On The Brink with Castle Island - Gabriel Shapiro (BSV Law) on compatibility between blockchains and the law (EP.125)

Episode Date: September 14, 2020

Gabriel Shapiro, partner at BSV Law (no relationship to the coin), joins the show to chat securities law, tokenized securities, and the nature of industry regulation. In this episode:  Gabriel's introduction to the crypto industry and Nick Szabo's influence Gabriel's view on what public blockchains are for, most fundamentally Why there is an inherent tension between blockchains and the law Can public blockchains be made compatible with the law, and to what extent? The best opportunities for synergy between the law and crypto Gabriel's case for real tokenized securities How stock certificates are held and organized in legacy markets Domains where tokenized securities could outperform the current state of affairs A mistake investors make when interpreting SEC behavior Why the SEC will often let private litigation play out before imposing a fine The contrast between the EOS/Block One and Sia/ Nebulous Gabriel's critique of Hester Pierce's safe harbor for tokens - and her response Precedents to consider when looking at the utility/security distinction Whether a "Hinman test" for sufficient decentralization exists and what it entails Gabriel's proposed modification to securities laws to suit the reality of the industry The effect of election outcomes on securities enforcement Follow Gabriel on Twitter and read his fantastic series on Medium, Size Does Matter

Hello and welcome back to On the Brink. This week we have one of my favorite people in the industry on the show, Gabriel Shapiro. He is a partner at the law firm, Belcher, Smolin, and Van Loo. And you may have run into him on Twitter under the handle Lex Node. So I've wanted to have Gabriel on the show for a really long time, actually. He has the Goldilocks perspective, in my opinion, in terms of being sufficiently optimistic about the industry and believing there's a kernel of something really interesting there. still being pretty realistic about the darker underbelly. When you put it together, Gabriel tends to have a very balanced perspective. And really, his conversation is about the key question that is often contemplated. Can the Lex cryptography be made compatible with the actual law in the West? Or is the blockchain industry doomed to exist completely outside the scope of the law? And of course, this spills over into questions of securities laws, which so far haven't really evolved much to suit the reality of digital assets. In this conversation, we go far beyond just the Howie test, and we consider some other precedents which elucidate the application of securities laws to the industry. And we talk

about Hester Purse's safe harbor proposal for tokens and Gabriel's engagement with her and critique of that proposal, and of course, the infamous Hinman test for sufficient decentralization and Gabriel's proposed improvements to that test. Gabriel also gives his best pitch for a genuine security token which exists on chain and isn't just a paper certificate, but a situation where an actual share is instantiated on chain and why that might be superior in some cases to the way that it works currently with most shares of stock held at the DCCC. And just as a last note, if you've enjoyed this conversation, which I think you will, I really recommend Gabriel's four-part series of medium posts entitled Size Does Matter,

a philosophy of securities laws for tokenized networks, where he effectively tries to sketch out a world where securities laws and crypto asset issuance can be made compatible, which I think is super underrated. and really one of the best things written on the topic. So without further ado, let's dive into the show. 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 to Britain's ailing economy with a new round of quantitative easing. a couple trillion dollars and all of a sudden people started to worry so out of this worry we have something called a bitcoin bitcoin gabriel is a partner at bsv law no relation to the coin gabriel i've obviously been a fan and a followers follower viewers for a really long time i think you occupy a very unique intellectual niche in the crypto industry especially as it pertains to the intersection of law

and smart contracts and blockchain, et cetera. I know there's a lot of crypto lawyers, but you are one of my favorites. I appreciate it. I don't want to play favorites, but you're definitely up there. Thanks so much for coming on. I think we're going to have an awesome conversation.

Indeed. Happy to be here. Thanks for having me. So you've been very liberal with your opinions lately, which is great, because, you know, us non-lawyers, We need kind of intermediaries, and we rely on people like you to interpret this stuff for us.

I think I found that a lot of crypto lawyers tend to get captured by the industry in some respects, but you seem to have retained a fiercely independent streak, and you seem beholden to, you know, no one and no project, which is awesome. So maybe to start, why don't you briefly tell us about your firm and what you do there and then we'll dive into crypto law? Sure. So, sure. So I'm at a boutique firm called Beltra Small and Van Lue, which unfortunately gets abbreviated to BSV, although we don't have anything to do with Bitcoin Satoshi Vision. And we, you know, essentially we're all traditional corporate lawyers who were in the big wall.

street firms for a significant chunk of our respective careers and eventually became slightly too weird or interesting to stay in that environment and decided to branch out on our own and try to do something a little bit different. So we do fairly normal things like M&A transactions and venture capital financings. There's another corporate partner, Aaron Belcher, and The two other founding partners are Jonathan Van Lue, who's a taxler, and Stuart Smollin, who's an IPEeler. So we kind of cover the gamut for M&A deals and venture capital deals. But then mainly Jonathan Van Lue and myself do a lot of work for blockchain projects. And it's mostly on the startup side.

So defy entrepreneurs is a big category right now. but anyone who has any kind of interesting project and, you know, is looking for legal advice or just help getting a transaction done, like a commercial agreement or something like that, you know, these are all things that we help with. And prior to crypto, you did corporate M&A, correct? Yeah, I did. I did almost exclusively buyside tech M&A in Silicon Valley for, the really big companies like Facebook and Oracle and eBay and so on. So that was about eight years of my life doing close to exclusively that. And I mean, you seem to be more on the kind of Ethereum side. Was it the Ethereum crowd sale that picked your interest or when did you, you know,

started to focus on the industry? Sadly, I missed the crowd sale. Um, or I would, you know, be probably even more independent because I wouldn't have any, any need to, you know, keep getting paid. But it was Ethereum because I was interested from the Facebook WhatsApp deal, which I was sort of like the senior associate on the Facebook side. I got very interested in end-to-end encryption. And I just started going down that rabbit hole. And eventually it led me to cryptocurrency for whatever reason it was Ethereum that caught my imagination, probably because it uses the word smart contract. And ironically, the first event I ever attended was Nick Zobo giving a talk at an Ethereum meetup, something that's unthinkable today. But of course, he has a JD, and he wrote a lot of articles about the relationship between technology and law.

So that was an ideal entry point for me as a lawyer who at the time at least wasn't particularly technical. And it just sort of spiraled out from there. Yeah, I guess Nick Zabu's had a bit of a falling out with the Ethereum crowd from, I think they might have named a unit of currency after him. Yes. But he seems to have kind of soured on the Ethereum project specifically, although I don't know. I don't want to put words in his mouth, but obviously he coined the notion of a smart contract. So he still presumably likes the concept. Right.

What did he, what was his talk about? I'm just out of curiosity. me. It was a big part of it was about the Dow, which at the time had not yet imploded. And, you know, just sort of talking about the smart contract notion, talking about the history of money, you know, the typical Nick Zabo stuff, you know, that we're still familiar with today. But he was, he did seem very fascinated by the Dow at the time. And I suspect that's also likely the source of the beginnings of his disenchantment, you know, was when, uh, he did seem very fascinated by the Dow at the time. And I suspect that's also likely likely the source of the beginnings of his disenchantment, you know, was when, uh, there was a hard fork to reverse the effects of the Dow hack because he's big into governance minimization and so forth. Yeah, the Dow, the Dow was quite central in my own revival of interest in the crypto industry. I kind of stopped paying attention to it as much after 2014, and then I saw the Dow in the news and I thought, huh, there's some new stuff going on here. And then of course, I like many people, was a little bit disillusioned.

The irregular state change. Irregular state change, yeah, yeah, for sure. Classic euphemisms, kind of like central bankers love to use euphemisms, kind of the same situation there. So let's dive into the one first really big question, which I think you've great opinions on. So, you know, people have different opinions on what, quote unquote crypto or public blockchains are actually four,

what would you say the kind of central conceit of the industry is? I think it's the central conceit is asset and transactional sovereignty. And I think the word sovereignty in there is a good one because as a lawyer, what I focus on is the fact that individuals are not actually supposed to be sovereigns. They are supposed to be subject to the law of the jurisdiction where they reside, you know, where they're citizens or where they're physically located. And so to me, right within that phrase, when people talk about, hey, the merit of Bitcoin is that it's unconfiscatable, even if that's, you know, sort of an exaggeration. Or, you know, the merit of defy is that you can be your own bank. what I focus on is that there is an inherent tension of this with normal concepts of law

and that this makes it inevitable that the technology is in part, yes, if it's functioning well, it helps you evade law or lower the likelihood of law enforcement or be your own law, whatever that means. And this is a tension. Yeah, it might seem curious to crypto folks. to hear the bare case for transactional sovereignty. But that's actually, if you zoom out a little bit, asset or transactional sovereignty is not the norm,

practically anywhere. I mean, you know, we have these systems which are profoundly intertwined with property rights, which ultimately traces to the state and the legal apparatus. And crypto and Bitcoin and so on is actually doing something well outside of the ordinary. I guess that's kind of the whole point.

So in that context, would you say, you know, what the builders in the crypto industry are trying to achieve is sort of fundamentally hostile to the law? I guess this is really the big debate. Is it something that fundamentally tries to override or exist outside that kind of legal space? Well, I think that would probably be true sweeping a statement because there probably are, uses of the technology that are legal. I would sort of compare it to Tor, right? The the Tor protocol obviously, you know, notoriously allows things like dark markets to exist on which illegal drugs can be sold. You can supposedly hire hitmen and and you know, there are supposedly red rooms where people get like tortured and people pay to watch. I don't personally know how

many of these things are myth versus reality. But even if they are myth, the reason why the myths are popular is because people really could do things like that with Tor and have a greater likelihood of getting away with it. And so cryptos, but on the other hand, Tor could also be used for amazingly beneficial and important things, like it could enable, you know, dissident groups in oppressive regimes to communicate with one another or to communicate with the outside world and hopefully not be detected and punished by their government. It could allow like a North Korean citizen, right, to communicate securely with people outside of North Korea. So, yes, there are both pros and cons that arise from this type of technology, but the very same thing that is good

because it lets you escape the bad laws of North Korea can also be bad because it lets you escape the good laws, not that they're all good, but many of them are good of the United States. And so there is an inseparable tension. So I guess to kind of synthesize that, it's really contextually dependent. You know, I guess crypto asserts its own kind of proto law or very rough outlines of law in terms of what is permissible under the protocol. And in some cases, the kind of property rights or the system of property rights that's produced might be superior to some local jurisdiction where, you know, there's very little protection for property rights. But in mature settings, it might be inferior or it might be kind of less suitable than just the standard model.

Yeah, that's right. I would agree with that. Okay. So there's definitely a clash between quote unquote, Crypto Law and Law, maybe there's some synergy possibility, some pockets of synergy. What do you think the promising veins there are? Right. So I definitely think there are massive potential synergies. I used to be a lot more optimistic about them when I first got into the space. And I've become less optimistic just based on the way that the regulators have ended up

actually dealing with it. and just basically based on happenstance of the way things have turned out. But a great example of potential synergies is tokenized securities, right? We have just in traditional corporate law, right? There's certificated securities. And in theory, a token could be a lot like a stock certificate. And it could trade peer to peer a lot better than a paper certificate can. So we have currently in our public equity markets a very, very elaborate and I would argue an efficient system of intermediaries that really just grew up around the fact that paper certificates are difficult to trade at scale.

And in my opinion, blockchain could be used to pretty much dismantle most of that apparatus and reduce reliance on intermediaries, increase privacy, make the relationship between public companies and their shareholds. a lot more direct because right now a lot of public companies don't even know who their shareholders are or have a way of communicating with them. And so that would be a great thing. Now, nothing like that is going to happen anytime soon, unfortunately, because within the SEC and within the broker dealer industry, there's a big movement not to let that happen and instead to pursue a policy of mandatory intermediation with respect to representations of securities. And, you know, if you talk to the SEC about these things, or at least if you talk to the division of trading in markets, which is the one that is sort of most involved in this sort of thing,

they will basically tell you that Ethereum is not the right kind of thing for securities to be on, because it's not a registered securities exchange, nor could it ever be a registered securities exchange. it's not what we call an ATS alternative trading system. So this makes this very problematic. Now, listeners will probably be saying, wait a second, I heard about INX. Isn't that a tokenized security? And I heard about this other one. Well, I would not define those as tokenized securities because the way that they got regulatory

approval is they have a registered transfer agent sitting in between. the blockchain and the stockholders and the company. And the legal position is that the ledger maintained by that transfer agent, the off-chain ledger, is the definitive legal ledger. So what that really means is that the token, since the blockchain itself is not the definitive ledger and also the tokens are not something like stock certificates, really the token is just sort of like a legally meaningless souvenir that you own that security. And ultimately, it's all still intermediated.

So in that sense, the blockchain is kind of pointless for that. No offense to those involved, because I know some of them and I like some of them. But I'm sure they would have liked to have done something that's more true to blockchain as well, but they're just not able to at this point. Right. Yeah. So TokenSoft is the transfer agent. And the tokens themselves, which circulate on Ethereum are effectively paper claims,

but the real dossier of who owns what. is actually maintained by TokenSoft, with Ethereum just being kind of a representation of that. That's right. Yeah, so you're referring to kind of tokenized securities as in equities whose shares could be the ownership, which could be represented on chain, as opposed to tokens, which happen to be securities,

although I guess eventually those could converge. That's right, yeah. Tokenized security is, like a traditional security that's been put in token form, you know, as a representation. A security token, you know, in the nomenclature I use, is a token that happens to be a security. So the benefits of, because I feel like people in crypto, and I noticed this after in the debate around I annex, people in the industry don't really know much about how regular shares are actually apportioned and the intermediation, the multiple levels. And frankly, I didn't know much about

it until I looked into it too. But effectively with with stock certificates, mostly they're held by a single entity, if I'm not getting this wrong, the DTCC, which is kind of jointly owned by exchanges and broker dealers and banks. But the actual end users don't really actually own shares of stock. Is that kind of like the appropriate? They don't. Yeah, that's right. hold shares of the house. That's right. Basically, DTCC owns what's called a jumbo certificate, which is actually often a paper certificate issued by the corporation that represents close to all of the shares of common stock of that corporation. And then basically what happens is claims on that certificate trickle down to banks and broker dealers and other intermediaries

and then ultimately to customers. In commercial law, this is reflected as there are kind of like three ways of holding a security. One is certificated, so DTCC holds a certificated security. And that's the best way because you can trade it without the permission of the issuer, right, as long as you're not violating a contract or something in doing so, just by signing it, you know, I hereby give this such stock certificate to Nick Carter, you can hand it to them. So that's the best way.

but it occurs very rarely, right, because the more dominant ways are book entry or what's called a security entitlement, which is really a claim you have against a broker for that broker to get to assert its claim against the stock certificate held by DTCC. So, yes, it is heavily intermediated. And it does lead to practical problems because, for example, if a public company is getting acquired and all stockholders have, you know, all stockholders have, what's called dissenters rights in connection with that acquisition, then you want to really know who holds the stock so that you can go and ask them whether they dissent or whether they approve. And it's actually very hard to do that because not only is there this intermediation,

but there's also privacy within this intermediation. And so, for example, a lot of holders are what are called oboes, objecting beneficial owners, which means they do not want the company to know that they own their stock. This opens up other problems. like it enables activist investors to more secretly acquire stakes in companies that they're going to effectively sort of try to blackmail into changing their boards of directors and stuff like that. So it's very complicated. And each approach has pros and cons. But personally, I think it would be better to get rid of these intermediaries with blockchain and have a more direct relationship

between the companies and their stockholders. And this whole system is kind of an emergent artifact of the fact that shares used to physically be pieces of paper and that just wasn't efficient and at some point in the maybe 60s 70s everyone realized it was just easier and more convenient to keep the shares in a warehouse and trade claims on those paper certificates and that's why it looks the way it does today not that it's necessarily the best system but that was just sort of a natural outcome of the old technology we had. That's right. One thing that I encountered when I was researching this recently is the fact that in

voter vote situations, you occasionally get double or triple voting because the corporations, as you say, they have a hard time accounting and the brokers, and due to lending and things like that, they have a hard time accounting for who actually owns the shares. and who has those voting rights so that they can exercise. So in some situations, you get votes which exceed 100%, or shares which are voted on twice, which I thought was pretty entertaining. And I think the potential of a public blockchain

to improve on that is pretty obvious. For sure. Are there other kind of transactions where you think tokenizing the share, on chain would be far superior to the way things work today? Well, once you have that type of real tokenization, I think there's a whole lot more you can do from there, right? Like, you can imagine getting now into the space of privately held companies,

whereas we're just talking about publicly held companies, venture capital-backed companies have amazingly complex capitalization structures, right? There's usually common stock sitting at the bottom. Sometimes there's even two classes of common stock with different numbers of votes per shares. And then on top of that, you might have like a series C, which has a liquidation preference. It may be participating or non-participating with the common in an exit event. Then you'll have your series A, series B, series C. And for each of those, they all can have different parameters.

They have different liquidation preferences. They may make different choices about. whether there's a cumulative dividend, whether the shares only get paid their liquidation preference in an exit event or also get paid their common, a part of what the common stock would get after the liquidation preference is paid off. There also can be different choices about whether or not they are convertible into common stock and under what conditions that conversion can occur. So this is how, you know, we made our money as M&A lawyers, right?

because in the exit event, there had to be this extremely complicated drafting that sort of embodied all these formulas. And you had to make sure it worked the right way and that everyone got paid the amount that they're legally supposed to get in that specific merger. So a lot of this could be automated, right, through smart contracts and so on. You just sort of set it up right at the beginning and then everyone trusts the smart contract to apportion the amounts the same way. So we actually, I had a startup called Zero Law, and we had a great genius solidity developer named Ben Houser who actually wrote the code for this, although we couldn't convince anyone to really want to use it. So that code exists, if you're ever interested in poking around what we had done there.

And I do think it could be enormously beneficial, but because of the regulatory hurdles and just fear of the unknown. I don't expect people to start using it anytime soon. I was going to say this is hitting a little too close to home, and it sounds like the kind of things that I worry about every single day. And it's the reason we spend so much money on lawyers. But yeah, I think the point is a good one. You know, the relationships between investor classes and shareholders and directors in practice tend to be encoded at, I guess, really fancy Excel spreadsheets. that law firms administer, and it may well be far more efficient to encode all these things

in a transparent manner, such that you can reason about them more simply. That's right. That's certainly persuasive to me. What are the hurdles there, the barriers? Would you say they're primarily regulatory or tech or convincing people to adopt a system like that? Yeah, the challenge with all these things, I think, is any of the things that we're talking about, they sort of all become useful together. And it's difficult to incrementally work toward them, right? Like the tokenization for private companies would be very appealing if tokenization also was a viable path for public companies.

But because of the regulation, that's not going to happen anytime soon. So that, you know, makes it less attractive even for private companies. And so, you know, similarly, right, if to the tokens were certificates, then you could do really neat things with them like you could pledge them as collateral for a loan. And, you know, there's a concept of perfection, perfection of a security interest by possession, which applies to certificated securities but not uncertificated. ones. So that'd be like a very useful thing, right? But unfortunately, this policy of not allowing certificates on chain, but only allowing sort of souvenirs of ownership on chain, you know, prevents that. So it's one of those things that where the uses all have to be together for it really to be attractive. And right now, too many of them have too many frictions for that effect to occur.

So let's talk about crypto law as its practice. You've been actually fairly critical of the kind of domain of crypto law. And I mean, for a number of reasons. But what would you say, you know, the current attitude of crypto lawyers is vis-a-vis regulation and in terms of token issuances? what's kind of the prevailing attitude in the industry? Right. Well, I think, first of all, you know, it's a tough job.

And I think everyone has pretty good intentions, right? I don't know of any crypto lawyers who are like Saul Goodman, you know, giving the pitch, hey, you don't need a, you don't need a criminal lawyer. You need a criminal lawyer. But that being said, it's tough because there's just not a lot of guidance or precedent out there. The regulation has evolved much more slowly than certainly I. ever expected, I think, than most people expected. And so there arises a situation where people have sort of geared their careers around providing advice in this industry, but in my opinion,

don't have great advice to give. And so it becomes, it kind of turns into a little bit of a window dressing exercise, I guess, is the best way I can put it. And in an ideal case, lawyers would not really be doing window dressing, you know, in my opinion, they'd be really saying, you know, here's the law, you know, you comply with it or don't, right? But, you know, this is what it is. If they're a litigator, of course, it's different. I'm not a litigator. I'm a transactional attorney. Once someone has already done something wrong and you're talking to them after the fact, then, yeah, your job is to defend them by any means, by hook or crook, I would even say, right? because everyone deserves a really zealous defense attorney in a litigation context.

But most of these lawyers are not litigators. They are actually talking to people before they've done anything. And it just becomes a very difficult exercise. And I do think it's like in order to be able to add value, a lot of the value I think you end up adding is just sort of security by obscurity and more making enforcement actions less likely, but not necessarily increasing the level of legal compliance or achieving a strong level of legal compliance. To what extent would you say this situation is a function of kind of a leadership vacuum

from the securities regulators? Oh, a very high extent, right? Because, you know, they've just been very reluctant to say anything they like other than a couple of no action letters that were so incredibly conservative that, some have even argued it was crazy to ask for a new action letter in those circumstances. And so if they were more proactive, right, for example, they came out with this idea, well, if it's sufficiently decentralized, then it's not a security anymore. Okay, well, no one knows what that means.

They didn't define it. They listed like various circumstantial factors but didn't weight them in any way or say which ones are necessary or sufficient. They didn't provide a safe harbor process of any kind, which would be sort of like an especially conservative version that you could follow to know for sure that they won't pursue you. And so, you know a lot of what they don't like, but you don't know exactly why they didn't like it. And you don't know of the things that they haven't gone after, whether it's because they've made some determination that they're compliant, or they just decided for practical reasons that it wasn't a good target for them to pursue.

And so it's extremely difficult to give good advice with any level of real confidence. Yeah, that's kind of my mental model of the SEC. You know, actually the the SAC Capital case kind of made me think of this, that like any other kind of organism, the SEC has limited resources. and they want to maximize the impact of their available resources. And because there's kind of a virtually unlimited quantity of enforcement actions, they could sort of pursue or opinions they could express, they have to be actually quite judicious in terms of their resources.

And so then you have this strange situation where not every, the lack of an enforcement action doesn't mean that something has been baptized by the SEC, per se. It could just be the case that they are resource strapped or for really any reason they're not pursuing it. But that doesn't mean that it has their blessing. That's right. And I think there is way too much tea leaf reading in the industry where people just kind of assume that a lot of things are legally compliant because regulators didn't go after them. And it's just not the case, right? I mean, and it's just, it makes it very difficult for a lawyer to do their job, right? Because instead of talking about actual court opinions and precedents and comparing that to the

facts at hands, people want to say, oh, well, you know, it's a lot like MakerDAO. So, and isn't MakerDAO fine? No one has gone after it yet. So they basically want you to treat like MakerDAO as if it's a legal precedent. But it's not a legal precedent. And so it just gets very frustrating, very quick. quickly. And I guess the other thing is that the SEC takes time to get these kind of enforcement actions lined up. And so there could be a significant latency. I think, you know, the statute of limitations in some cases is five years in a securities context. So there could be a very significant latency between, you know, the existence of an infraction and an action. And people interpret that latency is approval. But that, you know, all it means really is that there's a delay. And the chickens

haven't come home to roost yet. That's right. And the other thing is that, you know, my impression, at least, is that the regulators don't like to get in the way of private litigants. So you look at a situation like the XRP situation where a class action has been brought. The, you know, my guess, again, it's a pure guess. I don't want people to think I have some inside knowledge. or something like that. And I don't think anyone barely has inside knowledge. But, you know, unless they actually work for the SEC, because they're pretty discreet.

They're pretty good about it. But with the XRP situation, currently there's a private litigation. So why as a regulator would you ever want to get in the middle of the actual investors who suffered losses in their case? You want to let that play out. If the private litigants win, then just like in the Theranos case, know, where the SEC came in afterwards and imposed a fine, then they could always impose a fine afterwards, right? And it's even easier for them to do so because the case has already been

proved. So, you know, there absolutely are tactics involved in this, and you can't make too many inferences about the legality of a project based on what the SEC is doing. So they prefer to let the quote, quote, free markets of civil suits play out if one is present before. diving in. I believe so. Yeah. That's interesting because it can just take so long to settle a civil suit. And in the case of Ripple, the founders made presumably billions of dollars in that period. I don't know if it's the most elegant solution exactly. Yeah, I agree. I agree. But part of, you know, that's why we have the right to bring private actions under the securities laws is because the SEC is resource limited and, you know, in some sense, the investors might be the best position

to pursue their own claims, right? And so it is an intended part of the system, but yeah, it can lead to some odd effects. Well, as an advocate of free markets over, you know, excessive state involvement, I would generally support something like that. I think maybe the disinology with the traditional securities industry, which is kind of fairly jurisdiction specific, you know, you have Americans suing American companies for securities fraud and so on. In the crypto industry, you have these global token holder bases. They tend to be quite fragmented, very retail driven. And they, in some cases, the investors don't really want to KYC themselves for tax reasons, among other things, and many of them will be privacy focused.

So the consequence of all that seems to be that the private litigants, I guess, or the private plaintiffs tend to be pretty ineffectual from what I've seen so far. Would you kind of agree with that characterization? Yeah, I think that's right. There are challenges to it. You're right, it is global. and, you know, especially if you're fighting against someone who really raised a lot of money through their token sale, you know, like Ripple, they're able to go out and hire the best and the brightest, right? Like Ripple hired Mary Joel White, who's the former, you know, chairwoman of the SEC for their defense. So it's a big investment for a class action attorney to pursue this type of case. It may take them years. It may take a lot of resources. And they're probably, probably are not that many who are willing to make that investment. XRP is probably a big

enough fish that the settlement could be sufficiently large to embrace it. And the cases the SEC has gone after, you know, a lot of them are also big ones, right? Like KIC, like Telegram that raised, you know, really fortunes. The so a lot of the, you know, the results is that a lot of the smaller fry, you know, end up getting away with it or going under the radar, you know, whatever way you want to put it, you know, and that might not be the best incentive people want to set up. As long as it's like pretty small in cloak and dagger, then, you know, then you're much less likely to get hit. It's interesting. I've seen it both ways. One of the most telling juxtapositions for me was the EO, the resolution of the Block 1 EOS case with the SEC versus the nebulous case or

SIA, which I think they might have actually settled on the same day. Yeah. And yeah, as you recall, you know, Yoss raised around reportedly around $4 billion. They settled for, was it $20 million with the SEC? And Nebulous, which was run kind of out of an MIT dorm room, the token sale was for a couple $100,000. Yes. That was a bad.

I hated to see that one. I mean, you know, because they got hit. it's so hard for this tiny thing that was even before the Dow report, you know, which supposedly they were going to punish people before the Dow report. I don't know what happened there. I don't know. There must have been something that brought it to the SEC's attention and made them want to go after it despite being so small and so on. But I consider that very unfortunate, right? Yeah. Yeah. Well, we had David Vorek on the podcast of SIA. He talked about it. I believe they had actually gone proactively to the SEC because, well, the instrument that they raised was equity-like.

It was effectively, you know, a share of cash flows in the putative network. So the sigh of funds, that is. And so clearly it did, you know, have some sort of securities considerations. And I think they took notice of that and eventually recognized that once they became more familiar with the law, but the penalty was quite significant, and I think there was a fine as well. And, you know, luckily they were big enough so that they could kind of stomach that loss when they finally settled. But I thought that juxtaposition was a pretty telling reminder of, you know, might makes right in some cases in this industry.

That's right. And, you know, again, I don't want to be a jerk, right? The general counsel of Block 1, you know, who is most likely involved in structuring the token sale, he still gets to testify before Congress and stuff on policy issues. You know, so yes, absolutely. I don't think the regulators are doing a great job. And listening to the right people, rewarding the right people, creating the right incentives. I think they're falling down badly. And I don't think they understand the way the industry works very well.

So this is probably a natural place to talk. about Hester Purse's Safe Harbor proposal. You were, you actually engaged with her on Twitter about it. And I think she, she responded. To her credit, she is very active on Twitter and makes kind of humorous tweets sometimes. But so tell us a little bit about her proposal. And you actually wrote a response to it, which she engaged with as well. That's right. Yeah. And she actually was, if she went even further than that, she was charitable enough to like have like an hour long lunch with me in San Francisco and discuss things. So I really appreciated that. And I think highly of Hester Perce. So let's just situate the context here, right? Because Hester Perce is a commissioner,

right? She's one of, I think there are four, right? And then the chairman is Jay Clayton, who won't be chairman much longer, most likely. And, you know, so really what they do, the commissioners, they're not super involved in the day to day, as far as I know, but they kind of, they vote on a lot of things. They vote on which enforcement actions to take. They vote on whether to improve rule changes and things of this nature. So essentially, they're political appointees, right? And PERS was also SEC staff for a period of time. So the, you know, so I think she, she does a great job as a commissioner in advocating for policy changes and so on. And I think what she responded to is, okay, we've put out this sufficient decentralization idea, but what about the period before

something is sufficiently decentralized. It's going to be a security during that period. We've done a very poor job of creating a path that would allow securities to legally be on Ethereum, for example, because, you know, the trading in markets division says that Ethereum's not the right kind of place for securities to be. So, so what do we do? You know, there's this catch-22. And from that point of view, her idea is a very good one, right, which is to give this three-year period. to kind of become sufficiently decentralized. The fraud rules under the securities laws would still apply, but the registration requirements and the other things that people consider

very onerous to comply with wouldn't apply, right? And then at the end of the three years, you'd look and you'd say, okay, is it, and this is where my main quibble lies, you'd say, has this network reached network maturity, which is defined as either being, you know, not controlled by anyone in particular, which is sort of the sufficient decentralization idea, or being quote unquote functional. Now, it's that personally, it's that functional one that that I don't think is consistent

with current securities laws. I don't think just because something has a function that it's not a security. It really just depends on why people are most likely to buy it and who is responsible for continued upside after the point where they buy it. But it's a serious proposal. And look, I think it would be much better than the status quo we have today. Myself, I would prefer, again, just because I think this is more consistent with current securities laws in the U.S.

I would prefer if they just stuck more to this sufficient decentralization test, but fleshed it out a lot better and then created a meaningful way that a token can be a security for some period of time, but still be usable within the context that it's supposed to be used. And I don't know which way it's going to go, but I think we need one of these two types of ideas because right now it's just people are basically being forced to take a very high risk of breaking the law. So a lot to dig in there, but on the notion of the functionality of the token, something that comes to mind to me is one of my favorite examples, which is if you own something like

100 shares of Ford stock, you could actually. get a shareholders discount on a new truck. Right, exactly. You used to have to actually fax in, you copies of your stock certificates or something crazy like that. But it was instrumentalizable into effectively an employee discount,

which is kind of a little known fact. But that doesn't mean that the Ford stock wasn't itself a security. Exactly. The primary reason people bought it was to speculate on the performance of Ford. the company and receive dividends and so on. So I guess your point is the element, you know, some functional element doesn't obviate the securityness of the asset, basically.

That's right. Nick, in another life, you would have made a very good securities law attorney. Yeah, well, maybe there's hope for me yet. Are there any precedents that you draw upon when you're considering this disjunction between functional tokens and investments, are there any kind of interesting precedents that we should be aware of beyond just... Yeah, the main one is sort of a dyad, right? And it's helpful because it's both about the exact same things, which is buying shares of something in order to get like a living space, like an apartment or a condo.

So the source of the idea that if you buy something for consumer reasons, it's not a security, is a case called, I believe it's SEC versus Foreman. I always just called the Foreman case. But the, and in that case, people were buying something called stock, shares of something called stock in basically like a condominium association. and I guess some of them must have been unhappy with the way everything went. I guess the value of their condos must have gone down. And so they brought a lawsuit for rescission against the sellers to say, hey, this actually was a securities transaction. I bought stock.

So, you know, I want a securities law rescission and I get all my money back, right? The claim was rejected. And the reason why it was rejected, even though it was called stock and stock is an enumerated security under the 33 Act, the judge said, no, no, no, you have to look at the substance of the situation. The reason why people were buying shares of stock here was not to invest in something, but it was because buying stock bought you a condo, right? There was a specific ratio of like shares to condo and people only bought, each person only bought like one of the condos and the shares were non-transferable. And in the event that you sold your condo, you could

sell them, but then like the upside was capped to the condo sales price and, you know, all this kind of stuff. And so you just look at the facts. People weren't buying an investment. They were buying a house, right? And that is the origin. Now, there's a very superficially, a very, very similar case called Teague versus Baker, which was against the infamous Jim Baker televangelist from the 80s, you know, who eventually went to prison for fraud. And I think it might have even been in in connection with this the same exact case. But the, they sold shares in like basically like time shares in their religious resort, right?

Uh, and you would think that that's very similar, right? Because the shares entitled you to use a room there for some number of days each year, right? Sounds very similar. Uh, but the judge said, no, no, no. This is very different, right? Because all, you didn't have to buy the shares, right?

to get the room. Other people could also get the room. And the more popular it became with people who didn't hold the shares, the more the shares would be worth because you could like give your room to someone else. Right. And so there were all these differences and all, you know, the main one people tend to focus on in that case. And I think it's a bit of a red herring is that, you know, the word investment, you know, was used a couple times in some of the literature. But, but that's, that's not the only reason it was held to be a security, right? It was structurally a security. And so comparing those to each other is very useful for assessing whether people are likely to be seen as mainly having a consumer type orientation versus an investment type orientation. Unfortunately, condos are very, very different from tokens.

And there's not like a better case that's somehow closer to tokens. But yeah, so it goes. This seems incredibly salient and a very helpful model to reason about these things. I haven't actually heard it put that way before. So I guess your point is, you know, people don't live in their tokens. And even if you look at the tokens, which purportedly have a utility element to them, for the most part, they're not actually buying the tokens to utilize network resources. There's probably 100 examples I could provide here.

Mostly they're buying the tokens because they think the value is going to go up quite fundamentally. I mean, you know, a good example, I think would be something. something like auger, not to pick on auger, but, you know, the auger tokens were purportedly to participate in the prediction markets. You know, it's got a healthy market cap, you know, a couple hundred million, but the actual usage is extremely low. Clearly, most of the tokens are just being held as investments, as opposed to, you know, take advantage of the prediction market, which the token holders, for the most part, are not actually doing. That's right. Yeah, and you can see it pretty objectively, right? Now, I will say that just because someone buys something because they hope

it goes up doesn't mean that things of security, right? Like people hope BTC goes up in value, right? And they buy it for that reason. It doesn't make BTC as security. So the next sort of level of the analysis is you say, what's the predominant reason, you know, why people would expect this to go up? You know, and if it has to do with sort of ongoing, you know, entrepreneurial or managerial efforts of some person or group of affiliated persons and they're sort of existentially integral to the value proposition of that like we just saw with this sushi thing, right? Yeah, how can you tell that Chef Nomi was that people were depending on his entrepreneurial efforts? Because when he dumped the token and no longer had a strong incentive to continue exerting those entrepreneurial efforts, then the value of

the token massively plummeted. So it's a pretty good indication, right? And I think, sadly, many, many blockchain-related projects are probably more like the Chef Nomi sushi example than they are like the Bitcoin example. Well, it's challenging. If we're talking about claims on cash flows, the existence of cash flows kind of implies some sort of orchestrator that's actually doing work to cause those cash flows to exist. So it seems kind of paradoxical to believe that there's the possibility for like a spontaneous, I know this isn't very cypherpunk of me, but that a spontaneous kind of corporate, fully decentralized corporate entity could emerge that's actually producing something of value to token holders without explicitly, you know, having an obvious kind of locus of control somewhere.

Although maybe, you know, we're sort of getting there. There's some pretty interesting experiments in terms of, you know, having a claim on the cash flows generated by smart contract, which nobody strictly speaking has direct control over. So maybe we're kind of approximating that reality. But it did always seem to me that most of these pseudo equity tokens were just ersatz ways. of re-approximating the conventional corporate structure, as far as I could tell. That's right. Yeah. And if it's essentially just a new way of having a startup, you know, I don't think it should be any differently regulated from a startup, right? Now, you do raise an interesting point, right? Because I've spoken to regulators.

I had a pretty good scenario, right, from a client where they really wanted to have like no ongoing efforts, basically. But the smart contract system was going to be, set up in a way where, yeah, it was a little bit of what I call not a Ponzi scam, but a Ponzi game, right, where people basically can get value by referring others. And so the flywheel gets going, but it's really just from unrelated people who want to come in and generate value for themselves. They might even be competing with each other to some extent to do that. And rather than from the creators or, you know, their investors and that sort of thing. So, the response I got to that, and I think people should pay attention to this because, you know,

it's easy to just take the word sufficient decentralization and think you mean by it the same thing that the SEC means. But I think they typically mean something pretty different, right? Because even in that context, you know, where the analogy I used was it's like a gumball machine sitting in a public square, right? And certain people can get the proceeds of the gumball machine, but no one's going to be out saying, hey, this is a great gumball machine. You should really use it. Right. You know, some of the SEC staff pointed to a line of cases that says pre-sale entrepreneurial

efforts can, you know, can satisfy the Howie test. Now, those cases are very specific. They relate to like fractional interests in sets of life insurance contracts and so forth. But you'd be foolish to assume too much, I guess, is my point, because The SEC is sharpening their pencils on this defy stuff. And some of these things are going to ultimately have to be litigated. You know, for example, there's a circuit split, you know, about that specific life insurance contract issue. And so there, you know, you always just have to look at what is driving value to the token.

And the best case scenario is that it's sort of lots of people, but no one in particular who's very special. and even in that scenario, there still could be arguments that it's a security, but there are somewhat weaker arguments. So on the sufficient decentralization front, I think there was kind of a mini mania over this when, you know, Hinman gave that speech. And I kind of made fun of that a little bit by saying that issuers were adhering to an informal Hinman test, which they had kind of, I don't know, spontaneously ideated into existence, even though the SEC, you know, was clear that there wasn't an actual Hinman test. What was, what were your points of disagreement with that? And do you have kind of a proposed alternative there? Well, I thought, I think the sufficient decentralization test is great.

And I think it's very cyphepunk. I think it has the right idea, which is that if things, if this really is different, it's like a public good, then there shouldn't be a regulatory penalty. that impedes that public good from existing. The way it was rolled out is not ideal because they weren't very specific about it, right? So I tried to create what I think would be a reasonable safe harbor for saying you're sufficiently decentralized. And you kind of look at each element of possible power over a blockchain system. Validation power, right?

Can anyone spin up a node and validate the full history of the chain? or is the chain so heavy that's virtually impossible, so you have to trust others to do that. Economic power, how heavily concentrated is ownership of the token with sort of the original team and the investors and that sort of thing? Consensus power, right? Who are the block producers or block validators? And are they in league with one another or are they more competing with one another and kind of like user power, right? Like how able are people who might not be core devs and might not be minors and might not even be particularly large token holders, but are enthusiasts and use the technology. How much say do they have in what happens, right? And so you can look at all

these things and you can sort of, you know, my argument would be each of them should be sufficiently decentralized, right? But I think instead what's happening now is people are just saying, well, we let anyone mine on our network. So it's sufficiently decentralized. And I don't think that's what they mean. But they didn't make it clear what they mean. And so they sort of invited this, you know, what I would call a catastrophe waiting to happen. So you're saying that those multiple different ways to express power of the network,

it's they're kind of individually necessary, but alone insufficient to constitute genuine, quote unquote, decentralization. You need many of them to hold for the network to be kind of considered That's right. You have to look at, yeah, you have to look at all the sources of power over a network, right? Because it's very easy to just play a shell game, right? You can say, oh, you know what, we'll make, we'll, we'll make mining very decentralized, but on the, when it comes to upgrading the protocol, right, that's going to be put to token vote. And basically the token whales decide that by virtue of their very large token holdings, right? Whereas in Bitcoin, for example, we saw this amazing thing where core developers sort of had and sort of formed a coalition with

what I would call users like social media personalities who are into Bitcoin and stuff like that. And they were able to push back against the change increasing the block size that was mainly good for miners and certain types of businesses that wanted to use Bitcoin. And that was a close call who would win that. And that's kind of what you want, right? It wouldn't really be predictable in advance who would win any given power struggle. And there has to be kind of real politics. And it's pretty difficult to make any sort of serious change to the system. That's, yeah, that's very astute. And I agree that the two X, the outcome of two X and particular was a strong vindication of Bitcoin's nicely poised, you know, governance distribution.

But it wasn't clear that that was actually the case beforehand. We kind of had to go through it to learn that. And I think that's why I would say there's question marks over many of these other projects because they actually haven't reached a scale yet where these political debates emerge. So in peacetime, everything looks great. You know, they're nicely constructed governance. systems can work fine and so on. But it's only in wartime and times of crisis when you discover who has power in the system. And that's right. Many of them haven't grown big enough where we've actually had the chance to learn that yet. Yeah, exactly right. So with that in mind, would you say that actually it's kind of incompatible to have the administrators or issuers of a protocol or

network to have them extract a rent from the system, extract value, and have that system be decentralized. Because if you look at the very successful examples of kind of unambiguous decentralization, you know, Bitcoin, Manero, I would say, would be another example. The issuers haven't really monetized their efforts there. Obviously, Ethereum would be an exception to that rule. Is that kind of a rubric through which to judge these things? Or are you still optimistic that there's a way to square the circle and have issuers still monetize their activity within the network, but to have it evolve into something that's truly decentralized? Yeah, my personal view, you know, and again, there are splits in, you know, different circuits

and so on, is that if the, as long as the value of the token doesn't depend on, things that the issuers are continuing to do or doesn't predominantly depend on those efforts, then it doesn't necessarily matter that they're still upside in the project for the original creators because that it's not the fact that those people have upside that people are relying on and hoping to make a profit from their investment, right? So, you know, the where that would tend to happen, I would say, is where on a percentage basis, you know, it's a relatively modest amount. Like right now, you know, I think the Ethereum Foundation owns less than 1%. I don't think anyone knows how much Joe Lubin owns of EF. So maybe it's quite a bit larger than that,

and we don't know, right? But the, you know, I do think that when the original team has a very large amount or a very large percentage of tokens, any reasonable person, and particularly when they also still have like a lot of funding from prior token sales or sales of like token warrants and things like that. And they're still like kind of together as a company and funded out of those amounts. It's hard to think that a reasonable person wouldn't look at that situation and say, hey, there's a group of people here who have both the talent in terms of knowing the protocol, the willingness in terms of already having shown that they like to work on the protocol, and the incentive in terms of having lots of tokens and the funding in terms of having lots of funding,

that they're going to be a continued source of driving upside to this token, whether it's entering into commercial deals to get more people to use the system, doing fancy things to try to grow the market like MakerDAO is doing by adding more collateral types like USC and who knows if there was some commercial deal there or not. Who knows if there's a commercial deal in any of these new types of collateral they're adding? You know, it's hard for me in those sorts of situations, you know, to say that the people who are buying aren't still depending on the efforts of that team for the profits that they hope to realize. So with that in mind, I mean, you know, and you've been somewhat critical, the SEC's

trajectory so far, what would be your ideal scenario here? What would you like to see both in terms of how the SEC engages with the industry and then the kind of disclosure standards that emerge for some of these token projects? Ideally, I think there would be a modified version of regulation A plus, which allows people to sell up to like 50 million worth of a security and have that security be freely trading. And then, you know, basically the block stack model, but a better version of the block stack model, one that's not quite as heavy on the token issuer and doesn't take as long and isn't as expensive. And then that combined with a real test for when you become sufficiently decentralized. And it could be a very conservative test because, you know, it doesn't

have to be exclusive, right? You could still argue based on just securities law principles that you're longer a security, but usually if it's a safe harbor of some sort, you know, it's conservative. But combining those two things together with some rule changes that say, hey, it's okay for something to trade on uniswap because, you know, that's not really what we think of as an exchange. It's more this algorithmic thing and it's not, you know, custodial. It's not prone to the same abuses and so on. That would be the ideal, right? You know, so basically like tokens can be securities for a period of time. They can do that in the native environment where they're supposed to operate. And they can do that in a way that, you know, actually leads to some liquidity during the

period there are security. In general, I would just, you know, we've just been talking about securities laws. There's also tons of commodities laws issues, right, which we haven't even hit yet. But in general, I just think the regulars should be way more proactive and they shouldn't be as chicken as they are to say that something might actually be okay with them, right? You know, they're just very reluctant to sort of say anything is okay. And I think that's bad because then all you have is the stick. And what's happened is I just have no way of counseling my clients, right? They, everyone who has dealt gone the regulatory path bitterly regrets it.

Founders talk to each other. And, you know, now founders are unwilling to talk to regulations. regulators because there's just no particular reason to think that they'll have a good outcome, right? So they need to develop some carrots and they've just done a really, really poor job at doing that. Not to weigh into politics, but what would you expect in terms of the election outcome? Do you believe that that would much change the securities, authorities, engagement with the industry, depending on which way it goes? Well, it could. One possibility that would be very bullish for crypto is Trump gets reelected and Hester Perce becomes chairwoman of the SEC, right? And we know her views, right? I mean, obviously she's still limited to what the law is, but there's a lot of room for interpretation there. And, you know, she will be dealing with a staff that I think a lot of them disagree with her views. But nevertheless, she'd be the head hot show. And she clearly is reform.

minded and thinks the securities laws should be easier to comply with, right? So that'd be very bullish for crypto if that happens. Don't know, have no way of predicting, right? If a Democratic president gets elected, the, and by the way, you know, if it's not, if Trump gets reelected and it's not purse, then I would say it's anyone's guess, right? Clayton was a, was a Trump appointee, and Clayton was very, very tough on tokens. And Trump has said a lot of derogatory things about cryptocurrencies, right? So who knows? If a Democratic president gets elected, you know, what I would invite people to do is look at Elizabeth Warren in her questioning of purse when, you know, when the, when she had to be confirmed as a commissioner. And it was very, very tough questioning, right?

And, you know, it's now happened twice. The Democrats are just less free market oriented in general. or maybe a more charitable way of putting it would be that they view free markets as requiring a lot of regulation in order to truly be free. And so Democrats haven't really said a lot as a position matter on cryptocurrencies, I think, other than that one guy who, like, you know, has a donor as a payment processor as a donor. I'm forgetting his name. He's very vocally anti-crypto. But in general, you could. Yeah. In general, you can assume that they're more regulation-oriented. And so while they might not be focused on crypto, because I think they're more focused on, like, holding CEOs and things like that accountable, for any given thing that comes across their desk, they're going to look at it more from the standpoint of interpreting the securities laws more literally, I think, and more broadly.

Do they extend that Biden is currently the favorite? I mean, do you think the token markets are actually underestimating the risk from a Democratic administration? That's probably my view, I would say. It could be, but I don't know, right? I think that the Clayton thing is interesting because he was sort of, he was looking to plant his flag and looking for a mission. And I think focusing on crypto really let really let him come out strong against something and gave his tenure definition. But now there's like someone who's already done that, right? And there's a lot of things already happening at the SEC. So I don't know that a new commissioner is regardless of what their what their biases are. I don't know that they're particularly incentivized to like go on a crusade against crypto because they're bigger fish to fry. Right. So I personally, I'm not like, you know, I still hold a lot of crypto. Like I'm not anticipating some big market wide plunge. I do think no matter who gets elected. there will be a couple big actions against D5 because there just have to be.

And that could, you know, that's probably going to affect the prices somewhat, right? So I've had John for over an hour now and this has been one of my favorite. We've had actually quite a few lawyers on the podcast. Those are always my favorite episodes. Maybe because of my strange infatuation with crypto law, which, perhaps doesn't make that much sense given what I actually do for living. But I guess where we'll leave it is, what is your current level of optimism over the possibility for entrepreneurs to create concepts which do involve sovereignty over assets and money

and can exist in concert with the legal regime? I mean, are you optimistic around that? Does something need to change? Do the regulators need to change their view? What are the prospects for, you know, the kind of crypto law industry? Well, certainly producing software in the United States is, you know, it's one of the best places to produce software because we have strong First Amendment protections, right? The deploying the software and trying to make money off of it, that's where it gets a lot harder. And I'm not too optimistic on the combination of deployment and the people who deployed wanting to get paid for their work being compliant with law.

Because by its nature, this is something that enables exit from the legal system and enables you to custody and do transactions with your stuff, even if an intermediary or a government ordinarily wouldn't permit you to do that. So, you know, that is both good and bad, right? It's bad because it means this is never going to be run like Silicon Valley exactly where there's just like this enormous like American prosperity that's like totally legitimately generated from it. It's good in the sense that the people who are working on this for the right reasons, that is to really build public commons that are usable by anyone and don't have to trust a lot of people. They remain revolutionaries, right? And I think they can carry that badge proudly. But you can't

expect to have your cake and eat it too, right? You can't expect to, you know, Che Guevara got on the t-shirt long after he was dead and buried, right? And, you know, that is a reality. Yeah, you can't sell merch when you're still conducting the revolution. What, what, what, Which of the many threads in the industry excite you the most? And which do you think will be the most enduring? Well, I would say, you know, first of all, I still remain excited about Bitcoin because I just think it has the, it survived the most battles, as you said, and it has the most clearly defined culture.

And it just creates this enormous firewall against any kind of bullshit or capture. And so, you know, to me, Bitcoin is still like in terms of the, the, the, attitude around it, still the most kind of punk rock and pure cyphor punk proposition. Now, that also means it can be very slow to change and that the changes that do happen happen on other layers, right? So Ethereum, you know, is amazing because it's just much easier to hack on, right? And people just do crazy stuff. And the defy innovation that's happening there is nuts. I'm very excited about these sort of like new fair launch projects in air quotes, you know, that try to give governance to everybody right away. I wouldn't say any of them are fully true to their statements yet, but it is an interesting idea.

And it does sort of de-risk the main regulatory risk, which is that like VCs fund these things and it's just so clear, you know, VCs want to make a profit, right? So I love this community efflorescence in the defy world. Yes, it's a little bit hairy, but I think there could be interesting movements that come out of that. Well, Gabriel, it's been a pleasure. Thanks so much for coming on and sharing your thoughts with us. Thank you. My pleasure, sir.