I'm just saying if you start looking around the corner, you start looking at various provisions and trends and say, okay, what's the potential knock-on effect there? That could be one. If stable coins continue to grow, the way folks are saying that they will, the way we're seeing it, the activity that we're seeing, it's not beyond reason. I think that's right. I think the other thing maybe we should all be thinking about is what would foreign competition look like here. Could you effectively see a year? Could you effectively see a euro dollar market for stable coins with non-U.S. financial institutions that just decided to pay interest on these things. I wouldn't be surprised at all if you see attempts to do that.

That's a great point. That is something that we want to watch closely. Poor Genius has a number provisions around coordination with foreign issuers and foreign regulators. But like some of the other issues we talked about, much of that is left to rulemaking and where they're billed out by the federal regulators. But in the event that you see that Eurodollar analog get built out in non-U.S. I think we'd expect that there would be some coordination between U.S. regulators and their counterparts around that. Something else is going to come down to, why is that statement coin being built and constructed?

Is it cross-border payments? Is it vendor management of vendor payment? I think that that will then influence that type of reserve model that year, but you're described it. That makes sense. One of the things maybe to double-click on market structure why people are so excited about this is that it could bring to life the tokenization category in a way that hasn't really existed. People have been talking about this for 10 years bringing securities on chain.

But what good is it to bring them on chain if there's no secondary market liquidity, if it's not clear how you need to issue these things? So I hope we get the bill, but I guess there's another path to get it via rulemaking. I'm certainly seeing a lot of startup activity in this category. Curious if you guys have thoughts on tokenization broadly and what you guys are seeing. We're certainly seeing a lot of activity there as well, Matt. And in terms of the regulatory clarity that's needed for it, I think for the sort of tokenization you're referring to where we are trying to bring money market funds on chain or an analog like

that, there's largely sufficient tools under existing law for that or things that can be cleared up with rulemakings. And it's not that we need total statutory overhaul that clarity would provide to make that possible. I think when you're looking at more crypto-nated assets and assets where there's some ambiguity as to what the thing even is is a threshold matter, how you will classify it. That's where having Congress come in and speak on that and divide it up into CFTC jurisdiction versus SEC jurisdiction, where that will be critically important. I think it's notable that the chairs of the SECC have indicated that they, regardless of whether clarity comes to pass, would tend to use their available powers to help provide that sort of

clear rules of the road for tokenized assets and how they can be supported by different market participants. Yeah, I think that just the clarity around the sponsor level. So if you're a large asset manager that wants to bring a credit fund on chain, but you want there to be secondary market liquidity, you might not feel comfortable coming in right now with or without that secondary market liquidity. But having ATS venues that can actually operationalize this is just going to make it so much more exciting. That goes to how built out is that digital asset, tokenization value chain from token issuance to listing, compliance, trading, collateral management, custody, smart contract servicing. The digital asset analog to the current value chain.

We've done projects involving tokenization of real world assets, tokenized gold of other commodities. There are tokenized money market fund projects. There are tokenization of carbon credits. There are various efforts underway. And down the line, things like tokenization of intangible assets, like music world piece could become a very real thing. But market structure, it is exciting, but I think you're still a question of specifically like where is new law required. So for some of these tokenization projects, these endeavors, looking at things like the UCC for a determination of what does that token legally represent, does it represent my ability to redeem or is it something else? And I think taking it back to like product market fit, is there a real problem that's being resolved?

With every crypto cycle, you get these tokenization projects. And if it's too early or maybe it is something where overcoming that cold start problem is going to be difficult. Or there's an adequate technology infrastructure to support tokenization. So there's scalability that would be difficult or custody would be difficult. I think with any of these projects, it's important to look back and say, okay, on previous cycles, custody, why did that work, clear-defined need? And there was a legal lineup, similar like stable points today we're talking about. I'll just add, I think on the topic of the secondary market complexities, are you referring to, Matt, involving tokenized assets that has been an issue for years, even if you can get clarity on the treatment of the issue where what's the downstream effect and how can the ETSs and other venues support those assets in a way that complies with their regulatory requirements and expectations. change. Again, hopefully there is a comprehensive approach to clarify all of that with a federal law, but would note that at least in our experience, the SEC's doors are open again for people

to come in and have conversations with the relevant folks in the divisions in the Crypto Task Force. Obviously, look, if there is a concrete fix or change that's needed and there's a statutory basis for it, there really is a perceptiveness to hearing those arguments and walking through that with market participants in a way that just, well, wasn't the case in the four years prior to last. I would echo that. I mean, that has been such a pleasant surprise to see the SEC crypto working force, the task group, whatever they're calling it.

Just with all the information in public, you can look at the PowerPoint deck of everyone that goes in and visits with them. You can see the written feedback. I think the transparency out of the SEC on this, it's just been amazing. Exactly. And the SEC, that's been very, very positive. And I think that should be true regardless of reviews on the underlying policy issues. having a transparent approach where a market participants can come in and make these arguments,

I think, is a good thing so that these ideas can all be air out in a transparent way. I would also mention that that's been true across other regulators. Again, if you are trying to explore a bank charter or novel idea with the OCCC through the course of exploratory meetings with the staff area, one of the products or services that would be in your bank model would go beyond what the OCC has said they would consider permissible. in the letters to date, they want to hear those arguments. And there's an avenue to advocate for why what you're doing should be seen as falling within one of those letters or it's just an incremental step beyond and should still be considered permissible. So we are seeing that across federal agencies

and that's consistent with the policy that we've seen at the top regarding digital assets. One of the things that's interesting is I think you'll probably see this phase shift in the types of projects that launch tokens over the next few years if you continue to get this regulatory clarity, where right now I think the perception in some parts of the industries that the token market is dead. And maybe it is because a lot of these are just superfluous, quote unquote, governance tokens that don't really do anything. But it's like the time is coming where you'll actually be able to launch tokens that have security like properties or maybe they are in fact securities at the protocol layer. So maybe that ends up just being better for everyone where you can start to think about these on a fundamental basis and there's actually a framework. So that's what I'm hoping we get towards as part of this market structure overall.

I agree. Really getting down to the practical reality of what is the token, what rights and benefits, does it confer versus some associated set of promises or contracts? And I know that's something that Bill would attempt to do to separate it out in a real clear authoritative way that's not relying on decades of judge-made law that's not terribly consistent across different courts, that you can have a digital commodity that can be the subject of an investment contract. But isn't a in an estimate contract or security itself. Having that delineation very clear would absolutely be helpful to have as a matter of federal law because that's something that the SEC is limited in its ability to do by guidance or rulemaking because they just can't override federal case law. So that's a very important point in one that would be useful to add in federal law. On one hand, it seems like everything's going great here from a regulatory perspective. We're getting clarity on a number of issues. Obviously, genius passed. You've seen just tons of companies enter the stable coin space, volumes are up and to the right on all of these companies

that are in that ecosystem. Market structure, we know what the big issues are, and we'll see where that ends up. But what are you guys worried about? Is there anything that the industry should be aware of or pushing for at this point? I'm curious if you guys have a perception that there are other things that we need to really focus on as an industry. One key issue is how the regulatory landscape around anti-money laundering, bank secrecy Act, sanctions, rules, will be applying to tokenized assets.

And in particular, that in defy environments, as different projects and continue to mature. The guidance around that is still being developed. And the law is very broad on a number of those topics in genius. There is supposed to be a rulemaking that will add clarity around, you know, what particular things and is sure of a stable coin's response. for versus things that they're not responsible for once the token in the wild, I think that's sort of the reneation of responsibility between regulated parties and people using a tokenized asset out in the wild.

I think will be critically important, especially as institutions start to get involved in a deeper, more comprehensive way to know that, you know, if I'm engaging with this asset, I'm not carrying some edge risk that I could be, you know, subject to sanctions concerns depending on what someone that I'm transacting with may have done with the token before I received it. Yeah, some of the concerns there from the infrastructure bill a few years ago. Exactly. I agree a wholeheartedly there. I mean, that is something that can have lengthy statute of limitations periods attached to it. It's something that you can start getting into, well, I'm not a regulated TV. It's not actually providing custody. And then you

start parsing out, are you or are you not providing regulated services? are you not a custodian? And I think things could devolve from there, this notion of transaction monitoring obligations versus the ability to do ecosystem-wide monitoring. And if you have access to data that shows that an asset has been moved through a sanctioned entity or gone through the hands of a sanction party, what does that mean for you? What does that mean in an environment where there is a shifting political landscape where there is the ability it's a down the line there is the ability to bring enforcement because the laws were unclear at the time. So people didn't know exactly what they were supposed to do.

One, there could be strict liability associated with it, but also very significant fines that could be associated with it as well. That makes sense. Well, guys, this has been great. Obviously, it just feels like night and day from the last time you guys were on here and we were talking about a bunch of problems. It seems like now we have some solutions for companies in this industry, and particularly around the OCC path, I think, for a number of. companies you guys are working with. Where can we send people to get in touch with you guys over at Paul Hastings and more and more? Yeah, you can find our profiles on the Paul Hastings website, Dana Syracuse. Josh Bull. I also on that Paul Hastings website. And yeah, looking forward to

engaging with folks who'd like to explore what their regulatory path might be. Would note that we are in a regulatory window right now where there are a number of options open. Those windows don't stay open forever. And especially for stable coin issuers or people trying to be stable coin issuers, genius will likely come into effect in less than a year. So having a strategy for how you want to become genius compliant is something to look at sooner rather than later, giving that fast approaching affecting the state of genius. Awesome. All right, guys, well, thanks for coming on to talk to you guys soon. Thank you. Thanks for listening to another episode of On the Brink with Castle Island. To learn more about Castle Island, visit castle island.vc. And to listen to all of our

podcast episodes, please visit castle island.vc.vc slash podcast or just click on the tab on our website. Thanks for listening.