On The Brink with Castle Island - Patrick South (Chamber of Digital Commerce) on Blockchain Policy (EP.55)

Episode Date: March 21, 2020

Patrick South, VP of Development at the Chamber of Digital Commerce joins the show. In this episode we discuss: The mission of the Chamber of Digital Commerce and the policy initiatives that the organization is advocating for The line of demarcation between security and non-security tokens and a possible path forward for a safe harbor provision The potential impact of the travel rule and FATF guidelines Patrick's quarantine book and show recommendations

This week's episode is with Patrick Self, the VP of Development at the Chamber of Digital Commerce. The Chamber of Digital Commerce is a trade association that advocates on the behalf of blockchain companies and investors in the blockchain space. This was a fun conversation. Patrick and I obviously talked about what's happening in the world right now with the pandemic, how we're each coping with working from home and thoughts on the general news environment in the crypto space. And then we got into the meat of the discussion around what the Chamber of digital commerce is working on and what Patrick's current market perspectives are on some of the hot button issues. So some of these hot button issues get into the weeds a little bit, but I think

they're important to understand. So for instance, we talked a lot about the line of demarcation between a security and a non-security. So think about this as bringing clarity to whether or not a public blockchain network can launch with some sort of a fundraising mechanism. We also spoke at length about FADIF and the travel rule and some of the potential enforcement actions that could come of this, how exchanges are going to be reacting to the travel rule. And then we talked about some of the regulatory clarity asks that some of the industry participants that are in the Chamber of Digital Commerce, what they think and what they are advocating for. And then we closed out with some book recommendations, some great movie recommendations. And I think you'll find that it was a,

it was a discussion that went into detail where appropriate, but also was a little bit lighter just around some of the things that we're both experiencing in our lives right now. So, without further ado, here's our conversation with Patrick South. 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. You print a couple trillion dollars and all of a sudden people started to worry. So out of this worry, we have something called a Bitcoin. Patrick, thanks for joining the pod. Matt, thanks for having me out, man. I'm a big fan. I'm just stoked to me participating.

Yeah, we're excited to have you on. My first question, I guess, is just with everything's going on right now, have you been able to wear your trademark bow tie during your quarantine? I go to sleep in it as far as people now. No, no, no, no. I'm rocking a lot of an attitude right now. So I'm a big Washington Nats fan. So I got my Nats shirt on and a Nats hat, wishing that we were heading into the start of the season here.

But hopefully we'll get there eventually. How are you holding it? We're holding up. We're in our kind of bunker, quarantine bunker. We're going to start doing a lot more podcasts, I think. This is a crazy situation. What are your kind of general impressions of what's happening in the world right now? Yeah, man.

The convergence of everything is, I think, what's so special about this situation, this exogenous shock in a pandemic, being the coronavirus or COVID-19, paired with the liquidity crisis and some second-order effects in terms of supply chain shocks and other things that we're seeing. And it really just brings for this perfect storm, if you will. I'm no expert on the coronavirus,

but as a citizen like anyone else, a citizen of the world, it's just a really special time. I mean, when can you point back and find alignment to a single crisis that the entire world was going through together? So it's just trying to make sense of it all. You and I were saying just before this started, it's really crazy how far in front of this some people were. And in particular, you look at Bilaji

and him kind of sounding the alarm. To me personally, that was overly helpful in taking this probably more seriously than I would have otherwise. And so it's just really incredible how powerful some social media platforms, in my instance, Twitter really is and how much that positively impacted me and my ability to be prepared for this. That's a huge positive. The negative side of all of this is there are just some people who are economically, taking away the medical aspect of all this, economically overly impacted. And so I think to the extent that we can find ways to support those who are vulnerable economically, I think all the better.

So it's really wonderful to see all those that are creating initiatives to donate time, money, resources to help people in need at this time. Yeah, I couldn't agree more on everything you just said. Specifically on the news point, Ballagie was such a early, kind of sound the alarm person in this industry, Ryan Selkis as well. That also helped me start to get prepared for this. I think the time to panic is to panic early so that you're ready when things get really ugly. But where are you getting your news these days? It's all Twitter. And it's a blessing and a curse. The blessing is there is just so much there. The negative is that

in itself. It's overwhelming at times. I find myself just kind of using it as a slot machine, if you will, right, scrolling for what's next, that next dopamine hit. And I've always thought this, but this situation has really brought it to the forefront in that it would be really wonderful if there was a way to synthesize or consolidate trusted sources of information in like a decentralized way where if I'm trusting the news that Pallagy or Ryan or others are getting, yeah, sure, I could just limit my following to what they're outputting. But even then, I mean, Ryan is spitting out content left and right these days. And it would be really wonderful if I could get like a five to 10 minute, preferably video clip that summarizes everything that went on that morning, that afternoon,

that day that I could just get right into my veins as opposed to getting my 10 to 20 minute dopamine hits to Twitter 50 times a day. Yeah, this is great point. I mean, one of the things that I've found is that it's just it can get a little bit stressful just being on Twitter all day. And I've been watching CNBC in the mornings, and that's also stressful just to look at how some of these financial markets are just seizing up in ways that we haven't seen in a very long time since the financial crisis or even maybe the Great Depression. And so sometimes it's overwhelming. Having a five to seven minute hit would be a lot more preferable from my perspective. Yeah, I'm totally with you. The financial side of the house is just blowing my mind. Like the fact that the Fed's going to be buying up troubled

corporate debt, this is like a scene out of Atlas shrugged where every, everything is beginning to be a bit nationalized. It's scary, man. It's been a really violent unwind. You know, everyone pointed the finger at the banks in 08. I suspect as many people do that we'll end pointing the finger at hedge funds this time around. It's just weird time. I think we might also be pointing the finger. This might lead to more nationalism. Certainly there's already been a lot of finger pointing towards China and a lot of that deserved for having these open-air markets still and for some of the suppression of some of the doctors who are out in front of this. But it does seem like it is leading to quite a nationalistic streak, which that's dangerous

in and of itself too. I was thinking about this the other day. I think some people are really applauding China for the response. And regardless of what side you stand, I mean, the authoritarian nature of China is really what enabled them to react in the way that they did. What's scary to me, and this is a topic I'm relatively ignorant on, but just have exposure to you through news cycles and otherwise is, if you remember, in October November, the chaos that was occurring in Hong Kong, I feel like this is going to be yet another

tool that China uses to further impress themselves upon Hong Kong is a reason for authoritarian state in that environment. And that, that's me, it's like relatively scary. I think we may see more nationalism here in the U.S. as well. Yeah, I think you're right. And I think in times of crisis, civil liberties are oftentimes pushed back and sometimes even suspended entirely. And so some of the things that China's done around location services and tracking people who have the virus, you're seeing some of these things proposed in the United States. And maybe they're actually good ideas. I mean, maybe that's the way that we all get back to work here to have some of these location trackers. But this is exactly what we've been pushing back against in many parts of the

crypto community. Yeah. Yeah. Do you have faith that they would, are we okay turning something on for the time being that we think benefits us in the short term, but do we have faith that those type of privacy encroachment features wouldn't be turned off in the long run? Right. Your CNBC habits. Are they covering Bitcoin yet? It's what's been going on in the past 24 hours. It's been riffing.

So, yeah, I didn't see anything on Bitcoin this morning, but I was getting a lot of people inquiring what the hell happened to Bitcoin over the past week. It's down 50%. I thought these markets were uncorrelated. What I'm saying to that, is, look, if Bitcoin was a true store of value asset, it wouldn't be worth $100 billion or whatever it's worth. It would be worth closer to $5 trillion, maybe closer to what gold is worth. So you have to think about Bitcoin as an option bet on the emergence of a non-sovereign store of value. It might be a

series A option bet. It might be a series B option bet, but it's an option bet. Now, the good news is that you're taking that venture scale bet, but there's no risk of Bitcoin running out of money like a company. So it's a lot different in that respect. I think the other thing is that all assets are really, all risk assets and even some non-risk assets are correlated to one in a sell-off. What we saw over the past week or two is that everyone is just trying to get into cash. So you saw gold go down. You saw every asset really take a plunge. But we'll see. I mean, I thought it was interesting that Bitcoin really had a big run yesterday in a down market. So TBD. Yeah, you nailed it with the latter half of that statement and everything sold off in a

are quoted to a crisis. So people are rushing to dollars. And I don't think that's an estimate to what Bitcoin is or isn't. It's not necessarily a Aurora shock test in that instance. I'm just going to wait for members of Congress to start buying Bitcoin. And apparently that's a pretty good buy signal these days, just to keep an eye on what they're doing. You follow the personal accounts. I said there's a big controversy today with Kelly Loeffler. We'll see where that shakes out. But the reports are that she sold, I think, a million and a half dollars worth of stock after seeing a private briefing. But She's pushing back on that. So I think it might be too early to tell what happened there.

Yeah, we'll see, man. So let's get into it a little bit about, want to talk a lot about the Chamber of Digital Commerce, want to talk about some of the things that you're working on. Obviously, we can't have a conversation in this day and age without talking about reactions to the pandemic. So I'm glad we covered some of that in the outside. But why don't you give us a two minute, three minute background on your career and what led you to Digital Chamber of Commerce and then we'll get into it from there.

Yeah. So I spent the majority of the last day. decade in the defense and intelligence base, primarily at the intersection of emerging technology integration. I ran a 20,000 square foot data center where we had an IAS and an infrastructure service and in a PAS offering for varying intelligence applications. It essentially was prior to public cloud really being adopted in a meaningful way, especially from the government. And so we essentially served as a private cloud, leveraging some hyperconverged infrastructure, and inevitably transition to what's considered to go cloud.

After that, I helped to launch a half-billion-dollar commercial imagery satellite. So if you're on Google Maps, this was a company that was providing satellite imagery, not only to Google for their maps function, but also to a number of intelligence agencies. And I helped not only with launch, but some of the intelligence integration. I worked for a national intelligence manager after that, doing some emerging tech projects. And then I also did some stuff in the civilian side where it helped a contractor win, contract with the IRS for the front-end portals application. So when you go and submit your tax return today, they stood up that application. And I also helped to stand up a student loans.gov ran an

application development team doing that. Several years ago, I fell down the Bitcoin rabbit hole. I wanted to pair that with what I was doing at the time. And so I ended up running Accenture's public service blockchain practice for about three years. There, we were focused on data integrity initiative, supply chain, digital identity, a little bit of health care. It was all very focused on permissioned applications and it was fine and dandy at the time, but it didn't really align to how I believe things would unfold and learn how I wanted to be spending my time, which was more focused on permissionless side of things. We were members of the chamber. I recognized much later than some other folks did that regulatory issues were likely going to be the largest hurdle to the

success of this industry and felt like that was a really cool way. for me to spend my time. Selfishly, this has also served the chamber for me, serves as a great fulcrum point where I get to interact with all sorts of folks across industry, whether it's people building infrastructure or investors, exchanges, large capital markets entities, banks, OTC desks, et cetera. It's really interesting to see all these varying narratives and perspectives and how this industry is going to evolve. And so I made the move over the chamber maybe 15 months ago and it's kind of been a wild ride since. That's great. Well, thanks for that background. So you mentioned falling down the Bitcoin rabbit hole. Do you remember what it was about this technology, what it was about this industry that got you excited for the first time? Was it the non-sovereign money aspect of it? Was it the holding your own data aspect of it? What part of the industry got you excited?

Yeah. Having something that serves is uncensurable sound money is really special. I think over time that narrative has evolved a little bit in parlaying that with the idea of having something that serves as an integrity assured store of value is really. special. So it's this convergence of a variety of topics. And to me, I've always been, really had a natural sense of curiosity. So anything that enhances intellectual stimulation is super interesting to me. And I think this is the pit of me of that, right? The convergence of technology, economics, in a variety of other fields is really fascinating. It's where I wanted to spend my time and energy outside of just nights and weekends. And so I'm lucky to be in the position that I'm in. That dovetails kind of. into, let's tell the listeners a little bit about what is the Chamber of Digital Commerce. Why was

it formed? What does it do? Tell us a little bit about the organization. Yeah. Perian Boring is our founder and president. She launched this thing just about six years ago now. It was just prior to Ethereum launching. Our mission is to promote the acceptance and use of digital assets and blockchain-based technologies, which is a pretty broad mission set. We launched with just a few founding members and today have scaled to over 200 members. Our membership is a bit bifurcated, which we view is a huge positive. About 60% of our members in the space are startups. Those include blockchain protocols and platforms like Tazos, Ripple, Hedera Hashgraph, Algarand, Block 1, and a number of others.

There are cryptocurrency exchanges, Gemini, E. Toro, Finance, U.S., and a number of others. We have blockchain infrastructure platforms like BlockDem and Bison Trails, Security to Open Issuance platforms like securitize, ATSs like T0, and everything in between, market surveillance, companies, et cetera. The other 40% of our membership base are large enterprise institutions. So these are big banks, JPMorgan, City, HSBC, BNP Paribab, BNYMellin, and others. We represent folks like Fidelity, your former employer, if I remember correctly, along with NASDAQ, CME group, consulting firms like Accenture and IBM. service providers like Microsoft and Cisco, accounting and advisory firms, and about 35 law firms.

And I say all that just to point out the kind of heterogeneous mixture of entities that we have aligned to us. And what that enables us to do is to have a pretty prolific platform in which we engage policymakers on key issues that impact our industry. That's great. And so for those who might not be familiar with the differences between an SRO and a lobbying group, it might have heard about some of the organizations in this industry, like a coin center or an atom. Could you lay out maybe how you think about the bifurcation of these various organizations, what they're set up to do, how you're different from a coin center or an atom, and just talk through that a little bit. Yeah, yeah, happily. So if you look at an SRO, a self-regulatory organization, those are congressionally mandated entities that help with to set self-regulation for a particular industry.

I'm not deeply familiar with Adam, so I don't want to speak to them specifically, but there are a number of SRO initiatives that we're seeing in the crypto space to help to self-regulate our industry. And many of those are engaging directly with the CFTC in hopes that inevitably they would be congressionally mandated to do so. You have a variety of capital markets entities that are interested in aligning to those type of organizations, whether they are crypto exchanges or OTCs. desks or otherwise. On the other side of the house, if you look at traditional lobbyists, you mentioned Coin Center. I personally really enjoy reading their perspectives. Jaron and Pierre are incredibly bright, and I'm personally aligned to the majority of their positioning. I believe coin centers categorized as 501C4. They're a think tank. I don't want to go to the nuance too much on a C4 in particular, but ultimately they have donors who fund the work that they do as a think

tank, and they're generally focused on producing and publishing policy research. This includes bringing in well-respected academia and other experts in helping to educate policymakers and the media about our industry. Ultimately, they're focused on providing advocacy or advocating for sound public policy, which aligns really closely to what we do. The major difference is that as a think they're really focused on providing meaningful research to the industry and is a trade association, which we are characterized as, or a 501C6. We represent a variety of members, and in that we help to advocate on behalf of specific initiatives that matter to our members. So there's often a convergence in terms of the lobbying that someone like Queen Tender may be doing and the lobbying that we're doing. In this instance, we take an abundance mindset. I think that the more intelligent people that we have engaging with policymakers in a meaningful

way to advance key issues that are impacting your industry, all the better. As long as we're finding ways to complement each other in our initiatives and not contradict too much, I think we're really doing something positive as a whole. I'm a firm believer that individual people are the ones who affect the greatest change. And to me, it's great to see such smart, dedicated individuals across these type of entities that are dedicating their time, energy resources to really advancing these issues in our space. That's super helpful. I think there's a lot of confusion just on what some of these organizations do. Are they competitive? Are they pushing in the the same direction. So thanks for giving that background. Talking a little bit about specifically

what the Chamber of Digital Commerce is working on, what are the hottest button topics that your members care about? And what are some of the initiatives that are popping out of these discussions? Yeah. So we've got a bunch. It's spread across a variety of different regulators, kind of walk through them. So one longstanding initiative of the Chamber is called our token alliance. We're really proud to have it co-chaired by a few former regulators. So we've got Paul Atkins, who's a former SEC commissioner who helps to co-chair this, as well as two former CFTC chairman, one being Jim Newsom, who served a little while ago and now runs Delta Strategy. And then we also have the most recent chairman of CFTC, Christian Carlo, who's been nothing

but a blessing to have on board with us. And together, that group really focuses on some key items. One being the line of demarcation between security and non-security tokens. we've put out some guidelines on that. We've submitted an amicus brief back in January in the SEC versus telegram case. We didn't take a side on that one. We were just helping a service as a friend of the court

and provide some information that we thought would benefit the judge in that instance in hopes that it also benefits our industry, frankly. If we're not going to see meaningful changes from a regulatory perspective, from meaningful guidance from a regulatory perspective, we're not seeing anything move too quickly through Congress right now, then another way that we may see, and guidance is or through court cases like this. And if we do see an outcome that isn't a settlement,

we want to see one that positively impacts our industry. So that's kind of number one. We look at some custody issues as well, around 15C33 and what we consider to be a good control location. And we're also doing some more work around digital securities within our token alliance. So focused on a number of large financial institutions care about this. There's a growing ecosystem,

whether it's broker dealers or other. entities that are looking to participate, and there's some key regulatory issues that impact them. Custy, again, is one there. There's a large backlog of broker dealers in FINRA that we're looking to find a way to help funnel through, and there's still remain some questions from a books and record-keeping perspective around a distributed ledger serving as a final source of truth. So under our token alliance, some of the work we're doing, our chief policy officer, Amy Kim, is a BSA expert. She spent 20-some years in private practice, solely focused. on cross-border compliance, full-fax sanctions, et cetera. And so given some of the evolutions

last year around FATIF and the travel rule and FinCEN's interpretation of that, that's been a major area where we've been spending a lot of our time. So we have a task force that is centered around engaging with FinCEN and other regulatory bodies related to the funds transfer and travel rules. Amy most recently, she was in Paris a couple weeks ago presenting a FATIF on some of the work that we're doing there, and I'm happy to dive into that in more detail later, but keeping this high level for the time being. We also have a national action plan for blockchain, where we're stepping back from directly engaging with regulators, and instead trying to engage with Congress and the executive office on really promoting an environment in which blockchain technology can thrive and succeed,

where we can foster an environment for innovation and investment here in the U.S. So we've seen a fair amount of regulatory arbitrage. You can point to Hong Kong and Singapore or some smaller jurisdictions. And what we want to do is if we're not going to see meaningful regulation or guidance directly from the regulators, we could see a meaningful narrative from the executive office or other government entities. And so what we're looking to do is to find someone who's willing to run with this and take ownership and create a potentially a centralized office across government that focuses on influencing a positive outcome for this technology, much like we're seeing with AI 5G quantum and other emerging technologies. We're not saying DARPA medicate funds in a

meaningful way towards this industry in conversations. A lot of that is because they believe there's too much private capital in a space. I think the misnomer there is that private capital has direct ROI expectations, and it's not being contributed to true like step function innovation, meaning true R&D efforts or getting grants to academia R&D labs that can really help to further the technology in a meaningful way and the U.S. at the forefront. So we issued a report a couple weeks ago around the J.B. Wong strategy. We're seeing China move forward with this technology in a meaningful way. We've seen Germany and other countries include this in their national strategy. We really want to elevate that conversation in the United States.

The last couple things is we're engaging more and more with prudentially regulated financial institutions. And so we're finding more work to do there. A major theme right now is around central bank digital currencies and stable coins. Out of personal interests, that's where a lot of my own personal research is being dedicated. We just responded to that the Bank for International Settlements had a consultation out from the Basel Committee around designing a prudential treatment for crypto assets. So we just responded to that as an organization. And then we do a little work around tax and accounting and some other issues.

But in the spirit of not rambling too much, I'll kind of pause there. Well, that's a lot of stuff that you're working on. One of the things that I love to chat a little bit about is just this line of demarcation between securities and non-securities. And so let's start with just what has happened in this industry. And so you have the launch of Bitcoin, clearly not a security. We've heard that from the regulators. there is a proliferation of innovation after Bitcoin. There is the invention of something called

an initial coin offering, which in my estimation most of these, if not all of them, the first crop at least, end up looking a lot like security, something that you'd look at the definition of how we test and you'd say, look, this is hitting a lot of these prongs. You have a central coordination going on here. You have the expectation of profits. Many of these things are in fact nefarious and put a real black eye on the industry. From that, you see this innovation around something called the SAFT, so the simple agreement for future tokens, which is a security. And the idea here is that this would transmutate into a non-security, a public blockchain asset that is not a security. This is with the idea that if a public blockchain asset is a security, then the actual

functionality of the network would be compromised. If you're doing a, if you have a public blockchain network that provisions cloud storage or digital compute. If every time you're making an API call, it's a securities transaction, that doesn't really work at all. And so I think this is part of the optimistic view would say that the SAFT was invented to kind of address that. A pessimistic view would say the SAFT was really invented so that venture firms could monetize these things.

And you could actually figure out a way to extract value. So not going to kind of dwell on that. but we're not answering that question today. We're not answering it. Well, you're free to chime in on that. I think that certainly elements of this industry had done really well flipping tokens. And that's something that I think will play out in the courts in the years to come. But I guess a jumping off point from this little ramble is, is there a clear line here on how a public blockchain asset can come into existence can be put into the wild and not be a security? The short answer is today, absolutely not. There's no clear line, and that's what we're actively working to define. There remain to be more, continue to be, more questions and answers from my point of view. I mentioned we submitted an amicus brief. That was filed publicly. Anyone can go and read that. It's available on our website and elsewhere. But really outline our thinking here.

So one is, we work to provide a legal framework based on settled SEC jurisprudence. prudence to create a predictable legal environment for our industry. We weren't taking a view on whether the offer and sale of Graham's was a securities transaction. The key determination that we were really seeking is to distinguish between the subject of an investment contract, which is the digital asset, right? So think about that as a token with the securities transaction associated with it. So our argument is that this really requires two separate analyses. One is whether there is an investment contract that is offered as a securities transaction and whether the subject of that investment contract is a commodity that can be sold in an ordinary commercial transaction. And so the kind of

a way to think about this would be if you look back at the how it case, if you are looking, the investment contract itself was a security, but the oranges that were within the groves themselves weren't securities. In these instances, the oranges could be analogous tokens and the overall investment contract could be analogous that are aligned to the agreement of this investment contract in any sort of token sale. And so what we're really work to show is that there's a differentiation between the investment contract itself and the subject of an investment contract. And that's kind of where we're spending a lot of our time. It was, it was really wonderful to see Hester and her recent safe harbor proposal where I think they're beginning to think about things in a more

mature way. Recognizing Hester's one of five voices in the room that's a bit diluted, but it's really great that we're beginning to start to have these conversations so that future commissioners and staff will have a starting point to work from is we work to get further clarity around this. So when we look at this line of demarcation, it's not just around, okay, I have an investment contract and I have a subject of an investment contract that may not be a security. But there's been a lot of talk around sufficiently decentralized was a term that was used originally. And now we're really seeing the term network maturity be used. And so within SEPPestor's safe harbor proposal, it's really offering network developers a three-year grace

period. In that grace period, it exempts the offer and sale of tokens from the 33 Act, other than the anti-fraud provisions, which is a really important caveat, that you're still subject to those anti-fraud provisions, and then the tokens are exempt from registration under the 34 Act. There's a couple other things there, but those are kind of the major talking points. With that, the network could become sufficiently decentralized over time, much like we saw with Bitcoin. And to us, I'm sure you're a firm believer in this map, but Bitcoin itself, the novelty of Satoshi standing this up and walking away from it, I think that will be difficult, if not

impossible, for someone to replicate. And so in that, there are positives in our minds to having founders contribute to a network for a certain period of time before stepping away and seeing that network become decentralized. In fact, I think there's for anyone to continue to contribute their thought leadership in a meaningful way towards something that they've spent arguably decades thinking about and building all the better. And so for us, we just want to define what network maturity means. So how can something be sufficiently decentralized? What are the measurements or parameters around that?

And so there's some questions as to what that looks like. Gabe Shapiro, I've really enjoyed his thinking around this, and he's categorized it in the three buckets, which is we need to look at economic decentralization. So do just the founding team control less than 10% of the stake in a given network operational decentralization from a governance standpoint? So consensus be derived from less than 10% of folks on a network. So it's ensuring that potentially the amount of nodes in a network are sufficiently decentralized and there's some constraints that we can put around that. And then having complete performance of the investment contract material itself.

So there needs to be some more thinking around how we're defining network maturity. And then mutability is kind of the largest question is, you know, okay, if we're agreeing that there's a safe harbor and something can evolve from a security into something else, it's a commodity currency. Otherwise, could it potentially come back the other direction? And that could something be a commodity and then over time, you know, becomes centralized enough that it's back into the security realm. And there is where I don't have an answer for you. Yeah, it seems like it could be possible. One of the interesting things is that you're seeing a lot of experimentation in terms of how you would bring an asset to market. So you brought up the Bitcoin example with Satoshi

walking away. I think it's interesting that we are starting to see some fair launches, not a lot. I mean, we've seen Grin and maybe a couple of others that have just put these networks into the wild without a pre-sale. Obviously, the argument against that would be that you don't have the ability to fund the R&D to fund the initial team making the build-out. So I understand both sides of that argument. I guess from your perspective, what is the best case scenario from if you were to be a market participant here, either a team that's building one of these networks, or maybe an exchange that wants to list them but doesn't have clarity on whether or not these things are securities or non-securities. Is it safe harbor kind of the ask from the industry right now?

The safe harbor is our best bet from the industry right now, I'd say. We could also see things happen from a legislative standpoint. I would say starting prior to the crisis year, it was probably unlikely in 2020 given it's an election year and we're focused on some other things. Now, with the crises, seeing legislative action here is probably even less likely. You're getting my personal opinion here, which means, yeah, the safe harbor is arguably our best bet. If I'm waving a magic wand and saying, you know, this is Patrick's wish list, it would be staff guidance because at that point it's not, it's not necessarily a test. It's not saying, well, let's find out if the safe harbor works. It would mean we were confident enough that we had staff

issued guidance on how a network could become sufficiently decentralized that would allow to and issuers to really foster in this type of environment. And so that would be SEC staff guidance. Is that how that would work? Yeah, yeah, excuse me. SEC staff got it. So maybe transitioning to another topic that gets a lot of attention. I think there's a lack of clarity in terms of what these things actually mean.

Could you talk through what the travel rule is, what FATF is, why this is an issue for the industry and where we are in terms of the industry being able to address some of these issues? You're just asking all the easy, light questions this morning. We're in our quarantine bunkers. We might as well talk regulatory. Yeah. So fatic, right? The Financial Action Task Force, for those that aren't familiar, it's an intergovernmental organization that develops policies to combat money laundering and terrorist financing. I originally stood up as kind of the G7. They ultimately make strong, and I want to emphasize strong recommendations to countries to adopt. It's unusual to see them not

adopted is kind of what I mean by strong. This is right in our chief policy officer's wheelhouse, as I mentioned. The travel rule itself, for those that aren't familiar, it requires VASP's virtual asset service providers, kind of the most common virtual asset service provider that most will think of as someone like an exchange to record and transmit personal identification data, beneficiary information, when transferring $1,000 or more between two parties' wallets that are both hosted, by a virtual asset service provider. So what I mean by that is exchange to exchange, they're required to exchange or transmit personal identification data

if I'm sending my money from my coin-based wallet to my, if I'm sending Bitcoin, let's say, from my coin-based wallet to my Crackin wallet. Where the travel rule does not come into Blake currently is if I go buy money on Bitcoin through the cash app and let's say I spend $1,200 a cash app, purchase Bitcoin, I then transfer that to my ledger and my personal hardware wallet. That does not come into play because there's not personal identification attached on the other side of that.

Chainalysis or cipher trace or elliptic, they guess that that's my personal hardware wallet. And so there may be some risk scores associated with that. But the exchange itself is not aware of the identity on the other side of that transaction. That's kind of where we stand around the Travel Rule, we have a number of service providers that are actively working to provide compliance solutions for virtual asset service providers. There's also some pushback, frankly. There are a lot of challenges right now associated with developing a fully functioning system around the travel rule in a landscape where regulatory bodies haven't implemented licensing or registration regimes or frankly may not value privacy and cybersecurity in the same way as the

US. So think about this. If someone is transferring Bitcoin from their coin-based wallet to a Kwobe wallet, for instance, do we know that KWOBI or another Chinese exchange, for instance, is valuing privacy in the same way that we are? And are we comfortable passing U.S. personal identification information across boundaries? Unfortunately, the BATF recommendations expect U.S. VATS. VAT, the virtual asset service providers, to say, send personally identify our information or PII to VASPs that are located in foreign jurisdictions. And in these instances, they may not have registered or otherwise follow AML standards around virtual assets. And to us, that's a concern. And it's an area of pushback for the industry

currently. Got it. And so with this rule, I think there's been also a lot of kind of murmurings in the community around what this would mean. Do you see any way that this could make it a requirement to label your self-custody. And so what I mean by that is, do you envision this being implemented in a way that if you're using Coinbase and you're withdrawing to your treasurer that you would actually have to demarcate, this is my cold wallet address and actually kind of infringe on your own privacy? Is that a concern? Is it a concern?

Absolutely. How realistic is it? Personally, I don't know. There was a treasury meeting that a lot of folks were talking about about two weeks ago in that. one of their biggest concerns remains to be non-custodial or unhosted wallets. And in that instance, you can point to something like Trezor, Ledger, or otherwise. And to us, that's a great concern. And it does infringe on privacy.

I think you also can look at stablecoin ecosystems. And you look at something like USC and today via Fiat on and off ramps, that's really where some of the KYC, AML rules apply most. So when you're onboarding or offboard, from fiat to crypto is where those are really captured. And in that, and you guys talked about this recently in your episode with Jeremy Allaire, is there's a vibrant ecosystem of non-custodial or unhosted wallets that are able to transfer USDC, much like Euro dollars or otherwise, that isn't necessarily captured from an onboarding perspective, right, since it's not direct

fiat to crypto. And I think that remains to be seen of what type of regulation we see for non-custodial or unhosted wallets, but it definitely has the eye of the regulators currently. So again, for those that are pounding the table on privacy, this is yet another area of concern. And I think we've begun to see some exchanges that are adding increased measures around this. So you've started to see some exchanges question if you're sending your Bitcoin, for instance, through a mixing service that's been reported across a variety of exchanges. and getting to see more and more onerous requirements in that regard, which is unfortunate. Yeah, it's going to be interesting to see how this plays out.

How would you recommend that the average person who's an ecosystem participant that cares deeply about this, what's the best way to keep tabs on what's going on and maybe even participate in some of these discussions or influence in the form of advocacy? I think a great way for anyone is to just demonstrate having skin in the game. Anyone is capable of building something, especially during the quarantine year, arguably folks are going to have a little more time. So work on building something, right. It doesn't have to be complex, original thinking, but let's start by providing creative summaries, how-to guides. This helps to further your own understanding on a topic. There's some really great resources out there.

Our website, digitalchamber.org, is kind of filled with a lot of our work. We're very public about our positioning and the work products themselves. So you're able to go there. Reach out. I'm a firm believer and asking for help. There's a wonderful Steve Jobs video that's like, I don't know, 30 seconds to 60 seconds long. If you just type and ask for help Steve Jobs into YouTube, but I don't believe enough people just reach out. I think in general, people are willing to be helpful to others as they're looking to break into an industry or learn more about something. So feel free to shoot me a note. I'm Patrick at digitalchamber.org. I'm happy to help someone looking for further understanding on some of these topics or wants to have a deeper conversation. If I can't answer it,

that our policy team certainly can. And we're happy to help to serve as a resource. Other than that, there's so many bright people on Twitter. There's a number of great lawyers. Jake Chavinsky, you guys had on Lewis Cohen's wonderful. But shoot me note, I can provide some suggestions on folks that are great to follow and are really thought leaders around these type of topics. That's awesome.

I think that reaching out, I couldn't echo what you're saying anymore. I think just people are very willing to engage. people are willing to respond to people that are looking to deeply understand things. And right now it would be actually a great time. Some people might have some time on their hands with this quarantine. I guess my closing question is, apart from work, what are you doing to keep busy on your quarantine? Any recommendations for books, movies, shows?

What do you recommend? I've got a lot. So one is, you know, Matt, I've got a newborn at home. So this is kind of a blessing in disguise and that I'm getting to spend so much time with my wife and my son Beau. And so that's just been really special. It's something that we're trying to take advantage of and really make the most of.

Outside of that, with the remaining time that is left, lots of reading. And I'm currently reading a book called Strong Towns that Marty Bent recommended. It's about forward-thinking ideas around urban development in the U.S. That's really phenomenal. In terms of recommendations,

movies, one of my favorite movies is Warrior, which is just incredible. It also seems somewhat appropriate. to rewatch Fight Club at this point in time. Documentaries, the smartest guys in the room, right? It's a documentary on Enron is another semi-appropriate thing to watch. The Men Who Built America, it was done by History Channel, really phenomenal, shows, money heist is great,

Black Mirror, and if they haven't seen The Wire, right, that's kind of an all-time favorite. And then on the book side, relevant to the Times, you look at things like Atlas Shrug, the sovereign individual, Peter Zion has some great books, right, from a geopolitical perspective. I'm a big sci-fi nerd. So anything by Stevenson is great, snow crash. And then the remembrance of Earth's Path trilogy,

some people know it as like the three-body problem, that is just phenomenal. And I like that. From a perspective standpoint, how to get filthy, rich, and rising Asia's great, not getting away, a short life more lived. It really helps you better understand what types of things are meaningful in life.

And if you're looking for like an easy nonfiction book, Red Notice, the story about Bill Browder's, is good, billion-dollar whale. The one NPDV scandal is a super easy read. Shadow Diver, maybe one of my favorite nonfiction. I've been meaning to read that one. I've been taking copious notes as you've been saying this. This is awesome.

I don't know if I'll have enough time to read all these. I hope not. What about you, man? What are you reading, watching, listening to you? So I'm reading the Facebook book right now, Stephen Levy's book. I went out and I bought all of the books by Mario Puzzo in the fiction category. So read the Godfather, reading The Last Dawn right now as well.

So trying to parallel paths and books. What else am I reading right now? I'm a big Audible fan. So I do probably two books a month on Audible at this point. Red Notice was one that I just did. Well, now when I don't have a commute, it'll be interesting to see how that holds up. But I'm doing that will never work. the Netflix story by Mark Randolph on Audible right now.

I just finished Bob Iger's book, The Ride of a Lifetime. That was really good. It was good. He stepped away at just the right time, I think. I just read a fiction book called Recursion, which I really liked by Blake Crouch. How amazing is Recurgeon? Oh, it's so good.

I cruise through that. I forget who recommended it. Peter, he's with Jump. Oh, Peter Johnson. That's why I read it. Yeah. Yeah. So I saw him tweet about it and I'll take any sci-fi recommendations.

And so I ran with that. And that book just blew my mind. It's so well-written. It really is. It's an awesome sci-fi book. Yeah, so I'm doing all sorts of reading. I also have a young one at home. So not all reading and podcasting over here either.

But we'll get through it. Well, hey, I appreciate you having time to do this, Patrick. Why don't we close out with just a call to action? Where can people learn more about you, follow you, and where can they learn more about the Chamber of Digital Commerce? Thanks for Tying that out, Matt. So learn more about the Chamber at DigitalChamber.org. Again, please reach out to me.

I'm Patrick at DigitalChamber.org. Happy to chat more on any of these topics. If you're looking for really in-depth policy conversation, I'll connect you to the right folks internally. And on Twitter, I'm at Patrick's self. It's certainly not all policy-related, but you can find me there. That's great.

Thanks so much, and we will see you next time. Thanks for listening to another episode of On the Brink with Castle Island. To find out more about Castle Island, visit castle island.Vicc. To listen to all of our podcast episodes, please go to On the Brink dashpodcast.com or just click on the tab in our website. Thanks for listening.