The Breakdown - Can a Solana Phone Beat the Bear?

Episode Date: June 25, 2022

  This episode is sponsored by Nexo.io, NEAR and FTX US.    On today’s episode, NLW looks at two big events: Congress held a committee meeting about the role of the CFTC in regulating and overseeing the crypto industry Solana announced a new crypto-native mobile development stack as well as an Android phone called the Solana Saga    - Nexo is an all-in-one platform where you can buy crypto with a bank card and earn up to 16% interest on your assets. On the platform you can also swap 300+ market pairs and borrow against your crypto from 0% APR. Sign up at nexo.io by June 30 and receive up to $150 in BTC. - NEAR is a blockchain for a world reimagined. Through simple, secure, and scalable technology, NEAR empowers millions to invent and explore new experiences. Business, creativity, and community are being reimagined for a more sustainable and inclusive future. Find out more at NEAR.org. - FTX US is the safe, regulated way to buy Bitcoin, ETH, SOL and other digital assets. Trade crypto with up to 85% lower fees than top competitors and trade ETH and SOL NFTs with no gas fees and subsidized gas on withdrawals. Sign up at FTX.US today. - Enjoying this content?   SUBSCRIBE to the Podcast Apple:  https://podcasts.apple.com/podcast/id1438693620?at=1000lSDb Spotify: https://open.spotify.com/show/538vuul1PuorUDwgkC8JWF?si=ddSvD-HST2e_E7wgxcjtfQ Google: https://podcasts.google.com/feed/aHR0cHM6Ly9ubHdjcnlwdG8ubGlic3luLmNvbS9yc3M=   Join the discussion: https://discord.gg/VrKRrfKCz8   Follow on Twitter: NLW: https://twitter.com/nlw Breakdown: https://twitter.com/BreakdownNLW - “The Breakdown” is written, produced by and features Nathaniel Whittemore aka NLW, with editing by Rob Mitchell, research by Scott Hill and additional production support by Eleanor Pahl. Jared Schwartz is our executive producer and our theme music is “Countdown” by Neon Beach. The music you heard today behind our sponsors is “Catnip” by Famous Cats and “I Don't Know How To Explain It” by Aaron Sprinkle. Image credit: MR.Cole_Photographer/Getty Images, modified by CoinDesk. Join the discussion at discord.gg/VrKRrfKCz8.

They think that the point here is that the discourse is finally evolving to a place where this is the level of granularity that the conversation is taking place at. When push comes to shove, we are no longer just in the world of big fuzzy talking points, whether pro or fud. The people who are actually involved in making decisions are dealing with things like disclosure systems in the context of a non-chain environment. I think that's bullish. Welcome back to The Breakdown with me, NLW.

It's a daily podcast on macro, Bitcoin, and the big picture power shifts remaking our world. The breakdown is sponsored by nexo.io, near an FTX, and produced and distributed by CoinDesk. What's going on, guys? It is Friday, June 24th, and today we are talking about two very different topics that both shed some interesting light on the current state of the crypto industry. Before we get into that, however, if you are enjoying the breakdown, please go. subscribe to it, give it a rating, give it a review, or if you want to dig deeper into the conversation, come join us on the Breakers Discord. You can find a link in the show notes or go to bit.ly slash breakdown pod. Lastly, a disclosure as always, in addition to them being a sponsor of the show, I also work with FTX. So yesterday was an interesting day in Crypto Land. The prices have been

largely stable, so I think for now we can stay off our discourse around market bottoms and focus instead on a couple of different topics. First of all, let's talk about what I thought was going to consume today's entire show. The Congressional Ag Committee, which has oversight authority with the CFTC, held a public hearing yesterday called Regarding the Future of Digital Asset Regulation. The witnesses testifying included Vincent McGonigle, who's the director of the Division of Market Oversight at the CFTC, Dr. Christopher Brummer, who's a professor of law at Georgetown, Jonathan Levin, who's the co-founder and CSO at Chainalysis, and Charles Hoskinson, who most know as the founder of Cardano.

The opening remarks from Representative Sean Maloney really laid out the key goal of the hearing to determine whether the current framework in regulatory assets is effective in light of it being a rapidly evolving sector. Now, as we'll see, specifically, what they wanted to dig into was whether the CFTC was the right regulator for the digital asset space. There were some fairly common threads in the opening statement of the witnesses, which were maybe best summed up by Dr. Chris Brummer. He said, irrespective of which regulator is in charge, that regulator will have to have a builder's mentality. I think what he was referring to was the dynamism in the space and what it's going to require

in terms of considering regulation. And his opening comments, Charles Hoskinson, who is well-spoken throughout the entire session, made the point that the U.S. should not look to regulate specific aspects of the crypto industry as they exist now, but the principles that underlie it. He basically pointed out that tools and technologies are constantly changing, so really the only thing that makes sense is regulating those underlying principles. Still, at the end of the day, the red meat of this discussion was very, very much summed up in the first line of questioning between Representative Sean Maloney and Dr. Chris Brummer. Maloney asked basically point blank if the CFTC should have primary spot market authority,

to which Brummer said the CFTC is certainly capable of doing so. And this line of discussion is actually even more significant than a quick exchange. Digging into it a bit more, Dr. Brummer in response said that, look, any agency here is going to have to think differently than current agencies think. They're going to have to change their ideas, their underlying assumptions, and really be open to new ways of looking at things. Representative Sean Maloney responded to that saying, quote, I'm struck by the line in your testimony, where you said it will necessarily involve revisiting longstanding assumptions about market infrastructures embedded in securities and derivatives law and adapting the regulatory system in creative ways that reflect the best of our experience and collective values.

What does that mean? Now, my apologies for getting into the weeds, but I think that Dr. Brummer's answer here is quite important. He says, it means, for example, that it means, for example, that it is a lot of the words. in the securities law context, our entire disclosure system is based off an assumption that issuers have non-public information that other expert actors don't have. And so therefore, you need to make sure that the information is available to them, and it kind of trickles down to your retail investor. So it's based on the evolution of our disclosure system, even in securities

law, is for information to be filed, but not really read. When you go and you operate on a blockchain, completely different context, in part because much of the material, not all, but much of the material information that you need is already available on chain, but it's only accessible to expert actors. It's the retail folks who would not have the ability to read and understand the source code. So that gets you into a question as to what should the disclosure system look like. You should probably have more consumer protection principles and to think about how to get the information to those people in that system. So the point here isn't necessarily the specifics, although I do think that the specifics are interesting. We're living in a world where we have

two senators who have now proposed a different way to look at the relationship between securities and commodities as relates to digital assets. You have this testimony in Congress with someone saying that the key thing is the disclosure system and what the disclosure system means in an on-chain world is very different than what it means in an off-chain world. But I think that the point here is that the discourse is finally evolving to a place where this is the level of granularity that the conversation is taking place at. When push comes to shove, we are no longer just in the world of big fuzzy talking points, whether pro or fud. The people who are actually involved in making decisions are dealing with things like disclosure systems in the context of a non-chain environment.

I think that's bullish. Moving on into other parts of the conversation, other representatives pushed the CFTC on common critiques around the idea of them being the primary regulator for digital assets. Michelle Fishback, a Republican from Minnesota, said, I've heard criticism about the CFTC that it's a permissive light-touch regulator. Do you agree with that? And if not, could you tell us some of your personal experiences as to why that criticism is unfounded? McDonnell, the representative of the CFTC, pointed to 50 enforcement cases brought over the past seven years and said it's a principles-based regulator. So zooming out again, of course, why is this coming up right now? Well, a big part of it is the legislation introduced by Senators Lummison-Jillibrand recently,

the Responsible Financial Innovation Act. I had both the senators on the podcast. I had both the senators on the pod a couple weeks ago, and one of the proposals of the bill is that primary authority for much of the digital asset space would go to the CFTC. This isn't arbitrary and it doesn't leave no role for the SEC. Effectively, what the bill proposes is a new type of ancillary asset, that's the name it uses, which while security-like at the beginning of its life is more commodity-like by maturity, the bill's scheme would have a specific set of disclosures in a process run by the SEC during that early part of the ancillary assets' life, and then when those assets believed themselves to be sufficiently decentralized, they could apply to no longer have to do those disclosures and primary responsibility

would move to the CFTC. This is, as you might imagine, one of the more contentious parts of the bill. Obviously, the SEC is not going to surrender easily what they see as their right authority. And as you heard in that question from Representative Fishback, some critics say that the CFTC, which has far fewer staff than the SEC, is the choice of the crypto industry only because it has fewer resources. By the way, that sort of specious argument is why I like the principles-based approach taken in the Responsible Financial Innovation Act. In any case, there does seem to be momentum, at least in the Ag Committee, for them to take a larger role. The Block's piece on the hearing today was called the Future of Digital Asset Regulation question mark. The CFTC says Congressional

Committee. Quote, the CFTC is winning over support to expand its role in crypto among the congressional committees that oversee the commission as evidenced in a hearing today. Support from elsewhere in Congress remains a critical question as the commission and industry alike push to make the CFTC the go-to regulator for crypto markets. Nexo lets you easily buy crypto with your bank card and earn industry-leading interest rates. Earn up to 16% on crypto and up to 12% on stable coins. Nexo makes passive income easy with interest paid automatically and daily. With Nexo, you can also borrow against your crypto at 0% APR and exchange over 300 pairs.

Receive a welcome bonus of up to $150 in Bitcoin until June 30th at nexo.io. That's nexo.io. This episode is brought to you by Meir, a climate neutral, high speed, and low transaction fee, layer one blockchain platform. MIR is a blockchain for a world reimagined. Through simple, secure, and scalable technology, Meir empowers millions to invent and explore new experiences. Business, creativity, and community are being reimagined for a more sustainable and inclusive future. Reimagined your world today at neer.org.

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Download the FTCX app today and use referral code breakdown to support the show. Now, there were even on this committee vocal exceptions such as Austin Scott from Georgia and Bobby Rush from Illinois. And it's also worth noting that it's not just the Responsible Financial Innovation Act that is being pushed and that might see the CFTC taking a bigger role. Glenn Thompson, Republican from Pennsylvania, who is a ranking member of the Full House Ag Committee, plugged his Digital Commodity Exchange Act, which would create a voluntary national regime

for registration with the CFTC. Anyway, given how closely aligned with the CFTC many of these folks are, it's not necessarily surprising that they have a broadly positive view of that group, having more authority with digital assets. The real question, of course, is going to be how far out into other parts of the House and Senate that support extends. All right, let's take a step back here. And when I zoom out and I think about catalyst for a future Bitcoin or crypto bull market, one of the possibilities to me is the U.S. adopting a crypto-forward

regulatory regime. I think the U.S. embracing the industry would clear the way for huge categories of participants to dig in deeper. In my estimation, it would be a massively de-risking event. I also happen to think that's a long process that is unlikely to beat out broader macro shifts in terms of speed of occurrence. The other type of catalyst I can see is one that's harder to predict, which is some company or project in some part of this industry, actually building something that excites not only the existing market participants, but entices new categories of people to get in. With that in mind, let's shift over to our other big story, which is Solana Labs building a Web3 mobile phone and a new crypto-native development stack. Solana announced two things yesterday.

The first was SMS, the Salana Mobile Stack, and the second was a flagship Android phone running on SMS. So what does that mean? Well, the Salana mobile stack is effectively an SDK or software development kit for the Web3 space. As Salana's official Twitter put it, right now, Web3 is not made for smartphones, and you need a desktop browser to take full advantage of it. Salana Mobile Stack is a crypto layer built on Android to make the mobile Web3 user experience seamless. One of Salana's founders, Anatoly, went further with this.

We live our lives on our mobile devices, except for Web3, because there hasn't been a mobile-centric approach to private key management. The Solana mobile stack shows a new path forward on Solana that is open-source, secure, optimized for Web3, and easy to use. He discussed this on Twitter as well, saying Web3 and privacy are inseparable. I can't imagine a Web3 app that asks for a login and password. From the ground up, Web3 is designed with optional user-generated identity in mind. Someone responded, I feel as though the very basic interpretation of Web3 is the fact that you log in via a wallet instead of a username and password. Anatoly responded to that, imagine mobile apps with no logins, no tracking. Not because the platform wants to sell your data on its own ad exchange, but because that's how all apps are designed.

Now, the reason that I'm spending a bunch of time on the SMS itself is that so much of the coverage of this so far has just been about the phone. And that's fine, but the play is clearly not just a crypto phone. It's an entire operating system reimagined from the ground up with an entirely different set of priorities. Anatoly yesterday also retweeted a Bellagie tweet from September 3, 2019, where he said password management, private key management, and crypto wallets will eventually converge. Another very crypto-native piece of this is that the App Store model in this ecosystem doesn't take a cut of sales. Said Anatoly, there will be no extractive fees. Still, of course, the phone is an important part of it. Immature 69 writes Salana's big news was SMS, the Salana mobile stack.

It's a layer on top of Android allowing devs to build apps on the new Salonafone's saga. Why did they announce a phone? Moreover, is this bullish? Let's dig in. Native apps that can leverage the blockchain to change how we interact on a daily basis with each other is bullish. An SDK is provided for devs to build. People keep asking, NFTs are cool, but what's next? This is it. The saga launches with security features and Salana pay. This phone will almost serve as proof of concept for the Salana mobile stack, and what devs can build leveraging it, why we need such security features, what else we can accomplish using blockchains in Web2 areas.

This gets at the notion that Saga, the name of the Salana phone, is actually more of a proof of concept for the Salana mobile stack as much as it is a specific piece of hardware. As per the announcement, the company also isn't going it alone. Companies like Magic Eden, a leading NFT marketplace, Phantom, which is Salana's biggest wallet provider, and others were on hand as part of the announcement. Twitter user Jordash also explained why they sort of had to do both of these things at the same time. They write How to Understand Salana Saga slash SMS. Some things can be done today in apps with protocols and SDKs, mobile wallet adapter with Chrome, Solana Pay and apps.

Other things can only be done with OS and firmware support. Seed Vault, Dap Store, Native Payment, U.S. Now, of course, not everyone is buying this whole. thing. Candidly, with Solana having experienced a fair share of network outages recently, the most retweeted comment on Twitter was some version of a joke about the phone bricking. Canejo Capital tweeted, did she block my calls, or is Solana down? To which Defi Connoisseur said, I'm bullish on Solana, but this is well played. Whatever the end result, the scale of ambition here is clear. Will Foxley wrote, so did Anatoly Yakovenko build an entire L1 just to fund his dream iPhone competitor, because that's what it looks like. Udi Wertheimer said,

most exciting thing about the Solana phone isn't that it becomes the most popular phone in the world, clearly it won't. It's that it can explore the challenges that Apple isn't interested in exploring at and have the playbook ready for when it inevitably will. Others who are skeptical point to older versions of crypto phones. Laura Shin tweeted, I did an interview with the creator of HTC's Bitcoin phone which was released in 2019. Wonder how well it's been selling. That unleashed a whole shit storm of its own, but I think that even if you're a hardcore Bitcoiner and the only set of use cases you're interested in require the decentralized properties that only Bitcoin has, there is still here the potential for significant UI and UX discoveries that come from the

Salana experiment that could benefit that mission. How to get people comfortably interacting with private keys, for example, on a mobile device, would be transformative whatever the blockchain underlying the system ends up being. For that reason, I think it's going to be an experiment worth watching for basically everyone. What's more, even if the use cases are more limited and specific, maybe there will be some genius innovation for Bitcoin that comes out of it. Zach Vol tweeted a weed pen that also routes lightning payments. Solana is building an entire phone, so we could definitely build this for Bitcoin.

Right on, sir, and for now, I want to say thanks again to my sponsors, nexus.io, NIR and FTX. And thanks to you guys for listening. Until tomorrow, be safe and take care of each other. Peace.